Bitcoins will fail. Part 1: Whats a bitcoin.

It seems like the world is going crazy over bitcoins as an investment and currency to replace the dollar. I wanted to give my view on it.
Bitcoins suck and you cannot take them seriously.
Alright so I've probably offended some so let me explain. Bitcoins sound great on paper but when you start thinking beyond what they are and instead focus on how they work the whole bitcoin story falls apart.

What are Bitcoins
Bitcoins are encrypted software files that are generated by a software client solving mathematical equations. Anyone may download and install the client and have their computer start solving these equations. All the clients communicate and update each other. When one of them solves one of the equations it notifies all the other clients that it was the first. Everyone else gets locked out of that equation and they all move on to some other equation.

The client that is credited with solving the equation creates 1 bitcoin. It is encrypted and tied to that client. It can be given to any other client and then both clients will update everyone announcing that ownership of this file has changed clients. If anyone tried to copy it to create an extra bitcoin the entire network would deny it because it doesn't follow the publicly known trail of ownership.

While bitcoins and their trails are public knowledge, who is using the client is not known. In this they are anonymous. Its not John Smith using his debit card to transfer dollars from his account to a store's bank account. Its Client #2,845 sending bitcoin #5,943 to Client #19,404. The reason why it was transferred is not recorded or known. Only the act of transferring ownership is transmitted. Bitcoins are stored in "wallets" and transferred to other user's wallets.

Why are Bitcoins valuable
The fact that they cannot be created easily gives them rarity. A person cannot Ctrl+C and Ctrl+P and create bitcoins so there is a limit. There is also a maximum amount of coins that can ever be created. The more mathematical equations that are solved the longer it takes to make the next one. Plus there is a limit as to how many equations were setup for the network to work off of. Now while the maximum number of bitcoins is in the millions and they can be broken up into 8 decimal points of bits of bitcoins, there is still a limit.

What was the intent of Bitcoins
Bitcoins were created as a way of having decentralized currency out of the hands of governments and the financial establishment. Fears that governments can turn on a printing press to create fiat dollars are avoided because nobody can just create bitcoins just as nobody can create gold. Without knowing who is behind the clients then users can avoid taxes and be out of the reach of national governments. The U.S. can pass a law about bitcoins but they have no way of knowing which country a user is in. This allows a person to do what they want with their wealth.

How are Bitcoins used as a currency
You cannot use bitcoins to purchase things directly. You have to convert it back and forth into dollars (or another national currency). Yes I know some websites will allow you to transfer bitcoins from your wallet to theirs and they will give you a service or good but they then have to convert it to dollars to pay their distributor that sold them the cellphone they sold you. Until a company harvesting natural resources used in the manufacture of a product takes bitcoins then it is still tied to a currency.
However there are exchanges that people have setup so that bitcoins can be turned into dollars and vice versa to get around this problem. You create an account with this exchange and connect your wallet to it. Just like any forex account, you can buy and sell one currency for another.
So really how the whole buying things for bitcoins online works is that you converted your dollars into a bitcoin, you send your bitcoin to someone who has agreed to ship you a good or service, they convert their bitcoin to a dollar because they need to pay rent on their office and pay their utilities and taxes.

But aren't bitcoins created by a computer program? If you bought a bitcoin from someone yes you converted your dollar into a bitcoin but what about when it was first created by the client. There are no manufacturing costs there? Actually there is. Electricity. It takes a large amount of processing power, time, and thusly electricity for a computer to create a bitcoin, commonly referred to as "mining" a bitcoin. For awhile it cost more money in electricity for your utilities then what a bitcoin was worth. Let alone the mining computers that they have. If the first computer to solve the equation gets the bitcoin then the biggest and fastest computer has an advantage. They do. Graphic cards had the best processors for solving these and people were buying 4 or more at a time to put into one computer. There were lots of Youtube videos showing elaborate setups with multiple computers working side by side. Bitcoins are past the time that an average person is going to be able to realistically user the home PC to mine some bitcoins. The early adopters could and did but that time has past.

Up to this point it sounds great and I admit that I am fascinated by the technology behind bitcoins. I do think its an interesting idea. However when we start seeing bitcoins in practice it losses its appeal. I'll get into that in my next entry...

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Company Review: Whiting USA Trust II (WHZ)

WHZ is pretty straight forward. 33 more distributions until it terminates.
You buy it for $13, collect $17-$20 in distributions, then lose $13. net 30%-50% gain.
This adds in a level of safety even with the downward pressure. For me, I require a wide margin of safety in case the estimates of distributions are off.

Now of course I do not have to hold until termination. I can sell at anytime and get my money out of my position. Ideally that is the best way to treat trusts. Get some nice yield for a few years then sell and move on to the next one.

One last thought before my review of WHZ. Due to the downward pressure of the unit price it will always look like a big losers. -19% right now for me. However because its yielding 22% a year the returns goes into the cash category. I am actually only down about -3%. WHZ looks to have stabalized and presuming oil prices stay at $95 or higher, I expect to start turning a profit with next quarters distribution.

WHITING USA TRUST II (WHZ)

Last Updated: Q3-2013

Description: Whiting USA Trust II (the Trust) is a statutory trust. It will own a term net profits interest in oil and gas producing properties located in the Rocky Mountains, Permian Basin, Gulf Coast and Mid-Continent regions of the United States. These producing properties are owned by Whiting Oil and Gas Corporation, which is a subsidiary of Whiting Petroleum Corporation (Whiting). The term net profits interest (NPI) entitles the Trust to receive 90% of the net proceeds attributable to Whiting’s interest in the sale of oil and gas production from these properties.

How do they make money: WHZ owns the rights to 90% of the net proceeds from the sale of oil and natural gas extracted and sold by Whiting Petroleum Company (WLL)..

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Company Organization

WHZ is organized as a grantor trust and not subject to federal income taxes (from 10-Q report)

State taxes are withheld prior to distribution where wells operate, primarily Montana.

Location of Oil and Nat Gas fields

Rocky Mountains (Colorado, Wyoming, North Dakota, and Montana)

Permian Basin (Texas and New Mexico border region)

Gulf Coast (Texas, and Mississippi)

Mid-Continent (Michigan, Arkansas, Oklahoma, and Texas)

WLL estimates an 8% depletion rate. Q4 2013 will be critical as I will be able to estimate 1 full years of production (2013) as the trust started last year.

WHZ has a Collar option hedge on oil between $80 - $122.50

If oil is under $80 the put options bought will help cover losses

If oil is over $122.50 the call options sold will give up some profit. This paid for the put options.

The collar expires in Dec 2014 and cannot be renewed.

The average sale price of oil has been in the middle of this collar and it should not impact future estimates.

Termination

The trust terminates when the LATER of these two events occurs.

1: December 31, 2021.

2: Total Energy production of 11.79 MMBOE (10.611 MMBOE as WHZ only gets 90% of the field’s production).

Estimates are that the trust will hit 11.79 MMBOE before Dec 31, 2021. Therefore the trust will terminate December 2021. (Q3-2013)

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Remaining estimated distributions

Remaining payments: 33 quarterly distributions (Q3-2013)

Average sale price of oil: $95.62

Average sale price of natural gas: $3.48

Average distribution estimate: $25.74 ( $0.78 average quarterly distribution since trust creation x 33 payments)

8% depletion rate estimate: ~$17.00 ($2.91 paid in 2013 and decreasing by 8% annually until termination)

Estimates will change when energy prices are above or below the average sale prices.

Using lowest estimated payout: 30% gain from $13 if held to termination and unit price is $0

3.75% average annual return (30% over 8 years)

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Earning Report Notes

Q3-2013

Total production to date: 2.8 MMBOE (26% of the 11.79 MMBOE termination limit).

Estimates are that the trust will hit 11.79 MMBOE before Dec 31, 2021. Therefore the trust will terminate December 2021.

Estimated remaining payments: 32 distributions.

Average sale of oil: $105.82

Average sale of natural gas: $3.58

Company and Industry specific commonly used acronyms and terms

bbl: One barrel of oil. 42 U.S gallons.

BOE: Barrels of equivalent. Way to calculate cubic feet of gas and compare to barrel of oil.

MBOE: 1 thousand BOE

MMBOE: 1 million BOE (technically 1 thousand groups of 1 thousand BOE)

NPI: Net profits interest. Ownership or interest in the net profits of the fields

Resources

Company Website: None

Investor Relations: http://www.whiting.com/whiting-usa-trust-ii/

Morningstar: None

Transcripts: http://google.brand.edgar-online.com/?sym=WHZ

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

How to evaluate Royalty Land Trusts

I previously described what royalty land trusts are. They seem overly complex to the point of being scary what with the chance of losing all you position's money. Yet the pull of double digit yields are inticing enough to draw investors to consider it. In the end though, the hardest part with investing in land trusts is in understanding them. Evaluating them and determining potential profit and loss is far easier.

Let us set aside all the aspects of a land trust I previously discussed. They are important to keep in mind, but do not come into play very much for determining fair value. I focus on one thing and one thing only, the income stream that owning units of the trust will give. Corporations that will grow have upward pressure in their share price. They open new factories and new products. Trusts however have downward price pressure. Their value is the future payments and with every passing distribution payment, the remaining value drops. For this reason I wouldn't advise trusts for capital gains. MLPs are far better for that in the energy sector. It is certainly possible to get cap gains out of trusts and I have enjoyed great total returns in the past but there is a lot working against the investor here.

Before I get into the math and calculations I want to touch upon depletion rates. Oil and natural gas wells shoot their natural resource up out of the ground due to pressure. As oil and gas comes out there is less pressure in a well and thusly less of the natural resource will come up. A depletion rate is the estimated drop in volume of oil or gas extracted from the ground on a year to year basis. The vast majority of trusts are energy resource based so it will be important to keep in mind the depletion rate. That rate can be 5% for long lived fields or faster at 10% or more. Some trusts can last for 40+ years.

Ignoring depletion rates is the #1 most common problem I see with trust investors. They see a couple years of distributions paid out and run their numbers giving drastically inflated returns that end up causing them to overpay.
Lets take for example a trust estimated to last for 10 years at a 10% depletion rate. Two years have passed giving distibutions of $5 and $4.50. We will assume energy prices remain constant for this example.
I often see investors look at $5 and $4.50 and take the average. $4.75 a year for 10 years means this will pay $47.50 before it expires. They presume the difference in distributions between year 1 ($5) and year 2 ($4.50) was due to changing oil or gas prices or some one off event.
When we apply the estimated depletion rate we instead get a total of  $32.50 ($5, $4.50, $4.05, $3.65, $3.28, $2.95, $2.65, $2.38, $2.14, $1.9). The amount of barrels of oil and cubic feet of nat gas decreases 10% a year and thusly the total amount of revenue is decreased by 10% a year.
Changing energy prices can hide this especially when rates are rising and cover up lower production totals. When prices drop coupled with dropping production you can have a collapse in the distribution and a collapse of the unit price as people recalculate their fair value estimates.
As we can see here, the majority of payments comes in the begining of a well's lifetime and pay less then half in the end.

Let's get to how I roughly estimate the value of a trust. You will need to find out the termination clauses of the trust.

Termination by date: This example trust will terminate 10 years from its start date. If it has been around for 3 years when you stumble upon it. So we know that it has 7 years of payments coming. To break even you would need a 14% yield (100% gain to cover your position / 7). If its equal to that or better then I would open up the quarterly reports and S-1 and estimate depletion rates and do further due diligence. If its yielding anything less, like say 10%, then we know its a losing investment because at best you will gain 70% of your position back in distributions before it terminates and you lose your position. You can ignore everyone telling you what a great long term investment this is, you already know with 30 seconds of work that its not worth it.

Termination by total amount of resources sold: This example trust terminates after 100 million BoE (barrels of oil or barrels of oil equivalent) have been sold. First year's production is 10 million and there is a 5% depletion rate. This turns the years of production to be 10, 9.5, 9.02, 8.5, 8.14, 7.73.... and we see that after year 13 a total of 97 millin BoE has been extracted. Very close to termination.
100%/13 years = 7.69% yield this should pay for us to break even.
As before, if it pays at least this much or better then we can do further research and then make an informed decision. If not then we don't waste our time.
The key thing here is to see if a trust is even worth your time to research. If it is, then you can dive in and determine if its an investment you want or not.

Each trust is unique and there are many different aspects that dictate how they opperate. Do not skip reviewing the S-1 form.
If you are unable to find that form do not worry. Grab the annual report called a 10-K. It will give you the termination clauses and updates and estimates when the trust is over. They are very open and direct about it and there is no reason to be caught by surprise.

Hopefully this cleared up land trusts a bit more. Figure out how many payments are left based on the termination clauses and estimate payments. My next entry will be a review of a trust that I own, Whiting USA Trust II (WHZ) and I'll be showing everything in greater detail as an example.

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

What are Royalty Land Trusts?

As income investors search for yield, sooner or later they will start looking beyond corporations. They will run screens on what the biggest yielders are. Admit it, you probably have done this, I know that I have. We want as much income as we can get and there is no crime in that. Its only yield chasing if you make your decision solely on the yieldt. Sooner or later the income investor will find that 10% to 25% yielding equity and not fully understand what they just bought. Not understanding the intricacies of a land trust will be disasterous. Its not an if, it will be disasterous to your portfolio. However when fully understood they can give incredible yields and worth your time.

A royalty land trust is essentially owning specific natural resource rights to a specific section of land for a limited period of time. A trust is created when the owner of the land wants to sell these rights. They are not wanting to wait to sell the natural resources over time they want lots of money now. In exchange for this, the investor of the trust gets payments over time hopefully in excess of what they paid for their stake in the trust. At some point in time in the future these rights revert to the owner of the land. All of the rules and guidelines of the trust are listed in the S-1 form the owner of the land gives to the SEC when creating the trust so the intelligent investor is not taken by surprise.

Differences between corporations and land trusts
To properly describe what ownership in a land trust entails it will be easiest to first list the differences between a standard corporation and a land turst. These are not mere terms of symantecs where a person is being a grammar nazi at correcting you. These are very important differences.

Units not shares: When you invest into a land trust you buy units of the company, not shares of the company. Shares in a company gives voting rights and you can bring motions forward to change the company. Units do not have this right. You only get the payment coming from the trust as your right to owning a unit of a land trust.

Distribution not dividend: A land trust pays a distribution, not a dividend. A dividend is paid with profits and has certain tax rates and tax laws. A distribution has different ones including but not limited to a different tax rate and part of the payment is a return of capital. The trust is required to send out instructions in how to calculate your taxes and this often comes as a 15+ page PDF through email and/or on the trust's website.

A trust has no employees: The trust does not have people drilling oil wells. There are no salesmen selling the iron, natural gas, or oil to a refiner. There are no corporate branch offices or headquarters. There are only bankers employed by another company that calculate the quarterly numbers and send out distribution payments. The extraction of natural resources is done by another company and their employees. The trust is paid a percentage of whatever that other company gets for the sale of the natural resources. Even the price that the natural resources sells for is determined by the other company. The trust has no control over any of that.

A trust has no board of directors looking out for investor interests: There is no board of directors that vote upon and decide major company changes. Everything is spelled out in the S-1.

There is no hedging of commodity prices: Corporations will often use the commodity and forex markets to hedge their revenue to smooth out their profits and minimize their losses. Since a trust has no employees to be making decisions they cannot hedge. Now when a trust first comes into existance there might be hedges setup by the owner of the land prior to the creation of the trust. However this will only cover the first couple of years of a trust. When those contracts and options expire they are not renewed. This is listed in the S-1.

A trust has no assets: As they have no employees, a trust doesn't have the heavy industrial equipment needed for the havesting and collecting of natural resources. There is no real estate for the employees to be working out of. A trust does not even own the land the natural resources are on or under. They only own the right to be paid for the sale of the natural resouces.

A trust cannot grow: A trust cannot expand into new land or buy new rights. They have clear restrictions listed in the S-1.

A trust will terminate: This is the most critical difference to understand. The rights to the profits from the natural resources have a termination clause of when those rights or terminated. When the trust terminates the unit price goes to $0. There are no assets sold and no payouts. The unit holder loses their units in their account and ends with $0 for that position. You will lose your entire position upon the termination of the trust. Ownership in a land trust is a game of hot potato. You want to take your turn holding it for a little bit and get some distribution payments, then pass it on to someone else. Whoever is left holding the units at termination gets screwed. Make no mistake its not pretty or nice but all the participants are willing participants that are yield chasing.

What are common stipulations of a trust termination? 
Time duration: A trust will expire on a certain date. It does not matter how wealth is extracted from the ground. It does not matter if a new discovery finds x2 the estimated reserves. Everything ends on a date.
Total resources extract: Sometimes a trust will expire after a certain amount of natural resources has been collected. It does not matter how slow or fast this occurs. It might mean that this trust lasts 4 years or 40 years. New technologies that come up allowing for more extraction out of the land (fracking for natural gas) gives no benefit to these trusts. When the limit is hit the trust expires.
Amount of profit over a window of time: Some trusts will keep going until a certain $ amount of profit is hit within a 1 or 2 year time. This is perhaps the best type of trust because as new technology comes up to extract more resources or a new discovery is made, the trust benefits and its life is extended giving more future distribution payments.
A vote of the majority or % number of the unitholders: A trust can terminate if the owners of the trust vote on it. Why in the world would they want to do this? The owner of the land just may own a lot of shares and they can regain control of this income stream by terminating the trust. I have never heard of this happening but it is a possibility.
A combination of the above: Most trusts will have multiple reasons for termination. Some will have whatever clause happens first. Some will have which one happens last.
Lastly, I am sure there are other stipulations for a trust's termination and they will differ from trust to trust. They will clearly be listed in the S-1 form so there is no reason to be concerned as long as you are willing to do some research.

A trust must pay out 100% of its profit as a distribution: With all the above negatives, this is the one overiding reason to be investing in a land trust.
As the trust has no employees, there is no money spent on payroll.
As there are no assets like heavy equipment or buildings, there are no maintenance or replacement costs.
As the trust cannot grow, there is no money set aside to buy more land.
A small amount is kept to pay the bankers cutting the distribution checks but apart from that, all the money is paid out to the unitholder.

With all that said, what exactly is a land trust?
A land trust is a very specific contract giving the right to the profit from the sale of natural resources on a certain section of real estate. It might be oil, natural gas, iron ore, lumber, or other nautral resouce but usually only one or two, not all of them. There are little to no costs involved and you get virtually 100% of those profits sent to you as a monthly or quarterly distribution. Everything is spelled out in the S-1 form so investors know exactly the terms. Because you only own the right to the profit, that profit stream will run out at some point and you are left holding the bag with nothing.

At this point it probably seems crazy to even want to invest in a land trust. My next entry will be how to evaluate the fair value of this income stream.

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Company Review: Seagate Technology (STX)

Earning season is marching on and I am knee deep in research and reports. However I fine some more enjoyable then others to review and Seagate is one of my favorites because I love reading about companies throwing money at shareholders. Their goal is 70% of operating cash flow returned to shareholders through dividens or share buybacks. This quarter alone they bought back 10% of their existing common shares. They are on track with their goal of reducing the company by 40% in 3 years.

SEAGATE (STX)

Last Updated: Q3-2013

(Fiscal Q1-2014)

Description: Seagate Technology plc (Seagate) is the provider of electronic data storage products. The Company’s principal products are hard disk drives, commonly referred to as disk drives, hard drives or HDDs. The Company produces a range of disk drive products addressing enterprise applications, where its products are designed for enterprise servers, mainframes and workstations; client computer applications, desktop and notebook computers, and client non-compute applications, for a range of end user devices, such as digital video recorders (DVRs), personal data backup systems, portable external storage systems and digital media systems.

How do they make money: STX manufactures and sells a range of data storage devices.

Key Brands: Seagate, Samsung hard drives (Samsung sold their HDD division to Seagate. Other Samsung products are still made by Samsung).

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Company Organization

No specific organization described by the company. They don't give specific department numbers and are tight lipped even when asked in Q&A section of con calls.

Plans and Strategy

Focus on shifting to SSD drives and cloud storage.

60% of storage will be in the cloud by year 2020 (Q3-2013)

Shareholder value: 70% of operating cash flow to shareholders in share repurchase or dividends.

Not free cash flow, operating.

Started aggressive share repurchase program when stock was at $19.

Will look for most effective return. (hint @ repurchases slowing down at some point)

Back in Q2 2012 they announced their plans for share repurchases and their share count by end of each year.

2012: 425 million

2013: 350 million (they are currently at 320 million)

2014: 250 million

40% of the company bought back.

Risks

HDD technology is becoming outdated and inefficient: HDD technology is becoming outdated and replaced by faster and smaller memory types, primarily flash technology. This will hurt STX which is predominantly HDD.

Mitigation: STX isn’t run by idiots. They see the trend from HDD PCs to flash memory storage cellphones and tablets. STX is working on different types and buying flash memory companies.

Consumer shift from PC to mobile devices means shift to cloud storage: PC sales and thusly the HDD sales will drop as more users go to mobile devices away from PCs.

Mitigation: Non-issue. Data has to be stored somewhere. The cloud does not magically remove storage needs. When a person takes a photo and then shares it with their friends its stored on their camera (1) backed by Apple and Google with cloud storage (2) stored on Instagram (3) posted to your wall on Facebook (4) then everyone who sees it has it locally stored in the cache of the device that views it (5-100+). Thats for 1 photo. Flash memory is still expensive and cloud server farms will need massive amounts of storage. Sales will be to server cloud companies instead of individuals but the need is still there.

Section 382 limitations: Companies can only buy back shares so quickly before fines, penalties, and other problems come up. While this may seem like a benefit vs risk, I want to know if the company cares and what their plan is.

Mitigation: The 10% ownership Samsung shares bought back are not subject to 382 limitations.

Also, IRS has recently relaxed and amended this rule so its no longer an issue.

This issue is brought up each and every con call as a question. STX is aware and on top of it.

Company going private: There are fears that STX is buying back shares so much because they will go private and cash out existing shareholders.
Mitgation: Upper management and directors are selling shares. CEO and Chairman Steve Luczo sold $16 million worth in November 2013. If there were plans to take the company private he would not be selling but holding to get a cash out deal later.
Even if it was true that they took the company private, the increase in share price along the way gives great reaturn. STX is +167% since 2012 when they started this program vs +42% for the S&P.

Competitors

Western Digital Corp (WDC)

Toshiba Corp (6502. Listed on the Tokyo Stock Exchange)

Hitachi (6501. Listed on the Tokyo Stock Exchange)

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Company Fundamentals

Fastgraph Review
Even with a +60% share price rise for 2013, STX is still grossly undervalued.

Company Stats	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013e	5y Avg	10y Avg
Share Price	$17.27	$19.99	$26.50	$25.50	$4.43	$18.19	$15.03	$16.40	$30.42	$50.00	$26.01	$22.37
EPS	1.06	1.41	1.6	1.56	2.36	0	3.14	1.09	6.49	4.81	3.106	2.352
EPS Growth	-	33.02%	13.48%	-2.50%	51.28%	-	-	-65.29%	495.41%	-25.89%	134.75%	71.36%
P/E	16.29	14.18	16.56	16.35	1.88	-	4.79	15.05	4.69	10.40	8.73	11.13
P/B	3.9	3.1	3.5	2.7	1.2	3.9	2.5	2.2	3.7	4.2	3.3	3.09

2012 EPS was inflated due to Thailand flooding that impacted Western Digital but not Seagate. I do not see the drop in EPS the following year as a negative sign on management. Even with how erratic it is, the company is growing nicely.

2009 had 0 EPS primarily due to re-organization costs. STX shifted from business unit structure to a functional organization structure. 33% of executive level positions were cut as well as other layoffs and pay reduction. Most companies were doing this in the wake of the Finance and Housing crisis of 2008.

We can see now in 2013 that they were successful.

Dividend Stats	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013e	5y Avg	10y Avg
Dividend	$0.20	$0.26	$0.32	$0.38	$0.42	$0.27	$0.00	$0.18	$0.86	$1.40	$0.54	$0.43
Dividend Yield	1.16%	1.30%	1.21%	1.49%	9.48%	1.48%	0.00%	1.10%	2.83%	2.80%	1.64%	2.28%
Share buyback %	-	-0.80%	-4.20%	-10.73%	9.11%	10.25%	-5.06%	10.06%	5.90%	15.45%	7.32%	3.33%
Div Growth	-	-	23.08%	18.75%	10.53%	-35.71%	-100.00%	-	377.78%	62.79%	76.21%	51.03%
EPS Payout Ratio	18.87%	18.44%	20.00%	24.36%	17.80%	-	0.00%	16.51%	13.25%	29.11%	14.72%	17.59%

The dividend was cut twice in the past 10 years. Normally I see that as a sign that management isn't commited to shareholders. However their EPS went to 0 in 2009 and they couldn't cover it. They then returned to a dividend they could afford.

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Earning Report Notes

Q3-2013

EPS: $1.29

$100 million in SSD sales.

$2.5 billion in cash on hand.

Goal of 70% of operating cash flow to shareholders

Bought 32.7 million shares (10%) from Samsung @ $46.87

Raised dividend 13% to $0.43/quarter

Product Margin: 28.5% (27% - 32% target)

Operating Expenses: within the 10% - 14% of revenue.

Foresee 60% of data stored in the cloud by 2020.

Estimate Q4-2013 will be about the same to slightly less revenue.

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Company and Industry specific commonly used acronyms and terms

ASP: Average Sellig Price

HDD: Hard Disk Drive. Standard magnetic platter storage device common in PCs and laptops.

Hybrids: Drives that have both HDD and SSD components.

SMR: Shingled Magnetic Recording technology. Improved HDD technology

SSD: Solid state drive. Flash memory. The common storage for mobile phones.

TAM: Total Addressable Market. The estimated amount of storage space needs over a given time.

Resources

Company Website: http://www.seagate.com/

Investor Relations: http://www.seagate.com/au/en/about/investors/

Morningstar: http://quotes.morningstar.com/stock/s?t=stx

Transcripts: http://seekingalpha.com/symbol/stx

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.