<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
of
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 27, 1996
Commission File Number 0-10630
SEAGATE TECHNOLOGY, INC.
(Registrant)
Incorporated in the State of Delaware
I.R.S. Employer Identification Number 94-2612933
920 Disc Drive, Scotts Valley, California 95066
Telephone: (408) 438-6550
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
On September 27, 1996, 107,085,032 shares of the registrant's common stock were
issued and outstanding.
<PAGE>
INDEX
SEAGATE TECHNOLOGY, INC.
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
- ---------- ---------------------------------------------------- --------
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Consolidated condensed statements of income--
Three months ended September 27, 1996 and
September 29, 1995 3
Consolidated condensed balance sheets--
September 27, 1996 and June 28, 1996 4
Consolidated condensed statements of cash flows--
Three months ended September 27, 1996 and
September 29, 1995 5
Notes to consolidated condensed financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II OTHER INFORMATION
- ---------- -----------------
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 22
</TABLE>
2
<PAGE>
SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
September 27, September 29,
1996 1995
----------- -----------
<S> <C> <C>
Net sales $2,060,825 $2,140,805
Cost of sales 1,668,049 1,744,705
Product development 106,763 97,317
Marketing and administrative 111,446 116,569
Amortization of goodwill and
other intangibles 10,410 10,784
In-process research and development - 2,817
Restructuring costs (9,554) -
---------- ----------
Total Operating Expenses 1,887,114 1,972,192
Income from Operations 173,711 168,613
Interest income 16,823 23,342
Interest expense (9,273) (17,539)
Other (1,593) (975)
---------- ----------
Other Income 5,957 4,828
---------- ----------
Income before income taxes 179,668 173,441
Provision for income taxes 50,307 52,632
---------- ----------
Net Income $ 129,361 $ 120,809
========== ==========
NET INCOME PER SHARE:
Primary $ 1.18 $ 1.22
Fully diluted 1.06 1.05
NUMBER OF SHARES USED IN PER SHARE
COMPUTATIONS:
Primary 109,698 99,062
Fully diluted 129,333 124,774
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE>
SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 27, June 28,
1996 1996 (1)
-------------- -----------
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 943,097 $ 503,754
Short-term investments 646,117 670,308
Accounts receivable 1,037,406 1,066,519
Inventories 683,067 790,821
Deferred income taxes 233,997 222,355
Other current assets 138,512 145,523
---------- ----------
Total Current Assets 3,682,196 3,399,280
Property, equipment and leasehold improvements, net 1,502,734 1,399,883
Goodwill and other intangibles, net 254,606 274,046
Other assets 178,404 166,426
---------- ----------
Total Assets $5,617,940 $5,239,635
========== ==========
LIABILITIES
- -----------
Accounts payable $ 929,008 $ 715,396
Accrued employee compensation 190,545 180,126
Accrued expenses 471,268 490,752
Accrued income taxes 98,526 49,437
Current portion of long-term debt 9,864 2,425
---------- ----------
Total Current Liabilities 1,699,211 1,438,136
Deferred income taxes 351,100 351,527
Other liabilities 166,769 185,579
Long-term debt, less current portion 792,051 798,305
---------- ----------
Total Liabilities 3,009,131 2,773,547
---------- ----------
STOCKHOLDERS' EQUITY
- --------------------
Common stock 1,071 1,067
Additional paid-in capital 1,144,225 1,132,328
Retained earnings 1,519,947 1,391,389
Deferred compensation (55,773) (57,656)
Foreign currency translation adjustment (661) (1,040)
---------- ----------
Total Stockholders' Equity 2,608,809 2,466,088
---------- ----------
Total Liabilities and Stockholders' Equity $5,617,940 $5,239,635
========== ==========
</TABLE>
(1) The information in this column was derived from the Company's audited
consolidated balance sheet as of June 28, 1996.
See notes to consolidated condensed financial statements.
4
<PAGE>
SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------
September 27, September 29,
1996 1995
------------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 129,361 $ 120,809
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 118,666 88,089
Deferred income taxes (12,556) 16,534
In-process research and development - 2,817
Other 2,987 2,149
Changes in operating assets and liabilities:
Accounts receivable 34,002 (133,562)
Inventories 94,191 (61,371)
Accounts payable 220,006 99,796
Accrued income taxes 51,787 (29,590)
Other assets and liabilities (23,971) 25,278
--------- ---------
Net cash provided by operating activities 614,473 130,949
INVESTING ACTIVITIES:
Acquisition of property, equipment and leasehold improvements, net (206,674) (178,252)
Purchases of short-term investments (491,388) (934,517)
Maturities and sales of short-term investments 516,314 962,596
Other, net (7,118) (10,202)
--------- ---------
Net cash used in investing activities (188,866) (160,375)
FINANCING ACTIVITIES:
Sale of common stock 21,353 17,747
Purchase of treasury stock (8,466) -
Other, net 1,184 (317)
--------- ---------
Net cash provided by financing activities 14,071 17,430
Effect of exchange rate changes on cash and cash equivalents (335) 1,583
--------- ---------
Increase (decrease) in cash and cash equivalents 439,343 (10,413)
Elimination of Conner's net cash activity for the six months ended December 31, 1995 - (31,906)
Cash and cash equivalents at the beginning of the period 503,754 890,667
--------- ---------
Cash and cash equivalents at the end of the period $ 943,097 $ 848,348
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE>
SEAGATE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
---------------------
On February 2, 1996 the Company merged with Conner Peripherals, Inc.
("Conner") in a transaction accounted for as a pooling of interests and, as
a result, the Company's previously issued financial statements for periods
prior to that date presented in this Form 10-Q have been restated to
include the assets, liabilities and operating results of Conner in
accordance with generally accepted accounting principles and the
instructions in Regulation S-X.
The consolidated condensed financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The Company
believes the disclosures included in the unaudited consolidated condensed
financial statements, when read in conjunction with the consolidated
financial statements of the Company as of June 28, 1996 and notes thereto,
are adequate to make the information presented not misleading.
The consolidated condensed financial statements reflect, in the opinion of
management, all adjustments necessary to summarize fairly the consolidated
financial position, results of operations and cash flows for such periods.
Such adjustments are of a normal recurring nature, except for the reversal
of certain restructuring costs incurred in connection with the Conner
merger and the incurrence of other non-recurring merger-related costs, both
recorded in the three months ended September 27, 1996, and the write-offs
of in-process research and development recorded in the three months ended
September 29, 1995.
The results of operations for the three months ended September 27, 1996 are
not necessarily indicative of the results that may be expected for the
entire year ending June 27, 1997.
The Company operates and reports financial results on a fiscal year of 52
or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal
1996 ended on June 28, 1996 and fiscal 1997 will end on June 27, 1997.
2. NET INCOME PER SHARE
--------------------
Primary net income per share was based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. Fully diluted net income per share further assumed the conversion
of the Company's convertible subordinated debentures for the period of time
that they were outstanding.
6
<PAGE>
3. BALANCE SHEET INFORMATION
-------------------------
(In thousands)
September 27, June 28,
1996 1996
----------- -----------
Accounts Receivable:
Accounts receivable $ 1,101,900 $ 1,133,175
Allowance for non-collection (64,494) (66,656)
----------- -----------
$ 1,037,406 $ 1,066,519
=========== ===========
Inventories:
Components $ 345,471 $ 295,169
Work-in-process 110,058 138,854
Finished goods 227,538 356,798
----------- -----------
$683,067 $ 790,821
=========== ===========
Property, Equipment and Leasehold Improvements:
Property, equipment and leasehold improvements $ 2,572,233 $ 2,404,538
Allowance for depreciation and amortization (1,069,499) (1,004,655)
----------- -----------
$ 1,502,734 $ 1,399,883
=========== ===========
4. INCOME TAXES
------------
The effective tax rate used to compute the income tax provision for the
three months ended September 27, 1996 and September 29, 1995 was based on
the Company's estimate of its domestic and foreign operating income for
each respective year. The effective tax rate for the three months ended
September 27, 1996 was 28% compared with 30% for the comparable period last
year. The Company's overall effective tax rate is less than the domestic
statutory rate because a portion of its operating income is not subject to
foreign income taxes and is considered to be permanently invested in non-
U.S. operations. Accordingly, taxes have not been provided on such income.
7
<PAGE>
5. STOCKHOLDERS' EQUITY
--------------------
Shares authorized and outstanding are as follows:
Shares Outstanding
------------------
September 27, June 28,
1996 1996
---- ----
Preferred stock, par value $.01 per share,
1,000,000 shares authorized - -
Common stock, par value $.01 per share,
200,000,000 shares authorized 107,085,032 106,715,092
6. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
(In thousands)
Three Months Ended
------------------
September 27, September 29,
1996 1995
---- ----
Cash paid for interest $ 17,370 $ 17,005
Cash paid for income taxes 3,663 59,871
7. CERTAIN INVESTMENTS
-------------------
The Company has classified its entire investment portfolio as available-
for-sale. Available-for-sale securities are stated at fair value with
unrealized gains and losses included in stockholders' equity. The
amortized cost of debt securities is adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization is included in
interest income. Realized gains and losses are included in other income
(expense). The cost of securities sold is based on the specific
identification method.
8
<PAGE>
The following is a summary of available-for-sale securities at September
27, 1996 (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAIN LOSS FAIR VALUE
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
Corporate Bonds $ 141,224 $159 $133 $ 141,250
U.S. Government Obligations 149,145 62 256 148,951
Commercial Paper 401,397 401,397
Money Market Mutual Funds 124,941 124,941
Municipal Bonds 108,351 57 208 108,200
Repurchase Agreements 33,300 33,300
Auction Rate Preferred Stock 127,500 127,500
Euro/Yankee Time Deposits 112,460 12 112,472
---------- ---- ---- ----------
Total $1,198,318 $290 $597 $1,198,011
========== ==== ==== ==========
</TABLE>
Included in short-term investments $ 646,117
Included in cash and cash equivalents 551,894
-----------
Total $1,198,011
==========
The gross realized gains and losses on the sale of available-for-sale
securities were immaterial for the three month periods ended September 27,
1996 and September 29, 1995.
The fair value of the Company's investment in debt securities at September
27, 1996, by contractual maturity, is as follows (in thousands):
Due in less than 1 year $702,198
Due in 1 to 2-1/2 years 243,372
--------
Total $945,570
========
8. MERGER WITH CONNER
------------------
On February 2, 1996 the Company and Conner Peripherals, Inc. ("Conner")
merged after approval by the stockholders of both companies. To effect the
combination Seagate issued 24,478,022 shares of its common stock in
exchange for all the outstanding common stock of Conner and issued options
to purchase 2,469,580 shares of Seagate common stock in exchange for all
the outstanding options to purchase Conner common stock. The merger has
been accounted for
9
<PAGE>
as a pooling of interests and, accordingly, all periods prior to the merger
presented in the accompanying consolidated financial statements have been
restated to include the accounts and operations of Conner. Conner was
involved in the design, manufacture and marketing of information storage
products including disc drives, tape drives and storage management
software.
Combined and separate results of the Company and Conner for the periods
prior to the acquisition were as follows:
Three Months Ended
------------------
In thousands September 27, 1996 September 29, 1995
------------ ------------------ ------------------
Net Sales:
Prior to Dec. 30, 1995:
Seagate $ - $1,453,626
Conner - 687,179
Combined results after Dec. 29, 1995 2,060,825 -
---------- ----------
$2,060,825 $2,140,805
========== ==========
Net Income:
Prior to Dec. 30, 1995:
Seagate $ - $ 107,405
Conner - 13,404
Combined results after Dec. 29, 1995. 129,361 -
---------- ----------
$ 129,361 $ 120,809
========== ==========
The two companies maintained a majority of similar accounting practices.
However, as a result of certain differing accounting practices relating to
the capitalization of fixed assets and inventory, certain adjustments to
net assets were made to conform accounting practices of the two companies.
None of these adjustments was material to any of the periods presented.
9. RESTRUCTURING COSTS
-------------------
During fiscal year 1996, the Company recorded restructuring charges
totaling $241.7 million as a result of the merger with Conner. The
restructuring charges comprised $60.7 million for employee severance
benefits, $97.2 million to write off or write down equipment, inventory,
intangibles and other assets, $45.1 million for closure of duplicate and
excess facilities, $24.0 million for fees of financial advisors, attorneys
and accountants and $14.7 million for contract cancellations and other
expenses. In connection with the restructure, the Company currently
expects
10
<PAGE>
a total workforce reduction of approximately 2,600 employees. Of
that number, the employment of 725 employees has been terminated as of
September 27, 1996.
During the three months ended September 27, 1996 the Company reversed
$9,554,000 of its restructuring reserves as a result of the completion of
certain aspects of the restructuring plan at less than the originally
estimated cost.
The following table summarizes the Company's restructuring activity for the
three months ended September 27, 1996 (in thousands):
<TABLE>
<CAPTION>
EQUIPMENT, CONTRACT
INVENTORY, CANCELLATIONS
SEVERANCES EXCESS INTANGIBLES PROFESSIONAL AND OTHER
AND BENEFITS FACILITIES AND OTHER ASSETS FEES EXPENSES TOTAL
------------- ----------- ----------------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Reserve balances,
June 28, 1996 $33,166 $35,319 $11,954 $3,185 $ 9,792 $ 93,416
Cash charges (7,500) (2,934) (3,840) (298) (1,859) (16,431)
Non-cash charges - (290) (562) - - (852)
Adjustments (4,567) (3,658) - - (1,329) (9,554)
------- ------- ------- ------------ ------- --------
Reserve balances,
September 27, 1996... $21,099 $28,437 $ 7,552 $2,887 $ 6,604 $ 66,579
======= ======= ======= ============ ======= ========
</TABLE>
10. SUBSEQUENT EVENTS
-----------------
In October 1996, the Company called for redemption on November 22, 1996,
all of its 6-1/2% Convertible Subordinated Debentures due 2002. Holders
were given the option to convert their debentures into shares of the
Company's common stock at a price of $54.30 per share through November 22,
1996 or have their debentures redeemed at a total redemption price of
$1,053.63 per $1,000 principal amount of debentures consisting of $1,039.00
principal amount plus accrued interest of $14.63. Any debentures not
converted by 5:00 p.m. ET on November 22, 1996 will be redeemed.
At the Company's Annual Meeting of Stockholders in October 1996, the
stockholders approved an amendment to the Company's Certificate of
Incorporation to increase the authorized number of shares of common stock
reserved for issuance thereunder by 400,000,000 shares to an aggregate of
600,000,000 shares.
In October 1996, the Company's Board of Directors approved a two-for-one
stock split to be effected in the form of a stock dividend. The record
date for the stock split will be November 11, 1996, and thereafter, on
November 26, 1996, stockholders of record will be mailed certificates
representing one additional share of stock for each share held on the
record date. The stock split will double the number of shares of Seagate
common stock outstanding.
11. LITIGATION
----------
See Part II, Item 1 of this Form 10-Q for a description of legal
proceedings.
11
<PAGE>
SEAGATE TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CERTAIN FORWARD-LOOKING INFORMATION:
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements include the paragraph below
relating to customs duties, the paragraph below relating to the effective tax
rate, the statements below under "Factors Affecting Future Operating Results,"
the statements regarding capital expenditures under "Liquidity and Capital
Resources" and the statements under "Part II Other Information - Item 1. Legal
Proceedings," among others. These forward-looking statements are based on
current expectations and entail various risks and uncertainties that could cause
actual results to differ materially from those projected in the forward-looking
statements. Such risks and uncertainties are set forth below under "Factors
Affecting Future Operating Results".
RESULTS OF OPERATIONS:
Effective February 2, 1996 the Company merged with Conner Peripherals, Inc.
("Conner"). Conner was involved in the design, manufacture and marketing of
information storage products including disc drives, tape drives and storage
management software. The merger was accounted for as a pooling of interests and
accordingly all prior period financial statements have been restated as if the
merger took place at the beginning of such periods. The comparisons to prior
periods discussed below should be read in light of this. See Note 8, Merger
with Conner, to the accompanying consolidated condensed financial statements.
Net sales for the quarter ended September 27, 1996 were $2,060,825,000 as
compared with $2,140,805,000 for the comparable year-ago quarter, and
$2,014,528,000 for the immediately preceding quarter ended June 28, 1996. The
decrease in net sales from the comparable year-ago quarter was primarily due to
a continuing decline in the average unit sales prices of the Company's products
as a result of competitive market conditions partially offset by a shift in mix
to the Company's higher priced products. The increase in net sales from the
immediately preceding quarter was primarily due to a higher level of unit
shipments partially offset by a continuing decline in the average unit sales
prices of the Company's products as a result of competitive market conditions.
Gross margin as a percentage of net sales was 19.1% for the three months ended
September 27, 1996, compared with 18.5% for the comparable year-ago quarter and
19.5% for the immediately preceding quarter. The increase in gross margin as a
percentage of net sales from the comparable year-ago quarter was primarily due
to a shift in mix to the Company's newer, higher capacity disc drives and a
reduction in material costs per unit, partially offset by a continuing decline
in the average unit sales prices of the Company's products as a result of
competitive market conditions and certain one-time charges associated with or
incurred as a result of the merger with Conner. The decrease in gross margin as
a percentage of net sales from the immediately
12
<PAGE>
preceding quarter was due primarily to a continuing decline in the average unit
sales prices of the Company's products as a result of competitive market
conditions, a shift in mix to the Company's lower capacity disc drives and an
increase in one-time charges incurred as a result of the merger with Conner,
partially offset by a reduction in material costs per unit. The shift in mix to
the Company's lower capacity disc drives was due to an oversupply of less than
one gigabyte disc drives in the Company's inventory at the end of the
immediately preceding quarter ended June 28, 1996 which were aggressively
marketed in the current quarter to reduce inventory levels of these products.
During calendar 1995, Singapore progressively lost its status as a beneficiary
country under the European Union's ("EU") General System of Preferences ("GSP").
As a result, hard disc drives produced in Singapore and imported into the EU
have realized no reduction from full Most Favored Nation customs duties
(generally 1.6% at the present time) since December 31, 1995, whereas disc
drives imported into the EU from certain other GSP favored countries are subject
to more favorable customs duties. In addition, there is currently under
consideration within the Commission of the European Union, a proposal to
increase duty rates on multimedia products. Under this proposal, duties would
be assessed at a rate of 14% whereas under the current code duties would decline
to zero within two years. If this proposal were implemented, certain selected
high-capacity drives of the Company may be subjected to this higher tariff. The
imposition of such customs duties would negatively impact revenues or increase
costs and adversely impact gross margins.
Product development expenses for the three months ended September 27, 1996 were
$106,763,000, an increase of $9,446,000 when compared with the comparable year-
ago quarter and an increase of $526,000 when compared with the immediately
preceding quarter ended June 28, 1996. These expenses represented 5.2% of net
sales for the three months ended September 27, 1996 compared with 4.5% for the
comparable year-ago quarter and 5.3% for the immediately preceding quarter. The
increase in expenses from the comparable year-ago period was primarily due to
increases in salaries and related costs and allocated occupancy costs,
increasing product development expenses of the Company's software businesses and
an overall increase in the Company's product development efforts.
Marketing and administrative expenses for the three months ended September 27,
1996 were $111,446,000, a decrease of $5,123,000, when compared with the
comparable year-ago quarter and an increase of $328,000 when compared with the
immediately preceding quarter ended June 28, 1996. These expenses represented
5.4% of net sales for the three months ended September 27, 1996 and September
29, 1995, and 5.5% for the immediately preceding quarter. The decrease in
expenses from the comparable year-ago quarter was primarily due to decreases in
salaries and related costs, travel and entertainment, advertising and promotion,
depreciation and allocated occupancy costs partially offset by increasing
marketing and administrative expenses of the Company's software businesses.
Amortization of goodwill and other intangibles decreased by $374,000 for the
three months ended September 27, 1996, when compared with the comparable year-
ago
13
<PAGE>
quarter and increased by $1,971,000 when compared with the immediately
preceding quarter ended June 28, 1996. The decrease in amortization from the
comparable year-ago quarter was primarily due to write-offs, in the quarter
ended March 29, 1996, of certain intangible assets in the Company's tape drive
and software businesses whose value had become impaired offset by additional
goodwill and other intangibles arising from the acquisition of Holistic Systems
Ltd. in June 1996. The increase in amortization from the immediately preceding
quarter was primarily due to additional goodwill and other intangibles arising
from the acquisition of Holistic Systems Ltd. in June 1996.
During the three months ended September 27, 1996 the Company reversed $9,554,000
of its restructuring reserves as a result of the completion of certain aspects
of the restructuring plan at less than the originally estimated cost. The
reversal consisted of $4,567,000 in severances and benefits, $3,658,000 in
excess facilities and $1,329,000 in other expenses.
Net other income increased by $1,129,000 for the three months ended September
27, 1996 when compared with the comparable year-ago quarter and decreased by
$4,872,000 from the immediately preceding quarter ended June 28, 1996. The
increase in net other income from the comparable year-ago quarter was primarily
due to a reduction in interest expense as a result of higher capitalization of
interest on construction of new manufacturing facilities and lower average
levels of debt outstanding as a result of the redemption or conversion of
certain of the Company's convertible subordinated debentures, offset by lower
interest income from lower average invested cash and lower interest rates. The
decrease in net other income from the immediately preceding quarter was
primarily due to a decrease in interest income from lower average invested cash
and lower interest rates as well as an increase in amortization of premium on
foreign currency option contracts.
The effective tax rate for the three months ended September 27, 1996 was 28%
compared with 30% for the comparable period last year. The effective tax rate
used to compute the income tax provision for each quarter was based on the
Company's estimate of its domestic and foreign operating income for each
respective year. The Company's overall effective tax rate is less than the
domestic statutory rate because a portion of its operating income is not subject
to foreign income taxes and is considered to be permanently invested in non-U.S.
operations. Accordingly, taxes have not been provided on such income.
The Company expects its effective tax rate on operating income for the remaining
quarters of fiscal 1997 to approximate 28%. However, the actual effective tax
rate may vary from 28% if, for example, the Company incurs charges in connection
with future acquisitions.
FACTORS AFFECTING FUTURE OPERATING RESULTS:
The data storage industry in which the Company competes is subject to a number
of risks, each of which has affected the Company's operating results in the past
and could impact the Company's future operating results. The demand for disc
drive and tape drive products depends principally on demand for computer systems
and storage upgrades to computer systems, which has historically been volatile.
Changes in
14
<PAGE>
demand for computer systems often have an exaggerated effect on the
demand for disc drive and tape drive products in any given period, and
unexpected slowdowns in demand for computer systems generally cause sharp
declines in demand for such products. The data storage industry has been
characterized by periodic situations in which the supply of drives exceeds
demand, resulting in higher than anticipated inventory levels and intense price
competition. Even during periods of consistent demand, this industry is
characterized by intense competition and ongoing price erosion over the life of
a given drive product. The Company expects that competitors will offer new and
existing products at prices necessary to gain or retain market share and
customers. The Company expects that price erosion in the data storage industry
will continue for the foreseeable future. This competition and continuing price
erosion could adversely affect the Company's results of operations in any given
quarter and such adverse effect often cannot be anticipated until late in any
given quarter. In addition, the demand of drive customers for new generations
of products has led to short product life cycles that require the Company to
constantly develop and introduce new drive products on a cost effective and
timely basis. In addition, the Company's future success will require, in part,
that the market for computer systems, storage upgrades to computer systems and
multimedia applications, such as digital video and video-on-demand, and hence
the market for disc drives, remain strong. In addition, the Company's operating
results have been and may in the future be subject to significant quarterly
fluctuations as a result of a number of other factors, including the timing of
orders from and shipment of products to major customers, product mix, pricing,
delays in the development, introduction and production of new products, delays
or interruptions in the production of existing products, competing technologies,
variations in product cost, component availability due to single or limited
sources of supply, high fixed costs resulting from the Company's vertical
integration strategy, foreign exchange fluctuations, increased competition and
general economic and industry fluctuations. The Company's future operating
results may also be adversely affected by an adverse judgment or settlement in
the legal proceedings in which the Company is currently involved (see "Part II,
Item 1. Legal Proceedings").
The Company's future operating results will also be impacted by its ability to
combine successfully the operations of Seagate and Conner. The transition to a
combined Company requires substantial attention from the Company's management.
The diversion of the attention of management and any difficulties encountered in
the transition process could have an adverse impact on the revenues and
operating results of the Company. The combination of the Company and Conner
also requires integration of the companies' product offerings and the
coordination of their research and development and sales and marketing efforts.
The difficulties of assimilation may be increased by the necessity of
coordinating geographically separated organizations, integrating personnel with
disparate business backgrounds and combining two different corporate cultures.
In addition, the process of combining the two organizations has caused and could
continue to cause the interruption of, or loss of momentum in, the activities of
the Company's businesses, which could have a material adverse effect on the
Company. There can be no assurance that the Company will retain its technical
and other key personnel nor realize any of the technological or other benefits
of the Merger.
15
<PAGE>
The Company is in the process of incorporating several of its software
businesses into a single entity called Seagate Software, Inc. and is offering
employees of Seagate Software, Inc. and selected employees of the Company an
opportunity to acquire an equity interest in the software business. The
software business is subject to a number of risks including the highly
competitive nature of the business, the Company's ability to successfully
integrate its various software business acquisitions, possible delays in product
development and introduction, competitors' technological innovations and loss of
key personnel. The Company intends to continue its expansion into software and
other complementary businesses. As a result, the Company expects that it will
continue to incur charges as it acquires businesses, including charges for the
write-off of in-process research and development. The timing of such write-offs
has in the past and may in the future lead to fluctuations in the Company's
operating results on a quarterly and annual basis.
LIQUIDITY AND CAPITAL RESOURCES:
At September 27, 1996, the Company's cash, cash equivalents and short-term
investments totaled $1,589,214,000, an increase of $415,152,000 from the June
28, 1996 balance. This increase was primarily a result of cash provided by
operating activities, offset by the Company's additions to property, equipment
and leasehold improvements. Until required for other purposes, the Company's
cash and cash equivalents are maintained in highly liquid investments with
remaining maturities of 90 days or less at the time of purchase, while its
short-term investments consist of readily marketable debt securities with
remaining maturities of more than 90 days at the time of purchase.
As of September 27, 1996, the Company had committed lines of credit of $81
million which can be used for standby letters of credit or bankers' guarantees.
At September 27, 1996, approximately $77 million had been utilized.
The Company expects investments in property and equipment in the current fiscal
year to approximate $1 billion, of which approximately $208 million had been
incurred as of September 27, 1996. The Company plans to finance these
investments from existing cash balances and cash flows from operations. The
$208 million comprised $65 million for manufacturing facilities and equipment
related to the Company's subassembly and disc drive final assembly and test
facilities in the United States, Far East and Ireland, $83 million for
manufacturing facilities and equipment for the thin-film head operations in the
United States, Malaysia and Northern Ireland, $38 million for expansion of the
Company's thin-film media operations in California and Singapore and $22 million
for other purposes.
During the quarter ended September 27, 1996 the Company acquired 170,000 shares
of its common stock for approximately $8.5 million. The repurchase of these
shares was in connection with a stock repurchase program announced in September
1996 in which up to 7,000,000 shares of the Company's common stock were
authorized to be acquired in the open market.
16
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
The following discussion contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements relate to the Company's legal
proceedings described below. Litigation is inherently uncertain and may result
in adverse rulings or decisions. Additionally, the Company may enter into
settlements or be subject to judgments which may, individually or in the
aggregate, have a material adverse effect on the Company's results of
operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements.
SECURITIES LITIGATION
- ---------------------
In 1988 a series of lawsuits were filed in Federal Court for the Northern
District of California against the Company, alleging violations of the federal
securities laws on behalf of a class of purchasers of the Company's securities.
On February 8, 1995 the Court granted defendants summary judgment completely
dismissing all claims against the Company. On March 31, 1995 the Court denied
plaintiffs' motion for reconsideration of the summary judgment decision.
Plaintiffs have appealed this judgment to the Ninth Circuit Court of Appeals. A
hearing on the matter was held on September 18, 1996 and on October 2, 1996, the
Ninth Circuit affirmed the judgment of the District Court, dismissing all claims
against the Company.
In 1991 another series of lawsuits were filed in Federal Court for the Northern
District of California against the Company, alleging violations of the federal
securities laws on behalf of a class of purchasers of the Company's securities.
Discovery is continuing and the case was recently reassigned to a different U.S.
District Court Judge. A status conference is set for November 20, 1996. The
Court has not set a trial date.
In 1993 a series of lawsuits were filed in Federal Court for the Northern
District of California against Conner Peripherals, Inc. which is now a wholly
owned subsidiary of the Company known as Seagate Peripherals, Inc. These class
action lawsuits allege violations of the federal securities laws and seek
damages on behalf of a class of purchasers of Conner's securities. A status
conference has been set for November 15, 1996. The Court has not set a trial
date.
The Company believes the 1991 and 1993 series of securities lawsuits are without
merit and intends to vigorously contest them. The Company believes that the
outcome of these matters will not have a material adverse effect on the
Company's financial condition or results of operations.
ENVIRONMENTAL MATTERS
- ---------------------
The United States Environmental Protection Agency ("EPA") and/or similar state
agencies have identified the Company as a potentially responsible party with
respect to environmental conditions at several different sites to which
hazardous wastes had been shipped or from which they were released. These sites
were acquired by the Company from Ceridian Corporation ("Ceridian") (formerly
Control Data Corporation) in fiscal 1990. Other parties have also been
identified at
17
<PAGE>
certain of these sites as potentially responsible parties. Many of these parties
either have shared or likely will share in the costs associated with the sites.
Investigative and/or remedial activities are ongoing at such sites.
The Company's portion of the estimated cost of investigation and remediation of
known contamination at the sites to be incurred after June 28, 1996, is
approximately $16,000,000. Through June 28, 1996, the Company had recovered
approximately $3,500,000 from Ceridian through its indemnification and cost
sharing agreements with Ceridian and, in addition, expects to recover
approximately $9,900,000 from Ceridian over the next 30 years. After deducting
the expected recoveries from Ceridian, the expected aggregate undiscounted
liability was approximately $6,100,000 at June 28, 1996, with expected payments
by the Company of approximately $329,000 in 1999, $671,000 in 2000 and the
remainder after 2001.
Approximately $15,100,000 of the $16,000,000 total estimated costs described
above is attributable to one site in Omaha, Nebraska. In 1994, the Company sold
the Omaha property; however, the Company retains responsibility for and has
indemnified the buyer with respect to all environmental contamination existing
on the site at the time of sale. IT Corporation, a nationally known
environmental consulting firm, has provided consulting services to Ceridian and
the Company for the Omaha site for several years and has assisted the Company in
estimating the liability related to the cost of remediation. This liability is
based on a plan of investigation and remediation developed by IT Corporation
pursuant to a Consent Order entered into by the Company and the EPA in 1990.
The extent of the contamination in the groundwater has been investigated and
generally defined. According to the plan, the likely technology for remediation
of groundwater at the facility will be pumping and treatment, while remediation
of soils will most likely be accomplished by soil vapor extraction. A
substantial portion of the Omaha liability was discounted by applying a risk
free rate of 6% to the expected payments to be made by the Company over the next
30 years. None of the liabilities for any of the other sites has been
discounted. The total liability for all sites recorded by the Company after
considering the estimated effects of inflation, reimbursements by Ceridian and
discounting was approximately $3,100,000 at June 28, 1996.
The Company believes that the indemnification and cost-sharing agreements
entered into with Ceridian and the reserves that the Company has established
with respect to its future environmental costs are such that, based on present
information available to it, future environmental costs related to currently
known contamination will not have a material adverse effect on its financial
condition or results of operations.
PATENT LITIGATION
- -----------------
In November 1992, Rodime, PLC ("Rodime") filed a complaint in Federal Court for
the Central District of California, alleging infringement of U.S. Patent No. B1
4,638,383 and various state law unfair competition claims. It is the opinion of
the Company's patent counsel that the Company's products do not infringe any
valid claims of the Rodime patent in suit and thus the Company refused Rodime's
offer of a license for its patents. Other companies, however, such as IBM,
Hewlett-Packard and a number of Japanese companies have reportedly made payments
to and taken licenses from Rodime. In 1995 the Court granted the Company's
motions for summary judgment finding that all of the Company's accused products,
with the exception of the ST157, did not infringe any claims of the Rodime
patent, and that the majority of the claims in the Rodime patent were invalid as
a matter of law. The ST157 is no longer in production. This case was
reassigned on July 19, 1996 to a different U.S. District Court Judge. The case
has been set for trial on March
18
<PAGE>
4, 1997. While the Company believes its defenses to Rodime's claims are
meritorious, should Rodime prevail at trial, a judgment in a material amount
could be awarded against the Company.
On October 5, 1994 a patent infringement action was filed against the Company by
an individual, James M. White, in the U.S. District Court for the Northern
District of California for alleged infringement of U.S. Patent Nos. 4,673,996
and 4,870,519. Both patents relate to air bearing sliders. Prior to the filing
of the lawsuit, the Company filed a Petition for Reexamination of U.S. Patent
No. 4,673,996 with the United States Patent and Trademark Office ("PTO") and
this Petition was granted shortly after the lawsuit was filed. Subsequently,
the Company filed a Petition for Reexamination of U.S. Patent No. 4,870,519.
This second petition has also been granted by the PTO. The District Court
stayed the action pending the outcome of the reexaminations. The applications
for Reexamination of the patents involved in the White case are still pending
and the suit remains stayed pending completion of the Reexaminations. In both
Reexaminations, the Examiner has allowed some claims and rejected others. The
Company believes, based on a preliminary evaluation, that it does not infringe
any of the claims that have been allowed.
Papst Licensing, Gmbh, has given the Company notice that it believes certain
former Conner Peripherals, Inc. disc drives infringe several of its patents
covering the use of spin motors in disc drives. The Company believes that none
of the identified products infringe any valid claims of the noticed patents.
In the normal course of business, the Company receives and makes inquiry with
regard to other possible intellectual property matters including alleged patent
infringement. Where deemed advisable, the Company may seek or extend licenses
or negotiate settlements.
BUSINESS LITIGATION
- -------------------
Amstrad PLC ("Amstrad") initiated a lawsuit against the Company in London,
England on December 11, 1992 concerning the Company's sale of allegedly
defective disc drives to Amstrad. The Company replied to the allegations made
against it by Amstrad by denying all material points of Amstrad's claim and
asserted affirmative defenses. Trial began April 16, 1996 and concluded on July
31, 1996. No decision has yet been issued by the Court and there is no
assurance that a decision will be forthcoming for several months. The Company
believes that it asserted meritorious defenses to Amstrad's claim, including
substantial objections to the methodology and calculation of Amstrad's alleged
damages but believes that, should Amstrad prevail on its liability claims, a
judgment in a material amount would be awarded against the Company.
The Company is involved in a number of other judicial and administrative
proceedings incidental to its business. Although occasional adverse decisions
(or settlements) may occur, the Company believes that the final disposition of
such matters will not have a material adverse effect on the Company's financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
19
<PAGE>
The Company's 1996 Annual Meeting of Stockholders was held on October 24, 1996.
The following is a brief description of each matter voted upon at the meeting
and a statement of the number of votes cast for, against or withheld and the
number of abstentions with respect to each matter. There were no broker non-
votes with respect to any matter.
(a) The stockholders elected the following directors to serve for the ensuing
year and until their successors are elected:
FOR WITHHELD
---------- --------
Alan F. Shugart 86,647,194 164,832
Robert A. Kleist 86,650,059 161,967
Gary B. Filler 86,636,975 175,051
Kenneth E. Haughton 86,649,629 162,397
Thomas P. Stafford 86,644,111 167,915
Lawrence Perlman 86,631,086 180,940
Laurel L. Wilkening 86,649,465 162,561
(b) The stockholders approved an amendment to the Company's Certificate of
Incorporation to increase the authorized number of shares of common stock
reserved for issuance thereunder by four hundred million (400,000,000) shares.
FOR AGAINST ABSTAIN
--- ------- -------
69,209,255 17,222,001 380,770
(c) The stockholders ratified the appointment of Ernst & Young LLP as
independent auditors of the Company for the fiscal year ending June 27, 1997 .
FOR AGAINST ABSTAIN
--- ------- -------
86,607,265 99,955 104,806
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
The following exhibits are included herein:
3.1 Certificate of Incorporation of Registrant, as amended
11.1 Computation of Net Income per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
20
<PAGE>
No reports on Form 8-K have been filed with the Securities and Exchange
Commission during the three months ended September 27, 1996:
21
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEAGATE TECHNOLOGY, INC.
------------------------
(Registrant)
DATE: November 8, 1996 BY: /s/ Donald L. Waite
---------------------------
DONALD L. WAITE
Executive Vice President,
Chief Administrative Officer
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
DATE: November 8, 1996 BY: /s/ Alan F. Shugart
---------------------------
ALAN F. SHUGART
Chairman of the Board,
President and Chief Executive
Officer (Principal Executive
Officer and Director)
22
<PAGE>
SEAGATE TECHNOLOGY, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER
_______
3.1 Certificate of Incorporation of Registrant, as amended
11.1 Computation of Net Income per Share
27 Financial Data Schedule
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE
OF
INCORPORATION
OF
SEAGATE TECHNOLOGY, INC.
The undersigned, Marianne Stark, Sole Incorporator of Seagate Technology,
Inc. (the "corporation"), pursuant to Sections 241 and 245 of the Delaware
General Corporation Law, certifies as follows:
FIRST: That the name of the corporation is Seagate Technology, Inc. The
corporation was incorporated on September 23, 1986.
SECOND: That the Sole Incorporator of this corporation determined it to be
in the best interests of this corporation to amend the Certificate of
Incorporation to delete certain limitations on rights of stockholders, and
thereafter to restate the Certificate of Incorporation as so amended to be in
the form attached hereto as Exhibit A.
THIRD: No directors of the corporation have been elected or appointed.
FOURTH: That no stock has been issued, nor has payment for any stock been
received.
IN WITNESS WHEREOF, said Seagate Technology, Inc. has caused this
Certificate to be signed by Marianne Stark, its Sole Incorporator, this 30th day
of September, 1986.
SEAGATE TECHNOLOGY, INC.
By: /s/ Marianne Stark
----------------------------------
Marianne Stark, Sole Incorporator
<PAGE>
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
SEAGATE TECHNOLOGY, INC.
1. The name of the corporation is Seagate Technology, Inc. (the
"Corporation").
2. The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, zip code 19801. The name of its registered
agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
4. (a) The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Preferred Stock" and "Common Stock." The total
number of shares which this corporation shall have the authority to issue is
Eighty-Two Million (82,000,000), of which One Million (1,000,000) shall be
Preferred Stock and Eighty-One Million (81,000,000) shall be Common Stock. The
Preferred Stock and the Common Stock shall each have a par value of $.01 per
share, and the aggregate par value of all shares of Preferred Stock is $10,000
and of all shares of Common Stock is $810,000.
(b) The shares of Preferred Stock may be issued from time to time in
one or more series. The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this Article 4, to provide for the
issuance of the shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
<PAGE>
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or date
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the corporation, and
the relative rights of priority, if any, of payment of shares of that series;
(h) Any other relative or participating rights, preferences and
limitations of that series.
5. The name and mailing address of the incorporator are as follows:
Marianne Stark
Wilson, Sonsini, Goodrich & Rosati
Professional Corporation
Two Palo Alto Square, Suite 900
Palo Alto, CA 94306
6. The Corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation.
8. The number of directors which will constitute the whole Board of
Directors of the Corporation shall be as specified in the Bylaws of the
Corporation.
9. At all elections of directors of the corporation, each holder of stock
or of any class or classes or of a series or series thereof shall be entitled to
as many votes as shall equal the number of votes which (except for such
provision as to cumulative voting) he would be entitled to cast for the election
of directors with respect to his shares of stock multiplied by the number of
directors to be elected by him, and he may cast all of such votes for a single
director or may distribute them among the number to be voted for, or for any two
or more of them as he may see fit.
-2-
<PAGE>
10. Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
11. To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Article 12, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article
12, shall eliminate or reduce the effect of this Article 12 in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Article 12, would accrue or arise, prior to such amendment, repeal or adoption
of an inconsistent provision.
12. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
-3-
<PAGE>
CERTIFICATE OF MERGER
OF
SEAGATE TECHNOLOGY
A CALIFORNIA CORPORATION
INTO
SEAGATE TECHNOLOGY, INC.
The undersigned corporation does hereby certify:
FIRST: That the name and state of incorporation of each of the constituent
corporations of the merger are as follows:
NAME STATE OF INCORPORATION
------------------------ ------------------------
Seagate Technology California
Seagate Technology, Inc. Delaware
SECOND: That an Agreement and Plan of Merger (the "Merger Agreement")
between the parties to the merger has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations in accordance
with the requirements of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware and that the effective time of the
merger shall be noon eastern standard time on the day on which this Certificate
is filed with the Secretary of State of the State of Delaware.
THIRD: That the name of the surviving corporation of the merger is Seagate
Technology, Inc., a Delaware corporation.
FOURTH: That the Certificate of Incorporation of Seagate Technology, Inc.,
a Delaware corporation, shall be the certificate of incorporation of the
surviving corporation.
<PAGE>
FIFTH: That the executed Merger Agreement is on file at the principal
place of business of the surviving corporation. The address of said principal
place of business is 920 DiskDrive, Scotts Valley, California 95066.
SIXTH: That a copy of the Merger Agreement will be furnished by the
surviving corporation, on request and without cost, to any stockholder of any
constituent corporation.
SEVENTH: That the authorized capital stock of Seagate Technology, a
California corporation, is 81,000,000 shares of Common Stock, no par value, and
1,000,000 shares of Preferred Stock, no par value.
SEAGATE TECHNOLOGY, INC.
a Delaware corporation
By: /s/ David T. Mitchell
-----------------------------
David T. Mitchell, President
ATTEST:
/s/ Donald L. Waite
- --------------------------
Donald L. Waite, Secretary
-2-
<PAGE>
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK
OF
SEAGATE TECHNOLOGY, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
We, Alan F. Shugart and Donald L. Waite, the Chairman of the Board and
Chief Executive Officer and the Secretary, respectively, of Seagate Technology,
Inc., a corporation organized and existing under the General Corporation Law of
the State of Delaware, in accordance with the provisions of Section 103 thereof,
DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation of the said Corporation, the said Board of
Directors on November 21, 1988 adopted the following resolution creating a
series of 800,000 shares of Preferred Stock designated as Series A Participating
Preferred Stock:
"RESOLVED: That pursuant to the authority vested in the Board of Directors
--------
of the corporation by the Restated Certificate of Incorporation, the Board
of Directors does hereby provide for the issue of a series of Preferred
Stock, $.01 par value, of the Corporation, to be designated "Series A
Participating Preferred Stock", initially consisting of 800,000 shares and
to the extent that the designations, powers, preferences and relative and
other special rights and the qualifications, limitations and restrictions
of the Series A Participating Preferred Stock are not stated and expressed
in the Restated Certificate of Incorporation, does hereby fix and herein
state and express such designations, powers, preferences and relative and
other special rights and the qualifications, limitations and restrictions
thereof, as follows (all terms used herein which are defined in the
Restated Certificate of Incorporation shall be deemed to have the meanings
provided therein):
Section 1. Designation and Amount. The shares of such series shall be
----------------------
designated as "Series A Participating Preferred Stock", par value $.01 per
share, and the number of shares constituting such series shall be 800,000.
Section 2. Dividends and Distributions.
---------------------------
-1-
<PAGE>
(A) Subject to the prior and superior right of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Participating Preferred Stock with respect to dividends, the holders
of shares of Series A Participating Preferred Stock shall be entitled to receive
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the last day
of September, December, March and June in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Participating Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to, subject to the provision for
adjustment hereinafter set forth, 1,000 times the aggregate per share amount of
all cash dividends, and 1,000 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock of
the Corporation (the "Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Participating Preferred Stock. In the event the Corporation shall at any time
after December 19, 1988 (the "Rights Declaration Date") (i) declare any dividend
on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Participating Preferred Stock were entitled immediately prior
to such event under the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Participating Preferred Stock, unless the date of issue of such shares is
prior to the record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date of issue of
such shares, or unless the date of issue is a Quarterly Dividend Payment Date or
is a date after the record date for the determination of holders of shares of
Series A Participating Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Participating Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Participating Preferred Stock
entitled to receive payment of a dividend or distribution
-2-
<PAGE>
declared thereon, which record date shall be no more than 30 days prior to the
date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
-------------
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Participating Preferred Stock shall entitle the
holder thereof to 1,000 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the number of votes per share to which holders of shares
of Series A Participating Preferred Stock were entitled immediately prior to
such event shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation.
(C) Except as required by law, holders of Series A Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
---------------------
(A) The Corporation shall not declare any dividend on, make any
distribution on, or redeem or purchase or otherwise acquire for consideration
any shares of Common Stock after the first issuance of a share or fraction of a
share of Series A Participating Preferred Stock unless concurrently therewith it
shall declare a dividend on the Series A Preferred Stock as required by Section
2 hereof.
(B) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Participating Preferred Stock as provided
in Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock;
-3-
<PAGE>
(ii) declare or pay dividends on, make any other
distributions on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with Series A Participating
Preferred Stock, except dividends paid ratably on the Series A Participating
Preferred Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Participating
Preferred Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such parity stock in exchange for shares of
any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Participating Preferred
Stock;
(iv) purchase or otherwise acquire for consideration any
shares of Series A Participating Preferred Stock, or any shares of stock ranking
on a parity with the Series A Participating Preferred Stock except in accordance
with a purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(C) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Participating
-----------------
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 6. Liquidation, Dissolution or Winding Up.
--------------------------------------
(A) Upon any liquidation (voluntary or otherwise), dissolution
or winding up of the Corporation, no distribution shall be made to the holders
of shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock unless,
prior thereto, the holders of shares of Series A Participating Preferred Stock
shall have received $36,000 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the date
of such payment (the "Series A Liquidation Preference"). Following the payment
of the full amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series A Participating
Preferred Stock unless, prior thereto, the holders of shares of Common Stock
shall have received an amount per
-4-
<PAGE>
share (the "Common Adjustment") equal to the quotient obtained by dividing (i)
the Series A Liquidation Preference by (ii) 1,000 (as appropriately adjusted as
set forth in subparagraph (C) below to reflect such events as stock splits,
stock dividends and recapitalization with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the payment of the
full amount of the Series A Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series A Participating Preferred Stock and
Common Stock, respectively, holders of Series A Participating Preferred Stock
and holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to 1 with respect to such Preferred Stock and Common
Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full to the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series A Participating Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preference. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the out-standing Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
--------------------------
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Participating Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Participating Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
-5-
<PAGE>
Section 8. No Redemption. The shares of Series A Participating Preferred
-------------
Stock shall not be redeemable.
Section 9. Ranking. The Series A Participating Preferred Stock shall
-------
rank junior to all other series of the Corporation's Preferred Stock as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
Section 10. Amendment. The Certificate of Incorporation of the
---------
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preference or special rights of the Series A
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding shares
of Series A Participating Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Participating Preferred Stock
-----------------
may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Participating Preferred Stock."
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury this 21st day of
November, 1988.
/s/ Alan F. Shugart
------------------------------------------
Alan F. Shugart, Chairman of the Board and
Chief Executive Officer
ATTEST:
/s/ Donald L. Waite
- --------------------------
Donald L. Waite, Secretary
-6-
<PAGE>
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION
OF SEAGATE TECHNOLOGY, INC.
Robb A. Kundtz and David A. Drennan certify that:
1. They are the Vice President, Administration and Assistant Secretary,
respectively, of Seagate Technology, Inc., a Delaware corporation.
2. Article 4(a) of the Restated Certificate of Incorporation of this
corporation is amended to read as follows:
"The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Preferred Stock" and "Common Stock." The total
number of shares which this Corporation shall have the authority to issue is Two
Hundred One Million (201,000,000), of which One Million (1,000,000) shall be
Preferred Stock and Two Hundred Million (200,000,000) shall be Common Stock.
The Preferred Stock and the Common Stock shall each have a par value of $.01 per
share, and the aggregate par value of all shares of Preferred Stock is $10,000
and of all shares of Common Stock is $2,000,000."
3. The foregoing amendment of the Restated Certificate of Incorporation
has been duly approved by the board of directors.
4. The foregoing amendment of the Restated Certificate of Incorporation
has been duly approved by the required vote of stockholders in accordance with
Section 216 of the General Corporation Law and Article II, Section 9 of the
Bylaws of the Corporation.
We further declare under penalty of perjury under the laws of the State of
Delaware that the matters set forth in this certificate are true and correct of
our own knowledge.
Date: April 24, 1990
/s/ Robb A. Kundtz
-------------------------------------
Robb A. Kundtz, Vice President,
Administration
ATTEST: /s/ David A. Drennan
-------------------------------------
David A. Drennan, Assistant Secretary
<PAGE>
CERTIFICATE OF ELIMINATION OF THE
CERTIFICATE OF DESIGNATION OF RIGHTS,
PREFERENCES AND PRIVILEGES OF
SERIES A PARTICIPATING PREFERRED STOCK
OF
SEAGATE TECHNOLOGY, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
We, Alan F. Shugart and Donald L. Waite, the Chairman of the Board and
Chief Executive Officer and the Secretary, respectively, of Seagate Technology,
Inc., a corporation organized and existing under the General Corporation Law of
the State of Delaware, in accordance with the provision of Section 103 thereof,
DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Restated Certificate of Incorporation of the said corporation, the said Board of
Directors on October 27, 1994 adopted the following resolution eliminating the
series of 800,000 shares of Preferred Stock designated as Series A Participating
Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation by the restated Certificate of Incorporation, the Board of
Directors has determined that as none of the authorized shares of the Series A
Participating Preferred Stock, consisting of 800,000 shares, $.01 par value, are
outstanding, and as none of the authorized shares of the Series A Participating
Preferred Stock will be issued pursuant to the Certificate of Designation of
Rights, Preferences and Privileges of Series A Participating Preferred Stock
previously filed with the Secretary of State of the State of Delaware on
December 5, 1988, the Board hereby resolves that the Series A Participating
Preferred Stock shall be eliminated."
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do
affirm the foregoing as true under penalties of perjury this 1st day of
December, 1994.
/s/ Alan F. Shugart
-------------------------
Alan F. Shugart
Chairman of the Board and
Chief Executive Officer
ATTEST:
/s/ Donald L. Waite
- --------------------------
Donald L. Waite, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF SEAGATE TECHNOLOGY, INC.
Alan F. Shugart and Donald L. Waite certify that:
1. They are the President, Chief Executive Officer and Chairman of the
Board and the Executive Vice President, Chief Administrative Officer,
Chief Financial Officer, and Secretary, respectively, of SEAGATE
TECHNOLOGY, INC., a Delaware corporation.
2. Article 4(a) of the Restated Certificate of Incorporation of this
corporation is amended in its entirety to read as follows:
"The Corporation is authorized to issue two classes of shares to
be designated, respectively, "Preferred Stock" and "Common
Stock." The total number of shares which the Corporation shall
have authority to issue is Six Hundred One Million (601,000,000),
of which One Million (1,000,000) shall be Preferred Stock and Six
Hundred Million (600,000,000) shall be Common Stock. The
Preferred Stock and the Common Stock shall each have a par value
of $0.01 per share, and the aggregate par value of all shares of
Preferred Stock is $10,000 and of all shares of Common Stock is
$6,000,000."
3. The foregoing amendment of the Restated Certificate of Incorporation
has been duly approved by this corporation's Board of Directors in
accordance with Section 242 of the Delaware General Corporation Law.
4. The foregoing Amendment of the Restated Certificate of Incorporation
has been duly approved by the stockholders in accordance with Sections
216 and 242 of the Delaware General Corporation Law and the Bylaws of
this corporation.
We hereby further declare and certify under penalty of perjury under the
laws of the State of Delaware that the facts set forth in the foregoing
certificate are true and correct of our own knowledge and that this Certificate
of Amendment is our act and deed.
Executed at Scotts Valley, California, this 24th day of October, 1996.
/s/ Alan F. Shugart
-------------------------------------------------------
Alan F. Shugart, President, Chief Executive Officer and
Chairman of the Board
ATTEST: /s/ Donald L. Waite
-------------------------------------------------------
Donald L. Waite, Executive Vice President, Chief
Administrative Officer, Chief Financial Officer and
Secretary
<PAGE>
EXHIBIT 11.1
SEAGATE TECHNOLOGY, INC.
COMPUTATION OF NET INCOME PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended
------------------
September 27, September 29,
1996 1995
------------- -------------
<S> <C> <C>
PRIMARY
Weighted average number of common
shares outstanding during the period 106,864 96,078
Incremental common shares attributable
to exercise of outstanding options
(assuming proceeds would be used to
purchase treasury stock) 2,834 2,984
-------- --------
Total shares 109,698 99,062
======== ========
Net income:
Amount $129,361 $120,809
Per share $ 1.18 $ 1.22
FULLY DILUTED
- -------------
Weighted average number of common
shares outstanding during the period 106,864 96,078
Incremental common shares attributable
to exercise of outstanding options
(assuming proceeds would be used to
purchase treasury stock) and conversion
of convertible subordinated debentures 22,469 28,696
-------- --------
Total shares 129,333 124,774
======== ========
Net income:
Amount $129,361 $120,809
Add 6-3/4% convertible subordinated
debentures interest, net of income tax
effect - 2,736
Add 5% convertible subordinated
debentures interest, net of income
tax effect 2,057 2,057
Add 6-1/2% convertible subordinated
debentures interest, net of income tax
effect 3,054 2,967
Add 6-3/4% convertible subordinated
debentures interest, net of income tax
effect 2,145 2,085
-------- --------
Total $136,617 $130,654
======== ========
Per share $ 1.06 $ 1.05
======== ========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEET AS OF SEPTEMBER 27, 1996 AND THE
CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER
27, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1997
<PERIOD-START> JUN-29-1996
<PERIOD-END> SEP-27-1996
<CASH> 943,097
<SECURITIES> 646,117
<RECEIVABLES> 1,101,900
<ALLOWANCES> 64,494
<INVENTORY> 683,067
<CURRENT-ASSETS> 3,682,196
<PP&E> 2,572,233
<DEPRECIATION> 1,069,499
<TOTAL-ASSETS> 5,617,940
<CURRENT-LIABILITIES> 1,699,211
<BONDS> 792,051
0
0
<COMMON> 1,071
<OTHER-SE> 2,607,738
<TOTAL-LIABILITY-AND-EQUITY> 5,617,940
<SALES> 2,060,825
<TOTAL-REVENUES> 2,060,825
<CGS> 1,668,049
<TOTAL-COSTS> 1,668,049
<OTHER-EXPENSES> 107,619
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,273
<INCOME-PRETAX> 179,668
<INCOME-TAX> 50,307
<INCOME-CONTINUING> 129,361
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 129,361
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.08
</TABLE>
