Analyzing, Forecasting, 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 Income For Year Ended June 28, 2019 ($ millions) Revenue $10,390 Cost of revenue 7,458 Product development 991 Marketing and administrative 453 Amortization of intangibles 23 Restructuring and other, net (22) Total operating expenses 8,903 Income from operations 1,487 Interest income 84 Interest expense Other, net income 25 Other expense, net 115 Income before income taxes 1,372 (Benefit) provision for income taxes (640) Net income $ 2,012 224 SEAGATE TECHNOLOGY PLC Consolidated Balance Sheet June 28, 2019 ($ millions) Current assets Cash and cash equivalents Accounts receivable, net Inventories $2,220 989 970 Other current assets 184 4,363 1,869 1,237 111 1,114 191 $8,885 $1,420 169 91 552 2,232 Total current assets Property, equipment and leasehold improvements, net Goodwill Other intangible assets, net Deferred income taxes Other assets, net Total assets Current liabilities Accounts payable Accrued employee compensation Accrued warranty Accrued expenses Total current liabilities Long-term accrued warranty Long-term accrued income taxes. Other noncurrent liabilities Long-term debt, less current portion Total liabilities Shareholders' equity Ordinary shares- par value $0.0001, 2.6 billion shares authorized, 1,340,697,595 and 1,354,218,154 shares issued and outstanding, respectively Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total shareholders' equity Total liabilities and shareholders' equity 104 4 130 4,253 6,723 0 6,545 (34) (4,349) 2,162 $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 growth 5% Cost of revenue 71.8% Product development 9.5% Marketing and administrative 4.496 Restructuring and other, net $0 Income tax expense (% prelax 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 signs with any of your answers in the income statement. SEAGATE TECHNOLOGY PLC Consolidated Statement of Income June 2020 (5 millions) For Year Ended Revenue Cost of revenue Product development Marketing and administrative Amortization of intangibles Restructuring and other, net Total operating expenses Income from operations Interest income Interest expense Other, net Other expense, net Income before income taxes Provision for income taxes Net income Forecast Seagate Technology's 2020 balance sheet using the following forecast assumptions, which are expressed as a percentage of revenue unless otherwise indicated. 9.5% Accounts receivable, net Inventories 9.3% Other current assets 1.8% Deferred income taxes 10.7% 1.8% 13.7% 1.6% Other assets, net Accounts payable Accrued employee compensation Accrued warranty Accrued expenses Long-term accrued warranty Other noncurrent liabilities 0.9% 5.3% 1.0% 1.3% 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 sign for your Accumulated other comprehensive loss and Accumulated deficit answers. SEAGATE TECHNOLOGY PLC Forecasted Balance Sheet June 2020 $ ($ millions) Current assets Cash and cash equivalents Accounts receivable, net Inventories Other current assets Total current assets Property, equipment and leasehold improvements, net Goodwill Other intangible assets, net Deferred income taxes Other assets, net Total assets $ $ Current liabilities Accounts payable Accrued employee compensation Accrued warranty Accrued expenses Total current liabilities Long-term accrued warranty Long-term accrued income taxes. Other noncurrent liabilities Long-term debt, less current portion Total liabilities Shareholders' equity Ordinary shares- par value $0.0001, 2.6 billion shares authorized, 1,340,697,595 and 1,354,218,154 shares issued and outstanding, respectively Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total shareholders' equity Total liabilities and shareholders' equity $ 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. OSeagate will generate sufficient cash for the coming year. The cash balance decreases slightly, but not enough to require an adjustment. OSeagate will generate sufficient cash for the coming year. The cash balance increases fairly significantly, we could adjust marketable securities, leaving total assets unchanged. OSeagate will not generate sufficient cash for the coming year. The cash balance decreases fairly significantly, we could adjust marketable securities, leaving total assets unchanged. OSeagate will generate sufficient cash for the coming year. The cash balance increases slightly, but not enough to require an adjustment. Forecast Seagate Technology's 2020 income statement using the following forecast assumptions, which are expressed as a percentage of revenue unless otherwise indicated. Revenue growth 5% Cost of revenue 71.8% Product development 9.5% Marketing and administrative 4.496 Restructuring and other, net $0 Income tax expense (% prelax 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 signs with any of your answers in the income statement. SEAGATE TECHNOLOGY PLC Consolidated Statement of Income June 2020 (5 millions) For Year Ended Revenue Cost of revenue Product development Marketing and administrative Amortization of intangibles Restructuring and other, net Total operating expenses Income from operations Interest income Interest expense Other, net Other expense, net Income before income taxes Provision for income taxes Net income SEAGATE TECHNOLOGY PLC Forecasted Balance Sheet June 2020 $ ($ millions) Current assets Cash and cash equivalents Accounts receivable, net Inventories Other current assets Total current assets Property, equipment and leasehold improvements, net Goodwill Other intangible assets, net Deferred income taxes Other assets, net Total assets $ $ Current liabilities Accounts payable Accrued employee compensation Accrued warranty Accrued expenses Total current liabilities Long-term accrued warranty Long-term accrued income taxes. Other noncurrent liabilities Long-term debt, less current portion Total liabilities Shareholders' equity Ordinary shares- par value $0.0001, 2.6 billion shares authorized, 1,340,697,595 and 1,354,218,154 shares issued and outstanding, respectively Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total shareholders' equity Total liabilities and shareholders' equity $ Analyzing, Forecasting, 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 Income For Year Ended June 28, 2019 ($ millions) Revenue $10,390 Cost of revenue 7,458 Product development 991 Marketing and administrative 453 Amortization of intangibles 23 Restructuring and other, net (22) Total operating expenses 8,903 Income from operations 1,487 Interest income 84 Interest expense Other, net income 25 Other expense, net 115 Income before income taxes 1,372 (Benefit) provision for income taxes (640) Net income $ 2,012 224 SEAGATE TECHNOLOGY PLC Consolidated Balance Sheet June 28, 2019 ($ millions) Current assets Cash and cash equivalents Accounts receivable, net Inventories $2,220 989 970 Other current assets 184 4,363 1,869 1,237 111 1,114 191 $8,885 $1,420 169 91 552 2,232 Total current assets Property, equipment and leasehold improvements, net Goodwill Other intangible assets, net Deferred income taxes Other assets, net Total assets Current liabilities Accounts payable Accrued employee compensation Accrued warranty Accrued expenses Total current liabilities Long-term accrued warranty Long-term accrued income taxes. Other noncurrent liabilities Long-term debt, less current portion Total liabilities Shareholders' equity Ordinary shares- par value $0.0001, 2.6 billion shares authorized, 1,340,697,595 and 1,354,218,154 shares issued and outstanding, respectively Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total shareholders' equity Total liabilities and shareholders' equity 104 4 130 4,253 6,723 0 6,545 (34) (4,349) 2,162 $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 growth 5% Cost of revenue 71.8% Product development 9.5% Marketing and administrative 4.496 Restructuring and other, net $0 Income tax expense (% prelax 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 signs with any of your answers in the income statement. SEAGATE TECHNOLOGY PLC Consolidated Statement of Income June 2020 (5 millions) For Year Ended Revenue Cost of revenue Product development Marketing and administrative Amortization of intangibles Restructuring and other, net Total operating expenses Income from operations Interest income Interest expense Other, net Other expense, net Income before income taxes Provision for income taxes Net income Forecast Seagate Technology's 2020 balance sheet using the following forecast assumptions, which are expressed as a percentage of revenue unless otherwise indicated. 9.5% Accounts receivable, net Inventories 9.3% Other current assets 1.8% Deferred income taxes 10.7% 1.8% 13.7% 1.6% Other assets, net Accounts payable Accrued employee compensation Accrued warranty Accrued expenses Long-term accrued warranty Other noncurrent liabilities 0.9% 5.3% 1.0% 1.3% 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 sign for your Accumulated other comprehensive loss and Accumulated deficit answers. SEAGATE TECHNOLOGY PLC Forecasted Balance Sheet June 2020 $ ($ millions) Current assets Cash and cash equivalents Accounts receivable, net Inventories Other current assets Total current assets Property, equipment and leasehold improvements, net Goodwill Other intangible assets, net Deferred income taxes Other assets, net Total assets $ $ Current liabilities Accounts payable Accrued employee compensation Accrued warranty Accrued expenses Total current liabilities Long-term accrued warranty Long-term accrued income taxes. Other noncurrent liabilities Long-term debt, less current portion Total liabilities Shareholders' equity Ordinary shares- par value $0.0001, 2.6 billion shares authorized, 1,340,697,595 and 1,354,218,154 shares issued and outstanding, respectively Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total shareholders' equity Total liabilities and shareholders' equity $ 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. OSeagate will generate sufficient cash for the coming year. The cash balance decreases slightly, but not enough to require an adjustment. OSeagate will generate sufficient cash for the coming year. The cash balance increases fairly significantly, we could adjust marketable securities, leaving total assets unchanged. OSeagate will not generate sufficient cash for the coming year. The cash balance decreases fairly significantly, we could adjust marketable securities, leaving total assets unchanged. OSeagate will generate sufficient cash for the coming year. The cash balance increases slightly, but not enough to require an adjustment. Forecast Seagate Technology's 2020 income statement using the following forecast assumptions, which are expressed as a percentage of revenue unless otherwise indicated. Revenue growth 5% Cost of revenue 71.8% Product development 9.5% Marketing and administrative 4.496 Restructuring and other, net $0 Income tax expense (% prelax 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 signs with any of your answers in the income statement. SEAGATE TECHNOLOGY PLC Consolidated Statement of Income June 2020 (5 millions) For Year Ended Revenue Cost of revenue Product development Marketing and administrative Amortization of intangibles Restructuring and other, net Total operating expenses Income from operations Interest income Interest expense Other, net Other expense, net Income before income taxes Provision for income taxes Net income SEAGATE TECHNOLOGY PLC Forecasted Balance Sheet June 2020 $ ($ millions) Current assets Cash and cash equivalents Accounts receivable, net Inventories Other current assets Total current assets Property, equipment and leasehold improvements, net Goodwill Other intangible assets, net Deferred income taxes Other assets, net Total assets $ $ Current liabilities Accounts payable Accrued employee compensation Accrued warranty Accrued expenses Total current liabilities Long-term accrued warranty Long-term accrued income taxes. Other noncurrent liabilities Long-term debt, less current portion Total liabilities Shareholders' equity Ordinary shares- par value $0.0001, 2.6 billion shares authorized, 1,340,697,595 and 1,354,218,154 shares issued and outstanding, respectively Additional paid-in capital Accumulated other comprehensive loss Accumulated deficit Total shareholders' equity Total liabilities and shareholders' equity $