-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ClDCANgR9cVeIZcBjE7xp0opir8nQMd17gC9aMBAjccrG+4wkCoYL9B4p5bYIzFt Lnght5CMHL03iIFmowh4Og== 0000891618-95-000017.txt : 19950203 0000891618-95-000017.hdr.sgml : 19950203 ACCESSION NUMBER: 0000891618-95-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19941230 FILED AS OF DATE: 19950202 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGATE TECHNOLOGY INC CENTRAL INDEX KEY: 0000354952 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 942612933 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11403 FILM NUMBER: 95504884 BUSINESS ADDRESS: STREET 1: 920 DISC DR CITY: SCOTTS VALLEY STATE: CA ZIP: 95066 BUSINESS PHONE: 4084386550 10-Q 1 SEAGATE FORM 10Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) of THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended December 30, 1994 Commission File Number 0-10630 SEAGATE TECHNOLOGY, INC. (Registrant) Incorporated in the State of Delaware I.R.S. Employer Identification Number 94-2612933 920 Disc Drive, Scotts Valley, California 95066 Telephone: (408) 438-6550 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ On December 30, 1994, 71,348,273 shares of the registrant's common stock were issued and outstanding. 1 2 INDEX SEAGATE TECHNOLOGY, INC. PART I. FINANCIAL INFORMATION PAGE NO. - -------------------------------------------------------------------------------------------- Item 1. Financial Statements (Unaudited) Consolidated condensed statements of income-- Three and six months ended December 30, 1994 and December 31, 1993 3 Consolidated condensed balance sheets-- December 30, 1994 and July 1, 1994 4 Consolidated condensed statements of cash flows-- Six months ended December 30, 1994 and December 31, 1993 5 Notes to consolidated condensed financial statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II OTHER INFORMATION - ------------------------------ Item 1. Legal Proceedings 15 Item 2. Changes in the Rights of the Company's Security Holders 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 20 SIGNATURES 21
2 3 SEAGATE TECHNOLOGY, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (In Thousands Except Per Share Data) (Unaudited)
Three Months Ended Six Months Ended ------------------------- ------------------------ Dec. 30 Dec. 31 Dec. 30 Dec. 31 1994 1993 1994 1993 ------- ------- ------- ------- Net sales $1,129,563 $815,890 $2,062,709 $1,589,768 Cost of sales 903,032 661,159 1,638,033 1,295,179 Product development 53,037 41,855 100,289 82,826 Marketing and administrative 62,084 49,507 118,247 96,739 Amortization of goodwill and other intangibles 4,868 3,193 9,118 6,363 In-process research and development -- -- 43,000 -- ---------- -------- ---------- ---------- Total Operating Expenses 1,023,021 755,714 1,908,687 1,481,107 Income from Operations 106,542 60,176 154,022 108,661 Interest income 14,989 7,320 29,687 13,518 Interest expense (8,085) (5,313) (16,292) (10,178) Other (205) (1,123) 1,117 585 ---------- -------- ---------- ---------- Other Income 6,699 884 14,512 3,925 ---------- -------- ---------- ---------- Income before income taxes 113,241 61,060 168,534 112,586 Provision for income taxes 33,972 18,318 66,728 33,776 ---------- -------- ---------- ---------- Net Income $ 79,269 $ 42,742 $ 101,806 $ 78,810 ========== ======== ========== ========== NET INCOME PER SHARE: Primary $ 1.07 $ 0.59 $ 1.37 $ 1.09 Fully diluted 0.93 0.57 1.23 1.06 NUMBER OF SHARES USED IN PER SHARE COMPUTATIONS: Primary 74,118 72,828 74,511 72,057 Fully diluted 90,712 81,233 91,108 79,786
See notes to consolidated condensed financial statements. 3 4 SEAGATE TECHNOLOGY, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (In Thousands) (Unaudited)
Dec. 30, July 1, 1994 1994(1) -------- -------- ASSETS Cash and cash equivalents $ 623,166 $ 804,717 Short-term investments 598,298 528,825 Accounts receivable 480,273 392,231 Inventories 398,733 342,537 Deferred income taxes 103,738 95,784 Other current assets 96,343 82,351 ---------- ---------- Total Current Assets 2,300,551 2,246,445 Property, equipment and leasehold improvements, net 484,203 415,038 Goodwill and other intangibles, net 154,565 126,395 Other assets 104,035 89,652 ---------- ---------- Total Assets $3,043,354 $2,877,530 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 468,974 $ 363,709 Accrued employee compensation 95,294 83,843 Accrued expenses 203,645 190,377 Accrued income taxes 20,534 64,687 Current portion of long-term debt 290 168 ---------- ---------- Total Current Liabilities 788,737 702,784 Deferred income taxes 230,425 218,801 Other liabilities 98,469 78,054 Long-term debt, less current portion 549,487 549,492 ---------- ---------- Total Liabilities 1,667,118 1,549,131 ---------- ---------- Common stock 728 728 Additional paid-in capital 361,077 373,296 Foreign currency translation adjustment (1,042) (1,044) Retained earnings 1,057,225 955,419 Treasury common stock at cost (37,245) -- Unrealized loss on marketable securities (4,507) -- ---------- ---------- Total Shareholders' Equity 1,376,236 1,328,399 ---------- ---------- Total Liabilities and Shareholders' Equity $3,043,354 $2,877,530 ========== ==========
See notes to consolidated condensed financial statements. (1) The information in this column was derived from the Company's audited. consolidated balance sheet as of July 1, 1994. 4 5 SEAGATE TECHNOLOGY, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
Six Months Ended -------------------------- Dec. 30, Dec. 31, 1994 1993 -------- -------- OPERATING ACTIVITIES: Net income $ 101,806 $ 78,810 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 94,520 92,750 Deferred income taxes 1,958 12,500 In-process research and development 43,000 -- Other 314 (475) Changes in operating assets and liabilities: Accounts receivable (84,936) 12,677 Inventories (76,035) 110,108 Other current assets 3,376 (26) Accounts payable 102,070 1,724 Accrued employee compensation 11,196 9,375 Accrued expenses (15,569) 3,050 Accrued income taxes (36,714) (14,049) Other liabilities 49,147 (9) --------- --------- Net cash provided by operating activities 194,133 306,435 INVESTING ACTIVITIES: Acquisition of property, equipment and leasehold improvements, net (132,742) (88,383) Purchases of short-term investments (743,892) (251,698) Sales of short-term investments 669,365 183,120 Acquisition of Palindrome Corporation, net of cash acquired (69,570) -- Acquisition of Tape Head Technology (21,827) -- Investment in Dragon Systems, Inc. (18,550) -- Increase in other non-current assets, net (1,401) (11,361) Other, net 277 16 --------- --------- Net cash used in investing activities (318,340) (168,306) FINANCING ACTIVITIES: Issuance of long-term debt -- 270,750 Repayment of long-term debt (164) (1,409) Sale of common stock 17,967 24,039 Purchase of treasury stock (74,870) -- --------- --------- Net cash provided by (used in) financing activities (57,067) 293,380 Effect of exchange rate changes on cash and cash equivalents (277) 1,502 --------- --------- Increase (decrease) in cash and cash equivalents (181,551) 433,011 Cash and cash equivalents at the beginning of the period 804,717 426,094 --------- --------- Cash and cash equivalents at the end of the period $ 623,166 $ 859,105 ========= =========
See notes to consolidated condensed financial statements. 5 6 SEAGATE TECHNOLOGY, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The consolidated condensed financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes the disclosures included in the unaudited consolidated condensed financial statements, when read in conjunction with the consolidated financial statements of the Company as of July 1, 1994 are adequate to make the information presented not misleading. The consolidated condensed financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to summarize fairly the consolidated financial position, results of operations and cash flows for such periods. The results of operations for the six months ended December 30, 1994 are not necessarily indicative of the results that may be expected for the entire year ending June 30, 1995. The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 1994 ended on July 1, 1994 and fiscal 1995 will end on June 30, 1995. 2. NET INCOME PER SHARE Primary net income per share is based on the weighted average number of shares of common stock and common stock equivalents outstanding during the period. Fully diluted net income per share further assumes the conversion of the Company's 5% and 6-3/4% convertible subordinated debentures. 3. BALANCE SHEET INFORMATION (In thousands)
Dec. 30, July 1, 1994 1994 -------- ------- Accounts Receivable: Accounts receivable $528,229 $435,061 Allowance for non-collection (47,956) (42,830) -------- -------- $480,273 $392,231 ======== ========
6 7
Dec. 30, July 1, 1994 1994 -------- ------- Inventories: Components $ 185,372 $ 188,477 Work-in-process 59,192 56,735 Finished goods 154,169 97,325 ---------- ---------- $ 398,733 $ 342,537 ========== ========== Property, Equipment and Leasehold Improvements: Property, equipment and leasehold improvements $1,107,339 $ 970,853 Allowance for depreciation and amortization (623,136) (555,815) ---------- ---------- $ 484,203 $ 415,038 ========== ==========
4. INCOME TAXES The effective tax rate used to compute the income tax provision for the six months ended December 30, 1994 and December 31, 1993 is based on the Company's estimate of its domestic and foreign operating income for each respective year. The effective tax rate for the six months ended December 30, 1994 was 40% compared with 30% for the comparable period last year. The increase in the effective tax rate was due to the $43,000,000 write-off, in the quarter ended September 30, 1994, of in-process research and development incurred in connection with the acquisition of Palindrome Corporation that is not deductible for domestic tax purposes. Excluding the one time write-off of in-process research and development, the Company's overall effective tax rate was 30% for the six months ended December 30, 1994. The overall effective rate is less than the statutory rate because a portion of the operating income is not subject to foreign income taxes and is considered to be permanently invested in non-U.S. operations. Accordingly, taxes have not been provided on such income. The Company's effective tax rate for the quarter ended December 30, 1994 was 30%. The Company's effective tax rate for the quarter ending March 31, 1995 may be higher than 30% due to the anticipated write-off of in-process research and development to be incurred in connection with future acquisitions including the acquisition of Network Computing, Inc. (see footnote number 10, "Subsequent Event", below). The overall effective tax rate for the year should be higher than 30% due to the higher rate in the first quarter and the anticipated or potentially higher rates in the third and fourth quarters. 7 8 5. SHAREHOLDERS' EQUITY Shares authorized and outstanding are as follows:
Shares Outstanding --------------------------- Dec. 30, July 1, 1994 1994 -------- ------- Preferred stock, par value $.01 per share, 1,000,000 shares authorized -- -- Common stock, par value $.01 per share, 200,000,000 shares authorized (shares outstanding exclude treasury shares of 1,498,232 at December 30, 1994) 71,348,273 72,832,351
6. SUPPLEMENTAL CASH FLOW INFORMATION (In thousands)
Six Months Ended -------------------------- Dec. 30, Dec. 31, 1994 1993 -------- -------- Cash Transactions: Cash paid for interest $ 16,439 $ 9,795 Cash paid for income taxes 100,602 32,848 Non-Cash Transactions: Receipt of note receivable for sale of building -- 5,000 Unrealized loss on marketable securities 4,507 --
7. CERTAIN INVESTMENTS Effective July 2, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities". In accordance with the Statement, prior period financial statements have not been restated to reflect the change in accounting principle. The cumulative effect as of July 2, 1994 of the adoption of SFAS No. 115 did not have a material effect on the Company's financial condition or results of operations. The Company has classified its entire investment portfolio as available-for-sale. Available-for-sale securities are stated at fair value with unrealized gains and losses reported as a separate component of shareholders' equity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses are included in other income (expense). The cost of securities sold is based on the specific identification method. 8 9 The following is a summary of available-for-sale securities at December 30, 1994 (in thousands):
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED COST GAIN LOSS FAIR VALUE --------- ---------- ---------- ---------- Corporate Bonds $ 305,002 $177 $1,587 $ 303,592 U.S. Government Obligations 288,370 65 3,187 285,248 Commercial Paper 251,597 24 -- 251,621 Money Market Instruments 74,520 -- -- 74,520 Municipal Bonds 92,841 71 70 92,842 Taxable Auction Rate Preferreds 34,000 -- -- 34,000 --------- ---- ------ ---------- Total $1,046,33 $337 $4,844 $1,041,823 ========= ==== ====== ========== Included in short-term investments $ 598,298 Included in cash and cash equivalents 443,525 ---------- Total $1,041,823 ==========
The gross realized gains and losses on the sale of available-for-sale securities were immaterial for the six month period ended December 30, 1994. The fair value of the Company's investment in debt securities at December 30, 1994, by contractual maturity, are as follows (in thousands): Due in less than 1 year $ 737,743 Due in 1 to 2-1/2 years 304,080 ---------- Total $1,041,823 ==========
8. ACQUISITIONS In December 1994 the Company acquired Applied Magnetics Corporation's Tape Head Subsidiary, a designer, manufacturer and marketer of magnetic recording tape heads for the digital data storage segment of the computer industry, for $21,500,000 in cash. Of the $21,500,000, $6,500,000 was placed in escrow pursuant to various agreements between the Company and Applied Magnetics Corporation (AMC). Among other things these agreements require AMC to provide the Company with documentation and delivery of certain manufacturing processes and technologies, and to meet various delivery and quality milestones. The acquisition was accounted for as a purchase and, accordingly, the results of operations 9 10 of Tape Head Technology have been included in the consolidated financial statements from the date of acquisition. Goodwill and other intangibles arising from the acquisition are being amortized on a straight line basis over periods ranging from eight months to ten years. In August 1994 the Company acquired Palindrome Corporation, a developer of data protection and management software for NetWare based networks and enterprise LANs, for $69,000,000 in cash. The acquisition was accounted for as a purchase and, accordingly, the results of operations of Palindrome have been included in the consolidated financial statements from the date of acquisition. Goodwill and other intangibles arising from the acquisition are being amortized on a straight-line basis over periords ranging from 3 to 7 years. As a result of the acquisition the Company incurred a one time write-off of in-process research and development of $43,000,000. In July 1994 the Company acquired 25% of the outstanding voting stock of Dragon Systems, Inc., a developer of advanced speech recognition technology and products for personal computer and workstation platforms for $18,600,000 in cash. Goodwill arising from the purchase is being amortized on a straight-line basis over seven years. 9. LITIGATION See Part II, Item 1 of this Form 10-Q for a description of legal proceedings. 10. SUBSEQUENT EVENT In January 1995 the Company signed a definitive agreement to acquire Network Computing, Inc. (NCI), a privately-held California-based developer of network management software products for Novell NetWare networks. The acquisition, which is subject to certain closing conditions, will be for cash, in an amount currently estimated at $10,250,000, and will be accounted for as a purchase. The Company anticipates that it will incur a one-time write-off of in-process research and development of approximately $5,000,000 to $6,000,000 in the third quarter of fiscal 1995, ending March 31, 1995. 10 11 SEAGATE TECHNOLOGY, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: Net sales for the quarter ended December 30, 1994 were $1,129,563,000 as compared with $815,890,000 reported for the comparable year-ago quarter, and $933,146,000 reported for the immediately preceding quarter. Net sales for the six months ended December 30, 1994 were $2,062,709,000 as compared with $1,589,768,000 reported for the comparable period a year ago. The increase in net sales from the comparable year-ago quarter, the immediately preceding quarter and the comparable six month period last year was primarily due to a higher level of unit shipments and a shift in mix to the Company's higher priced products partially offset by a decline in the average unit sales prices of the Company's products as a result of competitive market conditions. The rigid disc drive industry in which the Company operates is characterized by declining unit sales prices over the life of a product and the Company anticipates this characteristic will continue. Gross margin as a percentage of net sales was 20.1% and 20.6% for the three and six months ended December 30, 1994, respectively, compared with 19.0% and 18.5% for the same periods last year and 21.2% for the immediately preceding quarter. The increase in gross margin as a percentage of net sales from both comparable year-ago periods was primarily due to a shift in mix to the Company's newer, higher capacity disc drives, an increase in units produced resulting in lower overhead costs per unit and a reduction in material costs partially offset by a decline in average unit sales prices of the Company's products as a result of competitive market conditions. The decrease in gross margin as a percentage of net sales from the immediately preceding quarter was primarily due to a decline in average unit sales prices of the Company's products as a result of competitive market conditions and lower yields in certain newer, higher capacity disc drives partially offset by a shift in mix to such newer, higher capacity disc drives, an increase in units produced resulting in lower overhead costs per unit and a reduction in material costs. Effective January 1, 1995, the European Union ("EU") established a new General System of Preferences (GSP). Under this revised code certain products which had been exempt from customs duties under the previous GSP rules, including hard disc drives imported into the EU from Singapore, again became subject to such duties (although at a rate lower than Most Favored Nation [MFN] duties). In addition, in 1995 Singapore will progressively lose its status as a beneficiary country. Thus, hard disc drives produced there and imported into the EU will thereafter realize no reduction from full MFN duty. The imposition of such customs duties could negatively impact revenues or increase costs and adversely impact gross margins depending upon the extent to which such duties are absorbed by the Company. Product development expenses for the three and six months ended December 30, 1994 were $53,037,000 and $100,289,000 respectively, an increase of $11,182,000 and $17,463,000 respectively, when compared with the comparable periods last year and an increase of $5,785,000 when compared with the immediately preceding quarter ended September 30, 1994. These expenses represented 4.7% and 4.9% of net sales for the three and six months ended December 30, 1994, respectively, compared with 5.1% and 5.2%, respectively for the comparable year-ago periods, and 5.1% for the immediately preceding quarter. The increase 11 12 in expenses from both comparable year-ago periods was primarily due to increases in salaries and related costs, costs incurred in connection with a joint development agreement with Sony Corporation, Japan, and expenses of the recently acquired software businesses, as well as an overall increase in the Company's product development efforts. The increase in expenses from the immediately preceding quarter was primarily due to increases in outside services and salaries and related costs. Marketing and administrative expenses for the three and six months ended December 30, 1994 were $62,084,000 and $118,247,000 respectively, an increase of $12,577,000 and $21,508,000 respectively, when compared with the comparable periods last year and an increase of $5,921,000 when compared with the immediately preceding quarter ended September 30, 1994. These expenses represented 5.5% and 5.7% of net sales for the three and six months ended December 30, 1994, respectively, compared with 6.1% for both comparable year-ago periods, and 6.0% for the immediately preceding quarter. The increase in expenses from the comparable year-ago quarter was primarily due to expenses of the Company's recently acquired software businesses and increases in salaries and related costs, advertising and telephone expenses. These increases in expenses were partially offset by decreases in travel and entertainment and the provision for bad debts. The increase in expenses from the comparable six month period last year was primarily due to expenses of the Company's recently acquired software businesses and increases in salaries and related costs, advertising, legal and telephone expenses partially offset by a decrease in the provision for bad debts and decreased travel and entertainment expenses. The increase in expenses from the immediately preceding quarter was primarily due to increases in salaries and related costs, expenses of the Company's recently acquired software businesses, advertising, travel and entertainment and outside services, partially offset by a decrease in legal expenses. Amortization of goodwill and other intangibles increased by $1,675,000 and $2,755,000 for the three and six months ended December 30, 1994, when compared with the same periods last year. The increase from both comparable year-ago periods resulted primarily from additional goodwill and other intangibles arising from the acquisition of Palindrome Corporation and the equity investment in Dragon Systems, Inc., both of which occurred during the quarter ended September 30, 1994. The $43,000,000 charge for in-process research and development in the six months ended December 30, 1994 is a one time write-off incurred in connection with the acquisition of Palindrome Corporation. Net other income increased by $10,587,000 for the six months ended December 30, 1994, when compared with the same period last year. The increase in net other income was primarily due to increased interest income as a result of higher levels of average invested cash and higher interest rates, partially offset by higher interest expense as a result of higher average debt outstanding. The effective tax rate for the six months ended December 30, 1994 was approximately 40% compared with 30% for the comparable period last year. The increase in the effective tax rate was due to the $43,000,000 write-off, in the quarter ended September 30, 1994, of in-process research and development incurred in connection with the acquisition of Palindrome Corporation that is not deductible for domestic tax purposes. 12 13 Excluding the one time write-off of in-process research and development the Company's overall effective tax rate was 30% for the six months ended December 30, 1994. The effective tax rate is less than the statutory rate because a portion of the operating income is not subject to foreign income taxes and is considered to be permanently invested in non-U.S. operations. The Company's effective tax rate for the quarter ended December 30, 1994 was 30%. The Company's effective tax rate for the quarter ending March 31, 1995 may be higher than 30% due to the anticipated write-off of in-process research and development to be incurred in connection with future acquisitions including the acquisition of Network Computing, Inc. (see below and footnote number 10, "Subsequent Event", to the consolidated condensed financial statements). The overall effective tax rate for the year should be higher than 30% due to the higher rate in the first quarter and the anticipated or potentially higher rates in the third and fourth quarters. LIQUIDITY AND CAPITAL RESOURCES: At December 30, 1994, the Company's cash, cash equivalents and short-term investments totaled $1,221,464,000, a decrease of $112,078,000 from the July 1, 1994 balance. This decrease was primarily a result of the Company's additions to property, equipment and leasehold improvements, its acquisitions of Palindrome Corporation and Tape Head Technology, its investment in Dragon Systems, Inc. and the repurchase by the Company of 2,987,100 shares of its common stock, partially offset by cash provided by operating activities. The Company's cash, cash equivalents and short-term investments are being maintained in short-term liquid investments until required for other purposes. As of December 30, 1994 the Company had a domestic credit facility consisting of a $50 million line of credit. There were no borrowings under this line of credit at December 30, 1994 although approximately $11 million had been utilized for letters of credit. Additionally the Company had approximately $33 million of non-domestic lines of credit which can be used for borrowings as well as letters of credit, bankers' guarantees, and overdraft facilities. Although there were no borrowings under these lines at December 30, 1994, approximately $2 million had been utilized for bankers' guarantees and letters of credit. The Company also had approximately $28 million of lines of credit worldwide which can be used for letters of credit and bankers' guarantees, but not borrowings. Of the $28 million, approximately $5 million had been utilized at December 30, 1994. The Company expects investments in property and equipment in the current fiscal year to approximate $400 million, of which approximately $137 million had been incurred through December 30, 1994. The Company plans to finance these investments from cash flows from operations and existing cash balances. The $137 million comprised $59 million for manufacturing facilities and equipment related to the Company's sub-assembly and disc drive final assembly and test facilities in the U.S. and Far East, $49 million for manufacturing facilities and equipment in the thin-film head operations in the U.S., Malaysia and Northern Ireland, $17 million for expansion of the Company's thin-film media operations in California and $12 million for other purposes. During the six months ended December 30, 1994 the Company acquired 2,987,100 shares of its common stock for approximately $74.9 million. The repurchase of these shares was in connection with a stock repurchase program announced in July 1994 in which up to 7,000,000 13 14 shares of the Company's common stock may be acquired in the open market. The purpose of the stock repurchase program is to enhance shareholder value. The repurchase program also provides shares to be issued under the Company's employee stock plans and thereby reduces dilution from such plans. The Company anticipates that users of computer systems will increasingly rely upon client/server network computing environments and believes that as this reliance increases, users will demand software that more efficiently and securely manages data across computer networked environments. As such, the Company is broadening its core competencies to include software products to meet these requirements. During the quarter ended September 30, 1994 the Company acquired Palindrome Corporation, a developer of data protection and management software, for $69 million, and purchased 25% of the outstanding voting stock of Dragon Systems, Inc., a developer of advanced speech recognition technology, for $18.6 million. In addition, in January 1995 the Company signed a definitive agreement to acquire Network Computing, Inc. (NCI), a privately-held developer of network management software products for Novell NetWare networks. The acquisition, which is subject to certain closing conditions, will be for cash, in an amount currently estimated at $10,250,000 and will be accounted for as a purchase. The Company anticipates that it will incur a one-time write-off of in-process research and development of approximately $5,000,000 to $6,000,000 in the third quarter of fiscal 1995, ending March 31, 1995. The Company is also pursuing a strategy to establish itself as a leading supplier of selected magnetic recording components, including thin-film heads, to other manufacturers. In line with this strategy, the Company, during the quarter ended December 30, 1994, acquired Applied Magnetics Corporation's Tape Head Subsidiary, a designer, manufacturer and marketer of magnetic recording tape heads for the digital data storage segment of the computer industry, for $21.5 million. The Company intends to continue its expansion into software and other complementary businesses and is actively pursuing discussions with companies that fit with its strategy. The Company plans to finance these investments primarily from cash flows from operations and existing cash balances. However, it is also possible that the Company may utilize additional equity or debt financing. 14 15 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS SECURITIES LITIGATION In 1988 a series of lawsuits were filed in Federal Court for the Northern District of California against the Company, alleging violations of the federal securities laws on behalf of a class of purchasers of the Company's securities. These lawsuits have been the subject of much pretrial proceedings, which have had the net effect of narrowing the claims made against the Company. The trial date is set for March 15, 1995. In 1991 another series of lawsuits were filed in Federal Court for the Northern District of California against the Company, alleging violations of the federal securities laws on behalf of a class of purchasers of the Company's securities. Discovery is continuing and a trial date has been set for January 1996. The Company believes both series of securities lawsuits are without merit and intends to vigorously contest each lawsuit. ENVIRONMENTAL MATTERS The United States Environmental Protection Agency (EPA) and/or similar state agencies have identified the Company as a potentially responsible party with respect to environmental conditions at several different sites to which hazardous wastes had been shipped or from which they were released. These sites were acquired by the Company from Control Data Corporation (CDC) in 1990. Other parties have also been identified at certain of these sites as potentially responsible parties. Many of these parties either have shared or likely will share in the costs associated with the sites. Investigative and/or remedial activities are ongoing at such sites. The estimated cost of investigation and remediation of known contamination at the sites to be incurred after July 1, 1994 was approximately $15,200,000. At July 1, 1994 the Company had recovered $1,500,000 from CDC, through its indemnification and cost sharing agreements with CDC and, in addition, expects to recover approximately $10,400,000 over the next 30 years. After deducting the expected recoveries from CDC, the expected aggregate undiscounted liability was approximately $4,800,000 with expected payments of approximately $180,000 in 1998, $383,000 in 1999 and the remainder thereafter. Approximately $14,500,000 of the $15,200,000 total estimated costs described above is attributable to one site in Omaha, Nebraska. In 1994 the Company sold the Omaha property; however, the Company retains responsibility for, and has indemnified the buyer with respect to, all environmental contamination existing on the site at the time of sale. IT Corporation, a nationally known environmental consulting firm, has provided consulting services to CDC and the Company for the Omaha site for several years and assisted the Company in estimating the liability related to the cost of remediation. This liability is based on a plan of investigation and remediation developed by IT Corporation pursuant to 15 16 a Consent Order entered into by the Company and the EPA in 1990. The extent of contamination in the groundwater is still being investigated and defined. According to the plan the likely technology for remediation of groundwater at the facility will be pumping and treatment, while remediation of soils will most likely be accomplished by soil vapor extraction, followed by in-situ bioremediation. A substantial portion of the Omaha liability was discounted by applying a risk free rate of 4.53% to the expected payments to be made by the Company over the next 30 years. None of the liabilities for any of the other sites has been discounted. The total liability for all sites recorded by the Company after discounting was $3,000,000 at July 1, 1994. The Company believes that the indemnification and cost sharing agreements entered into with CDC and the reserves that the Company has established with respect to its future environmental costs are such that, based on present information available to it, future environmental costs related to currently known contaminations will not have a material adverse affect on its financial condition or results of operations. PATENT LITIGATION In November 1992, Rodime, PLC ("Rodime") filed a complaint in Federal Court for the Central District of California, alleging infringement of U.S. Patent No. B1 4,638,383 and various state law unfair competition claims. In February 1993, Rodime filed an amended complaint alleging infringement of a second patent, U.S. Patent No. 4,890,174. The Company has initiated a counter-claim against Rodime in the same action for infringement of a Seagate patent, U.S. Patent No. 4,620,251. On June 11, 1993, the Court issued an Order in which the companies stipulated to a dismissal with prejudice of any claims and counterclaims based on U.S. Patent Nos. 4,890,174 and 4,620,251. The Court previously scheduled a pre-trial conference for April 25, 1994; however, just prior to this date, the Court notified the parties that the pre-trial conference had been taken off calendar. No new date has been set for a pre-trial conference. Accordingly, the parties have not been given a date for the commencement of the trial. Seagate has filed a number of motions for summary judgment in this action, some of which, if granted, would be completely dispositive of this action. All of these motions are still under submission with the Court. A similar partially dispositive motion for summary judgment was granted by the District Court of Minnesota in the related action of Quantum Corporation v. Rodime, PLC, resulting in a final judgment of invalidity of certain claims of Rodime's U.S. Patent No. B1 4,638,383. Rodime appealed this adverse judgment to the Court of Appeals for the Federal Circuit and the oral argument of this appeal was heard on November 10, 1994. The Court of Appeals has yet to render a decision on this appeal. It is the opinion of the Company's patent counsel that the Company's products do not infringe any valid claims of the Rodime patent in suit and thus the Company has refused Rodime's offer of a license for its patents. However, many other companies, such as IBM, Conner Peripherals, Hewlett-Packard and a number of Japanese companies have been reported to have made payments to and taken licenses from Rodime. On October 5, 1994 a patent infringement action was filed against the Company by an individual James M. White in the U.S. District Court for the Northern District of California for alleged infringement of U.S. Patent Nos. 4,673,996 and 4,870,519. Both patents relate to air bearing sliders. 16 17 Prior to the filing of the lawsuit, the Company filed a Petition for Reexamination of U.S. Patent No. 4,673,996 with the United States Patent and Trademark Office ("PTO") and this Petition was granted shortly after the lawsuit was filed. Subsequently, the Company filed a Petition for Reexamination of U.S. Patent No. 4,870,519. The PTO has yet to rule on this second Petition. There has been no significant action thus far in the District Court action. The Company and the Company's patent counsel believe that the claims of the two White patents are invalid for the reasons set forth in the two Petitions for Reexamination. TAX DEFICIENCY The Internal Revenue Service ("IRS") in 1990 concluded a field audit of the Company's income tax returns for the fiscal years 1983 through 1987 and issued to the Company "Notices of Deficiency" (the "Notices") for the fiscal years 1981 through 1987 proposing tax deficiencies of approximately $112,280,000 plus interest. The major proposed adjustment to income in those fiscal years related to the allocation of income between the Company and its manufacturing subsidiary in Singapore. On November 29, 1994 the United States Tax Court entered a decision concerning the allocation of income between the Company and its Singapore subsidiary for the fiscal years 1983 through 1987. A number of other adjustments were settled by the parties prior to the issuance of the Tax Court's decision. The consequences of the Tax Court decision and the prior settlement are the elimination of nearly all of the tax deficiencies proposed by the IRS in its Notices and the reduction of the Company's net operating loss carryovers from these fiscal years to the fiscal year 1988 and subsequent fiscal years as described below. Such decision is currently subject to appeal by either the Company or the IRS. The Company believes that the final adjustments resulting from this audit will not have a material adverse effect on the Company's financial condition or results of operations. The IRS in 1994 concluded a field audit of the Company's income tax returns for the fiscal years 1988 through 1990 and issued to the Company a "Notice of Deficiency" (the "1994 Notice") for those fiscal years. The majority of the proposed adjustments to income in those fiscal years related to the allocation of income between the Company and its foreign subsidiaries. The proposed adjustments to income and tax credits in the 1994 Notice resulted in proposed tax deficiencies of approximately $66,000,000 plus penalties and interest. The proposed income adjustments would also eliminate tax net operating loss and tax credit carryovers that have been used to offset taxable income and tax liabilities in other fiscal years. The combined impact on net operating loss and tax credit carryovers from the resolution of the audit for the fiscal years 1981 through 1987 and the adjustments proposed in the 1994 Notice would be to eliminate tax net operating loss carryovers of approximately $81,000,000 and tax credit carryforwards of approximately $14,000,000 which would result in additional taxes of approximately $41,000,000 plus interest for the three years ended July 2, 1993. The Company on June 7, 1994 filed a petition in the United States Tax Court contesting these proposed deficiencies and related penalties. The IRS filed its Answer on August 4, 1994. The Company believes that the outcome of these matters will not have a material adverse effect on the Company's financial condition or results of operations. 17 18 OTHER LITIGATION Amstrad PLC ("Amstrad") initiated a lawsuit against the Company in London, England on December 11, 1992 concerning the Company's sale of allegedly defective disc drives to Amstrad. The Company has replied to the allegations made against it by Amstrad by denying all material points of Amstrad's claim and asserting many affirmative defenses. Discovery is continuing and a trial date has been set for April 1996 with various earlier dates for exchange of expert and other testimony. The Company believes this lawsuit is without merit and will continue to defend itself vigorously. In October 1991 International Business Machines Corporation ("IBM") initiated a lawsuit in the Federal District Court for Minnesota against the Company and one of its employees for allegedly threatening the misappropriation of IBM trade secrets. IBM thereafter amended its complaint adding another Company employee as a defendant and alleging that the defendants had now misappropriated IBM trade secrets. On November 14, 1994 the parties entered into a Settlement Agreement mutually dismissing all claims, each against the other and entered into a patent cross license. The Company is involved in a number of other judicial and administrative proceedings incidental to its business. Although occasional adverse decisions (or settlements) may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on the Company's financial position or results of operations. ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS On November 21, 1988, the Company's Board of Directors declared a dividend distribution of one Preferred Shares Purchase Right (each a "Right" and collectively the "Rights") for each share of the Company's Common Stock outstanding as of the close of business on December 19, 1988 and each share of Common Stock issued thereafter (subject to certain limitations). The Preferred Shares Rights Agreement (the "Rights Plan") dated November 22, 1988 between the Company and Bank of America, N.T. & S.A., as Rights Agent (the "Rights Agent"), provides, among other things, that after a "Distribution Date" as defined in the Rights Plan, each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of the Company's Series A Participating Preferred Stock, $.01 par value (the "Series A Participating Preferred"), initially at a price of $36.00 (the "Purchase Price"). On October 27, 1994, the Company's Board of Directors adopted resolutions directing the Company's management to terminate the Rights Plan. On November 29, 1994, the Company and the Rights Agent amended the Rights Plan so as to accelerate the expiration date of the Rights Plan to December 1, 1994, thereby terminating the Rights Plan as of such date. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's 1994 Annual Meeting of Shareholders was held on October 27, 1994. The following is a brief description of each matter voted upon at the meeting and a statement of the number of votes cast for, against or withheld and the number of abstentions and broker nonvotes with respect to each matter. 18 19 (a) The shareholders elected the following directors:
FOR WITHHELD --- -------- Alan F. Shugart 63,362,313 229,493 Gary B. Filler 63,354,309 237,497 Kenneth E. Haughton 63,359,656 232,150 Robert A. Kleist 63,347,163 244,643 Lawrence E. Perlman 63,306,168 285,638 Thomas P. Stafford 63,340,547 251,259 Laurel L. Wilkening 63,353,158 238,648
(b) The shareholders approved an amendment of the Employee Stock Purchase Plan to increase the number of shares of Common Stock reserved for issuance thereunder by 2,000,000 shares.
BROKER FOR AGAINST ABSTAIN NONVOTE --- ------- ------- ------- 60,289,537 2,153,653 493,852 654,764
(c) The shareholders ratified and approved the Company's Performance-Based Executive Compensation Plan.
BROKER FOR AGAINST ABSTAIN NONVOTE --- ------- ------- ------- 57,792,129 2,497,055 526,621 2,776,001
(d) The shareholders ratified the appointment of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending June 30, 1995.
BROKER FOR AGAINST ABSTAIN NONVOTE --- ------- ------- ------- 63,351,541 120,348 119,917 --
ITEM 5. OTHER INFORMATION In November 1994, Seagate's application to the New York Stock Exchange, Inc. for the original listing of its Common Stock and $266,838,000 principal amount of 6-3/4% Convertible Subordinated Debentures due 2012 was approved and trading of such securities commenced on the New York Stock Exchange in December 1994. 19 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibits are included herein: 11.1 Computation of Net Income per Share 27 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K have been filed with the Securities and Exchange Commission during the three months ended December 30, 1994. 20 21 SIGNATURES 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. SEAGATE TECHNOLOGY, INC. (Registrant) DATE: February 2, 1995 BY: /s/ Donald L. Waite -------------------- DONALD L. WAITE Sr. Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) DATE: February 2, 1995 BY: /s/ Alan F. Shugart -------------------- ALAN F. SHUGART Chairman of the Board, President and Chief Executive Officer, (Principal Executive Officer and Director) 21 22 SEAGATE TECHNOLOGY, INC. INDEX TO EXHIBITS EXHIBIT NUMBER - ------- 11.1 Computation of Net Income per Share (see page 22) 27 Financial Data Schedule 23 EX-11.1 2 SEAGATE COMPUTATION OF EARNINGS 1 EXHIBIT 11.1 SEAGATE TECHNOLOGY, INC. COMPUTATION OF NET INCOME PER SHARE (In thousands except per share data)
Three Months Ended Six Months Ended --------------------------- ------------------------- Dec. 30, Dec. 31, Dec. 30, Dec. 31, 1994 1993 1994 1993 -------- -------- -------- -------- PRIMARY Weighted average number of common shares outstanding during the period 72,235 70,323 72,504 69,577 Incremental common shares attributable to exercise of outstanding options (assuming proceeds would be used to purchase treasury stock) 1,883 2,505 2,007 2,480 --------- --------- --------- --------- Total shares 74,118 72,828 74,511 72,057 ========= ========= ========= ========= Net Income: Amount $ 79,269 $ 42,742 $ 101,806 $ 78,810 Per share $ 1.07 $ 0.59 $ 1.37 $ 1.09 FULLY DILUTED Weighted average number of common shares outstanding during the period 72,235 70,323 72,504 69,577 Incremental common shares attributable to exercise of outstanding options (assuming proceeds would be used to purchase treasury stock) and conversion of 6-3/4% and 5% convertible subordinated debentures 18,477 10,910 18,604 10,209 --------- --------- --------- --------- Total shares 90,712 81,233 91,108 79,786 ========= ========= ========= ========= Net Income: Amount $ 79,269 $ 42,742 $ 101,806 $ 78,810 Add 6-3/4% convertible subordinated debentures interest, net of income tax effect 2,810 2,810 5,620 5,620 Add 5% convertible subordinated debentures interest, net of income tax effect 2,112 368 4,224 368 --------- --------- --------- --------- Total $ 84,191 $ 45,920 $ 111,650 $ 84,798 ========= ========= ========= ========= Per share $ 0.93 $ 0.57 $ 1.23 $ 1.06 ========= ========= ========= =========
22 EX-27 3 SEAGATE FINANCIAL DATA SCHEDULE
5 1,000 6-MOS JUN-30-1995 OCT-01-1994 DEC-30-1994 623,166 598,298 528,229 47,956 398,733 2,300,551 1,107,339 623,136 3,043,354 788,737 549,487 728 0 0 1,375,508 3,043,354 1,129,563 1,129,563 903,032 903,032 119,989 0 8,085 113,241 33,972 79,269 0 0 0 79,269 1.07 .93
-----END PRIVACY-ENHANCED MESSAGE-----