<PAGE>
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 April 2, 1999
Commission File No. 000-23169
SEAGATE SOFTWARE, INC.
(Registrant)
_________________
Incorporated in the State of Delaware
I.R.S. Employer Identification Number 77-0397623
915 Disc Drive, Scotts Valley, California 95066
Telephone: (831) 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 [_]
The number of shares outstanding of the registrant's Common Stock as of April 2,
1999 was 1,071,431.
<PAGE>
INDEX
SEAGATE SOFTWARE, INC.
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of April 2, 1999 (unaudited)
and July 3, 1998 2
Condensed Consolidated Statements of Operations for the three and nine
months ended April 2, 1999 and April 3, 1998 (unaudited) 3
Condensed Consolidated Statements of Cash Flows for the nine months
ended April 2, 1999 and April 3, 1998 (unaudited) 4
Notes to the Condensed Consolidated Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risks 30
PART II OTHER INFORMATION PAGE NO.
- -----------------------------------------------------------------------------------------------
Item 1. Legal Proceedings 31
Item 6. Exhibits and Reports on Form 8-K 31
SIGNATURES 32
</TABLE>
1
<PAGE>
SEAGATE SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
April 2, July 3,
1999 1998
--------------- -------------
(Unaudited) (1)
<S> <C> <C>
Assets
Cash $ 6,904 $ 15,130
Accounts receivable, net 61,637 46,564
Inventories 1,234 1,117
Loan receivable from Seagate Technology 31,413 --
Other current assets 8,503 2,474
--------------- -------------
Total current assets 109,691 65,285
--------------- -------------
Equipment and leasehold improvements, net 18,253 16,876
Goodwill and other intangibles, net 37,748 56,836
--------------- -------------
Total assets $ 165,692 $ 138,997
=============== =============
Liabilities
Loan payable to Seagate Technology $ -- $ 16,054
Accounts payable 13,546 10,994
Accrued employee compensation 16,263 14,365
Accrued expenses 20,322 15,339
Accrued income taxes 10,000 5,562
Deferred revenue 21,476 13,714
--------------- -------------
Total current liabilities 81,607 76,028
Deferred income taxes 697 1,691
Other liabilities 37 255
--------------- -------------
Total liabilities 82,341 77,974
Commitments and Contingencies
Common stock subject to repurchase 3,575 3,917
Stockholders' Equity
Convertible preferred stock 55 55
Common stock -- --
Additional paid-in capital 347,717 343,526
Accumulated deficit (267,496) (286,218)
Accumulated other comprehensive income (500) (257)
--------------- -------------
Total stockholders' equity 79,776 57,106
--------------- -------------
Total liabilities and stockholders' equity $ 165,692 $ 138,997
=============== =============
</TABLE>
(1) The information in this column was derived from Seagate Software's audited
consolidated balance sheet as of July 3, 1998.
See notes to condensed consolidated financial statements.
2
<PAGE>
SEAGATE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- ----------------------------------
April 2, April 3, April 2, April 3,
1999 1998 1999 1998
---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Licensing $ 83,972 $ 65,501 $ 217,434 $ 177,481
Licensing from Seagate Technology 1,337 1,949 5,343 4,382
Maintenance, support and other 16,161 11,138 45,623 32,091
---------------- -------------- ---------------- --------------
Total revenues 101,470 78,588 268,400 213,954
Cost of revenues:
Licensing 3,948 4,848 10,108 13,521
Licensing from Seagate Technology 58 127 332 498
Maintenance, support and other 7,301 4,777 19,618 14,052
Amortization of developed technologies 2,847 3,522 8,560 10,501
---------------- -------------- ---------------- --------------
Total cost of revenues 14,154 13,274 38,618 38,572
---------------- -------------- ---------------- --------------
Gross profit 87,316 65,314 229,782 175,382
Operating expenses:
Sales and marketing 42,947 34,003 118,843 94,461
Research and development 14,100 12,311 40,441 35,482
General and administrative 8,783 8,741 26,048 28,234
Amortization of goodwill and other intangibles 4,081 3,439 10,817 12,831
---------------- -------------- ---------------- --------------
Total operating expenses 69,911 58,494 196,149 171,008
---------------- -------------- ---------------- --------------
Income from operations 17,405 6,820 33,633 4,374
Interest expense -- (303) (202) (961)
Other, net 382 318 1,721 784
---------------- -------------- ---------------- --------------
Interest expense and other, net 382 15 1,519 (177)
---------------- -------------- ---------------- --------------
Income before income taxes 17,787 6,835 35,152 4,197
Provision for income taxes (7,552) (5,273) (16,430) (3,587)
---------------- -------------- ---------------- --------------
Net income $ 10,235 $ 1,562 $ 18,722 $ 610
================ ============== ================ ==============
Net income per common share:
Basic $26.43 $6.44 $53.99 $3.40
Diluted $0.16 $0.03 $0.30 $0.01
Number of shares used in per share computations:
Basic 387,295 242,669 346,742 179,201
Diluted 64,144,056 57,569,524 62,905,316 56,529,886
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
SEAGATE SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------
April 2, 1999 April 3, 1998
----------------- -----------------
<S> <C> <C>
Operating activities
Net income $ 18,722 $ 610
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 26,570 31,001
Deferred income taxes (994) (3,891)
Write-offs of goodwill and intangibles -- 1,900
Changes in operating assets and liabilities:
Accounts receivable (15,073) (15,605)
Inventories (117) 2,337
Other current assets (6,029) 338
Accounts payable 2,552 933
Accrued employee compensation 1,898 4,034
Accrued expenses 4,983 4,184
Accrued income taxes 5,625 307
Deferred revenue 7,762 4,511
Other liabilities (218) (39)
-------------- ---------------
Net cash provided by operating activities 45,681 30,620
Investing activities
Acquisition of equipment and leasehold improvements, net (8,395) (4,803)
Acquisition of intangibles (289) --
-------------- ---------------
Net cash used in investing activities (8,684) (4,803)
Financing activities
Sale of common stock 697 514
Borrowings from Seagate Technology 205,860 169,492
Payments to Seagate Technology (251,362) (198,349)
-------------- ---------------
Net cash used in financing activities (44,805) (28,343)
Effect of exchange rate changes on cash (418) (90)
-------------- ---------------
Decrease in cash (8,226) (2,616)
Cash at the beginning of the period 15,130 12,085
-------------- ---------------
Cash at the end of the period $ 6,904 $ 9,469
============== ===============
Supplemental Cash Flow Information
Cash paid for interest $ -- $ 36
Cash paid for income taxes 10,922 7,041
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Summary of Significant Accounting Policies
Basis of Presentation. The consolidated condensed financial statements have
been prepared by Seagate Software, 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. Seagate Software believes the
disclosures included in the unaudited condensed consolidated financial
statements, when read in conjunction with the consolidated financial statements
of Seagate Software as of July 3, 1998 and notes thereto, are adequate to make
the information presented not misleading.
The condensed consolidated financial statements reflect, in the opinion of
management, all 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 nine months ended April 2, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ending July 2, 1999.
Seagate Software operates and reports financial results on a fiscal year of 52
or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 1998
was 53 weeks and ended on July 3, 1998 and fiscal 1999 will be 52 weeks and will
end on July 2, 1999. All references to years in this Form 10-Q represent fiscal
years unless otherwise noted.
Restatement of Financial Statements. Seagate Software had previously
allocated a portion of goodwill to developed technology and evaluated the
impairment of goodwill based on the revenues from related software. Using this
method, Seagate Software recorded write-downs and write-offs of goodwill in
fiscal 1997 in the amount of $10.3 million. Seagate Software has re-evaluated
its methodology and determined that goodwill should not be written-down or
written-off under Accounting Principles Board Opinion 17, "Intangible Assets",
unless virtually all of the identifiable assets have been abandoned or sold. As
a result, Seagate Software has made adjustments to decrease the amounts of
goodwill previously written-down and written-off from $10.3 million to $6.2
million in fiscal 1997. The additional goodwill of $4.1 million is being
amortized over their remaining original useful lives of 7 years.
5
<PAGE>
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
The effect of this adjustment on previously reported consolidated financial
statements as of and for the three and nine months ended April 3, 1998 is as
follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
As Reported As Restated
-------------------------------------------------------------------------------
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
April 3, 1998 April 3, 1998 April 3, 1998 April 3, 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Amortization of goodwill and
other intangibles $ 3,244 $ 12,246 $ 3,439 $ 12,831
Income from operations 7,015 4,959 6,820 4,374
Net income 1,757 1,195 1,562 610
Basic income per share 9.22 8.04 6.44 3.40
Diluted income per share 0.03 0.02 0.03 0.01
Goodwill and other intangible 52,381 52,381 55,532 55,532
assets, net
Accumulated deficit (279,489) (279,489) (276,338) (276,338)
</TABLE>
Revenue Recognition. Seagate Software's revenues are primarily derived from
the sale of product licenses, software maintenance, technical support, training
and consulting. During the first quarter of 1999, Seagate Software began
recognizing license revenues in accordance with the American Institute of
Certified Public Accountants Statement of Position 97-2, "Software Revenue
Recognition". Revenues from software license agreements are generally
recognized at the time of product delivery, provided that fees are fixed or
determinable, evidence of an arrangement exists, collectibility is probable and
the Company has vendor-specific objective evidence of fair value. Service
revenues from customer maintenance fees for ongoing customer support and product
updates are recognized ratably over the maintenance term, which is typically 12
months. Service revenues from training and consulting are recognized when such
services are performed.
Revenues from resellers including VARs, OEMs, distributors and Seagate
Software's parent company, Seagate Technology, Inc. ("Seagate Technology"), are
primarily recognized at the time of product shipment to the reseller. Seagate
Software's policy is to defer such revenues if resale contingencies exist.
Factors considered in the determination of whether such contingencies exist,
include but are not limited to payment terms, collectibility and past history
with the customer.
Product returns are reserved for in accordance with SFAS 48. Such returns are
estimated based on historical return rates. Seagate Software considers other
factors such as fixed and determinable fees, resale contingencies, arms length
contract terms and the ability to reasonably estimate returns to insure
compliance with SFAS 48. Additionally, Seagate Software continually reviews its
estimated product return provisions to ensure that they are reasonable in
relation to actual product returns, which are quantified based on approved
return authorization forms received prior to fiscal cutoff dates. Historically,
Seagate Software's estimated product return rates have not varied materially
from actual product return rates.
6
<PAGE>
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Net Income Per Share. Basic net income per common share is computed using
the weighted average number of shares of common stock outstanding during the
period. Below is a reconciliation of the numerator and denominator used to
calculate basic and diluted earnings per share (in thousands, except share and
per share data):
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------------------------- ---------------------------------------
April 2, April 3, April 2, April 3,
1999 1998 1999 1998
------------------- ------------------ ------------------- -----------------
<S> <C> <C> <C> <C>
Basic net income per share computation:
Numerator:
Net income $ 10,235 $ 1,562 $ 18,722 $ 610
------------------- ------------------ ------------------- -----------------
Denominator:
Weighted average number of common shares
Outstanding during the period 387,295 242,669 346,742 179,201
------------------- ------------------ ------------------- -----------------
Net income per share - basic $ 26.43 $ 6.44 $ 53.99 $ 3.40
=================== ================== =================== =================
Diluted net income per share computation:
Numerator:
Net income $ 10,235 $ 1,562 $ 18,722 $ 610
------------------- ------------------ ------------------- -----------------
Denominator:
Weighted average number of common shares
outstanding during the period 387,295 242,669 346,742 179,201
Convertible preferred stock 54,633,333 54,633,333 54,633,333 54,633,333
Incremental common shares attributable to
exercise of outstanding options and shares
subject to repurchase (assuming proceeds
would be used to purchase treasury stock) 9,123,428 2,693,522 7,925,241 1,717,352
------------------- ------------------ ------------------- -----------------
69,144,056 57,569,524 62,905,316 56,529,886
------------------- ------------------ ------------------- -----------------
Net income per share - diluted $ 0.16 $ 0.03 $ 0.30 $ 0.01
=================== ================== =================== =================
</TABLE>
7
<PAGE>
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Accounts Receivable. Accounts receivable are summarized below, in
thousands:
<TABLE>
<CAPTION>
April 2, July 3,
1999 1998
------------- -------------
<S> <C> <C>
Accounts receivable $63,197 $48,200
Less allowance for non-collection (1,560) (1,636)
------------- -------------
$61,637 $46,564
============= =============
</TABLE>
Other Current Assets. Other current assets included prepaid acquisition costs
that will be expensed upon the closing of Seagate Software's contribution of its
Network & Storage Management Group business ("NSMG") to Veritas Holding
Corporation ("New Veritas"). See "Notes to Condensed Consolidated Financial
Statements --Veritas Transaction" below. These prepaid acquisition costs
amounted to approximately $3.5 million as of April 2, 1999 and consisted of
legal fees, accounting fees, investment banking fees, government filing fees and
other expenses directly related to this proposed transaction.
Equipment and Leasehold Improvements. Equipment and leasehold improvements
consisted of the following, in thousands:
<TABLE>
<CAPTION>
April 2, July 3,
1999 1998
------------- -------------
<S> <C> <C>
Equipment $ 35,870 $ 30,999
Leasehold improvements 10,300 9,424
------------- -------------
46,170 40,423
Less accumulated depreciation
and amortization (27,917) (23,547)
------------- -------------
$ 18,253 $ 16,876
============= =============
</TABLE>
Goodwill and Other Intangibles. Goodwill and other intangibles consisted
of the following, in thousands:
<TABLE>
<CAPTION>
April 2, July 3,
1999 1998
------------- -------------
<S> <C> <C>
Goodwill $ 49,139 $ 49,039
Developed technology 48,239 48,049
Trademarks 9,972 9,972
Assembled workforce 4,596 4,596
Distribution network 2,925 2,925
Other intangibles 13,813 13,813
-------------- -----------
128,684 128,394
Accumulated amortization (90,936) (71,558)
-------------- -----------
Goodwill and other intangibles $ 37,748 $ 56,836
============== ===========
</TABLE>
8
<PAGE>
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Common Stock Subject to Repurchase. Current employees and directors of
Seagate Software and of Seagate Technology have exercised 673,685 shares of
common stock under the 1996 Stock Option Plan (the "Option Plan"). At April 2,
1999, 246,485 shares were vested and 427,200 shares were unvested. At the option
of the employee or director, within 30 days of termination such vested and
unvested shares may be sold back to Seagate Software at the original issue
price. In addition, upon termination, unvested shares are subject to repurchase
at the option of Seagate Software at the original issue price. Because of the
obligation to repurchase vested and unvested shares of common stock, Seagate
Software has excluded the amounts associated with the repurchase obligation from
Stockholders' Equity in the accompanying balance sheet.
New Accounting Pronouncements
Seagate Software intends to adopt Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131") during fiscal 1999. This standard will require additional
disclosure, but will not have a material effect on Seagate Software's financial
position or results of operations. SFAS 131 changes the way companies report
segment information and requires segments to be determined based on how
management measures performance and makes decisions about allocating resources.
SFAS 131 will first be reflected in Seagate Software's 1999 Annual Report on
Form 10-K.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance on capitalization of the costs incurred for computer software developed
or obtained for internal use. It also provides guidance for determining whether
computer software is internal-use software and on accounting for the proceeds of
computer software originally developed or obtained for internal use and then
subsequently sold to the public. Seagate Software has not yet determined the
impact, if any, of adopting this statement. The disclosures prescribed by SOP
98-1 will be effective for Seagate Software's consolidated financial statements
for the fiscal year ending June 30, 2000.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that derivatives
be recognized in the balance sheet at fair value and specifies the accounting
for changes in fair value. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999, and will be effective for Seagate
Software's fiscal year 2000. Seagate Software generally does not use derivative
financial instruments.
9
<PAGE>
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
Stockholders' Equity
Shares authorized and outstanding are as follows:
<TABLE>
<CAPTION>
Shares Outstanding
--------------------------------
April 2, July 3,
1999 1998
--------------------------------
<S> <C> <C>
Preferred stock, par value $.001 per share,
73,000,000 shares authorized 54,633,333 54,633,333
Common stock, par value $.001 per share,
95,600,000 shares authorized 397,746 235,502
</TABLE>
Income Taxes
The effective tax rate used to record the provision for income taxes for
the nine months ended April 2, 1999 and April 3, 1998 was 47% and 85%,
respectively. The effective tax rate used to record the provision for taxes for
the nine months ended April 2, 1999 exceeds the U.S. statutory rate primarily
due to the amortization of goodwill that is not deductible for tax purposes, and
foreign taxes on certain earnings generated in higher tax rate jurisdictions.
The effective tax rate used to record the provision for income taxes for the
nine months ended April 3, 1998 exceeds the U.S. statutory rate primarily due to
increases in the valuation allowance for deferred tax assets and the
amortization of nondeductible goodwill. Seagate Software expects its annual
effective tax rate on anticipated operating income for fiscal 1999 to
approximate 47% absent the effects, if any, of its anticipated contribution of
Seagate Software's Network & Storage Management Group to New Veritas.
Seagate Software is included in the consolidated federal and certain
combined and consolidated state and foreign income tax returns of Seagate
Technology, Seagate Software's majority stockholder. Seagate Technology and
Seagate Software have entered into a tax sharing agreement (the "Tax Allocation
Agreement"). Pursuant to certain terms of the Tax Allocation Agreement, Seagate
Software's ability to recognize the tax benefits of certain net operating loss
carryforwards and foreign and domestic tax credits can be impacted by Seagate
Technology's anticipated operating income for fiscal 1999. Accordingly, Seagate
Software's expected annual effective tax rate of 47% on anticipated operating
income may be subject to adjustment in future quarters.
Comprehensive Income
As of July 4, 1998 Seagate Software adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income. SFAS
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of SFAS 130 had no impact on Seagate
Software's net income or stockholders' equity. SFAS 130 requires that foreign
currency translation adjustments, which prior to adoption were reported
separately in stockholders'
10
<PAGE>
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
equity, be included in accumulated other comprehensive income. The differences
between Seagate Software's comprehensive income and net income for the periods
presented are not material.
Contribution of NSMG to New Veritas
Seagate Software, its parent company, Seagate Technology and NSMG announced on
October 5, 1998 that they had entered into an Agreement and Plan of
Reorganization (the "Plan") as of such date with VERITAS Holding Corporation
("New VERITAS") and VERITAS Software Corporation ("VERITAS"). The Plan was
amended and restated on April 15, 1999. VERITAS provides end-to-end storage
management software solutions.
The Plan provides for the contribution by Seagate Technology, Seagate Software
and certain of their respective subsidiaries to New VERITAS of (a) the
outstanding stock of NSMG and certain other Seagate Software subsidiaries, and
(b) those assets used primarily in the network storage management business of
Seagate Software (the "NSMG Business"), in consideration for the issuance of
shares of Common Stock of New VERITAS to Seagate Software and the issuance of
options to purchase New VERITAS common stock to those NSMG Business employees
who become employees of New VERITAS or its subsidiaries. As part of the Plan,
New VERITAS will also assume certain liabilities of the NSMG Business. The
contribution of the NSMG Business to New VERITAS will be accounted for as a non-
monetary transaction using the fair value of the assets exchanged.
At the closing of the contribution, New VERITAS will issue approximately 34
million shares of its common stock to Seagate Software. Shortly after the
closing of the option exchange offer to NSMG Business employees, New VERITAS
will issue additional shares of its common stock to Seagate Software and options
to the participating employees of New VERITAS such that the aggregate number of
shares of New VERITAS received by Seagate Software subject to the options issued
in the exchange offer equals approximately 40% of the fully diluted
capitalization of New VERITAS (assuming conversion of all convertible
securities, including the VERITAS convertible debentures, and exercise of all
assumed options and warrants) at the effective time of the closing.
In connection with the contribution of the NSMG Business to New VERITAS,
VERITAS will become a wholly-owned subsidiary of New VERITAS through a merger
with a subsidiary of New VERITAS of which VERITAS will be the surviving entity.
Upon consummation of the merger, the former security holders of VERITAS will be
issued New VERITAS securities representing approximately 60% of the fully
diluted capitalization of New VERITAS as of the closing.
On April 22, 1999, the Securities and Exchange Commission declared effective
the Registration Statement on Form S-4 filed by New VERITAS in connection with
the NSMG contribution, the exchange offer to the NSMG Business employees and the
merger of a wholly owned subsidiary of New VERITAS with and into VERITAS. The
closing of the merger remains subject to approval by the stockholders of VERITAS
and Seagate Software, and other customary closing conditions. The meetings of
the stockholders of Seagate Software and VERITAS to consider the proposed
transactions and certain related matters are scheduled for May 27, 1999.
11
<PAGE>
SEAGATE SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(Unaudited)
On April 23, 1999, the Securities and Exchange Commission declared effective a
Registration Statement on Form S-4 related to the offer by Seagate Technology to
exchange shares of its common stock for shares of Seagate Software's common
stock. The offer commenced on April 26, 1999 and will remain open until June 7,
1999 unless terminated in accordance with the offering circular filed with the
Securities and Exchange Commission on Schedule 14D-1 on April 26, 1999. In
connection with the exchange offer, Seagate Software filed a report on Schedule
14D-9 indicating that it was not making a recommendation to stockholders on
whether or not to participate in the Seagate Technology exchange offer. All
holders of Seagate Software common stock and vested optionees are entitled to
participate in Seagate Technology's exchange offer.
The NSMG combination and the merger of a wholly owned subsidiary of New
VERITAS with and into VERITAS are expected to occur on May 28, 1999. The New
VERITAS exchange offer will close on June 7, 1999 except with respect to those
persons in the United Kingdom for whom the New VERITAS exchange offer will close
shortly thereafter.
In connection with the NSMG contribution, it is currently anticipated that the
acquisition will occur on May 28, 1999, and accordingly, the gain will be
recorded in the fourth quarter of fiscal 1999. The expenses will include a one-
time write-off of in-process research and development during fiscal 1999 as well
as amortization of goodwill and intangibles over four years following the NSMG
contribution. The magnitude of the gain and expenses will depend on several
factors including the price of the VERITAS stock prior to the acquisition and
the number of shares of New VERITAS stock Seagate Software receives. Seagate
Software will account for Seagate Software's investment in VERITAS using the
equity method.
NSMG comprised approximately 54% of consolidated assets, 60% of consolidated
revenues and contributed $2.9 million in profit to the total consolidated net
loss of $9.3 million for the fiscal year ended July 3, 1998 (63% of consolidated
revenues and 140% of consolidated net income for the first nine months of of
fiscal 1999). If the transaction with New VERITAS occurs as anticipated, it
will result in a substantial reduction in the ongoing consolidated revenues of
Seagate Software and will result in net losses for subsequent periods from the
amortization of intangible assets and goodwill associated with New VERITAS.
Under the equity method of accounting, Seagate Software will record its equity
interest in the net income or loss of New VERITAS each quarter. This equity
income or loss will be classified as non-operating income (loss) on Seagate
Software's statements of operations.
Litigation
See Part II, Item 1 of this Form 10-Q for a description of legal proceedings.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain Forward-Looking Information
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") are forward-looking statements
based on current expectations, and entail various risks and uncertainties that
could cause actual results to differ from those projected in such forward-
looking statements. Certain of these risks and uncertainties are set forth below
in the sections entitled "Results of Operations," "Liquidity and Capital
Resources" and "Factors Affecting Future Operating Results." Certain sections
in this Quarterly Report on Form 10-Q have been identified as containing
forward-looking statements. The reader is cautioned that other sections and
other sentences not so identified may also contain forward-looking information.
Overview
Seagate Software develops and markets software products and provides related
services enabling business users and information technology ("IT") professionals
to manage enterprise information. Headquartered in Scotts Valley, California,
Seagate Software has over 49 offices and operations in 18 countries worldwide.
Seagate Software is a majority-owned and consolidated subsidiary of Seagate
Technology, Inc. ("Seagate Technology"), a data technology company that provides
products for storing, managing and accessing digital information on computer
systems. As of April 2, 1999, Seagate Technology and one of its subsidiaries
held 98.2% of Seagate Software's outstanding capital stock (excluding common
stock subject to repurchase). On a fully converted basis, the outstanding
minority interests of Seagate Software amounted to approximately 18.1%, which
consisted of Common Stock, options to purchase its Common Stock issued pursuant
to the 1996 Stock Option Plan (the "Option Plan") and Common Stock subject to
repurchase. Such options and stock are held by certain current and former
employees, directors and consultants of Seagate Software and Seagate Technology.
Seagate Software was incorporated in Delaware in November 1993 and commenced
operations in May 1994 pursuant to Seagate Technology's merger with Crystal
Computer Services, Inc., a company engaged in developing and marketing report
writing software. From August 1994 to June 1998, Seagate Software acquired
eleven software companies through purchase or pooling-of-interests, which were
engaged in developing and marketing business intelligence ("BI") or network
and/or storage management software products.
On October 5, 1998, Seagate Software signed a definitive agreement to
contribute its Network & Storage Management Group business ("NSMG") to a newly-
formed holding company, Veritas Holding Corporation ("New Veritas"), which will
also acquire Veritas Software Corporation ("Veritas"). See "Notes to Condensed
Consolidated Financial Statements -- Veritas Transaction."
Seagate Software expects to incur certain expenses in connection with the
contribution of NSMG to New Veritas. These expenses include a substantial one-
time write-off of in-process research and development during fiscal 1999, as
well as amortization of goodwill and intangibles over the next four years
related to the Company's investment in New Veritas. Seagate Software also
expects to record a substantial gain on the contribution of NSMG to New
Veritas.* The magnitude of the expenses and the
- ------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that Seagate Software's actual future
performance will meet Seagate Software's current expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking information.
13
<PAGE>
gain will depend on several factors, including the price of Veritas common
stock, the number of shares of stock exchanged, and the number of options to
purchase Seagate Software common stock that are surrendered by employees of NSMG
who receive New Veritas options.
NSMG comprised approximately 54% of consolidated assets, 60% of consolidated
revenues and contributed $2.9 million in profit to the total consolidated net
loss of $9.3 million for the fiscal year ended July 3, 1998 (63% of consolidated
revenues and 140% of consolidated net income for the first nine months of of
fiscal 1999). If the transaction with New VERITAS occurs as anticipated, it
will result in a substantial reduction in the ongoing consolidated revenues of
Seagate Software and will result in net losses for subsequent periods from the
amortization of intangible assets and goodwill associated with New VERITAS.
Seagate Software operates and reports financial results on a fiscal year of 52
or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 1998
was 53 weeks and ended on July 3, 1998 and fiscal 1999 will be 52 weeks and will
end on July 2, 1999. All references to years in this Form 10-Q represent fiscal
years unless otherwise noted.
Restatement of Financial Statements
Seagate Software had previously allocated a portion of goodwill to developed
technology and evaluated the impairment of goodwill based on the revenues from
related software. Using this method, Seagate Software recorded write-downs and
write-offs of goodwill in fiscal 1997 in the amount of $10.3 million. Seagate
Software has re-evaluated its methodology and determined that goodwill should
not be written-down or written-off under Accounting Principles Board Opinion 17,
"Intangible Assets", unless virtually all of the identifiable assets have been
abandoned or sold. As a result, Seagate Software has made adjustments to
decrease the amounts of goodwill previously written-down and written-off from
$10.3 million to $6.2 million in fiscal 1997. The additional goodwill of $4.1
million is being amortized over their remaining original useful lives of
7 years.
The effect of this adjustment on previously reported consolidated financial
statements as of and for the three and nine months ended April 3, 1998 is as
follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
As Reported As Restated
-------------------------------------------------------------------------------
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
April 3, 1998 April 3, 1998 April 3, 1998 April 3, 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Amortization of goodwill and
other intangibles $ 3,244 $ 12,246 $ 3,439 $ 12,831
Income from operations 7,015 4,959 6,820 4,374
Net income 1,757 1,195 1,562 610
Basic income per share 9.22 8.04 6.44 3.40
Diluted income per share 0.03 0.02 0.03 0.01
Goodwill and other intangible 52,381 52,381 55,532 55,532
assets, net
Accumulated deficit (279,489) (279,489) (276,338) (276,338)
</TABLE>
14
<PAGE>
Results of Operations
Revenues. Seagate Software's revenues are primarily derived from the sale of
product licenses, software maintenance, technical support, training and
consulting. During the first quarter of 1999, Seagate Software began
recognizing license revenues in accordance with the American Institute of
Certified Public Accountants Statement of Position 97-2, "Software Revenue
Recognition". Revenues from software license agreements are generally
recognized at the time of product delivery, provided that fees are fixed or
determinable, evidence of an arrangement exists, collectibility is probable and
Seagate Software has vendor-specific objective evidence of fair value. Service
revenues from customer maintenance fees for ongoing customer support and product
updates are recognized ratably over the maintenance term, which is typically 12
months. Service revenues from training and consulting are recognized when such
services are performed.
Total revenues increased 29% and 25% over the comparable year-ago quarter and
the comparable year-ago nine month period, respectively. Licensing revenues
increased 26% to $85.3 million and 23% to $222.8 million for the three and nine
months ended April 2, 1999 as compared to the three and nine months ended April
3, 1998. The increase in licensing revenues over the comparable year-ago
periods was primarily due to a net increase in the number of NSMG product
licenses sold for sales of NSMG's Backup Exec for Windows NT and Desktop
Management Suite and IMG's Seagate Info and Crystal Reports products.
Maintenance, support, and other revenues increased 45% to $16.2 million and 42%
to $45.6 million for the three and nine months ended April 2, 1999 from $11.1
million and $32.1 million for the three and nine months ended April 3, 1998.
The increase in maintenance, support and other revenues over the comparable
year-ago quarter was primarily due to increases in maintenance, training and
consulting revenues resulting from a larger installed customer base.
Additionally, Seagate Software continued to expand both its indirect and direct
sales channels. Revenues from indirect sales channels increased 35% to $74.4
million and 30% to $192.8 million in the three and nine months ended April 2,
1999 from $55.3 million and $148.4 million for the comparable three and nine
month year-ago periods. Revenues from direct sales channels increased 16% to
$27.0 million and 15% to $75.6 million in the three and nine months ended April
2, 1999 from $23.3 million and $65.4 million in the three and nine months ended
April 3, 1998.
Cost of Revenues. The cost of revenues consists of amortization of acquired
developed technology, royalties, product packaging, documentation, duplication,
production and the cost of maintenance, consulting support and other services.
Acquired developed technology is amortized based on the greater of the straight-
line method over its estimated useful life (30 to 48 months) or the ratio of
current revenues to total current and anticipated future revenues. The total
cost of revenues as a percentage of total revenues decreased 3% and 4% over the
comparable year-ago quarter and the comparable year-ago nine month period,
respectively. The primary reasons for the improved gross margins were a decline
in the amortization of developed technology for the three and nine months ended
April 2, 1999 as a result of intangible assets that were fully amortized during
or at the start of the first quarter of fiscal 1999 and one time write-offs of
obsolete inventory during the first quarter of 1998. Additionally, the cost of
license revenues as a percentage of related revenues continues to decline due to
lower product packaging and documentation costs resulting from higher licensing
and royalty based revenues.
Sales and Marketing. Sales and marketing expenses consist primarily of
personnel-related expenses, advertising, sales and marketing promotions and
customer technical support costs. Total sales and marketing expenses increased
26% for the three and nine months ended April 2, 1999 over the comparable year-
ago periods. The increase in sales and marketing expenses over the comparable
year-ago periods was primarily due to expansion of Seagate Software's sales
force and increases in advertising, promotion and technical support costs
necessary to support revenue growth, particularly
15
<PAGE>
outside of North America. As a percent of total revenues, total sales and
marketing expenses were 42% and 43% for the three months ended April 2, 1999 and
April 3, 1998, respectively. Total sales and marketing expenses as a percent of
total revenues remained at 44% for the nine months ended April 2, 1999 and April
3, 1998, respectively.
Research and Development. Research and development expenses consist
primarily of personnel-related expenses, depreciation of development equipment
and facilities and occupancy costs. In accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed," software development costs are expensed
as incurred until technological feasibility has been established, at which time
such costs are capitalized until the product is available for general release to
customers. To date, the establishment of technological feasibility of Seagate
Software's products and general release of such software has substantially
coincided. As a result, software development costs qualifying for
capitalization have been insignificant. Total research and development expenses
increased 15% to $14.1 million in the three months ended April 2, 1999 from
$12.3 million in the three months ended April 3, 1998 and increased 14% to $40.4
million in the nine months ended April 2, 1999 from $35.5 million in the
comparable year-ago nine month period. The increase in research and development
expenses over the comparable year-ago quarter was primarily due to increases in
personnel and related expenses, including those specifically related to the
Eastman acquisition, the support of new product development and localization
costs. As a percentage of total revenues, research and development expenses were
14% and 16% in the three months ended April 2, 1999 and April 3, 1998,
respectively and 15% and 17% in the nine months ended April 2, 1999 and April 3,
1998, respectively.
General and Administrative. General and administrative expenses consist
primarily of personnel-related expenses for finance, legal, information
technology, human resources and general management, fixed asset depreciation and
outside services. Total general and administrative expenses increased 1% to
$8.8 million in the three months ended April 2, 1999 from $8.7 million in the
three months ended April 3, 1998. A decrease in total general and
administrative expenses of 8% to $26.0 million occurred in the nine month period
ended April 2, 1999 versus the comparable year-ago period. The decrease over
the comparable year-ago nine month period was primarily due to management's
efforts to reduce general management and administrative costs. As a percentage
of total revenues, general and administrative expenses were 9% and 11% in the
three months ended April 2, 1999 and April 3, 1998, respectively. These same
expenses were 10% and 13% in the nine months ended April 2, 1999 and April 3,
1998, respectively.
Amortization of Goodwill and Other Intangibles. Goodwill represents the excess
of the purchase price of acquired companies over the estimated fair values of
the tangible and intangible net assets acquired. Goodwill is amortized on a
straight-line basis over six to seven years. Other intangible assets consist of
acquired trademarks, assembled workforces, distribution networks, developed
technology, customer bases, and covenants not to compete. Amortization of other
intangibles, other than acquired developed technology, which is included in the
cost of revenues, is provided based on the straight-line method over the
respective useful lives of the assets ranging from one to five years. Total
amortization of goodwill and other intangibles increased 19% to $4.1 million in
the three months ended April 2, 1999 from $3.4 million in the three months ended
April 3, 1998. Amortization of goodwill and other intangibles decreased 16% to
$10.8 million during the nine months ended April 2, 1999 from $12.8 million for
the nine months ended April 3, 1998. The decrease in the amortization of
goodwill and other intangibles over the comparable year-ago three and nine month
periods was primarily due to decreases in amortization expense based on certain
amounts becoming fully amortized during or as of the start of the first fiscal
quarter of 1999, partially offset by increases in amortization expense due to
goodwill acquired as part of the Eastman acquisition. As a percentage of total
revenues, amortization of goodwill and other
16
<PAGE>
intangibles remained at 4% in the three months ended April 2, 1999 and April 3,
1998, respectively and 4% and 6% in the nine months ended April 2, 1999 and
April 3, 1998, respectively.
Interest Expense and Other, Net. Interest expense was $202,000 for the nine
months ended April 2, 1999, a decrease of 79% from the comparable nine month
year-ago period. The decrease in interest expense over the comparable year-ago
quarter was primarily due to repayments on the revolving loan to Seagate
Technology as a result of increased cash flow generated from operations. Other
income, net increased $64,000 and $937,000 for the three and nine months ended
April 2, 1999 as compared to the three and nine months ended April 3, 1998
primarily due to foreign currency translation gains resulting from Seagate
Software's Canadian operations.
Income Taxes. The effective tax rate used to record the provision for income
taxes for the nine months ended April 2, 1999 and April 3, 1998 was 47% and 85%,
respectively. The effective tax rate used to record the provision for taxes for
the nine months ended April 2, 1999 exceeds the U.S. statutory rate primarily
due to the amortization of goodwill that is not deductible for tax purposes, and
foreign taxes on certain earnings generated in higher tax rate jurisdictions.
The effective tax rate used to record the provision for income taxes for the
nine months ended April 3, 1998 exceeds the U.S. statutory rate primarily due to
increases in the valuation allowance for deferred tax assets and the
amortization of nondeductible goodwill. Seagate Software expects its annual
effective tax rate on anticipated operating income for fiscal 1999 to
approximate 47% absent the effects, if any, of its anticipated contribution of
NSMG to New Veritas.
Seagate Software is included in the consolidated federal and certain combined
and consolidated state and foreign income tax returns of Seagate Technology,
Seagate Software's majority stockholder. Seagate Technology and Seagate
Software have entered into a tax sharing agreement (the "Tax Allocation
Agreement"). Pursuant to certain terms of the Tax Allocation Agreement, Seagate
Software's ability to recognize the tax benefits of certain net operating loss
carryforwards and foreign and domestic tax credits can be impacted by Seagate
Technology's anticipated operating income for fiscal 1999. Accordingly, Seagate
Software's expected annual effective tax rate of 47% on anticipated operating
income may be subject to adjustment in future quarters.
17
<PAGE>
Contribution of NSMG to New Veritas
Seagate Software, its parent company, Seagate Technology and NSMG announced on
October 5, 1998 that they had entered into an Agreement and Plan of
Reorganization (the "Plan") as of such date with VERITAS Holding Corporation
("New VERITAS") and VERITAS Software Corporation ("VERITAS"). The Plan was
amended and restated on April 15, 1999. VERITAS provides end-to-end storage
management software solutions.
The Plan provides for the contribution by Seagate Technology, Seagate Software
and certain of their respective subsidiaries to New VERITAS of (a) the
outstanding stock of NSMG and certain other Seagate Software subsidiaries, and
(b) those assets used primarily in the network storage management business of
Seagate Software (the "NSMG Business"), in consideration for the issuance of
shares of Common Stock of New VERITAS to Seagate Software and the issuance of
options to purchase New VERITAS common stock to those NSMG Business employees
who become employees of New VERITAS or its subsidiaries. As part of the Plan,
New VERITAS will also assume certain liabilities of the NSMG Business. The
contribution of the NSMG Business to New VERITAS will be accounted for as a non-
monetary transaction using the fair value of the assets exchanged.
At the closing of the contribution, New VERITAS will issue approximately 34
million shares of its common stock to Seagate Software. Shortly after the
closing of the option exchange offer to NSMG Business employees, New VERITAS
will issue additional shares of its common stock to Seagate Software and options
to the participating employees of New VERITAS such that the aggregate number of
shares of New VERITAS received by Seagate Software subject to the options issued
in the exchange offer equals approximately 40% of the fully diluted
capitalization of New VERITAS (assuming conversion of all convertible
securities, including the VERITAS convertible debentures, and exercise of all
assumed options and warrants) at the effective time of the closing.
In connection with the contribution of the NSMG Business to New VERITAS,
VERITAS will become a wholly-owned subsidiary of New VERITAS through a merger
with a subsidiary of New VERITAS of which VERITAS will be the surviving entity.
Upon consummation of the merger, the former security holders of VERITAS will be
issued New VERITAS securities representing approximately 60% of the fully
diluted capitalization of New VERITAS as of the closing.
On April 22, 1999, the Securities and Exchange Commission declared effective
the Registration Statement on Form S-4 filed by New VERITAS in connection with
the NSMG contribution, the exchange offer to the NSMG Business employees and the
merger of a wholly owned subsidiary of New VERITAS with and into VERITAS. The
closing of the merger remains subject to approval by the stockholders of VERITAS
and Seagate Software, and other customary closing conditions. The meetings of
the stockholders of Seagate Software and VERITAS to consider the proposed
transactions and certain related matters are scheduled for May 27, 1999.
On April 23, 1999, the Securities and Exchange Commission declared effective a
Registration Statement on Form S-4 related to the offer by Seagate Technology to
exchange shares of its common stock for shares of Seagate Software's common
stock. The offer commenced on April 26, 1999 and will remain open until June 7,
1999 unless terminated in accordance with the offering circular filed with the
Securities and Exchange Commission on Schedule 14D-1 on April 26, 1999. In
connection with the exchange offer, Seagate Software filed a report on Schedule
14D-9 indicating that it was not making a recommendation to stockholders on
whether or not to participate in the Seagate Technology exchange offer. All
holders of Seagate Software common stock and vested optionees are entitled to
participate in Seagate Technology's exchange offer.
18
<PAGE>
The NSMG combination and the merger of a wholly owned subsidiary of New
VERITAS with and into VERITAS are expected to occur on May 28, 1999. The New
VERITAS exchange offer will close on June 7, 1999 except with respect to those
persons in the United Kingdom for whom the New VERITAS exchange offer will close
shortly thereafter.
In connection with the NSMG contribution, it is currently anticipated that the
acquisition will occur on May 28, 1999, and accordingly, the gain will be
recorded in the fourth quarter of fiscal 1999. The expenses will include a one-
time write-off of in-process research and development during fiscal 1999 as well
as amortization of goodwill and intangibles over four years following the NSMG
contribution. The magnitude of the gain and expenses will depend on several
factors including the price of the VERITAS stock prior to the acquisition and
the number of shares of New VERITAS stock Seagate Software receives. Seagate
Software will account for Seagate Software's investment in VERITAS using the
equity method.
NSMG comprised approximately 54% of consolidated assets, 60% of consolidated
revenues and contributed $2.9 million in profit to the total consolidated net
loss of $9.3 million for the fiscal year ended July 3, 1998 (63% of consolidated
revenues and 140% of consolidated net income for the first nine months of fiscal
1999). If the transaction with New VERITAS occurs as anticipated, it will result
in a substantial reduction in the ongoing consolidated revenues of Seagate
Software and will result in net losses for subsequent periods from the
amortization of intangible assets and goodwill associated with New VERITAS.
Under the equity method of accounting, Seagate Software will record its equity
interest in the net income or loss of New VERITAS each quarter. This equity
income or loss will be classified as non-operating income (loss) on Seagate
Software's statements of operations.
Liquidity and Capital Resources
Seagate Software's total cash was $6.9 million and $15.1 million as of April
2, 1999 and July 3 1998, respectively. The decrease in cash was primarily due to
loan repayments to Seagate Technology of $251.4 million and purchases of
equipment, leasehold improvements and intangible assets of $8.7 million,
partially offset by borrowings from Seagate Technology of $205.9 million, cash
flows from operating activities of $45.7 million and the sale of common stock
for $697,000. Seagate Software's cash is maintained in highly liquid operating
accounts and primarily consists of bank deposits.
Seagate Software's operations have been financed by cash flows from operating
activities and borrowings from the Seagate Technology. Such borrowings are
available to Seagate Software under a Revolving Loan Agreement between Seagate
Software and Seagate Technology. Under the Revolving Loan Agreement, Seagate
Technology finances certain of Seagate Software's working capital requirements.
The Revolving Loan Agreement, which provides for maximum borrowings of up to
$60,000,000, is renewable every two years and expires on July 3, 2000.
Interest is paid at the LIBOR rate plus 2% per annum on such borrowings (7.25%
at April 2, 1999). The loan had a zero balance as of April 2, 1999.
In addition to the Revolving Loan Agreement with Seagate Technology, certain
foreign subsidiaries have line of credit facilities with third party financial
institutions. These line of credit facilities provide for additional borrowings
of up to an equivalent of approximately $793,000 at April 2, 1999. Interest
rates payable on borrowings are based on local bank prime interest rates. At
April 2, 1999, there were no outstanding borrowings under such line of credit
facilities.
19
<PAGE>
During the nine months ended April 2, 1999, Seagate Software made investments
totaling approximately $8.4 million for new office facilities, leasehold
improvements, computers, furniture and office equipment. Seagate Software
presently anticipates it will make investments in 1999 of approximately $12.5
million in equipment and leasehold improvements. Additionally, product
development activities may include cash to acquire technology. Seagate
Software expects that such investments will be funded from existing cash
balances and cash flows from operations.*
Seagate Software anticipates that the proposed contribution of NSMG to New
Veritas will have a significant impact on its cash flows from continuing
operations with respect to the exclusion of NSMG's operations.* However,
Seagate Software believes its current cash balances, its available borrowings
from Seagate Technology and cash flows generated from Seagate Software's
operations will be sufficient to meet its anticipated cash needs for working
capital and capital expenditures for at least the next 12 months.* Furthermore,
Seagate Software anticipates that future operating and investing activities may
be financed by additional borrowings from Seagate Technology, equity financing
or other sources.* Seagate Software believes that additional financing from
Seagate Technology will be available at a reasonable cost.*
Year 2000 Readiness
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions, send invoices, or engage in
normal business activities.
We consider a product to be "Year 2000 Ready" if the product's performance and
functionality are unaffected by processing of dates prior to, during and after
the year 2000, but only if all products (for example hardware, firmware, and
software) used with the products properly exchange accurate date data with it.
Seagate Software's Products
---------------------------
Our products are used in numerous operating environments. We have assessed
our products to determine whether or not they are Year 2000 Ready. Although we
believe certain of our software products are Year 2000 Ready, we have determined
that certain of our software products are not and will not be Year 2000 Ready.
Our products that are not Year 2000 Ready are not material to our business,
financial condition or results of operations. The inability of one or more of
our products to properly manage and manipulate dates related to the Year 2000
could result in a material adverse effect on our business, financial condition
or results of operations, including increased warranty costs, customer
satisfaction issues and potential lawsuits. We are taking measures to inform our
customers that those products are not and will not be Year 2000 Ready. To
assist our customers in evaluating their Year 2000 issues, we have developed a
list of those products that are Year 2000 Ready as stand-alone products. The
list is located on Seagate Software's World Wide Web page and is periodically
updated when we make additional product assessments.
- ---------------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that Seagate Software's actual future
performance will meet Seagate Software's current expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking information.
20
<PAGE>
We anticipate that substantial litigation may be brought against vendors,
including Seagate Software, of all software components of systems in which
another vendor's component products are unable to properly manage data related
to the Year 2000. Our customer agreements typically contain provisions designed
to limit our liability for such claims. As a result of existing or future
federal, state or local laws or ordinances or unfavorable judicial decisions, it
is possible that these measures will not provide us with protection from
liability claims. If any such claims are brought against us, regardless of
their merit, our business, financial condition and results of operations could
be materially adversely affected from factors that include increased warranty
costs, customer satisfaction issues and the costs of potential lawsuits.
Our Systems
-----------
We have also initiated a comprehensive program to address Year 2000 readiness
in our internal systems and in those of our customers and suppliers. Our
program has been designed to address our most critical internal systems first
and to gather information regarding the Year 2000 compliance of products
supplied to Seagate Software and into which our products are integrated. The
scope of our internal Year 2000 readiness project includes information
technology, non-information technology and embedded technology for all critical
systems, and includes all offices worldwide, critical vendors, suppliers,
customers and partners. We currently expect to be Year 2000 ready by December
31, 1999.
We are using the following phased approach to Year 2000 readiness: inventory,
assessment, testing, remediation and contingency planning. Anticipated dates of
completion for our two lines of business are as follows:
<TABLE>
<CAPTION>
Network & Storage Information
Management Group Management Group
----------------- ----------------------
<S> <C> <C>
1. Inventory Complete Complete
2. Assessment Complete Complete
3. Testing Complete August 1, 1999
4. Remediation September 30, 1999 December 1, 1999
5. Contingency Planning September 30, 1999 August 1, 1999
</TABLE>
These activities are intended to encompass all major categories of systems in
use by Seagate Software, including operations, technical support, engineering,
sales, finance and human resources. To date, we have not incurred material
costs related to assessment and remediation of Year 2000 readiness. We are
still in the process of conducting our Year 2000 audit. We currently estimate
the cost of internal Year 2000 issues will be less than $3.0 million.* However,
if the costs of future remediation exceed such amount, then the costs required
to address the Year 2000 issue could have a material adverse effect on our
business, financial condition or results of operations.
Our material third party relationships include relationships with fulfillment
houses, banks, payroll services vendors, utilities, distribution partners and
key customers. These relationships have been inventoried, and we are now
assessing the risks relating to these relationships. We believe that certain of
these relationships are of significant importance to our future operations.* We
have contacted our significant suppliers and have received assurances of Year
2000 compliance from a number of those contacted. However, most of our
suppliers are under no contractual obligation to provide such information to us.
We do not currently have reason to believe that any such third parties have
significant
- ----------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that Seagate Software's actual future
performance will meet Seagate Software's current expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking information.
21
<PAGE>
internal Year 2000 problems that will not remediated.* However, in the event any
such third parties were to have an unremediated Year 2000 problem, it could have
a material adverse effect on our business, financial condition or results of
operations.
Customer Purchasing Patterns
----------------------------
We believe that the purchasing patterns of customers and potential customers
may be affected by Year 2000 issues as companies expend significant resources to
correct or patch their current software systems for Year 2000 readiness or defer
purchases of new systems to avoid encountering additional unforeseen Year 2000
problems. Additional short-term expenditures for remediation of existing Year
2000 problems may result in reduced funds available to purchase products such as
those offered by Seagate Software, which could have a material adverse effect on
our business, operating results or financial condition.*
We believe that a most likely worst case Year 2000 scenario would result in a
disruption of infrastructure, including the possible loss of power and
disruption of transportation systems.* We believe that no effective contingency
planning for such disruption is possible. We also believe that additional
elements of the most likely worst case Year 2000 scenario include the loss of
fulfillment services, banking services, and/or distribution services.*
Although discussions of contingency planning for these problems has begun, no
contingency plan is yet in place. We currently expect to complete contingency
planning by September 30, 1999.* We could experience material adverse effects
on our business if we fail to successfully implement a contingency plan. Those
material adverse effects could include delays in the delivery or sale of our
products.
Factors Affecting Future Operating Results
Risks from the Contribution of our Network & Storage Management Group
Seagate Technology consolidated its software businesses into a single entity
called Seagate Software in 1996. Seagate Software's business currently consists
of two primary divisions, NSMG and the Information Management Group. Seagate
Software announced on October 5, 1998 that it will contribute NSMG to New
Veritas. Seagate Software and Seagate Software optionees who will become
employees of New Veritas will receive approximately 40% of the fully-diluted
equity in New Veritas as of the closing date.
Seagate Software faces a number of risks prior to and after the closing of the
contribution of NSMG to New Veritas including:
. our management personnel may be distracted from day to day operations by
the transaction;
. employees of the Information Management Group may be distracted by concerns
about whether we will continue to operate that business or spin it off;
. NSMG's customers may delay or cancel orders due to uncertainty about the
transaction;
- ------------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that Seagate Software's actual future
performance will meet Seagate Software's current expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking information.
22
<PAGE>
. the ongoing original equipment manufacturer ("OEM") relationship between
NSMG and Seagate Technology's tape drive operations may be disrupted;
. we have agreed not to compete in certain storage management software
businesses for a specified period of time after the closing and may not be
able to benefit from future opportunities in that market;
. we will not have control over the management of New Veritas, although
initially we will have two representatives on its board of directors;
. we will only be permitted to sell our interest in New Veritas in limited
increments in compliance with certain SEC rules or be required to bear the
expense in filing a registration statement; and
. our Information Management Group has shared certain employees with NSMG who
have provided accounting, legal, information technology, and other services
to us. Many of these employees will become employees of New Veritas. The
Information Management Group may experience delay and difficulty in
conducting its day to day operations until replacement services have been
fully implemented.
Potential Fluctuations in Annual and/or Quarterly Operating Results
We often experience a high volume of sales at the end of our fiscal quarter.
Therefore, it may be late in the quarter before we are able to determine that
our costs are too high in relation to our actual sales. If this were to happen,
we would not be able to reduce these costs and, consequently, our net income
would be reduced or our net loss increased. In addition, our 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,
primarily distributors such as Ingram Micro Inc. ("Ingram");
. our ability to develop, introduce, and market new products and product
enhancements in a timely fashion, particularly with respect to Seagate
Backup Exec, Seagate Info and Seagate Crystal Reports;
. changes in the prices of our products and our competitors' products;
. our customers' preference for competing technologies in lieu of our
products such as Seagate Backup Exec, Seagate Info and Seagate Crystal
Reports;
. our inability to reduce our costs in relation to our revenues (because we
ship our products shortly after we receive orders and operate with no
backlog);
. the impact of changes in foreign currency exchange rates on the cost of our
products and the effective price of such products to foreign consumers; and
- --------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that Seagate Software's actual future
performance will meet Seagate Software's current expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking information.
23
<PAGE>
. competition and consolidation in our industry.
Revenue Concentration
Our new products must be accepted by customers in order for us to be
successful. If our products are not purchased as a result of competition,
technological change or other factors, then our business, operating results and
financial condition would be materially adversely affected.
Our software products have a fixed life cycle that is difficult to estimate.
If we do not develop and introduce new products before our existing products
have completed their life cycles, then we will be unable to sustain or increase
our level of sales.* We cannot be sure that we will continue to be successful
in marketing our key products or any new products, applications or product
enhancements.
We currently obtain most of our revenue from a limited number of software
products and anticipate this to be the case in the foreseeable future.* Sales to
a small number of customers generate a disproportionate amount of our revenues.
For example, Seagate Software derived 21% of its revenues from sales to Ingram
in the nine months ended April 2, 1999. If Ingram, or any other significant
customer, reduces its purchases from us, our business, financial condition, and
results of operations would be materially adversely affected unless we
substantially increased sales to other customers. Because our contracts with
Ingram (or any other customer) do not require them to purchase any specified
number of software licenses from us, we cannot be sure that our significant
customers will continue to purchase our products at their current levels.
Reliance on Sales Staff, Channel Partners and Strategic Relationships
We sell and support our products through: our sales staff, third party
distributors, and OEMs. We also have a strategic relationship with Microsoft
that enables us to bundle our products with Microsoft's products, and we have
developed and are developing certain utilities and products that are intended to
be a part of Microsoft's products. If Microsoft reduces the nature and quantity
of its relationship with us, our business, operating results and financial
condition would be materially adversely affected.
We have made significant expenditures in recent years to expand our sales and
marketing force. We intend to continue to expand our Information Management
Group sales and marketing force after the closing of the contribution of NSMG to
New Veritas.* Our future success will depend in part upon the productivity of
our Information Management Group sales and marketing force.* During the second
quarter of fiscal 1999, we experienced significant turnover in our Information
Management Group's sales personnel management. We believe that our ability to
continue to attract, integrate, train, motivate and retain new sales and
marketing personnel will also affect our success.* We face intense competition
for sales and marketing personnel in the software industry, and we cannot be
sure that we will be successful in hiring and retaining such personnel in
accordance with our plans. Even if we hire and train sufficient numbers of
sales and marketing personnel, we cannot be sure that our recent and other
planned expenses will generate enough additional revenue to exceed these costs.
In the event that the contribution of NSMG to New Veritas does not close, we
would also continue to expand NSMG's sales and marketing force.*
- --------------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that Seagate Software's actual future
performance will meet Seagate Software's current expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking information.
24
<PAGE>
We generate a substantial portion of our revenue by selling our products to
distributors and OEMs. Our distributors and OEMs decide whether or not to
include our products with those they sell and generally can carry and sell
product lines that are competitive with ours. Because OEMs and distributors
carry other product lines and are not required to make a specified level of
purchases from us, we cannot be sure that they will prioritize selling our
products. These distributors and OEMs are also generally entitled to terminate
their relationship with us without cause. Our business, financial results and
operating condition would be materially adversely affected if some or all of our
current distributors and OEMs discontinued selling our products and we failed to
find comparable replacements.*
New Product Development and Technological Change
Our products are used in combination with other software and computer hardware
systems. The market for our products is characterized by rapidly changing
technology, changing customer needs, evolving industry standards and frequent
new product introductions. Our future success will therefore depend on our
ability to design, develop, test and support new software products and
enhancements on a timely and cost effective basis.*
If we do not respond to changing market conditions and customer requirements
by developing and introducing new products in a timely manner, then our
business, operating results or financial condition could be materially adversely
affected.*
Competition
Our industry, including the business intelligence market in which the
Information Management Group participates and the network and storage management
software market in which NSMG participates, is intensely competitive and is
characterized by rapidly changing technology and evolving standards. We expect
additional competition from other established and/or emerging companies and as a
result of future software industry consolidations.* We expect that our
competitors will offer new and existing products at lower prices, if necessary,
to gain or retain market share and customers.* We have experienced and expect
to continue to experience intense competition from a number of domestic and
foreign companies. Increased competition can be expected to cause price
reductions, reduced gross margins and loss of market share, any of which could
have a material adverse effect on our business, operating results or financial
condition. Current and potential competitors may be able to respond more quickly
to new or emerging technologies and changes in customer requirements, or to
devote greater resources to the development, promotion, sale and support of
their products than we are able to do.
It is possible that new competitors or alliances among our competitors may
emerge and rapidly acquire significant market share. In addition, network
operating system vendors could introduce new or upgrade existing operating
systems or environments that could render our products obsolete and
unmarketable.
In connection with the contribution of NSMG to New Veritas, we have agreed not
to re-enter some of the segments in which NSMG participates for a specified
period of time. We may not be able to compete effectively with other companies
that can offer solutions in the business intelligence software segment and the
areas in which we have agreed not to re-enter.
We also face indirect competition from present and potential customers,
including Microsoft or other strategic partners, that continuously evaluate
whether to develop their own software products and components internally or
obtain them from outside sources. If our strategic partners decide to develop
the utilities and other products we have in the past provided, it could have a
material adverse effect on our business, results of operations and financial
condition.
- ------------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that Seagate Software's actual future
performance will meet Seagate Software's current expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking information.
25
<PAGE>
There can be no assurance that we will be able to compete successfully against
current or future competitors. If we fail to compete successfully, our
business, operating results and financial condition may be materially adversely
affected.
Acquisition Related Accounting Charges Will Reduce Our Profits
We intend to continue our expansion of the Information Management Group
through internal growth as well as acquisitions.* Acquisitions involve numerous
risks including:
. the difficulties of integrating the operations and products of the acquired
businesses,
. the potential loss of key employees or customers of the acquired businesses.
We expect that we will continue to incur substantial expenses as we acquire
other businesses including charges for the write-off of in-process research and
development. Our operating results have fluctuated in the past and may
fluctuate in the future because of the timing of such write-offs.* For example,
we incurred a charge to operations in the fourth quarter of fiscal 1998 of
approximately $7 million for the write-off of in-process research and
development related to our acquisition of Eastman Software Storage Management
Group, Inc.
Risks of Systems Failures
Our operations are dependent on our ability to protect our computer equipment
and the information stored in our databases from damage by catastrophic events
such as fire, natural disaster, power loss, telecommunications failures, and
unauthorized intrusion. We believe that we have taken prudent measures to
reduce the risk of interruption in our operations. However, we cannot be sure
that these measures are sufficient. Any damage or failure that causes
interruptions in our operations could have a material adverse effect on our
business, results of operations and financial condition.
Risks from International Operations
We have significant offshore operations including development facilities,
sales personnel and customer support operations. Our offshore operations are
subject to certain inherent risks including:
. fluctuations in currency exchange rates;
. lack of acceptance of localized products;
. longer payment cycles for sales in foreign countries;
. difficulties in staffing and managing international operations;
. seasonal reductions in business activity in the summer months in Europe and
certain other countries;
- ----------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that Seagate Software's actual future
performance will meet Seagate Software's current expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking information.
26
<PAGE>
. increases in tariffs, duties, price controls, other restrictions on foreign
currencies or trade barriers imposed by foreign countries;
. management of an enterprise spread over various countries;
. the burden of complying with a wide variety of foreign laws; and
. political unrest, particularly in areas in which we have facilities.
These factors could have a material adverse effect on our business, operating
results and financial condition in the future.
Our products are priced in U.S. dollars even when sold to customers who are
located abroad. The currency instability in the Asian and other financial
markets may make our products more expensive than products sold by other
manufacturers that are priced in one of the effected currencies. Therefore,
foreign customers may reduce purchases of our products. We anticipate that the
recent turmoil in financial markets and the recent deterioration of the
underlying economic conditions in certain countries, including those in Asia and
the Far East, may have an impact on our sales to customers located in or whose
end-user customers are located in those countries due to:*
. the impact of currency fluctuations on the relative price of Seagate
Software's products,
. restrictions on government spending imposed by the International Monetary
Fund in those countries receiving the International Monetary Fund's
assistance,
. customers' reduced access to working capital to fund software purchases,
such as our products, due to:
. higher interest rates,
. reduced bank lending due to contractions in the money supply or the
deterioration in the customer's or its bank's financial condition, or
. the inability to access other financing
Dependence on Proprietary Technology
Our success will be heavily dependent on our proprietary technology. We rely
primarily on the following to protect our proprietary rights:
. patents,
. copyrights,
. trademarks and trade secret rights,
. confidentiality procedures,
. employee and third party nondisclosure agreements, and
- ------------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that Seagate Software's actual future
performance will meet Seagate Software's current expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking information.
27
<PAGE>
. licensing restrictions.
Such efforts provide only limited protection.
We also rely in part on shrink-wrap licenses that are not signed by end users
and, therefore, may be unenforceable under the laws of certain jurisdictions.
Even though we take these steps, someone may be able to copy or otherwise
obtain and use our products and technology without authorization. Policing
unauthorized use of our products is difficult. Although we cannot determine the
extent of existing piracy of our products, we expect that software piracy will
be a persistent problem. Third parties may also develop similar technology
independently. We believe that effective protection of intellectual property
rights is unavailable or limited in certain foreign countries.
Our competitors may successfully challenge the validity or scope of our
patents, copyrights and trademarks. We cannot be sure that our patents,
copyrights and trademarks will provide us with a competitive advantage or that
our competitors will not design around any patents issued to us. We are not
aware that any of our products infringe upon the proprietary rights of third
parties, but, in the future, third parties may claim that our current or future
products infringe that party's rights. We believe that software product
developers will be increasingly subject to claims of infringement as the
functionality of products in our industry segment overlaps. If we were subject
to a claim of infringement, regardless of its merit, such claim would have the
following impacts on us that could have a material adverse effect on our
business, operating results or financial condition:
. require costly litigation to resolve,
. absorb significant management time, or
. require us to enter into unfavorable royalty or license agreements.
Software Product Errors or Defects
Software products as complex as those we offer frequently contain errors or
defects, especially when first introduced or when new versions or enhancements
are released. Despite product testing, our products may contain defects or
software errors.* If our products have errors, they could:
. cause a negative customer reaction that could reduce future sales;
. generate negative publicity regarding Seagate Software and our products;
. harm our reputation;
. reduce or limit customer's adoption of our products;
. require us to make extensive changes to the product; or
. result in customers' delaying their purchase until the errors or defects
have been remedied, which would cause our revenues to be reduced or
delayed.
- ------------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that Seagate Software's actual future
performance will meet Seagate Software's current expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking information.
28
<PAGE>
Any of these occurrences could have a material adverse effect upon our
business, operating results or financial condition.
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. Existing
or future federal, state or local laws or ordinances or unfavorable judicial
decisions may make these provisions ineffective. Because our products are used
in system management, resource optimization and business intelligence
applications, our liability could be substantial if we receive an unfavorable
judgement, which could have a material adverse effect upon our business,
operating results or financial condition.*
Dependence on Key Personnel
Our future performance depends to a significant degree upon the continued
service of our key members of management as well as marketing, sales, and
product development personnel.* The loss of one or more of our key personnel
would have a material adverse effect on our business, operating results and
financial condition. We believe our future success, particularly with respect
to the Information Management Group after the contribution of NSMG to New
Veritas, will also depend in large part upon our ability to attract and retain
highly skilled management, marketing, sales, and product development personnel.
We have experienced intense competition for such personnel and there can be no
assurance that we will be able to retain our key employees or that we will be
successful in attracting, assimilating and retaining them in the future.
Facing Risks of Litigation
We are subject to litigation arising in the ordinary course of our business.
While we believe that the ultimate outcome of these actions will not have a
material adverse effect on us, the outcome of these actions is not determinable,
and negative outcomes may adversely effect our financial position, liquidity, or
results of operations. See Part II, Item 1 of this Form 10-Q for a description
of legal proceedings.
Risks from Conversion to Single European Currency.
On January 1, 1999, certain member states of the European Economic Community
fixed their respective currencies to a new currency, the Single European
Currency. On that day the Single European Currency became a functional legal
currency within these countries. During the three years beginning on January 1,
1999, business in these countries will be conducted both in the existing
national currency, such as the French Franc or the Deutsche Mark, as well as the
Single European Currency. Companies operating in or conducting business in
these countries, will need to ensure that their financial and other software
systems are capable of processing transactions and properly handling the
existing currencies and the Single European Currency.
We are still assessing the impact that the introduction and use of the Single
European Currency will have on our internal systems. We will take corrective
actions based on such assessment but do not presently expect that introduction
and use of the Single European Currency will materially affect our foreign
exchange and hedging activities or use of derivative instruments or will result
in any material increase in our costs. While we will continue to evaluate the
impact of the Single European Currency
- ------------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that Seagate Software's actual future
performance will meet Seagate Software's current expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking information.
29
<PAGE>
introduction over time, based on currently available information, we do not
believe that the introduction of the Single European Currency will have a
material adverse impact on Seagate Software's financial condition or overall
trends in results of operations, nor have the introduction and use of the Single
European Currency had such effects to date.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Risk. The local currency is the functional currency for
Seagate Software's foreign operations. Gains and losses on translation into U.S.
dollars of foreign operations are recorded as a separate component of
stockholders' equity. Foreign currency fluctuations have not had a significant
effect on Seagate Software's results of operations, and Seagate Software does
not engage in foreign currency hedging programs.
Interest Rate Risk. Seagate Software's exposure to market risk for changes
in interest rates relates primarily to Seagate Software's borrowings under a
Revolving Loan Agreement between Seagate Software and Seagate Technology.
Seagate Software pays interest to Seagate Technology at the LIBOR rate plus 2%
per annum on such borrowings (7.25% at April 2, 1999). Interest rate
fluctuations have not had a significant effect on Seagate Software's results of
operations.
- -------------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that Seagate Software's actual future
performance will meet Seagate Software's current expectations. Readers are
cautioned that other sections and other sentences not so identified may also
contain forward-looking information.
30
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 10, 1997, Vedatech Corporation commenced an action in the High
Court of Justice Chancery Division in the United Kingdom against Seagate
Software Information Management Group Ltd., our wholly owned subsidiary,
claiming breach of an oral agreement and infringement of a Vedatech U.K.
copyright in the Japanese translation of one of Seagate Software's products and
seeking monetary and injunctive relief. No specific damage amount has yet been
claimed. We have hired local counsel in the U.K., reviewed documents and
conducted interviews. We filed an initial response in the U.K. court on January
13, 1998 and is now in the discovery process.
Seagate Software believes this complaint has no merit and intends vigorously
to defend the action. However, if an unfavorable outcome were to arise, there
can be no assurance that such outcome would not have a material adverse effect
on Seagate Software's liquidity, financial position, or results of operations.
Furthermore, on December 22, 1998, a former employee commenced an action in
the Superior Court of Santa Cruz County, California, against Seagate Software
claiming promissory fraud and fraudulent inducement to enter a contract, breach
of contract, constructive wrongful discharge and related claims and seeking
monetary and injunctive relief. Specifically, the former employee alleges that
a Seagate Software officer agreed to sell him a division of our Network &
Storage Management Group business. On May 10, 1999 the plaintiff filed a
dismissal with prejudice of all claims with the Superior Court.
In addition to the foregoing, Seagate Software is engaged in legal actions
arising in the ordinary course of its business and believes that the ultimate
outcome of these actions will not have a material adverse effect on Seagate
Software's financial position, liquidity, or results of operations.
Item 6. Exhibits and Reports on Form 8-K
The following exhibit is included herein:
Exhibit 27.1 Financial Data Schedule
Seagate Software did not file any reports on Form 8-K during the quarter
ended April 2, 1999.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEAGATE SOFTWARE, INC.
----------------------
(Registrant)
DATE: May 17, 1999 BY: /s/ Terence R. Cunningham
_______________________
TERENCE R. CUNNINGHAM
President and Chief Operating Officer
DATE: May 17, 1999 BY: /s/ Ellen E. Chamberlain
_______________________
ELLEN E. CHAMBERLAIN
Senior Vice President, Treasurer and
Chief Financial Officer
32
<TABLE> <S> <C>
<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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