<PAGE>
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K/A
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 28, 1996
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)
---------------
DELAWARE 94-2612933
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
920 DISC DRIVE
SCOTTS VALLEY, CALIFORNIA 95066
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (408) 438-6550
---------------
Securities registered pursuant to Section 12 (b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
6 3/4% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2003 NEW YORK STOCK EXCHANGE
6 1/2% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2002 NEW YORK STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 [_]
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 June 28, 1996 as
reported by the New York Stock Exchange, was approximately $4.496 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 June
28, 1996 was 106,715,092.
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
1996 Annual Meeting of Stockholders (the "Proxy Statement") and
(2) registrant's Annual Report to Stockholders for the fiscal year ended June
28, 1996 (the "Annual Report to Stockholders").
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- -------------------------------------------------------------------------------
<PAGE>
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--June 28, 1996 and June 30, 1995.
Consolidated Statements of Income--Years Ended June 28, 1996, June 30,
1995 and July 1, 1994.
Consolidated Statements of Stockholders' Equity--Years Ended June 28,
1996, June 30, 1995 and July 1, 1994.
1
<PAGE>
Consolidated Statements of Cash Flows--Years Ended June 28, 1996, June
30, 1995 and July 1, 1994.
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>
II--Valuation and Qualifying Accounts................................ 24
Report of Independent Accountants for Seagate Peripherals, Inc.
(formerly Conner Peripherals, Inc.)................................. 25
Report of Independent Accountants on Financial Statement Schedule II
for Seagate Peripherals, Inc. (formerly Conner Peripherals, Inc.)... 26
</TABLE>
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:
------
<C> <S> <C>
3.1 Certificate of Incorporation of Registrant, as amended. (A)
3.2 By-Laws of Registrant, as amended. (B)
4.1.1 Form of Indenture relating to Registrant's 6 3/4%
Convertible Subordinated Debentures due 2001. (C)
4.1.2 Second Supplemental Indenture relating to Registrant's 6
3/4% Convertible Subordinated Debentures due 2001. (N)
4.2 Indenture dated as of December 1, 1993 between Registrant
and Chemical Bank. (L)
4.3.1 Form of Indenture relating to Registrant's 6 1/2%
Convertible Subordinated Debentures due 2002. (O)
4.3.2 Second Supplemental Indenture relating to Registrant's 6
1/2% Convertible Subordinated Debentures due 2002. (N)
10.1 1983 Incentive Stock Option Plan and Form of Stock Option
Agreement. (E)
10.2 Seagate Technology Employee Stock Purchase Plan. (D)
10.3 Registrant's Executive Stock Plan. (P)
10.4 Conner Peripherals, Inc. 1986 Incentive Stock Plan. (P)
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)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NOTES:
------
<C> <S> <C>
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)
10.20 Amended and Restated Archive Corporation Stock Option and
Restricted Stock Purchase Plan--1981. (P)
10.21 Amended and Restated Archive Corporation Incentive Stock
Option Plan--1981. (P)
Conner Peripherals, Inc.--Arcada Holdings, Inc. Stock
10.22 Option Plan. (Q)
10.23 Arcada Holdings, Inc. 1994 Stock Option Plan. (Q)
11.1 Computation of Net Income per Share (see page 27). (R)
13.1 1996 Annual Report to Stockholders.
21.1 Subsidiaries of the Registrant. (R)
23.1 Consent of Ernst & Young LLP, Independent Auditors. (R)
23.2 Consent of Price Waterhouse LLP, Independent Accountants
for Seagate Peripherals, Inc. (formerly Conner
Peripherals, Inc.) (R)
24.1 Power of Attorney. (R)
27 Financial Data Schedule. (R)
</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 14(a),
"Exhibits," of the Annual Report on Form 10-K of Conner Peripherals, Inc.
(Commission File Number 1-10639) for the fiscal year ended December 31,
1990.
(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.
3
<PAGE>
(H) 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, 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 1, 1994.
(N) Incorporated by reference to the exhibits filed in response to Item 7(c),
"Exhibits," of Registrant's Current Report on Form 8-K as filed with the
Commission on February 12, 1996.
(O) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Annual Report on Form 10-K of Conner Peripherals, Inc.
(Commission file number 1-10639) for the fiscal year ended December 31,
1991.
(P) Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-8 (registration number 333-697) as filed with the
Commission on February 5, 1996.
(Q) Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-8 (registration number 333-1059) as filed with the
Commission on February 21, 1996.
(R) Previously filed.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the quarter ended June 28, 1996.
4
<PAGE>
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: /s/ Donald L. Waite
__________________________________
(Donald L. Waite,
Executive Vice President,
Chief Administrative Officer
and Chief Financial Officer)
Dated: September 18, 1996
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, September 18, 1996
____________________________________ President and Chief
(Alan F. Shugart) Executive Officer
/s/ Donald L. Waite Executive Vice President, September 18, 1996
____________________________________ Chief Administrative
(Donald L. Waite) Officer and Chief Financial
Officer (Principal Financial
and Accounting Officer)
Gary B. Filler* Director September 18, 1996
____________________________________
(Gary B. Filler)
Kenneth Haughton* Director September 18, 1996
____________________________________
(Kenneth Haughton)
Robert A. Kleist* Director September 18, 1996
____________________________________
(Robert A. Kleist)
Lawrence Perlman* Director September 18, 1996
____________________________________
(Lawrence Perlman)
Thomas P. Stafford* Director September 18, 1996
____________________________________
(Thomas P. Stafford)
Laurel L. Wilkening * Director September 18, 1996
____________________________________
(Laurel L. Wilkening)
*By: /s/ Donald L. Waite
____________________________________
Donald L. Waite
Attorney-in-fact
</TABLE>
5
<PAGE>
SEAGATE TECHNOLOGY, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION NOTES
- -------- ----------- -----
<C> <S> <C>
3.1 Certificate of Incorporation of Registrant, as amended. (A)
3.2 By-Laws of Registrant, as amended. (B)
4.1.1 Form of Indenture relating to Registrant's 6-3/4% Convertible Subordinated
Debentures due 2001. (C)
4.1.2 Second Supplemental Indenture relating to Registrant's 6-3/4% Convertible
Subordinated Debentures due 2001. (N)
4.2 Indenture dated as of December 1, 1993 between Registrant and Chemical Bank. (L)
4.3.1 Form of Indenture relating to Registrant's 6-1/2% Convertible Subordinated
Debentures due 2002. (O)
4.3.2 Second Supplemental Indenture relating to Registrant's 6-1/2% Convertible
Subordinated Debentures due 2002. (N)
10.1 1983 Incentive Stock Option Plan and form of Stock Option Agreement. (E)
10.2 Seagate Technology Employee Stock Purchase Plan. (D)
10.3 Registrant's Executive Stock Plan. (P)
10.4 Conner Peripherals, Inc. 1986 Incentive Stock Plan. (P)
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)
10.20 Amended and Restated Archive Corporation Stock Option and Restricted
Stock Purchase Plan - 1981. (P)
10.21 Amended and Restated Archive Corporation Incentive Stock Option Plan - 1981. (P)
10.22 Conner Peripherals, Inc. - Arcada Holdings, Inc. Stock Option Plan. (Q)
10.23 Arcada Holdings, Inc. 1994 Stock Option Plan. (Q)
11.1 Computation of Net Income per Share. (R)
13.1 1996 Annual Report to Stockholders.
21.1 Subsidiaries of the Registrant. (R)
23.1 Consent of Ernst & Young LLP, Independent Auditors. (R)
23.2 Consent of Price Waterhouse LLP, Independent Accountants for Seagate
Peripherals, Inc. (formerly Conner Peripherals, Inc.) (R)
24.1 Power of Attorney. (R)
27 Financial Data Schedule (R)
</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 14(a),
"Exhibits," of the Annual Report on Form 10-K of Conner Peripherals, Inc.
(Commission file number 1-10639) for the fiscal year ended December 31,
1990.
(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 1, 1994.
(N) Incorporated by reference to the exhibits filed in response to Item 7(c),
"Exhibits," of Registrant's Current Report on Form 8-K as filed with the
Commission on February 12, 1996.
(O) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Annual Report on Form 10-K of Conner Peripherals, Inc.
(Commission file number 1-10639) for the fiscal year ended December 31,
1991.
(P) Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-8 (registration number 333-697) as filed with the
Commission on February 5, 1996.
(Q) Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-8 (registration number 333-1059) as filed with the
Commission on February 21, 1996.
(R) Previously filed.
<PAGE>
EXHIBIT 13.1
SEAGATE TECHNOLOGY, INC.
ANNUAL REPORT TO STOCKHOLDERS
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED June 28, June 30, July 1, July 2, June 30,
In thousands except per share data 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $8,588,350 $7,256,209 $5,865,255 $5,195,276 $5,113,696
Gross profit 1,581,001 1,373,385 1,170,821 909,872 945,696
Income (loss) from operations 286,969 459,301 473,097 (195,442) 258,996
Income (loss) before extraordinary gain 213,261 312,548 329,685 (267,605) 183,902
Net income (loss) 213,261 318,719 329,685 (267,605) 183,902
Primary income (loss) per share before
extraordinary gain 2.06 3.20 3.43 (3.00) 1.97
Primary net income (loss) per share 2.06 3.26 3.43 (3.00) 1.97
Fully diluted income (loss) per share
before extraordinary gain 1.94 2.85 3.12 (3.00) 1.94
Fully diluted net income (loss) per share 1.94 2.90 3.12 (3.00) 1.94
Total assets 5,239,635 4,899,832 4,307,937 3,470,970 3,713,354
Long-term debt, less current portion 798,305 1,066,321 1,176,551 941,882 1,025,373
Stockholders' equity $2,466,088 $1,936,132 $1,634,700 $1,228,829 $1,480,566
Number of shares used in per share
computations:
Primary 103,438 97,765 96,160 89,187 93,277
Fully diluted 118,136 123,571 117,967 89,187 100,634
</TABLE>
The 1996 results of operations include a $241,720 restructuring charge as a
result of the merger with Conner Peripherals, Inc. and a $98,687 write-off of
in-process research and development incurred in connection with the acquisition
of software companies. The 1995 results of operations include a $73,177 write-
off of in-process research and development incurred in connection with business
acquisitions.
Prior periods have been restated to reflect the merger with Conner Peripherals,
Inc. on a pooling of interests basis.
1
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY/1996
Unaudited, in thousands except per share data 1st 2nd 3rd 4th
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $2,140,805 $2,339,691 $2,093,326 $2,014,528
Gross profit 396,100 453,823 337,581 393,497
Income (loss) from operations 168,613 204,984 (214,909) 128,281
Net income (loss) 120,809 148,915 (157,478) 101,015
Net income (loss) per share:
Primary 1.22 1.48 (1.57) .92
Fully diluted 1.05 1.26 (1.57) .84
Price range per share:
Low 39-1/8 38-5/8 45-7/8 42-1/2
High $ 48-5/8 $ 54 $ 67-1/8 $ 62-1/2
</TABLE>
The results for the first, second, third and fourth quarters include in-process
research and development charges of $2,817, $3,600, $52,848 and $39,422,
respectively, in connection with business acquisitions and equity investments.
The results for the third quarter include restructuring charges of $241,720 as a
result of the merger with Conner Peripherals, Inc.
Prior periods have been restated to reflect the merger with Conner Peripherals,
Inc. on a pooling of interests basis.
<TABLE>
<CAPTION>
QUARTERLY/1995
Unaudited, in thousands except per share data 1st 2nd 3rd 4th
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,543,541 $1,771,901 $1,871,761 $2,069,006
Gross profit 289,926 345,443 335,733 402,283
Income from operations 47,750 133,423 119,258 158,870
Income before extraordinary gain 21,904 94,814 83,083 112,747
Net income 26,442 96,447 83,083 112,747
Income per share before extraordinary gain:
Primary .22 .97 .86 1.14
Fully diluted .23 .85 .76 .98
Net income per share:
Primary .27 .99 .86 1.14
Fully diluted .27 .86 .76 .98
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY/1995
Unaudited, in thousands except per share data 1st 2nd 3rd 4th
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Price range per share:
Low 20-1/16 21-7/8 23-5/8 27
High $ 27 $ 26-3/4 $ 28-1/4 $ 42-7/8
</TABLE>
The results for the first, third and fourth quarters include in-process research
and development charges of $43,000, $15,597 and $14,580, respectively, in
connection with business acquisitions.
Prior periods have been restated to reflect the merger with Conner Peripherals,
Inc. on a pooling of interests basis.
STOCK AND DIVIDEND INFORMATION
The Company's common stock trades on the New York Stock Exchange under
the symbol "SEG." The price range per share, reflected in the above tables, is
the highest and lowest sale prices for the Company's stock as reported by the
New York Stock Exchange 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 June 28, 1996,
there were approximately 5,962 stockholders of record.
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.
CERTAIN FORWARD-LOOKING INFORMATION
Certain statements in this Management's Discussion and Analysis
("MD&A"), elsewhere in this Annual Report to Stockholders and in the Company's
Annual Report on Form 10-K for 1996 into which this MD&A is incorporated are
forward-looking statements based on current expectations, and entail various
risks and uncertainties that could cause actual results to differ materially
from those expressed in such forward-looking statements. Such risks and
uncertainties are set forth below under "Factors Affecting Future Operating
Results." These forward-looking statements include, but are not limited to, the
references below relating to customs duties, restructuring costs, expected
savings as a result of the merger with Conner, and the effective tax rate as
well as, the statements below under "Factors Affecting Future Operating
Results," capital expenditures under "Liquidity and Capital Resources" and in
the Litigation note to the consolidated financial statements, among others.
3
<PAGE>
MERGER WITH CONNER
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. Conner
had a fiscal year which ended on the Saturday closest to December 31.
Accordingly, Conner's statements of income for the years ended December 30, 1995
and December 31, 1994, have been combined with Seagate's statements of income
for the years ended June 30, 1995 and July 1, 1994, respectively. In order to
conform Conner's year end to Seagate's fiscal year end, the consolidated
statement of income for the year ended June 28, 1996 includes six months (July
1, 1995 through December 31, 1995) for Conner which are also included in the
consolidated statement of income for the year ended June 30, 1995. The
comparisons to prior periods below should be read in light of this fact. See
Merger With Conner note to the consolidated financial statements.
BUSINESS
Seagate operates in a single industry segment by designing,
manufacturing and marketing products for storage, retrieval and management of
data on computer and data communications systems. These products include disc
drives and disc drive components, tape drives and software.
The Company designs, manufactures and markets 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 Company sells its products to original equipment manufacturers for
inclusion in their computer systems or subsystems, and to distributors,
resellers, dealers and retailers.
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 has also invested in, and currently intends to continue
investigating opportunities to invest in software activities. The Company
anticipates that users of computer systems will increasingly rely upon
client/server network computing environments and believes that as this reliance
increases, users will demand software that more efficiently and securely manages
and provides access to data across computer networked environments. As such, the
Company has broadened its core competencies to include software products to meet
these requirements.
In addition, the Company has entered the tape drive business as a
result of its merger with Conner. Computer systems of all types increasingly
need dedicated backup storage peripherals that combine high capacity, high
performance, low cost and reliability. Seagate's full line of minicartridge and
Digital Audio Tape ("DAT") products meet the needs of the desktop and
workstation markets to complement the Company's line of disc drive products.
RESULTS OF 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 June 28, 1996.
<TABLE>
<CAPTION>
Percentage of Net Sales
-----------------------
1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100% 100% 100%
Cost of sales 82 81 80
--- --- ---
Gross profit 18 19 20
Product development 5 5 5
Marketing and administrative 6 6 7
Amortization of goodwill and other intangibles - 1 1
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Percentage of Net Sales
-----------------------
1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
In-process research and development 1 1 -
Restructuring costs 3 - (1)
Income from operations 3 6 8
Other income, net 1 - -
Income before income taxes 4 6 8
Provision for income taxes (1) (2) (2)
Net income 3% 4% 6%
</TABLE>
1996 vs 1995. Net sales in 1996 were 18% higher than those reported
in 1995. The increase 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, particularly in the higher capacity
products. The rigid disc drive industry in which the Company operates is
characterized by declining unit sales prices over the life of a product and the
Company believes this characteristic will continue.
The decrease in gross margin as a percentage of net sales over the
prior year 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
and certain one-time charges incurred as a result of the merger with Conner
partially offset by a shift in mix to the Company's newer, higher-capacity
products and a reduction in certain product costs, such as material, scrap and
warranty costs per unit.
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 multi-media 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 increased by $66,923,000 (19%) compared
with 1995, primarily due to increases in salaries and related 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 increased by $34,780,000 (8%)
compared with 1995, primarily due to ongoing marketing and administrative
expenses of the Company's software businesses and increases in outside services
and salaries and related costs partially offset by decreases in allocated
occupancy costs, advertising expenses and the provision for bad debts.
Amortization of goodwill and other intangibles increased by
$11,015,000 (31%) compared with 1995, primarily due to additional goodwill and
other intangibles arising from various acquisitions of and investments in
businesses in 1996, a full year of amortization in 1996 as compared with a
partial year of amortization in 1995 with respect to software businesses
acquired in 1995, and write-offs of certain intangible assets in the Company's
tape drive and software businesses whose value had become impaired. (see
Acquisitions note to consolidated financial statements).
The $98,687,000 charge for in-process research and development in 1996
consists of one time write-offs primarily incurred in connection with the
acquisition of the minority interest in Arcada Holdings, Inc. and the
acquisitions of Holistic Systems Ltd., OnDemand Software, Inc., Calypso Software
Systems, Inc. and Sytron Corporation. The Company plans to continue its
expansion into software and other complementary businesses and
5
<PAGE>
therefore currently intends to pursue discussions with companies that fit with
its strategy. As a result, the Company expects that it will continue to incur
charges for in-process research and development as it acquires businesses.
As a result of the merger with Conner, the Company recorded
restructuring costs of $241,720,000 in 1996. The restructuring costs comprised
$60,714,000 for employee severance benefits, $97,209,000 to write-off or write
down equipment, inventory, intangibles and other assets, $45,138,000 for closure
of duplicate and excess facilities, $23,980,000 for fees of financial advisors,
attorneys and accountants and $14,679,000 for contract cancellations and other
expenses. The cash outflows related to the $241,720,000 charge are estimated to
be approximately $128,410,000 of which $75,450,000 remains to be expended at
June 28, 1996.
Other income (expense), net increased by $16,316,000 compared with
1995, primarily due to a reduction in interest expense as a result of
capitalization of interest on construction of new manufacturing facilities and
the conversion or redemption of certain of the Company's subordinated debentures
and higher interest income from higher interest rates, partially offset by
increased foreign currency remeasurement losses.
The provision for income taxes decreased by $56,729,000 (32%) in 1996,
primarily due to the decrease in pre-tax earnings in 1996. The effective tax
rate for both years was approximately 36%. Excluding the restructuring costs,
non-recurring merger-related costs and the write-off of in-process research and
development, the effective tax rate was 30% in 1996. While the Company expects
the fiscal year 1997 effective tax rate to approximate 28%, the actual effective
tax rate may differ from this rate if the Company incurs additional costs in
connection with future acquisitions.
The Company provided income taxes at the U.S. statutory rate in 1996
on approximately 64% of its earnings from foreign subsidiaries compared with
approximately 57% of such earnings in 1995. A substantial portion of the
Company's Far East manufacturing operations in Singapore, Thailand, Malaysia and
China operate free of tax under various tax holidays which expire in whole or in
part during fiscal years 1997 through 2000. The net impact of these tax holidays
was to increase net income by approximately $50,398,000 ($0.43 per share, fully
diluted) in 1996 and approximately $59,788,000 ($0.48 per share, fully diluted)
in 1995.
The Company, during 1996, entered into settlement agreements with the
Internal Revenue Service (IRS) for Seagate's fiscal tax years 1988 through 1990
and Conner's tax years 1989 and 1990. Under the settlement agreement filed with
the Tax Court for Seagate's fiscal tax years 1988 through 1990, the Company paid
additional taxes of approximately $12.3 million for the fiscal years 1988
through 1990, plus accrued interest of approximately $8.8 million. In addition,
the Company paid additional taxes of approximately $17.9 million for the three
years ended July 2, 1993, plus accrued interest of approximately $6.3 million
for adjustments to net operating losses and tax credits that had been carried to
these years. Under the settlement agreement filed with the Tax Court for
Conner's tax years 1989 and 1990, the Company paid additional taxes of
approximately $5.4 million for the years 1989 and 1990, plus accrued interest of
approximately $3.3 million. The results of the settlements did not effect the
Company's results of operations for fiscal 1996 and did not have a material
adverse effect on the Company's financial condition.
1995 vs 1994. Net sales in 1995 were 24% higher than those reported
in 1994. The increase 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. The 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.
The decrease in gross margin from 20% to 19% as a percentage of net
sales from the prior year was primarily due to a continuing 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, and a reduction in
material costs per unit.
Product development expenses increased by $50,657,000 (17%) compared
with 1994, primarily due to ongoing product development expenses of the
Company's recently acquired businesses, increases in salaries and related costs,
and increases in outside services as well as an overall increase in the
Company's product development efforts.
Marketing and administrative expenses increased by $53,298,000 (13%)
compared with 1994, primarily due to ongoing marketing and administrative
expenses of the Company's recently acquired businesses, and increases in
salaries and related costs partially offset by a decrease in the provision for
bad debts.
Amortization of goodwill and other intangibles increased by $6,209,000
(21%) compared with 1994, primarily due to additional goodwill and other
intangibles arising from various investments in and acquisitions of businesses
in 1995. See Acquisitions note to consolidated financial statements.
6
<PAGE>
The $73,177,000 charge for in-process research and development in 1995
consists of one time write-offs incurred in connection with the acquisitions of
Palindrome Corporation, Network Computing, Inc., NetLabs Inc., Frye Computer
Systems, Inc., Creative Interaction Technologies, Inc. and Sytron Corporation.
The $5,000,000 charge for in-process research and development in 1994 consists
of a one time write-off incurred in connection with the acquisition of Quest
Development Corporation.
The $38,019,000 credit for restructuring charges in 1994 consisted of
a reduction of the restructuring reserves established in 1993. This reduction
resulted from the modification of the Company's operating plans, primarily the
decision to cancel the closure of certain manufacturing operations due to
changing business conditions. These changing business conditions primarily
pertained to the improvement in local economies, the reduction in manufacturing
cost benefits achieved by shifting production to other locations and certain
other strategic benefits realized by maintaining a local presence.
Net other income increased by $31,883,000 compared with 1994,
primarily due to higher interest income from higher levels of average invested
cash and higher interest rates partially offset by a decrease in other income as
a result of a large gain in 1994 on the sale of the Company's investment in
Read-Rite Corporation.
The provision for income taxes increased by $35,224,000 in 1995,
primarily due to the increase in pre-tax earnings in 1995 and an increase in the
Company's effective tax rate from 30% in 1994 to 36% in 1995. The increase in
the effective tax rate was due to the write-off of nondeductible in-process
research and development. Excluding the write-off of in-process research and
development, the effective tax rate was 30% in 1995.
The Company provided income taxes at the U.S. statutory rate in 1995
on approximately 57% of earnings from foreign subsidiaries compared with
approximately 63% of such earnings in 1994. A substantial portion of the
Company's Far East manufacturing operations in Singapore, Thailand, Malaysia and
China operate free of tax under various tax holidays. The net impact of these
tax holidays was to increase net income by approximately $59,788,000 ($0.48 per
share, fully diluted) in 1995 and approximately $45,802,000 ($0.39 per share,
fully diluted) in 1994.
Other. The effect of inflation on operating results for 1996, 1995 and
1994 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.
The Company enters into foreign currency forward exchange and option
contracts to manage exposures related to certain foreign currency commitments,
certain foreign currency denominated balance sheet positions and anticipated
foreign currency denominated expenditures. Gains and losses related to
qualifying accounting hedges of firm commitments or anticipated transactions are
deferred and are recognized in income or as adjustments of carrying amounts when
the hedged transaction occurs. Gains or losses on all other foreign currency
forward exchange and option contracts are recognized in the determination of
current period net income as a component of other income (expense). Gains and
losses resulting from the translation of foreign financial statements into U.S.
dollars have not had a significant effect on the results from operations for
1996, 1995 and 1994.
During the year ended June 28, 1996, the Company implemented Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121), which
did not have a material impact on the financial statements.
In October 1995, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 provides an alternative to APB Opinion 25,
"Accounting for Stock Issued to Employees" (APBO 25) and requires additional
disclosures. SFAS 123 is effective for the Company's fiscal year beginning June
29, 1996. The Company plans to continue to account for its employee stock plans
in accordance with the provisions of APBO 25 and provide the additional
disclosures required by SFAS 123. Accordingly, SFAS 123 is not expected to have
a material impact on the Company's financial position 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 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.
7
<PAGE>
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, was 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 payments expected
to begin in 1999. 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.
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 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 product development, introduction and production, 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 Litigation note to the consolidated financial statements.
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.
The Company is in the process of incorporating its software businesses
into a single entity called Seagate Software, Inc. and is offering selected
employees 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
8
<PAGE>
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 June 28, 1996, the Company's cash, cash equivalents and short-term
investments totaled $1,174,062,000, a decrease of $426,364,000 from the prior
year-end balances. This decrease was primarily a result of the Company's
additions to property, equipment and leasehold improvements, its business
acquisitions and the repurchase by the Company of 1,900,000 shares of its common
stock, partially offset by proceeds from employee stock option and stock
purchase plans and cash provided by operating activities. The Company's cash,
cash equivalents and short-term investments are being maintained in short-term
liquid investments until required for other purposes.
At June 28, 1996, inventories were $790,821,000, an increase of
$198,865,000 from the June 30, 1995 balance. This increase was primarily in
finished goods and was principally a result of shortfalls in sales of disc
drives with capacities of 850MB and less during the fourth quarter of fiscal
1996.
As of June 28, 1996, the Company had committed lines of credit of $69
million which can be used for standby letters of credit or bankers' guarantees.
At June 28, 1996, approximately $68 million had been utilized.
The Company made investments in property and equipment in 1996
totaling $975 million. This amount comprised $447 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,
$258 million for manufacturing facilities and equipment for the thin-film head
operations in the United States, Malaysia and Northern Ireland, $202 million for
expansion of the Company's media operations in California and Singapore and $68
million for other purposes. The Company presently anticipates investments of
approximately $1 billion in property and equipment in 1997. The Company plans to
finance these investments from existing cash balances and cash flows from
operations.
During the year ended June 28, 1996, the Company acquired 1,900,000
shares of its common stock for approximately $124 million. The repurchase of
these shares completed a stock repurchase program announced in July 1994 under
which 6,357,500 shares of the Company's common stock were acquired in the open
market.
The Company anticipates that users of computer systems will
increasingly rely upon client/server network computing environments and believes
that, as this reliance increases, users will demand software that more
efficiently and securely stores, manages and accesses data and turns it into
usable information. As such, the Company has broadened its core competencies to
include software products and technologies that meet these requirements. During
the year ended June 28, 1996, the Company acquired the outstanding minority
interest in Arcada Holdings, Inc. and acquired Sytron Corporation, both storage
management software companies, OnDemand Software, Inc. and Calypso Software
Systems, Inc., network management software companies and Holistic Systems Ltd.,
an information management software company.
In addition, during the year ended June 28, 1996, the Company acquired
Stormex, S.A. de C.V., a manufacturer of substrates.
The total cost of all businesses acquired for cash during the year
ended June 28, 1996, was $110,611,000 net of cash acquired, excluding
$20,800,000 of payments held in escrow pending the outcome of certain
contingencies relating to the acquisition of Holistic Systems Ltd. The Company
plans to continue its expansion into software and other complementary businesses
and therefore currently intends to pursue discussions with companies that fit
with its strategy. The Company plans to finance this expansion primarily through
cash flows from operations and existing cash balances. However, it is also
possible that the Company may utilize funds raised through equity or debt
financing.
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 the foreseeable future.
9
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
June 28, June 30,
In thousands except share data 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 503,754 $ 890,667
Short-term investments 670,308 709,759
Accounts receivable 1,066,519 1,113,415
Inventories 790,821 591,956
Deferred income taxes 222,355 177,592
Other current assets 145,523 125,785
---------- ----------
Total Current Assets 3,399,280 3,609,174
---------- ----------
Property, equipment and leasehold improvements, net 1,399,883 912,929
Goodwill and other intangibles, net 274,046 240,276
Other assets 166,426 137,453
---------- ----------
Total Assets $5,239,635 $4,899,832
========== ==========
Liabilities
Accounts payable $ 715,396 $ 748,294
Accrued employee compensation 180,126 156,313
Accrued expenses 305,044 217,806
Accrued warranty 185,708 133,443
Accrued income taxes 49,437 112,312
Current portion of long-term debt 2,425 13,782
---------- ----------
Total Current Liabilities 1,438,136 1,381,950
---------- ----------
Deferred income taxes 351,527 385,043
Warranty 140,670 116,833
Other liabilities 44,909 13,553
Long-term debt, less current portion 798,305 1,066,321
---------- ----------
Total Liabilities 2,773,547 2,963,700
---------- ----------
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $.01 par value-1,000,000 shares
authorized; none issued or outstanding - -
Common stock, $.01 par value - 200,000,000 shares authorized;
shares issued - 106,715,092 in 1996 and
97,052,534 in 1995 1,067 971
Additional paid-in capital 1,132,328 686,224
Retained earnings 1,391,389 1,275,410
Deferred compensation (57,656) (2,600)
Treasury common stock at cost, 856,234 shares in 1995 - (22,839)
Foreign currency translation adjustment (1,040) (1,034)
---------- ----------
Total Stockholders' Equity 2,466,088 1,936,132
---------- ----------
Total Liabilities and Stockholders' Equity $5,239,635 $4,899,832
========== ==========
</TABLE>
See notes to consolidated financial statements.
10
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended June 28, June 30, July 1,
In thousands except per share data 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $8,588,350 $7,256,209 $5,865,255
Cost of sales 7,007,349 5,882,824 4,694,434
Product development 420,429 353,506 302,849
Marketing and administrative 486,256 451,476 398,178
Amortization of goodwill and other intangibles 46,940 35,925 29,716
In-process research and development 98,687 73,177 5,000
Restructuring costs 241,720 - (38,019)
---------- ---------- ----------
Total Operating Expenses 8,301,381 6,796,908 5,392,158
---------- ---------- ----------
Income from Operations 286,969 459,301 473,097
Interest income 93,788 89,885 53,384
Interest expense (55,825) (70,332) (73,576)
Other 6,528 8,622 16,484
---------- ---------- ----------
Other Income (Expense), net 44,491 28,175 (3,708)
Income before income taxes and extraordinary gain 331,460 487,476 469,389
Provision for income taxes (118,199) (174,928) (139,704)
---------- ---------- ----------
Income before extraordinary gain 213,261 312,548 329,685
Extraordinary gain - 6,171 -
---------- ---------- ----------
Net Income $ 213,261 $ 318,719 $ 329,685
========== ========== ==========
Primary net income per share:
Income per share before extraordinary gain $ 2.06 $ 3.20 $ 3.43
Extraordinary gain per share - .06 -
---------- ---------- ----------
Primary net income per share $ 2.06 $ 3.26 $ 3.43
========== ========== ==========
Fully diluted net income per share:
Income per share before extraordinary gain $ 1.94 $ 2.85 $ 3.12
Extraordinary gain per share - .05 -
---------- ---------- ----------
Fully diluted net income per share $ 1.94 $ 2.90 $ 3.12
========== ========== ==========
Number of shares used in per share computations:
Primary 103,438 97,765 96,160
Fully diluted 118,136 123,571 117,967
</TABLE>
See notes to consolidated financial statements.
11
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended June 28, June 30, July 1,
In thousands 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 213,261 $ 318,719 $ 329,685
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 416,879 316,852 271,503
Deferred income taxes (84,533) (709) 61,400
In-process research and development 98,687 73,177 5,000
Gain from sale of building - (6,098) -
Gain on sale of Read-Rite Corporation common stock - - (22,294)
Extraordinary gain from early retirement of debt - (6,171) -
Other 34,078 2,861 (31,885)
Changes in operating assets and liabilities:
Accounts receivable (58,183) (335,963) (8,588)
Inventories (259,262) (42,641) (44,478)
Other current assets (29,243) (56,232) (21,968)
Accounts payable (15,609) 232,988 19,249
Accrued employee compensation 27,302 34,074 19,651
Accrued expenses 57,265 (27,690) 32,796
Accrued income taxes (15,573) 26,337 58,627
Other assets and liabilities 186,632 120,110 7,855
---------- ----------- -----------
Net cash provided by operating activities 571,701 649,614 676,553
Investing Activities
Acquisition of property, equipment and
leasehold improvements, net (906,937) (489,343) (292,695)
Purchases of short-term investments (3,024,487) (2,687,393) (1,528,879)
Maturities and sales of short-term investments 3,130,638 2,749,697 1,278,989
Acquisitions of businesses, net of cash acquired (110,611) (167,752) (8,500)
Equity investments (11,434) (29,811) -
Decrease (increase) in other non-current assets
and liabilities, net 37,861 1,296 (17,430)
Other, net (2) 25,068 (1,559)
---------- ----------- -----------
Net cash used in investing activities (884,972) (598,238) (570,074)
Financing Activities
Issuance of long-term debt - - 270,750
Repayment of long-term debt (15,556) (121,219) (46,168)
Sale of common stock 96,552 69,085 53,742
Purchase of treasury stock (123,727) (113,409) -
Other, net (93) - 41
---------- ----------- -----------
Net cash provided by (used in) financing activities (42,824) (165,543) 278,365
Effect of exchange rate changes on
cash and cash equivalents 1,088 (2,268) (1,335)
---------- ----------- -----------
Increase (decrease) in cash and cash equivalents (355,007) (116,435) 383,509
Elimination of Conner's net cash activity for the
duplicated six months ended December 31, 1995 (31,906) - -
Cash and cash equivalents at the beginning of the year 890,667 1,007,102 623,593
---------- ----------- -----------
Cash and cash equivalents at the end of the year $ 503,754 $ 890,667 $ 1,007,102
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the years ended Foreign
June 28, 1996, June 30, Common Stock Additional Treasury Currency
1995 and July 1, 1994 ----------------- Paid-In Common Deferred Translation Retained
In thousands Shares Amount Capital Stock Compensation Adjustment Earnings Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 2, 1993 90,505 $ 905 $ 564,275 $ - $ (6,935) $ (461) $ 671,046 $1,228,830
Sale of stock 4,778 48 53,694 53,742
Amortization of deferred
compensation 1,400 1,400
Income tax benefit from
stock options exercised 21,229 21,229
Merger with Crystal
Computer Services Inc. 737 7 (7) 397 397
Foreign currency
translation adjustment (583) (583)
Net income 329,685 329,685
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at July 1, 1994 96,020 960 639,191 - (5,535) (1,044) 1,001,128 1,634,700
Purchase of treasury stock
at cost (113,409) (113,409)
Sale of stock 1,033 11 23,950 90,570 (45,446) 69,085
Amortization of deferred
compensation 2,935 2,935
Income tax benefit from
stock options exercised 23,083 23,083
Foreign currency
translation adjustment 10 (4) 6
Unrealized gain on
marketable securities 1,013 1,013
Net income 318,719 318,719
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 97,053 971 686,224 (22,839) (2,600) (1,034) 1,275,410 1,936,132
Purchase of treasury
stock at cost (123,727) (123,727)
Sale of stock 3,421 34 76,332 40,480 (20,294) 96,552
Acquisition of Arcada 1,277 13 85,062 85,075
Issuance of restricted
stock, net of cancellations 1,010 10 58,619 (58,619) 10
Amortization of
deferred compensation 3,946 3,946
Income tax benefit from
stock options exercised 47,302 47,302
Conversion of 6-3/4%
debentures to common stock 4,615 46 199,656 106,086 (38,402) 267,386
Foreign currency
translation adjustment 4 (6) (2)
Unrealized loss on
marketable securities (1,335) (1,335)
Net Income 213,261 213,261
Elimination of Conner
activity for the duplicated
six months ended
December 31, 1995 (661) (7) (20,871) - (383) - (37,251) (58,512)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 28, 1996 106,715 $1,067 $1,132,328 $ - $(57,656) $ (1,040) $1,391,389 $2,466,088
===================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies
Nature of Operations. Seagate operates in a single industry segment by
designing, manufacturing and marketing products for storage, retrieval and
management of data on computer and data communications systems. These products
include disc drives and disc drive components, tape drives and software. The
Company sells its products to original equipment manufacturers for inclusion in
their computer systems or subsystems, and to distributors, resellers, dealers
and retailers.
As is typical in the disc drive industry, the Company's customer base
is concentrated with a small number of systems manufacturers and the Company is
not able to predict whether there will be any significant change in the demand
for its customers' products. The disc drive 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.
Accounting Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ materially from
those estimates.
The actual results with regard to warranty expenditures could have a
material unfavorable impact on the Company if the actual rate of unit failure or
the cost to repair a unit is greater than what the Company has used in
estimating the warranty expense accrual.
Given the volatility of the market, the Company makes adjustments to
the value of inventory based on estimates of potentially excess and obsolete
inventory after considering forecasted demand and forecasted average selling
prices. However, forecasts are subject to revisions, cancellations, and
rescheduling. Actual demand will inevitably differ from such anticipated demand,
and such differences may have a material effect on the financial statements.
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 1996
ended on June 28, 1996, fiscal 1995 ended on June 30, 1995 and fiscal 1994 ended
on July 1, 1994. All 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. Gains and losses on the
translation into U.S. dollars of amounts denominated in foreign currencies are
included in net income for those operations whose functional currency is the
U.S. dollar and as a separate component of stockholders' equity for those
operations whose functional currency is the local currency.
The Company may enter into foreign currency forward exchange and
option contracts to manage exposure related to certain foreign currency
commitments, certain foreign currency denominated balance sheet positions and
anticipated foreign currency denominated expenditures. Gains and losses related
to qualifying accounting hedges of firm commitments or anticipated transactions
are deferred and are recognized in income or as adjustments to the carrying
amounts when the hedged transaction occurs. Gains and losses on all other
forward exchange and option contracts are included in current period net income
as a component of other income (expense).
Revenue Recognition and Product Warranty. Revenue from sales of
products is generally recognized upon shipment to customers. The Company
warrants its products against defects in design, materials and workmanship
generally for three to five years depending upon the capacity category of the
disc drive, with the higher capacity products being warranted for the longer
periods. A provision for estimated future costs relating to warranty expense is
recorded when products are shipped.
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.
14
<PAGE>
Advertising Expense. The cost of advertising is expensed as incurred.
Advertising costs were not significant in 1996, 1995 or 1994.
Stock-Based Compensation. In October 1995, the Financial Accounting
Standards Board released Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123 provides an
alternative to APB Opinion 25, "Accounting for Stock Issued to Employees" (APBO
25) by requiring additional disclosure, and is effective for the Company's
fiscal year beginning June 29, 1996. The Company plans to continue to account
for its employee stock plans in accordance with the provisions of APBO 25 and
provide the additional disclosures required by SFAS 123. Accordingly, SFAS 123
is not expected to have a material impact on the Company's financial position or
results of operations.
Impairment of Assets. The Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121) during the year
ended June 28, 1996, which did not have a material impact on the financial
statements.
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. Common stock equivalents consist of stock options.
Fully diluted net income per share further assumes the conversion of the
Company's convertible subordinated debentures for the period they were
outstanding, unless such assumed conversion would result in anti-dilution.
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.
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.
Concentration of Credit Risk. As is typical in the disc drive
industry, the Company's customer base is concentrated with a small number of
systems manufacturers. 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 represents the excess of the
purchase price of acquired companies over the estimated fair value of the
tangible and intangible net assets acquired. The carrying value of goodwill is
reviewed if the facts and circumstances suggest that it may be impaired. If
this review indicates that goodwill will not be recoverable, as determined based
on the undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value of the goodwill is reduced by
the estimated shortfall of cash flows. Goodwill and other intangibles are being
amortized on a straight-line basis over periods ranging from one to fifteen
years. Accumulated amortization was $201,721,000 and $134,097,000 as of June
28, 1996 and June 30, 1995, respectively.
Financial Instruments
The following is a summary of available-for-sale securities at June 28, 1996:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
In thousands Cost Gain Loss Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Bonds $126,131 $ 111 $ (598) $125,644
U.S. Government Obligations 164,810 83 (577) 164,316
Commercial Paper 298,868 842 (1) 299,709
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
In thousands Cost Gain Loss Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Mutual Funds 111,522 - - 111,522
Municipal Bonds 90,463 61 (223) 90,301
Taxable Auction Rate Preferred Stock 121,123 - (23) 121,100
Euro/Yankee Time Deposits 85,918 3 - 85,921
-------- ------ ------- --------
Total $998,835 $1,100 $(1,422) $998,513
======== ====== ======= ========
Included in short-term investments $670,308
Included in cash and cash equivalents 328,205
--------
Total $998,513
========
</TABLE>
The following is a summary of available-for-sale securities at June 30, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
In thousands Cost Gain Loss Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Bonds $ 454,135 $ 522 $ (58) $ 454,599
U.S. Government Obligations 212,282 615 (116) 212,781
Commercial Paper 218,734 45 (10) 218,769
Money Market Mutual Funds 168,117 515 - 168,632
Municipal Bonds 116,600 46 - 116,646
Taxable Auction Rate Preferred Stock 169,099 - (546) 168,553
Euro/Yankee Time Deposits 63,435 - - 63,435
---------- ------ ----- ----------
Total $1,402,402 $1,743 $(730) $1,403,415
========== ====== ===== ==========
Included in short-term investments $ 709,759
Included in cash and cash equivalents 693,656
----------
Total $1,403,415
==========
</TABLE>
The gross realized gains and losses on the sale of available-for-sale
securities were immaterial for the years ended June 28, 1996 and June 30, 1995.
The fair value of the Company's investment in debt securities, by
contractual maturity, are as follows (in thousands):
<TABLE>
<CAPTION>
June 28, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Due in less than 1 year $534,258 $ 877,984
Due in 1 to 2-1/2 years 231,633 188,246
-------- ----------
Total $765,891 $1,066,230
======== ==========
</TABLE>
Fair Value Disclosures. The carrying value of cash and cash
equivalents approximates fair value. The fair values of short-term investments,
convertible subordinated debentures (see Long-Term Debt and Lines of Credit
footnote) and foreign currency forward exchange and option contracts are
estimated based on quoted market prices.
The carrying values and fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
In thousands June 28, 1996 June 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 503,754 $ 503,754 $ 890,667 $ 890,667
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
In thousands June 28, 1996 June 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-term investments 670,308 670,308 709,759 709,759
5 % convertible subordinated debentures, due 2003 270,750 469,413 270,750 422,370
6-1/2 % convertible subordinated debentures, due 2002 309,335 324,802 309,486 314,128
6-3/4 % convertible subordinated debentures, due 2012 - - 266,838 280,180
6-3/4 % convertible subordinated debentures, due 2001 209,141 211,232 209,412 207,318
7.7% note payable - - 10,000 10,000
Italian Lira debentures, 6% to 15-1/4% 8,755 8,755 9,822 9,822
Foreign currency forward exchange, option and written
option contracts (804) 3,302 - (4,142)
Other borrowings 335 335 948 950
</TABLE>
Derivative Financial Instruments. The Company enters into foreign
currency forward exchange and option contracts to manage exposure related to
certain foreign currency commitments, certain foreign currency denominated
balance sheet positions and anticipated foreign currency denominated
expenditures. The Company does not enter into derivative financial instruments
for trading purposes. At June 28, 1996, the Company had outstanding foreign
currency forward exchange and purchase option contracts totaling approximately
$857,000,000 and $220,000,000, respectively. These contracts, which mature at
various periods over the next 12 months, are hedges of cash flow requirements in
the Singapore dollar, Malaysian Ringgit and Thai Baht. In addition to the above,
at June 28, 1996, the Company has outstanding written option contracts maturing
in three months amounting to $30,000,000 for the purchase of Singapore dollars
to be used for ongoing operating requirements. The unrealized deferred loss on
the Company's foreign exchange contracts as of June 28, 1996, was not material.
While the contract or notional amounts of the Company's forward
exchange and option contracts provide one measure of the volume of these
transactions, they do not represent the amount of the Company's exposure to
credit risk. The amounts potentially subject to credit risk (arising from the
possible inability of counterparties to meet the terms of their contracts) are
generally limited to the amounts, if any, by which the counterparties'
obligations exceed the obligations of the Company. The Company controls credit
risk through credit approvals, limits and monitoring procedures. Credit rating
criteria used by the Company for off-balance-sheet transactions are similar to
those which it uses for investments.
Accounts Receivable
Accounts receivable are summarized below:
<TABLE>
<CAPTION>
In thousands 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable $1,133,175 $1,185,117
Less allowance for non-collection (66,656) (71,702)
---------- ----------
$1,066,519 $1,113,415
========== ==========
</TABLE>
Inventories
Inventories are summarized below:
<TABLE>
<CAPTION>
In thousands 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Components $295,169 $304,106
Work-in-process 138,854 110,798
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
In thousands 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finished goods 356,798 177,052
-------- --------
$790,821 $591,956
======== ========
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements consisted of the following:
<CAPTION>
Estimated
In thousands Useful Life 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 15,560 $ 52,448
Equipment 1-1/2 - 5 years 1,505,567 1,337,841
Building and leasehold improvements Life of lease - 556,026 311,453
30 years
Construction in progress 327,385 204,809
----------- ----------
2,404,538 1,906,551
Less accumulated depreciation and amortization (1,004,655) (993,622)
----------- ----------
$ 1,399,883 $ 912,929
=========== ==========
</TABLE>
Equipment and leasehold improvements include assets under capitalized
leases. Lease amortization is included in depreciation expense.
Depreciation expense was $330,213,000, $246,883,000 and $214,793,000
in 1996, 1995 and 1994, respectively.
Long-Term Debt and Lines of Credit
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
In thousands 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
6-3/4% convertible subordinated debentures, due 2012 $ - $ 266,838
5% convertible subordinated debentures, due 2003 270,750 270,750
6-1/2% convertible subordinated debentures, due 2002 309,335 309,486
6-3/4% convertible subordinated debentures, due 2001 209,141 209,412
Italian Lira debentures, 6% to 15-1/4% notes and loans
due through 2001 8,755 9,822
7.7% note payable to Ceridian Corporation, due October 1995 - 10,000
Capitalized lease obligations with interest at 14% to 19.25% collateralized
by certain manufacturing equipment and buildings 2,414 2,847
Other borrowings 335 948
-------- ----------
800,730 1,080,103
Less: Current portion 2,425 13,782
-------- ----------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
In thousands 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$798,305 $1,066,321
======== ==========
</TABLE>
At June 28, 1996, future minimum principal payments on long-term debt
and capitalized lease obligations were as follows:
<TABLE>
<CAPTION>
In thousands
- -------------------------------------------------------------------------------
<S> <C>
1997 $ 2,425
1998 2,460
1999 2,285
2000 1,496
2001 209,776
After 2001 582,288
--------
$800,730
========
</TABLE>
In February 1996, the Company called for a March 18, 1996 redemption
of all of its 6-3/4% Convertible Subordinated Debentures due 2012. Holders were
given the option to convert their debentures into shares of the Company's common
stock at a price of $42.50 per share through March 18, 1996, or have their
debentures redeemed at a total redemption price of $1,039.38 per $1,000
principal amount of debentures consisting of $1,013.50 principal amount plus
accrued interest of $25.88. Any debentures not converted by March 18, 1996, were
automatically redeemed. Approximately $265.5 million principal amount of the
debentures were converted to approximately 6.2 million shares and approximately
$1.1 million principal amount were redeemed.
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.
The Company's 6-1/2% convertible subordinated debentures due 2002 are
convertible into 5,696,777 shares of common stock at $54.30 per share.
Subsequent to March 1, 1995, the debentures are redeemable at the option of the
Company, in whole or in part, initially at 104.55% and thereafter at prices
declining to 100.65% at maturity, together with accrued interest. These
debentures were issued in an offering registered under the Securities Act of
1933.
The Company's 6-3/4% convertible subordinated debentures due 2001 are
convertible into 3,187,639 shares of common stock at $65.61 per share.
Subsequent to March 1, 1993, the debentures are redeemable at the option of the
Company, in whole or in part, initially at 105.40% and thereafter at prices
declining to 100.675% at maturity, together with accrued interest. These
debentures were issued in an offering registered under the Securities Act of
1933.
During the year ended June 30, 1995, the Company purchased at a
discount, certain of its 6.5% and 6.75% convertible subordinated debentures with
a face value of $56,102,000. The Company also prepaid and retired the remaining
$41,666,000 of its outstanding Series A and Series B Senior Notes with a
prepayment fee of $1,100,000. As a result of these transactions, the Company
recorded a net extraordinary gain for the year of $6,171,000 (net of applicable
income taxes of $4,288,000) or $0.05 per share on a fully diluted basis.
As of June 28, 1996, the Company had committed lines of credit of $69
million which can be used for standby letters of credit or bankers' guarantees.
At June 28, 1996, approximately $68 million had been utilized.
19
<PAGE>
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.
Following is a summary of stock option activity for the three years
ended June 28, 1996:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------------------------------
Aggregate
Exercise Price
Number Price Per Share
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance July 2, 1993 13,478,894 $225,136,752 $5.75-$60.803
Granted 4,094,616 100,726,565 11.742-60.803
Exercised (3,726,066) (38,779,140) 5.75-60.803
Canceled (1,049,570) (30,461,950) 5.75-60.803
---------- ------------ -------------
Balance July 1, 1994 12,797,874 256,622,227 5.75-60.803
Granted 3,401,637 93,322,451 11.742-57.975
Exercised (3,720,369) (50,574,457) 5.75-57.975
Canceled (1,795,327) (54,817,184) 7.50-57.975
---------- ------------ -------------
Balance June 30, 1995 10,683,815 244,553,037 5.75-60.803
Granted 5,528,991 246,613,673 .485-66.75
Exercised (3,084,115) (53,700,985) .485-66.75
Canceled (1,628,842) (46,498,803) .485-66.75
Elimination of Conner Activity for
the duplicated six months ended
December 31, 1995 350,163 9,898,520
---------- ------------
Balance June 28, 1996 11,850,012 $400,865,442 $ .485-$66.75
========== ============ =============
</TABLE>
At June 28, 1996, options outstanding included options to purchase
413,395 shares of the Company's common stock at prices ranging from $.485 to
$.55 per share. These options were originally granted to certain officers,
directors and employees of Arcada Software, Inc. ("Arcada") and its parent
company at their then fair market value and were later converted to Seagate
options in connection with the merger with Conner.
Options available for grant were 4,515,819 at June 28, 1996; 5,544,536
at June 30, 1995; and 7,221,801 at July 1, 1994. At June 28, 1996, options to
purchase 3,033,709 shares of common stock were exercisable.
The Company has an Executive Stock Plan under which senior executives
of the Company are granted the right to purchase shares of the Company's common
stock at $.01 per share. The difference between the fair market value of the
shares on the measurement date and the exercise price is recorded as deferred
compensation and is charged to operations over the vesting period of five or ten
years. In November 1995, the Company's Board of Directors granted 802,000 shares
under the plan, subject to stockholder approval of certain amendments to the
plan. These amendments included the addition of 1,000,000 shares to be issued
under the plan. In
20
<PAGE>
February 1996, such stockholder approval was obtained. Subsequently in May 1996,
an additional 208,250 shares were granted under the plan and at June 28, 1996,
239,750 shares were available for future grants. In addition, the Company has a
Restricted Stock Plan which also has a deferred compensation component. Under
this plan the deferred compensation is amortized over a period of seven years.
There are two employees remaining in the plan and no shares are available for
future grant. The aggregate amount charged to operations for amortization of
deferred compensation under both plans was $3,946,000, $2,935,000 and $1,400,000
in 1996, 1995 and 1994, respectively.
The Company also maintains an Employee Stock Purchase Plan. A total of
6,800,000 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, 564,443, 1,003,846 and 1,090,984 shares
of common stock were issued in 1996, 1995 and 1994, respectively.
Common stock reserved for future issuance under the Company's Stock
Option and Stock Purchase Plans aggregated 18,519,288 shares at June 28,1996.
In July 1995, the Board of Directors approved an amendment to the 1991
Incentive Stock Option plan to increase the number of shares of common stock
reserved for issuance thereunder by 6,000,000, which was then approved by the
stockholders at the 1995 Annual Meeting of Stockholders in October 1995.
Employee Profit Sharing and Executive Bonus Plans
The Company allocates a certain percentage of adjusted 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 adjusted 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 operations for
these Plans during 1996, 1995 and 1994 were $72,723,000, $62,891,000, and
$43,529,000, respectively.
Income Taxes
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
In thousands 1996 1995 1994
________________________________________________________________________________
<S> <C> <C> <C>
Current Tax Expense
Federal $167,586 $133,494 $ 50,949
State 28,123 27,773 14,907
Foreign 7,023 14,370 12,448
-------- -------- --------
202,732 175,637 78,304
-------- -------- --------
Deferred Tax Expense
Federal (76,075) (1,902) 55,812
State (8,405) (5,330) 5,737
Foreign (53) 6,523 (149)
-------- -------- --------
(84,533) (709) 61,400
-------- -------- --------
Provision for Income Taxes $118,199 $174,928 $139,704
======== ======== ========
</TABLE>
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 $47,302,000, $23,083,000 and $21,229,000 for 1996,
1995 and 1994, 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>
In thousands June 28, 1996 June 30, 1995
________________________________________________________________________________
<S> <C> <C>
Deferred Tax Assets
Warranty reserves $112,501 $ 90,023
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
In thousands June 28, 1996 June 30, 1995
________________________________________________________________________________
<S> <C> <C>
Inventory valuation accounts 46,176 34,314
Receivable reserves 31,727 27,639
Accrued compensation and benefits 29,596 27,040
Property reserves 22,611 7,015
Restructuring reserves 32,976 5,449
Other reserves and accruals 23,652 40,043
Net operating loss carryforwards 44,714 54,879
Other 5,185 10,181
-------- --------
Total Deferred Tax Assets 349,138 296,583
Valuation allowance (37,498) (22,436)
-------- --------
Net Deferred Tax Assets 311,640 274,147
-------- --------
Deferred Tax Liabilities
Unremitted income of foreign subsidiaries (416,848) (427,977)
Acquisition related items (11,457) (44,106)
Other (12,507) (9,515)
--------- ---------
Total Deferred Tax Liabilities (440,812) (481,598)
--------- ---------
Net Deferred Tax Liabilities $(129,172) $(207,451)
========= =========
As Reported on the Balance Sheet
Deferred Income Tax Assets $ 222,355 $ 177,592
========= =========
Deferred Income Tax Liabilities (351,527) (385,043)
--------- ---------
Net Deferred Tax Liabilities $(129,172) $(207,451)
========= =========
</TABLE>
The valuation allowance has been provided for deferred tax assets
related to the acquisition of certain software companies and net operating loss
carryforwards. The valuation allowance increased by $15,062,000 and $1,524,000
in 1996 and 1995, respectively.
The Company as of June 28, 1996, has pre-acquisition net operating
loss carryforwards of Archive and its subsidiaries of approximately $72,000,000
expiring 1997 through 2005. These losses may be used to offset future taxable
income, subject to an annual maximum limitation of approximately $12,000,000. In
addition, the Company has deferred tax assets of approximately $17,741,000
relating to various foreign net operating loss carryforwards which expire in
future years. A valuation reserve has been set up for the foreign net operating
losses because of the uncertainty of the Company's ability to utilize them.
The differences between the provision for income taxes at the U.S. statutory
rate and the effective rate are summarized as follows:
<TABLE>
<CAPTION>
In thousands 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision at U.S. statutory rate $116,012 $170,617 $164,286
State income taxes net of federal income tax benefit 10,472 14,408 13,242
Benefit from net earnings of foreign subsidiaries considered
to be permanently invested in non-U.S. operations (59,120) (67,118) (51,322)
Foreign income taxes 800 16,698 5,539
Write-off of in-process research and development 30,440 24,626 -
Non-deductible restructuring provision 18,008 - -
Other 1,587 15,697 7,959
-------- -------- --------
$118,199 $174,928 $139,704
======== ======== ========
</TABLE>
22
<PAGE>
A substantial portion of the Company's Far East manufacturing
operations in Singapore, Thailand, and Malaysia operate free of tax under
various tax holidays which expire in whole or in part during fiscal years 1997
through 1999. Certain tax holidays may be extended if specific conditions are
met. The Company's manufacturing operations in China operate under various tax
holidays expiring in 1997 and 2000. The net impact of these tax holidays was to
increase net income by approximately $50,398,000 ($0.43 per share, fully
diluted) in 1996, approximately $59,788,000 ($0.48 per share, fully diluted) in
1995, and approximately $45,802,000 ($0.39 per share, fully diluted) in 1994.
Cumulative undistributed earnings of the Company's Far East subsidiaries for
which no income taxes have been provided aggregated approximately $1,160,173,000
at June 28, 1996. These earnings are considered to be permanently invested in
non-U.S. operations. Additional state and federal taxes of approximately
$413,254,000 would have to be provided if these earnings were repatriated to the
U.S.
The Company successfully entered into settlement agreements with the
Internal Revenue Service (IRS) for Seagate's fiscal tax years 1988 through 1990
and Conner's tax years 1989 and 1990 for which the Company had previously filed
Petitions in the United States Tax Court contesting the deficiencies proposed by
the IRS. A majority of the proposed adjustments to income for Seagate's fiscal
years 1988 through 1990 related to the allocation of income between Seagate and
its foreign manufacturing subsidiaries. The IRS originally claimed a deficiency
in tax of approximately $66 million plus penalties and accrued interest of
approximately $65.9 million. In addition, the proposed income adjustments would
have eliminated net operating losses and tax credits that had been carried to
other fiscal years. The elimination of these losses and credits would have
resulted in additional taxes of approximately $22 million for the three years
ended July 2, 1993, plus accrued interest of approximately $7.3 million. Under
the settlement agreement filed with the Tax Court, Seagate paid additional taxes
of approximately $12.3 million for the fiscal years 1988 through 1990, plus
accrued interest of approximately $8.8 million. In addition, the Company paid
additional taxes of approximately $17.9 million for the three years ended July
2, 1993, plus accrued interest of approximately $6.3 million for adjustments to
net operating losses and tax credits that had been carried to these years. A
majority of the proposed adjustments to income for Conner's fiscal years 1989
and 1990 related to the allocation of income between Conner and its foreign
manufacturing subsidiaries. The IRS originally claimed a deficiency in tax of
approximately $43 million plus accrued interest of approximately $28 million.
Under the settlement agreement filed with the Tax Court, the Company paid
additional taxes of approximately $5.4 million for the years 1989 and 1990, plus
accrued interest of approximately $3.3 million. The results of the settlements
did not effect the Company's results of operations for fiscal 1996 and did not
have a material adverse effect on the Company's financial condition.
The Company's federal income tax returns for the fiscal years 1991
through 1993 are presently under examination by the IRS. Conner's federal income
tax returns for the fiscal years 1991 and 1992 are also under examination by the
IRS. In addition, the IRS is currently reviewing Archive and its subsidiaries'
federal income tax returns for 1985 through 1992. Certain foreign and state tax
returns for fiscal years 1990 through 1994 are also under examination by taxing
authorities. Management believes that adequate amounts of tax have been provided
for any final assessments which may result from these examinations.
Merger with Conner
In October 1995, the Company and Conner Peripherals, Inc. ("Conner")
signed a definitive agreement to merge the two companies. On February 2, 1996,
the merger was consummated 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 as a pooling of interests and, accordingly, all prior periods
presented in the accompanying consolidated financial statements have been
restated to include the accounts and operations of Conner. Conner designs,
manufactures and sells information storage products including disc drives, tape
drives and storage management software.
Because of differing fiscal year ends of the two companies, the
consolidated statements of income combine Seagate's twelve months ended June 28,
1996, June 30, 1995 and July 1, 1994 with Conner's twelve months ended June 28,
1996, December 31, 1995 and December 31, 1994, respectively. The consolidated
balance sheets combine Seagate's June 28, 1996 and June 30, 1995 periods with
Conner's June 28, 1996 and December 31, 1995 periods, respectively. Combined and
separate results of the Company and Conner for the periods prior to the
acquisition were as follows:
23
<PAGE>
<TABLE>
<CAPTION>
Twelve Months Ended
In thousands June 28, 1996 June 30, 1995 July 1, 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales:
Prior to December 30, 1995:
Seagate $3,016,590 $4,539,570 $3,500,103
Conner 1,463,906 2,716,639 2,365,152
Combined results after December 29, 1995 4,107,854 - -
---------- ---------- ----------
$8,588,350 $7,256,209 $5,865,255
========== ========== ==========
Extraordinary Gain:
Prior to December 30, 1995:
Seagate $ - $ - $ -
Conner - 6,171 -
Combined results after December 29, 1995 - - -
---------- ---------- ----------
$ - $ 6,171 $ -
=========== ========== ==========
Net Income:
Prior to December 30, 1995:
Seagate $ 232,473 $ 259,651 $ 222,526
Conner 37,251 59,068 107,159
Combined results after December 29, 1995 (56,463) - -
---------- ---------- ----------
$ 213,261 $ 318,719 $ 329,685
========== ========== ==========
</TABLE>
The combined net loss after December 29, 1995 (see table above) of
$56,463,000 includes a $168,425,000 restructuring charge, net of related tax
effect, as a result of the merger with Conner and a $88,779,000 write-off of in-
process research and development, net of related tax effect, incurred in
connection with the acquisitions of software companies.
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, which were not material to any period presented, were
made to conform accounting practices of the two companies.
Previously, Conner's fiscal year ended on the Saturday closest to
December 31. To change Conner's fiscal year end to conform with Seagate's June
28, 1996 fiscal year end, the operating results of Conner for the six months
ended December 31, 1995 are included in the consolidated statement of income for
both fiscal years 1996 and 1995. The Conner results of operations for the six
months ended December 30, 1995 were as follows:
<TABLE>
<CAPTION>
Six Months Ended
In thousands December 30, 1995
- ----------------------------------------------------------------------------
<S> <C>
Net sales $1,463,906
Operating expenses 1,403,098
Other income (expense) (4,501)
Net income 37,251
</TABLE>
Acquisitions
In connection with the merger with Conner, on February 16, 1996, the
Company acquired the minority interest in Arcada Holdings, Inc. ("Arcada"),
formerly a majority-owned subsidiary of Conner. Seagate acquired the minority
interest in Arcada by exchanging 1,276,670 shares of Seagate common stock and
options to purchase 906,968 shares of Seagate common stock (equivalent to
approximately $85,075,000, net of the exercise proceeds of the options acquired,
based on a market value of $40.74 per share of Seagate common stock) for all the
outstanding common stock and options to purchase common stock of Arcada. Arcada
develops, markets and supports data protection and storage management software
products that operate across multiple desktop and client/server environments.
This acquisition was accounted for as a purchase and, accordingly, the results
of operations of the minority interest have been included in the consolidated
financial statements from the date of acquisition of such minority interest.
Goodwill and other intangibles arising from the acquisition are being amortized
on a straight-line basis over periods ranging from two to seven years. As a
result of the acquisition, the Company incurred a one-time write-off of in-
process research and development of $43,900,000.
During the year ended June 28, 1996, the Company acquired Sytron
Corporation, a storage management software company, OnDemand Software, Inc. and
Calypso Software Systems, Inc., both network management software companies,
Holistic Systems Ltd., an information management software company, and Stormex,
S.A. de C.V., a media substrate manufacturer. These acquisitions were accounted
for as purchases and, accordingly, the results of operations of the acquired
businesses have been included in the consolidated financial statements from the
24
<PAGE>
date of acquisition. The total cost of all businesses acquired for cash was
$110,611,000, net of cash acquired, excluding $20,800,000 of payments held in
escrow pending the outcome of certain contingencies relating to the acquisition
of Holistic Systems Ltd. Goodwill and other intangibles arising from the
acquisitions are being amortized on a straight-line basis over periods ranging
from one to seven years. As a result of the acquisitions, the Company incurred
one time write-offs of in-process research and development totaling $98,687,000.
Pending the outcome of the contingent payments relating to the acquisition of
Holistic Systems Ltd., the Company may record additional write-offs of in-
process research and development and additional goodwill and other intangibles
in fiscal 1997. The operations of the acquired companies prior to the date of
acquisition were not material to the Company's net sales or net income.
During the same period the Company increased its investment in SanDisk
Corporation, a flash memory manufacturer, by $10,086,000. Goodwill arising from
the equity investment is being amortized on a straight-line basis over seven
years.
Restructuring Costs
During 1996, the Company recorded restructuring charges totaling
$241,720,000 as a result of the merger with Conner Peripherals, Inc. ("Conner").
The restructuring charges were incurred for the reduction of personnel whose
duties were made redundant, write-off or write down of equipment, inventory,
intangibles and other assets, closure of duplicate and excess facilities, fees
of financial advisors, attorneys and accountants and contract cancellations and
other expenses. In connection with the restructure, the Company currently
expects a total workforce reduction of approximately 3,650 employees. Of that
number, 660 have been terminated.
During fiscal year 1993, restructuring charges totaling $106,457,000
resulted from the Company's decision to reduce excess manufacturing capacity to
a level more consistent with sustainable demand, to streamline operations as
well as administrative processes to reduce the Company's cost structure and to
further integrate and reduce selling, general and administrative and research
and development activities of both the disc and tape drive operations. As part
of this restructuring, the Company, had decided to close certain of its
manufacturing operations.
During 1994, the Company lowered its estimate of the total cost of
restructuring and recorded an adjustment to its restructuring reserves thereby
increasing operating income by $38,019,000. This reduction resulted from the
modification of the Company's operating plans, primarily the decision to cancel
the closure of certain manufacturing operations due to changing business
conditions. These changing business conditions primarily pertained to the
improvement in local economies, the reduction in manufacturing cost benefits
achieved by shifting production to other locations and certain other strategic
benefits realized by maintaining a local presence. As of June 30, 1995, the
Company had executed primarily all of its actions relating to the 1993
restructuring.
The following table summarizes the Company's restructuring activity
for the three years ended June 28, 1996:
<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,
July 2, 1993 $ 15,326 $ 27,888 $ 22,990 $ 134 $ 42 $ 66,380
Cash charges (3,824) (2,126) (7,617) (134) (42) (13,743)
Non-cash charges - (240) (6,829) - - (7,069)
Adjustments (9,482) (21,595) (6,942) - - (38,019)
-------- -------- -------- -------- ------- --------
Reserve balances,
July 1, 1994 2,020 3,927 1,602 - - 7,549
Cash charges (1,727) (388) (84) - - (2,199)
Non-cash charges - (300) - - - (300)
-------- -------- -------- -------- ------- --------
Reserve balances,
June 30, 1995 293 3,239 1,518 - - 5,050
</TABLE>
25
<PAGE>
<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>
1996 restructuring charges 60,714 45,138 97,209 23,980 14,679 241,720
Cash charges (27,737) (1,338) (963) (20,795) (4,614) (55,447)
Non-cash charges (917) (12,451) (85,721) - (273) (99,362)
Elimination of Conner
activity for the six
months ended 12/31/95 813 731 (89) - - 1,455
-------- -------- -------- -------- ------- --------
Reserve balances,
June 28, 1996 $ 33,166 $ 35,319 $ 11,954 $ 3,185 $ 9,792 $ 93,416
======== ======== ======== ======== ======= ========
</TABLE>
Business Segment and Geographic Information
The Company operates in a single industry segment by designing,
manufacturing and marketing products for storage, retrieval and management of
data on computer and data communications systems. These products include disc
drives and disc drive components, tape drives and software.
The following tables summarize the Company's operations in different
geographic areas:
<TABLE>
<CAPTION>
Adjustments
Year Ended June 28, 1996 United Far and
In thousands States East Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $5,888,205 $2,700,145 $ - $8,588,350
Transfers between geographic areas 1,272,067 6,247,630 (7,519,697) -
Total net sales $7,160,272 $8,947,775 $(7,519,697) $8,588,350
========== ========== ========== ==========
Income (loss) from operations $ (76,805) $ 363,774 $ - $ 286,969
Other income (expense), net (63) 44,554 - 44,491
---------- ---------- ---------- ----------
Income (loss) before income taxes $ (76,868) $ 408,328 $ - $ 331,460
========== ========== ========== ==========
Identifiable assets $2,310,876 $2,928,759 $ - $5,239,635
========== ========== ========== ==========
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Adjustments
Year Ended June 30, 1995 United Far and
In thousands States East Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $5,167,408 $2,088,801 $ - $7,256,209
Transfers between geographic areas 1,120,720 4,217,003 (5,337,723) -
---------- ---------- ----------- ----------
Total net sales $6,288,128 $6,305,804 $(5,337,723) $7,256,209
========== ========== =========== ==========
Income from operations $ 74,871 $ 384,430 $ - $ 459,301
Other income (expense), net (25,143) 53,318 - 28,175
---------- ---------- ----------- ----------
Income before income taxes $ 49,728 $ 437,748 $ - $ 487,476
========== ========== =========== ==========
Identifiable assets $3,052,136 $1,847,696 $ - $4,899,832
========== ========== ============ ==========
<CAPTION>
Adjustments
Year Ended July 1, 1994 United Far and
In thousands States East Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $3,969,619 $1,895,636 $ - $5,865,255
Transfers between geographic areas 840,853 3,132,588 (3,973,441) -
---------- ---------- ----------- ----------
Total net sales $4,810,472 $5,028,224 $(3,973,441) $5,865,255
========== ========== =========== ==========
Income from operations $ 60,498 $ 412,599 $ - $ 473,097
Other income (expense), net (27,706) 23,998 - (3,708)
---------- ---------- ----------- ----------
Income before income taxes $ 32,792 $ 436,597 $ - $ 469,389
========== ========== =========== ==========
Identifiable assets $2,773,093 $1,534,844 $ - $4,307,937
========== ========== ============ ==========
</TABLE>
Sales and transfers between geographic areas are accounted for at
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
1996 or 1995. In 1994 one customer accounted for more than 10% of consolidated
net sales for a total of $617,977,000.
Net foreign currency transaction gains (losses) included in the
determination of net income were ($7,794,000), $4,287,000 and $1,649,000 for
1996, 1995 and 1994, 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. On February 8, 1995 the Court granted
defendants summary judgment completely
27
<PAGE>
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.
All briefing has been completed and a hearing on the matter has been scheduled
for September 18, 1996.
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 who vacated the February 10, 1997 trial
date. The newly reassigned U.S. District Court Judge resigned his position and
the Company recently learned of the assignment of this matter to another U.S.
District Court Judge. No trial date has been set.
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. Discovery is
continuing and the Court has not set a trial date.
The Company believes the 1988, 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 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 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
28
<PAGE>
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. Prior to the reassignment, the
Court granted the Company leave to file two additional motions for summary
judgment, one is directed to the two remaining state causes of action in the
case, and the other is directed to the Company's intervening rights in the ST157
product family. Rodime was also granted leave to file one motion for summary
judgment directed to the Company's defense of inequitable conduct. The Court
has yet to schedule a final hearing on the parties' motions for summary
judgment, but has scheduled a Pretrial Conference for October 9, 1996 and a
trial to commence on October 22, 1996. 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.
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. Although the trial
concluded on July 31, 1996, 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.
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 operating leases with initial or
remaining terms of one year or more were as follows at June 28,1996:
29
<PAGE>
<TABLE>
<CAPTION>
Operating
In thousands Leases
- -------------------------------------------------------------------------------
<S> <C>
1997 $ 49,291
1998 44,367
1999 36,181
2000 28,327
2001 13,185
After 2001 108,940
--------
$280,291
========
</TABLE>
Total rent expense for all land, facility and equipment operating
leases was approximately $44,781,000, $49,313,000 and $45,767,000 for 1996, 1995
and 1994, respectively.
Capital Expenditures. The Company's commitments for construction of
manufacturing facilities and equipment approximated $193,000,000 at June 28,
1996.
Supplemental Cash Flow Information
<TABLE>
<CAPTION>
In thousands 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Transactions:
Cash paid for interest $ 64,422 $ 74,670 $73,317
Cash paid for income taxes 207,767 152,642 35,842
Non-Cash Transactions:
Conversion of 6-3/4% debentures 265,500 - -
Receipt of note receivable for sale of building - - 5,000
</TABLE>
30
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Seagate Technology, Inc.
We have audited the accompanying consolidated balance sheets of
Seagate Technology, Inc. and subsidiaries as of June 28, 1996 and June 30, 1995,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended June 28, 1996. These
consolidated 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 did not audit the financial statements of
Conner Peripherals, Inc. and subsidiaries, which statements reflect total assets
constituting 32.1% of the related 1995 consolidated financial statement total
and which statements reflect net income constituting approximately 19.4% and
33.3% of the related 1995 and 1994 consolidated financial statement totals,
respectively. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to data included
for Conner Peripherals, Inc. and subsidiaries, is based solely on the report of
the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits, and for 1995 and 1994 the report
of other auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Seagate Technology, Inc. and subsidiaries at June 28, 1996 and June 30, 1995,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended June 28, 1996, in conformity with generally
accepted accounting principles.
San Jose, California Ernst & Young LLP
July 16, 1996, except for the first paragraph of the Patent Litigation note as
to which the date is July 19, 1996 and the first paragraph of the Business
Litigation note as to which the date is July 31, 1996.
31
