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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(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 ____________ TO ______________
COMMISSION FILE NO. 0-10630
SEAGATE TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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
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Securities registered pursuant to Section 12 (b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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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
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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PART I
The information contained in this Report includes forward-looking
statements, based on current expectations, that involve risks and
uncertainties which could cause actual results to differ materially from those
expressed in the forward-looking statements. Various important factors known
to Seagate Technology, Inc. that could cause such material differences are
identified below in Part I, Item 1 of this report and in the "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
included in the Company's 1996 Annual Report to Stockholders, which is
incorporated by reference into Part II, Item 7 of this Report.
ITEM 1. BUSINESS
MERGER WITH CONNER
Effective February 2, 1996 Seagate Technology, Inc. (herein "Seagate
Technology," "Seagate" or 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. To effect the combination Seagate issued 24,478,022
shares of its common stock in exchange for all of 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. In connection with the merger, 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 for all the outstanding common
stock and options to purchase common stock of Arcada. See "Software
Expansion."
GENERAL
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.
Seagate designs, manufactures and markets a broad line of rigid magnetic
disc drives for use in computer systems ranging from notebook computers and
desktop personal computers to workstations and supercomputers as well as in
multimedia applications such as digital video and video-on-demand. The
Company's products include rigid disc drive models with form factors from 2.5
to 5.25 inches and capacities from 540 megabytes to 9 gigabytes. The Company
sells its products to original equipment manufacturers ("OEMs") for inclusion
in their computer systems or subsystems, and to distributors, resellers and
dealers. The Company has pursued a strategy of vertical integration and
accordingly designs and manufactures rigid disc drive components including
recording heads, discs, substrates, motors and custom integrated circuits. It
also assembles certain of the key subassemblies for use in its products
including printed circuit board and head stack assemblies. The Company's
products are currently manufactured primarily in the Far East with limited
production in the United States and the Republic of Ireland.
In addition to pursuing its core rigid disc drive business, the Company has
been broadening its business strategy as a data technology company to more
fully address the markets for storage, retrieval and management of data. In
this regard, the Company has implemented a strategy to establish itself as a
leading supplier of selected magnetic recording components, including thin-
film heads, to other manufacturers. In line with this strategy the Company, in
December 1994, acquired Applied Magnetics Corporation's tape head subsidiary,
a manufacturer of magnetic recording tape heads for digital data storage. The
Company has also invested in, and currently intends to continue investigating
opportunities to invest in software activities. See "Software Expansion."
Finally, the Company has entered the tape drive business as a result of its
merger with Conner and its broadened strategy may include expanding its
traditional rigid disc drive business to include other forms of
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data storage and retrieval products, such as flash memory, where the Company
has made a significant investment in SanDisk Corporation ("SanDisk"), a flash
memory company. The Company anticipates that this broadened strategy may
include additional acquisitions of, investments in and strategic alliances
with complementary businesses, products and technologies.
SOFTWARE EXPANSION
The Company is seeking to leverage its name recognition, existing presence
in global markets, distribution channels and OEM relationships by offering
software products directed towards the client/server and network computing
environments.
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 transforms it into usable
information. As such, the Company is broadening its core competencies to
include software products and technologies to meet these requirements.
The Company has acquired or has taken equity positions in several software
companies since May 1994. Company acquisitions and equity investments prior to
fiscal 1996 include Crystal Computer Services, Inc., Dragon Systems, Inc.,
Palindrome Corporation, Network Computing, Inc., NetLabs, Inc., Frye Computer
Systems, Inc., and Creative Interaction Technologies, Inc. Fiscal 1996
acquisitions include OnDemand Software, Inc., Calypso Software Systems, Inc.
and Holistic Systems, Ltd. In addition, the Company's software products and
technologies were further expanded as a result of the merger with Conner and
its Arcada Software subsidiary.
To further facilitate the software expansion strategy, Seagate Software,
Inc. a wholly-owned subsidiary of Seagate Technology, was established in April
1996. Headquartered in Scotts Valley, California, Seagate Software is
comprised of three operating groups, each focused on strategically critical
areas of LAN, intranet and enterprise client/server environments.
Seagate Software, Storage Management Group (SMG) was formed in February 1996
by combining the resources of Seagate's wholly-owned subsidiary Palindrome
Corporation with Arcada Software. SMG provides storage management software
products for backup, archiving, hierarchical storage management (HSM) and
disaster recovery in Novell NetWare, Microsoft Windows NT, Microsoft Windows
95, Microsoft Windows 3.X, IBM OS/2, UNIX and DOS environments.
Seagate Software, Network and Systems Management Group (NSMG), previously
Seagate Enterprise Management Software (SEMS), was formed in July 1996, and is
the combination of NetLabs, Inc., Network Computing, Inc., Frye Computer
Services, Inc., Creative Interaction Technologies, Inc., OnDemand Software,
Inc., and Calypso Software Systems, Inc. NSMG provides comprehensive solutions
for LAN, intranet and enterprise-wide client/server network and systems
management in Novell NetWare, Microsoft Windows NT, Microsoft Windows 95,
Microsoft Windows 3.X, UNIX and DOS based environments.
Seagate Software, Information Management Group (IMG) was established in June
1996 and includes Crystal Computer Services, Inc., and Holistic Systems, Ltd.
IMG provides enterprise business intelligence systems and provides customers
with information access and analysis offerings that scale from the desktop to
the enterprise including: query and reporting, automated report scheduling and
distribution, information delivery across the World Wide Web, on-line
analytical processing (OLAP), forecasting, statistical analysis, discovery and
data mining.
Seagate 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's strategy includes
acquiring companies that possess technology and development personnel which
provide long-term growth
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potential to the Company's software business. However, implementation of this
broadened strategy entails risks of entering markets in which the Company may
have limited or no experience. In addition, such broadened strategy could
result in the diversion of management's attention from the core rigid disc
drive business which could adversely impact the core business. The broadened
strategy has entailed and may continue to entail acquisitions of, or
investments in, businesses, products and technologies. Acquisitions involve
numerous risks, including difficulties in the assimilation of the operations
and products of the acquired businesses, retention of management and the
potential loss of key employees or customers of the acquired businesses.
RIGID DISC DRIVE TECHNOLOGY
Magnetic disc drives are used in computer systems to record, store and
retrieve digital information. Most computer applications require access to a
greater volume of data than can economically be stored in the random access
memory of the computer's central processing unit (commonly known as
"semiconductor" memory). This information can be stored on a variety of
storage devices, including rigid disc drives, both fixed and removable,
flexible disc drives, magnetic tape drives, optical disc drives and
semiconductor memory. Rigid disc drives provide access to large volumes of
information faster than optical disc drives, flexible disc drives or magnetic
tape drives and at substantially lower cost than high-speed semiconductor
memory.
Although products vary, all rigid disc drives incorporate the same basic
technology. One or more rigid discs are attached to a spindle assembly that
rotates the discs at a high constant speed around a hub. The discs, or media,
are the components on which data is stored and from which it is retrieved.
Each disc typically consists of a substrate of finely machined aluminum or
glass with a magnetic layer of a "thin-film" metallic material.
Rigid disc drive performance is commonly measured by four key
characteristics: average seek time (commonly expressed in milliseconds), which
is the time needed to position the heads over a selected track on the disc
surface; internal data transfer rate (commonly expressed in megabits per
second), which is the rate at which data is transferred to and from the disc;
storage capacity (commonly expressed in megabytes), which is the amount of
data that can be stored on the disc; and spindle rotational speed (commonly
expressed in revolutions per minute), which has an effect on speed of access
to data.
Read/write heads, mounted on an arm assembly similar in concept to that of a
record player, fly extremely close to each disc surface, and record data on
and retrieve it from concentric tracks in the magnetic layers of the rotating
discs.
Upon instructions from the drive's electronic circuitry, a head positioning
mechanism (an "actuator") guides the heads to the selected track of a disc
where the data will be recorded or retrieved. The disc drive communicates with
the host computer through an internal controller. Disc drive manufacturers may
use one or more of several industry standard interfaces, such as SCSI (Small
Computer System Interface), ATA (AT Attachment), and FC-AL (Fibre Channel-
Arbitrated Loop).
Areal density is a measure of storage capacity per square inch on the
recording surface of a disc. It represents the number of bits of information
on a linear inch of the recording track (called bits per inch or bpi)
multiplied by the number of recording tracks on a radial inch of the disc.
With the proliferation of multimedia applications, the demand for increased
areal densities has and continues to increase at an accelerating rate since
sound and moving pictures require many times the storage capacity of simple
text. The Company has and continues to aggressively pursue a range of
technologies to increase areal densities across the entire range of its
products. As a result, Seagate drives today use advanced signal processing
techniques such as PRML (Partial Response Maximum Likelihood) read/write
channels, advanced servo systems, higher precision mechanics, and advanced
head technologies. To attain greater areal densities, the Company currently is
incorporating magneto-resistive ("MR") heads into its 9 GB Barracuda drive,
its 4 GB Barracuda 4LP drive, its 1.3 GB Marathon 1350sl drive and its 810 MB
Marathon 810sl drive, as well as into future products. MR heads have discrete
read and write structures which take advantage of special magnetic properties
in certain metals to achieve significantly higher storage capacities. There
can be no assurance that the Company's efforts to migrate its products to use
MR heads will be successful. See "Product Development."
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MARKET OVERVIEW
Rigid disc drives are used in a broad range of computer systems as well as
for multimedia applications such as digital video and video-on-demand. The
Company defines the major computer system markets to include mobile computers,
desktop personal computers, workstation systems and server/multi-user systems.
Users of computer systems are increasingly demanding additional data storage
capacity with higher performance in order to (i) use more sophisticated
applications software, including database management, CAD/CAM/CAE, desktop
publishing, video editing and enhanced graphics applications, and (ii) operate
in multi-user, multitasking and multimedia environments. Additionally, there
is a sizable market for rigid disc drives in the existing installed base of
computer systems some of which require additional storage capacity. This
demand can be served through authorized distribution channels.
Personal Computers -- Desktop and Mobile
Desktop and portable personal computers are used in a number of
environments, ranging from homes to businesses and multi-user networks.
Software applications are primarily word processing, spreadsheet, desktop
publishing, database management, multimedia and other related applications.
The Company believes the minimum storage requirements in the past year for
entry-level personal computers were generally 850 megabytes ("MB") to 1.2 GB
of formatted capacity with seek times ranging from 14 milliseconds ("msec")
down to 10.5 msec. The entry level capacities continue to increase. In
addition, users of personal computers have become increasingly price
sensitive. The Company's objective for the desktop and mobile personal
computer market is to design drives for high-volume, low-cost manufacture.
Smaller footprint systems, such as mobile, laptop, notebook and sub-notebook
computers require rigid disc drives in form factors of less than 3.5 inches
that emphasize durability and low power consumption in addition to capacity
and other performance characteristics found in their desktop functional
equivalents. Personal digital assistants, hand-held and pen-based computers
may use 1.8 or 2.5 inch hard disc drives or flash memory in the form of a
PCMCIA card for additional memory. These applications also emphasize low power
consumption as well as very high degrees of durability.
Workstation Systems
Workstation systems include high performance microcomputers, technical
workstations, servers and minicomputers. Applications are characterized by
compute- and data-intensive solutions, such as CAD/CAM/CAE, network
management, larger database management systems, scientific applications and
small to medium-sized business applications such as materials requirement
planning, payroll, general ledger systems and related management reports.
Workstation systems typically require rigid disc drive storage capacities of
2 gigabytes ("GB") and greater per drive, average seek times of 8-9 msec and
rotational speeds of 5400 RPMs to 7200 RPMs. Due to the leading edge
characteristics required by end-users of workstation systems, manufacturers of
such systems emphasize performance as well as price as the key selling points.
Server/Multi-user Systems
Large systems include mainframes and supercomputers. Typical applications
are medium and large business management systems, transaction processing,
parallel processing applications and other applications requiring intensive
data manipulation. Also inclusive in high-end applications are systems
designed for video-on-demand and near-line storage.
Users of these systems generally require capacities of 4 GB and greater per
drive with average seek times of 8-9 msec and rotational speeds of 7200 RPMs.
End-users of large systems are less concerned than users of smaller systems
with the size, weight, power consumption and absolute cost of the drive. As
with workstation systems, disc drive products are typically designed into
these systems by the OEM with emphasis on performance, reliability and
capacity. In this market segment, data storage subsystems are used containing
large
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numbers of spindles. Because data integrity is paramount, high device
reliability and maintainability are key features. Mainframe, supercomputer and
digital video systems also benefit from very high device data transfer rates
(up to ten times that in small computer systems).
PRODUCTS
RIGID DISC DRIVES
The Company's products include over 50 rigid disc drive models with form
factors from 2.5 to 5.25 inches and capacities from 540 megabytes to 9
gigabytes. The Company provides more than one product at some capacity points
and differentiates products on a price/performance and form factor basis. The
Company believes that its broad range of rigid disc drives is particularly
appealing to customers, such as large OEMs, which require a wide variety of
drive capacities, performance levels and interfaces. Producing for several
market segments also broadens the Company's customer base and reduces the
Company's reliance on any one segment of the computer market. The Company
continues to devote its resources to developing products with industry leading
performance characteristics and to being among the first to introduce such
products to market. The Company continuously seeks to enhance its market
presence in emerging segments of the rigid disc drive market by drawing on its
established capabilities in high-volume, low-cost production. The Company
believes it offers the broadest range of disc storage products available.
Mobile Computing
Announcement of the Company's first 2.5-inch family of drives occurred in
November 1990 with the ST9096 family. The Company has continued to expand its
2.5-inch family with two different form factors, the full-height and the slim-
line. At 19 mm, the full-height form factor addresses the highest capacity
segment of the mobile computing market. Seagate has also continued to provide
slim-line hard drives at 12.7 mm for applications most sensitive to size and
weight. In November 1992, the Company introduced a patented shock sensing
technology called SafeRite(TM). SafeRite technology provides better user data
protection over a broader range of operational shock by helping to prevent the
drive from writing data "off track." This technology is available in all of
the Company's 2.5 inch drives.
In October 1993 the Company announced its ST9550 family of 19 mm high drives
in 455 MB and 341 MB capacities. In 1994 the 19 mm form factor was expanded to
520 MB in the ST9655. Also during 1994, the product line was renamed Marathon,
and the 12.7 mm high form factor was expanded to 420 MB as the Marathon 420sl.
In February 1995 the Company announced the Marathon 810. This 810 MB product
resulted from application of the Marathon 420sl technology to the 19 mm form
factor. Volume production of the Marathon 810 commenced during the first
quarter of fiscal 1996.
In February 1996, the Company announced the Marathon 1350sl and 840sl in the
12.7 mm height form factor in capacities of 1.3 GB and 840 MB, respectively.
These two models are expected to begin volume production in the second quarter
of fiscal 1997.
In June 1996 the Company announced the Marathon 810sl. This product features
810 MB in the 12.7 mm form factor and represents an enhancement of the
Marathon 420sl product through the use of MR (magneto-resistive) heads among
other things. Volume production of the Marathon 810sl commenced during the
first quarter of fiscal 1997.
Future plans for disc drives for the mobile computing market segment include
continued higher capacities and lower cost designs as demand for notebook
storage continues to follow trends similar to those of desktop systems.
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Desktop Computing
In fiscal 1996 the Company continued to introduce new disc drive products
for the desktop computing market. In the first quarter of fiscal 1996 the
Company began volume production of the Medalist 1080sl, model ST51080A. The
slim-line, 19mm high, Medalist SL product brought a 1.08 GB performance class
drive into the value PC segment in both a Fast ATA-2 and Fast SCSI-2
interface. The design was leveraged from the Decathlon 850.
During the second quarter of fiscal 1996 volume production commenced on the
Medalist 630xe, (ST3630A). This 630 MB hard drive is an eighth generation
product from the Medalist XE and former ST3491 families and is cost optimized
for the entry level PC market.
In May 1995 the Company announced the Medalist 2140 (ST32140A), a high
performance 2 GB disc drive. It features a 5,400 RPM rotational speed, 10 msec
average seek time, 500,000 hour MTBF (mean time between failures) and low
power consumption. The Medalist 2140 went into volume production in the second
quarter of fiscal 1996.
In October 1995 the Company announced the 1.2 GB Medalist 1270sl (ST51270A).
This product was leveraged from the Medalist 1080sl and has the same
performance features including 5,400 RPM rotational speed, 10.5 msec seek
time, 128K cache buffer, low acoustics and power management. This product went
into volume production in the third quarter of fiscal 1996.
In February 1996 the Company announced the Medalist 1276 (ST31276A) with a
1.2 GB capacity. This product is targeted to the value class and entry level
PC markets. Volume production commenced in the fourth quarter of fiscal 1996.
In May 1996 the 1.7 GB Medalist 1720, a low profile (19 high) drive, was
announced. This product is expected to commence volume production during the
second fiscal quarter of 1997. The Medalist 1276 and 1720 both feature a 4,500
RPM rotational speed, a 12.5 msec seek time and a 300,000 hour MTBF.
In February 1996 the Company became the first drive manufacturer to announce
a 4.2 GB hard drive with the Fast ATA-2 interface. The low profile Medalist
Pro 4250 is the highest capacity ATA hard disc drive announced in the
industry. This new product is designed to meet the increased performance and
capacity demands placed on desktop storage. The Medalist Pro 4250 is scheduled
for volume production in the second quarter of fiscal 1997.
Workstation Systems
In October 1992 the Company expanded its low-profile 3.5 inch mid-range
product line with the ST31200, a high performance drive with 1 GB of formatted
capacity that began production during the first quarter of fiscal 1994. In
October 1993 the Company expanded that product family to a 2 GB formatted
capacity platform with the family name of Hawk. The Hawk 2 went into
production the fourth quarter of fiscal 1994. In January 1994 the Hawk 4, 3.5
inch half-height 4 GB formatted capacity drive, was announced. Volume
production began in the first quarter of fiscal 1995. The Hawk 2XL in 1 GB and
2 GB versions features PRML read channels and embedded servos and is designed
to provide a balance of price and performance. Volume production of the
Hawk 2XL began in the third quarter of fiscal 1996. The Company plans to
continue designing and manufacturing for the higher capacity, high performance
and cost sensitive requirements of this market.
Server/Multi-user Systems
High-end applications range from digital video, video-on-demand, high-end
file servers, mainframes and minicomputers to supercomputers. Two new product
families have been introduced by the Company to address this wide range of
applications. The Barracuda family of 3.5 inch drives, first introduced in
October 1992, had the highest rotational speed of any drives produced at that
time. Since then three additional products have been added to the family. The
Barracuda 4 and Barracuda 2-2HP were introduced in October 1993. The Barracuda
4 is a 4 GB formatted capacity, 7200 RPM drive in the half-height form factor.
Volume production commenced in the first quarter of fiscal 1995. The Barracuda
2-2HP is a 2 GB formatted capacity high-performance drive in the
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half-height form factor featuring the 2 head parallel design which doubles the
data transfer rate. Volume production of this product began in the first
quarter of fiscal 1995. In January 1994 the Company announced the Barracuda
2LP, a 3.5 inch low-profile, one-inch high, 2 GB formatted capacity disc
drive. Volume production of this product also began in the fourth quarter of
fiscal 1994.
The Barracuda 4 LP, a 4 GB formatted capacity, high-performance drive in the
low-profile form factor, is scheduled for volume production in the first
quarter of fiscal 1997. This product will also be used in high performance
workstation systems. The Barracuda 9, a 9.1 GB drive, is the third generation
of ultrahigh performance disc drives in the 7200 RPM, 3.5 inch Barracuda
family. The Barracuda 4 LP and the Barracuda 9 incorporate three new
technologies into the Barracuda family. The new technologies are MR heads, a
PRML data channel and a high-performance embedded servo. These technologies
allow for greater areal densities and result in increased capacity per disc.
The Barracuda 9 is scheduled for volume production in the second quarter of
fiscal 1997.
Addressing the high-end 5.25 inch market the Company has continued to
leverage its Elite product line. The Elite 3, with 2.9 GB of formatted
capacity began volume shipments in August 1992. To address the emerging
digital video and near-line storage applications the Company introduced the
Elite 9 in October 1993. The Elite 9 leverages the established design of the
Elite family to an expanded 9 GB of formatted capacity. Volume production
began in the fourth quarter of fiscal 1994. The Company announced the Elite 23
in March 1996. This 23 GB drive is scheduled for volume production in the
second quarter of fiscal 1997.
No assurance can be given that the Company will be able to successfully
complete the design or introduction of new products in a timely manner, that
the Company will be able to manufacture new products in volume with acceptable
manufacturing yields, or successfully market these products, or that these
products will perform to specifications on a long-term basis. Failure to meet
any of the above objectives in a timely manner could have a material adverse
effect on the Company's business and results of operations.
TAPE DRIVES
Tape drives are peripheral hardware devices which enable low cost storage or
data protection of large volumes of data through use of tape stored on small
cartridges used singly or in the case of Digital Audio Tape ("DAT"), in
multiple autoloader applications. 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 DAT tape products meet the needs of the performance and high-end markets
to complement Seagate's line of disc drive products.
Minicartridge Tape Drives: Seagate's family of low profile minicartridge
tape drives are designed to provide from 400 megabytes to 8 gigabytes of data
protection on a single low-cost removable cartridge. The entry level products
incorporate a floppy or parallel port interface and are designed for desktop
PC applications. The Company's recently introduced 8 gigabyte minicartridge
products incorporate SCSI and IDE (Integrated Drive Electronics) interfaces
and address the need for higher performance tape solutions at an economical
price. All minicartridge tape drives are sold either as bare drives or bundled
solutions marketed with the brand of TapeStor. All minicartridge products are
currently manufactured for Seagate by Matsushita-Kotobuki Electronics
Industries, Ltd. ("MKE") in Singapore.
DAT Drives: High speed networked computer environments need automatic data
protection and backup in the form of dedicated removable storage peripherals
that combine high capacity, reliability, state-of-the-art backup performance
and low cost per megabyte in a small form factor. The Seagate family of DAT
products provides a balance of these features, storing up to 8 gigabytes of
data on a single 4 mm cartridge. All Seagate DAT products use the industry
accepted high speed SCSI-2 interface which is the dominant systems interface
for storage peripherals of this class. In addition, the Company offers DAT
autoloaders, which enable the storage of up to 96 gigabytes through an
automated loading mechanism which can handle up to 12 DAT tape cartridges in a
single tape drive. All DAT products are currently manufactured by MKE in
Japan.
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OTHER PRODUCTS
The Company offers warranty and out-of-warranty repair service to users of
its disc drives. The Company also designs and manufactures disc drive
components, primarily thin-film heads, principally for use in its own products
but also for sale to other disc drive manufacturers. Of the Company's two
major customers for its thin-film heads, one has announced its withdrawal from
the disc drive business and the other has indicated a significantly reduced
requirement for the first quarter of fiscal 1997. In addition, the Company
offers software products directed towards the client/server and network
computing environments. See "Software Expansion."
MARKETING AND CUSTOMERS
The Company sells its products to OEMs, distributors, resellers, dealers and
retailers. OEM customers incorporate Seagate disc drives into computer systems
for resale. OEMs either manufacture and assemble computer system components
into computer systems; purchase components to build their systems; or purchase
complete computer systems and integrate the hard disc drives and other
hardware and software. Distributors typically resell Seagate disc drives to
small OEMs, dealers and other resellers. Certain resellers to which the
Company directly sells its products also resell Seagate drives as part of
enhanced packages (e.g., an add-on kit for a computer or as part of their own
computers). Shipments to OEMs were 72%, 74% and 70% of net sales in fiscal
1996, 1995 and 1994, respectively. No customer accounted for 10% or more of
consolidated net sales in 1996 and 1995. In 1994 sales to Compaq Computer
Corporation accounted for approximately 11% of the Company's consolidated net
sales. No other customer accounted for 10% or more of consolidated net sales
in 1994.
OEMs
OEM customers typically enter into purchase agreements with the Company.
These agreements provide for pricing, volume discounts, order lead times,
product support obligations and other terms and conditions, usually for
periods of 12 to 24 months, although product support obligations generally
extend substantially beyond this period. These master agreements typically do
not commit the customer to buy any minimum quantity of products. Deliveries
are scheduled only after receipt of purchase orders. In addition, with limited
lead time, customers may cancel or defer most purchase orders without
significant penalty. Anticipated orders from many of Seagate's customers have
in the past failed to materialize or OEM delivery schedules have been deferred
as a result of changes in their business needs. Such order fluctuations and
deferrals have had a material adverse effect on the Company's operations in
the past, and there can be no assurance that the Company will not experience
such effects in the future.
Distributors
The Company's distributors, located throughout the world, generally enter
into non-exclusive agreements for the redistribution of the Company's
products. Distributors typically furnish the Company with a non-binding
indication of their near-term requirements. Product deliveries are generally
scheduled based on a weekly confirmation by the distributor of its
requirements for that week. The agreements typically provide the distributors
with price protection with respect to their inventory of Seagate drives at the
time of a reduction by Seagate in its selling price for the drives, and also
provide limited rights to return the product.
Service and Warranty
Seagate warrants its products against defects in design, materials and
workmanship by the Company generally for three to five years depending upon
the capacity category of the disc drive, with the higher capacity products
being warranted for the longer periods. Warranty periods for disc drives have
been increasing and may continue to increase. The Company's products are
refurbished or repaired at facilities located in the United States, Singapore
and Malaysia.
8
<PAGE>
Sales Offices
The Company maintains sales offices throughout the United States and in
Australia, England, France, Hong Kong, Ireland, Italy, Japan, Singapore, South
Korea, Taiwan, Thailand, Germany and Sweden. Foreign sales are subject to
certain controls and restrictions, including, in the case of certain
countries, approval by the office of Export Administration of the United
States Department of Commerce.
BACKLOG
In view of customers' rights to cancel or defer orders with little or no
penalty, the Company believes backlog in the disc drive industry can be
misleading.
The Company's backlog includes only those orders for which a delivery
schedule has been specified by the customer. Substantially all orders shown as
backlog at June 28, 1996 were scheduled for delivery within six months.
Because many customers place large orders for delivery throughout the year,
and because of the possibility of customer cancellation of orders or changes
in delivery schedules, the Company's backlog as of any particular date is not
indicative of the Company's potential sales for any succeeding fiscal period.
The Company's order backlog at June 28, 1996 was approximately $1,105,000,000
compared with approximately $1,432,000,000 at June 30, 1995.
MANUFACTURING
The Company's business objectives require it to establish manufacturing
capacity in anticipation of market demand. The key elements of the Company's
manufacturing strategy are: high-volume, low-cost assembly and test; vertical
integration in the manufacture of selected components; and establishment and
maintenance of key vendor relationships. The highly competitive disc drive
industry requires that the Company manufacture significant volumes of high-
quality drives at low unit cost. To do this, the Company must rapidly achieve
high manufacturing yields and obtain uninterrupted access to high-quality
components in required volumes at competitive prices.
Manufacturing of the Company's rigid disc drives is a complex process,
requiring a "clean room" environment, the assembly of precision components
within narrow tolerances and extensive testing to ensure reliability. The
first step in the manufacturing of a rigid disc drive is the assembly of the
actuator mechanism, heads, discs, and spindle motor in a housing to form the
head-disc assembly (the "HDA"). The assembly of the HDA involves a combination
of manual and semiautomated processes. After the HDA is assembled and servo
writing has been completed, automated testing equipment subjects the HDA to
several tests aimed at ensuring that it meets all of the Company's
specifications for quality and performance. Upon completion of assembly and
testing, circuit boards are added to the HDA and the completed unit is again
tested prior to packaging and shipment. The Company uses statistical process
control in an effort to continually improve its manufacturing processes. Final
assembly and test operations of the Company's disc drives take place primarily
at facilities located in Singapore, Thailand, Malaysia, China, Ireland,
Minnesota and Oklahoma. Subassembly and component operations are performed at
the Company's facilities in Singapore, Malaysia, Thailand, Minnesota,
California, Scotland, Northern Ireland and Indonesia. In addition, independent
entities manufacture or assemble components for the Company in the United
States, Europe and various Far East countries including Hong Kong, Japan,
Korea, China, the Philippines, Singapore, Taiwan and Thailand.
The Company believes its competitors' manufacturing processes may be more
fully automated than its own. The Company believes that it must continue to
develop automated manufacturing processes in order to remain competitive. In
this regard, the Company has inherited a semi-automated process through its
merger with Conner that it believes will enhance its productivity and
efficiency and it is continuing to selectively evaluate which steps in the
manufacturing process would benefit from automation. There can be no assurance
that the Company's efforts to develop and improve its automated manufacturing
processes will be successful. Any failure of the Company to continue to
develop and improve its automated manufacturing processes could have a
material adverse effect on the Company's business.
9
<PAGE>
The cost, quality and availability of certain components including heads,
media, ASICs (application specific integrated circuits), spindle motors,
actuator motors, printed circuit boards and custom semiconductors are critical
to the successful production of disc drives. The Company's design and vertical
integration have allowed it to internally manufacture substantial percentages
of its critical components other than ASICs and motors. The Company's
objectives of vertical integration are to maintain control over component
technology, quality and availability, and to reduce costs. The Company
believes that its strategy of vertical integration gives it an advantage over
other disc drive manufacturers. However, this strategy entails a high level of
fixed costs and requires a high volume of production to be successful. During
periods of decreased production, these high fixed costs in the past have had
and in the future could have a material adverse effect on the Company's
results of operations.
All three stages of manufacturing for both magneto-resistive and thin-film
heads are carried out at the Company's facilities. These three stages are
wafer production, slider fabrication and head gimbal assembly. For disc, or
media, production the Company purchases aluminum substrate blanks from third
parties mainly in the U.S. and Japan. These blanks are machined, plated and
polished to produce finished substrates at the Company's plants in California
and Mexico. While the majority of its substrate needs are produced internally,
the Company also purchases substrates from third party suppliers, primarily in
the Far East. The Company's media manufacturing plants in California and
Singapore put these substrates through the manufacturing processes necessary
to deposit the magnetic storage alloy layer, the protective carbon overcoat
and the lubricant as well as to achieve the proper degree of final surface
smoothness and also carry out the quality assurance activities necessary to
deliver finished media to Seagate's disc drive manufacturing plants. As is the
case for substrates, the Company's internal media manufacturing operations
supply the majority of its needs for media but media is also purchased from
third party suppliers located in the U.S. and the Far East. Spindle motors are
sourced principally from outside vendors in the Far East, although the Company
is increasing its internal motor manufacturing capabilities. Actuator motors
are sourced both from outside vendors and internally. The Company designs
nearly all of its ASICs for motor and actuator control and manufactures some
of these circuits. It designs many of the other ASICs in the drive such as
interface and read/write, and procures these from third parties. The vast
majority of the high-volume surface-mount printed circuit assemblies are
assembled internally. The Company evaluates the need for second sources for
all of its components on a case-by-case basis and, where it is deemed
desirable and feasible to do so, secures multiple sources. The Company has
experienced production delays when unable to obtain sufficient quantities of
certain components or assembly capacity. The Company maintains component
inventory levels adequate for its short-term needs. However, an inability to
obtain essential components, if prolonged, would adversely affect the
Company's business.
Because of the significant fixed costs associated with the production of its
products and components and the industry's history of declining prices, the
Company must continue to produce and sell its disc drives in significant
volume, continue to lower manufacturing costs and carefully monitor inventory
levels. Toward these ends, the Company continually evaluates its components
and manufacturing processes as well as the desirability of transferring volume
production of disc drives and related components between facilities, including
transfer overseas to countries where labor costs and other manufacturing costs
are significantly lower than in the U.S., principally Singapore, Thailand,
Malaysia and China. In addition, the Company is considering expanding its
manufacturing operations into other third world countries. Frequently,
transfer of production of a product to a different facility requires
qualification of such new facility by certain of the Company's OEM customers.
There can be no certainty that such changes and transfers will be implemented
on a cost-effective basis without delays or disruption in the Company's
production and without adversely affecting the Company's results of
operations.
Offshore operations are subject to certain inherent risks, including delays
in transportation, changes in governmental policies, tariffs, import/export
regulations, and fluctuations in currency exchange rates in addition to
geographic limitations on management controls and reporting. Although the
Company has not had any significant adverse experience in this regard and has
significant experience in the offshore production of its products, there can
be no assurance that the inherent risks of offshore operations will not
adversely effect the Company's future operating results. Certain of the Far
East countries in which the Company operates have experienced political unrest
and the Company's operations have been adversely affected for short periods of
time.
10
<PAGE>
PRODUCT DEVELOPMENT
The Company's strategy for new products emphasizes developing and
introducing on a timely and cost effective basis products that offer
functionality and performance equal to or better than competitive product
offerings. The rigid disc drive industry is characterized by ongoing, rapid
technological change, relatively short product life cycles and rapidly
changing user needs. The Company believes that its future success will depend
upon its ability to develop, manufacture and market products which meet
changing user needs, and which successfully anticipate or respond to changes
in technology and standards on a cost-effective and timely basis. Accordingly,
the Company is committed to the development of new component technologies, new
products, and the continuing evaluation of alternative technologies. The
Company is presently concentrating its product development efforts on new disc
drives and improved disc drive components as described below.
The Company develops new disc drive products and the processes to produce
them at eight locations: Longmont, Colorado; Simi Valley and Scotts Valley,
California; Los Gatos and San Jose, California; Oklahoma City, Oklahoma;
Bloomington, Minnesota; and Singapore. Generally speaking, Longmont, Simi
Valley, Scotts Valley and Singapore are responsible for development of 3.5
inch form factor drives intended for desktop personal computer systems; Los
Gatos and San Jose are responsible for development of 2.5 inch form factor
drives intended for mobile personal computers; Oklahoma City is responsible
for development of 3.5 inch disc drives with capacities and interfaces
intended for use in minicomputers, supermicrocomputers, workstations and file
servers; and Bloomington is responsible for 3.5 inch and 5.25 inch products
principally intended for use in systems ranging from workstations and
superminicomputers to mainframe and supercomputers as well as new markets such
as digital video and video-on-demand. The Company has announced plans to
discontinue disc drive and related process development activities in Scotts
Valley, California, but will continue certain other research and development
activities at that location.
The Company has focused its components research and development efforts in
four main areas: motors, heads, media and ASICs. The major emphasis of this
research and development effort is higher capacity, reduced size and power
consumption, improved performance and reliability, and reduced cost. Disc
drive customers require new products to have greater reliability with ever
decreasing defective parts per million ("DPPMs") and ever increasing mean time
between failures ("MTBFs").
The principal areas of research and development relating to motors are
improved bearings, smaller form factors, lower power requirements, quieter
operation, higher reliability, improved magnets and lower cost.
The Company's head research and development efforts are focused on
increasing recording densities, reducing the size and mass of the slider,
developing suspensions and assembly technology for reduced head size, reducing
the cost and increasing the reliability. This research and development
includes substantial effort to develop and manufacture magneto-resistive
("MR") heads and advanced air bearing sliders for high areal density and small
form factor products. While the Company currently produces some disc drives
utilizing its MR heads, there can be no assurance that the Company's MR head
development effort will continue to be successful and a failure of the Company
to successfully manufacture and market products incorporating MR head
technology in a timely manner could have a material adverse effect on the
Company's business and results of operations.
Media research and development is primarily related to achieving higher
areal densities consistent with the efforts undertaken in the head operations
of the Company as well as developing the capability to produce media of
reduced dimensions from those of current main-stream products. These media
research and development efforts are subdivided into several main approaches
to achieving these goals: developing smoother, flatter substrates that permit
lower head flying heights; developing thinner, smaller-diameter substrates to
support development of physically smaller disc drives; developing improved
magnetic storage alloys, overcoat materials and surface lubricants that permit
higher coercivities and improved electromagnetic performance as well as use
with MR heads while providing enhanced wear and reliability performance; and,
finally, developing enhanced substrate and media manufacturing processes that
allow the Company to implement the results of its other
11
<PAGE>
developments while increasing the consistency and reducing the cost of
producing high performance magnetic storage media. As a consequence of these
efforts, the Company reviews, on an on-going basis, not only improved versions
and smaller size versions of the industry-standard aluminum and glass
substrates but also substrates of alternative materials. The Company
experiments with the elemental content of the storage alloys and overcoat
materials and the sputtering processes used to deposit them. The Company
evaluates different lubricants and pursues variations in the techniques used
to obtain the proper degree of surface smoothness including both mechanical
and other processes. There can be no assurance that the Company's media
development efforts will be successful.
ASIC development has been and will continue to be focused on optimizing the
architecture for system performance, cost and reliability. In addition, the
focus has been and will continue to be on reducing the number of parts, the
amount of power consumption, and the size, and increasing areal densities by
use of advanced signal processing techniques such as PRML read/write channels.
In addition to developing new products and components, the Company devotes
significant resources to product engineering aimed at improving manufacturing
processes, lowering manufacturing costs and increasing volume production of
new and existing products. Process engineering groups are located with the
disc drive development groups and the reliability engineering groups in
locations listed above; however, most of the Company's volume production is
done in locations remote from these groups and the development of the volume
processes are completed at the volume manufacturing sites.
No assurance can be given that the Company will be able to successfully
complete the design or introduction of new products in a timely manner, that
the Company will be able to manufacture new products in volume with acceptable
manufacturing yields, or successfully market these products, or that these
products will perform to specifications on a long-term basis. Failure to meet
any of the above objectives in a timely manner could have a material adverse
effect on the Company's business and results of operations.
During the fiscal years ended June 28, 1996, June 30, 1995 and July 1, 1994
the Company's product development expenses were $420,429,000, $353,506,000 and
$302,849,000 respectively.
PATENTS AND LICENSES
The Company has been issued over 692 U.S. patents and 737 foreign patents
and has approximately 400 U.S. and 400 foreign patent applications pending.
Due to the rapid technological change that characterizes the rigid disc drive
industry, the Company believes that the improvement of existing products,
reliance upon trade secrets and unpatented proprietary know-how and
development of new products are generally more important than patent
protection in establishing and maintaining a competitive advantage.
Nevertheless, the Company believes that patents are of value to its business
and intends to continue its efforts to obtain patents, when available, in
connection with its research and development program. There can be no
assurance that any patents obtained will provide substantial protection or be
of commercial benefit to the Company, or that their validity will not be
challenged.
Because of rapid technological development in the disc drive industry,
certain of the Company's products have been and it is possible other products
could be accused of infringement of existing patents. The rigid disc drive
industry has been characterized by significant litigation relating to patent
and other intellectual property rights. From time to time, the Company
receives claims that certain of its products infringe patents of third
parties. Although the Company has been able to resolve some such claims or
potential claims by obtaining licenses or rights under the patents in question
without a material adverse affect on the Company, other such claims are
pending which if resolved unfavorably to the Company could have a material
adverse effect on the Company's business. For a description of current
disputes see the "Litigation" note to the Company's consolidated financial
statements. In addition, the costs of engaging in intellectual property
litigation may be substantial regardless of outcome. The Company has patent
cross licenses with Areal Technology, Hewlett-Packard Company, NEC
Corporation, Toshiba Corporation, Hitachi, Ltd., Quantum Corporation, Western
Digital
12
<PAGE>
Corporation, Ceridian Corporation (formerly Control Data Corporation), IBM,
Hyundai Electronics America (Maxtor Corporation), Read-Rite Corporation,
Applied Magnetics Corporation, Headway Technologies, Inc., Kubota Corporation
(Akashic Memories Corp.), Asahi Komag Co., Ltd., Showa Denko K.K., StorMedia
Inc. Co., Ltd. and TDK Corporation and is licensed under certain Unysis, Bull
and Bull SA disc drive and controller patents by virtue of such companies'
former ownership of Magnetic Peripherals Inc., now merged into the Company.
Additionally, the Company has agreements in principle with other major disc
drive companies.
COMPETITION
The rigid disc drive industry is intensely competitive, with manufacturers
competing for a limited number of major customers. The principal competitive
factors in the rigid disc drive market include product quality and
reliability, form factor, storage capacity, price per unit, price per
megabyte, product performance, production volume capability and responsiveness
to customers. The relative importance of these factors varies with different
customers and for different products. The Company believes that it is
generally competitive as to these factors.
The Company has experienced and expects to continue to experience intense
competition from a number of domestic and foreign companies, some of which
have far greater resources than the Company. In addition to independent rigid
disc drive manufacturers, the Company also faces competition from present and
potential customers, including IBM, Toshiba, NEC and Fujitsu Limited who
continually evaluate whether to manufacture their own drives or purchase them
from outside sources. These manufacturers also sell drives to third parties
which results in direct competition with the Company.
Product life cycles are relatively short in the disc drive industry. The
Company expects its competitors to offer new and existing products at prices
necessary to gain or retain market share and customers. To remain competitive,
the Company believes it will be necessary to continue to reduce its prices and
aggressively enhance its product offerings. In addition to the foregoing, the
ability of the Company to compete successfully will also depend on its ability
to provide timely product introductions and to continue to reduce production
costs. The Company's establishment and ongoing expansion of production
facilities in Singapore, Thailand, Malaysia, China and Ireland are directed
toward such cost reductions. The Company's eight development centers and
market-focused design strategies are structured for time-to-market product
introductions. The Company believes that its future success will depend upon
its ability to develop, manufacture and market products which meet changing
user needs, and which successfully anticipate or respond to changes in
technology and standards on a cost-effective and timely basis.
The introduction of products using alternative technologies could be a
significant source of competition. For example, optical recording and high-
speed semiconductor memory could compete with the Company's products in the
future. Although optical disc technologies are attractive for certain archival
and imaging applications, they have lower performance and are more costly than
magnetic disc drives and the Company does not believe that they will be
competitive with magnetic disc drives in the near future in markets requiring
on-line, random access, non-volatile mass storage. Semiconductor memory (SRAM
and DRAM) is much faster than magnetic disc drives, but currently is volatile
(i.e., subject to loss of data in the event of power failure) and much more
costly. Flash EE prom, a nonvolatile semiconductor memory, is currently much
more costly and, while it has higher read performance than disc drives, it has
lower write performance. Flash EE prom could become competitive in the near
future for applications requiring less storage capacity (i.e., less than 200
MB) than is required in the Company's more traditional computer related market
place.
ENVIRONMENTAL MATTERS
The United States Environmental Protection Agency (EPA) and/or similar state
agencies have identified the Company as a potentially responsible party with
respect to environmental conditions at several different sites to which
hazardous wastes had been shipped or from which they were released. These
sites were acquired by the Company from Ceridian Corporation ("Ceridian")
(formerly Control Data Corporation) in fiscal 1990. Other
13
<PAGE>
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 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.
EMPLOYEES
From July 1, 1995 to June 28, 1996, the number of persons employed worldwide
by the Company increased from approximately 77,000 to approximately 87,000.
Approximately 70,000 of the Company's employees were located in the Company's
Far East operations as of June 28, 1996. In addition, the Company makes use of
supplemental employees, principally in manufacturing, who are hired on an as-
needed basis. Management believes that the future success of the Company will
depend in part on its ability to attract and retain qualified employees at all
levels, of which there can be no assurance. The Company believes that its
employee relations are good.
14
<PAGE>
ITEM 2. PROPERTIES
Seagate's executive offices are located in Scotts Valley, California.
Principal manufacturing facilities are located in Singapore, Thailand,
Oklahoma, California, Malaysia, Scotland and Northern Ireland. A major portion
of the Company's facilities are occupied under leases which expire at various
times through 2015. The following is a summary of square footage owned or
leased by the Company:
FACILITIES (SQUARE FEET)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANUFACTURING PRODUCT
LOCATION & WAREHOUSE DEVELOPMENT ADMINISTRATIVE TOTAL
-------- ------------- ----------- -------------- ---------
<S> <C> <C> <C> <C>
NORTH AMERICA
California
Central California.. 17,928 5,030 62,229 85,187 (1)
Northern California. 750,325 166,652 432,365 1,349,342 (2)
Southern California. 304,615 55,656 40,288 400,559 (3)
Colorado.............. 17,025 140,400 18,738 176,163
Minnesota............. 727,996 73,498 211,410 1,012,904 (4)
Oklahoma.............. 274,501 77,497 93,492 445,490 (5)
Northeast USA......... -- -- 71,692 71,692
Southeast USA......... 10,350 -- 90,930 101,280 (6)
Other................. 46,341 -- 49,183 95,524 (7)
Canada/Mexico......... 86,783 -- 45,434 132,217
TOTAL NORTH AMERICA..... 2,235,864 518,733 1,115,761 3,870,358
EUROPE
Ireland............... 135,000 -- 20,000 155,000 (8)
Northern Ireland...... 110,000 -- 10,000 120,000 (9)
Netherlands........... 56,389 -- 14,820 71,209 (10)
Scotland.............. 73,555 3,680 30,372 107,607 (11)
United Kingdom........ -- -- 19,929 19,929 (12)
Other................. 97,328 -- 35,929 133,257 (13)
TOTAL EUROPE............ 472,272 3,680 131,050 607,002
ASIA
China................. 243,556 -- -- 243,556
Malaysia.............. 1,206,242 -- 102,485 1,308,727 (14)
Singapore............. 1,824,644 27,600 144,316 1,996,560 (15)
Thailand.............. 1,110,323 -- 205,822 1,316,145 (16)
Other................. 21,667 -- 37,361 59,028 (17)
TOTAL ASIA.............. 4,406,432 27,600 489,984 4,924,016
--------- ------- --------- ---------
TOTAL................... 7,114,568 550,013 1,736,795 9,401,376
========= ======= ========= =========
</TABLE>
- --------
(1) Includes approximately 30,598 square feet owned by the Company.
(2) Includes approximately 225,538 square feet owned by the Company. Excludes
92,640 square feet being vacated due to restructuring following Conner
merger.
(3) Excludes approximately 117,471 square feet unoccupied and approximately
41,599 square feet leased to others. Includes approximately 38,209 square
feet owned by the Company on leased land.
(4) Excludes approximately 224,159 square feet leased to others. Includes
approximately 501,437 square feet owned by the Company.
(5) Includes approximately 235,610 square feet owned by the Company.
(6) Excludes approximately 77,890 square feet leased to others. Includes
approximately 96,340 square feet owned by the Company. Excludes
approximately 96,000 square feet under construction.
(7) Excludes approximately 1,650 square feet leased to others.
15
<PAGE>
(8) Includes approximately 155,000 square feet owned by the Company.
(9) Includes approximately 120,000 square feet owned by the Company.
(10) Excludes approximately 110,000 square feet under construction.
(11) Excludes approximately 31,602 square feet unoccupied.
(12) Excludes approximately 13,800 square feet unoccupied and 18,588 square
feet leased to others.
(13) Excludes approximately 139,890 square feet unoccupied. Includes
approximately 130,290 square feet owned by the Company.
(14) Includes approximately 828,727 square feet owned by the Company and
approximately 480,000 square feet of leased land. Excludes approximately
305,000 square feet under construction.
(15) Includes approximately 1,509,965 square feet owned by the Company on
leased land. Excludes 752,626 square feet being vacated due to
consolidation within Singapore and restructuring following Conner merger.
(16) Includes approximately 175,715 square feet owned by the Company. Excludes
approximately 200,000 square feet under construction.
(17) Excludes approximately 2,006 square feet unoccupied.
ITEM 3. LEGAL PROCEEDINGS
The information required by this item is incorporated by reference to page
23 and pages 27-29 of the Annual Report to Stockholders, filed as Exhibit 13.1
hereto.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The information required by this Item is incorporated by reference to pages
1-3 of the Annual Report to Stockholders, filed as Exhibit 13.1 hereto.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to pages
1-3 of the Annual Report to Stockholders, filed as Exhibit 13.1 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to pages
3-9 of the Annual Report to Stockholders, filed as Exhibit 13.1 hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to pages
1-3 and 10-31 of the Annual Report to Stockholders, filed as Exhibit 13.1
hereto.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The present directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
DIRECTOR OR
EXECUTIVE
OFFICER
NAME AGE POSITION SINCE
---- --- -------- -----------
<C> <C> <S> <C>
Alan F. Shugart 65 President, Chief Executive Officer and 1979
Chairman of the Board
Bernardo A. Carballo 47 Executive Vice President, Worldwide 1991
Sales, Marketing, Product Line
Management and Customer Service
Brendan C. Hegarty 53 Executive Vice President, Chief 1989
Operating Officer, Recording Head
Group
Stephen J. Luczo 39 Executive Vice President, Corporate 1993
Development and Chief Operating
Officer, Seagate Software Inc.
Thomas F. Mulvaney 47 Senior Vice President, General Counsel
and Assistant Secretary 1996
Ronald D. Verdoorn 45 Executive Vice President, Chief 1991
Operating Officer, Storage Products
Donald L. Waite 63 Executive Vice President, Chief 1983
Administrative Officer, Chief
Financial Officer and Secretary
William D. Watkins 43 Executive Vice President, Chief 1996
Operating Officer, Recording Media
Hossein M. Moghadam 52 Senior Vice President and Chief 1993
Technical Officer, Data Storage
Products
Robert A. Sandie 60 Senior Vice President, Corporate
Materials 1991
Gary B. Filler 55 Director 1985
Kenneth Haughton 68 Director 1986
Robert A. Kleist 67 Director 1981
Lawrence Perlman 58 Director 1989
Thomas P. Stafford 65 Director 1988
Laurel L. Wilkening 51 Director 1993
</TABLE>
All directors hold office until the annual meeting of shareholders of the
Company following their election, or until their successors are duly elected
and qualified. Officers are elected annually by the Board of Directors and
serve at the discretion of the Board.
Mr. Shugart was Chairman of the Board and Chief Executive Officer of the
Company from its inception in 1979 until 1991. From 1979 until 1983 he also
served as the Company's President. He now serves as Chairman of the Board,
President and Chief Executive Officer. He was re-appointed Chairman of the
Board in October 1992. Mr. Shugart is also currently a Director of Valence
Technology, Inc. and SanDisk Corporation.
Mr. Carballo was General Manager, Product Line Management for the Company's
Oklahoma City operations at the time of the Company's acquisition of Imprimis
in 1989. In 1990 he was promoted to Vice President, Product Line Management,
Oklahoma City operations, in September 1991 he was promoted to Senior Vice
President, Sales, Marketing and Product Line Management and in March 1995 he
was promoted to Executive Vice President Worldwide Sales, Marketing, Product
Line Management and Customer Service. Prior to joining the Company, Mr.
Carballo had seventeen years with Control Data/Imprimis.
Dr. Hegarty joined Control Data/Imprimis in 1988 as Vice President, Thin-
Film Heads. In October 1989 he was named Seagate's Vice President of Component
Operations in Bloomington, Minnesota, and in August 1990 was promoted to
Senior Vice President and Chief Technical Officer. In March 1995 he was
promoted to Executive Vice President, Chief Operating Officer, Components
Group. From October 1990 to October 1993 Dr. Hegarty was also a Director of
the Company. Prior to joining Control Data/Imprimis, Dr. Hegarty had twenty-
one years with IBM in the U.K., Netherlands and the U.S.
17
<PAGE>
Mr. Luczo joined the Company in October 1993 as Senior Vice President,
Corporate Development. In March 1995 he was promoted to Executive Vice
President, Corporate Development and Chief Operating Officer of the Software
Group. Prior to joining the Company he was Senior Managing Director of the
Global Technology Group of Bear, Stearns & Co. Inc., an investment banking
firm, from September 1993 to October 1993. He served as Co-Head of the Global
Technology Group of Bear, Stearns & Co. Inc. from February 1992 to October
1993. Prior to joining Bear, Stearns & Co. Inc., Mr. Luczo was with Salomon
Brothers Inc., an investment banking firm, from 1984 to February 1992, most
recently as Vice President and Head of West Coast Technology.
Mr. Mulvaney joined the Company in February 1996. Prior to joining the
Company he was Vice President, General Counsel and Secretary at Conner
Peripherals from May 1995 until February 1996. Prior to joining Conner
Peripherals, Mr. Mulvaney was with VLSI Technology, Inc. from May 1990 to May
1995 where he served as Vice President, General Counsel and Secretary, and
held departmental responsibility for legal, human resources, corporate
communications and facilities.
Mr. Verdoorn joined the Company in 1983. From 1987 to 1991 he was Vice
President, Far East Manufacturing and in November 1991 he was promoted to
Senior Vice President, Manufacturing Operations. In March 1995 he was promoted
to Executive Vice President, Chief Operating Officer of the Storage Products
Group.
Mr. Waite joined the Company in 1983 as Vice President of Finance and Chief
Financial Officer, and was promoted to Senior Vice President, Finance in 1984.
In March 1995 he was promoted to Executive Vice President, Chief
Administrative Officer and Chief Financial Officer.
Mr. Watkins joined the Company in February 1996. Prior to joining the
Company he was President and General Manager of the Conner Disc Division from
January 1990 until February 1996.
Dr. Moghadam was Vice President, Engineering of Control Data/Imprimis from
December 1986 until October 1989 when he became Vice President, Engineering at
Seagate concurrent with the Company's acquisition of Imprimis Technology. Dr.
Moghadam was promoted to Senior Vice President and Chief Technical Officer,
Data Storage Products in August 1993.
Mr. Sandie joined the Company in 1983 as Vice President, Materials. He was
promoted to Senior Vice President, Corporate Materials in November 1991.
Mr. Filler was appointed Senior Vice President and Chief Financial Officer
of Diamond Multimedia Systems, Inc. in January 1995. Diamond Multimedia
Systems, Inc. designs, manufacturers and markets high-performance multimedia
solutions. From February 1994 until June 1994 he served as Executive Vice
President and Chief Financial Officer at ASK Group, Inc. From December 1989 to
May 1993 he served as Chairman of the Board of Directors and Chief Executive
Officer of Burke Industries, a manufacturer of rubber products for military
and industrial usage. Mr. Filler was Chairman of the Board of Seagate from
September 1991 until October 1992. From October 1990 until September 1991 Mr.
Filler served as Vice Chairman of the Board of Directors of the Company.
Dr. Haughton is an engineering consultant. He was a Vice President of
Engineering at DaVinci Graphics, a plotter manufacturer, from May 1990 until
August 1991. Prior to that he was a consultant from May 1989 to May 1990. From
August 1988 to May 1989 Dr. Haughton was Professor of Mechanical Engineering
at Santa Clara University. Dr. Haughton is also a Director of Solectron
Corporation.
Mr. Kleist has been President, Chief Executive Officer and a Director of
Printronix, Inc., a manufacturer of computer printers, since 1974.
Mr. Perlman presently holds the position of Chairman of the Board of
Directors and Chief Executive Officer of Ceridian Corporation (formerly
Control Data Corporation), an information services and defense electronics
company. He previously held several executive positions at Control Data
Corporation including President and
18
<PAGE>
CEO of Imprimis. Prior to Control Data Corporation, he was in the private
practice of law and at Medtronic, where he served as Executive Vice President
for U.S. Pacemaker Operations. He also serves on a number of other corporate
boards including Computer Network Technology Corporation, Valspar Corporation
and Bio-Vascular, Inc.
General Stafford, a former astronaut, has been Vice Chairman of Stafford,
Burke and Hecker, Inc., a consulting firm based in Alexandria, Virginia since
1982. He also serves as a Director for the following companies: Allied-Signal
Corporation, Pacific Scientific, Inc., Tremont, Inc., CMI, Inc., Fisher
Scientific International, Inc., Wackenhut, Inc., Wheelabrator Technologies,
Inc. and Tracor, Inc.
Dr. Wilkening has served as Chancellor of the University of California,
Irvine since July 1, 1993. From September 1988 to June 30, 1993 she was
Provost and Vice President of Academic Affairs at the University of
Washington. From 1991 to 1993 Dr. Wilkening also served as Chairwoman of the
Space Policy Advisory Board of the National Space Council.
Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, is hereby incorporated herein by reference
to the section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's Proxy Statement to be filed with the Commission
within 120 days of the end of the Registrant's fiscal year pursuant to General
Instruction G(3) to Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission within 120 days of
the end of the Registrant's fiscal year pursuant to General Instruction G(3)
to Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission within 120 days of
the end of the Registrant's fiscal year pursuant to General Instruction G(3)
to Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission within 120 days of
the end of the Registrant's fiscal year pursuant to General Instruction G(3)
to Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements. The following Consolidated Financial
Statements of Seagate Technology, Inc. and subsidiaries and Report
of Independent Auditors are incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets--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.
19
<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>
20
<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)
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 (see page 27).
13.1 1996 Annual Report to Stockholders.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Price Waterhouse LLP, Independent Accountants
for Seagate Peripherals, Inc. (formerly Conner
Peripherals, Inc.)
24.1 Power of Attorney (included on page 23).
27 Financial Data Schedule.
</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.
21
<PAGE>
(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.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the quarter ended June 28, 1996.
22
<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/ Alan F. Shugart
__________________________________
(Alan F. Shugart, Chairman of the
Board,
President and Chief Executive
Officer)
Dated: August 22, 1996
POWER OF ATTORNEY
Know All Men By These Presents, that each person whose signature appears
below constitutes and appoints Alan F. Shugart and Donald L. Waite, jointly
and severally, his or her attorney-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-
in-fact, or his substitute or substitutes, may do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Alan F. Shugart Chairman of the Board, August 22, 1996
____________________________________ President and Chief
(Alan F. Shugart) Executive Officer
/s/ Donald L. Waite Executive Vice President, August 22, 1996
____________________________________ Chief Administrative
(Donald L. Waite) Officer and Chief Financial
Officer (Principal Financial
and Accounting Officer)
/s/ Gary B. Filler Director August 22, 1996
____________________________________
(Gary B. Filler)
/s/ Kenneth Haughton Director August 22, 1996
____________________________________
(Kenneth Haughton)
/s/ Robert A. Kleist Director August 22, 1996
____________________________________
(Robert A. Kleist)
/s/ Lawrence Perlman Director August 22, 1996
____________________________________
(Lawrence Perlman)
/s/ Thomas P. Stafford Director August 22, 1996
____________________________________
(Thomas P. Stafford)
/s/ Laurel L. Wilkening Director August 22, 1996
____________________________________
(Laurel L. Wilkening)
</TABLE>
23
<PAGE>
SEAGATE TECHNOLOGY, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
-------- ------------ ----------- -------------- ----------- -----------
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION PERIOD EXPENSES --DESCRIBE --DESCRIBE PERIOD
----------- ------------ ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 28,
1996:
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $71,702,000 $ 3,744,000 $ -- $ 8,790,000(1) $66,656,000
=========== =========== ===== =========== ===========
YEAR ENDED JUNE 30,
1995:
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $64,689,000 $ 8,898,000 $ -- $ 1,885,000(2) $71,702,000
=========== =========== ===== =========== ===========
YEAR ENDED JULY 1, 1994:
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $80,236,000 $16,832,000 $ -- $32,379,000(3) $64,689,000
=========== =========== ===== =========== ===========
</TABLE>
- --------
(1) $8,790,000 uncollectible accounts written off, net of recoveries.
(2) $1,885,000 uncollectible accounts written off, net of recoveries.
(3) $32,379,000 uncollectible accounts written off, net of recoveries.
24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
FOR SEAGATE PERIPHERALS, INC.
(FORMERLY CONNER PERIPHERALS, INC.)
To the Board of Directors and Stockholders of
Seagate Peripherals, Inc. (formerly Conner Peripherals, Inc.)
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations, of stockholders' equity and of cash flows of Seagate
Peripherals, Inc. (formerly Conner Peripherals, Inc.) and its subsidiaries
(not presented separately herein) present fairly, in all material respects,
their financial position at December 31, 1995, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles. 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 conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
January 15, 1996, except for Note 6, Note 10 and
Note 16 which are as of February 28, 1996
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE FOR
SEAGATE PERIPHERALS, INC.
(FORMERLY CONNER PERIPHERALS, INC.)
To the Board of Directors and Stockholders of
Seagate Peripherals, Inc. (formerly Conner Peripherals, Inc.)
Our audits of the consolidated financial statements of Seagate Peripherals,
Inc. (formerly Conner Peripherals, Inc.) and its subsidiaries referred to in
our report dated January 15, 1996 appearing on page 25 of this Form 10-K also
included an audit of Financial Statement Schedule II of Seagate Peripherals,
Inc. (formerly Conner Peripherals, Inc.) and its subsidiaries (not presented
separately herein). In our opinion, this Financial Statement Schedule of
Seagate Peripherals, Inc. (formerly Conner Peripherals, Inc.) and its
subsidiaries presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated financial
statements.
PRICE WATERHOUSE LLP
San Jose, California
January 15, 1996
26
<PAGE>
EXHIBIT 11.1
SEAGATE TECHNOLOGY, INC.
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
JUNE 28, JUNE 30, JULY 1,
1996 1995 1994
-------- -------- --------
(IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
PRIMARY
Weighted average number of common shares
outstanding during the year.................... 99,869 95,315 93,438
Incremental common shares attributable to
exercise of outstanding options (assuming
proceeds would be used to purchase treasury
stock)......................................... 3,569 2,450 2,722
-------- -------- --------
Total shares.................................. 103,438 97,765 96,160
======== ======== ========
Net income:
Income before extraordinary gain................ $213,261 $312,548 $329,685
Extraordinary gain, net of tax effect........... -- 6,171 --
-------- -------- --------
Net income.................................... $213,261 $318,719 $329,685
======== ======== ========
Net income per share:
Income before extraordinary gain................ $ 2.06 $ 3.20 $ 3.43
Extraordinary gain, net of tax effect........... -- .06 --
-------- -------- --------
Net income.................................... $ 2.06 $ 3.26 $ 3.43
======== ======== ========
FULLY DILUTED
Weighted average number of common shares
outstanding during the year.................... 99,869 95,315 93,438
Incremental common shares attributable to
exercise of outstanding options (assuming
proceeds would be used to purchase treasury
stock) and conversion of 6 3/4%, 6 1/2% and 5%
convertible subordinated debentures............ 18,267(a) 28,256 24,529
-------- -------- --------
Total shares.................................. 118,136(a) 123,571 117,967
======== ======== ========
Net income:
Income before extraordinary gain................ $213,261 $312,548 $329,685
Add 6 3/4% convertible subordinated debentures
interest, net of income tax effect............. 7,487 11,240 11,239
Add 5% convertible subordinated debentures
interest, net of income tax effect............. 8,228 8,448 4,592
Add 6 3/4% convertible subordinated debentures
interest, net of income tax effect............. -- (a) 8,340 9,160
Add 6 1/2% convertible subordinated debentures
interest, net of income tax effect............. -- (a) 12,012 13,231
-------- -------- --------
Income before extraordinary gain, as adjusted... 228,976(a) 352,588 367,907
Extraordinary gain, net of tax effect........... -- 6,171 --
-------- -------- --------
Net income, as adjusted......................... $228,976(a) $358,759 $367,907
======== ======== ========
Net income per share:
Income before extraordinary gain, as adjusted... $ 1.94(a) $ 2.85 $ 3.12
Extraordinary gain, net of tax effect, as
adjusted....................................... -- .05 --
-------- -------- --------
Net income...................................... $ 1.94(a) $ 2.90 $ 3.12
======== ======== ========
</TABLE>
- -------
(a) The assumed conversion of the Company's 6 1/2% and 6 3/4% convertible
subordinated debentures has been excluded because they produce an anti-
dilutive result.
27
<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 (see page 27).
13.1 1996 Annual Report to Stockholders.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Price Waterhouse LLP, Independent Accountants for Seagate
Peripherals, Inc. (formerly Conner Peripherals, Inc.)
24.1 Power of Attorney (included on page 23).
27 Financial Data Schedule
</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.
<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
$60,710,000 for employee severance benefits, $97,210,000 to write-off or write
down equipment, inventory, intangibles and other assets, $45,140,000 for closure
of duplicate and excess facilities, $23,980,000 for fees of financial advisors,
attorneys and accountants and $14,680,000 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 at the date of grant and the exercise price is recorded as deferred
compensation and is charged to operations over the vesting period of five or ten
years. In February 1996, the stockholders approved certain amendments to the
plan including the addition of 1,000,000 shares to be issued under the plan.
Subsequently in
20
<PAGE>
February and May 1996, 1,010,250 shares were granted under the plan and at June
28, 1996, 239,750 shares remained and 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, Arcada's
results of operations have been included in the consolidated financial
statements from the date of acquisition. Goodwill and other intangibles arising
from the acquisition are being amortized on a straight-line basis over periods
ranging from 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
<PAGE>
EXHIBIT 21.1
SEAGATE TECHNOLOGY, INC.
------------------------
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION
NAME OF SUBSIDIARY OF INCORPORATION
- ------------------ ----------------
<S> <C>
Seagate Technology S.A. France
Seagate Technology GmbH Germany
Seagate Technology S.r.l. Italy
Seagate Technology AB Sweden
Nippon Seagate Inc. Japan
Seagate Technology Taiwan Ltd. Taiwan
Seagate Technology Korea Limited Korea
Seagate Technology Australia Pty. Limited Australia
Seagate Foreign Sales Corporation Virgin Islands
Seagate Microelectronics Limited Scotland
Seagate Peripherals, Inc. Delaware
Seagate Technology International Cayman Islands, BWI
Seagate Technology International Holdings Cayman Islands, BWI
Seagate Software Information Management Group, Inc. Canada
Seagate Technology (Ireland) Cayman Islands, BWI
Seagate Technology (Ireland Holdings) Cayman Islands, BWI
Seagate Technology (Clonmel) Cayman Islands, BWI
Penang Seagate Industries (M) Sdn. Bhd. Malaysia
Seagate Technology Malaysia Holdings Cayman Islands, BWI
Senai Seagate Industries (M) Sdn. Bhd. Malaysia
P.T. Seagate Technology Indonesia
Seagate Technology Thailand Holdings Cayman Islands, BWI
Seagate Technology (Thailand) Limited Thailand
Seagate Technology International (Wuxi) Co. Ltd. China
Perai Seagate Storage Products Sdn. Bhd. Malaysia
Seagate Technology Finance Limited Cayman Islands, BWI
Seagate Technology Media Mexico S.A. de C.V. Mexico
Seagate Technology China Holding Company Cayman Islands, BWI
Seagate Technology Shenzhen Co. Ltd. China
Conner Peripherals (Hong Kong) Limited Hong Kong
Conner Peripherals GmbH Germany
Seagate Distribution (UK) Limited Scotland
Seagate Software, Inc. Delaware
Seagate Software Network & Systems Management Group, Inc. California
Seagate Software Storage Management Group, Inc. Delaware
Palindrome Australia Pty. Ltd. Australia
Seagate Software S.A. France
Seagate Software Limited United Kingdom
Seagate Software GmbH Germany
Holistic Systems Limited United Kingdom
Holistic Management Systems Pty. Ltd. Australia
Holistic Systems Nordic AB Sweden
Holos Management Systems BV Holland
Nihon Holistic Systems KK Japan
Holistic Systems GmbH Germany
Holistic Systems (Singapore) Pte. Limited Singapore
Holistic Systems Inc. United States
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Seagate Technology, Inc. of our report dated July 16, 1996 (except 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) included in the 1996 Annual Report to Stockholders of Seagate
Technology, Inc.
Our audits also included the financial statement schedule of Seagate Technology,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. We
did not audit the consolidated 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. We have
been furnished with the report of other auditors with respect to Schedule II of
Conner Peripherals, Inc. In our opinion, based on our audits and the report of
other auditors, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-43911, 33-50973, 33-39916, 33-56215, 33-34793, 33-64339, 333-
00697, 333-01059), pertaining to the 1991 Incentive Stock Option Plan, the
Employee Stock Purchase Plan, the Executive Stock Option Plan of Seagate
Technology, Inc., the 1992 Conner Peripherals, Inc. Restricted Stock Plan and
the Arcada Holdings, Inc. Stock Option Plan, and in the Registration Statements
(Form S-3 No. 33-55249, 33-56027) of Seagate Technology, Inc. and in the related
prospectus, of our report dated July 16, 1996, (except 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)
with respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedule included in this Annual Report (Form 10-K) of
Seagate Technology, Inc.
ERNST & YOUNG LLP
San Jose, California
August 20, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
FOR SEAGATE PERIPHERALS, INC.
(FORMERLY CONNER PERIPHERALS, INC.)
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (Nos. 33-55249 and
33-56027) and in the Registration Statements on Form S-8 (Nos. 33-43911, 33-
50973, 33-39916, 33-56215, 33-34793, 33-64339, 333-00697, and 333-01059) of
Seagate Technology, Inc. of our report dated January 15, 1996, except for Note
6, Note 10 and Note 16 which are dated as of February 28, 1996, relating to the
consolidated financial statements of Seagate Peripherals, Inc. (formerly Conner
Peripherals, Inc.) appearing on page 25 of this Form 10-K. We also consent to
the incorporation by reference of our report on the Financial Statement Schedule
of Seagate Peripherals, Inc., (formerly Conner Peripherals, Inc.) which appears
on page 26 of this Form 10-K.
Price Waterhouse LLP
San Jose, California
August 20, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEET AS OF JUNE 28, 1996 AND THE CONSOLIDATED
CONDENSED STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED JUNE 28, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-28-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-28-1996
<CASH> 503,754
<SECURITIES> 670,308
<RECEIVABLES> 1,133,175
<ALLOWANCES> 66,656
<INVENTORY> 790,821
<CURRENT-ASSETS> 3,399,280
<PP&E> 2,404,538
<DEPRECIATION> (1,004,655)
<TOTAL-ASSETS> 5,239,635
<CURRENT-LIABILITIES> 1,438,136
<BONDS> 798,305
0
0
<COMMON> 1,067
<OTHER-SE> 2,465,021
<TOTAL-LIABILITY-AND-EQUITY> 5,239,635
<SALES> 8,588,350
<TOTAL-REVENUES> 8,588,350
<CGS> 7,007,349
<TOTAL-COSTS> 7,007,349
<OTHER-EXPENSES> 807,778
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,825
<INCOME-PRETAX> 331,460
<INCOME-TAX> 118,199
<INCOME-CONTINUING> 213,261
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 213,261
<EPS-PRIMARY> 2.06
<EPS-DILUTED> 1.94
</TABLE>
