<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
of
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1994
Commission File Number 0-10630
SEAGATE TECHNOLOGY, INC.
(Registrant)
Incorporated in the State of Delaware
I.R.S. Employer Identification Number 94-2612933
920 Disc Drive, Scotts Valley, California 95066
Telephone: (408) 438-6550
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
On September 30, 1994, 72,707,460 shares of the registrant's common stock were
issued and outstanding.
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INDEX
SEAGATE TECHNOLOGY, INC.
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE NO.
- - ------------------------------ --------
Item 1. Financial Statements (Unaudited)
Consolidated condensed statements of income--Quarters
ended September 30, 1994 and October 1, 1993 3
Consolidated condensed balance sheets--September 30, 1994
and July 1, 1994 4
Consolidated condensed statements of cash flows--Quarters
ended September 30, 1994 and October 1, 1993 5
Notes to consolidated condensed financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II OTHER INFORMATION
- - ----------------------------------
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
2
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SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
---------------------------
Sept. 30, Oct. 1,
1994 1993
---------- ---------
<S> <C> <C>
Net sales $ 933,146 $ 773,878
Cost of sales 735,001 634,020
Product development 47,252 40,971
Marketing and administrative 56,163 47,232
Amortization of goodwill and other intangibles 4,250 3,170
In-process research and development 43,000 --
---------- ---------
Total Operating Expenses 885,666 725,393
Income from Operations 47,480 48,485
Interest income 14,698 6,198
Interest expense (8,207) (4,865)
Other 1,322 1,708
---------- ----------
Other Income 7,813 3,041
---------- ----------
Income before income taxes 55,293 51,526
Provision for income taxes 32,756 15,458
---------- ----------
Net Income $ 22,537 $ 36,068
========= =========
NET INCOME PER SHARE:
Primary $ 0.30 $ 0.51
Fully diluted 0.30 0.50
NUMBER OF SHARES USED IN
PER SHARE COMPUTATIONS:
Primary 74,904 71,285
Fully diluted 91,501 77,573
</TABLE>
See notes to consolidated condensed financial statements.
3
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SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Sept. 30, July 1,
1994 1994(1)
----------- -----------
ASSETS
- - ------
<S> <C> <C>
Cash and cash equivalents $ 595,519 $ 804,717
Short-term investments 651,423 528,825
Accounts receivable 381,959 392,231
Inventories 440,537 342,537
Deferred income taxes 100,158 95,784
Other current assets 88,004 82,351
---------- ----------
Total Current Assets 2,257,600 2,246,445
Property, equipment and leasehold improvements, net 441,548 415,038
Goodwill and other intangibles, net 154,569 126,395
Other assets 94,524 89,652
---------- ----------
Total Assets $2,948,241 $2,877,530
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Accounts payable $ 431,477 $ 363,709
Accrued employee compensation 96,408 83,843
Accrued expenses 192,892 190,377
Accrued income taxes 38,854 64,687
Current portion of long-term debt 372 168
---------- ----------
Total Current Liabilities 760,003 702,784
Deferred income taxes 210,391 218,801
Other liabilities 89,654 78,054
Long-term debt, less current portion 549,494 549,492
---------- ----------
Total Liabilities 1,609,542 1,549,131
---------- ----------
Common stock 728 728
Additional paid-in capital 366,430 373,296
Foreign currency translation adjustment (1,041) (1,044)
Retained earnings 977,956 955,419
Treasury common stock at cost (3,477) --
Unrealized loss on marketable securities (1,897) --
---------- ----------
Total Shareholders' Equity 1,338,699 1,328,399
---------- ----------
Total Liabilities and Shareholders' Equity $2,948,241 $2,877,530
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
(1) The information in this column was derived from the Company's aud.ted
consolidated balance sheet as of July 1, 1994
4
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SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
----------------------------
Sept. 30, Oct. 1,
1994 1993
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 22,537 $ 36,068
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 45,656 47,508
Deferred income taxes (14,496) 2,092
In-process research and development 43,000 --
Other (155) 711
Changes in operating assets and liabilities:
Accounts receivable 10,272 14,878
Inventories (106,399) 66,899
Other current assets 5,175 (500)
Accounts payable 68,141 (28,364)
Accrued employee compensation 12,565 10,472
Accrued expenses 14,253 (4,772)
Accrued income taxes (21,764) (18,763)
Other liabilities (163) 90
---------- ----------
Net cash provided by operating activities 78,622 126,319
INVESTING ACTIVITIES:
Acquisition of property, equipment and leasehold
improvements, net (62,947) (44,366)
Purchases of short-term investments (577,756) (71,132)
Sales of short-term investments 453,879 83,752
Acquisition of Palindrome Corporation, net of cash acquired (68,732) --
Investment in Dragon Systems, Inc. (18,550) --
Increase in other non-current assets, net 559 (192)
Other, net 282 19
---------- ----------
Net cash used in investing activities (273,265) (31,919)
FINANCING ACTIVITIES:
Repayment of long-term debt (81) (131)
Sale of common stock 11,422 12,437
Purchase of treasury stock (25,834) --
---------- ----------
Net cash provided by (used in) financing activities (14,493) 12,306
Effect of exchange rate changes on cash and cash equivalents (62) (137)
---------- ----------
Increase (decrease) in cash and cash equivalents (209,198) 106,569
Cash and cash equivalents at the beginning of the period 804,717 426,094
---------- ----------
Cash and cash equivalents at the end of the period $ 595,519 $ 532,663
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
5
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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
1, 1994 are adequate to make the information presented not misleading.
The consolidated condensed financial statements reflect, in the
opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to summarize fairly the consolidated
financial position, results of operations and cash flows for such
periods.
The results of operations for the three months ended September 30,
1994 are not necessarily indicative of the results that may be
expected for the entire year ending June 30, 1995.
The Company operates and reports financial results on a fiscal year of
52 or 53 weeks ending on the Friday closest to June 30. Accordingly,
fiscal 1994 ended on July 1, 1994 and fiscal 1995 will end on June 30,
1995.
2. NET INCOME PER SHARE
Primary net income per share is based on the weighted average number
of shares of common stock and common stock equivalents outstanding
during the period. Fully diluted net income per share further assumes
the conversion of the Company's 5% and 6-3/4% convertible subordinated
debentures.
3. BALANCE SHEET INFORMATION
(In thousands)
<TABLE>
<CAPTION>
Sept. 30, July 1,
1994 1994
----------- -----------
<S> <C> <C>
Accounts Receivable:
Accounts receivable $ 427,388 $ 435,061
Allowance for non-collection (45,429) (42,830)
---------- -----------
$ 381,959 $ 392,231
========== ===========
</TABLE>
6
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<TABLE>
<CAPTION>
Sept. 30, July 1,
1994 1994
---------- ------------
<S> <C> <C>
Inventories:
Components $ 202,435 $ 188,477
Work-in-process 63,990 56,735
Finished goods 174,112 97,325
---------- -----------
$ 440,537 $ 342,537
========== ===========
Property, equipment and leasehold improvements $1,022,469 $ 970,853
Allowance for depreciation and amortization 580,921 555,815
---------- -----------
$ 441,548 $ 415,038
========== ===========
</TABLE>
4. INCOME TAXES
The estimated tax rate used to compute the income tax provision for
the quarters ended September 30, 1994 and October 1, 1993 is based on
the Company's estimate of its domestic and foreign operating income
for the respective year. The effective tax rate for the quarter ended
September 30, 1994 was approximately 59% compared with 30% for the
comparable quarter last year. The increase in the effective tax rate
was due to the $43,000,000 write-off of in-process research and
development incurred in connection with the acquisition of Palindrome
Corporation that is not deductible for domestic tax purposes.
Excluding the one time write-off of in-process research and
development the Company's overall effective tax rate is 30%. The
overall effective rate is less than the domestic statutory rate
because a portion of the operating income is not subject to foreign
income taxes and will not be subject to U.S. income tax because it is
considered to be permanently invested in non-U.S. operations.
Accordingly, taxes have not been provided on such income.
The Company expects its effective tax rate for the remaining quarters
of fiscal year 1995 will be 30%. The overall rate for the year will
be higher than 30% due to the blending of the higher rate in the first
quarter.
7
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5. SHAREHOLDERS' EQUITY
Shares authorized and outstanding are as follows:
<TABLE>
<CAPTION>
Shares Outstanding
----------------------------
Sept. 30, July 1,
1994 1994
--------- -------
<S> <C> <C>
Preferred stock, par value $.01 per share,
1,000,000 shares authorized -- --
Common stock, par value $.01 per share,
200,000,000 shares authorized (shares
outstanding exclude treasury shares of
139,045 at September 30, 1994) 72,707,460 72,832,351
</TABLE>
6. SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands)
<TABLE>
<CAPTION>
Quarter Ended
---------------------------
Sept. 30, Oct. 1,
1994 1993
--------- -------
<S> <C> <C>
Cash Transactions:
Cash paid for interest $ 322 $ 310
Cash paid for income taxes 69,102 31,047
Non-Cash Transaction:
Receipt of note receivable for sale of building -- 5,000
Unrealized loss on marketable securities 1,897 --
</TABLE>
7. CERTAIN INVESTMENTS
Effective July 2, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". In accordance with the
Statement, prior period financial statements have not been restated to
reflect the change in accounting principle. The cumulative effect as
of July 2, 1994 of the adoption of SFAS No. 115 did not have a
material effect on the Company's financial condition or results of
operations.
The Company has classified its entire investment portfolio as
available-for-sale. Available-for-sale securities are stated at fair
value with unrealized gains and losses reported as a separate
component of shareholders' equity. The amortized cost of debt
securities is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in interest
income. Realized gains and losses are included in other income
(expense). The cost of securities sold is based on the specific
identification method.
8
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The following is a summary of available-for-sale securities at
September 30, 1994 (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAIN LOSS FAIR VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Corporate Bonds $ 346,221 $ -- $ 601 $ 345,620
U.S. Government
Obligations 264,578 180 1,388 263,370
Commercial Paper 197,149 51 -- 197,200
Money Market
Instruments 135,536 -- 124 135,412
Municipal Bonds 104,205 -- 15 104,190
Taxable Auction Rate
Preferreds 63,006 -- -- 63,006
---------- ---------- ---------- ----------
Total $1,110,695 $ 231 $ 2,128 $1,108,798
========== ========== ========== ==========
Included in short-term investments $ 651,423
Included in cash and cash equivalents 457,375
----------
Total $1,108,798
==========
</TABLE>
The gross realized gains and losses on sale of available-for-sale
securities were immaterial for the quarter ended September 30, 1994.
The fair value of the Company's investment in debt securities at
September 30, 1994, by contractual maturity, are as follows (in
thousands):
<TABLE>
<S> <C>
Due in less than 1 year $ 750,787
Due in 1 to 2-1/2 years 358,011
--------
Total $1,108,798
==========
</TABLE>
8. ACQUISITIONS
On August 3, 1994 the Company acquired Palindrome Corporation, a
developer of data protection and management software for NetWare based
networks and enterprise LANs, for $69,000,000 in cash. The
acquisition was accounted for as a purchase and, accordingly, the
results of operations of Palindrome have been included in the
consolidated financial statements from the date of acquisition.
Goodwill and other intangibles arising from the acquisition are being
amortized on a straight-line basis over periods ranging from 3 to 7
years. As a result of the
9
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acquisition the Company incurred a one time write-off of in-process
research and development of $43,000,000.
In July 1994 the Company acquired 25% of the outstanding voting stock
of Dragon Systems, Inc., a developer of advanced speech recognition
technology and products for personal computer and workstation
platforms for $18.6 million in cash. Goodwill arising from the
purchase is being amortized on a straight-line basis over seven years.
9. LITIGATION
See Part II, Item 1 of this Form 10-Q for a description of legal proceedings.
10
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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 September 30, 1994 were $933,146,000 as
compared with $773,878,000 reported for the comparable year-ago quarter, and
$1,001,065,000 reported for the immediately preceding quarter. The increase in
net sales from the comparable year-ago quarter was primarily due to a higher
level of unit shipments and a shift in mix to the Company's higher priced
products partially offset by a decline in the average unit sales prices of the
Company's products as a result of competitive market conditions. The decrease
in net sales from the immediately preceding quarter was primarily due to a
lower level of unit shipments and a decline in the average unit sales prices of
the Company's products as a result of competitive market conditions partially
offset by a shift in mix to the Company's higher priced products. The 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 21.2% for the quarter ended
September 30, 1994, compared with 18.1% for the comparable quarter last year
and 21.6% for the immediately preceding quarter. The increase in gross margin
as a percentage of net sales from the comparable year- ago quarter was
primarily due to a shift in mix to the Company's newer, higher capacity disc
drives, an increase in units produced resulting in lower overhead costs per
unit and a reduction in material costs partially offset by a decline in average
unit sales prices of the Company's products as a result of competitive market
conditions. The decrease in gross margin as a percentage of net sales from the
immediately preceding quarter was primarily due to a decline in average unit
sales prices of the Company's products as a result of competitive market
conditions and a decrease in units produced resulting in higher overhead costs
per unit partially offset by a shift in mix to the Company's newer, higher
capacity disc drives and a reduction in material costs.
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 quarter ended September 30, 1994 were
$47,252,000, an increase of $6,281,000 when compared with the same quarter last
year and an increase of $1,937,000 when compared with the immediately preceding
quarter ended July 1, 1994. These expenses represented 5.1% of net sales for
the quarter ended
11
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September 30, 1994 compared with 5.3% for the comparable year-ago quarter, and
4.5% for the immediately preceding quarter. The increase in expenses from the
comparable year-ago quarter was primarily due to increases in salaries and
related costs and expenses of the recently acquired software businesses, as
well as an overall increase in the Company's product development efforts. The
increase in expenses from the immediately preceding quarter was primarily due
to product development expenses of the recently acquired software businesses.
Marketing and administrative expenses for the quarter ended September 30, 1994
were $56,163,000, an increase of $8,931,000 when compared with the comparable
year-ago quarter, and a decrease of $3,487,000 when compared with the
immediately preceding quarter. These expenses represented 6.0% of net sales
for the quarter ended September 30, 1994 compared with 6.1% for the comparable
year-ago quarter and 6.0% for the immediately preceding quarter. The increase
in expenses from the comparable year-ago quarter was primarily due to expenses
of the Company's recently acquired software businesses and increases in legal,
advertising and telephone expenses and salaries and related costs. These
increases in expenses were partially offset by a decrease in the provision for
bad debts. The decrease in expenses from the immediately preceding quarter was
primarily due to a decrease in the provision for bad debts and decreased legal
expense, travel and entertainment and commissions, partially offset by
marketing and administrative expenses of the Company's recently acquired
software businesses.
Amortization of goodwill and other intangibles increased by $1,080,000 for the
quarter ended September 30, 1994, when compared with the same quarter last
year. The increase resulted from additional goodwill and other intangibles
arising from the acquisition of Palindrome Corporation and the equity
investment in Dragon Systems, Inc., both of which occurred during the quarter
ended September 30, 1994.
The $43,000,000 charge for in-process research and development in the quarter
ended September 30, 1994 is a one time write-off incurred in connection with
the acquisition of Palindrome Corporation.
Net other income increased by $4,772,000 for the quarter ended September 30,
1994, when compared with the same quarter last year. The increase in net
other income was primarily due to increased interest income as a result of
higher levels of average invested cash and higher interest rates, partially
offset by higher interest expense as a result of higher average debt
outstanding.
The effective tax rate for the quarter ended September 30, 1994 was
approximately 59% compared with 30% for the comparable quarter last year. The
increase in the effective tax rate was due to the $43,000,000 write-off of
in-process research and development incurred in connection with the acquisition
of Palindrome Corporation that is not deductible for domestic tax purposes.
Excluding the one time write-off of in-process research and development the
Company's overall effective tax rate is 30% which is less than the domestic
statutory rate because a portion of the operating income is not subject to
foreign income taxes and is considered to be permanently invested in non-U.S.
operations.
12
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The Company expects its effective tax rate for the remaining quarters of fiscal
year 1995 will be 30%. The overall effective tax rate for the year will be
higher than 30% due to the blending of the higher rate in the first quarter.
LIQUIDITY AND CAPITAL RESOURCES:
At September 30, 1994, the Company's cash, cash equivalents and short-term
investments totaled $1,246,942,000, a decrease of $86,600,000 from the July 1,
1994 balance. This decrease was primarily a result of the Company's
acquisition of Palindrome Corporation, its investment in Dragon Systems, Inc.
and the repurchase by the Company of 1,015,000 shares of its common stock,
partially offset by cash provided by operating activities. The Company's cash,
cash equivalents and short-term investments are being maintained in short-term
liquid investments until required for other purposes.
As of September 30, 1994 the Company had a domestic credit facility consisting
of a $50 million line of credit. There were no borrowings under this line of
credit at September 30, 1994 although approximately $12 million had been
utilized for letters of credit. Additionally the Company had approximately $33
million of non-domestic lines of credit which can be used for borrowings as
well as letters of credit, bankers' guarantees, and overdraft facilities.
Although there were no borrowings under these lines at September 30, 1994,
approximately $3 million had been utilized for bankers' guarantees and letters
of credit. The Company also had approximately $26 million of lines of credit
worldwide which can be used for letters of credit and bankers' guarantees, but
not borrowings. Of the $26 million, approximately $5 million had been utilized
at September 30, 1994.
The Company expects investments in property and equipment in the current fiscal
year to approximate $375 million, of which approximately $63 million had been
incurred through September 30, 1994. The Company plans to finance these
investments from cash flows from operations and existing cash balances. The
$63 million comprised $28 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, $22 million for manufacturing facilities
and equipment in the thin- film head operations in Minnesota, Malaysia and
Northern Ireland, $7 million for expansion of the Company's thin-film media
operations in Fremont, San Jose and Anaheim, California and $6 million for
other purposes.
During the quarter ended September 30, 1994 the Company acquired 1,015,000
shares of its common stock for approximately $25.8 million. The repurchase of
these shares was in connection with a stock repurchase program announced in
July 1994 in which up to 7,000,000 shares of the Company's common stock may be
acquired in the open market. The purpose of the stock repurchase program is to
enhance shareholder value. The repurchase program also provides shares to be
issued under the Company's employee stock plans and thereby reduces dilution
from such plans.
The Company anticipates that users of computer systems will increasingly rely
upon client/server network computing environments and believes that as this
reliance increases, users will demand software that more efficiently and
securely manages data across computer networked environments. As such, the
Company is broadening its core competencies to include software products to
meet these requirements. During the quarter ended September 30, 1994 the
Company acquired Palindrome Corporation, a developer of data protection and
13
<PAGE> 14
management software, for $69 million, and purchased 25% of the outstanding
voting stock of Dragon Systems, Inc., a developer of advanced speech
recognition technology, for $18.6 million. The Company intends to continue its
expansion into software by actively pursuing discussions with companies that
fit with its strategy. The Company plans to finance these investments
primarily from cash flows from operations and existing cash balances. However,
it is also possible that the Company may utilize additional equity or debt
financing.
14
<PAGE> 15
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
SECURITIES LITIGATION
In 1988 a series of lawsuits were filed in Federal Court for the Northern
District of California against the Company, alleging violations of the federal
securities laws on behalf of a class of purchasers of the Company's securities.
These lawsuits have been the subject of much pretrial proceedings, which have
had the net effect of narrowing the claims made against the Company. The trial
date is set for late 1994.
In 1991 another series of lawsuits were filed in Federal Court for the Northern
District of California against the Company, alleging violations of the federal
securities laws on behalf of a class of purchasers of the Company's securities.
A stay of discovery has been entered by the Court and a trial date has not yet
been set.
The Company believes both series of securities lawsuits are without merit and
intends to vigorously contest each lawsuit.
ENVIRONMENTAL MATTERS
The United States Environmental Protection Agency (EPA) and/or similar state
agencies have identified the Company as a potentially responsible party with
respect to environmental conditions at several different sites to which
hazardous wastes had been shipped or from which they were released. These
sites were acquired by the Company from Control Data Corporation (CDC) in 1990.
Other parties have also been identified at certain of these sites as
potentially responsible parties. Many of these parties either have shared or
likely will share in the costs associated with the sites. Investigative and/or
remedial activities are ongoing at such sites.
The estimated cost of investigation and remediation of known contamination at
the sites to be incurred after July 1, 1994 was approximately $15,200,000. At
July 1, 1994 the Company had recovered approximately $1,500,000 from CDC
through its indemnification and cost sharing agreements with CDC and, in
addition, expects to recover approximately $10,400,000 over the next 30 years.
After deducting the expected recoveries from CDC, the expected aggregate
undiscounted liability was approximately $4,800,000 with expected payments of
approximately $180,000 in 1998, $383,000 in 1999 and the remainder thereafter.
Approximately $14,500,000 of the $15,200,000 total estimated costs described
above is attributable to one site in Omaha, Nebraska. In 1994 the Company sold
the Omaha property; however, the Company retains responsibility for and has
indemnified the buyer with respect to all environmental contamination existing
on the site at the time of sale. IT Corporation, a nationally known
environmental consulting firm, has provided consulting services to CDC and the
Company for the Omaha site for several years and assisted the Company in
estimating the liability related to the cost of remediation. This liability is
based on a plan of investigation and remediation developed by IT Corporation
pursuant to a
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<PAGE> 16
Consent Order entered into by the Company and the EPA in 1990. The extent of
contamination in the groundwater is still being investigated and defined.
According to the plan the likely technology for remediation of groundwater at
the facility will be pumping and treatment, while remediation of soils will
most likely be accomplished by soil vapor extraction, followed by in-situ
bioremediation. A substantial portion of the Omaha liability was discounted by
applying a risk free rate of 4.53% to the expected payments to be made by the
Company over the next 30 years. None of the liabilities for any of the other
sites has been discounted. The total liability for all sites recorded by the
Company after discounting was $3,000,000 at July 1, 1994.
The Company believes that the indemnification and cost sharing agreements
entered into with CDC and the reserves that the Company has established with
respect to its future environmental costs are such that, based on present
information available to it, future environmental costs related to currently
known contaminations will not have a material adverse affect on its financial
condition or results of operations.
PATENT LITIGATION
In November 1992, Rodime, PLC ("Rodime") filed a complaint in Federal Court for
the Central District of California, alleging infringement of U.S. Patent No. B1
4,638,383 and various state law unfair competition claims. In February 1993,
Rodime filed an amended complaint alleging infringement of a second patent,
U.S. Patent No. 4,890,174. The Company has initiated a counter-claim against
Rodime in the same action for infringement of a Seagate patent, U.S. Patent No.
4,620,251. On June 11, 1993, the Court issued an Order in which the companies
stipulated to a dismissal with prejudice of any claims and counterclaims based
on U.S. Patent Nos. 4,890,174 and 4,620,251. The Court previously scheduled a
pre-trial conference for April 25, 1994; however, just prior to this date, the
Court notified the parties that the pre-trial conference had been taken off
calendar. No new date has been set for a pre-trial conference. Accordingly,
the parties have not been given a date for the commencement of the trial.
Seagate has filed a number of motions for summary judgment in this action, some
of which, if granted, would be completely dispositive of this action. All of
these motions are still under submission with the Court. A similar partially
dispositive motion for summary judgment was granted in the related action of
Quantum Corporation v. Rodime, PLC, currently pending in the District of
Minnesota. Rodime has appealed this adverse judgment and this appeal is
currently pending before the Court of Appeals for the Federal Circuit.
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
16
<PAGE> 17
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 8, 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 other fiscal years. The combined impact on net operating loss
and tax credit carryovers from the resolution of the audit for the fiscal years
1981 through 1987 and the adjustments proposed in the 1994 Notice would be to
eliminate tax net operating loss carryovers of approximately $81,000,000 and
tax credit carryforwards of approximately $14,000,000, which would result in
additional taxes of approximately $41,000,000 plus interest for the three years
ended July 2, 1993. The Company on June 7, 1994 filed a Petition in the United
States Tax Court contesting these proposed deficiencies and related penalties.
The IRS filed its Answer on August 4, 1994. The Company believes that the
likely outcome of these matters 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 against the Company in London,
England on December 11, 1992 concerning the Company's sale of allegedly
defective disc drives to Amstrad. The Company has replied to the allegations
made against it by Amstrad by denying all material points of Amstrad's claim
and asserting many affirmative defenses. Discovery is continuing and a trial
date has been set for April 1996 with various earlier dates for exchange of
expert and other testimony. The Company believes this lawsuit is without merit
and will continue to defend itself vigorously.
In October 1991 International Business Machines Corporation ("IBM") initiated a
lawsuit in the Federal District Court for Minnesota against the Company and one
of its employees for allegedly threatening the misappropriation of IBM trade
secrets. IBM thereafter amended
17
<PAGE> 18
its complaint adding another Company employee as a defendant and alleging that
the defendants have now misappropriated IBM trade secrets. Discovery is
proceeding and the case is to be made trial ready by January 1995. The Company
believes that IBM's claims are without merit. The Company and the two
individual defendants have also filed counterclaims against IBM.
The Company is involved in a number of other judicial and administrative
proceedings incidental to its business. Although occasional adverse decisions
(or settlements) may occur, the Company believes that the final disposition of
such matters will not have a material adverse effect on the Company's financial
position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are included herein:
11.1 Computation of Net Income per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed with the Securities and Exchange
Commission during the three months ended September 30, 1994.
18
<PAGE> 19
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)
<TABLE>
<S> <C>
DATE: October 24, 1994 BY: /s/ Donald L. Waite
-------------------------------------
DONALD L. WAITE
Sr. Vice President, Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
DATE: October 24, 1994 BY: /s/ Alan F. Shugart
-----------------------------------
ALAN F. SHUGART
Chairman of the Board,
President and Chief Executive
Officer, (Principal Executive
Officer and Director)
</TABLE>
19
<PAGE> 20
EXHIBIT 11.1
SEAGATE TECHNOLOGY, INC.
COMPUTATION OF NET INCOME PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
Quarter Ended
------------------------------
Sept. 30, Oct. 1,
1994 1993
------------- ------------
PRIMARY
- - -------
<S> <C> <C>
Weighted average number of common shares outstanding
during the period 72,773 68,830
Incremental common shares attributable to exercise
of outstanding options (assuming proceeds would
be used to purchase treasury stock) 2,131 2,455
----------- ----------
Total shares 74,904 71,285
=========== ==========
Net Income:
Amount $ 22,537 $ 36,068
Per share $ 0.30 $ 0.51
FULLY DILUTED
- - -------------
Weighted average number of common shares outstanding
during the period 72,773 68,830
Incremental common shares attributable to exercise of
outstanding options (assuming proceeds would be used
to purchase treasury stock) and conversion of 6-3/4%
and 5% convertible subordinated debentures 18,728 8,743
---------- ----------
Total shares 91,501 77,573
========== ==========
Net Income:
Amount $ 22,537 $ 36,068
Add 6-3/4% convertible subordinated debentures interest,
net of income tax effect 2,810 2,810
Add 5% convertible subordinated debentures interest, net
of income tax effect 2,112 --
---------- ----------
Total $ 27,459 $ 38,878
========== ==========
Per share $ 0.30 $ 0.50
========== ==========
</TABLE>
20
<PAGE> 21
SEAGATE TECHNOLOGY, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- - -------
<S> <C>
11.1 Computation of Net Income per Share (see page 20)
27 Financial Data Schedule
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-02-1994
<PERIOD-END> SEP-30-1994
<CASH> 595,519
<SECURITIES> 651,423
<RECEIVABLES> 427,388
<ALLOWANCES> 45,429
<INVENTORY> 440,537
<CURRENT-ASSETS> 2,257,600
<PP&E> 1,022,469
<DEPRECIATION> 580,921
<TOTAL-ASSETS> 2,948,241
<CURRENT-LIABILITIES> 760,003
<BONDS> 549,494
<COMMON> 728
0
0
<OTHER-SE> 1,337,971
<TOTAL-LIABILITY-AND-EQUITY> 2,948,241
<SALES> 933,146
<TOTAL-REVENUES> 933,146
<CGS> 735,001
<TOTAL-COSTS> 735,001
<OTHER-EXPENSES> 150,665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,207
<INCOME-PRETAX> 55,293
<INCOME-TAX> 32,756
<INCOME-CONTINUING> 22,537
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,537
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
