Analyzing, fore casting and interpreting Both Income Statement and Balance Sheet

Following are the income statement and balance sheet of Seagate Technology for fiscal 2019.

SEAGATE TECHNOLOGY PLC

Consolidated Statement of IncomeFor Year Ended June 28, 2019 ($ millions)Revenue$10,390Cost of revenue7,458Product development991Marketing and administrative453Amortization of intangibles23Restructuring and other, net(22)Total operating expenses8,903Income from operations1,487Interest income84Interest expense224Other, net income25Other expense, net115Income before income taxes1,372(Benefit) provision for income taxes(640)Net income$ 2,012

SEAGATE TECHNOLOGY PLC

Consolidated Balance SheetJune 28, 2019 ($ millions)Current assetsCash and cash equivalents$2,220Accounts receivable, net989Inventories970Other current assets184Total current assets4,363Property, equipment and leasehold improvements, net1,869Goodwill1,237Other intangible assets, net111Deferred income taxes1,114Other assets, net191Total assets$8,885Current liabilitiesAccounts payable$1,420Accrued employee compensation169Accrued warranty91Accrued expenses552Total current liabilities2,232Long-term accrued warranty104Long-term accrued income taxes .4Other noncurrent liabilities130Long-term debt, less current portion4,253Total liabilities6,723Shareholders' equityOrdinary shares par value $0.0001, 2.6 billion shares authorized, 1,340,697,595 and1,354,218,154 shares issued and outstanding, respectively0Additional paid-in capital6,545Accumulated other comprehensive loss(34)Accumulated deficit(4,349)Total shareholders' equity2,162Total liabilities and shareholders' equity$8,885

Forecast Seagate Technology's 2020 income statement using the following forecast assumptions, which are expressed as a percentage of revenue unless otherwise indicated.

Revenue growth5%Cost of revenue71.8%Product development9.5%Marketing and administrative4.4%Restructuring and other, net$0Income tax expense (% pretax income)21%

• Forecast no change in the following income statement accounts: Amortization of intangibles, Interest income, Interest expense, and Other, net income.
• Round all answers to the nearest whole number.
• Do not use negative signswith any of your answers in the income statement.

SEAGATE TECHNOLOGY PLC

Consolidated Statement of Income

($ millions) For Year EndedJune 2020

RevenueAnswer

Cost of revenueAnswer

Product developmentAnswer

Marketing and administrativeAnswer

Amortization of intangiblesAnswer

Restructuring and other, netAnswer

Total operating expensesAnswer

Income from operationsAnswer

Interest incomeAnswer

Interest expenseAnswer

Other, netAnswer

Other expense, netAnswer

Income before income taxesAnswer

Provision for income taxesAnswer

Net incomeAnswer

Forecast Seagate Technology's 2020 balance sheet using the following forecast assumptions, which are expressed as a percentage of revenue unless otherwise indicated.

Accounts receivable, net9.5%Inventories9.3%Other current assets1.8%Deferred income taxes10.7%Other assets, net1.8%Accounts payable13.7%Accrued employee compensation1.6%Accrued warranty0.9%Accrued expenses5.3%Long-term accrued warranty1.0%Other noncurrent liabilities1.3%

• Forecast no change in the following balance sheet accounts: Goodwill, Long-term accrued income taxes, Long-term debt, less current portion, Ordinary shares, and Accumulated other comprehensive loss.
• Assume that in 2020, CAPEX will be 5.8% of revenue, and depreciation expense will be 5.4% of Property, equipment and leasehold improvements, gross at the start of the year, which was $9,835 million.
• Assume that in 2020, the company awards $99 million of stock-based compensation which increases Additional paid-in capital by the same amount. Assume that the company routinely includes this form of compensation in operating expenses each year.
• The company has a dividend payout ratio of 35.4% of net income.
• Round all answers to the nearest whole number.
• Use a negative signfor your Accumulated other comprehensive loss and Accumulated deficit answers.
• SEAGATE TECHNOLOGY PLC
• Forecasted Balance Sheet
• ($ millions)
• June 2020
• Current assetsCash and cash equivalentsAnswer
• Accounts receivable, netAnswer
• InventoriesAnswer
• Other current assetsAnswer
• Total current assetsAnswer
• Property, equipment and leasehold improvements, netAnswer
• GoodwillAnswer
• Other intangible assets, netAnswer
• Deferred income taxesAnswer
• Other assets, netAnswer
• Total assetsAnswer
• Current liabilitiesAccounts payableAnswer
• Accrued employee compensationAnswer
• Accrued warrantyAnswer
• Accrued expensesAnswer
• Total current liabilitiesAnswer
• Long-term accrued warrantyAnswer
• Long-term accrued income taxes .Answer
• Other noncurrent liabilitiesAnswer
• Long-term debt, less current portionAnswer
• Total liabilitiesAnswer
• Shareholders' equityOrdinary shares par value $0.0001, 2.6 billion shares authorized, 1,340,697,595 and1,354,218,154 shares issued and outstanding, respectivelyAnswer
• Additional paid-in capitalAnswer
• Accumulated other comprehensive lossAnswer
• Accumulated deficitAnswer
• Total shareholders' equityAnswer
• Total liabilities and shareholders' equityAnswer
• b. What does the forecasted adjustment to balance the accounting equation from part a reveal to us about the forecasted cash balance and related financing needs of the company? Explain.
• Seagate will generate sufficient cash for the coming year. The cash balance decreases slightly, but not enough to require an adjustment.
• Seagate will generate sufficient cash for the coming year. The cash balance increases fairly significantly, we could adjust marketable securities, leaving total assets unchanged.
• Seagate will not generate sufficient cash for the coming year. The cash balance decreases fairly significantly, we could adjust marketable securities, leaving total assets unchanged.
• Seagate will generate sufficient cash for the coming year. The cash balance increases slightly, but not enough to require an adjustment.