-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DL4yw8kzglFw4ANZDH3zyJ9jsT5Zry8FO1RvS4Vy7sCLlITYFo6jPSxQrEYisK57 0EnvLpbNjyniAUUjfsl1tA== 0001012870-96-000584.txt : 19961111 0001012870-96-000584.hdr.sgml : 19961111 ACCESSION NUMBER: 0001012870-96-000584 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960927 FILED AS OF DATE: 19961108 SROS: NYSE 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: 96657631 BUSINESS ADDRESS: STREET 1: 920 DISC DR CITY: SCOTTS VALLEY STATE: CA ZIP: 95066 BUSINESS PHONE: 4084386550 10-Q 1 FORM 10-Q UNITED STATES 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 September 27, 1996 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 September 27, 1996, 107,085,032 shares of the registrant's common stock were issued and outstanding. INDEX SEAGATE TECHNOLOGY, INC.
PART I FINANCIAL INFORMATION PAGE NO. - ---------- ---------------------------------------------------- -------- Item 1. Financial Statements (Unaudited) Consolidated condensed statements of income-- Three months ended September 27, 1996 and September 29, 1995 3 Consolidated condensed balance sheets-- September 27, 1996 and June 28, 1996 4 Consolidated condensed statements of cash flows-- Three months ended September 27, 1996 and September 29, 1995 5 Notes to consolidated condensed financial statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II OTHER INFORMATION - ---------- ----------------- Item 1. Legal Proceedings 17 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 6. Exhibits and Reports on Form 8-K 20 SIGNATURES 22
2 SEAGATE TECHNOLOGY, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (In Thousands Except Per Share Data) (Unaudited)
Three Months Ended ------------------ September 27, September 29, 1996 1995 ----------- ----------- Net sales $2,060,825 $2,140,805 Cost of sales 1,668,049 1,744,705 Product development 106,763 97,317 Marketing and administrative 111,446 116,569 Amortization of goodwill and other intangibles 10,410 10,784 In-process research and development - 2,817 Restructuring costs (9,554) - ---------- ---------- Total Operating Expenses 1,887,114 1,972,192 Income from Operations 173,711 168,613 Interest income 16,823 23,342 Interest expense (9,273) (17,539) Other (1,593) (975) ---------- ---------- Other Income 5,957 4,828 ---------- ---------- Income before income taxes 179,668 173,441 Provision for income taxes 50,307 52,632 ---------- ---------- Net Income $ 129,361 $ 120,809 ========== ========== NET INCOME PER SHARE: Primary $ 1.18 $ 1.22 Fully diluted 1.06 1.05 NUMBER OF SHARES USED IN PER SHARE COMPUTATIONS: Primary 109,698 99,062 Fully diluted 129,333 124,774
See notes to consolidated condensed financial statements. 3 SEAGATE TECHNOLOGY, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (In Thousands) (Unaudited)
September 27, June 28, 1996 1996 (1) -------------- ----------- ASSETS - ------ Cash and cash equivalents $ 943,097 $ 503,754 Short-term investments 646,117 670,308 Accounts receivable 1,037,406 1,066,519 Inventories 683,067 790,821 Deferred income taxes 233,997 222,355 Other current assets 138,512 145,523 ---------- ---------- Total Current Assets 3,682,196 3,399,280 Property, equipment and leasehold improvements, net 1,502,734 1,399,883 Goodwill and other intangibles, net 254,606 274,046 Other assets 178,404 166,426 ---------- ---------- Total Assets $5,617,940 $5,239,635 ========== ========== LIABILITIES - ----------- Accounts payable $ 929,008 $ 715,396 Accrued employee compensation 190,545 180,126 Accrued expenses 471,268 490,752 Accrued income taxes 98,526 49,437 Current portion of long-term debt 9,864 2,425 ---------- ---------- Total Current Liabilities 1,699,211 1,438,136 Deferred income taxes 351,100 351,527 Other liabilities 166,769 185,579 Long-term debt, less current portion 792,051 798,305 ---------- ---------- Total Liabilities 3,009,131 2,773,547 ---------- ---------- STOCKHOLDERS' EQUITY - -------------------- Common stock 1,071 1,067 Additional paid-in capital 1,144,225 1,132,328 Retained earnings 1,519,947 1,391,389 Deferred compensation (55,773) (57,656) Foreign currency translation adjustment (661) (1,040) ---------- ---------- Total Stockholders' Equity 2,608,809 2,466,088 ---------- ---------- Total Liabilities and Stockholders' Equity $5,617,940 $5,239,635 ========== ==========
(1) The information in this column was derived from the Company's audited consolidated balance sheet as of June 28, 1996. See notes to consolidated condensed financial statements. 4 SEAGATE TECHNOLOGY, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
Three Months Ended ------------------- September 27, September 29, 1996 1995 ------------------- -------------- OPERATING ACTIVITIES: Net income $ 129,361 $ 120,809 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 118,666 88,089 Deferred income taxes (12,556) 16,534 In-process research and development - 2,817 Other 2,987 2,149 Changes in operating assets and liabilities: Accounts receivable 34,002 (133,562) Inventories 94,191 (61,371) Accounts payable 220,006 99,796 Accrued income taxes 51,787 (29,590) Other assets and liabilities (23,971) 25,278 --------- --------- Net cash provided by operating activities 614,473 130,949 INVESTING ACTIVITIES: Acquisition of property, equipment and leasehold improvements, net (206,674) (178,252) Purchases of short-term investments (491,388) (934,517) Maturities and sales of short-term investments 516,314 962,596 Other, net (7,118) (10,202) --------- --------- Net cash used in investing activities (188,866) (160,375) FINANCING ACTIVITIES: Sale of common stock 21,353 17,747 Purchase of treasury stock (8,466) - Other, net 1,184 (317) --------- --------- Net cash provided by financing activities 14,071 17,430 Effect of exchange rate changes on cash and cash equivalents (335) 1,583 --------- --------- Increase (decrease) in cash and cash equivalents 439,343 (10,413) Elimination of Conner's net cash activity for the six months ended December 31, 1995 - (31,906) Cash and cash equivalents at the beginning of the period 503,754 890,667 --------- --------- Cash and cash equivalents at the end of the period $ 943,097 $ 848,348 ========= =========
See notes to consolidated condensed financial statements. 5 SEAGATE TECHNOLOGY, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION --------------------- On February 2, 1996 the Company merged with Conner Peripherals, Inc. ("Conner") in a transaction accounted for as a pooling of interests and, as a result, the Company's previously issued financial statements for periods prior to that date presented in this Form 10-Q have been restated to include the assets, liabilities and operating results of Conner in accordance with generally accepted accounting principles and the instructions in Regulation S-X. 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 June 28, 1996 and notes thereto, are adequate to make the information presented not misleading. The consolidated condensed financial statements reflect, in the opinion of management, all adjustments necessary to summarize fairly the consolidated financial position, results of operations and cash flows for such periods. Such adjustments are of a normal recurring nature, except for the reversal of certain restructuring costs incurred in connection with the Conner merger and the incurrence of other non-recurring merger-related costs, both recorded in the three months ended September 27, 1996, and the write-offs of in-process research and development recorded in the three months ended September 29, 1995. The results of operations for the three months ended September 27, 1996 are not necessarily indicative of the results that may be expected for the entire year ending June 27, 1997. 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 1996 ended on June 28, 1996 and fiscal 1997 will end on June 27, 1997. 2. NET INCOME PER SHARE -------------------- Primary net income per share was 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 assumed the conversion of the Company's convertible subordinated debentures for the period of time that they were outstanding. 6 3. BALANCE SHEET INFORMATION ------------------------- (In thousands) September 27, June 28, 1996 1996 ----------- ----------- Accounts Receivable: Accounts receivable $ 1,101,900 $ 1,133,175 Allowance for non-collection (64,494) (66,656) ----------- ----------- $ 1,037,406 $ 1,066,519 =========== =========== Inventories: Components $ 345,471 $ 295,169 Work-in-process 110,058 138,854 Finished goods 227,538 356,798 ----------- ----------- $683,067 $ 790,821 =========== =========== Property, Equipment and Leasehold Improvements: Property, equipment and leasehold improvements $ 2,572,233 $ 2,404,538 Allowance for depreciation and amortization (1,069,499) (1,004,655) ----------- ----------- $ 1,502,734 $ 1,399,883 =========== =========== 4. INCOME TAXES ------------ The effective tax rate used to compute the income tax provision for the three months ended September 27, 1996 and September 29, 1995 was based on the Company's estimate of its domestic and foreign operating income for each respective year. The effective tax rate for the three months ended September 27, 1996 was 28% compared with 30% for the comparable period last year. The Company's overall effective tax rate is less than the domestic statutory rate because a portion of its 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. 7 5. STOCKHOLDERS' EQUITY -------------------- Shares authorized and outstanding are as follows: Shares Outstanding ------------------ September 27, June 28, 1996 1996 ---- ---- Preferred stock, par value $.01 per share, 1,000,000 shares authorized - - Common stock, par value $.01 per share, 200,000,000 shares authorized 107,085,032 106,715,092 6. SUPPLEMENTAL CASH FLOW INFORMATION ---------------------------------- (In thousands) Three Months Ended ------------------ September 27, September 29, 1996 1995 ---- ---- Cash paid for interest $ 17,370 $ 17,005 Cash paid for income taxes 3,663 59,871 7. CERTAIN INVESTMENTS ------------------- 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 included in stockholders' 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 The following is a summary of available-for-sale securities at September 27, 1996 (in thousands):
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED COST GAIN LOSS FAIR VALUE --------- -------- -------- ---------- Corporate Bonds $ 141,224 $159 $133 $ 141,250 U.S. Government Obligations 149,145 62 256 148,951 Commercial Paper 401,397 401,397 Money Market Mutual Funds 124,941 124,941 Municipal Bonds 108,351 57 208 108,200 Repurchase Agreements 33,300 33,300 Auction Rate Preferred Stock 127,500 127,500 Euro/Yankee Time Deposits 112,460 12 112,472 ---------- ---- ---- ---------- Total $1,198,318 $290 $597 $1,198,011 ========== ==== ==== ==========
Included in short-term investments $ 646,117 Included in cash and cash equivalents 551,894 ----------- Total $1,198,011 ========== The gross realized gains and losses on the sale of available-for-sale securities were immaterial for the three month periods ended September 27, 1996 and September 29, 1995. The fair value of the Company's investment in debt securities at September 27, 1996, by contractual maturity, is as follows (in thousands): Due in less than 1 year $702,198 Due in 1 to 2-1/2 years 243,372 -------- Total $945,570 ======== 8. MERGER WITH CONNER ------------------ On February 2, 1996 the Company and Conner Peripherals, Inc. ("Conner") merged after approval by the stockholders of both companies. To effect the combination Seagate issued 24,478,022 shares of its common stock in exchange for all the outstanding common stock of Conner and issued options to purchase 2,469,580 shares of Seagate common stock in exchange for all the outstanding options to purchase Conner common stock. The merger has been accounted for 9 as a pooling of interests and, accordingly, all periods prior to the merger presented in the accompanying consolidated financial statements have been restated to include the accounts and operations of Conner. Conner was involved in the design, manufacture and marketing of information storage products including disc drives, tape drives and storage management software. Combined and separate results of the Company and Conner for the periods prior to the acquisition were as follows: Three Months Ended ------------------ In thousands September 27, 1996 September 29, 1995 ------------ ------------------ ------------------ Net Sales: Prior to Dec. 30, 1995: Seagate $ - $1,453,626 Conner - 687,179 Combined results after Dec. 29, 1995 2,060,825 - ---------- ---------- $2,060,825 $2,140,805 ========== ========== Net Income: Prior to Dec. 30, 1995: Seagate $ - $ 107,405 Conner - 13,404 Combined results after Dec. 29, 1995. 129,361 - ---------- ---------- $ 129,361 $ 120,809 ========== ========== The two companies maintained a majority of similar accounting practices. However, as a result of certain differing accounting practices relating to the capitalization of fixed assets and inventory, certain adjustments to net assets were made to conform accounting practices of the two companies. None of these adjustments was material to any of the periods presented. 9. RESTRUCTURING COSTS ------------------- During fiscal year 1996, the Company recorded restructuring charges totaling $241.7 million as a result of the merger with Conner. The restructuring charges comprised $60.7 million for employee severance benefits, $97.2 million to write off or write down equipment, inventory, intangibles and other assets, $45.1 million for closure of duplicate and excess facilities, $24.0 million for fees of financial advisors, attorneys and accountants and $14.7 million for contract cancellations and other expenses. In connection with the restructure, the Company currently expects 10 a total workforce reduction of approximately 2,600 employees. Of that number, the employment of 725 employees has been terminated as of September 27, 1996. During the three months ended September 27, 1996 the Company reversed $9,554,000 of its restructuring reserves as a result of the completion of certain aspects of the restructuring plan at less than the originally estimated cost. The following table summarizes the Company's restructuring activity for the three months ended September 27, 1996 (in thousands):
EQUIPMENT, CONTRACT INVENTORY, CANCELLATIONS SEVERANCES EXCESS INTANGIBLES PROFESSIONAL AND OTHER AND BENEFITS FACILITIES AND OTHER ASSETS FEES EXPENSES TOTAL ------------- ----------- ----------------- ------------- -------------- --------- Reserve balances, June 28, 1996 $33,166 $35,319 $11,954 $3,185 $ 9,792 $ 93,416 Cash charges (7,500) (2,934) (3,840) (298) (1,859) (16,431) Non-cash charges - (290) (562) - - (852) Adjustments (4,567) (3,658) - - (1,329) (9,554) ------- ------- ------- ------------ ------- -------- Reserve balances, September 27, 1996... $21,099 $28,437 $ 7,552 $2,887 $ 6,604 $ 66,579 ======= ======= ======= ============ ======= ========
10. SUBSEQUENT EVENTS ----------------- In October 1996, the Company called for redemption on November 22, 1996, all of its 6-1/2% Convertible Subordinated Debentures due 2002. Holders were given the option to convert their debentures into shares of the Company's common stock at a price of $54.30 per share through November 22, 1996 or have their debentures redeemed at a total redemption price of $1,053.63 per $1,000 principal amount of debentures consisting of $1,039.00 principal amount plus accrued interest of $14.63. Any debentures not converted by 5:00 p.m. ET on November 22, 1996 will be redeemed. At the Company's Annual Meeting of Stockholders in October 1996, the stockholders approved an amendment to the Company's Certificate of Incorporation to increase the authorized number of shares of common stock reserved for issuance thereunder by 400,000,000 shares to an aggregate of 600,000,000 shares. In October 1996, the Company's Board of Directors approved a two-for-one stock split to be effected in the form of a stock dividend. The record date for the stock split will be November 11, 1996, and thereafter, on November 26, 1996, stockholders of record will be mailed certificates representing one additional share of stock for each share held on the record date. The stock split will double the number of shares of Seagate common stock outstanding. 11. LITIGATION ---------- See Part II, Item 1 of this Form 10-Q for a description of legal proceedings. 11 SEAGATE TECHNOLOGY, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CERTAIN FORWARD-LOOKING INFORMATION: This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include the paragraph below relating to customs duties, the paragraph below relating to the effective tax rate, the statements below under "Factors Affecting Future Operating Results," the statements regarding capital expenditures under "Liquidity and Capital Resources" and the statements under "Part II Other Information - Item 1. Legal Proceedings," among others. These forward-looking statements are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Such risks and uncertainties are set forth below under "Factors Affecting Future Operating Results". RESULTS OF OPERATIONS: Effective February 2, 1996 the Company merged with Conner Peripherals, Inc. ("Conner"). Conner was involved in the design, manufacture and marketing of information storage products including disc drives, tape drives and storage management software. The merger was accounted for as a pooling of interests and accordingly all prior period financial statements have been restated as if the merger took place at the beginning of such periods. The comparisons to prior periods discussed below should be read in light of this. See Note 8, Merger with Conner, to the accompanying consolidated condensed financial statements. Net sales for the quarter ended September 27, 1996 were $2,060,825,000 as compared with $2,140,805,000 for the comparable year-ago quarter, and $2,014,528,000 for the immediately preceding quarter ended June 28, 1996. The decrease in net sales from the comparable year-ago quarter was primarily due to a continuing decline in the average unit sales prices of the Company's products as a result of competitive market conditions partially offset by a shift in mix to the Company's higher priced products. The increase in net sales from the immediately preceding quarter was primarily due to a higher level of unit shipments partially offset by a continuing decline in the average unit sales prices of the Company's products as a result of competitive market conditions. Gross margin as a percentage of net sales was 19.1% for the three months ended September 27, 1996, compared with 18.5% for the comparable year-ago quarter and 19.5% for the immediately preceding quarter. The increase in gross margin as a percentage of net sales from the comparable year-ago quarter was primarily due to a shift in mix to the Company's newer, higher capacity disc drives and a reduction in material costs per unit, partially offset by a continuing decline in the average unit sales prices of the Company's products as a result of competitive market conditions and certain one-time charges associated with or incurred as a result of the merger with Conner. The decrease in gross margin as a percentage of net sales from the immediately 12 preceding quarter was due primarily to a continuing decline in the average unit sales prices of the Company's products as a result of competitive market conditions, a shift in mix to the Company's lower capacity disc drives and an increase in one-time charges incurred as a result of the merger with Conner, partially offset by a reduction in material costs per unit. The shift in mix to the Company's lower capacity disc drives was due to an oversupply of less than one gigabyte disc drives in the Company's inventory at the end of the immediately preceding quarter ended June 28, 1996 which were aggressively marketed in the current quarter to reduce inventory levels of these products. During calendar 1995, Singapore progressively lost its status as a beneficiary country under the European Union's ("EU") General System of Preferences ("GSP"). As a result, hard disc drives produced in Singapore and imported into the EU have realized no reduction from full Most Favored Nation customs duties (generally 1.6% at the present time) since December 31, 1995, whereas disc drives imported into the EU from certain other GSP favored countries are subject to more favorable customs duties. In addition, there is currently under consideration within the Commission of the European Union, a proposal to increase duty rates on multimedia products. Under this proposal, duties would be assessed at a rate of 14% whereas under the current code duties would decline to zero within two years. If this proposal were implemented, certain selected high-capacity drives of the Company may be subjected to this higher tariff. The imposition of such customs duties would negatively impact revenues or increase costs and adversely impact gross margins. Product development expenses for the three months ended September 27, 1996 were $106,763,000, an increase of $9,446,000 when compared with the comparable year- ago quarter and an increase of $526,000 when compared with the immediately preceding quarter ended June 28, 1996. These expenses represented 5.2% of net sales for the three months ended September 27, 1996 compared with 4.5% for the comparable year-ago quarter and 5.3% for the immediately preceding quarter. The increase in expenses from the comparable year-ago period was primarily due to increases in salaries and related costs and allocated occupancy costs, increasing product development expenses of the Company's software businesses and an overall increase in the Company's product development efforts. Marketing and administrative expenses for the three months ended September 27, 1996 were $111,446,000, a decrease of $5,123,000, when compared with the comparable year-ago quarter and an increase of $328,000 when compared with the immediately preceding quarter ended June 28, 1996. These expenses represented 5.4% of net sales for the three months ended September 27, 1996 and September 29, 1995, and 5.5% for the immediately preceding quarter. The decrease in expenses from the comparable year-ago quarter was primarily due to decreases in salaries and related costs, travel and entertainment, advertising and promotion, depreciation and allocated occupancy costs partially offset by increasing marketing and administrative expenses of the Company's software businesses. Amortization of goodwill and other intangibles decreased by $374,000 for the three months ended September 27, 1996, when compared with the comparable year- ago 13 quarter and increased by $1,971,000 when compared with the immediately preceding quarter ended June 28, 1996. The decrease in amortization from the comparable year-ago quarter was primarily due to write-offs, in the quarter ended March 29, 1996, of certain intangible assets in the Company's tape drive and software businesses whose value had become impaired offset by additional goodwill and other intangibles arising from the acquisition of Holistic Systems Ltd. in June 1996. The increase in amortization from the immediately preceding quarter was primarily due to additional goodwill and other intangibles arising from the acquisition of Holistic Systems Ltd. in June 1996. During the three months ended September 27, 1996 the Company reversed $9,554,000 of its restructuring reserves as a result of the completion of certain aspects of the restructuring plan at less than the originally estimated cost. The reversal consisted of $4,567,000 in severances and benefits, $3,658,000 in excess facilities and $1,329,000 in other expenses. Net other income increased by $1,129,000 for the three months ended September 27, 1996 when compared with the comparable year-ago quarter and decreased by $4,872,000 from the immediately preceding quarter ended June 28, 1996. The increase in net other income from the comparable year-ago quarter was primarily due to a reduction in interest expense as a result of higher capitalization of interest on construction of new manufacturing facilities and lower average levels of debt outstanding as a result of the redemption or conversion of certain of the Company's convertible subordinated debentures, offset by lower interest income from lower average invested cash and lower interest rates. The decrease in net other income from the immediately preceding quarter was primarily due to a decrease in interest income from lower average invested cash and lower interest rates as well as an increase in amortization of premium on foreign currency option contracts. The effective tax rate for the three months ended September 27, 1996 was 28% compared with 30% for the comparable period last year. The effective tax rate used to compute the income tax provision for each quarter was based on the Company's estimate of its domestic and foreign operating income for each respective year. The Company's overall effective tax rate is less than the domestic statutory rate because a portion of its 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 expects its effective tax rate on operating income for the remaining quarters of fiscal 1997 to approximate 28%. However, the actual effective tax rate may vary from 28% if, for example, the Company incurs charges in connection with future acquisitions. FACTORS AFFECTING FUTURE OPERATING RESULTS: The data storage industry in which the Company competes is subject to a number of risks, each of which has affected the Company's operating results in the past and could impact the Company's future operating results. The demand for disc drive and tape drive products depends principally on demand for computer systems and storage upgrades to computer systems, which has historically been volatile. Changes in 14 demand for computer systems often have an exaggerated effect on the demand for disc drive and tape drive products in any given period, and unexpected slowdowns in demand for computer systems generally cause sharp declines in demand for such products. The data storage industry has been characterized by periodic situations in which the supply of drives exceeds demand, resulting in higher than anticipated inventory levels and intense price competition. Even during periods of consistent demand, this industry is characterized by intense competition and ongoing price erosion over the life of a given drive product. The Company expects that competitors will offer new and existing products at prices necessary to gain or retain market share and customers. The Company expects that price erosion in the data storage industry will continue for the foreseeable future. This competition and continuing price erosion could adversely affect the Company's results of operations in any given quarter and such adverse effect often cannot be anticipated until late in any given quarter. In addition, the demand of drive customers for new generations of products has led to short product life cycles that require the Company to constantly develop and introduce new drive products on a cost effective and timely basis. In addition, the Company's future success will require, in part, that the market for computer systems, storage upgrades to computer systems and multimedia applications, such as digital video and video-on-demand, and hence the market for disc drives, remain strong. In addition, the Company's operating results have been and may in the future be subject to significant quarterly fluctuations as a result of a number of other factors, including the timing of orders from and shipment of products to major customers, product mix, pricing, delays in the development, introduction and production of new products, delays or interruptions in the production of existing products, competing technologies, variations in product cost, component availability due to single or limited sources of supply, high fixed costs resulting from the Company's vertical integration strategy, foreign exchange fluctuations, increased competition and general economic and industry fluctuations. The Company's future operating results may also be adversely affected by an adverse judgment or settlement in the legal proceedings in which the Company is currently involved (see "Part II, Item 1. Legal Proceedings"). The Company's future operating results will also be impacted by its ability to combine successfully the operations of Seagate and Conner. The transition to a combined Company requires substantial attention from the Company's management. The diversion of the attention of management and any difficulties encountered in the transition process could have an adverse impact on the revenues and operating results of the Company. The combination of the Company and Conner also requires integration of the companies' product offerings and the coordination of their research and development and sales and marketing efforts. The difficulties of assimilation may be increased by the necessity of coordinating geographically separated organizations, integrating personnel with disparate business backgrounds and combining two different corporate cultures. In addition, the process of combining the two organizations has caused and could continue to cause the interruption of, or loss of momentum in, the activities of the Company's businesses, which could have a material adverse effect on the Company. There can be no assurance that the Company will retain its technical and other key personnel nor realize any of the technological or other benefits of the Merger. 15 The Company is in the process of incorporating several of its software businesses into a single entity called Seagate Software, Inc. and is offering employees of Seagate Software, Inc. and selected employees of the Company an opportunity to acquire an equity interest in the software business. The software business is subject to a number of risks including the highly competitive nature of the business, the Company's ability to successfully integrate its various software business acquisitions, possible delays in product development and introduction, competitors' technological innovations and loss of key personnel. The Company intends to continue its expansion into software and other complementary businesses. As a result, the Company expects that it will continue to incur charges as it acquires businesses, including charges for the write-off of in-process research and development. The timing of such write-offs has in the past and may in the future lead to fluctuations in the Company's operating results on a quarterly and annual basis. LIQUIDITY AND CAPITAL RESOURCES: At September 27, 1996, the Company's cash, cash equivalents and short-term investments totaled $1,589,214,000, an increase of $415,152,000 from the June 28, 1996 balance. This increase was primarily a result of cash provided by operating activities, offset by the Company's additions to property, equipment and leasehold improvements. Until required for other purposes, the Company's cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase, while its short-term investments consist of readily marketable debt securities with remaining maturities of more than 90 days at the time of purchase. As of September 27, 1996, the Company had committed lines of credit of $81 million which can be used for standby letters of credit or bankers' guarantees. At September 27, 1996, approximately $77 million had been utilized. The Company expects investments in property and equipment in the current fiscal year to approximate $1 billion, of which approximately $208 million had been incurred as of September 27, 1996. The Company plans to finance these investments from existing cash balances and cash flows from operations. The $208 million comprised $65 million for manufacturing facilities and equipment related to the Company's subassembly and disc drive final assembly and test facilities in the United States, Far East and Ireland, $83 million for manufacturing facilities and equipment for the thin-film head operations in the United States, Malaysia and Northern Ireland, $38 million for expansion of the Company's thin-film media operations in California and Singapore and $22 million for other purposes. During the quarter ended September 27, 1996 the Company acquired 170,000 shares of its common stock for approximately $8.5 million. The repurchase of these shares was in connection with a stock repurchase program announced in September 1996 in which up to 7,000,000 shares of the Company's common stock were authorized to be acquired in the open market. 16 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ----------------- The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to the Company's legal proceedings described below. Litigation is inherently uncertain and may result in adverse rulings or decisions. Additionally, the Company may enter into settlements or be subject to judgments which may, individually or in the aggregate, have a material adverse effect on the Company's results of operations. Accordingly, actual results could differ materially from those projected in the forward-looking statements. 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. On February 8, 1995 the Court granted defendants summary judgment completely dismissing all claims against the Company. On March 31, 1995 the Court denied plaintiffs' motion for reconsideration of the summary judgment decision. Plaintiffs have appealed this judgment to the Ninth Circuit Court of Appeals. A hearing on the matter was held on September 18, 1996 and on October 2, 1996, the Ninth Circuit affirmed the judgment of the District Court, dismissing all claims against the Company. 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 the case was recently reassigned to a different U.S. District Court Judge. A status conference is set for November 20, 1996. The Court has not set a trial date. In 1993 a series of lawsuits were filed in Federal Court for the Northern District of California against Conner Peripherals, Inc. which is now a wholly owned subsidiary of the Company known as Seagate Peripherals, Inc. These class action lawsuits allege violations of the federal securities laws and seek damages on behalf of a class of purchasers of Conner's securities. A status conference has been set for November 15, 1996. The Court has not set a trial date. The Company believes the 1991 and 1993 series of securities lawsuits are without merit and intends to vigorously contest them. 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. 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 Ceridian Corporation ("Ceridian") (formerly Control Data Corporation) in fiscal 1990. Other parties have also been identified at 17 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 Company's portion of the estimated cost of investigation and remediation of known contamination at the sites to be incurred after June 28, 1996, is approximately $16,000,000. Through June 28, 1996, the Company had recovered approximately $3,500,000 from Ceridian through its indemnification and cost sharing agreements with Ceridian and, in addition, expects to recover approximately $9,900,000 from Ceridian over the next 30 years. After deducting the expected recoveries from Ceridian, the expected aggregate undiscounted liability was approximately $6,100,000 at June 28, 1996, with expected payments by the Company of approximately $329,000 in 1999, $671,000 in 2000 and the remainder after 2001. Approximately $15,100,000 of the $16,000,000 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 Ceridian and the Company for the Omaha site for several years and has 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 a Consent Order entered into by the Company and the EPA in 1990. The extent of the contamination in the groundwater has been investigated and generally 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. A substantial portion of the Omaha liability was discounted by applying a risk free rate of 6% 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 considering the estimated effects of inflation, reimbursements by Ceridian and discounting was approximately $3,100,000 at June 28, 1996. The Company believes that the indemnification and cost-sharing agreements entered into with Ceridian 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 contamination will not have a material adverse effect 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. 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 refused Rodime's offer of a license for its patents. Other companies, however, such as IBM, Hewlett-Packard and a number of Japanese companies have reportedly made payments to and taken licenses from Rodime. In 1995 the Court granted the Company's motions for summary judgment finding that all of the Company's accused products, with the exception of the ST157, did not infringe any claims of the Rodime patent, and that the majority of the claims in the Rodime patent were invalid as a matter of law. The ST157 is no longer in production. This case was reassigned on July 19, 1996 to a different U.S. District Court Judge. The case has been set for trial on March 18 4, 1997. While the Company believes its defenses to Rodime's claims are meritorious, should Rodime prevail at trial, a judgment in a material amount could be awarded against the Company. 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. 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. This second petition has also been granted by the PTO. The District Court stayed the action pending the outcome of the reexaminations. The applications for Reexamination of the patents involved in the White case are still pending and the suit remains stayed pending completion of the Reexaminations. In both Reexaminations, the Examiner has allowed some claims and rejected others. The Company believes, based on a preliminary evaluation, that it does not infringe any of the claims that have been allowed. Papst Licensing, Gmbh, has given the Company notice that it believes certain former Conner Peripherals, Inc. disc drives infringe several of its patents covering the use of spin motors in disc drives. The Company believes that none of the identified products infringe any valid claims of the noticed patents. In the normal course of business, the Company receives and makes inquiry with regard to other possible intellectual property matters including alleged patent infringement. Where deemed advisable, the Company may seek or extend licenses or negotiate settlements. BUSINESS 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 replied to the allegations made against it by Amstrad by denying all material points of Amstrad's claim and asserted affirmative defenses. Trial began April 16, 1996 and concluded on July 31, 1996. No decision has yet been issued by the Court and there is no assurance that a decision will be forthcoming for several months. The Company believes that it asserted meritorious defenses to Amstrad's claim, including substantial objections to the methodology and calculation of Amstrad's alleged damages but believes that, should Amstrad prevail on its liability claims, a judgment in a material amount would be awarded against the Company. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- 19 The Company's 1996 Annual Meeting of Stockholders was held on October 24, 1996. 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 with respect to each matter. There were no broker non- votes with respect to any matter. (a) The stockholders elected the following directors to serve for the ensuing year and until their successors are elected: FOR WITHHELD ---------- -------- Alan F. Shugart 86,647,194 164,832 Robert A. Kleist 86,650,059 161,967 Gary B. Filler 86,636,975 175,051 Kenneth E. Haughton 86,649,629 162,397 Thomas P. Stafford 86,644,111 167,915 Lawrence Perlman 86,631,086 180,940 Laurel L. Wilkening 86,649,465 162,561 (b) The stockholders approved an amendment to the Company's Certificate of Incorporation to increase the authorized number of shares of common stock reserved for issuance thereunder by four hundred million (400,000,000) shares. FOR AGAINST ABSTAIN --- ------- ------- 69,209,255 17,222,001 380,770 (c) The stockholders ratified the appointment of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending June 27, 1997 . FOR AGAINST ABSTAIN --- ------- ------- 86,607,265 99,955 104,806 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits The following exhibits are included herein: 3.1 Certificate of Incorporation of Registrant, as amended 11.1 Computation of Net Income per Share 27 Financial Data Schedule (b) Reports on Form 8-K 20 No reports on Form 8-K have been filed with the Securities and Exchange Commission during the three months ended September 27, 1996: 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: November 8, 1996 BY: /s/ Donald L. Waite --------------------------- DONALD L. WAITE Executive Vice President, Chief Administrative Officer and Chief Financial Officer (Principal Financial and Accounting Officer) DATE: November 8, 1996 BY: /s/ Alan F. Shugart --------------------------- ALAN F. SHUGART Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer and Director) 22 SEAGATE TECHNOLOGY, INC. INDEX TO EXHIBITS EXHIBIT NUMBER _______ 3.1 Certificate of Incorporation of Registrant, as amended 11.1 Computation of Net Income per Share 27 Financial Data Schedule EX-3.1 2 CERTIFICATE OF INCORPORATION EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF SEAGATE TECHNOLOGY, INC. The undersigned, Marianne Stark, Sole Incorporator of Seagate Technology, Inc. (the "corporation"), pursuant to Sections 241 and 245 of the Delaware General Corporation Law, certifies as follows: FIRST: That the name of the corporation is Seagate Technology, Inc. The corporation was incorporated on September 23, 1986. SECOND: That the Sole Incorporator of this corporation determined it to be in the best interests of this corporation to amend the Certificate of Incorporation to delete certain limitations on rights of stockholders, and thereafter to restate the Certificate of Incorporation as so amended to be in the form attached hereto as Exhibit A. THIRD: No directors of the corporation have been elected or appointed. FOURTH: That no stock has been issued, nor has payment for any stock been received. IN WITNESS WHEREOF, said Seagate Technology, Inc. has caused this Certificate to be signed by Marianne Stark, its Sole Incorporator, this 30th day of September, 1986. SEAGATE TECHNOLOGY, INC. By: /s/ Marianne Stark ---------------------------------- Marianne Stark, Sole Incorporator EXHIBIT A RESTATED CERTIFICATE OF INCORPORATION OF SEAGATE TECHNOLOGY, INC. 1. The name of the corporation is Seagate Technology, Inc. (the "Corporation"). 2. The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, zip code 19801. The name of its registered agent at such address is The Corporation Trust Company. 3. The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 4. (a) The Corporation is authorized to issue two classes of shares to be designated, respectively, "Preferred Stock" and "Common Stock." The total number of shares which this corporation shall have the authority to issue is Eighty-Two Million (82,000,000), of which One Million (1,000,000) shall be Preferred Stock and Eighty-One Million (81,000,000) shall be Common Stock. The Preferred Stock and the Common Stock shall each have a par value of $.01 per share, and the aggregate par value of all shares of Preferred Stock is $10,000 and of all shares of Common Stock is $810,000. (b) The shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article 4, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The authority of the Board with respect to each series shall include, but not be limited to, determination of the following: (a) The number of shares constituting that series and the distinctive designation of that series; (b) The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (c) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (d) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (e) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or date upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (f) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (g) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; (h) Any other relative or participating rights, preferences and limitations of that series. 5. The name and mailing address of the incorporator are as follows: Marianne Stark Wilson, Sonsini, Goodrich & Rosati Professional Corporation Two Palo Alto Square, Suite 900 Palo Alto, CA 94306 6. The Corporation is to have perpetual existence. 7. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation. 8. The number of directors which will constitute the whole Board of Directors of the Corporation shall be as specified in the Bylaws of the Corporation. 9. At all elections of directors of the corporation, each holder of stock or of any class or classes or of a series or series thereof shall be entitled to as many votes as shall equal the number of votes which (except for such provision as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected by him, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them as he may see fit. -2- 10. Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation. 11. To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Neither any amendment nor repeal of this Article 12, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article 12, shall eliminate or reduce the effect of this Article 12 in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article 12, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. 12. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. -3- CERTIFICATE OF MERGER OF SEAGATE TECHNOLOGY A CALIFORNIA CORPORATION INTO SEAGATE TECHNOLOGY, INC. The undersigned corporation does hereby certify: FIRST: That the name and state of incorporation of each of the constituent corporations of the merger are as follows: NAME STATE OF INCORPORATION ------------------------ ------------------------ Seagate Technology California Seagate Technology, Inc. Delaware SECOND: That an Agreement and Plan of Merger (the "Merger Agreement") between the parties to the merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of subsection (c) of Section 252 of the General Corporation Law of the State of Delaware and that the effective time of the merger shall be noon eastern standard time on the day on which this Certificate is filed with the Secretary of State of the State of Delaware. THIRD: That the name of the surviving corporation of the merger is Seagate Technology, Inc., a Delaware corporation. FOURTH: That the Certificate of Incorporation of Seagate Technology, Inc., a Delaware corporation, shall be the certificate of incorporation of the surviving corporation. FIFTH: That the executed Merger Agreement is on file at the principal place of business of the surviving corporation. The address of said principal place of business is 920 DiskDrive, Scotts Valley, California 95066. SIXTH: That a copy of the Merger Agreement will be furnished by the surviving corporation, on request and without cost, to any stockholder of any constituent corporation. SEVENTH: That the authorized capital stock of Seagate Technology, a California corporation, is 81,000,000 shares of Common Stock, no par value, and 1,000,000 shares of Preferred Stock, no par value. SEAGATE TECHNOLOGY, INC. a Delaware corporation By: /s/ David T. Mitchell ----------------------------- David T. Mitchell, President ATTEST: /s/ Donald L. Waite - -------------------------- Donald L. Waite, Secretary -2- CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES AND PRIVILEGES OF SERIES A PARTICIPATING PREFERRED STOCK OF SEAGATE TECHNOLOGY, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, Alan F. Shugart and Donald L. Waite, the Chairman of the Board and Chief Executive Officer and the Secretary, respectively, of Seagate Technology, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the said Corporation, the said Board of Directors on November 21, 1988 adopted the following resolution creating a series of 800,000 shares of Preferred Stock designated as Series A Participating Preferred Stock: "RESOLVED: That pursuant to the authority vested in the Board of Directors -------- of the corporation by the Restated Certificate of Incorporation, the Board of Directors does hereby provide for the issue of a series of Preferred Stock, $.01 par value, of the Corporation, to be designated "Series A Participating Preferred Stock", initially consisting of 800,000 shares and to the extent that the designations, powers, preferences and relative and other special rights and the qualifications, limitations and restrictions of the Series A Participating Preferred Stock are not stated and expressed in the Restated Certificate of Incorporation, does hereby fix and herein state and express such designations, powers, preferences and relative and other special rights and the qualifications, limitations and restrictions thereof, as follows (all terms used herein which are defined in the Restated Certificate of Incorporation shall be deemed to have the meanings provided therein): Section 1. Designation and Amount. The shares of such series shall be ---------------------- designated as "Series A Participating Preferred Stock", par value $.01 per share, and the number of shares constituting such series shall be 800,000. Section 2. Dividends and Distributions. --------------------------- -1- (A) Subject to the prior and superior right of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Participating Preferred Stock with respect to dividends, the holders of shares of Series A Participating Preferred Stock shall be entitled to receive when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of September, December, March and June in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to, subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock of the Corporation (the "Common Stock") since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Participating Preferred Stock. In the event the Corporation shall at any time after December 19, 1988 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Participating Preferred Stock were entitled immediately prior to such event under the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock). (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive payment of a dividend or distribution -2- declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A ------------- Participating Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Participating Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as required by law, holders of Series A Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. --------------------- (A) The Corporation shall not declare any dividend on, make any distribution on, or redeem or purchase or otherwise acquire for consideration any shares of Common Stock after the first issuance of a share or fraction of a share of Series A Participating Preferred Stock unless concurrently therewith it shall declare a dividend on the Series A Preferred Stock as required by Section 2 hereof. (B) Whenever quarterly dividends or other dividends or distributions payable on the Series A Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Participating Preferred Stock; -3- (ii) declare or pay dividends on, make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with Series A Participating Preferred Stock, except dividends paid ratably on the Series A Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Participating Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Participating Preferred Stock; (iv) purchase or otherwise acquire for consideration any shares of Series A Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Participating Preferred Stock except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (C) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Participating ----------------- Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. -------------------------------------- (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Participating Preferred Stock shall have received $36,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per -4- share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set forth in subparagraph (C) below to reflect such events as stock splits, stock dividends and recapitalization with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Participating Preferred Stock and Common Stock, respectively, holders of Series A Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively. (B) In the event, however, that there are not sufficient assets available to permit payment in full to the Series A Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity with the Series A Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preference. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (C) In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the out-standing Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall -------------------------- enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. -5- Section 8. No Redemption. The shares of Series A Participating Preferred ------------- Stock shall not be redeemable. Section 9. Ranking. The Series A Participating Preferred Stock shall ------- rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. Section 10. Amendment. The Certificate of Incorporation of the --------- Corporation shall not be further amended in any manner which would materially alter or change the powers, preference or special rights of the Series A Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Participating Preferred Stock, voting separately as a class. Section 11. Fractional Shares. Series A Participating Preferred Stock ----------------- may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Participating Preferred Stock." IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this 21st day of November, 1988. /s/ Alan F. Shugart ------------------------------------------ Alan F. Shugart, Chairman of the Board and Chief Executive Officer ATTEST: /s/ Donald L. Waite - -------------------------- Donald L. Waite, Secretary -6- CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF SEAGATE TECHNOLOGY, INC. Robb A. Kundtz and David A. Drennan certify that: 1. They are the Vice President, Administration and Assistant Secretary, respectively, of Seagate Technology, Inc., a Delaware corporation. 2. Article 4(a) of the Restated Certificate of Incorporation of this corporation is amended to read as follows: "The Corporation is authorized to issue two classes of shares to be designated, respectively, "Preferred Stock" and "Common Stock." The total number of shares which this Corporation shall have the authority to issue is Two Hundred One Million (201,000,000), of which One Million (1,000,000) shall be Preferred Stock and Two Hundred Million (200,000,000) shall be Common Stock. The Preferred Stock and the Common Stock shall each have a par value of $.01 per share, and the aggregate par value of all shares of Preferred Stock is $10,000 and of all shares of Common Stock is $2,000,000." 3. The foregoing amendment of the Restated Certificate of Incorporation has been duly approved by the board of directors. 4. The foregoing amendment of the Restated Certificate of Incorporation has been duly approved by the required vote of stockholders in accordance with Section 216 of the General Corporation Law and Article II, Section 9 of the Bylaws of the Corporation. We further declare under penalty of perjury under the laws of the State of Delaware that the matters set forth in this certificate are true and correct of our own knowledge. Date: April 24, 1990 /s/ Robb A. Kundtz ------------------------------------- Robb A. Kundtz, Vice President, Administration ATTEST: /s/ David A. Drennan ------------------------------------- David A. Drennan, Assistant Secretary CERTIFICATE OF ELIMINATION OF THE CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES AND PRIVILEGES OF SERIES A PARTICIPATING PREFERRED STOCK OF SEAGATE TECHNOLOGY, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, Alan F. Shugart and Donald L. Waite, the Chairman of the Board and Chief Executive Officer and the Secretary, respectively, of Seagate Technology, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provision of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation of the said corporation, the said Board of Directors on October 27, 1994 adopted the following resolution eliminating the series of 800,000 shares of Preferred Stock designated as Series A Participating Preferred Stock: "RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corporation by the restated Certificate of Incorporation, the Board of Directors has determined that as none of the authorized shares of the Series A Participating Preferred Stock, consisting of 800,000 shares, $.01 par value, are outstanding, and as none of the authorized shares of the Series A Participating Preferred Stock will be issued pursuant to the Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock previously filed with the Secretary of State of the State of Delaware on December 5, 1988, the Board hereby resolves that the Series A Participating Preferred Stock shall be eliminated." IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under penalties of perjury this 1st day of December, 1994. /s/ Alan F. Shugart ------------------------- Alan F. Shugart Chairman of the Board and Chief Executive Officer ATTEST: /s/ Donald L. Waite - -------------------------- Donald L. Waite, Secretary CERTIFICATE OF AMENDMENT OF THE RESTATED CERTIFICATE OF INCORPORATION OF SEAGATE TECHNOLOGY, INC. Alan F. Shugart and Donald L. Waite certify that: 1. They are the President, Chief Executive Officer and Chairman of the Board and the Executive Vice President, Chief Administrative Officer, Chief Financial Officer, and Secretary, respectively, of SEAGATE TECHNOLOGY, INC., a Delaware corporation. 2. Article 4(a) of the Restated Certificate of Incorporation of this corporation is amended in its entirety to read as follows: "The Corporation is authorized to issue two classes of shares to be designated, respectively, "Preferred Stock" and "Common Stock." The total number of shares which the Corporation shall have authority to issue is Six Hundred One Million (601,000,000), of which One Million (1,000,000) shall be Preferred Stock and Six Hundred Million (600,000,000) shall be Common Stock. The Preferred Stock and the Common Stock shall each have a par value of $0.01 per share, and the aggregate par value of all shares of Preferred Stock is $10,000 and of all shares of Common Stock is $6,000,000." 3. The foregoing amendment of the Restated Certificate of Incorporation has been duly approved by this corporation's Board of Directors in accordance with Section 242 of the Delaware General Corporation Law. 4. The foregoing Amendment of the Restated Certificate of Incorporation has been duly approved by the stockholders in accordance with Sections 216 and 242 of the Delaware General Corporation Law and the Bylaws of this corporation. We hereby further declare and certify under penalty of perjury under the laws of the State of Delaware that the facts set forth in the foregoing certificate are true and correct of our own knowledge and that this Certificate of Amendment is our act and deed. Executed at Scotts Valley, California, this 24th day of October, 1996. /s/ Alan F. Shugart ------------------------------------------------------- Alan F. Shugart, President, Chief Executive Officer and Chairman of the Board ATTEST: /s/ Donald L. Waite ------------------------------------------------------- Donald L. Waite, Executive Vice President, Chief Administrative Officer, Chief Financial Officer and Secretary EX-11.1 3 COMPUTATION OF NET INCOME PER SHARE EXHIBIT 11.1 SEAGATE TECHNOLOGY, INC. COMPUTATION OF NET INCOME PER SHARE (In thousands except per share data)
Three Months Ended ------------------ September 27, September 29, 1996 1995 ------------- ------------- PRIMARY Weighted average number of common shares outstanding during the period 106,864 96,078 Incremental common shares attributable to exercise of outstanding options (assuming proceeds would be used to purchase treasury stock) 2,834 2,984 -------- -------- Total shares 109,698 99,062 ======== ======== Net income: Amount $129,361 $120,809 Per share $ 1.18 $ 1.22 FULLY DILUTED - ------------- Weighted average number of common shares outstanding during the period 106,864 96,078 Incremental common shares attributable to exercise of outstanding options (assuming proceeds would be used to purchase treasury stock) and conversion of convertible subordinated debentures 22,469 28,696 -------- -------- Total shares 129,333 124,774 ======== ======== Net income: Amount $129,361 $120,809 Add 6-3/4% convertible subordinated debentures interest, net of income tax effect - 2,736 Add 5% convertible subordinated debentures interest, net of income tax effect 2,057 2,057 Add 6-1/2% convertible subordinated debentures interest, net of income tax effect 3,054 2,967 Add 6-3/4% convertible subordinated debentures interest, net of income tax effect 2,145 2,085 -------- -------- Total $136,617 $130,654 ======== ======== Per share $ 1.06 $ 1.05 ======== ========
EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED BALANCE SHEET AS OF SEPTEMBER 27, 1996 AND THE CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 27, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JUN-27-1997 JUN-29-1996 SEP-27-1996 943,097 646,117 1,101,900 64,494 683,067 3,682,196 2,572,233 1,069,499 5,617,940 1,699,211 792,051 0 0 1,071 2,607,738 5,617,940 2,060,825 2,060,825 1,668,049 1,668,049 107,619 0 9,273 179,668 50,307 129,361 0 0 0 129,361 1.18 1.08
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