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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 1, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-10630
SEAGATE TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 94-2612933
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
920 DISC DRIVE 95066
SCOTTS VALLEY, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 438-6550
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SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
<TABLE>
<S> <C>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None None
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
6 3/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2012
PREFERRED SHARES PURCHASE RIGHTS
(TITLE OF CLASS)
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 Regis-
trant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing price of Common Stock on July 5, 1994 as
reported by NASDAQ, was approximately $1.238 billion. Shares of Common Stock
held by each officer and director and by each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of outstanding shares of the registrant's Common Stock on July
1, 1994 was 72,832,351.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference to Parts I,
II, III, IV of this form 10-K Report: (1) Proxy Statement for registrant's 1994
Annual Meeting of Shareholders (the "Proxy Statement") and (2) registrant's
Annual Report to Shareholders for the fiscal year ended July 1, 1994 (the
"Annual Report to Shareholders").
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PART I
ITEM 1. BUSINESS
GENERAL
Seagate Technology, Inc. (herein "Seagate Technology", "Seagate" or the
"Company") designs, manufactures and markets a broad line of rigid magnetic disc
drives for use in computer systems ranging from notebook computers and desktop
personal computers to workstations and supercomputers as well as in multimedia
applications such as digital video and video-on-demand. The Company's products
include over 100 rigid disc drive models with form factors from 2.5 to 5.25
inches and capacities from 130 megabytes to 9 gigabytes. The Company sells its
products to original equipment manufacturers ("OEMs") for inclusion in their
computer systems or subsystems, and to distributors, resellers and dealers. The
Company has pursued a strategy of vertical integration and accordingly designs
and manufactures rigid disc drive components including recording heads, discs,
substrates, motors and custom integrated circuits. It also assembles certain of
the key subassemblies for use in its products including printed circuit board
and head stack assemblies. The Company's products are currently manufactured
primarily in the Far East with limited production in the United States.
In addition to pursuing its core rigid disc drive business, the Company is
broadening its business strategy as a data technology company to more fully
address the markets for storage, retrieval and management of data. In this
regard, the Company has implemented a strategy to sell selected magnetic
recording components including thin-film heads, head stack assemblies and motors
to other manufacturers. The Company is also investigating various opportunities
to invest in software activities in which software might be sold together with
the Company's products or marketed separately to third parties. Finally, the
Company's broadened strategy may include expanding its traditional rigid disc
drive business to include other forms of data storage and retrieval, such as
flash memory, where the Company has made a significant investment in SunDisk
Corporation ("SunDisk"), a flash memory company. The Company anticipates that
this broadened strategy may include acquisitions of, investments in and
strategic alliances regarding complementary businesses, products and
technologies. Neither the components business, the software business nor the
investment in SunDisk was material to the Company's results of operations for
fiscal 1994.
SOFTWARE EXPANSION
The Company is seeking to leverage its name recognition, existing presence
in international markets, distribution channels and OEM relationships with
software products directed towards the client/server environment.
The Company anticipates that users of computer systems will increasingly
rely upon client/server network computing environments. Seagate 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 attempting to broaden its core competencies to include software
products to meet these requirements.
In October 1993 Seagate completed its purchase of Caltex Software, Inc., a
development stage company located in Dallas, Texas. Caltex is developing an
application development system and database management product for the Macintosh
and Windows platforms.
In May 1994 Seagate acquired Crystal Computer Services, Inc., a Vancouver,
Canada based developer and marketer of data access and reporting software for
the Windows platform. These products are sold as Crystal Reports, Crystal
Reports Pro and Crystal Reports Server.
In August 1994 the Company acquired Palindrome Corporation, an Illinois
based developer of data production and management software for NetWare based
networks and enterprise LANs.
Seagate intends to continue its expansion into software by actively
pursuing discussions with companies that fit with its strategy. Key to the
Company's software expansion success is acquiring companies that possess
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technology, development personnel and management providing long-term growth
potential. However, implementation of this broadened strategy entails risks of
entering markets in which the Company may have limited or no experience. In
addition, such broadened strategy could result in the diversion of management's
attention from the core rigid disc drive business which could adversely impact
the core business. The broadened strategy has entailed and may continue to
entail acquisitions of, or investments in, businesses, products and
technologies. Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations and products of the acquired businesses and the
potential loss of key employees or customers of the acquired businesses.
RIGID DISC DRIVE TECHNOLOGY
Magnetic disc drives are used in computer systems to record, store and
retrieve digital information. Most computer applications require access to a
greater volume of data than can economically be stored in the random access
memory of the computer's central processing unit (commonly known as
"semiconductor" memory). This information can be stored on a variety of storage
devices, including rigid disc drives, flexible disc drives, magnetic tape
drives, optical disc drives and semiconductor memory. Rigid disc drives provide
access to large volumes of information faster than optical disc drives, flexible
disc drives or magnetic tape drives and at substantially lower cost than
high-speed semiconductor memory.
Although products vary, all rigid disc drives incorporate the same basic
technology. Inside a sealed housing, one or more rigid discs are attached to a
spindle assembly that rotates the discs at a high constant speed around a hub.
The discs, or media, are the components on which data is stored and from which
it is retrieved. Each disc typically consists of a substrate of finely machined
aluminum or glass with a magnetic layer of a "thin-film" metallic material.
Read/write heads, mounted on an arm assembly similar in concept to that of
a record player, fly extremely close to each disc surface, and record data on
and retrieve it from concentric tracks in the magnetic layers of the rotating
discs.
Areal density is a measure of storage capacity per square inch on the
recording surface of a disc. It represents the number of bits of information on
a linear inch of the recording track (called bits per inch or bpi) multiplied by
the number of recording tracks on a radial inch of the disc. With the
proliferation of multimedia applications, the demand for increased areal
densities has and continues to increase at an accelerating rate since sound and
moving pictures require many times the storage capacity of simple text. The
Company is aggressively pursuing a range of technologies to increase areal
densities across the entire range of its products including the use of advanced
signal processing techniques such as PRML (Partial Response Maximum Likelihood)
read/write channels, advanced servo systems, higher precision mechanics and a
more advanced head technology. Today, all Seagate drives use inductive thin-film
heads, which are based on semiconductor processing technology. However, to
attain greater areal densities, the Company currently has under development
magneto-resistive ("MR") thin-film heads to be incorporated into future
products. MR heads have discrete read and write structures which take advantage
of special magnetic properties in certain metals to achieve significantly higher
storage capacities. There can be no assurance that the Company's development
efforts will be successful. See "Product Development."
Upon instructions from the drive's electronic circuitry, a head positioning
mechanism (an "actuator") guides the heads to the selected track of a disc where
the data will be recorded or retrieved. The disc drive communicates with the
host computer through an internal controller. Disc drive manufacturers may use
one or more of several industry standard interfaces, such as IPI (Intelligent
Peripheral Interface), SCSI (Small Computer System Interface), ATA (AT
Attachment), PCMCIA (Personal Computer Memory Card International Association) or
proprietary interfaces, such as EISA (Extended Industry Standard Architecture).
Rigid disc drive performance is commonly measured by four key
characteristics: average seek time (commonly expressed in milliseconds), which
is the time needed to position the heads over a selected track on the disc
surface; internal data transfer rate (commonly expressed in Megabits per
second), which is the rate at which data is transferred to and from the disc;
storage capacity (commonly expressed in Megabytes), which is
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the amount of data that can be stored on the disc; and spindle rotational speed
(commonly expressed in revolutions per minute), which has an effect on average
latency or access to data.
MARKET OVERVIEW
Rigid disc drives are used in a broad range of computer systems as well as
multimedia applications such as digital video and video-on-demand. The Company
defines the major computer system markets to include mobile computers, personal
computers, mid-range systems and high-end applications. Users of computer
systems are increasingly demanding additional data storage capacity with higher
performance in order to (i) use more sophisticated applications software,
including database management, CAD/CAM/CAE, desktop publishing and enhanced
graphics applications, and (ii) operate in multiuser, multitasking and
multimedia environments.
Personal and Mobile Computers
Desktop and portable personal computers are used in a number of
environments, ranging from homes to businesses and multiuser networks. Software
applications are primarily word processing, spreadsheet, desktop publishing,
database management, multimedia and other related applications. The Company
believes the minimum storage requirements in the past year for entry-level
personal computers were generally 130 megabytes ("MB") to 500 MB of formatted
capacity with average seek times of 15 milliseconds ("msec") or less. As the
personal computer market has matured, users of personal computers have become
increasingly price sensitive. The Company's objective for the desktop and
portable personal computer market is to design drives for high-volume, low-cost
manufacture.
Smaller footprint microcomputers, such as portable, laptop, notebook and
sub-notebook computers require rigid disc drives in form factors of 2.5 inches
or less that emphasize durability and low power consumption in addition to
capacity and other performance characteristics found in their desktop functional
equivalents. Personal digital assistants, handheld and pen-based computers may
use 1.8 or 2.5 inch hard disc drives or flash memory in the form of a PCMCIA
card for additional memory. These applications also emphasize low power
consumption as well as very high degrees of durability.
Mid-Range Systems
Mid-range systems include high performance microcomputers, technical
workstations, servers and departmental minicomputers. Applications are
characterized by compute-and data-intensive solutions, such as CAD/CAM/CAE,
network management, larger database management systems, scientific applications
and small to medium-sized business applications such as materials requirement
planning, payroll, general ledger systems and related management reports.
Mid-range systems typically require rigid disc drive storage capacities from 400
MB to 2.5 gigabytes ("GB") per drive and average seek times of less than 12
msec. Mid-range systems typically use 3.5 and 5.25 inch disc drives. Due to the
leading edge characteristics required by end-users of mid-range systems,
manufacturers of such systems emphasize performance as well as price as the key
selling points.
High-End Applications
Large systems include mainframes and supercomputers. Typical applications
are medium and large business management systems, transaction processing,
parallel processing applications and other applications requiring intensive data
manipulation. Also inclusive in high-end applications are systems designed for
video-on-demand and near-line storage.
Users of these systems generally require capacities of 1.0 GB to 9 GB per
drive with average seek times of less than 12 msec. End-users of large systems
are less concerned than users of smaller systems with the size, weight, power
consumption and absolute cost of the drive. As with mid-range systems, disc
drive products are typically designed into these systems by the OEM with
emphasis on performance, reliability and capacity. In this arena, data storage
subsystems are used containing large numbers of spindles. Data integrity is
paramount,
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so high device reliability and maintainability are key features. Mainframe,
supercomputer and digital video systems also benefit from very high device data
rates (up to ten times that in small computer systems).
PRODUCTS
The Company's products include over 100 rigid disc drive models with form
factors from 2.5 to 5.25 inches and capacities from 130 megabytes to 9
gigabytes. The Company provides more than one product at some capacity points
and differentiates products on a price/performance and form factor basis. The
Company believes that its broad range of rigid disc drives is particularly
appealing to customers, such as large OEMs, which require a wide variety of
drive capacities, performance levels and interfaces. Producing for several
market segments also broadens the Company's customer base and reduces the
Company's reliance on any one segment of the computer market. The Company
continues to devote its resources to developing products with industry leading
performance characteristics and to being among the first to introduce such
products to market. The Company continuously seeks to enhance its market
presence in emerging segments of the rigid disc drive market by drawing on its
established capabilities in high-volume, low-cost production. The Company
believes it offers the broadest range of disc storage products available.
Mobile Computing
2.5 INCH DISC DRIVES
Announcement of the Company's first 2.5 inch family of drives was made in
November 1990 with the ST9096 family. The Company has continued to expand its
2.5 inch family with two different form factors, the 19mm high form factor which
is designed to address the highest capacity segment of the mobile computing
market, and the 12.5mm high form factor which is designed to address the
sub-notebook market. In November 1992 the Company introduced a patented shock
sensing technology called SafeRite(TM). SafeRite technology allows for a much
higher specification of operating shock and helps to prevent the drive from
writing data "off track". This technology has been implemented in all of the
Company's 2.5 inch drives.
In October 1993 the Company announced its ST9550 family. This 19mm height
family is available in 455 and 341 MB versions. Volume production began in the
third quarter of fiscal 1994. In January 1994 the 12.5mm high ST9300 family was
announced with 262, 210 and 131 MB versions. Volume production began in the
fourth quarter of fiscal 1994. Future plans for the 2.5 inch family of drives
include continued higher capacities and lower cost designs.
1.8 INCH DISC DRIVES
Systems manufacturers are producing a variety of products which can utilize
the 1.8 inch form factor. However, the Company believes it will be some time
before there is a demand for large volumes of these drives. Although the Company
has discontinued production of its initial 1.8 inch products, it plans to
continue its efforts to design and produce higher capacity 1.8 inch products
with interface and power management enhancements to meet the new market demands.
Certain of the Company's competitors have been much more active in the
development and marketing of less than 2.5 inch form factor products.
Consequently, there can be no assurance that the Company's efforts will be
successful.
Entry-Level PC Computing
In October 1993 the Company announced the ST3491 family of 3.5 inch
low-profile cost-effective disc drives. The family features capacity points
ranging from 214 to 428 MB of formatted capacity. The design was leveraged from
the earlier ST3290 and ST3144 products that had been shipping in volume in 1993.
The ST3491 family, later named the Medalist XE family, began volume shipments in
the third quarter of fiscal 1994.
Also in October 1993 the Company announced the Decathlon family of disc
drives. The Decathlon family features a 3.5 inch, 19mm high profile which
targets the emerging ultra-low profile PCs. This family also enables a
mini-array package whereby up to six drives can be mounted in the space of one
5.25 inch full height
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drive. In addition to its unique form factor, the Company believes the Decathlon
family offers the most energy efficient design in its class, providing advanced
power savings for "Green PCs" and Energy Star systems. Volume production of the
first product in this family, the ST5660 with 545 MB of formatted capacity,
commenced in the first quarter of fiscal 1995.
In May 1994 the Company announced the expansion of the Medalist family to
include a higher performance series of products with 1 GB and 720 MB formatted
capacities. These products are directed to the growing capacity and
cost-effective requirements of the PC market. They are expected to go into
volume production in the first quarter of fiscal 1995.
Mid-Range Systems
In October 1992 the Company expanded its low-profile 3.5 inch mid-range
product line with the ST31200, a high performance drive with 1 GB of formatted
capacity that began production during the first quarter of fiscal 1994. In
October 1993 the Company expanded that product family to a 2 GB formatted
capacity platform with the family name of Hawk. The Hawk 2 went into production
the fourth quarter of fiscal 1994. In January 1994 the Hawk 4, 3.5 inch
half-height 4 GB formatted capacity drive, was announced. Volume production is
expected to begin the first quarter of fiscal 1995. The Company plans to
continue designing and manufacturing for the higher capacity, high performance
and cost sensitive requirements of this market.
High-End Computing
High-end applications range from digital video, video-on-demand, high-end
file servers, mainframes and minicomputers to supercomputers. Two new product
families have been introduced by the Company to address this wide range of
applications. The Barracuda family of 3.5 inch drives, first introduced in
October 1992, had the highest rotational speed of any drives produced at that
time. Since then three additional products have been added to the family. The
Barracuda 4 and Barracuda 2-2HP were introduced in October 1993. The Barracuda 4
is a 4 GB formatted capacity, 7200 RPM drive in the half-height form factor.
Volume production is expected in the first quarter of fiscal 1995. The Barracuda
2-2HP is a 2 GB formatted capacity high-performance drive in the half-height
form factor featuring the 2 head parallel design which doubles the data transfer
rate. Volume production of this product began in the first quarter of fiscal
1995.
In January 1994 the Company announced the Barracuda 2, a 3.5 inch
low-profile, one-inch high, 2 GB formatted capacity disc drive. Volume
production of this product also began in the fourth quarter of fiscal 1994.
Addressing the high-end 5.25 inch market the Company has continued to
leverage its Elite product line. The Elite 3, with 2.9 GB of formatted capacity
began volume shipments in August 1992 and has continued to supply the mainframe,
enterprise and departmental server market. To address the emerging digital video
and near-line storage applications the Company introduced the Elite 9 in October
1993. The Elite 9 leverages the established design of the Elite family to an
expanded 9 GB of formatted capacity. Volume production began in the fourth
quarter of fiscal 1994.
Other Products
The Company markets solid-state flash memory devices designed and
manufactured by SunDisk. These devices are designed for both integrated
(embedded) applications and removable applications. The flash devices range from
1.8 MB to 41.9 MB and are best suited for highly rugged, power-sensitive
environments. The Company plans to continue to market, sell and, in the future,
jointly design and manufacture flash memory devices with SunDisk.
The Company offers warranty and out-of-warranty repair service to users of
its disc drives. The Company also designs and manufactures disc drive
components, primarily thin-film heads, principally for use in its own products
but also for sale to other disc drive manufacturers.
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MARKETING AND CUSTOMERS
The Company sells its products to OEMs and distributors. OEM customers
incorporate Seagate disc drives into computer systems for resale. OEMs either
manufacture and assemble computer system components into computer systems;
purchase components to build their systems; or purchase complete computer
systems and integrate the hard disc drives and other hardware and software.
Distributors typically resell Seagate disc drives to small OEMs, dealers and
other resellers. Certain resellers to which the Company directly sells its
products also resell Seagate drives as part of enhanced packages (e.g., an
add-on kit for a computer or as part of their own computers). Shipments to OEMs
were 68%, 70% and 56% of net sales in fiscal 1994, 1993 and 1992, respectively.
No customer accounted for 10% or more of consolidated net sales in 1994 and
1992. During fiscal 1993 sales to Sun Microsystems, Inc. accounted for
approximately 11% of the Company's consolidated net sales. No other customer
accounted for 10% or more of consolidated net sales in 1993.
OEMs -- OEM customers typically enter into purchase agreements with the
Company. These agreements provide for pricing, volume discounts, order lead
times, product support obligations and other terms and conditions, usually for
periods of 12 to 24 months, although product support obligations generally
extend substantially beyond this period. These master agreements typically do
not commit the customer to buy any minimum quantity of products. Deliveries are
scheduled only after receipt of purchase orders. In addition, with limited lead
time, customers may cancel or defer most purchase orders without significant
penalty. Anticipated orders from many of Seagate's customers have in the past
failed to materialize or OEM delivery schedules have been deferred as a result
of changes in their business needs. Such order fluctuations and deferrals have
had a material adverse effect on the Company's operations in the past, and there
can be no assurance that the Company will not experience such effects in the
future.
Distributors -- The Company's distributors, located throughout the world,
generally enter into non-exclusive agreements for the redistribution of the
Company's products. Distributors typically furnish the Company with a
non-binding indication of their near-term requirements. Product deliveries are
generally scheduled based on a weekly confirmation by the distributor of its
requirements for that week. The agreements typically provide the distributors
with price protection with respect to their inventory of Seagate drives at the
time of a reduction by Seagate in its selling price for the drives, and also
provide limited rights to return the product.
Service and Warranty -- Seagate warrants its products against defects in
design, materials and workmanship by the Company generally for two to five years
depending upon the capacity category of the disc drive, with the higher capacity
products being warranted for the longer periods. Warranty periods for disc
drives have been increasing and may continue to increase. The Company's products
are refurbished or repaired at facilities located in the United States,
Singapore and Thailand.
Sales Offices -- The Company maintains sales offices throughout the United
States and in Australia, England, France, Hong Kong, Ireland, Italy, Japan,
Singapore, South Korea, Taiwan, Thailand, Germany and Sweden. Foreign sales are
subject to certain controls and restrictions, including, in the case of certain
countries, approval by the office of Export Administration of the United States
Department of Commerce.
BACKLOG
In view of customers' rights to cancel or defer orders with little or no
penalty, the Company believes backlog in the disc drive industry can be
misleading.
The Company's backlog includes only those orders for which a delivery
schedule has been specified by the customer. Substantially all orders shown as
backlog at July 1, 1994 were scheduled for delivery within six months. Because
many customers place large orders for delivery throughout the year, and because
of the possibility of customer cancellation of orders or changes in delivery
schedules, the Company's backlog as of any particular date is not indicative of
the Company's potential sales for any succeeding fiscal period. The Company's
order backlog at July 1, 1994 was approximately $739,000,000 compared with
$261,000,000 at July 2, 1993.
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MANUFACTURING
The Company's business objectives require it to establish manufacturing
capacity in anticipation of market demand. The key elements of the Company's
manufacturing strategy are: high-volume, low-cost assembly and test; vertical
integration of selected components; and key vendor relationships. The highly
competitive disc drive industry requires that the Company manufacture
significant volumes of high-quality drives at low unit cost. To do this, the
Company must achieve high manufacturing yields and obtain uninterrupted access
to high-quality components in required volumes at competitive prices.
The Company is currently in the early stages of automating its
manufacturing processes. Over the next two years it expects such processes to
become substantially automated. The Company believes its competitors' level of
automation is significantly greater than its own.
Manufacturing of the Company's rigid disc drives is a complex process,
requiring a "clean room" environment, the assembly of precision components
within narrow tolerances and extensive testing to ensure reliability. The first
step in the manufacturing of a rigid disc drive is the assembly of the actuator
mechanism, heads, discs, and spindle motor in a housing to form the head-disc
assembly (the "HDA"). The assembly of the HDA involves a combination of manual
and semiautomated processes. After the HDA is assembled and servo writing has
been completed, automated testing equipment subjects the HDA to several tests
aimed at ensuring that it meets all of the Company's specifications for quality
and performance. Upon completion of assembly and testing, circuit boards are
added to the HDA and the completed unit is again tested prior to packaging and
shipment. The Company uses statistical process control in an effort to
continually improve its manufacturing processes. Final assembly and test
operations of the Company's disc drives take place primarily at facilities
located in Singapore, Thailand, Minnesota and Oklahoma. Subassembly and
component operations are performed at the Company's facilities in Singapore,
Thailand, Minnesota, California, Malaysia, Scotland and Northern Ireland. In
addition, independent entities manufacture or assemble components for the
Company in the United States, Europe and various Far East countries including
Hong Kong, Japan, Korea, China, the Philippines, Singapore, Taiwan and Thailand.
The cost, quality and availability of certain components including head,
media, spindle motors, actuator motors, printed circuit boards and custom
semiconductors are critical to the successful production of disc drives. The
Company's design and vertical integration have allowed it to internally
manufacture substantial percentages of its critical components. The Company's
objectives of vertical integration are to maintain control over component
technology, quality and availability, and to reduce costs. The Company believes
that its strategy of vertical integration gives it an advantage over other disc
drive manufacturers. However, this strategy entails a high level of fixed costs
and requires a high volume of production to be successful. During periods of
decreased production, these high fixed costs in the past have had and in the
future could have a material adverse effect on the Company's results of
operations.
Thin-film sliders are fabricated and assembled into head gimbal assemblies
at the Company's facilities. Spindle motors are sourced principally from outside
vendors in the Far East, although the Company is increasing its internal motor
manufacturing capabilities. Actuator motors are sourced both from outside
vendors and internally. The vast majority of the high-volume surface-mount
printed circuit assemblies are assembled internally. The Company evaluates the
need for second sources on a case-by-case basis and, where it is deemed
desirable and feasible to do so, secures multiple sources for components. The
Company has experienced production delays when unable to obtain sufficient
quantities of certain components or assembly capacity. The Company maintains
component inventory levels adequate for its short-term needs. However, an
inability to obtain essential components, if prolonged, would adversely affect
the Company's business.
Because of the significant fixed costs associated with the production of
its products and components and the industry's history of declining prices, the
Company must continue to produce and sell its disc drives in significant volume,
continue to lower manufacturing costs and carefully monitor inventory levels.
Toward these ends, the Company continually evaluates its components and
manufacturing processes as well as the desirability of transferring volume
production of disc drives and related components between facilities, including
transfer overseas to countries where labor costs and other manufacturing costs
are significantly lower than in the U.S., principally Singapore, Thailand and
Malaysia. In addition, the Company is considering
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expanding its manufacturing operations into other third world countries,
including China. Frequently, transfer of production of a product to a different
facility requires qualification of such new facility by certain of the Company's
OEM customers. There can be no certainty that such changes and transfers will be
implemented on a cost-effective basis without delays or disruption in the
Company's production and without adversely affecting the Company's results of
operations.
Although offshore operations are subject to certain inherent risks,
including delays in transportation, changes in governmental policies, tariffs,
import/export regulations, and fluctuations in currency exchange rates in
addition to geographic limitations on management controls and reporting, the
Company has not had any significant adverse experience in this regard and has
significant experience in the offshore production of its products. Certain of
the Far East countries in which the Company operates have experienced political
unrest and the Company's operations have been adversely affected for short
periods of time.
PRODUCT DEVELOPMENT
The Company's strategy for new products emphasizes developing and
introducing on a timely basis products that offer functionality and performance
equal to or better than competitive product offerings. The rigid disc drive
industry is characterized by ongoing, rapid technological change, relatively
short product life cycles and rapidly changing user needs. The Company believes
that its future success will depend upon its ability to develop, manufacture and
market products which meet changing user needs, and which successfully
anticipate or respond to changes in technology and standards on a cost-effective
and timely basis. Accordingly, the Company is committed to the development of
new component technologies, new products, and the continuing evaluation of
alternative technologies. The Company is presently concentrating its product
development efforts on new disc drives and improved disc dive components as
described below.
The Company develops new disc drive products and the processes to produce
them at four locations: Scotts Valley and Simi Valley, California; Oklahoma
City, Oklahoma; and Bloomington, Minnesota. Generally speaking, Scotts Valley
and Simi Valley are responsible for development of 3.5 inch, 2.5 inch and
smaller form factor drives intended for desktop, laptop, notebook and
sub-notebook personal computer systems; Oklahoma City is responsible for
development of 3.5 inch disc drives with capacities and interfaces intended for
use in minicomputers, supermicrocomputers, workstations and file servers; and
Bloomington is responsible for 3.5 inch and 5.25 inch products principally
intended for use in systems ranging from workstations and superminicomputers to
mainframe and supercomputers as well as new markets such as digital video and
video-on-demand.
The Company has focused its components research and development efforts in
four main areas: Motors, heads, media and ASICs (application specific integrated
circuits). The major emphasis of this R&D is reduced size and power consumption,
improved performance and reliability, and reduced cost. Disc drive customers
require new products to have greater reliability with ever decreasing defective
parts per million ("DPPMs") and ever increasing mean time between failures
("MTBFs").
The principal areas of research and development relating to motors are
improved bearings, smaller form factors, lower power requirements, quieter
operation, higher reliability, improved magnets and lower cost.
The Company's head research and development efforts are focused on
increasing recording densities, reducing the size and mass of the slider,
developing suspensions and assembly technology for reduced head size, reducing
the cost and increasing the reliability. This research and development includes
substantial effort to develop and manufacture magneto-resistive ("MR") heads and
advanced air bearing sliders for high areal density and small form factor
products. There can be no assurance that the Company's MR head development
effort will be successful and a failure of the Company to successfully
manufacture and market products incorporating MR head technology in a timely
manner could have a material adverse effect on the Company's business and
results of operations. Moreover, International Business Machines Corporation
("IBM") has initiated a lawsuit against the Company alleging misappropriation of
IBM trade secrets, including trade secrets related to IBM's MR head technology.
The Company believes that IBM's claims are without merit, is vigorously
defending this suit and is continuing development and preparation for commercial
manufacture of MR heads. However, if IBM prevails in this suit, the Company
could be enjoined from manufacturing MR
8
<PAGE> 10
heads or commercializing disc drives containing such heads and could also be
held liable for damages, any of which could have a material adverse effect on
the Company's business and results of operations.
Media research and development efforts are focused on higher performance
materials for increased areal density and better substrate and surface
topographies for lower flying height applications, improved head/disc separation
margin and increased reliability.
ASIC development has been and will continue to be focused on optimizing the
architecture for system performance, cost and reliability. In addition, the
focus has been and will continue to be on reducing the number of parts, the
amount of power consumption, and the size, and increasing areal densities by use
of advanced signal processing techniques such as PRML (Partial Response Maximum
Likelihood) read/write channels. The Company designs nearly all of its ASICs for
motor and actuator control and manufactures some of these circuits. It designs
many of the other ASICs in the drive such as interface and read/write, and
procures these from third parties.
In addition to developing new products and components, the Company devotes
significant resources to product engineering aimed at improving manufacturing
processes, lowering manufacturing costs and increasing volume production of new
and existing products. Process engineering groups are located with the disc
drive development groups and the reliability engineering groups in locations
listed above; however, most of the Company's volume production is done in
locations remote from these groups and the development of the volume processes
are completed at the volume manufacturing sites.
No assurance can be given that the Company will be able to successfully
complete the design or introduction of new products in a timely manner, that the
Company will be able to manufacture new products in volume with acceptable
manufacturing yields, or successfully market these products, or that these
products will perform to specifications on a long-term basis.
During the fiscal years ended July 1, 1994, July 2, 1993 and June 30, 1992
the Company's product development expenses were $171,907,000, $154,005,000 and
$132,926,000, respectively.
PATENTS AND LICENSES
The Company has been issued over 395 U.S. patents and approximately 226
foreign patents relating to certain of its disc drive components and
manufacturing processes. The Company also has approximately 173 U.S. and 272
foreign patent applications pending. Due to the rapid technological change that
characterizes the rigid disc drive industry, the Company believes that the
improvement of existing products, reliance upon trade secrets and unpatented
proprietary know-how and development of new products are generally more
important than patent protection in establishing and maintaining a competitive
advantage. Nevertheless, the Company believes that patents are of value to its
business and intends to continue its efforts to obtain patents, when available,
in connection with its research and development program. There can be no
assurance that any patents obtained will provide substantial protection or be of
commercial benefit to the Company, or that their validity will not be
challenged.
Because of rapid technological development in the disc drive industry, it
is possible that certain of the Company's products could involve infringement of
existing patents. The rigid disc drive industry has been characterized by
significant litigation relating to patent and other intellectual property
rights. From time to time, the Company receives claims that certain of its
products infringe patents of third parties. Although the Company has been able
to resolve some such claims or potential claims by obtaining licenses or rights
under the patents in question without a material adverse affect on the Company,
other such claims are pending which if resolved unfavorably to the Company could
have a material adverse effect on the Company's business. For a description of
current disputes see the "Litigation" note to the Company's consolidated
financial statements. In addition, the costs of engaging in intellectual
property litigation may be substantial regardless of outcome. The Company has
patent cross licenses with Areal Technology, Hewlett-Packard Company, NEC
Corporation, Toshiba Corporation, Hitachi, Ltd., Quantum Corporation, Western
Digital Corporation, and Ceridian Corporation (formally Control Data
Corporation), has the benefit of a now expired cross license with IBM, and is
licensed under certain Unysis, Bull and Bull SA disc drive and controller
9
<PAGE> 11
patents by virtue of such companies' former ownership of Magnetic Peripherals
Inc., now merged into the Company. Additionally, the Company has agreements in
principle with other major disc drive companies.
COMPETITION
The rigid disc drive industry is intensely competitive, with manufacturers
competing for a limited number of major customers. The principal competitive
factors in the rigid disc drive market include product quality and reliability,
form factor, storage capacity, price per unit, price per megabyte, product
performance, production volume capability and responsiveness to customers. The
relative importance of these factors varies with different customers and for
different products. The Company believes that it is generally competitive as to
these factors.
The Company has experienced and expects to continue to experience intense
competition from a number of domestic and foreign companies, some of which have
far greater resources than the Company. In addition to independent rigid disc
drive manufacturers, the Company also faces competition from present and
potential customers, including IBM, Hewlett-Packard, Digital Equipment
Corporation, NEC and Fujitsu Limited who continually evaluate whether to
manufacture their own drives or purchase them from outside sources. These
manufacturers also sell drives to third parties which results in direct
competition with the Company.
Product life cycles are relatively short in the disc drive industry. The
Company expects its competitors to offer new and existing products at prices
necessary to gain or retain market share and customers. To remain competitive,
the Company believes it will be necessary to continue to reduce its prices and
aggressively enhance its product offerings. In addition to the foregoing, the
ability of the Company to compete successfully will also depend on its ability
to provide timely product introductions and to continue to reduce production
costs. The Company's establishment and ongoing expansion of production
facilities in Singapore, Thailand and Malaysia are directed toward such cost
reductions. The Company's four development centers and market-focused design
strategies are structured for time-to-market product introductions.
The introduction of products using alternative technologies could be a
significant source of competition. For example, optical recording and high-speed
semiconductor memory could compete with the Company's products in the future.
Although optical disc technologies are attractive for certain archival and
imaging applications, they have lower performance and are more costly than
magnetic disc drives and the Company does not believe that they will be
competitive with magnetic disc drives in the near future in markets requiring
on-line, random access, non-volatile mass storage. Semiconductor memory (SRAM
and DRAM) is much faster than magnetic disc drives, but currently is volatile
(i.e., subject to loss of data in the event of power failure) and much more
costly. Flash EE prom, a nonvolatile semiconductor memory, is currently much
more costly and, while it has higher read performance than disc drives, it has
lower write performance. Flash EE prom could become competitive in the near
future for applications requiring less storage capacity (i.e., less that 40 MB)
than is required in the Company's more traditional computer related market
place.
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 fiscal 1990.
Other parties have also been identified at certain of these sites as potentially
responsible parties. Many of these parties either have shared or likely will
share in the costs associated with the sites. Investigative and/or remedial
activities are ongoing at such sites.
The estimated cost of investigation and remediation of known contamination
at the sites to be incurred after July 1, 1994 was approximately $15,200,000. At
July 1, 1994 the Company had recovered $1,500,000 from CDC through its
indemnification and cost sharing agreements with CDC and, in addition, expects
to recover approximately $10,400,000 over the next 30 years. After deducting the
expected recoveries from CDC, the expected aggregate undiscounted liability was
approximately $4,800,000 with payments expected to begin in 1998. The total
liability recorded by the Company after discounting was $3,000,000 at July 1,
1994.
10
<PAGE> 12
The Company believes that the indemnification and cost-sharing agreement
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 effect on its financial
condition or results of operations.
EMPLOYEES
From July 2, 1993 to July 1, 1994, the number of persons employed worldwide
by the Company increased from approximately 43,000 to approximately 53,000.
Approximately 43,000 of the Company's employees were located in the Company's
Far East operations as of July 1, 1994. In addition, the Company makes use of
supplemental employees, principally in manufacturing, who are hired on an
as-needed basis. Management believes that the future success of the Company will
depend in part on its ability to attract and retain qualified employees at all
levels, of which there can be no assurance. The Company believes that its
employee relations are good.
ITEM 2. PROPERTIES
Seagate's executive offices are located in Scotts Valley, California.
Principal manufacturing facilities are located in Singapore, Thailand,
Minnesota, Oklahoma, California, Malaysia, Scotland and Northern Ireland. A
major portion of the Company's facilities are occupied under leases which expire
at various times through 2005. The following is a summary of square footage
owned or leased by the Company:
FACILITIES (SQUARE FEET)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
MANUFACTURING PRODUCT ADMINIS-
LOCATION & WAREHOUSE DEVELOPMENT TRATIVE TOTAL
-------------------------------------- -------------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Singapore............................. 728,291 7,540 201,382 937,213(1)
Minnesota............................. 478,226 128,054 71,587 677,867(2)
Thailand.............................. 546,978 -- 115,661 662,639(3)
Oklahoma.............................. 255,760 55,333 134,397 445,490
California --
Scotts Valley....................... 219,336 147,978 128,320 495,634(4)
Fremont............................. 240,057 -- 17,600 257,657
Watsonville......................... -- -- -- --(5)
Anaheim............................. 100,000 -- 20,000 120,000
Simi Valley......................... 300 43,898 -- 44,198
Columbus, OH.......................... 34,914 -- -- 34,914
Malaysia.............................. 348,509 -- 42,000 390,509(6)
Scotland.............................. 27,201 5,000 10,000 42,201
Amsterdam............................. 32,635 -- 8,828 41,463
Northern Ireland...................... 110,000 -- 10,000 120,000
Other --
Domestic............................ -- -- 52,489 52,489(7)
Pacific Rim......................... 21,667 -- 27,753 49,420
Europe.............................. -- -- 34,197 34,197(8)
Canada.............................. -- -- 12,101 12,101
-------------- ------------ --------- ---------
Total................................. 3,143,874 387,803 886,315 4,417,992
=========== ========== ======= ========
</TABLE>
- - - - - - - - - ---------------
(1) Includes approximately 202,800 square feet owned by the Company on leased
land.
(2) Excludes approximately 225,800 square feet leased to others and 33,100
square feet unoccupied.
11
<PAGE> 13
(3) Excludes approximately 178,900 square feet owned by the Company on leased
land which is currently unoccupied. Includes approximately 297,000 square
feet owned by the Company on leased land.
(4) The aggregate of Scotts Valley facilities includes approximately 365,600
square feet owned by the Company. Of this amount approximately 144,200
square feet is on leased land. Excludes approximately 10,000 square feet
unoccupied.
(5) Excludes approximately 232,500 square feet currently unoccupied and under
contract for sale.
(6) Excludes approximately 70,900 square feet owned by the Company and
unoccupied.
(7) Excludes approximately 55,700 square feet leased to others and 12,300 square
feet unoccupied.
(8) Excludes approximately 130,400 square feet currently unoccupied and 16,000
square feet leased to others.
ITEM 3. LEGAL PROCEEDINGS
The information required by this item is incorporated by reference to pages
18-19 and 20-22 of the Annual Report to Shareholders, filed as Exhibit 13.1
hereto.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The information required by this Item is incorporated by reference to pages
1-2 of the Annual Report to Shareholders, filed as Exhibit 13.1 hereto.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to pages
1-2 of the Annual Report to Shareholders, filed as Exhibit 13.1 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to pages
3-6 of the Annual Report to Shareholders, filed as Exhibit 13.1 hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to pages
1-2 and 7-24 of the Annual Report to Shareholders, filed as Exhibit 13.1 hereto.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
12
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The present directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
DIRECTOR OR
EXECUTIVE
OFFICER
NAME AGE POSITION SINCE
- - - - - - - - - -------------------- ----- ------------------------------------------- -----------
<S> <C> <C> <C>
Alan F. Shugart 63 President, Chief Executive Officer, Chief 1979
Operating Officer and Chairman of the Board
Bernardo A. Carballo 45 Senior Vice President, Sales, Marketing and 1991
Product Line Management
Stephen B. Greenspan 53 Senior Vice President, Quality and Customer 1991
Service and Repair
Brendan C. Hegarty 51 Senior Vice President, Chief Technical 1989
Officer, Components
Robert A. Kundtz 53 Senior Vice President, Administration 1988
Stephen J. Luczo 37 Senior Vice President, Corporate 1993
Development
Hossein M. Moghadam 50 Senior Vice President and Chief Technical 1993
Officer, Data Storage Products
Robert A. Sandie 58 Senior Vice President, Corporate Materials 1991
Ronald D. Verdoorn 43 Senior Vice President, Manufacturing 1991
Operations
Donald L. Waite 61 Senior Vice President, Finance, Chief 1983
Financial Officer and Secretary
Gary B. Filler 53 Director 1985
Kenneth Haughton 66 Director 1986
Robert A. Kleist 66 Director 1981
Lawrence Perlman 56 Director 1989
Thomas P. Stafford 63 Director 1988
Laurel L. Wilkening 49 Director 1993
</TABLE>
All directors hold office until the annual meeting of shareholders of the
Company following their election, or until their successors are duly elected and
qualified. Officers are elected annually by the Board of Directors and serve at
the discretion of the Board.
Mr. Shugart was Chairman of the Board and Chief Executive Officer of the
Company from its inception in 1979 until 1991. From 1979 until 1983 he also
served as the Company's President. He now serves as Chairman of the Board,
President, Chief Executive Officer and Chief Operating Officer. He was
re-appointed Chairman of the Board in October 1992. Mr. Shugart is also
currently a Director of Valence Technology, Inc.
Mr. Carballo was General Manager, Product Line Management for the Company's
Oklahoma City operations at the time of the Company's acquisition of Imprimis in
1989. In 1990 he was promoted to Vice President, Product Line Management,
Oklahoma City operations and in September 1991 he was promoted to Senior Vice
President, Sales, Marketing and Product Line Management. Prior to joining the
Company, Mr. Carballo had seventeen years with Control Data/Imprimis.
Mr. Greenspan joined the Company in September 1987 as Vice President,
Process Development. In 1991 he was made Vice President, Manufacturing
Operations for Singapore and California operations. He was promoted to Senior
Vice President, Quality and Customer Service in November 1991. Prior to joining
the Company, Mr. Greenspan had over twenty years experience in computer-related
industries, including nineteen years with IBM.
Dr. Hegarty joined Control Data/Imprimis in 1988 as Vice President,
Thin-Film Heads. In October 1989 he was named Seagate's Vice President of
Component Operations in Bloomington, Minnesota, and in August 1990 was promoted
to Senior Vice President and Chief Technical Officer. From October 1990 to
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<PAGE> 15
October 1993 Dr. Hegarty was also a Director of the Company. Prior to joining
Control Data/Imprimis, Dr. Hegarty had twenty-one years with IBM in the U.K.,
Netherlands and the U.S.
Mr. Kundtz joined the Company in 1988 as Vice President, Administration. In
January 1992 he was promoted to Senior Vice President, Administration.
Mr. Luczo joined the Company in October 1993. Prior to joining the Company
he was Senior Managing Director of the Global Technology Group of Bear, Stearns
& Co. Inc., an investment banking firm, from September 1993 to October 1993. He
served as Co-Head of the Global Technology Group of Bear, Stearns & Co. Inc.
from February 1992 to October 1993. Prior to joining Bear, Stearns & Co. Inc.,
Mr. Luczo was with Salomon Brothers Inc., an investment banking firm, from 1984
to February 1992, most recently as Vice President and Head of West Coast
Technology.
Dr. Moghadam was Vice President, Engineering of Control Data/Imprimis from
December 1986 until October 1989 when he became Vice President, Engineering at
Seagate concurrent with the Company's acquisition of Imprimis Technology. Dr.
Moghadam was promoted to Senior Vice President and Chief Technical Officer, Data
Storage Products in August 1993.
Mr. Sandie joined the Company in 1983 as Vice President, Materials. He was
promoted to Senior Vice President, Corporate Materials in November 1991.
Mr. Verdoorn joined the Company in 1983. From 1987 to 1991 he was Vice
President, Far East Manufacturing and in November 1991 he was promoted to Senior
Vice President, Manufacturing Operations.
Mr. Waite joined the Company in 1983 as Vice President of Finance and Chief
Financial Officer, and was promoted to Senior Vice President, Finance in 1984.
Mr. Filler is a consultant and private investor. From February 1994 until
June 1994 he served as Executive Vice President and Chief Financial Officer at
ASK Group, Inc. From December 1989 to May 1993 he served as Chairman of the
Board of Directors and Chief Executive Officer of Burke Industries, a
manufacturer of rubber products for military and industrial usage. Mr. Filler
was Chairman of the Board of Seagate from September 1991 until October 1992.
From October 1990 until September 1991 Mr. Filler served as Vice Chairman of the
Board of Directors of the Company.
Dr. Haughton is an engineering consultant. He was a Vice President of
Engineering at DaVinci Graphics, a plotter manufacturer, from May 1990 until
August 1991. Prior to that he was a consultant from May 1989 to May 1990. From
August 1988 to May 1989 Dr. Haughton was Professor of Mechanical Engineering at
Santa Clara University. Dr. Haughton is also a Director of Solectron
Corporation.
Mr. Kleist has been President, Chief Executive Officer and a Director of
Printronix, Inc., a manufacturer of computer printers, since 1974.
Mr. Perlman presently holds the position of Chairman of the Board of
Directors and Chief Executive Officer of Ceridian Corporation (formerly Control
Data Corporation), an information services and defense electronics company. He
previously held several executive positions at Control Data Corporation
including President and CEO of Imprimis. Prior to Control Data Corporation, he
was in the private practice of law and at Medtronic, where he served as
Executive Vice President for U.S. Pacemaker Operations. He also serves on a
number of other corporate boards including Inter-Regional Financial Group, Inc.,
Computer Network Technology Corporation and the Valspar Corporation.
General Stafford, a former astronaut, has been Vice Chairman of Stafford,
Burke and Hecker, Inc., a consulting firm based in Alexandria, Virginia since
1982. He also serves as a Director for the following companies: Allied-Signal
Corporation, Pacific Scientific, Inc., Tremont, Inc., CMI, Inc., Fisher
Scientific International, Inc., Wackenhut, Inc. and Wheelabrator Technologies,
Inc.
Dr. Wilkening has served as Chancellor of the University of California,
Irvine since July 1, 1993. From September 1988 to June 30, 1993 she was Provost
and Vice President of Academic Affairs at the University of Washington. From
1991 to 1993 Dr. Wilkening also served as Chairwoman of the Space Policy
Advisory Board of the National Space Council.
14
<PAGE> 16
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission within 120 days of the
end of the Registrant's fiscal year pursuant to General Instruction G(3) to Form
10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission within 120 days of the
end of the Registrant's fiscal year pursuant to General Instruction G(3) to Form
10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission within 120 days of the
end of the Registrant's fiscal year pursuant to General Instruction G(3) to Form
10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements. The following Consolidated Financial
Statements of Seagate Technology, Inc. and subsidiaries and Report
of Independent Auditors are incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets -- July 1, 1994 and July 2, 1993.
Consolidated Statements of Income -- Years Ended July 1, 1994, July
2, 1993 and June 30, 1992.
Consolidated Statements of Shareholders' Equity -- Years Ended July
1, 1994, July 2, 1993 and June 30, 1992.
Consolidated Statements of Cash Flows -- Years Ended July 1, 1994,
July 2, 1993 and June 30, 1992.
Notes to Consolidated Financial Statements.
Separate financial statements of Seagate Technology, Inc. have not been
presented because it is primarily an operating company and its subsidiaries
included in the Consolidated Financial Statements are wholly-owned.
2. Financial Statement Schedules. The following consolidated financial
statement schedules of Seagate Technology, Inc. and subsidiaries
are filed as part of this Report and should be read in conjunction
with the Consolidated Financial Statements of Seagate Technology,
Inc. and subsidiaries:
<TABLE>
<CAPTION>
SCHEDULE PAGE
-------- ----
<S> <C> <C>
I -- Marketable Securities -- Other Investments........................ 19
II -- Amounts Receivable from Related Parties and Underwriters,
Promoters, and Employees Other than Related Parties............... 20
VIII -- Valuation and Qualifying Accounts................................. 23
</TABLE>
15
<PAGE> 17
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or notes thereto.
3. Exhibits:
<TABLE>
<CAPTION>
NOTES:
------
<S> <C> <C>
3.1 Certificate of Incorporation of Registrant, as amended. (A)
3.2 By-Laws of Registrant, as amended. (B)
4.1 Indenture dated May 6, 1987 between the Registrant and Chemical
Bank. (A)
4.2 Preferred Shares Rights Agreement dated as of November 22, 1988
between Seagate Technology, Inc. and Bank of America, N.T.&S.A. (C)
4.3 Indenture dated as of December 1, 1993 between Registrant and
Chemical Bank. (L)
4.4 Registration rights agreement dated as of December 14, 1993 by and
between the Registrant and Bear, Stearns & Co. Inc.
10.1 1981 Incentive Stock Option Plan and form of Stock Option Agreement. (D)
10.2 1983 Incentive Stock Option Plan and form of Stock Option Agreement. (E)
10.3 Seagate Technology Employee Stock Purchase Plan. (D)
10.4 Grenex, Inc. 1984 Stock Option Plan and form of Stock Agreement. (F)
10.5 Ground and building lease dated March 31, 1983 between the
Registrant and First Scotts Valley, Inc. (E)
10.6 Ground lease dated July 15, 1982 between the Registrant and First
Scotts Valley, Inc. (G)
10.7 Grant Deed dated June 25, 1983 between the Registrant and Albert L.
and Anne Russo. (A)
10.8 Lease Agreement dated May 20, 1985 between Seagate Singapore, Pte.,
Ltd. and Jurong Town Corporation, and related Mortgage Agreement. (H)
10.9 Lease Agreements dated from April 1, 1983 through May 16, 1985
between Seagate Technology Singapore, Pte., Ltd. and Jurong Town
Corporation. (H)
10.10 Lease Agreement dated September 11, 1984 between Seagate Technology
Singapore, Pte., Ltd. and the Science Counsel of Singapore. (I)
10.11 Lease Agreement dated from August 16, 1985 through June 8, 1988
between Seagate Technology Singapore, Pte., Ltd. and Jurong Town
Corporation. (I)
10.12 Deed of Assignment dated February 18, 1987 between Seagate
Technology Singapore, Pte., Ltd. and the Hong Kong and Shanghai
Banking Corporation. (I)
10.13 Factory Development Master Agreement dated December 14, 1987 and
Amendment 1 thereto dated January 21, 1988 between Seagate
Technology (Thailand) Ltd. and Mrs. Curairat Bonython. (I)
10.14 Master Agreement dated June 10, 1988 between Seagate Technology
(Thailand) Ltd. and Chokchai International Co., Ltd. (I)
10.15 Lease Agreement dated July 18, 1987 and Amendment No. 1 thereto
dated June 10, 1988 between Seagate Technology (Thailand) Ltd. and
Chokchai International Co., Ltd. (I)
10.16 Industrial Lease dated December 31, 1983 between Mission Business
Company and Grenex, Inc. (H)
10.17 1991 Incentive Stock Option Plan and Form of Option Agreement, as
amended. (M)
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
NOTES:
------
<S> <C> <C>
10.18 Acquisition Agreement dated as of September 29, 1989 by and among
Seagate Technology, Inc. and Control Data Corporation, Imprimis
Technology Incorporated and Magnetic Peripherals, Inc. (J)
10.19 Amended and Restated Directors' Option Plan and Form of Option
Agreement. (K)
11.1 Computation of Net Income per Share (see page 24).
13.1 1994 Annual Report to Shareholders.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
24.1 Power of Attorney (included on page 18).
</TABLE>
- - - - - - - - - ---------------
(A) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-3 (File No.
33-13430) filed with the Securities and Exchange Commission on April 14,
1987.
(B) Incorporated by reference to exhibits filed in response to Item 14 (a),
"Exhibits," of the Company's Form 10-K, as amended, for the year ended June
30, 1990.
(C) Incorporated by reference to exhibits filed in response to Item 2,
"Exhibits," of the Company's Registration Statement on Form 8-A, as amended,
filed with the Securities and Exchange Commission on November 23, 1988.
(D) Incorporated by reference to exhibits filed in response to Item 30(b),
"Exhibits," of the Company's Registration Statement on Form S-1 and
Amendment No. 1 thereto (File No. 2-73663), as declared effective by the
Securities and Exchange Commission on September 24, 1981.
(E) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's Form 10-K for the year ended June 30, 1983.
(F) Incorporated by reference to exhibits filed in response to Item 20,
"Exhibits," of the Company's Registration Statement on Form S-8/S-3 (file
No. 2-98486) filed with the Securities and Exchange Commission on June 19,
1985.
(G) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
2-78672) filed with the Securities and Exchange Commission on August 3,
1982.
(H) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's 10-K for the year ended June 30, 1985.
(I) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's Form 10-K for the year ended June 30, 1988.
(J) Incorporated by reference to exhibits filed in response to Item 7(c),
"Exhibits," of the Company's Current Report on Form 8-K dated October 2,
1989.
(K) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's Form 10-K for the year ended June 30, 1991.
(L) Incorporated by reference to exhibits filed in response to Item 7(c),
"Exhibits," of the Company's Current Report on Form 8-K dated December 17,
1993.
(M) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's Form 10-K for the year ended July 2, 1993.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the quarter ended July 1, 1994.
17
<PAGE> 19
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
By: ALAN F. SHUGART
-----------------------------------
(Alan F. Shugart, Chairman of the
Board, President, Chief Executive
Officer and Chief Operating Officer)
Dated: August 4, 1994
POWER OF ATTORNEY
Know All Men By These Presents, that each person whose signature appears
below constitutes and appoints Alan F. Shugart and Donald L. Waite, jointly and
severally, his attorney-in-fact, each with the power of substitution, for him in
any and all capacities, to sign any amendments to this Report on Form 10-K and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
ALAN F. SHUGART Chairman of the Board, President, August 4, 1994
- - - - - - - - - ------------------------- Chief Executive Officer and
(ALAN F. SHUGART) Chief Operating Officer
DONALD L. WAITE Senior Vice President and August 4, 1994
- - - - - - - - - ------------------------- Chief Financial Officer
(DONALD L. WAITE) (Principal Financial and
Accounting Officer)
GARY B. FILLER Director August 4, 1994
- - - - - - - - - -------------------------
(GARY B. FILLER)
KENNETH HAUGHTON Director August 4, 1994
- - - - - - - - - -------------------------
(KENNETH HAUGHTON)
ROBERT A. KLEIST Director August 4, 1994
- - - - - - - - - -------------------------
(ROBERT A. KLEIST)
LAWRENCE PERLMAN Director August 4, 1994
- - - - - - - - - -------------------------
(LAWRENCE PERLMAN)
THOMAS P. STAFFORD Director August 4, 1994
- - - - - - - - - -------------------------
(THOMAS P. STAFFORD)
LAUREL L. WILKENING Director August 4, 1994
- - - - - - - - - -------------------------
(LAUREL L. WILKENING)
</TABLE>
18
<PAGE> 20
SEAGATE TECHNOLOGY, INC.
SCHEDULE I -- MARKETABLE SECURITIES -- OTHER INVESTMENTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
-------------- --------- -------- ------------ -------------
NAME OF ISSUER NUMBER OF AMOUNT AT
AND SHARES OR MARKET VALUE WHICH
TITLE OF PRINCIPAL AT BALANCE CARRIED IN
EACH ISSUE AMOUNT COST SHEET DATE BALANCE SHEET
-------------- --------- -------- ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
YEAR ENDED JULY 1, 1994:
U.S. Government Obligations......... $146,547 $145,675 $144,586 $144,522
Corporate Bonds..................... 108,587 109,437 108,083 108,089
Municipal Bonds..................... 87,815 88,511 88,160 88,160
Commercial Paper.................... 115,014 114,854 114,926 114,854
Taxable Auction Rate Preferreds..... 73,200 73,200 73,200 73,200
-------- -------- -------- --------
Total............................. $531,163 $531,677 $528,955 $528,825
======== ======== ======== ========
</TABLE>
19
<PAGE> 21
SEAGATE TECHNOLOGY, INC.
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ---------- --------- ------------------------- ------------------------
DEDUCTIONS BALANCE AT END OF PERIOD
BALANCE AT ------------------------- ------------------------
BEGINNING AMOUNTS AMOUNT
NAME OF DEBTOR(1) OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT
----------------- ---------- --------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED JULY 1, 1994:
Amyl Ahola, non-interest bearing note
receivable of $100,000 due 6/2/96,
collateralized by residence and note
receivable of $11,250 bearing interest at 6%
per annum, due on demand.................... $ 111,250 $ -- $ 11,250 $ -- $ -- $ 100,000
Charles Pope, note receivable bearing interest
at 5% per annum, $100,000 due on demand,
collateralized by residence................. 100,000 -- -- -- 100,000 --
Manickam Shivaji, note receivable bearing
interest at 7% per annum, $100,000 due
9/14/97, collateralized by residence........ 100,000 -- -- -- -- 100,000
Edward Heller, note receivable bearing
interest at 10% per annum, $100,000 due
10/18/95, collateralized by residence....... 100,000 -- -- -- -- 100,000
Michael Huntley, note receivable of $100,000
bearing interest at 5% per annum, due
8/13/98, collateralized by residence, and
note receivable of $28,000 bearing interest
at 5% per annum, due 8/13/95................ -- 128,000 -- -- 14,000 114,000
--------- --------- -------- ------- -------- ---------
Total................................ $ 411,250 $ 128,000 $ 11,250 $ -- $114,000 $ 414,000
========= ========= ======== ======= ======== =========
</TABLE>
- - - - - - - - - ---------------
(1) All such debtors are employees of the Company.
20
<PAGE> 22
SEAGATE TECHNOLOGY, INC.
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
BALANCE DEDUCTIONS BALANCE AT END
AT ------------------------ OF PERIOD
BEGINNING AMOUNTS AMOUNT ----------------------
NAME OF DEBTOR(1) OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT
----------------- ----------- --------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED JULY 2, 1993:
Amyl Ahola, non-interest bearing note
receivable of $100,000 due 6/2/96,
collateralized by residence and note
receivable of $11,250 bearing interest
at 6% per annum, due on demand........ $100,000 $ 22,500 $ 11,250 $ -- $ 11,250 $100,000
Charles Pope, note receivable bearing
interest at 5% per annum, $100,000 due
on demand, collateralized by
residence............................. 100,000 -- -- -- 100,000 --
Manickam Shivaji, note receivable
bearing interest at 7% per annum,
$100,000 due 9/14/97, collateralized
by residence.......................... -- 100,000 -- -- -- 100,000
R. M. Roughton, note receivable bearing
interest at 10% per annum, $25,000 due
on demand, collateralized by
residence, notes receivable bearing
interest at 10% per annum, $284,000
due on demand......................... 309,000 -- 309,000 -- -- --
James Allan, notes receivable bearing
interest at 10% per annum, $387,000
due on demand......................... 387,000 -- 387,000 -- -- --
Rick Riemer, notes receivable bearing
interest at 10% per annum, $114,000
due on demand......................... 114,000 -- 114,000 -- -- --
David Larson, notes receivable bearing
interest at 10% per annum, $245,500
due on demand......................... 245,500 -- 245,500 -- -- --
Dilip Patel, notes receivable bearing
interest at 10% per annum, $125,500
due on demand......................... 125,500 -- 125,500 -- -- --
Kirk Roby, notes receivable bearing
interest at 10% per annum, $110,000
due on demand......................... 110,000 -- 110,000 -- -- --
Stephen Rush, notes receivable bearing
interest at 10% per annum, $106,500
due on demand......................... 106,500 -- 106,500 -- -- --
Edward Heller, note receivable bearing
interest at 10% per annum, $100,000
due 10/18/95, collateralized by
residence............................. 100,000 -- -- -- -- 100,000
Michael Alarid, notes receivable bearing
interest at 10% per annum, $204,500
due on demand......................... 204,500 -- 204,500 -- -- --
---------- -------- ---------- ----- -------- --------
Total......................... $1,902,000 $122,500 $1,613,250 $ -- $111,250 $300,000
========== ======== ========== ===== ======== ========
</TABLE>
- - - - - - - - - ---------------
(1) All such debtors are employees of the Company.
21
<PAGE> 23
SEAGATE TECHNOLOGY, INC.
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
DEDUCTIONS
BALANCE AT ----------------------- BALANCE AT END OF PERIOD
BEGINNING AMOUNTS AMOUNT ------------------------
NAME OF DEBTOR(1) OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT
----------------- ----------- --------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1992:
Dan Dzaack, note receivable bearing
interest at 10% per annum, $92,200 due
9/30/96, collateralized by residence.... $ 102,000 $ -- $ 9,800 $ -- $ -- $ 92,200
Amyl Ahola, non-interest bearing note
receivable of $100,000 due 6/2/96,
collateralized by residence............. -- 100,000 -- -- -- 100,000
Ron Verdoorn, non-interest bearing note
receivable of $45,000 due on demand,
notes receivable bearing interest at 10%
per annum, $121,727 due on demand....... 166,727 -- 121,727 -- 45,000 --
Charles Pope, notes receivable bearing
interest at 10% per annum, $100,000 due
on demand, collateralized by
residence............................... 100,000 -- -- -- 100,000 --
R. M. Roughton, note receivable bearing
interest at 10% per annum, $25,000 due
on demand, collateralized by residence,
notes receivable bearing interest at 10%
per annum, $284,000 due on demand....... 211,000 123,000 25,000 -- 309,000 --
James Allan, notes receivable bearing
interest at 10% per annum, $387,000 due
on demand............................... 387,000 -- -- -- 387,000 --
Rick Riemer, notes receivable bearing
interest at 10% per annum, $114,000 due
on demand............................... 75,000 39,000 -- -- 114,000 --
David Larson, notes receivable bearing
interest at 10% per annum, $245,500 due
on demand............................... 189,000 56,500 -- -- 245,500 --
Dilip Patel, notes receivable bearing
interest at 10% per annum, $125,500 due
on demand............................... 86,000 39,500 -- -- 125,500 --
Kirk Roby, notes receivable bearing
interest at 10% per annum, $110,000 due
on demand............................... 77,000 33,000 -- -- 110,000 --
Joe Tilmant, note receivable bearing
interest at 10% per annum, $216,000 due
on demand............................... 216,000 -- 216,000 -- -- --
Stephen Rush, notes receivable bearing
interest at 10% per annum, $106,500 due
on demand............................... 66,000 40,500 -- -- 106,500 --
James Anderson, note receivable bearing
interest at 10% per annum, $100,000 due
6/30/93, collateralized by residence.... 100,000 -- 50,100 -- 49,900 --
Edward Heller, note receivable bearing
interest at 10% per annum, $100,000 due
10/18/95, collateralized by residence... 100,000 -- -- -- -- 100,000
Michael Alarid, notes receivable bearing
interest at 10% per annum, $204,500 due
on demand............................... 135,000 69,500 -- -- 204,500 --
---------- -------- -------- ----- ---------- --------
Total........................... $2,010,727 $501,000 $422,627 $ -- $1,796,900 $292,200
========== ======== ======== ===== ========== ========
</TABLE>
- - - - - - - - - ---------------
(1) All such debtors are employees of the Company.
22
<PAGE> 24
SEAGATE TECHNOLOGY, INC.
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
------ ------ ------ ------ ------ ------
ADDITIONS
BALANCE AT ---------------------------------
BEGINNING CHARGED TO CHARGED TO BALANCE AT
OF COSTS AND OTHER ACCOUNTS -- DEDUCTIONS -- END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ---------- ---------- ----------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JULY 1, 1994:
Deducted from asset
accounts:
Allowance for doubtful
accounts................... $46,514,000 $14,091,000 $ -- $17,775,000(1) $42,830,000
=========== =========== =========== =========== ===========
YEAR ENDED JULY 2, 1993:
Deducted from asset
accounts:
Allowance for doubtful
accounts................... $39,866,000 $34,922,000 $ -- $28,274,000(2) $46,514,000
=========== =========== =========== =========== ===========
YEAR ENDED JUNE 30, 1992:
Deducted from asset
accounts:
Allowance for doubtful
accounts................... $25,839,000 $23,880,000 $ -- $ 9,853,000(3) $39,866,000
=========== =========== =========== =========== ===========
</TABLE>
- - - - - - - - - ---------------
(1) $17,775,000 uncollectible accounts written off, net of recoveries.
(2) $25,748,000 uncollectible accounts written off, net of recoveries,
$2,526,000 reclassification to notes receivable.
(3) $9,925,000 uncollectible accounts written off, net of recoveries, $(72,000)
due to foreign exchange rates.
23
<PAGE> 25
EXHIBIT 11.1
SEAGATE TECHNOLOGY, INC.
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------
JUNE JUNE
JULY 1, JULY 2, 30, 30, JUNE 30,
1994 1993 1992 1991 1990
-------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT PER SHARE DATA)
PRIMARY
Weighted average number of common shares outstanding
during the year................................... 70,629 67,379 66,715 64,011 58,940
Incremental common shares attributable to exercise
of outstanding options (assuming proceeds would be
used to purchase treasury stock).................. 2,435 2,442 2,145 2,129 2,259
-------- -------- ------- ------- --------
Total shares.............................. 73,064 69,821 68,860 66,140 61,199
======== ======== ======= ======= ========
Net income:
Income before extraordinary gain.................. $225,110 $195,434 $63,183 $62,845 $117,241
Extraordinary gain, net of tax effect............. -- -- -- 4,613 --
-------- -------- ------- ------- --------
Net income................................ $225,110 $195,434 $63,183 $67,458 $117,241
======== ======== ======= ======= ========
Net income per share:
Income before extraordinary gain.................. $ 3.08 $ 2.80 $ .92 $ .95 $ 1.92
Extraordinary gain, net of tax effect............. -- -- -- .07 --
-------- -------- ------- ------- --------
Net income................................ $ 3.08 $ 2.80 $ .92 $ 1.02 $ 1.92
======== ======== ======= ======= ========
FULLY DILUTED
Weighted average number of common shares outstanding
during the year................................... 70,629 67,379 66,715 64,011 58,940
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........................................ 14,383 8,886 9,502 9,162 9,122
-------- -------- ------- ------- --------
Total shares.............................. 85,012 76,265 76,217 73,173 68,062
======== ======== ======= ======= ========
Net income:
Income before extraordinary gain.................. $225,110 $195,434 $63,183 $62,845 $117,241
Add 6 3/4% convertible subordinated debentures
interest, net of income tax effect............. 11,239 11,419 11,684 11,816 12,104
Add 5% convertible subordinated debentures
interest, net of income tax effect............. 4,592 -- -- -- --
-------- -------- ------- ------- --------
Income before extraordinary gain, as adjusted..... 240,941 206,853 74,867 74,661 129,345
Extraordinary gain, net of tax effect............. -- -- -- 4,613 --
-------- -------- ------- ------- --------
Net income, as adjusted................... $240,941 $206,853 $74,867 $79,274 $129,345
======== ======== ======= ======= ========
Net income per share:
Income before extraordinary gain, as adjusted..... $ 2.83 $ 2.71 $ .98 $ 1.02 $ 1.90
Extraordinary gain, net of tax effect, as
adjusted....................................... -- -- -- .06 --
-------- -------- ------- ------- --------
Net income................................ $ 2.83 $ 2.71 $ .98(a) $ 1.08(a) $ 1.90
======== ======== ======= ======= ========
</TABLE>
- - - - - - - - - ---------------
(a) This calculation is submitted in accordance with Regulation S-K Item 601
(b)(11) although it is contrary to paragraph 40 of APB Opinion #15 because
it produces an anti-dilutive result.
24
<PAGE> 26
SEAGATE TECHNOLOGY, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS: NOTES:
- - - - - - - - - --------- ------
<S> <C> <C>
3.1 Certificate of Incorporation of Registrant, as amended. (A)
3.2 By-Laws of Registrant, as amended. (B)
4.1 Indenture dated May 6, 1987 between the Registrant and Chemical Bank. (A)
4.2 Preferred Shares Rights Agreement dated as of November 22, 1988 between
Seagate Technology, Inc. and Bank of America, N.T.&S.A. (C)
4.3 Indenture dated as of December 1, 1993 between Registrant and Chemical Bank. (L)
4.4 Registration rights agreement dated as of December 14, 1993 by and between
the Registrant and Bear, Stearns & Co. Inc.
10.1 1981 Incentive Stock Option Plan and form of Stock Option Agreement. (D)
10.2 1983 Incentive Stock Option Plan and form of Stock Option Agreement. (E)
10.3 Seagate Technology Employee Stock Purchase Plan. (D)
10.4 Grenex, Inc. 1984 Stock Option Plan and form of Stock Agreement. (F)
10.5 Ground and building lease dated March 31, 1983 between the Registrant and
First Scotts Valley, Inc. (E)
10.6 Ground lease dated July 15, 1982 between the Registrant and First Scotts
Valley, Inc. (G)
10.7 Grant Deed dated June 25, 1983 between the Registrant and Albert L. and Anne
Russo. (A)
10.8 Lease Agreement dated May 20, 1985 between Seagate Singapore, Pte., Ltd. and
Jurong Town Corporation, and related Mortgage Agreement. (H)
10.9 Lease Agreements dated from April 1, 1983 through May 16, 1985 between
Seagate Technology Singapore, Pte., Ltd. and Jurong Town Corporation. (H)
10.10 Lease Agreement dated September 11, 1984 between Seagate Technology
Singapore, Pte., Ltd. and the Science Counsel of Singapore. (I)
10.11 Lease Agreement dated from August 16, 1985 through June 8, 1988 between
Seagate Technology Singapore, Pte., Ltd. and Jurong Town Corporation. (I)
10.12 Deed of Assignment dated February 18, 1987 between Seagate Technology
Singapore, Pte., Ltd. and the Hong Kong and Shanghai Banking Corporation. (I)
10.13 Factory Development Master Agreement dated December 14, 1987 and Amendment 1
thereto dated January 21, 1988 between Seagate Technology (Thailand) Ltd. and
Mrs. Curairat Bonython. (I)
10.14 Master Agreement dated June 10, 1988 between Seagate Technology (Thailand)
Ltd. and Chokchai International Co., Ltd. (I)
10.15 Lease Agreement dated July 18, 1987 and Amendment No. 1 thereto dated June
10, 1988 between Seagate Technology (Thailand) Ltd. and Chokchai
International Co., Ltd. (I)
10.16 Industrial Lease dated December 31, 1983 between Mission Business Company and
Grenex, Inc. (H)
10.17 1991 Incentive Stock Option Plan and Form of Option Agreement, as amended. (M)
10.18 Acquisition Agreement dated as of September 29, 1989 by and among Seagate
Technology, Inc. and Control Data Corporation, Imprimis Technology
Incorporated and Magnetic Peripherals, Inc. (J)
10.19 Amended and Restated Directors' Option Plan and Form of Option Agreement. (K)
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBITS: NOTES:
- - - - - - - - - --------- ------
<S> <C> <C>
11.1 Computation of Net Income per Share (see page 24).
13.1 1994 Annual Report to Shareholders.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
24.1 Power of Attorney (included on page 18).
</TABLE>
- - - - - - - - - ---------------
(A) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-3 (File No.
33-13430) filed with the Securities and Exchange Commission on April 14,
1987.
(B) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's Form 10-K, as amended, for the year ended June
30, 1990.
(C) Incorporated by reference to exhibits filed in response to Item 2,
"Exhibits," of the Company's Registration Statement on Form 8-A, as amended,
filed with the Securities and Exchange Commission on November 23, 1988.
(D) Incorporated by reference to exhibits filed in response to Item 30(b),
"Exhibits," of the Company's Registration Statement on Form S-1 and
Amendment No. 1 thereto (File No. 2-73663), as declared effective by the
Securities and Exchange Commission on September 24, 1981.
(E) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's Form 10-K for the year ended June 30, 1983.
(F) Incorporated by reference to exhibits filed in response to Item 20,
"Exhibits," of the Company's Registration Statement on Form S-8/S-3 (file
No. 2-98486) filed with the Securities and Exchange Commission on June 19,
1985.
(G) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
2-78672) filed with the Securities and Exchange Commission on August 3,
1982.
(H) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's 10-K for the year ended June 30, 1985.
(I) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's Form 10-K for the year ended June 30, 1988.
(J) Incorporated by reference to exhibits filed in response to Item 7(c),
"Exhibits," of the Company's Current Report on Form 8-K dated October 2,
1989.
(K) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's Form 10-K for the year ended June 30, 1991.
(L) Incorporated by reference to exhibits filed in response to Item 7(c),
"Exhibits," of the Company's Current Report on Form 8-K dated December 17,
1993.
(M) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's Form 10-K for the year ended July 2, 1993.
<PAGE> 1
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into as of December 14, 1993 by and between Seagate Technology, Inc., a Delaware
corporation (the "Company"), and Bear, Stearns & Co. Inc. (the "Initial
Purchaser").
THIS AGREEMENT is made pursuant to the Purchase Agreement, dated as of
December 7, 1993 (the "Purchase Agreement"), between the Company and the Initial
Purchaser. In order to induce the Initial Purchaser to enter into the Purchase
Agreement, the Company has agreed to provide the registration rights set forth
in this Agreement. The execution of this Agreement is a condition to the closing
under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions. Capitalized terms used herein without definition shall have
their respective meanings set forth in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
Advice: See Section 3(m) hereof.
Affiliate: "Affiliate" means, with respect to any specified person,
(i) any other person directly or indirectly controlling or controlled by,
or under direct or direct common control with, such specified person or
(ii) any officer or director of such other person. For purposes of this
definition, the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") of a person means the
possession, direct or indirect, of the power (whether or not exercised) to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract, or
otherwise.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in New York are authorized
or obligated by law or executive order to close.
Common Stock: The shares of common stock, $0.01 par value per share,
of the Company issuable or issued upon conversion of the Debentures.
Debentures: The 5% Convertible Subordinated Debentures Due 2003 of the
Company being issued and sold pursuant to the Purchase Agreement and the
Indenture on the date hereof; provided, that if the Debentures are
converted pursuant to the Indenture, such term shall mean the Common Stock
issued upon conversion thereof.
Effectiveness Period: As such term is defined in Section 2(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Indenture: The Indenture, dated as of December 1, 1993, between the
Company and Chemical Bank, as trustee, pursuant to which the Debentures are
being issued, as amended or supplemented from time to time in accordance
with the terms hereof.
Initial Purchaser: Bear, Stearns & Co. Inc.
Initial Shelf Registration: See Section 2(a) hereof.
Losses: See Section 5(a) hereof.
Purchase Agreement: As such term is defined in the second paragraph of
this Agreement.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or
1
<PAGE> 2
supplemented by any prospectus supplement, including, without limitation,
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and all other amendments
and supplements to the Prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by
reference in such Prospectus.
Registrable Securities: The Common Stock of the Company into which the
Debentures are convertible upon original issuance thereof, whether or not
such Debentures have been converted, and at all times subsequent thereto,
until, in the case of any such Common Stock, (i) it is effectively
registered under the Securities Act and disposed of in accordance with the
Registration Statement covering it, (ii) it is saleable by the holder
thereof pursuant to Rule 144(k) or (iii) it is sold to the public pursuant
to Rule 144.
Registration Expenses: See Section 4 hereof.
Registration Statement: Any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions
of this Agreement, including the Prospectus, amendments and supplements to
such registration statement, including post-effective amendments, all
exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
Request Date: The date on which a holder of the Debentures first
requests the Company to effect a Shelf Registration, provided that such
date can be no sooner than 180 days after the latest date of original
issuance of the Debentures.
Rule 144: Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
Rule 144A: Rule 144A under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules
and regulations promulgated by the SEC thereunder.
Shelf Registration: See Section 2 hereof.
Special Counsel: Brobeck, Phleger & Harrison, or such other successor
counsel as shall be specified by a majority of the holders of Registrable
Securities, special counsel to the Initial Purchaser or the holders of the
Registrable Securities or Debentures, the fees and expenses of which will
be paid by the Company pursuant to Section 4 hereof.
Subsequent Shelf Registration: See Section 2(b) hereof.
Subsidiaries: The Company's significant subsidiaries as determined by
Rule 1-02 of Regulation S-X.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: Chemical Bank, as trustee under the Indenture.
Underwritten Registration or Underwritten Offering: A registration in
which securities of the Company are sold to an underwriter for reoffering
to the public.
2. Shelf Registration.
(a) Shelf Registration. The Company shall prepare and file with the
SEC no later than sixty (60) days following the Request Date a Registration
Statement for an offering to be made on a continuous basis pursuant to Rule
415 of the Securities Act (a "Shelf Registration") covering all of the
Registrable Securities (the "Initial Shelf Registration"). The Initial
Shelf Registration shall be on Form S-3 or another appropriate form
permitting registration of such Registrable Securities for resale by such
holders
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<PAGE> 3
in the manner or manners designated by them (including, without limitation,
one or more underwritten offerings). The Company shall use its reasonable
efforts to cause the Initial Shelf Registration to be declared effective
under the Securities Act as soon as practicable and to keep the Initial
Shelf Registration continuously effective under the Securities Act until
the date that is three years after the latest date of original issuance of
the Debentures (the "Effectiveness Period"), or such shorter period ending
when (i) all Registrable Securities covered by the Initial Shelf
Registration have been sold or shall have ceased to be Registrable
Securities or (ii) a Subsequent Shelf Registration, as defined below,
covering all of the Registrable Securities has been declared effective
under the Securities Act.
(b) If the Initial Shelf Registration or any Subsequent Shelf
Registration, as defined below, ceases to be effective for any reason at
any time during the Effectiveness Period (other than because all
Registrable Securities registered thereunder shall have been sold or shall
have ceased to be Registrable Securities), the Company shall use its best
efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event shall within 45 days of such
cessation of effectiveness amend the Shelf Registration in a manner
reasonably expected to obtain the withdrawal of the order suspending the
effectiveness thereof, or file an additional "shelf" Registration Statement
pursuant to Rule 415 covering all of the Registrable Securities (a
"Subsequent Shelf Registration"). If a Subsequent Shelf Registration is
filed, the Company shall use its best efforts to cause the Subsequent Shelf
Registration to be declared effective as soon as practicable after such
filing and to keep such Registration Statement continuously effective until
the end of the Effectiveness Period.
(c) The Company shall supplement and amend the Shelf Registration if
required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Shelf Registration, if
required by the Securities Act, or if reasonably requested by the Initial
Purchaser or by the Trustee on behalf of the holders of the Registrable
Securities covered by such Registration Statement or by any underwriter of
such Registrable Securities.
3. Registration Procedures. In connection with the Company's registration
obligations under Section 2 hereof, the Company shall effect such registrations
to permit the sale of the Registrable Securities in accordance with the intended
method or methods of disposition thereof, and pursuant thereto the Company shall
as expeditiously as possible:
(a) Prepare and file with the SEC a Registration Statement or
Registration Statements on any appropriate form under the Securities Act
available for the sale of the Registrable Securities by the holders thereof
in accordance with the intended method or methods of distribution thereof,
and cause each such Registration Statement to become effective and remain
effective as provided herein; provided, that before filing any such
Registration Statement or Prospectus or any amendments or supplements
thereto (other than documents that would be incorporated or deemed to be
incorporated therein by reference and that the Company is required by
applicable securities laws or stock exchange requirements to file) the
Company shall furnish to the Special Counsel and the managing underwriters
of such offering, if any, copies of all such documents proposed to be
filed, which documents will be subject to the review of the Special Counsel
and such underwriters, and the Company shall not file any such Registration
Statement or amendment thereto or any Prospectus or any supplement thereto
(other than such documents which, upon filing, would be incorporated or
deemed to be incorporated by reference therein and that the Company is
required by applicable securities laws or stock exchange requirements to
file) to which the holders of a majority of the Registrable Securities
covered by such Registration Statement, the Special Counsel or the managing
underwriter, if any, shall reasonably object within two full Business Days.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the applicable period
specified in Section 2; cause the related Prospectus to be supplemented by
any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 (or any similar provisions then in force) under the
Securities Act; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during the
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<PAGE> 4
applicable period in accordance with the intended methods of disposition by
the sellers thereof set forth in such Registration Statement as so amended
or such Prospectus as so supplemented.
(c) Notify the selling holders of Registrable Securities, the Special
Counsel and the managing underwriters, if any, promptly, and (if requested
by any such person) confirm such notice in writing, (i) when a Prospectus
or any Prospectus supplement or post-effective amendment has been filed,
and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the
SEC or any other federal or state governmental authority during the period
of effectiveness of the Registration Statement for amendments or
supplements to a Registration Statement or related Prospectus or for
additional information, (iii) of the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, (v) of the happening of any event which makes any statement
made in such Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in
any material respect or which requires the making of any changes in the
Registration Statement or Prospectus so that, in the case of the
Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
that in the case of the Prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, and (vi) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement
would be appropriate.
(d) Use every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement, or the lifting of
any suspension of the qualification (or exemption from qualification) of
any of the Registrable Securities for sale in any jurisdiction, at the
earliest possible moment.
(e) Subject to the last paragraph of this Section 3, if reasonably
requested by the managing underwriters, if any, the holders of a majority
of the Registrable Securities being sold, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment such information as the
managing underwriters, if any, or such holders agree should be included
therein as required by applicable law, (ii) make all required filings of
such Prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the matters to
be incorporated in such Prospectus supplement or post-effective amendment,
and (iii) supplement or make amendments to any Registration Statement
consistent with clause (i) or (ii) above; provided, that the Company shall
not be required to take any actions under this Section 3(e) that are not,
in the opinion of counsel for the Company, necessary or advisable to comply
with applicable law.
(f) Furnish to each selling holder of Registrable Securities, the
Special Counsel and each managing underwriter, if any, without charge, at
least one conformed copy of the Registration Statement or Statements and
any post-effective amendment thereto, including financial statements but
excluding schedules, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits (unless requested in
writing by such holder, counsel or underwriter).
(g) Deliver to each selling holder of Registrable Securities, the
Special Counsel and the underwriters, if any, without charge, as many
copies of the Prospectus or Prospectuses relating to such Registrable
Securities (including each preliminary prospectus) and any amendment or
supplement thereto as such persons may reasonably request; and the Company
hereby consents to the use of such Prospectus or each amendment or
supplement thereto by each of the selling holders of Registrable Securities
and the underwriters, if any, in connection with the offering and sale of
the Registrable Securities covered by such Prospectus or any amendment or
supplement thereto.
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<PAGE> 5
(h) Prior to any public offering of Registrable Securities, to
register or qualify or cooperate with the selling holders of Registrable
Securities, the underwriters, if any, and the Special Counsel in connection
with the registration or qualification (or exemption from such registration
or qualification) of such Registrable Securities for offer and sale under
the securities or Blue Sky laws of such jurisdictions within the United
States as any seller or underwriter reasonably requests in writing; keep
each such registration or qualification (or exemption therefrom) effective
during the period such Registration Statement is required to be kept
effective and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by the applicable Registration Statement; provided, that the
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it is not then so qualified or (ii) take any action that
would subject it to general service of process in suits or to taxation in
any such jurisdiction where it is not then so subject.
(i) Cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the United States, except as
may be required solely as a consequence of the nature of such selling
holder, in which case the Company will cooperate in all reasonable respects
with the filing of such Registration Statement and the granting of such
approvals, as may be necessary to enable the seller or sellers thereof or
the underwriters, if any, to consummate the disposition of such Registrable
Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(v)
or 3(c)(vi) above, prepare a supplement or post-effective amendment to each
Registration Statement or a supplement to the related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the
Registrable Securities being sold thereunder, such Prospectus will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(k) Enter into such agreements (including, in the event of an
underwritten offering, an underwriting agreement in form, scope and
substance as is customary in underwritten offerings) and take all such
other actions in connection therewith (including, in the event of an
underwritten offering, those reasonably requested by the managing
underwriters, if any, or the holders of a majority of the Registrable
Securities being sold) in order to expedite or facilitate the disposition
of such Registrable Securities and in such connection, whether or not an
underwriting agreement is entered into and if the registration is an
underwritten registration, (i) make such representations and warranties,
subject to the Company's ability to do so, to the holders of such
Registrable Securities and the underwriters, if any, with respect to the
business of the Company and its subsidiaries, the Registration Statement,
Prospectus and documents incorporated by reference or deemed incorporated
by reference, if any, in each case, in form, substance and scope as are
customarily made by issuers to underwriters in underwritten offerings and
confirm the same if and when requested; (ii) use its reasonable efforts to
obtain opinions of counsel to the Company and updates thereof (which
counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, Special Counsel and the
holders of a majority of the Registrable Securities being sold) addressed
to each selling holder of Registrable Securities and each of the
underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be
reasonably requested by such Special Counsel and underwriters; (iii) use
its reasonable efforts to obtain "cold comfort" letters and updates thereof
from the independent certified public accountants of the Company (and, if
necessary, any other certified public accountants of any subsidiary of the
Company or any business acquired or to be acquired by the Company for which
financial statements and financial data is, or is required to be, included
in the Registration Statement), addressed to each selling holder of
Registrable Securities and each of the underwriters, if any, such letters
to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters in connection with underwritten
offerings; and (iv) deliver such documents and certificates as may be
reasonably requested by the holders of a majority of the Registrable
Securities being sold, the Special Counsel and the managing underwriters,
if any, to evidence the continued validity of the representations and
warranties of the Company and its subsidiaries made pursuant to clause
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<PAGE> 6
(i) above and to evidence compliance with any customary conditions
contained in the underwriting agreement or other agreement entered into by
the Company. The above shall be done at each closing under such
underwriting or similar agreement as and to the extent required thereunder.
(l) If necessary in connection with a disposition of Registrable
Securities pursuant to a Registration Statement, make available for
inspection by a representative of the holders of Registrable Securities
being sold, any underwriter participating in any disposition of Registrable
Securities, if any, and any attorney or accountant retained by such selling
holders or underwriter, financial and other records, pertinent corporate
documents and properties of the Company and its Subsidiaries, and cause the
executive officers, directors and employees of the Company and its
Subsidiaries to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with such
disposition; provided, that any records, information or documents that are
designated by the Company in writing as confidential at the time of
delivery of such records, information or documents shall be kept
confidential by such persons unless (i) such records, information or
documents are in the public domain or otherwise publicly available, (ii)
disclosure of such records, information or documents is required by court
or administrative order after the exhaustion of appeals therefrom or (iii)
disclosure of such records, information or documents, in the written
opinion of counsel (reasonably acceptable to the Company) to such person,
is otherwise required by law (including, without limitation, pursuant to
the requirements of the Securities Act), which opinion shall be delivered
to the Company at least five days prior to the date on which such
disclosure is sought, and provided further that any information obtained
pursuant to this provision shall only be used in connection with the
transaction for which such information was obtained.
(m) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earning statements (which
need not be audited) satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder (or any similar rule promulgated
under the Securities Act) no later than 45 days after the end of any
12-month period (or 90 days after the end of any 12-month period if such
period is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Securities are sold to underwriters in a firm commitment
or best efforts underwritten offering, and (ii) if not sold to underwriters
in such an offering, commencing on the first day of the first fiscal
quarter of the Company commencing after the effective date of a
Registration Statement, which statements shall cover said 12-month periods.
Notwithstanding anything in this Agreement to the contrary, no holder of
Registerable Securities shall be entitled to sell any of such Registrable
Securities pursuant to a Registration Statement or to receive a Prospectus
relating thereto unless such holder (A) has at such time a current intent to
sell such Registrable Securities, and at the request of the Company confirms
such intent in writing, and (B) has furnished the Company promptly after the
Company's request, such information regarding such holder and the distribution
of such Registrable Securities as the Company may from time to time request. The
Company may exclude from such registration the Registerable Securities of any
holder who does not furnish such information provided above. Each holder of
Registrable Securities as to which any Registration Statement is being effected
agrees promptly to furnish to the Company all information required to be
disclosed in order to make the information previously furnished to the Company
by such holder not misleading.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of (A)
the happening of any event of the kind described in Section 3(c)(ii), 3(c)(iii),
3(c)(iv), 3(c)(v) or 3(c)(vi) hereof or (B) that, in the judgment of the
Company's Board of Directors, it is advisable to suspend use of the Prospectus
for a discrete period of time due to pending corporate developments, public
filings with the SEC or similar events, such holder will forthwith discontinue
disposition of such Registrable Securities covered by such Registration
Statement or Prospectus until such holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(j) hereof, or until
it is advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any additional
or supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus. The Company shall use its reasonable efforts to
insure that the use of the Prospectus may be resumed as soon as practicable.
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<PAGE> 7
4. Registration Expenses. All fees and expenses incident to the Company's
performance of or compliance with this Agreement shall be borne by the Company
whether or not any of the Registration Statements become effective. Such fees
and expenses shall include, without limitation, (i) all registration and filing
fees (including, without limitation, fees and expenses (x) with respect to
filings required to be made with the National Association of Securities Dealers,
Inc. and (y) of compliance with federal securities or Blue Sky laws (including,
without limitation, fees and disbursements of Special Counsel in connection with
Blue Sky qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the managing underwriters, if any, or holders of a majority of
the Registrable Securities being sold may designate), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities in a form eligible for deposit with The Depository Trust
Company and of printing prospectuses if the printing of prospectuses is
requested by the Special Counsel or the holders of a majority of the Registrable
Securities included in any Registration Statement), (iii) messenger, telephone
and delivery expenses, (iv) fees and disbursements of counsel for the Company
and the Special Counsel in connection with the Shelf Registration (provided that
the Company shall not be liable for the reasonable fees and expenses of more
than one separate firm for all parties participating in any transaction
hereunder), (v) fees and disbursements of all independent certified public
accountants referred to in Section 3(k)(iii) hereof (including the expenses of
any special audit and "cold comfort" letters required by or incident to such
performance), and (vi) Securities Act liability insurance obtained by the
Company in its sole discretion. In addition, the Company shall pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the securities to be registered on any securities exchange on which similar
securities issued by the Company are then listed and rating agency fees and the
fees and expenses of any person, including special experts, retained by the
Company. Notwithstanding the provisions of this Section 4, each seller of
Registerable Securities shall pay all registration expenses to the extent that
the Company is prohibited by applicable Blue Sky laws from paying for or on
behalf of such seller of Registerable Securities.
5. Indemnification.
(a) Indemnification by the Company. The Company shall, without limitation
as to time, indemnify and hold harmless, to the fullest extent permitted by law,
each holder of Registrable Securities registered pursuant to this Agreement, and
each person, if any, who controls such holder (within the meaning of Section 15
of the Securities Act or Section 20(a) of the Exchange Act) from and against all
losses, liabilities, claims, damages and expenses (including but not limited to
reasonable attorney fees and any and all reasonable expenses whatsoever incurred
in investigating, preparing or defending against litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation) (collectively, "Losses"), arising out of or based
upon any untrue or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or form of Prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as the same are based solely upon information furnished in
writing to the Company by such holder expressly for use therein; provided, that
the Company shall not be liable to any holder of Registrable Securities (or any
person controlling such holder) to the extent that any such Losses arise out of
or are based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any preliminary prospectus if either (A) (i) such
holder failed to send or deliver a copy of the Prospectus with or prior to the
delivery of written confirmation of the sale by such holder of a Registrable
Security to the person asserting the claim from which such Losses arise and (ii)
the Prospectus would have corrected such untrue statement or alleged untrue
statement or such omission or alleged omission, or (B) (x) such untrue statement
or alleged untrue statement, omission or alleged omission is corrected in an
amendment or supplement to the Prospectus and (y) having previously been
furnished by or on behalf of the Company with copies of the Prospectus as so
amended or supplemented, such holder thereafter fails to deliver such Prospectus
as so amended or supplemented, with or prior to the delivery of written
confirmation of the sale of a Registrable Security to the person asserting the
claim from which such Losses arise. The Company shall also indemnify each
underwriter
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<PAGE> 8
and each person who controls such person (within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Exchange Act) to the same extent as
provided above with respect to the indemnification of the holders of Registrable
Securities.
(b) Indemnification by Holder of Registrable Securities. In connection with
any Registration Statement in which a holder of Registrable Securities is
participating, such holder of Registrable Securities shall furnish to the
Company in writing such information as the Company reasonably requests for use
in connection with any Registration Statement or Prospectus and agrees to
indemnify, to the fullest extent permitted by law, the Company, its directors
and officers and each other person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), from
and against all Losses arising out of or based upon any untrue statement of a
material fact contained in any Registration Statement, Prospectus or preliminary
prospectus or arising out of or based upon any omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such untrue statement or
omission is contained in any information so furnished in writing by such holder
to the Company expressly for use in such Registration Statement or Prospectus.
In no event shall the liability of any selling holder of Registrable Securities
hereunder be greater in amount than the dollar amount of the proceeds received
by such holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation. The Company shall be entitled to receive indemnities
from underwriters participating in the distribution to the same extent as
provided above with respect to information so furnished in writing by such
persons expressly for use in any Prospectus or Registration Statement.
(c) Conduct of Indemnification Proceedings. If any person shall be entitled
to indemnity hereunder (an "indemnified party"), such indemnified party shall
give prompt notice to the party from which such indemnity is sought (the
"indemnifying party") of any claim or of the commencement of any proceeding with
respect to which such indemnified party seeks indemnification or contribution
pursuant hereto; provided, that the failure to so notify the indemnifying party
shall not relieve the indemnifying party from any obligation or liability except
to the extent that the indemnifying party has been prejudiced materially by such
failure. All such fees and expenses (including any fees and expenses incurred in
connection with investigating or preparing to defend such action or proceeding)
shall be paid to the indemnified party on a quarterly basis following written
notice thereof to the indemnifying party (notwithstanding the absence of
judicial determination as to the propriety and enforceability of the
indemnifying party's obligation to reimburse the indemnified party for such
expense and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction). In case any such action is
brought against an indemnified party the indemnifying party shall be entitled to
participate therein and it may elect by written notice delivered to the
indemnified party within a reasonable period of time after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party.
(d) Contribution. If the indemnification provided for in this Section 5 is
unavailable to an indemnified party under Section 5(a) or 5(b) whereof in
respect of any Losses or is insufficient to hold such indemnified party
harmless, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall, jointly and severally, contribute to the amount paid
or payable by such indemnified party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or indemnifying parties, on the one hand, and such indemnified party, on
the other hand, in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such indemnifying party or indemnifying parties, on the
one hand, and such indemnified party, on the other hand, shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission of a material fact, has been taken or made by, or relates to
information supplied by, such indemnifying party or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include any
reasonable legal or other reasonable fees or expenses incurred by such party in
connection with any proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method or allocation that does not take
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<PAGE> 9
into account the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding this Section 5(d), an indemnifying party
that is a selling holder of Registrable Securities shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Registrable Securities sold by such indemnifying party and distributed to
the public were offered to the public exceeds the amount of any damages which
such indemnifying party has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations of the
Company hereunder shall be in addition to any liability the Company may
otherwise have hereunder, under the Purchase Agreement or otherwise. The
provisions of this Section 5 shall survive so long as Registrable Securities
remain outstanding, notwithstanding any transfer of the Registrable Securities
by any holder or any termination of this Agreement.
6. Rule 144A Information Requirements. For so long as any Registrable
Securities are "restricted securities" under Rule 144, the Company agrees to (i)
file the reports required to be filed by it under the Securities Act and the
Exchange Act, and (ii) at such time as the Company is not subject to section 13
or 15(d) of the Exchange Act, provide, upon request of a holder of Registerable
Securities, such information as is described in Rule 144A(d)(4) as may be
necessary to enable such holder to transfer such Registrable Securities pursuant
to Rule 144A. Notwithstanding the foregoing, nothing in this Section 6 shall be
deemed to require the Company to register any of its securities under any
section of the Exchange Act.
7. Registered Exchange Offer. If the Company determines that it is
permissible to do so, in lieu of filing a Registration Statement or maintaining
the effectiveness of a Shelf Registration as contemplated herein, the Company
may file, in its discretion, with the SEC a registration statement with respect
to an issue of debentures identical in all material respects to the Debentures
(the "New Debentures") except as to transfer restrictions and, upon such
registration statement (the "Exchange Offer Registration Statement") becoming
effective, offer the holders of the Debentures the opportunity to exchange their
Debentures for the New Debentures. If the Company elects to file an Exchange
Offer Registration Statement, the holders of Registrable Securities shall not be
entitled to any Shelf Registration under this Agreement unless and until such
Exchange Offer Registration Statement fails to become effective within a
reasonable period of time following the filing of such Registration Statement.
Notwithstanding the above, in no event shall the Company have any obligation to
file a registration statement with respect to, or to register the Debentures.
8. Miscellaneous.
(a) Remedies. In the event of a breach by the Company of its obligations
under this Agreement, each holder of Registrable Securities, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Conflicting Agreements. The Company has not, as of the date hereof,
and shall not, on or after the date of this Agreement, enter into any agreement
with respect to its securities which materially conflicts with the rights
granted to the holders of Registrable Securities in this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of holders of a majority of
the then outstanding Registrable Securities. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of holders of Registrable Securities
whose securities are being sold pursuant to a Registration Statement and that
does not directly or indirectly affect the rights of other holders of
Registrable Securities may be given by holders of at least a majority of the
Registrable Securities being sold by such holders; provided, that the provisions
of this
9
<PAGE> 10
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing and shall be deemed given (i) when made, if
made by hand delivery, (ii) upon confirmation, if made by telecopier or (iii)
one business day after being deposited with a reputable next-day courier,
postage prepaid, to the parties as follows:
(x) if to a holder of Registrable Securities, at the most current
address given by such holder to the Company in accordance with the
provisions of Section 8(e); and
(y) if to the Company, to Seagate Technology, Inc., 920 Disc Drive,
Scotts Valley, California 95066, Attention: Donald L. Waite or to such
other address as the Company may have furnished to the other parties in
writing in accordance herewith.
(e) Owner of Registrable Securities. The Company will maintain, or will
cause its registrar and transfer agent to maintain, a register with respect to
the Registrable Securities in which all transfers of Registrable Securities of
which the Company has received notice will be recorded. The Company may deem and
treat the person in whose name Registrable Securities are registered in such
register of the Company as the owner thereof for all purposes, including,
without limitation, the giving of notices under this Agreement.
(f) Approval of Holders. Whenever the consent or approval of holders of a
specified percentage of Registrable Securities is required hereunder,
Registrable Securities held by the Company or its affiliates (as such term is
defined in Rule 405 under the Securities Act) (other than the Initial Purchaser
or subsequent holders of Registrable Securities if such subsequent holders are
deemed to be such affiliates solely by reason of their holdings of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the holders of such required percentage.
(g) Successors and Assigns. Any person who purchases any Registrable
Securities from an Initial Purchaser shall be deemed, for purposes of this
Agreement, to be an assignee of such Initial Purchaser. This Agreement shall
inure to the benefit of and be binding upon the successors and permitted assigns
of each of the parties and shall inure to the benefit of and be binding upon
each holder of any Registrable Securities.
(h) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be original and all of which taken together
shall constitute one and the same agreement.
(i) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(j) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES
OF CONFLICT OF LAWS.
(k) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
(l) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and is intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and the registration rights granted by the
Company with respect to the Common Stock of the Company into which Debentures
are convertible sold
10
<PAGE> 11
pursuant to the Purchase Agreement. Except as provided in the Purchase
Agreement, there are no restrictions, promises, warranties or undertakings,
other than those set forth or referred to herein, with respect to the
registration rights granted by the Company with respect to the Common Stock of
the Company into which the Debentures are convertible. This Agreement supersedes
all prior agreements and understandings among the parties with respect to such
registration rights.
(m) Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing party, as determined by the court, shall be
entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
(n) Further Assurances. Each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all appropriate action, do or cause to be
done all things reasonably necessary, proper or advisable under applicable law,
and execute and deliver such documents and other papers, as may be required to
carry out the provisions of this Agreement and the other documents contemplated
hereby and consummate and make effective the transactions contemplated hereby.
(o) Termination. This Agreement and the obligations of the parties
hereunder shall terminate upon the earlier of (i) the end of the Effectiveness
Period, or (ii) the completion of an exchange offer pursuant to Section 7,
except for any liabilities or obligations under Sections 4 or 5 or the provisos
of Section 3(l) above, which shall remain in effect in accordance with their
terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
SEAGATE TECHNOLOGY, INC.
By: /s/ Donald L. Waite
Name: Donald L. Waite
Title: Chief Financial Officer
BEAR, STEARNS & CO. INC.
By: /s/ Michael D. Grimes
Name: Michael D. Grimes
Title: Associate Director
11
<PAGE> 1
EXHIBIT 13.1
SEAGATE TECHNOLOGY, INC.
ANNUAL REPORT TO SHAREHOLDERS
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------
JULY 1, JULY 2, JUNE 30, JUNE 30, JUNE 30,
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales............................ $3,500,103 $3,043,604 $2,875,273 $2,676,980 $2,413,178
Gross profit......................... 704,282 672,928 487,637 484,491 466,181
Income from operations............... 310,957 269,027 106,046 111,285 179,324
Income before extraordinary gain..... 225,110 195,434 63,183 62,845 117,241
Net income........................... 225,110 195,434 63,183 67,458 117,241
Primary income per share before
extraordinary gain................. 3.08 2.80 .92 .95 1.92
Primary net income per share......... 3.08 2.80 .92 1.02 1.92
Fully diluted income per share before
extraordinary gain................. 2.83 2.71 .91 .94 1.90
Fully diluted net income per share... 2.83 2.71 .91 1.01 1.90
Total assets......................... 2,877,530 2,031,193 1,816,604 1,880,060 1,851,456
Long-term debt, less current
portion............................ 549,492 281,276 320,528 393,425 510,234
Shareholders' equity................. $1,328,399 $1,045,241 $ 862,068 $ 766,340 $ 675,298
Number of shares used in per share
computations:
Primary............................ 73,064 69,821 68,860 66,140 61,199
Fully diluted...................... 85,012 76,265 69,805 66,584 68,062
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY/1994
----------------------------------------------
1ST 2ND 3RD 4TH
-------- -------- -------- ----------
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net sales........................................ $773,878 $815,890 $909,270 $1,001,065
Gross profit..................................... 139,858 154,731 193,352 216,341
Income from operations........................... 48,485 60,176 94,097 108,199
Net income....................................... 36,068 42,742 67,046 79,254
Net income per share:
Primary........................................ .51 .59 .91 1.07
Fully diluted.................................. .50 .57 .80 .93
Price range per share:
Low............................................ 15 3/4 16 7/8 22 19
High........................................... $ 21 $ 25 $ 28 3/8 $ 26 3/4
</TABLE>
1
<PAGE> 2
<TABLE>
<CAPTION>
QUARTERLY/1993
--------------------------------------------
1ST 2ND 3RD 4TH
-------- -------- -------- --------
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Net sales....................................... $742,642 $776,651 $754,134 $770,177
Gross profit.................................... 182,057 184,361 164,020 142,490
Income from operations.......................... 83,704 87,065 52,801 45,457
Net income...................................... 59,630 63,272 39,018 33,514
Net income per share:
Primary....................................... .86 .91 .56 .48
Fully diluted................................. .83 .87 .55 .48
Price range per share:
Low........................................... 12 1/2 12 1/4 14 5/8 13 1/2
High.......................................... $ 15 7/8 $ 21 7/8 $ 21 1/2 $ 17 3/8
</TABLE>
The third quarter results include a $15,000 restructuring charge. The
fourth quarter results include an increase to depreciation expense of
approximately $15,000 for the effect of reducing the number of years over which
certain equipment is depreciated.
STOCK AND DIVIDEND INFORMATION
The Company's common stock trades on the Nasdaq National Market under the
symbol "SGAT". The price range per share, reflected in the above tables, is the
highest and lowest closing prices for the Company's stock as reported by Nasdaq
during each quarter. The Company's present policy is to retain its earnings to
finance future growth. The Company has never paid cash dividends and has no
present intention to pay cash dividends.
At July 1, 1994 there were approximately 5,195 shareholders of record.
2
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the five-year
summary of selected financial data and the Company's consolidated financial
statements and the notes thereto. All references to years represent fiscal years
unless otherwise noted.
Business. The Company designs, manufactures and markets a broad line of
rigid magnetic disc drives for use in computer systems ranging from notebook
computers and desktop personal computers to workstations and supercomputers as
well as in multimedia applications such as digital video and video-on-demand.
The Company sells its products to original equipment manufacturers for
inclusion in their computer systems or subsystems, and to distributors,
resellers and dealers.
The Company has pursued a strategy of vertical integration and accordingly
designs and manufactures rigid disc drive components including recording heads,
discs, substrates, motors and custom integrated circuits. It also assembles
certain of the key subassemblies for use in its products including printed
circuit board and head stack assemblies.
The Company is also investigating various opportunities to invest in
software activities in which software might be sold together with the Company's
products or marketed separately to third parties. The Company anticipates that
users of computer systems will increasingly rely upon client/server network
computing environments. The Company 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 attempting to
broaden its core competencies to include software products to meet these
requirements.
Operations. The following table sets forth certain items in the Company's
Consolidated Statements of Income as a percentage of net sales for each of the
three years ended July 1, 1994.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
--------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net sales........................................... 100 % 100 % 100 %
Cost of sales....................................... 80 78 83
---- ---- ----
Gross profit........................................ 20 22 17
Product development................................. 5 5 5
Marketing and administrative........................ 6 7 7
Amortization of goodwill and other intangibles...... -- -- --
Restructuring costs................................. -- 1 1
---- ---- ----
Income from operations.............................. 9 9 4
Other income (expense).............................. -- -- (1 )
---- ---- ----
Income before income taxes.......................... 9 9 3
Provision for income taxes.......................... (3 ) (3 ) (1 )
---- ---- ----
Net Income.......................................... 6 % 6 % 2 %
==== ==== ====
</TABLE>
1994 vs 1993. Net sales in 1994 were 15% higher than those reported in
1993. The increase over 1993 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 continuing 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 last
half of 1994, price erosion for the Company's higher capacity products became
more severe during this time period, particularly due to more aggressive
marketing of disc drives 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 believes this characteristic will continue. In particular, the Company
currently anticipates that price erosion in 1995 will be greater than
experienced during the last half of 1994.
3
<PAGE> 4
The decrease in gross margin as a percentage of net sales from the prior
year was primarily due to a decline in the average unit sales prices of the
Company's products as a result of the competitive market conditions described
above, partially offset by a shift in mix to the Company's newer, higher
capacity disc drives, lower unit overhead costs resulting from increased unit
production and reduced material costs.
The Company was advised that the Commission (the "EC Commission") of the
European Communities ("EC") had reestablished 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 EC
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 increased by $17,902,000 (12%) compared with
1993, primarily due to an increased level of new product introductions and
increased salaries and related costs partially offset by decreased material
costs.
Marketing and administrative expenses decreased by $13,377,000 (6%)
compared with 1993. The decrease in expenses from 1993 was primarily due to a
decrease in the provision for bad debts partially offset by net increases in
other expense categories including legal expenses and salaries and related
costs.
In connection with its acquisition of Palindrome Corporation in August
1994, the Company anticipates that it will incur a one-time write-off of
in-process research and development of approximately $40 million in its first
quarter ending September 30, 1994.
Net other income increased by $8,220,000 compared with 1993, primarily due
to higher interest income from higher levels of average invested cash partially
offset by higher interest expense from higher average debt outstanding.
The provision for income taxes increased from $76,002,000 in 1993 to
$96,476,000 in 1994 primarily due to the increase in pre-tax earnings in 1994
and an increase in the Company's effective tax rate from 28% in 1993 to 30% in
1994. The Company provided income taxes at the U.S. statutory rate in 1994 on
approximately 61% of earnings from foreign subsidiaries compared with
approximately 59% of such earnings in 1993. A substantial portion of the
earnings from the foreign subsidiaries is free of foreign taxes.
Effective July 3, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). 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; however, the cumulative effect of the change increased
net income by $3,000,000 or $.04 per share. The change was not material;
therefore, 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 1993, the President signed the Revenue Reconciliation Act of 1993
which, among other things, increased the U.S. statutory rate to 35% from 34%
retroactive to January 1, 1993. Net income was decreased and provision for
income taxes was increased by approximately $2,900,000 for the quarter ended
October 1, 1993 to adjust the net deferred tax liabilities for the cumulative
impact of this rate change. The $40 million nonrecurring write-off of in-process
research and development described above is not deductible for tax purposes.
Therefore this write-off may cause the effective tax rate for the first quarter
of fiscal 1995 to be significantly higher than the 30% effective tax rate in
fiscal year 1994. While the Company expects the fiscal year 1995 effective tax
rate before this nonrecurring charge to approximate 30%, the actual effective
tax rate is expected to be higher than 30%.
Other. 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
4
<PAGE> 5
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.
At July 1, 1994 the estimated cost of investigation and remediation of
known contamination at the sites was approximately $15,200,000. At July 1, 1994
the Company had recovered $1,500,000 from CDC through its indemnification and
cost sharing agreements with CDC and, in addition, expects to recover
approximately $10,400,000 over the next 30 years. After deducting the expected
recoveries from CDC, the expected aggregate undiscounted liability was
approximately $4,800,000 with payments expected to begin in 1998. The total
liability 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 effect on its financial
condition or results of operations.
The effect of inflation on operating results has been insignificant. The
Company believes this is due to the absence of any significant inflation factors
in the industry in which the Company participates.
Gains and losses resulting from translation of foreign financial statements
into U.S. dollars have not had a significant effect on the results from
operations.
The Company enters into forward foreign exchange contracts in anticipation
of future movements in certain foreign exchange rates and other foreign currency
denominated balance sheet positions. Gains and losses on contracts to hedge
specific foreign currency commitments are deferred and accounted for as part of
the transaction. Transaction gains and losses resulting from hedging activities
have not been material.
1993 vs 1992. Net sales in 1993 were 6% higher than those reported in 1992.
The increase over 1992 was primarily due to a higher level of unit shipments and
a shift in mix to the Company's higher priced products, largely offset by a
continuing decline in the average unit sales prices of the Company's products.
The rigid disc drive industry in which the Company operates is characterized by
declining unit sales prices over the life of a product. However, price erosion
was more severe than usual in the last half of 1993.
The increase in gross margin as a percentage of net sales from the prior
year was primarily due to a shift in mix to the Company's newer, higher capacity
disc drives, lower unit overhead costs resulting from increased unit production
and reduced material costs partially offset by declining unit sales prices of
the Company's products. However, gross margin as a percentage of net sales
declined during the year from 24.5% in the first quarter to 18.5% in the fourth
quarter as a result of competitive market conditions.
Product development expenses increased by $21,079,000 (16%) compared with
1992, primarily due to increased personnel and material costs.
Marketing and administrative expenses increased by $20,185,000 (10%)
compared with 1992. The increase in expenses from 1992 was primarily due to an
increase in the provision for bad debts and increases in personnel costs and
advertising and promotion expenses.
Restructuring costs in the amount of $15,000,000 were provided in the third
quarter of 1993 for additional consolidation of the Company's worldwide
manufacturing and repair activities. This is a result of the Company's
continuing aggressive pursuit of product cost reductions, particularly through
improvements in its manufacturing processes and more efficient utilization of
its most cost-effective manufacturing sites.
Net other expense decreased by $23,073,000 compared with 1992, primarily
due to lower interest expense from lower average debt outstanding and lower
interest rates and higher interest income from higher levels of average invested
cash, partially offset by lower interest rates.
The provision for income taxes increased from $22,199,000 in 1992 to
$76,002,000 in 1993 primarily due to the increase in pre-tax earnings in 1993
and an increase in the Company's effective tax rate from 26% in 1992 to 28% in
1993. The Company provided income taxes at the U.S. statutory rate in 1993 on
approximately
5
<PAGE> 6
59% of earnings from foreign subsidiaries compared with approximately 50% of
such earnings in 1992. A substantial portion of the earnings from the foreign
subsidiaries is free of foreign taxes.
Gains and losses resulting from translation of foreign financial statements
into U.S. dollars have not had a significant effect on the results from
operations.
Liquidity and Capital Resources. At July 1, 1994, the Company's cash, cash
equivalents and short-term investments totaled $1,333,542,000, an increase of
$704,331,000 from the prior year-end balances. These funds are being maintained
in short-term liquid investments until required for other purposes.
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS 115), which requires a change in the method
used to account for certain investments. The Company will adopt SFAS 115 in the
first quarter of 1995. The Company does not expect the adoption of SFAS 115 to
have a material effect on its financial condition or results of operations.
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 July 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 July 1, 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 July 1, 1994, approximately $2 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 July 1, 1994.
The Company made investments in property and equipment in 1994 totaling
$206 million. This amount comprised $91 million for manufacturing facilities and
equipment for the thin-film head operations in Minnesota, Malaysia and Northern
Ireland, $82 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, $21 million for expansion of the Company's thin-film media
operations in Fremont, San Jose and Anaheim, California and $12 million for
other purposes. The Company presently anticipates investments of approximately
$375 million in property and equipment in 1995. The Company plans to finance
these investments from existing cash balances and cash flows from operations.
In July 1994 the Company acquired 300,000 shares of its common stock for
approximately $7.5 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 will also provide shares to be issued under the Company's
employee stock plans and thereby reduce dilution from such plans.
The Company believes that its cash balances together with cash flows from
operations and its borrowing capacity will be sufficient to meet its working
capital needs for 1995.
6
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 1, JULY 2,
1994 1993
---------- ----------
(IN THOUSANDS EXCEPT SHARE
DATA)
<S> <C> <C>
ASSETS
Cash and cash equivalents......................................... $ 804,717 $ 426,094
Short-term investments............................................ 528,825 203,117
Accounts receivable............................................... 392,231 357,681
Inventories....................................................... 342,537 398,698
Deferred income taxes............................................. 95,784 15,131
Other current assets.............................................. 82,351 70,558
---------- ----------
Total Current Assets............................................ 2,246,445 1,471,279
---------- ----------
Property, equipment and leasehold improvements, net............... 415,038 350,051
Goodwill and other intangibles, net............................... 126,395 139,260
Other assets...................................................... 89,652 70,603
---------- ----------
Total Assets.................................................... $2,877,530 $2,031,193
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable.................................................. $ 363,709 $ 250,333
Accrued employee compensation..................................... 83,843 64,310
Accrued expenses.................................................. 190,377 193,050
Accrued income taxes.............................................. 64,687 34,800
Current portion of long-term debt................................. 168 1,500
---------- ----------
Total Current Liabilities....................................... 702,784 543,993
---------- ----------
Deferred income taxes............................................. 218,801 123,581
Other liabilities................................................. 78,054 37,102
Long-term debt, less current portion.............................. 549,492 281,276
---------- ----------
Total Liabilities............................................... 1,549,131 985,952
---------- ----------
Preferred stock, $.01 par value -- 1,000,000 shares authorized;
none issued or outstanding...................................... -- --
Common stock, $.01 par value -- 200,000,000 shares authorized;
issued and outstanding shares -- 72,832,351 in 1994 and
68,155,486 in 1993.............................................. 728 681
Additional paid-in capital........................................ 373,296 315,569
Foreign currency translation adjustment........................... (1,044) (461)
Retained earnings................................................. 955,419 729,912
Deferred compensation............................................. -- (460)
---------- ----------
Total Shareholders' Equity...................................... 1,328,399 1,045,241
---------- ----------
Total Liabilities and Shareholders' Equity...................... $2,877,530 $2,031,193
========= =========
</TABLE>
See notes to consolidated financial statements
7
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED,
------------------------------------
JULY 1, JULY 2, JUNE 30,
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales.................................................. $3,500,103 $3,043,604 $2,875,273
Cost of sales.............................................. 2,795,821 2,370,676 2,387,636
Product development........................................ 171,907 154,005 132,926
Marketing and administrative............................... 208,694 222,071 201,886
Amortization of goodwill and other intangibles............. 12,724 12,825 12,914
Restructuring costs........................................ -- 15,000 33,865
---------- ---------- ----------
Total Operating Expenses................................. 3,189,146 2,774,577 2,769,227
---------- ---------- ----------
Income from Operations................................... 310,957 269,027 106,046
Interest income............................................ 37,191 23,659 13,451
Interest expense........................................... (26,339) (23,511) (33,883)
Other...................................................... (223) 2,261 (232)
---------- ---------- ----------
Other Income (Expense), net.............................. 10,629 2,409 (20,664)
Income before income taxes................................. 321,586 271,436 85,382
Provision for income taxes................................. (96,476) (76,002) (22,199)
---------- ---------- ----------
Net Income............................................... $ 225,110 $ 195,434 $ 63,183
========= ========= =========
Net Income per Share:
Primary.................................................. $ 3.08 $ 2.80 $ .92
Fully diluted............................................ 2.83 2.71 .91
Number of shares used in per share computations:
Primary.................................................. 73,064 69,821 68,860
Fully Diluted............................................ 85,012 76,265 69,805
</TABLE>
See notes to consolidated financial statements
8
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED,
---------------------------------
JULY 1, JULY 2, JUNE 30,
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Activities
Net Income.................................................. $ 225,110 $ 195,434 $ 63,183
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization............................. 173,998 188,734 199,566
Deferred income taxes..................................... 33,308 25,566 863
Other..................................................... 2,607 9,027 25,805
Changes in operating assets and liabilities:
Accounts receivable.................................... (34,550) 43,767 (19,459)
Inventories............................................ 37,542 (114,003) 195,704
Accounts payable....................................... 109,411 11,368 (63,356)
Accrued income taxes................................... 31,084 21,202 6,873
Other assets and liabilities........................... 41,181 7,635 22,904
--------- --------- ---------
Net cash provided by operating activities................. 619,691 388,730 432,083
Investing Activities
Acquisition of property, equipment and leasehold
improvements, net......................................... (197,684) (173,570) (90,657)
Purchases of short-term investments......................... (870,867) (335,566) (86,468)
Proceeds from sales of short-term investments............... 541,782 203,414 14,881
Other....................................................... (17,619) (32,550) (9,967)
--------- --------- ---------
Net cash used in investing activities..................... (544,388) (338,272) (172,211)
Financing Activities
Issuance of long-term debt.................................. 270,750 -- --
Repayment of long-term debt................................. (3,931) (40,204) (104,874)
Sale of common stock........................................ 37,836 20,153 23,924
Purchase of treasury stock.................................. -- (36,602) (793)
Other....................................................... -- -- 422
--------- --------- ---------
Net cash provided by (used in) financing activities....... 304,655 (56,653) (81,321)
Effect of exchange rate changes on cash and cash
equivalents............................................... (1,335) (7) 1,521
Increase (decrease) in cash and cash equivalents.......... 378,623 (6,202) 180,072
Cash and cash equivalents at the beginning of the year...... 426,094 432,296 252,224
--------- --------- ---------
Cash and cash equivalents at the end of the year............ $ 804,717 $ 426,094 $ 432,296
========= ========= =========
</TABLE>
See notes to consolidated financial statements
9
<PAGE> 10
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 1, 1994, JULY 2, 1993 AND JUNE 30, 1992
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK ADDITIONAL TREASURY CURRENCY
--------------- PAID-IN COMMON DEFERRED TRANSLATION RETAINED
SHARES AMOUNT CAPITAL STOCK COMPENSATION ADJUSTMENT EARNINGS TOTAL
------ ------ ---------- ------- ------------ ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1991............ 65,142 $651 $275,572 $ $ (8,291) $ 319 $498,089 $ 766,340
Sale of stock...................... 3,396.. 34 23,890 23,924
Deferred compensation,
adjustments...................... (250) (3) (3,685) 3,685 (3)
Purchase of treasury stock at
cost............................. (793) (793)
Amortization of deferred
compensation..................... 2,303 2,303
Income tax benefit from stock
options exercised................ 6,117 6,117
Foreign currency translation
adjustment....................... 997 997
Net Income......................... 63,183 63,183
------ ------ ---------- ------- ------------ ---------- -------- ----------
Balance at June 30, 1992........... 68,288 682 301,894 (793) (2,303) 1,316 561,272 862,068
Sale of stock...................... 2,372 24 20,129 20,153
Purchase of treasury stock at
cost............................. (36,602) (36,602)
Retirement of treasury stock....... (2,505) (25) (10,576) 37,395 (26,794)
Amortization of deferred
compensation..................... 1,843 1,843
Income tax benefit from stock
options exercised................ 4,122 4,122
Foreign currency translation
adjustment....................... (1,777) (1,777)
Net Income......................... 195,434 195,434
------ ------ ---------- ------- ------------ ---------- -------- ----------
Balance at July 2, 1993............ 68,155 681 315,569 -- (460) (461) 729,912 1,045,241
Sale of stock...................... 3,940 40 37,796 37,836
Amortization of deferred
compensation..................... 460 460
Income tax benefits, primarily from
stock options exercised.......... 19,938 19,938
Merger with Crystal Computer
Services, Inc.................... 737 7 (7) 397 397
Foreign currency translation
adjustment....................... (583) (583)
Net Income......................... 225,110 225,110
------ ------ ---------- ------- ------------ ---------- -------- ----------
Balance at July 1, 1994............ 72,832 $728 $373,296 $ -- $ -- $ (1,044) $955,419 $1,328,399
====== ======= ========= ======== ============ ========== ========= ==========
</TABLE>
See notes to consolidated financial statements
10
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries after eliminations.
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 1993 ended on July 2, 1993. Both fiscal years
comprised 52 weeks. All references to years in these notes to consolidated
financial statements represent fiscal years unless otherwise noted.
Foreign Currency Translation. The U.S. dollar is the functional currency
for most of the Company's foreign operations. Translation adjustments, which
result from the process of translating foreign currency financial statements
into U.S. dollars, are included in net income for those operations whose
functional currency is the U.S. dollar and as a separate component of
shareholders' equity for those operations whose functional currency is the local
currency.
The Company enters into forward foreign exchange contracts in anticipation
of future movements in certain foreign exchange rates and other foreign currency
denominated balance sheet positions. Gains and losses on contracts to hedge
specific foreign currency commitments are deferred and accounted for as part of
the transaction. Transaction gains and losses resulting from hedging activities
have not been material. At July 1, 1994 the Company had approximately $29
million of forward contracts for the purchase of Malaysian Ringets. The
unrealized deferred gain on the Company's foreign exchange contracts as of July
1, 1994 was not material.
Inventory. Inventories are valued at the lower of standard cost (which
approximates actual cost using the first-in, first-out method) or market.
Property, Equipment, and Leasehold Improvements. Land, equipment, buildings
and leasehold improvements are stated at cost. Equipment and buildings are
depreciated using the straight-line method over the estimated useful lives of
the assets. Leasehold improvements are amortized using the straight-line method
over the shorter of the estimated life of the asset or the remaining term of the
lease.
Income Taxes. The Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109) effective July 3,
1993. 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. In prior years, income
tax expense was determined using Accounting Principles Board Opinion No. 11 (APB
11). Under APB 11, 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.
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 year. Fully diluted net income per share further assumes
the conversion of the Company's 5% and 6 3/4% convertible subordinated
debentures for the period they were outstanding, except in 1992 when such
securities were anti-dilutive and thus were not included in the computation of
fully diluted net income per share.
Cash, Cash Equivalents and Short-Term Investments. The Company considers
all highly liquid investments with a remaining maturity of 90 days or less at
the time of purchase to be cash equivalents. Cash equivalents are carried at
cost which approximates fair value. The Company's short-term investments
comprise readily marketable debt securities with remaining maturities of more
than 90 days at the time of purchase. Where the remaining maturity is more than
one year the securities are classified as short-term investments as the
Company's intention is to convert them into cash within one year. Short-term
investments are carried at the lower of cost or market which approximates fair
value.
11
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS 115), which requires a change in the method
used to account for certain investments. The Company will adopt SFAS in the
first quarter of 1995. The Company does not expect the adoption of SFAS to have
a material effect on its financial condition or results of operations.
Concentration of Credit Risk. The Company designs, manufactures and markets
a line of rigid magnetic disc drives for sale throughout the world to original
equipment manufacturers, distributors, resellers and dealers. Financial
instruments which potentially subject the Company to concentrations of credit
risk are primarily accounts receivable, cash equivalents and short-term
investments. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral from its customers.
The allowance for non-collection of accounts receivable is based upon the
expected collectibility of all accounts receivable. The Company places its cash
equivalents and short-term investments in investment grade, short-term debt
instruments and limits the amount of credit exposure to any one commercial
issuer.
Goodwill and Other Intangibles. Goodwill and other intangibles represents
the excess of the purchase price of acquired companies over the fair value of
the net assets acquired, plus the cost of technology acquired in connection with
the acquisitions. Goodwill and other intangibles are being amortized on a
straight-line basis over periods ranging from ten to fifteen years. Accumulated
amortization was $59,421,000 and $46,793,000 as of July 1, 1994 and July 2,
1993, respectively.
ACCOUNTS RECEIVABLE
Accounts receivable are summarized below:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable.................................... $435,061 $404,195
Less allowance for non-collection...................... 42,830 46,514
-------- --------
$392,231 $357,681
======== ========
</TABLE>
INVENTORIES
Inventories are summarized below:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Components............................................. $188,477 $174,199
Work-in-process........................................ 56,735 53,982
Finished goods......................................... 97,325 170,517
-------- --------
$342,537 $398,698
======== ========
</TABLE>
12
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consisted of the following:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land................................................... $ 8,278 $ 8,729
Equipment.............................................. 742,215 655,060
Building and Leasehold Improvements.................... 187,155 144,484
Construction in progress............................... 33,205 39,005
-------- --------
970,853 847,278
Less accumulated depreciation and amortization......... 555,815 497,227
-------- --------
$415,038 $350,051
======== ========
</TABLE>
Equipment and leasehold improvements include assets under capitalized
leases. Lease amortization is included in depreciation expense.
In 1992 the Company changed the criterion for capitalization of certain
fixed assets and expensed the net book value of fixed assets with cost below
this level, resulting in additional depreciation expense of approximately
$9,000,000.
In 1993 the Company reduced the number of years over which certain
equipment is depreciated, resulting in additional depreciation expense of
approximately $15,000,000.
Depreciation expense was $138,208,000, $155,018,000 and $169,130,000 in
1994, 1993 and 1992, respectively.
LONG-TERM DEBT, CAPITALIZED LEASE OBLIGATIONS AND LINES OF CREDIT
Long-term debt and capitalized lease obligations consisted of the
following:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
6 3/4% convertible subordinated debentures, due 2012........... $266,838 $266,838
5% convertible subordinated debentures, due 2003............... 270,750 --
7.7% note payable to Control Data Corporation (CDC), due
October 1995................................................. 10,000 10,000
Note payable with interest at bank's prime rate................ -- 3,652
Capitalized lease obligations with interest at 14% to 19.25%
collateralized by certain manufacturing equipment and
buildings.................................................... 2,072 2,286
-------- --------
549,660 282,776
-------- --------
Less: Current portion.......................................... 168 1,500
-------- --------
$549,492 $281,276
======== ========
</TABLE>
At July 1, 1994, future minimum principal payments on long-term debt and
capitalized lease obligations were as follows:
<TABLE>
<S> <C>
1995.............................. $ 168
1996.............................. 10,013
1997.............................. --
1998.............................. --
1999.............................. --
After 1999........................ 539,479
--------
$549,660
========
</TABLE>
13
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's 6 3/4% convertible subordinated debentures due 2012 are
convertible into 6,278,541 shares of common stock at $42.50 per share at any
time prior to maturity. Sinking fund payments begin in 1998 in an amount
sufficient to retire annually 5% of the aggregate principal amount of debentures
issued, calculated to retire 70% of the debentures prior to maturity.
The Company's 5% convertible subordinated debentures due 2003 are
convertible into 10,314,286 shares of common stock at $26.25 per share at any
time prior to maturity. Subsequent to November 2, 1996 the debentures are
redeemable at the option of the Company, in whole or in part, initially at
103.5% and thereafter at prices declining to 100% at maturity, together with
accrued interest. These debentures were issued in an offering not registered or
required to be registered under the U.S. Securities Act of 1933, as amended and
therefore were offered only to "qualified institutional buyers" and "accredited
investors" as defined by the applicable securities and exchange commission
regulations. These debentures are traded in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") Market. In June 1994 holders of
the 5% convertible subordinated debentures due 2003 exercised their registration
rights with respect to the shares of common stock of the Company into which such
debentures are convertible. The Company intends to file in August 1994 a
registration statement under the Securities Act of 1933, as amended, to register
such shares of common stock.
At July 1, 1994, the fair value of the Company's 6 3/4% convertible
subordinated debentures, based on the Nasdaq quoted market price, was
approximately $224,811,000. At July 1, 1994, the fair value of the Company's 5%
convertible subordinated debentures was approximately $249,090,000 based on the
quoted market price from brokers of these securities. The aggregate fair value
of the Company's other long-term debt approximated its carrying value at July 1,
1994.
The Company maintains an unsecured domestic credit facility consisting of a
$50 million line of credit under a credit agreement with four banks. Borrowings
under this agreement bear interest, as defined in the agreement, at (1) the
higher of the agent bank's prime rate (7.25% at July 1, 1994) or the federal
funds rate or (2) at the option of the Company, an adjusted certificate of
deposit rate or the London Interbank Offered Rate. The credit agreement provides
for a commitment fee and includes certain financial covenants.
Through its overseas subsidiaries, the Company has short-term credit and
overdraft borrowing facilities totaling approximately $33 million. Additionally,
the Company had approximately $26 million in lines of credit worldwide which can
be used for letters of credit and banker's guarantees, but not borrowings. Any
borrowings or other utilization under these facilities are guaranteed by the
parent company. For virtually all of the borrowing lines, interest is at the
banks' prime rates.
While there were no borrowings under these lines of credit at July 1, 1994,
portions of the credit lines had been utilized to cover outstanding letters of
credit and bank guarantees as required in various supplier agreements, and for
forward purchases and sales of foreign currencies. As of July 1, 1994, the
Company had available to it combined unused borrowing capacity of $69 million
under its lines of credit worldwide.
STOCK OPTION AND STOCK PURCHASE PLANS
Options granted under the Company's stock option plans are granted at fair
market value, expire ten years from the date of the grant and generally vest in
four equal annual installments, commencing one year from the date of the grant.
14
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Following is a summary of stock option activity for the three years ended
July 1, 1994:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
OPTIONS -------------------
AVAILABLE AGGREGATE EXERCISE PRICE
FOR GRANT NUMBER PRICE PER SHARE
---------- ---------- ------------------- --------------
<S> <C> <C> <C> <C>
Balance July 1, 1991.............. 1,018,482 10,112,018 $ 75,504,445 $ 5.75-$15.375
Adoption of 1991 ISO Plan......... 5,000,000 -- -- --
Granted........................... (5,023,418) 5,023,418 61,702,785 7.50-15.875
Exercised......................... -- (2,657,946) (18,692,507) 5.75-11.875
Expired (1981 ISO Plan)........... (88,451) -- -- --
Cancelled......................... 1,666,498 (1,666,498) (13,008,381) 5.75-15.375
---------- ---------- ------------------- --------------
Balance June 30, 1992............. 2,573,111 10,810,992 105,506,342 5.75-15.875
Granted........................... (1,399,000) 1,399,000 22,064,156 12.25-20.625
Exercised......................... -- (1,880,693) (14,090,808) 5.75-15.375
Expired (1983 ISO Plan)........... (258,523) -- -- --
Cancelled......................... 500,298 (500,298) (5,489,666) 5.75-18.75
---------- ---------- ------------------- --------------
Balance July 2, 1993.............. 1,415,886 9,829,001 107,990,024 5.75-20.625
Additional Authorizations -- 1991
ISO Plan........................ 6,000,000 -- -- --
Granted........................... (2,882,972) 2,882,972 62,937,159 16.00-27.75
Exercised......................... -- (3,396,187) (30,543,475) 5.75-19.625
Expired (1983 ISO Plan)........... (104,372) -- -- --
Cancelled......................... 274,837 (274,837) (3,847,168) 5.75-27.75
---------- ---------- ------------------- --------------
Balance July 1, 1994.............. 4,703,379 9,040,949 $ 136,536,540 $ 5.75-$27.75
========= ========= =============== =============
</TABLE>
At July 1, 1994, 2,374,116 of the options outstanding were exercisable.
In 1990 the Company established the Executive Stock Program and the grant
of rights to purchase 500,000 shares of the Company's common stock at $.01 per
share to each of three officers and directors of the Company. Subsequently two
of those officers/directors resigned, one in 1991 and the other in 1992. As a
result of those resignations the Company repurchased 750,000 of the shares at
their original purchase price, cancelled the shares, and reversed the associated
amortization of deferred compensation. The difference between the fair market
value of the shares at the date of grant and the exercise price was recorded as
deferred compensation in the financial statements and was charged to operations
over a four year period. The amount charged to operations was $460,000,
$1,843,000, and $2,303,000 in 1994, 1993 and 1992, respectively. At July 1, 1994
the deferred compensation was fully amortized.
The Company also maintains an Employee Stock Purchase Plan. A total of
4,800,000 shares of common stock have been authorized for issuance under the
Purchase Plan. The Purchase Plan permits eligible employees who have completed
thirty days of employment prior to the inception of the offering period to
purchase common stock through payroll deductions at the lower of 85% of the fair
market value of the common stock at the beginning or at the end of each
six-month offering period. Under the plan, 558,988, 482,698 and 743,434 shares
of common stock were issued in 1994, 1993 and 1992, respectively.
Common stock reserved for future issuance under the Company's Stock Option
and Stock Purchase Plans aggregated 14,533,722 shares at July 1, 1994.
SHAREHOLDER RIGHTS PLAN
Each share of the Company's common stock has one right attached which, when
exercisable, will entitle the holder to buy a fraction of a share or shares of
preferred stock with economic terms similar to those of one share of common
stock at an exercise price of $36 per share. The rights trade with the common
stock and
15
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
become exercisable only if a person or group acquires 25% or more of the
Company's common stock, or announces a tender or exchange offer for 30% or more
of the outstanding common stock.
If at any time after the rights become exercisable, a person or group
acquires 30% or more of the outstanding common stock, the Company is acquired in
a merger or other business combination in which the Company survives, or the
Company effects certain "self-dealing" transactions with an owner of 25% or more
of the Company's common stock, then each right not held by the acquiring person
or group will entitle its holder to purchase $72 worth of the Company's common
stock for $36. If at any time after the rights become exercisable, the Company
merges into another entity, the Company is acquired in a merger or other
business combination in which the Company does not survive, or the Company sells
more than 50% of its assets or earning power, then each right not held by the
acquiring person or group will entitle its holder to purchase $72 worth of
common stock of the acquiring company for $36. The rights, which do not have
voting privileges, expire in 1998, but may be redeemed by action of the Board
prior to that time, under certain conditions, for $.01 per right. Until the
rights become exercisable, they have no dilutive effect on earnings per share.
Although these rights should not interfere with a business combination
approved by the Board of Directors, they will cause substantial dilution to a
person or group that attempts to acquire the Company without conditioning the
offer on redemption of the rights or acquiring a substantial number of the
rights.
EMPLOYEE PROFIT SHARING AND EXECUTIVE BONUS PLANS
The Company allocates a certain percentage of quarterly pre-tax profits to
its Employee Profit Sharing Plan which is currently distributed to employees,
excluding officers, employed for the full quarter. The Company also allocates a
certain percentage of quarterly pre-tax profits to its Executive Bonus Plan.
Distributions to corporate officers under this plan are subject to the
discretion of the Board of Directors. Charges to income for these Plans during
1994, 1993 and 1992 were $34,487,000, $26,155,000, and $10,321,000,
respectively.
INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
LIABILITY
METHOD DEFERRED METHOD
---------- -----------------
1994 1993 1992
---------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal
Current......................................... $ 40,280 $35,687 $17,750
Deferred........................................ 34,351 26,077 (2,291)
---------- ------- -------
74,631 61,764 15,459
---------- ------- -------
State
Current......................................... 13,907 13,526 571
Deferred........................................ (894) (2,669) 2,143
---------- ------- -------
13,013 10,857 2,714
---------- ------- -------
Foreign
Current......................................... 8,981 1,223 3,015
Deferred........................................ (149) 2,158 1,011
---------- ------- -------
8,832 3,381 4,026
---------- ------- -------
Provision for Income Taxes........................ $ 96,476 $76,002 $22,199
======= ======= =======
</TABLE>
16
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The income tax benefit related to the exercise of stock options reduces
taxes currently payable and is credited to additional paid-in capital. Such
amounts approximated $19,938,000, $4,122,000 and $6,117,000 for 1994, 1993 and
1992, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
JULY 1, 1994
---------------
(IN THOUSANDS)
<S> <C>
DEFERRED TAX ASSETS
Receivable reserves............................................ $ 15,268
Inventory valuation accounts................................... 9,017
Accrued compensation and benefits.............................. 14,382
Warranty reserves.............................................. 54,132
Foreign net operating loss carryforwards....................... 11,129
Other reserves and accruals.................................... 25,903
Other.......................................................... 12,112
---------------
Total Deferred Tax Assets............................ 141,943
Valuation allowance............................................ (17,522)
---------------
Net Deferred Tax Assets.............................. $ 124,421
===========
DEFERRED TAX LIABILITIES
Unremitted income of foreign subsidiaries...................... $(199,766)
Acquisition related items...................................... (25,099)
Property reserves.............................................. (12,242)
Other.......................................................... (10,331)
---------------
Total Deferred Tax Liabilities....................... (247,438)
---------------
Net Deferred Tax Liabilities......................... $(123,017)
===========
</TABLE>
The valuation allowance has been provided for deferred tax assets related
to foreign net operating loss carryforwards and future tax benefits related to
the merger with Crystal Computer Services, Inc. not realized as of the
combination date. The valuation allowance increased by $9,666,000 in 1994.
Deferred (prepaid) income taxes, resulting from the timing differences in
the recognition of certain revenue and expenses for financial reporting and
income tax purposes, are summarized as follows:
<TABLE>
<CAPTION>
DEFERRED METHOD
-------------------
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Income of foreign subsidiaries not taxable in the current
year................................................... $24,942 $ 3,014
Increase in prior years' net earnings of foreign
subsidiaries considered to be permanently invested in
non-U.S. operations.................................... -- (8,485)
Accrued liabilities...................................... (4,073) (5,571)
Valuation allowances..................................... 2,981 8,322
Other.................................................... 1,716 3,583
------- -------
$25,566 $ 863
======= =======
</TABLE>
17
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The differences between the provision for income taxes at the U.S.
statutory rate and the effective rate are summarized as follows:
<TABLE>
<CAPTION>
LIABILITY
METHOD DEFERRED METHOD
-------- --------------------
1994 1993 1992
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision at U.S. statutory rate............ $112,555 $ 92,288 $29,030
State income taxes net of federal income tax
benefit................................... 8,458 7,166 1,791
Benefit from net earnings of foreign
subsidiaries considered to be permanently
invested in
non-U.S. operations....................... (36,021) (31,244) (6,304)
Increase in prior years' net earnings of
foreign subsidiaries considered to be
permanently invested in non-U.S.
operations................................ -- -- (8,485)
Foreign income taxes........................ 5,539 2,431 2,930
Other....................................... 5,945 5,361 3,237
-------- -------- -------
$ 96,476 $ 76,002 $22,199
======== ======== =======
</TABLE>
The Company's Far East manufacturing operations in Singapore, Thailand and
Malaysia operate under various tax holidays which expire in whole or in part
during fiscal years 1994 and 1997. Certain tax holidays may be extended if
certain conditions are met. The net impact of these tax holidays was to increase
net income by approximately $29,624,000 ($0.35 per share, fully diluted) in
1994, approximately $28,543,000 ($0.37 per share, fully diluted) in 1993, and
approximately $16,662,000 ($0.24 per share, fully diluted) in 1992. Cumulative
undistributed earnings of the Company's Far East subsidiaries for which no
income taxes have been provided aggregated approximately $578,990,000 at July 1,
1994. These earnings are considered to be permanently invested in non-U.S.
operations. Additional taxes of approximately $203,805,000 would have to be
provided if these earnings were repatriated to the U.S.
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
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 8, 1994, the United States Tax Court issued an opinion
concerning the allocation of income between the Company and its manufacturing
subsidiary in Singapore for the years 1983 through 1987. A number of other
proposed 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 tax 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
"Notices 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
18
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
have been used to reduce tax liabilities in subsequent fiscal years. The
combined impact on tax net operating losses 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.
On June 7, 1994 the Company filed a Petition in the United States Tax Court
contesting these proposed deficiencies and related penalties. The Company
believes that the outcome of these matters will not have a material adverse
effect on the Company's financial condition or results of operations.
Certain state tax returns for years ending June 30, 1984 through 1992 are
also under examination by state taxing authorities. Management believes that
adequate amounts of tax have been provided for any final assessments which may
result from these examinations.
RESTRUCTURING COSTS
In the first quarter of 1992 restructuring charges in the amount of
$15,865,000 were provided for a cost reduction effort that included the release
of approximately 450 employees (including temporary employees and independent
contractors), the planned consolidation of certain operations, and other cost
saving measures. Further restructuring charges in the amount of $18,000,000 were
provided in the third quarter of 1992 for the estimated costs of consolidation
of media operations.
In the third quarter of 1993 restructuring costs in the amount of
$15,000,000 were provided for a further consolidation of the Company's worldwide
manufacturing and repair activities. This is a result of the Company's
continuing aggressive pursuit of product cost reductions, particularly through
improvements in its manufacturing processes and more efficient utilization of
its most cost-effective manufacturing sites.
BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
Seagate Technology is currently engaged in a single line of business: The
design, development, manufacture and sale of a broad line of rigid magnetic disc
drives and disc drive components for use in computer systems ranging from
notebook computers and desktop personal computers to workstations and
supercomputers as well as in multimedia applications such as digital video and
video-on-demand.
The following tables summarize the Company's operations in different
geographic areas:
<TABLE>
<CAPTION>
UNITED FAR ADJUSTMENTS AND
YEAR ENDED JULY 1, 1994 STATES EAST ELIMINATIONS CONSOLIDATED
- - - - - - - - - --------------------------------------------- ---------- ---------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers.............. $1,826,624 $1,673,479 $ -- $ 3,500,103
Transfers between geographic areas........... 601,512 1,342,269 (1,943,781) --
---------- ---------- --------------- ------------
Total net sales.............................. $2,428,136 $3,015,748 $(1,943,781) $ 3,500,103
========= ========= ============ =========
Income from operations....................... $ 50,922 $ 260,035 $ -- $ 310,957
Other income (expense), net.................. (7,587) 18,216 -- 10,629
---------- ---------- --------------- ------------
Income before income taxes................... $ 43,335 $ 278,251 $ -- $ 321,586
========= ========= ============ =========
Identifiable Assets.......................... $1,921,877 $1,669,028 $ (713,375) $ 2,877,530
========= ========= ============ =========
</TABLE>
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
UNITED FAR ADJUSTMENTS AND
YEAR ENDED JULY 2, 1993 STATES EAST ELIMINATIONS CONSOLIDATED
- - - - - - - - - --------------------------------------------- ---------- ---------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers.............. $1,734,486 $1,309,118 $ -- $ 3,043,604
Transfers between geographic areas........... 611,507 1,231,510 (1,843,017) --
---------- ---------- --------------- ------------
Total net sales.............................. $2,345,993 $2,540,628 $(1,843,017) $ 3,043,604
========= ========= ============ =========
Income from operations....................... $ 51,527 $ 217,500 $ -- $ 269,027
Other income (expense), net.................. (8,852) 11,261 -- 2,409
---------- ---------- --------------- ------------
Income before income taxes................... $ 42,675 $ 228,761 $ -- $ 271,436
========= ========= ============ =========
Identifiable Assets.......................... $1,255,048 $1,282,193 $ (506,048) $ 2,031,193
========= ========= ============ =========
</TABLE>
<TABLE>
<CAPTION>
UNITED FAR ADJUSTMENTS AND
YEAR ENDED JUNE 30, 1992 STATES EAST ELIMINATIONS CONSOLIDATED
- - - - - - - - - --------------------------------------------- ---------- ---------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers.............. $1,851,559 $1,023,714 $ -- $ 2,875,273
Transfers between geographic areas........... 168,001 1,017,765 (1,185,766) --
---------- ---------- --------------- ------------
Total net sales.............................. $2,019,560 $2,041,479 $(1,185,766) $ 2,875,273
========= ========= ============ =========
Income from operations....................... $ 62,526 $ 43,520 $ -- $ 106,046
Other income (expense), net.................. (23,934) 3,270 -- (20,664)
---------- ---------- --------------- ------------
Income before income taxes................... $ 38,592 $ 46,790 $ -- $ 85,382
========= ========= ============ =========
Identifiable Assets.......................... $1,121,072 $1,048,334 $ (352,802) $ 1,816,604
========= ========= ============ =========
</TABLE>
Sales and transfers between geographic areas are accounted for at arm's
length prices which, in general, provide a profit after coverage of all
manufacturing costs. Income from operations is net sales less operating
expenses.
The identifiable assets by geographic area are those assets used in the
Company's operations in each area. The Company's European operations have not
been disclosed as a separate geographic area because European sales are recorded
by subsidiaries in other geographic areas and European identifiable assets are
less than 10% of consolidated assets.
No customer accounted for 10% or more of consolidated net sales in 1994 or
1992. In 1993 one customer accounted for more than 10% of consolidated net sales
for a total of $326,235,000.
Net foreign currency transaction gains (losses) included in the
determination of net income were $4,164,000, $(3,553,000) and $(4,735,000) for
1994, 1993 and 1992, respectively.
LITIGATION
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 now 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. Discovery will continue; however, 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.
20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Other Litigation. Amstrad PLC ("Amstrad") initiated a lawsuit against the
Company in London, England on December 11, 1992 concerning the Company's sale of
allegedly defective disc drives to Amstrad. The Company has replied to the
allegations made against it by Amstrad by denying all material points of
Amstrad's claim and asserting many affirmative defenses. Discovery is continuing
and a trial date has been set for April 1996 with various earlier dates for
exchange of expert and other testimony. The Company believes this lawsuit is
without merit and will continue to defend itself vigorously.
In October 1991 International Business Machines Corporation ("IBM")
initiated a lawsuit in the Federal District Court for Minnesota against the
Company and one of its employees for allegedly threatening the misappropriation
of IBM trade secrets. IBM thereafter amended its complaint adding another
Company employee as a defendant and alleging that the defendants 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.
COMMITMENTS
Leases. The Company leases certain property, facilities and equipment under
non-cancelable lease agreements. Land and facility leases expire at various
dates through 2082 and contain various provisions for rental adjustments
including, in certain cases, a provision based on increases in the Consumer
Price Index. All of the leases require the Company to pay property taxes,
insurance and normal maintenance costs.
Future minimum lease payments for all leases with initial or remaining
terms of one year or more were as follows at July 1, 1994:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1995................................................... $ 594 $22,643
1996................................................... 403 17,101
1997................................................... 416 11,898
1998................................................... 449 6,724
1999................................................... 483 5,089
After 1999............................................. 2,486 20,152
------- ---------
4,831 $83,607
=======
Less imputed interest.................................. 2,759
-------
Present value of payments under capital leases......... 2,072
Less current portion................................... 168
-------
Long-term lease obligations............................ $ 1,904
======
</TABLE>
Total rent expense for all land, facility and equipment operating leases
was approximately $23,000,000, $25,000,000 and $28,000,000 for 1994, 1993 and
1992, respectively.
22
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Transactions:
Cash paid for interest...................................... $24,654 $20,920 $30,581
Cash paid for income taxes.................................. 31,021 29,234 14,463
Non-Cash Transaction:
Receipt of note receivable for sale of building............. 5,000 -- --
</TABLE>
MERGER
On May 31, 1994 the Company acquired all of the outstanding stock of
Crystal Computer Services, Inc., a Canada based developer and marketer of data
access and reporting software for the Windows platform, in exchange for 737,099
shares of the Company's common stock. The transaction was accounted for as a
pooling of interests; however, prior period financial statements have not been
restated due to immateriality.
SUBSEQUENT EVENTS
In July 1994 the Company acquired 300,000 shares of its common stock for
approximately $7.5 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 will also provide shares to be issued under the Company's
employee stock plans and thereby reduce dilution from such plans.
In July 1994 the Company acquired 25% of the outstanding voting stock of
Dragon Systems, Inc., a Massachusetts based developer of advanced speech
recognition technology and products for personal computer and workstation
platforms.
In August 1994 the Company acquired Palindrome Corporation, an Illinois
based developer of data protection and management software for NetWare based
networks and enterprise LANs, for $69 million. The acquisition was accounted for
as a purchase. The Company anticipates that it will incur a one-time write-off
of in-process research and development of approximately $40 million in the first
quarter of fiscal 1995, ending September 30, 1994.
In August 1994 the Board of Directors approved an amendment to the Employee
Stock Purchase Plan to increase the number of shares of common stock reserved
for issuance thereunder by 2,000,000 shares, subject to shareholder approval at
the 1994 Annual Meeting of Shareholders.
23
<PAGE> 24
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Seagate Technology
We have audited the accompanying consolidated balance sheets of Seagate
Technology and subsidiaries as of July 1, 1994 and July 2, 1993, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three fiscal years in the period ended July 1, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Seagate
Technology and subsidiaries at July 1, 1994 and July 2, 1993, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended July 1, 1994 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
San Jose, California
July 12, 1994, except for the Subsequent Events
note as to which the date is August 4, 1994.
24
<PAGE> 1
EXHIBIT 21.1
SEAGATE TECHNOLOGY, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
-------------------------------------------------- -------------------------
<S> <C>
Seagate Technology International Cayman Islands, BWI
Seagate Technology (Thailand) Limited Thailand
Seagate Technology Limited Scotland
Seagate Microelectronics Limited Scotland
Penang Seagate Industries (M) Sdn. Bhd. Malaysia
Seagate Technology GmbH Germany
Nippon Seagate Inc. Japan
Seagate Technology Korea Limited South Korea
Seagate Technology, Inc. -- Portugal U.S.A.
Seagate Technology, Inc. -- Pacific U.S.A.
Seagate International, Inc. U.S.A.
Seagate Technology Canada, Ltd. Canada
Rigidyne Corp. U.S.A.
Seagate Technology S.A. France
Seagate Technology S.r.L. Italy
Seagate Technology A/S Norway
Seagate Technology AB Sweden
Seagate Computerhandelsgesellschaft, m.b.H. Austria
Seagate Technology Australia Pty. Limited Australia
Imprimis Technology Limited United Kingdom
Seagate Technology (Ireland) Cayman Islands
P.T. Seagate Technology Indonesia
Seagate Technology Taiwan Ltd. Taiwan
Seagate Foreign Sales Corporation Virgin Islands
Seagate Technology, Inc. -- Germany Delaware
Caltex Software, Inc. Texas
Seagate Technology International Holdings Cayman Islands
Crystal Computer Services, Inc. British Columbia, Canada
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Seagate Technology, Inc. of our report dated July 12, 1994 (except the
Subsequent Events note as to which the date is August 4, 1994), included in the
1994 Annual Report to Shareholders of Seagate Technology, Inc.
Our audits also included the financial statement schedules of Seagate
Technology, Inc. listed in Item 14(a). These schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-50973, 33-43911, 33-39916 and 33-33284), pertaining
to the 1991 Incentive Stock Option Plan, the 1983 Incentive Stock Option Plan,
the Employee Stock Purchase Plan and the Executive Stock Program of Seagate
Technology, Inc. of our report dated July 12, 1994 (except the Subsequent Events
note as to which the date is August 4, 1994), with respect to the consolidated
financial statements incorporated herein by reference, and our report included
in the preceding paragraph with respect to the financial statement schedules
included in this Annual Report (Form 10-K) of Seagate Technology, Inc.
/S/ ERNST & YOUNG LLP
San Jose, California
August 4, 1994
