<PAGE>
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 1, 1994
Commission File Number 0-10630
SEAGATE TECHNOLOGY, INC.
(Registrant)
Incorporated in the State of Delaware
I.R.S. Employer Identification Number 94-2612933
920 Disc Drive, Scotts Valley, California 95066
Telephone: (408) 438-6550
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
On April 1, 1994, 71,644,102 shares of the registrant's common stock were
issued and outstanding.
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INDEX
SEAGATE TECHNOLOGY, INC.
PART I. FINANCIAL INFORMATION PAGE NO.
- -----------------------------------------------------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated condensed statements of income--Three and
nine months ended April 1, 1994 and April 2, 1993 3
Consolidated condensed balance sheets--April 1, 1994
and July 2, 1993 4
Consolidated condensed statements of cash flows--Nine months
ended April 1, 1994 and April 2, 1993 5
Notes to consolidated condensed financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II OTHER INFORMATION
- ----------------------------------
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE>
SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
April 1, April 2, April 1, April 2,
1994 1993 1994 1993
---- ---- ---- ----
Net sales $ 909,270 $ 754,134 $2,499,038 $2,273,427
Cost of sales 715,918 590,114 2,011,097 1,742,989
Product development 43,766 39,395 126,592 113,792
Marketing and
administrative 52,305 53,640 149,044 168,436
Amortization of goodwill
and other intangibles 3,184 3,184 9,547 9,640
Restructuring costs -- 15,000 -- 15,000
_________ _________ _________ _________
Total Operating
Expense 815,173 701,333 2,296,280 2,049,857
Income from Operations 94,097 52,801 202,758 223,570
Interest income 10,312 6,360 23,830 17,282
Interest expense (8,313) (5,919) (18,491) (18,027)
Other (316) 950 269 2,064
_________ _________ _________ _________
Other Income 1,683 1,391 5,608 1,319
_________ _________ _________ _________
Income before income
taxes 95,780 54,192 208,366 224,889
Provision for income
taxes 28,734 15,174 62,510 62,969
_________ _________ _________ _________
Net Income $ 67,046 $ 39,018 $ 145,856 $ 161,920
========= ========= ========= =========
Net income per share:
Primary $ 0.91 $ 0.56 $ 2.01 $ 2.32
Fully diluted 0.80 0.55 1.88 2.24
Number of shares used
in per share
computations:
Primary 73,796 70,116 72,637 69,740
Fully diluted 90,389 76,394 83,190 76,169
See notes to consolidated condensed financial statements.
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SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
(Unaudited)
April 1, July 2,
1994 1993(1)
ASSETS _______ _______
Cash and cash equivalents $ 901,976 $ 426,094
Short-term investments 351,241 203,117
Accounts receivable 392,154 357,681
Inventories 293,982 398,698
Deferred income taxes 88,274 15,131
Other current assets 70,084 70,558
_________ _________
Total Current Assets 2,097,711 1,471,279
_________ _________
Property, equipment and leasehold
improvements, net 381,577 350,051
Goodwill and other intangibles, net 130,165 139,260
Other assets 82,470 70,603
_________ _________
Total Assets $2,691,923 $2,031,193
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 325,995 $ 250,333
Accrued employee compensation 82,789 64,310
Accrued expenses 179,839 193,050
Accrued income taxes 42,543 34,800
Current portion of long-term debt 167 1,500
_________ _________
Total Current Liabilities 631,333 543,993
_________ _________
Deferred income taxes 206,605 123,581
Other liabilities 71,685 37,102
Long-term debt, less current portion 549,492 281,276
_________ _________
Total Liabilities 1,459,115 985,952
_________ _________
Common stock 716 681
Additional paid-in capital 356,771 315,569
Foreign currency translation adjustment (447) (461)
Retained earnings 875,768 729,912
Deferred compensation -- (460)
_________ _________
Total Shareholders' Equity 1,232,808 1,045,241
_________ _________
Total Liabilities and Shareholders' Equity $2,691,923 $2,031,193
========= =========
See notes to consolidated condensed financial statements.
(1) The information in this column was derived from the Company's audited
consolidated balance sheet as of July 2, 1993.
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SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
April 1, April 2,
1994 1993
________ ________
OPERATING ACTIVITIES:
Net income $ 145,856 $ 161,920
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 131,674 129,654
Deferred income taxes 25,516 47,284
Provision for loss on equipment, net (1,443) 5,436
Other 2,486 1,768
Changes in operating assets and liabilities:
Accounts receivable (34,473) 47,259
Inventories 94,683 (76,405)
Other current assets (4,526) (13,532)
Accounts payable 77,246 26,260
Accrued employee compensation 18,641 (2,883)
Accrued expenses 21,402 22,450
Accrued income taxes (536) (7,142)
Other liabilities (30) 2,323
_________ _________
Net Cash Provided by Operating Activities 476,496 344,392
INVESTING ACTIVITIES:
Acquisition of property, equipment and leasehold
improvements, net (137,296) (108,876)
Purchases of short-term investments (454,103) (226,273)
Proceeds from sales of short-term investments 303,953 133,052
Increase in other non-current assets, net (13,442) (45,139)
Other, net 12 (750)
_________ _________
Net Cash Used in Investing Activities (300,876) (247,986)
FINANCING ACTIVITIES:
Issuance of long-term debt 270,750 --
Repayment of long-term debt (3,887) (39,929)
Purchase of treasury stock -- (36,602)
Sale of common stock 33,881 18,117
_________ _________
Net Cash Provided by (Used in) Financing
Activities 300,744 (58,414)
_________ _________
Effect of exchange rate changes on cash
and cash equivalents (482) 532
_________ _________
Increase in cash and cash equivalents 475,882 38,524
Cash and cash equivalents at the beginning
of the period 426,094 432,296
_________ _________
Cash and cash equivalents at the end of the period $ 901,976 $ 470,820
========= =========
See notes to consolidated condensed financial statements.
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SEAGATE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated condensed financial statements have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The
Company believes the disclosures included in the unaudited consolidated
condensed financial statements, when read in conjunction with the
consolidated financial statements of the Company as of July 2, 1993 are
adequate to make the information presented not misleading.
The consolidated condensed financial statements reflect, in the opinion
of management, all adjustments (which include only normal recurring
adjustments) necessary to summarize fairly the consolidated financial
position, results of operations and cash flows for such periods.
The results of operations for the nine months ended April 1, 1994 are
not necessarily indicative of the results that may be expected for the
entire year ending July 1, 1994.
The Company operates and reports financial results on a fiscal year of
52 or 53 weeks ending on the Friday closest to June 30. Accordingly,
fiscal 1993 ended on July 2, 1993 and fiscal 1994 will end on July 1,
1994.
2. Net Income Per Share
Primary net income per share is based on the weighted average number of
shares of common stock and common stock equivalents outstanding during
the period. Fully diluted net income per share further assumes the
conversion of the Company's 5% and 6-3/4% convertible subordinated
debentures.
3. Balance Sheet Information
(In thousands)
April 1, July 2,
1994 1993
___________ ___________
Accounts Receivable:
Accounts receivable $ 435,491 $ 404,195
Allowance for non-collection 43,337 46,514
_________ _________
$ 392,154 $ 357,681
========= =========
Inventories:
Components $ 182,607 $ 174,199
Work-in-process 52,309 53,982
Finished goods 59,066 170,517
_________ _________
$ 293,982 $ 398,698
========= =========
April 1, July 2,
1994 1993
___________ ___________
Property, Equipment and
Leasehold Improvements:
Property, equipment and leasehold
improvements $ 918,914 $ 847,278
Allowance for depreciation and
amortization 537,337 497,227
_________ _________
$ 381,577 $ 350,051
========= =========
4. Income Taxes
The estimated tax rate used to compute the income tax provision for the
nine months ended April 1, 1994 and April 2, 1993 is based on the
Company's estimate of its domestic and foreign operating income for the
respective year. The income tax provision is less than the statutory
rate primarily because operating income of certain foreign operations is
not subject to foreign income taxes and a portion of such operating
income is considered to be permanently invested in non-U.S. operations.
Accordingly, taxes have not been provided on such income.
Effective July 3, 1993, the Company adopted Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes" (SFAS
109). Under SFAS 109, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax
basis of assets and liabilities and are measured by applying enacted tax
rates and laws to taxable years in which such differences are expected
to reverse. Prior to the adoption of SFAS 109, income tax expense was
determined using the deferred method. Deferred tax expense was based on
items of income and expense that were reported in different years in the
financial statements and tax returns and were measured at the tax rate
in effect in the year the difference originated.
As permitted by SFAS 109, the Company has elected not to restate the
financial statements of any prior years. The change had no effect on
pretax income from continuing operations for the quarter ended October
1, 1993; however, the cumulative effect of the change increased net
income by $3,000,000 or $.04 per share. The Company recorded the
cumulative effect of the change as a reduction of income tax expense for
the quarter ended October 1, 1993.
In August of 1993, the President signed the Revenue Reconciliation Act
of 1993 which, among other things, increased the U.S. statutory rate
from 34% to 35% retroactive to January 1, 1993. Net income for the
quarter ended October 1, 1993 was decreased by approximately $2,900,000
to reflect the cumulative impact of this rate change on net deferred tax
liabilities and the retroactive application of the statutory rate to the
Company's fiscal year ended July 2, 1993.
5. Shareholders' Equity
Shares authorized and outstanding are as follows:
Shares Outstanding
April 1, July 2,
1994 1993
___________ ___________
Preferred stock, par value $.01
per share, 1,000,000 shares
authorized -- --
Common stock, par value $.01
per share, 200,000,000 shares
authorized 71,644,102 68,155,486
6. Supplemental Cash Flow Information
(In thousands)
Nine Months Ended
April 1, April 2,
1994 1993
___________ ___________
Cash Transactions:
Cash paid for interest $ 10,179 $ 11,434
Cash paid for income taxes 35,403 29,316
Non-Cash Transaction:
Receipt of note receivable for sale
of building 5,000 --
7. Long-Term Debt
In December 1993 the Company issued $270,750,000 principal amount of 5%
Convertible Subordinated Debentures Due 2003 in an offering not
registered or required to be registered under the Securities Act of
1933, as amended. The debentures are convertible into the Company's
common stock at $26.25 per share. The purposes of the issuance were to
further strengthen the Company's financial position and to provide the
Company with additional financial flexibility to take advantage of
business opportunities as they may arise.
8. Litigation
See Part II, Item 1 of this Form 10-Q for a description of legal
proceedings.
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SEAGATE TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations:
Net sales for the quarter ended April 1, 1994 were $909,270,000 as compared
with $754,134,000 reported for the comparable year-ago quarter, and
$815,890,000 reported for the immediately preceding quarter. Net sales for
the nine months ended April 1, 1994 were $2,499,038,000 as compared with
$2,273,427,000 reported for the comparable period a year ago. The increase
in net sales from the comparable year-ago quarter, the immediately preceding
quarter and the comparable nine month period last year was primarily due to a
higher level of unit shipments and a shift in mix to the Company's higher
priced products partially offset by a decline in the average unit sales
prices of the Company's products as a result of competitive market
conditions. Although price erosion for the Company's lower capacity products
slowed considerably during the quarter, price erosion for the Company's
higher capacity products became more severe during the quarter, particularly
due to more aggressive marketing into the merchant market channels by large
OEM computer manufacturers. The rigid disc drive industry in which the
Company operates is characterized by declining unit sales prices over the
life of a product and the Company anticipates this characteristic will
continue.
Gross margin as a percentage of net sales was 21.3% and 19.5% for the three
and nine months ended April 1, 1994, respectively, compared with 21.7% and
23.3% for the same periods last year and 19.0% for the immediately preceding
quarter. The decrease in gross margin as a percentage of net sales from both
comparable year-ago periods was primarily due to a decline in average unit
sales prices of the Company's products as a result of competitive market
conditions partially offset by a shift in mix to the Company's newer, higher
capacity disc drives, a reduction in material costs and, with respect to the
comparable year-ago quarter, an increase in units produced resulting in lower
overhead costs per unit. The increase in gross margin as a percentage of net
sales from the immediately preceding quarter was primarily due to a shift in
mix to the Company's newer, higher capacity disc drives, an increase in units
produced resulting in lower overhead costs per unit and a reduction in
material costs partially offset by a decline in average unit sales prices of
the Company's products as a result of competitive market conditions.
The Company was advised that the Commission (the "EC Commission") of the
European Communities ("EC") had re-established as of December 5, 1993, the
levying of certain customs duties on products, including disc drives imported
into the EC from Singapore. Prior to this determination, the levying of such
duties had been suspended by the EC Commission. Effective January 1, 1994
those products for which the duties had been imposed were again admitted into
the European Communities exempt from duties providing they qualified for
exemption under the General System of Preferences. These products are
subject to ongoing review and such duties could be reimposed at any time.
The imposition of such customs duties could negatively impact revenues or
increase costs and adversely impact gross margins depending upon the extent
to which such duties are absorbed by the Company.
Product development expenses for the three and nine months ended April 1,
1994 were $43,766,000 and $126,592,000 respectively, an increase of
$4,371,000 and $12,800,000 respectively, when compared with the comparable
periods last year. These expenses represented 4.8% and 5.1% of net sales for
the three and nine months ended April 1, 1994, respectively, compared with
5.2% and 5.0% respectively, for the comparable year-ago periods. The
increase in expenses from both comparable year-ago periods was primarily due
to increased product development efforts related to the Company's new
products being introduced in the current fiscal year and increases in
salaries and related costs partially offset by a decrease in material costs.
Marketing and administrative expenses for the three and nine months ended
April 1, 1994 were $52,305,000 and $149,044,000 respectively, a decrease of
$1,335,000 and $19,392,000 respectively, when compared with the comparable
year-ago periods. These expenses represented 5.8% and 6.0% of net sales for
the three and nine months ended April 1, 1994 compared with 7.1% and 7.4%
respectively, for the comparable year-ago periods. The decrease in expenses
from the comparable nine month period last year was primarily due to a
decrease in the provision for bad debts. The decrease in expenses from the
comparable year-ago quarter was primarily due to a decrease in the provision
for bad debts partially offset by net increases in other expense categories
including increased salaries and related costs.
Net other income increased by $292,000 and $4,289,000 for the three and nine
months ended April 1, 1994, respectively, when compared with the same periods
last year. The increase in net other income from both year-ago periods was
primarily due to increased interest income as a result of higher levels of
average invested cash partially offset by higher interest expense as a result
of higher average debt outstanding.
The estimated tax rate used to compute the income tax provision for the nine
months ended April 1, 1994 and April 2, 1993 is based on the Company's
estimate of its domestic and foreign operating income for each of the two
years. The income tax provision is less than the statutory rate primarily
because operating income of certain foreign operations is not subject to
foreign income taxes and a portion of such operating income is considered to
be permanently invested in non-U.S. operations. Accordingly, taxes have not
been provided on such income.
Effective July 3, 1993, the Company adopted Financial Accounting Standards
Board Statement No. 109, "Accounting for Income Taxes" (SFAS 109). Under
SFAS 109, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets and
liabilities and are measured by applying enacted tax rates and laws to
taxable years in which such differences are expected to reverse. Prior to
the adoption of SFAS 109, income tax expense was determined using the
deferred method. Deferred tax expense was based on items of income and
expense that were reported in different years in the financial statements and
tax returns and were measured at the tax rate in effect in the year the
difference originated.
Liquidity and Capital Resources:
At April 1, 1994, the Company's cash, cash equivalents and short-term
investments totaled $1,253,217,000, an increase of $624,006,000 from the July
2, 1993 balance. These funds are being maintained in short-term liquid
investments until required for other purposes.
In December 1993, the Company completed an offering of $270,750,000
principal amount of 5% Convertible Subordinated Debentures Due 2003. The
proceeds of the offering are expected to be used to further strengthen the
Company's financial position and to provide the Company with additional
financial flexibility to take advantage of business opportunities as they may
arise. Such opportunities may include the acquisition or development of, or
investment in, complementary businesses, products and technologies.
As of April 1, 1994 the Company had a domestic credit facility consisting of
a $50 million line of credit. There were no borrowings under this line of
credit at April 1, 1994 although approximately $13 million had been utilized
for letters of credit. Additionally the Company had approximately $28
million of non-domestic lines of credit which can be used for borrowings as
well as letters of credit, bankers' guarantees, and overdraft facilities.
Although there were no borrowings under these lines at April 1, 1994,
approximately $2 million had been utilized for bankers' guarantees and
letters of credit. The Company also had approximately $29 million of lines
of credit worldwide which can be used for letters of credit and bankers'
guarantees, but not borrowings. Of the $29 million, approximately $9 million
had been utilized at April 1, 1994.
The Company expects investments in property and equipment in the current
fiscal year to approximate $235 million, of which approximately $138 million
had been incurred through April 1, 1994. The Company plans to finance these
investments from cash flows from operations and existing cash balances. The
$138 million comprised $58 million for manufacturing facilities and equipment
in the thin-film head operations in Minnesota, Malaysia and Northern Ireland,
$59 million for manufacturing facilities and equipment related to the
Company's sub-assembly and disc drive final assembly and test facilities in
the U.S. and Far East, $14 million for expansion of the Company's thin-film
media operations in Fremont, San Jose and Anaheim, California and $7 million
for other purposes.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Securities Litigation
In 1988 a series of lawsuits was filed in Federal Court for the Northern
District of California against the Company, alleging violations of the
federal securities laws on behalf of a class of purchasers of the Company's
securities. These lawsuits have been the subject of much pretrial
proceedings, which have had the net effect of narrowing the claims made
against the Company. Discovery is continuing and a trial date is expected to
be set in 1994.
In 1991 another series of lawsuits was filed in Federal Court for the
Northern District of California against the Company, alleging violations of
the federal securities laws on behalf of a class of purchasers of the
Company's securities. Discovery is ongoing and trial is set for October
11, 1994.
The Company believes both series of securities lawsuits are without merit and
intends to vigorously contest each action.
Environmental Matters
The United States Environmental Protection Agency (EPA) and/or similar state
agencies have identified the Company as a potentially responsible party with
respect to environmental conditions at several different sites to which
hazardous wastes had been shipped or from which they were released. Other
parties have also been identified at certain of these sites as potentially
responsible parties. Many of these parties either have shared or likely will
share in the costs associated with the sites. Investigative and/or remedial
activities are ongoing at all such sites.
At July 2, 1993 the total remaining cost of investigation and remediation at
all the sites was approximately $16,300,000. At July 2, 1993 the Company had
recovered $800,000 from Control Data Corporation (CDC), through its
indemnification and cost sharing agreements with CDC and, in addition,
expects to recover approximately $11,300,000 over the next 30 years. CDC is
the former owner of the sites now owned by the Company from which hazardous
wastes were shipped or at which contamination has been identified. In
addition, the Company has a $10 million note payable to CDC with right of
offset for environmental liabilities. After deducting the expected
recoveries from CDC, the expected aggregate undiscounted liability was
approximately $5,000,000 with expected payments of $557,000 in 1997, $383,000
in 1998 and the remainder thereafter.
Approximately $15,000,000 of the $16,300,000 total estimated remaining costs
is attributable to one site in Omaha, Nebraska acquired by Seagate from CDC.
In 1993 the Company entered into an agreement to sell the Omaha property.
Under the agreement the Company retains responsibility for and has
indemnified the buyer with respect to all environmental contamination
existing on the site at the time of sale. IT Corporation, a nationally known
environmental consulting firm, has provided consulting services to CDC and
the Company for the Omaha site for several years and assisted the Company in
estimating the liability related to the cost of remediation. This liability
is based on a plan of investigation and remediation developed by IT
Corporation pursuant to a Consent Order entered into by the Company and the
EPA in 1990. According to the plan the likely technology for remediation of
groundwater at the facility will be pumping and treatment, while remediation
of soils will most likely be accomplished by soil vapor extraction, followed
by in-situ bioremediation. A substantial portion of the Omaha liability was
discounted by applying a risk free rate, determined to be 4.53%, to the
expected payments to be made by the Company over the next 30 years. None of
the liabilities for any of the other sites has been discounted. The total
liability for all sites recorded by the Company after discounting was
$3,000,000 at July 2, 1993.
Considering the indemnification and cost-sharing agreements entered into with
CDC and the reserves that the Company has established with respect to its
future environmental costs the Company believes, based on present information
available to it, that its future environmental costs will not have a material
adverse effect on its financial condition or results of operations.
Patent Litigation
In November 1992, Rodime, PLC ("Rodime") filed a complaint in Federal Court
for the Central District of California, alleging infringement of U.S. Patent
No. B1 4,638,383 and various state law unfair competition claims. In
February 1993, Rodime filed an amended complaint alleging infringement of a
second patent, U.S. Patent No. 4,890,174. The Company has initiated a
counter-claim against Rodime in the same action for infringement of a Seagate
patent, U.S. Patent No. 4,620,251. On June 11, 1993, Judge Gadbois of the
Central District of California signed and issued an Order in which the
companies stipulated to a dismissal with prejudice of any claims and
counterclaims based on U.S. Patent Nos. 4,890,174 and 4,620,251. The Court
has continued the pre-trial conference date to April 25, 1994, at which time
the Court is expected to schedule a date for the commencement of trial.
Seagate has filed a number of motions for summary judgment in this action,
some of which, if granted, would be completely dispositive of this action. A
similar partially dispositive motion for summary judgment was recently
granted in the related action of Quantum Corporation vs. Rodime, PLC,
currently pending in the District of Minnesota.
There may be some indication at the April, 25, 1994 pre-trial conference as
to when a decision on Seagate's motions for summary judgment may be expected.
It is the opinion of the Company's patent counsel that the Company's products
do not infringe any valid claims of the Rodime patent in suit and thus the
Company has refused Rodime's offer of a license for its patents. However,
many other companies, such as IBM, Conner Peripherals, Hewlett-Packard and a
number of Japanese companies have been reported to have made payments to and
taken licenses from Rodime.
Tax Deficiency
The Internal Revenue Service ("IRS") in 1990 concluded a field audit of the
Company's income tax returns for the fiscal years 1983 through 1987 and
issued to the Company "Notices of Deficiency" (the "Notices") for the fiscal
years 1981 through 1987 proposing tax deficiencies of approximately
$112,280,000 plus interest. The major proposed adjustment to income in those
fiscal years related to the allocation of income between the Company and its
manufacturing subsidiary in Singapore. On February 8th, 1994, the United
States Tax Court issued an opinion concerning the allocation of income
between the Company and its Singapore subsidiary for the fiscal years 1983
through 1987. A number of other adjustments were settled by the parties
prior to the issuance of the Tax Court's opinion. Although the parties are
currently in the process of completing the final computation of the income
adjustments sustained by the Tax Court, the Company expects that the
consequences of the Tax Court decision and the prior settlement will be the
elimination of nearly all of the tax deficiencies proposed by the IRS in its
Notices and the elimination of the Company's net operating loss carryovers
from these fiscal years to the fiscal year 1988 and subsequent fiscal years.
The net operating loss carryovers thus eliminated totaled approximately
$50,000,000. The Tax Court will enter a decision implementing its opinion
once the final computation is made. Such decision will be subject to appeal
by either the Company or the IRS. The Company believes that the final
adjustments resulting from this audit will not have a material adverse effect
on the Company's financial condition or results of operations.
The IRS in 1994 concluded a field audit of the Company's income tax returns
for the fiscal years 1988 through 1990 and issued to the Company a "Notice of
Deficiency" ("the 1994 Notice") for those fiscal years. The majority of the
proposed adjustments to income in those fiscal years related to the
allocation of income between the Company and its foreign subsidiaries. The
proposed adjustments to income and tax credits in the 1994 Notice resulted in
proposed tax deficiencies of approximately $66,000,000, plus penalties and
interest. The proposed income adjustments would also eliminate tax net
operating loss and tax credit carryovers that have been used to offset
taxable income and tax liabilities in subsequent fiscal years. The combined
impact on net operating loss and tax credit carryovers from the resolution of
the audit for the fiscal years 1983 through 1987 and the adjustments proposed
in the 1994 Notice would be to eliminate tax net operating loss carryovers of
approximately $81,000,000 and tax credit carryforwards of approximately
$14,000,000, which would result in additional taxes of approximately
$41,000,000 plus interest for the three years ended July 2, 1993. The
Company has not yet determined the forum in which it will contest these
proposed deficiencies. The Company believes, however, that the outcome of
this matter will not have a material adverse effect on the Company's
financial condition or results of operations.
Other Litigation
Amstrad PLC ("Amstrad") initiated a lawsuit in London, England on December
11, 1992 against the Company concerning the Company's sale to Amstrad of
allegedly defective disc drives. The Company has replied to the allegations
made against it by Amstrad by denying all material points of Amstrad's claim
and asserting many affirmative defenses. Discovery is ongoing, however no
trial date has been set. The Company believes this lawsuit is without merit
and will continue to defend itself vigorously.
In October 1991 International Business Machines Corporation ("IBM") initiated
a lawsuit in the Federal District Court for Minnesota against the Company and
one of its employees for allegedly threatening the misappropriation of IBM
trade secrets, including trade secrets related to IBM's magnetoresistive
("MR") head technology. IBM has since amended its complaint adding another
Company employee as a defendant and alleging that the defendants have now
misappropriated such IBM trade secrets. Discovery is proceeding and the
Court has now extended the time for the case to be made "trial ready" from
January 1994 to July 1994. The Company believes that IBM's claims are
without merit and has filed a counter-claim against IBM. In addition, the
Company is continuing development of MR heads.
The Company is involved in a number of other judicial and administrative
proceedings incidental to its business. Although occasional adverse
decisions (or settlements) may occur, the Company believes that the final
disposition of such matters will not have a material adverse effect on the
Company's financial position or results of operations.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibit is included herein:
11.1 Computation of Net Income per Share.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed with the Securities and Exchange
Commission during the three months ended April 1, 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEAGATE TECHNOLOGY, INC.
(Registrant)
DATE: April 22, 1994 BY: /s/ Donald L. Waite
_______________________
DONALD L. WAITE
Sr. Vice President, Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
DATE: April 22, 1994 BY: /s/ Alan F. Shugart
_______________________
ALAN F. SHUGART
Chairman of the Board,
President and Chief Executive
Officer, (Principal Executive
Officer and Director)
EXHIBIT 11.1
SEAGATE TECHNOLOGY, INC.
COMPUTATION OF NET INCOME PER SHARE
(In thousands except per share data)
Three Months Ended Nine Months Ended
April 1, April 2, April 1, April 2,
1994 1993 1994 1993
________ ________ ________ ________
PRIMARY
Weighted average
number of common
shares outstanding
during the period 71,140 67,530 70,098 67,159
Incremental common
shares attributable
to exercise of
outstanding options
(assuming proceeds
would be used to
purchase treasury
stock) 2,656 2,586 2,539 2,581
________ ________ ________ ________
Total shares 73,796 70,116 72,637 69,740
======== ======== ======== ========
Net Income:
Amount $ 67,046 $ 39,018 $ 145,856 $ 161,920
Per share $ 0.91 $ 0.56 $ 2.01 $ 2.32
FULLY DILUTED
Weighted average
number of common
shares outstanding
during the period 71,140 67,530 70,098 67,159
Incremental common
shares attributable
to exercise of
outstanding options
(assuming proceeds
would be used to
purchase treasury
stock) and conversion
of 6-3/4% and 5%
convertible
subordinated
debentures 19,249 8,864 13,092 9,010
________ ________ ________ ________
Total shares 90,389 76,394 83,190 76,169
======== ======== ======== ========
Net Income:
Amount $ 67,046 $ 39,018 $ 145,856 $ 161,920
Add 6-3/4%
convertible
subordinated
debentures
interest, net of
income tax effect 2,810 2,850 8,429 8,569
Add 5% convertible
subordinated
debentures
interest, net of
income tax effect 2,112 -- 2,480 --
________ ________ ________ ________
Total $ 71,968 $ 41,868 $ 156,765 $ 70,489
======== ======== ======== ========
Per share $ 0.80 $ 0.55 $ 1.88 $ 2.24
======== ======== ======== ========
