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UNITED STATES
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 27, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-10630
SEAGATE TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 94-2612933
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER
920 DISC DRIVE 95066
SCOTTS VALLEY, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code: (408) 438-6550
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Securities registered pursuant to Section 12 (b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
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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 27, 1997 as
reported by the New York Stock Exchange, was approximately $6.417 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
27, 1997 was 244,548,374
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
1997 Annual Meeting of Stockholders (the "Proxy Statement") and (2)
registrant's Annual Report to Stockholders for the fiscal year ended June 27,
1997 (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 1997 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 48,956,044
shares of its common stock in exchange for all of the outstanding common stock
of Conner and issued options to purchase 4,939,160 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 2,553,340 shares of Seagate common stock and options to
purchase 1,813,936 shares of Seagate common stock for all the outstanding
common stock and options to purchase common stock of Arcada. All share amounts
have been restated to reflect a two-for-one stock split, effected in the form
of a stock dividend, in November 1996. See "Software Products."
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 currently include rigid disc drive models with form factors
from 2.5 to 5.25 inches and capacities from 1 gigabyte ("GB") to 23 GB. The
Company sells its products to original equipment manufacturers ("OEMs") 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, disc 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 its core product line of rigid disc drives and related
components, the Company has broadened its strategy to more fully address the
markets for storage, retrieval and management of data. In line with this
broadened strategy, the Company has made the following investments:
In January 1993, the Company began investing in SanDisk Corporation
("SanDisk"), a flash memory company.
In December 1994, the Company acquired Applied Magnetics Corporation's tape
head subsidiary, a manufacturer of magnetic recording heads for tape drives.
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In February 1996, The Company added tape drives to its product line as a
result of its merger with Conner.
In June 1997, the Company invested in Gadzoox Networks, Inc., a manufacturer
of Fibre Channel based storage network connectivity products.
In August 1997, the Company acquired Quinta Corporation, a developer of
optically assisted Winchester disc drives.
The Company has also invested in, and currently intends to continue
investigating opportunities to invest in software activities. See "Software
Products."
The Company anticipates that its broadened strategy may include additional
acquisitions of, investments in and strategic alliances with complementary
businesses, products and technologies to enable lower cost per megabyte,
faster time to market, increased capacity, and better performance
characteristics for its products. The Company's strategy includes acquiring
companies that possess technology and development personnel which provide
long-term growth potential to the Company's 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.
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.
SOFTWARE PRODUCTS
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 has broadened its core competencies to
include software products and technologies to meet these requirements.
The Company has acquired a number of software companies since May 1994
including Crystal Computer Services, Inc., Palindrome Corporation, Network
Computing, Inc., NetLabs, Inc., Frye Computer Systems, Inc., Creative
Interaction Technologies, Inc., OnDemand Software, Inc., Calypso Software
Systems, Inc. and Holistic Systems, Ltd. The Company's software products and
technologies were further expanded as a result of the merger with Conner and
its Arcada Software subsidiary. In addition, the Company has taken an equity
position in Dragon Systems, Inc., a developer and producer of voice
recognition software.
To further facilitate the software expansion strategy, the Company's
software acquisitions were consolidated under Seagate Software, Inc., a newly
established subsidiary of Seagate Technology, in April 1996. Headquartered in
Scotts Valley, California, Seagate Software is comprised of two operating
groups, each focused on strategically critical areas of LAN, intranet and
enterprise client/server environments.
Seagate Software, Network and Storage Management Group (NSMG) was formed in
December 1996 by combining the resources of Seagate Software, Network and
Systems Management Group and Seagate Software, Storage Management Group.
Seagate Software, Network and Systems Management Group was formed in July
1996, and was the combination of NetLabs, Inc., Network Computing, Inc., Frye
Computer Services, Inc., Creative Interaction Technologies, Inc., OnDemand
Software, Inc., and Calypso Software Systems, Inc. Seagate Software, Storage
Management Group was formed in February 1996 by combining Palindrome
Corporation with Arcada Software. NSMG provides comprehensive software
solutions for LAN, intranet and enterprise-wide
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client/server network, systems and storage management in Novell NetWare,
Microsoft Windows NT, Microsoft Windows, IBM OS/2 and OS400, UNIX and DOS
environments. Included in these product offerings are solutions for systems
management spanning several related disciplines, including job and process
management, enterprise automation, storage management, output management,
problem resolution, asset management, security management, distribution
management, change and configuration management, finance and resource
management, networking and connectivity, capacity planning and performance
management.
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.
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 (also known
as media or disc 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 access time (commonly expressed in milliseconds),
which is the time needed to position the heads over a selected track on the
disc surface; media 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 or gigabytes), which is the
amount of data that can be stored on the disc; and spindle rotation 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
drive capacities 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
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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
incorporates magneto-resistive ("MR") heads into a substantial portion of its
disc drives. 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 MR head development effort will continue to be successful. See
"Product Development."
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. These
requirements for storage upgrades 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 810 megabytes ("MB") to 1.7 GB
of formatted capacity with seek times ranging from 12.5 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
ultraportable 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 performance characteristics found in their desktop functional
equivalents. Personal digital assistants, hand-held and pen-based computers
may use 1.8 inch or 2.5 inch hard disc drives or flash memory such as a PCMCIA
card for additional memory. These mobile 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-intensive 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
GB and greater per drive, average seek times of 8 msec and rotation speeds of
7,200 rpm to 10,000 rpm. 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 and other applications requiring intensive data
manipulation. Also included in high-end applications are systems designed for
video-on-demand and near-line storage.
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Users of these systems generally require capacities of 4 GB and greater per
drive with average seek times of 8 msec and rotation speeds of 5,400 rpm to
10,000 rpm. 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 numbers of disc drives. Because data integrity is
paramount, high device reliability and maintainability are key features.
Mainframe, supercomputer and digital video systems also benefit from very high
data transfer rates (up to ten times that in small computer systems).
Users of these systems may also utilize redundant arrays of inexpensive disc
drives ("RAID"). A RAID combines multiple small drives into an array of disc
drives which yield performance equal to or exceeding a single high performance
drive. The array of drives appears to the computer as a single storage drive.
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 1 GB to 23 GB. 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. See "Product
Development".
Mobile Computing
In fiscal 1994, the Company introduced its Marathon family of 2.5 inch disc
drives for the mobile computing market with its 420 MB Marathon 420sl in a
12.7 millimeter ("mm") high form factor. 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 2250 and 1685 with
reduced height, from 19 mm to 17 mm in formatted capacities of 2.2 GB and 1.6
GB. Also introduced were the Marathon 1350sl and 840sl in the 12.7 mm high
form factor in formatted capacities of 1.3 GB and 840 MB, respectively. These
products began 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 heads and other leading
technologies. Volume production of the Marathon 810sl commenced during the
first quarter of fiscal 1997.
In April 1997, the Company announced the Marathon 2130sl and 1420sl in the
12.7 mm form factor with formatted capacities of 2.1 GB and 1.4 GB,
respectively. These two models are expected to begin volume production during
the first quarter of fiscal 1998.
All of the Company's mobile computing products currently utilize MR heads.
Future plans for disc drives for the mobile computing market segment include
continued higher capacities, lower cost designs and lower profile form
factors.
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Desktop Computing
In fiscal 1997, the Company continued to introduce new disc drive products
for the desktop computing market. In the first quarter of fiscal 1997, the
Company began volume production of the Medalist 1276 (model ST31276A). The
first product designed and launched after the Company's merger with Conner
Peripherals, the Medalist 1276 brought a 1.2 GB drive into the value PC
segment in a Fast ATA-2 interface. The drive utilizes internally sourced
heads, media, and other key components, making this a highly vertically
integrated product design.
During the second quarter of fiscal 1997, volume production commenced on the
Medalist 1720 (ST31720A). This 1.7 GB hard drive is leveraged from the
Medalist 1276 and is cost optimized for the entry level PC market. Also during
the second quarter of fiscal 1997, the Company began shipping a new value-
class 2.1 GB hard drive, the Medalist 2132 (ST32132A). The Medalist 2132
features SeaShield, a protective cover for the drive's printed circuit board.
This feature helps improve reliability and makes installation easier.
SeaShield has been well received in the distributor and reseller channels
because it makes the Medalist 2132 easy to integrate into a computer system.
The Company intends to continue the SeaShield concept across future desktop
drive platforms. Finally during the second quarter of fiscal 1997, the Company
also began volume production of the Medalist Pro 2520 (ST52520A), a
performance class 2.5 GB drive in a slim-line 19 mm high form factor. The
Medalist Pro 2520 is one of the Company's fastest ATA drives to date and has
won at least three industry press awards.
In the third quarter of fiscal 1997, the Company began shipping the Medalist
2160 SCSI (ST52160NA), a high performance, low cost 2 GB SCSI disc drive.
Leveraged from a high volume ATA design, it features a 5,400 rpm rotation
speed, 11 msec average seek time, 500,000 hour MTBF (mean time between
failures), industry leading low acoustics, and low power consumption. The
Medalist 2160 is targeted to systems that require SCSI yet do not need the
larger capacities offered in the Company's high- end SCSI line. Also in the
third quarter of fiscal 1997, the Company began volume shipments of a value
class 3.2 GB hard drive, the Medalist 3240 (ST33240A). The Medalist 3240
features a 4,500 rpm spindle speed, a 12 msec seek time and multimedia-ready
performance, meaning the drive can run full-screen, full-motion video.
During the fourth quarter of fiscal 1997, the Company began production of
the Medalist 4340 (ST34340A), a value-class 4.3 GB hard drive leveraged from
the Medalist 3240. The Medalist 4340 offers the same features as the Medalist
3240. Depopulated versions of the Medalist 4340 also began production,
including the Medalist 2120 (ST32120A), an entry level 2.1 GB hard drive, and
the Medalist 1010 (ST31010A), an entry level, single platter 1 GB hard drive.
The Medalist 1010 is targeted to entry level systems and emerging markets such
as the ultra-low cost personal computer market. Volume shipments of the
Medalist 4340, 2120 and 1010 are expected to commence in the first quarter of
fiscal 1998.
Workstation Systems
In 1992, the Company introduced the Barracuda family of 3.5 inch drives. At
7,200 rpm the Barracuda had the highest rotation speed of any drives produced
at that time. In fiscal year 1997, the Company introduced two new products in
the Barracuda family, the Barracuda 4LP and the Barracuda 4XL. The Barracuda 4
LP is a 4 GB formatted capacity, high-performance drive in the low-profile
form factor. Volume production of the Barracuda 4LP began in the second
quarter of fiscal 1997. The Barracuda 4XL is a 4.5 GB formatted capacity drive
in the low-profile form factor. The Barracuda 4XL, which began volume
production during the fourth quarter of fiscal 1997, is designed to provide a
balance of price and performance for the workstation market as it matures. The
Barracuda family of drives has replaced the 5,400 rpm HAWK family in this
market where drive performance has become a major consideration in the buying
decision.
Server/Multi-user Systems
High-end applications range from digital video, video-on-demand, high-end
file servers, mainframes and minicomputers to supercomputers. The Barracuda 9,
a 9.1 GB formatted capacity drive, is the third generation of ultrahigh
performance disc drives in the Barracuda family, described above. The
Barracuda 9 began volume production in the second quarter of fiscal 1997. The
Barracuda 4LP and 4XL, discussed under "Workstation Systems" above, are also
used in server/multi-user systems.
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In August 1996, the Company announced the 3.5 inch Cheetah family, with
rotation speeds of 10,000 rpm, formatted capacities of 4.5 GB and 9.1 GB, seek
times of 7.5 msec, sustained data rates in excess of 15 MB per second and MTBF
of 1,000,000 hours. This drive is focused at the very high performance segment
of the market. Volume production of the Cheetah 4LP and the Cheetah 9 began in
the third and fourth quarters of fiscal 1997, respectively.
Addressing the high-end 5.25 inch market the Company has continued to
leverage its Elite product line. In the third quarter of fiscal year 1997,
production commenced on the Elite 23, a high performance, 5.25 inch disc drive
with 23 GB of formatted capacity, a rotation speed of 5,400 rpm and MTFB of
500,000 hours.
The Barracuda, Cheetah and Elite families all utilize industry leading
technologies such as MR heads, PRML channels, embedded servo and laser
textured media. The SCSI interface is common for all drives in these families,
facilitating customer migration from one product to the next as capacity and
performance requirements change.
TAPE DRIVES
Tape drives are peripheral hardware devices which enable low cost storage
and protection of large volumes of data through the use of small tape
cartridges. 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 meets the needs of the desktop and server markets to
complement Seagate's line of disc drive products. In June 1997, the Company
entered the mid-range server backup market with the first shipment of the
Sidewinder 50. This 50 GB drive offers high reliability and performance and is
based on Sony Electronics, Inc.'s advanced intelligent tape (AIT) technology
standard. A substantial portion of the Company's tape drive products employ
head technologies developed by the Company.
Minicartridge Tape Drives: Seagate's family of low profile minicartridge
tape drives is designed to provide from 3.2 GB to 8 GB of data storage 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 8 GB minicartridge products are available with
either SCSI or 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 are bundled with
software and other accessories and marketed under the "TapeStor" brand. All
minicartridge products are currently manufactured for Seagate by Matsushita-
Kotobuki Electronics Industries, Ltd. ("MKE") in Singapore. However, the
Company began manufacturing the minicartridge products in Singapore during the
first quarter of fiscal 1998.
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 24 GB 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. All DAT products are currently manufactured
by MKE in Japan.
OTHER PRODUCTS
The Company offers warranty and out-of-warranty repair service to users of
its disc and tape 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. In addition, the Company
offers software products directed towards the client/server and network
computing environments. See "Software Products."
MARKETING AND CUSTOMERS
The Company sells its products to OEMs, distributors, resellers, dealers and
retailers. OEM customers incorporate Seagate 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
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computer systems and integrate the 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 71%, 72% and 74% of net sales in fiscal 1997, 1996 and 1995,
respectively. In 1997 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 1997. No customer
accounted for 10% or more of consolidated net sales in 1996 or 1995.
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 adverse effects in the future.
Distributors
The Company's distributors, located throughout the world, generally enter
into non-exclusive agreements for the redistribution of the Company's
products. Distributors typically furnish the Company with a non-binding
indication of their near-term requirements. Product deliveries are generally
scheduled based on a weekly confirmation by the distributor of its
requirements for that week. The agreements typically provide the distributors
with price protection with respect to their inventory of Seagate drives at the
time of a reduction by Seagate in its selling price for the drives, and also
provide limited rights to return the product.
Service and Warranty
Seagate warrants its products against defects in design, materials and
workmanship by the Company generally for two to five years depending upon the
capacity category of the drive, with the higher capacity products being
warranted for the longer periods. Warranty periods for 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.
Sales Offices
The Company maintains sales offices throughout the United States and in
Australia, England, France, Germany, Hong Kong, Ireland, Italy, Japan,
Singapore, South Korea, Sweden, Taiwan and Thailand. 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 and other United States governmental agencies.
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 27, 1997 were scheduled for delivery within six
8
<PAGE>
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 27, 1997 was approximately
$960,000,000 compared with approximately $1,105,000,000 at June 28, 1996.
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, a servo
pattern is magnetically recorded on the disc surfaces. Upon completion,
circuit boards are mated to the HDA and the completed unit is thoroughly
tested prior to packaging and shipment. 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, Northern Ireland,
Indonesia, Mexico, China and Scotland. 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, Malaysia, Taiwan and Thailand.
The Company believes its competitors' manufacturing processes for disc drive
and actuator assembly 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 has enhanced
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.
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 inductive
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
9
<PAGE>
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. In an effort to reduce its
dependence on third party suppliers, the Company has established a new
substrate plant in Limavady, Northern Ireland. Production began in this plant
in August 1997. 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. In a similar
effort to reduce dependence on third party suppliers, the Company has recently
announced plans to construct a new media manufacturing plant in Ringaskiddy,
County Cork, Ireland. 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, generally in partnership with a
major ASIC manufacturer, nearly all of its ASICs for motor and actuator
control and manufactures a small portion of these circuits. It designs all or
part of many of the other ASICs in the drive such as interface controllers,
read/write channels and pre-amplifiers, 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 attempts to maintain
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. Recently, several Far
East currencies have significantly declined in value relative to the U.S.
Dollar. As a result, the Company will be required to mark-to-market a portion
of the foreign currency forward exchange contracts that it has taken out as a
hedge of these currencies and may be required to take a charge against income
in the first quarter of fiscal 1998 ending October 3, 1997. It is anticipated
that the amount of this charge will be material as it relates to the expected
financial results for that quarter. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Disclosures about Market
Risk." Certain of the Far East countries in which the Company operates have
experienced political unrest and the Company's operations have been adversely
affected for short periods of time.
PRODUCT DEVELOPMENT
The Company's strategy for new products emphasizes developing and
introducing on a timely and cost effective basis products that offer
functionality and performance equal to or better than competitive product
10
<PAGE>
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 six locations: Longmont, Colorado; Moorpark and San Jose, California;
Oklahoma City, Oklahoma; Bloomington, Minnesota; and Singapore. Generally
speaking, Longmont, Moorpark, and Singapore are responsible for development of
3.5 inch form factor drives intended for desktop personal computer systems;
San Jose is 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 focused its components research and development efforts in
four main areas: heads, media, motors 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. With
continuing data storage density, the Company is researching alternatives to
ball bearing spindle motors. Two of the candidates are the hydrodynamic
bearing spindle motor and the contact free active magnetic bearing spindle
motor. Among the advantages of these motors are decreased operating vibration,
leakage free and superior drive level positioning which may enable the Company
to achieve track densities above 20,000 tracks per inch. The motor design and
development engineering group is located in Scotts Valley, California.
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 MR heads and advanced
air bearing sliders for high areal density and small form factor products.
While the Company currently produces a substantial portion of its 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 refforts 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 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
11
<PAGE>
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 August 1997, the Company acquired Quinta Corporation, a developer of
ultra-high capacity disc drive technologies, including a new optically
assisted Winchester ("OAW") technology. OAW technology is designed to
integrate optical, magnetic and telecommunications technologies for the
purpose of building a new class of high capacity cost-effective disc drive
storage devices.
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 27, 1997, June 28, 1996 and June 30,
1995, the Company's product development expenses were $459,330,000,
$420,429,000 and $353,506,000, respectively.
PATENTS AND LICENSES
The Company has over 765 U.S. patents and 376 foreign patents and has
approximately 495 U.S. and 662 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
12
<PAGE>
substantial regardless of outcome. The Company has patent cross licenses with
Areal Technology, Hewlett-Packard Company, NEC Corporation, Toshiba
Corporation, Hitachi, Ltd., Quantum 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., TDK Corporation,
Fujitsu Limited and Micropolis (S) Pte Ltd. 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 believes that its future success will
depend upon its ability to develop, manufacture and market products of high
quality and reliability which meet changing user needs, and which successfully
anticipate or respond to changes in technology and standards on a cost-
effective and timely basis, of which there can be no assurance.
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 immediate 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 27, 1997 was
approximately $16,500,000. Through June 27, 1997 the Company had recovered
approximately $4,300,000 from Ceridian through its indemnification and cost
sharing agreements with Ceridian and, in addition, expects to recover
approximately $9,700,000 from Ceridian over the next 30 years. After deducting
the expected recoveries from Ceridian, the expected aggregate undiscounted
liability was approximately $6,800,000 at June 27, 1997 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 27, 1997.
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 June 28, 1996 to June 27, 1997, the number of persons employed
worldwide by the Company increased from approximately 87,000 to approximately
111,000. Approximately 93,000 of the Company's employees were located in the
Company's Far East operations as of June 27, 1997. 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,
Malaysia, Minnesota, California, Oklahoma, China, Northern Ireland and
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.. 16,768 36,934 30,325 84,027 (1)
Northern California. 789,445 127,668 452,098 1,369,211 (2)
Southern California. 345,590 99,415 45,331 490,336 (3)
Colorado.............. 48,850 140,400 25,044 214,294 (4)
Minnesota............. 873,605 73,498 205,163 1,152,266 (5)
Oklahoma.............. 293,701 77,497 93,492 464,690 (6)
Northeast USA......... 2,000 39,820 10,100 51,920
Southeast USA......... 8,750 43,975 79,402 132,127 (7)
Other USA............. 46,341 17,782 18,887 83,010
Canada/Mexico......... 137,460 16,922 22,578 176,960
--------- ------- --------- ----------
TOTAL NORTH AMERICA..... 2,562,510 673,911 982,420 4,218,841
--------- ------- --------- ----------
EUROPE
England............... -- 9,052 33,873 42,925 (8)
Ireland............... 135,000 -- 20,000 155,000 (9)
Northern Ireland...... 264,700 4,900 51,500 321,100 (10)
Netherlands........... 92,234 -- 28,955 121,189
Scotland.............. 73,555 3,680 19,988 97,223 (11)
Other Europe.......... -- -- 46,428 46,428 (12)
--------- ------- --------- ----------
TOTAL EUROPE............ 565,489 17,632 200,744 783,865
--------- ------- --------- ----------
ASIA
China................. 302,039 -- -- 302,039
Malaysia.............. 1,312,242 -- 158,245 1,470,487 (13)
Philippines........... -- -- 999 999 (14)
Singapore............. 1,755,498 27,248 219,945 2,002,691 (15)
Thailand.............. 1,517,833 -- 239,632 1,757,465 (16)
Other Pacific Rim..... 30,167 -- 49,836 80,003
--------- ------- --------- ----------
TOTAL ASIA.............. 4,917,779 27,248 668,657 5,613,684
--------- ------- --------- ----------
TOTAL................... 8,045,778 718,791 1,851,821 10,616,390
========= ======= ========= ==========
</TABLE>
- --------
(1) Includes approximately 30,598 square feet owned by the Company.
(2) Includes approximately 324,756 square feet owned by the Company. Excludes
101,338 square feet unoccupied and approximately 22,336 square feet
subleased to others.
(3) Includes approximately 105,709 square feet owned by the Company. Excludes
approximately 38,209 square feet subleased to others.
(4) Excludes approximately 31,000 square feet under construction.
(5) Includes approximately 647,046 square feet owned by the Company. Excludes
approximately 220,002 square feet subleased to others.
(6) Includes approximately 235,610 square feet owned by the Company.
15
<PAGE>
(7) Excludes approximately 12,641 square feet unoccupied and approximately
4,395 square feet subleased to others.
(8) Excludes approximately 10,000 square feet unoccupied and approximately
22,388 square feet subleased to others.
(9) Includes approximately 155,000 square feet owned by the Company.
(10) Includes approximately 321,100 square feet owned by the Company.
(11) Excludes approximately 10,775 square feet unoccupied.
(12) Excludes approximately 130,290 owned square feet unoccupied. Excludes
approximately 32,600 square feet under construction.
(13) Includes approximately 1,468,727 square feet owned by the Company.
Excludes approximately 170,000 square feet under construction.
(14) Excludes approximately 355,000 square feet under construction.
(15) Includes approximately 1,571,698 square feet owned by the Company.
Excludes approximately 14,000 square feet under construction.
(16) Includes approximately 320,037 square feet owned by the Company. Excludes
approximately 200,000 square feet under construction.
16
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The information required by this item is incorporated by reference to pages
28 and 33-35 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.
EXECUTIVE OFFICERS OF THE REGISTRANT
The present executive officers of the Company are as follows:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
NAME AGE POSITION SINCE
---- --- -------- ---------
<S> <C> <C> <C>
Alan F. Shugart 66 President, Chief Executive Officer and 1979
Chairman of the Board
Bernardo A. Carballo 48 Executive Vice President, Worldwide Sales, 1991
Marketing, Product Line Management and
Customer Service
Brendan C. Hegarty 54 Executive Vice President, Chief Operating 1989
Officer, Recording Head Group
Stephen J. Luczo 40 Executive Vice President, Corporate 1993
Development and Chairman of the Board of
Directors, Seagate Software Inc.
Thomas F. Mulvaney 48 Senior Vice President, General Counsel, and 1996
Assistant Secretary
Ronald D. Verdoorn 47 Executive Vice President, Chief Operating 1991
Officer, Storage Products Group
Donald L. Waite 64 Executive Vice President, Chief 1983
Administrative Officer, Chief Financial
Officer and Secretary
William D. Watkins 44 Executive Vice President, Chief Operating 1996
Officer, Recording Media Group
</TABLE>
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.
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<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 and in July 1997 he was appointed Chairman of the Board 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. He also serves as a Director of EA Industries, Inc.
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. He also serves as a
Director of California Micro Devices.
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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER 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.
There have been no sales of unregistered securities by the Company since
July 1, 1994.
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
3-12 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 13-37 of the Annual Report to Stockholders, filed as Exhibit 13.1
hereto.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company and compliance with Section
16(a) of the Securities Exchange Act of 1934, as amended, are hereby
incorporated herein by reference to the sections entitled "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance,"
respectively, 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. The information required by that Item
concerning executive officers is set forth in Part I of this Report.
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 Report of Independent Auditors are incorporated
by reference in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets--June 27, 1997 and June 28, 1996.
Consolidated Statements of Income--Years Ended June 27, 1997, June 28,
1996 and June 30, 1995.
Consolidated Statements of Stockholders' Equity--Years Ended June 27,
1997 and June 28, 1996 and June 30, 1995.
Consolidated Statements of Cash Flows--Years Ended June 27, 1997, June
28, 1996 and June 30, 1995.
Notes to Consolidated Financial Statements.
19
<PAGE>
2.Financial Statement Schedules. The following consolidated financial
statement schedules of Seagate Technology, Inc. are filed as part of this
Report and should be read in conjunction with the Consolidated Financial
Statements of Seagate Technology, Inc.:
<TABLE>
<CAPTION>
SCHEDULE PAGE
-------- ----
<S> <C>
II--Valuation and Qualifying Accounts................................ 23
Report of Independent Accountants for Seagate Peripherals, Inc.
(formerly Conner Peripherals, Inc.)................................. 24
Report of Independent Accountants on Financial Statement Schedule II
for Seagate Peripherals, Inc. (formerly Conner Peripherals, Inc.)... 25
</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 Indenture, dated as of March 1, 1997 (the "Indenture"),
between Seagate Technology, Inc. (the "Company") and First
Trust of California, National Association, as Trustee. (C)
4.2 Officers' Certificate pursuant to Section 301 of the
Indenture, without Exhibits, establishing the terms of the
Company's senior notes and senior debentures. (C)
4.3 Form of Senior Note. (C)
4.4 Form of Senior Debenture. (C)
10.1 1983 Incentive Stock Option Plan and form of Stock Option
Agreement. (E)
10.2 Seagate Technology Employee Stock Purchase Plan. (N)
10.3 Registrant's Executive Stock Plan. (L)
10.4 Conner Peripherals, Inc. 1986 Incentive Stock Plan. (L)
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.
</TABLE>
20
<PAGE>
<TABLE>
<C> <S> <C>
10.18 Acquisition Agreement dated as of September 29, 1989 by and (J)
among Seagate Technology, Inc. and Control Data Corporation,
Imprimis Technology Incorporated and Magnetic Peripherals,
Inc.
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. (L)
10.21 Amended and Restated Archive Corporation Incentive Stock
Option Plan--1981. (L)
10.22 Conner Peripherals, Inc.--Arcada Holdings, Inc. Stock Option
Plan. (M)
10.23 Arcada Holdings, Inc. 1994 Stock Option Plan. (M)
11.1 Computation of Net Income per Share (see page 26).
13.1 Portions of the 1997 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 22).
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 7(b),
"Financial Statements and Exhibits" of the Company's Current Report on
Form 8-K dated March 4, 1997.
(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 Form 10-K for the year ended June 30, 1985.
(I) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's Form 10-K for the year ended June 30, 1988.
(J) Incorporated by reference to exhibits filed in response to Item 7(c),
"Exhibits," of the Company's Current Report on Form 8-K dated October 2,
1989.
(K) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's Form 10-K for the year ended June 30, 1991.
(L) Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-8 (registration number 333-697) as filed with the
Commission on February 5, 1996.
(M) 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.
(N) 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.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the quarter ended June 27, 1997.
21
<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.
/s/ ALAN F. SHUGART
By: _________________________________
(Alan F. Shugart, Chairman of
the Board,
President and Chief
Executive Officer)
Dated: August 19, 1997
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 19, 1997
____________________________________ President and Chief
Alan F. Shugart Executive Officer
/s/ Donald L. Waite Executive Vice President, August 19, 1997
____________________________________ Chief Administrative Officer
Donald L. Waite and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Gary B. Filler Director August 19, 1997
____________________________________
Gary B. Filler
/s/ Kenneth Haughton Director August 19, 1997
____________________________________
Kenneth Haughton
/s/ Robert A. Kleist Director August 19, 1997
____________________________________
Robert A. Kleist
/s/ Lawrence Perlman Director August 19, 1997
____________________________________
Lawrence Perlman
/s/ Thomas P. Stafford Director August 19, 1997
____________________________________
Thomas P. Stafford
/s/ Laurel L. Wilkening Director August 19, 1997
____________________________________
Laurel L. Wilkening
</TABLE>
22
<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
---------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 27,
1997:
Deducted from asset
accounts:
Allowance for
doubtful accounts.. $66,656,000 $5,729,000 $-- $11,972,000(1) $60,413,000
=========== ========== ==== =========== ===========
YEAR ENDED JUNE 28,
1996:
Deducted from asset
accounts:
Allowance for
doubtful accounts.. $71,702,000 $3,744,000 $-- $ 8,790,000(2) $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(3) $71,702,000
=========== ========== ==== =========== ===========
</TABLE>
- --------
(1) $11,972,000 uncollectible accounts written off, net of recoveries.
(2) $8,790,000 uncollectible accounts written off, net of recoveries.
(3) $1,885,000 uncollectible accounts written off, net of recoveries.
23
<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 the year then ended, 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 audit. We conducted our audit 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 audit provides 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
24
<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 audit 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 24 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
25
<PAGE>
SEAGATE TECHNOLOGY, INC.
INDEX TO EXHIBITS
EXHIBITS NOTES
- -------- -----
3.1 Certificate of Incorporation of Registrant, as amended. (A)
3.2 By-Laws of Registrant, as amended. (B)
4.1 Indenture, dated as of March 1, 1997 (the "Indenture), between
Seagate Technology, Inc. (the "Company") and First Trust of
California, National Association, as Trustee. (C)
4.2 Officers' Certificate pursuant to Section 301 of the Indenture,
without Exhibits, establishing the terms of the Company's senior
notes and senior debentures. (C)
4.3 Form of Senior Note. (C)
4.4 Form of Senior Debenture. (C)
10.1 1983 Incentive Stock Option Plan and form of Stock Option
Agreement. (E)
10.2 Seagate Technology Employee Stock Purchase Plan. (N)
10.3 Registrant's Executive Stock Plan. (L)
10.4 Conner Peripherals, Inc. 1986 Incentive Stock Plan. (L)
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.
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. (L)
10.21 Amended and Restated Archive Corporation Incentive Stock Option
Plan - 1981. (L)
10.22 Conner Peripherals, Inc. - Arcada Holdings, Inc. Stock Option
Plan. (M)
<PAGE>
10.23 Arcada Holdings, Inc. 1994 Stock Option Plan. (M)
11.1 Computation of Net Income per Share (see page 26).
13.1 Portions of the 1997 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 22).
27 Financial Data Schedule
- --------------------
(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 7(b),
"Financial Statements and Exhibits" of the Company's Current Report on Form
8-K dated March 4, 1997.
(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 July 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 Form 10-K for the year ended June 30, 1985.
(I) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's Form 10-K for the year ended June 30, 1988.
(J) Incorporated by reference to exhibits filed in response to Item 7(c),
"Exhibits," of the Company's Current Report on Form 8-K dated October 2,
1989.
(K) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's Form 10-K for the year ended June 30, 1991.
(L) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (registration number 333-697) as filed
with the Commission on February 5, 1996.
(M) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (registration number 333-1059) as filed
with the Commission on February 21, 1996.
(N) 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.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
-------------------
during the quarter ended June 27, 1997.
<PAGE>
Exhibit 10.17
SEAGATE TECHNOLOGY, INC.
1991 INCENTIVE STOCK OPTION PLAN
(AS AMENDED THROUGH OCTOBER 1997)
1. Purposes of the Plan. The purposes of this 1991 Incentive Stock
--------------------
Option Plan are:
o to attract and retain the best available personnel for positions of
substantial responsibility,
o to provide additional incentive to Employees and Consultants, and
o to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to
---------------
the administration of stock option plans under state corporate and securities
laws and the Code.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a Committee appointed by the Board in
---------
accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
------------
(g) "Company" means Seagate Technology, Inc., a Delaware corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services and who is compensated
for such services, provided that the term "Consultant" shall not include
Directors who are paid only a director's fee by the Company or who are not
compensated by the Company for their services as Directors.
<PAGE>
(i) "Continuous Status as an Employee or Consultant" means that the
----------------------------------------------
employment or consulting relationship is not interrupted or terminated by the
Company, any Parent or Subsidiary. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of: (i) any leave of
absence approved by the Board, including sick leave, military leave, or any
other personal leave; provided, however, that for purposes of Incentive Stock
Options, any such leave may not exceed ninety (90) days, unless reemployment
upon the expiration of such leave is guaranteed by contract (including certain
Company policies) or statute; or (ii) transfers between locations of the Company
or between the Company, its Parent, its Subsidiaries or its successor.
(j) "Director" means a member of the Board.
--------
(k) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(n) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in Common Stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Administrator deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
-2-
<PAGE>
(o) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(q) "Notice of Grant" means a written notice evidencing certain
---------------
terms and conditions of an individual Option grant. The Notice of Grant is part
of the Option Agreement.
(r) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 15 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the Plan.
------
(t) "Option Agreement" means a written agreement between the
----------------
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of
the Plan.
(u) "Option Exchange Program" means a program whereby
-----------------------
outstanding options are surrendered in exchange for options with a lower
exercise price.
(v) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(w) "Optionee" means an Employee or Consultant who holds an
--------
outstanding Option.
(x) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(y) "Plan" means this 1991 Incentive Stock Option Plan.
----
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 of the Plan.
(cc) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned under the
Plan is 32,000,000 Shares
-3-
<PAGE>
of Common Stock. The Shares may be authorized, but unissued, or reacquired
Common Stock. However, should the Company reacquire Shares which were issued
pursuant to the exercise of an Option, such Shares shall not become available
for future grant under the Plan.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated).
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. If permitted by Rule 16b-
------------------------------
3, the Plan may be administered by different bodies with respect to Directors,
Officers who are not Directors, and Employees who are neither Directors nor
Officers.
(ii) Administration With Respect to Directors and Officers
-----------------------------------------------------
Subject to Section 16(b). With respect to Option grants made to Employees who
- ------------------------
are also Officers or Directors subject to Section 16(b) of the Exchange Act, the
Plan shall be administered by (A) the Board, if the Board may administer the
Plan in compliance with the rules governing a plan intended to qualify as a
discretionary plan under Rule 16b-3, or (B) a committee designated by the Board
to administer the Plan, which committee shall be constituted to comply with the
rules governing a plan intended to qualify as a discretionary plan under Rule
16b-3. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members, fill vacancies
(however caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by the rules governing
a plan intended to qualify as a discretionary plan under Rule 16b-3.
(iii) Administration With Respect to Other Persons. With respect
--------------------------------------------
to Option grants made to Employees or Consultants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board or (B)
a committee designated by the Board, which committee shall be constituted to
satisfy Applicable Laws. Once appointed, such Committee shall serve in its
designated capacity until otherwise directed by the Board. The Board may
increase the size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members, fill vacancies
(however caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
-4-
<PAGE>
(i) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2(n) of the Plan;
(ii) to select the Consultants and Employees to whom Options
may be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount (if any) of any
deemed earnings on any deferred amount during any deferral period);
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(ix) to construe and interpret the terms of the Plan;
(x) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(xi) to modify or amend each Option (subject to Section 14(c)
of the Plan);
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option previously
granted by the Administrator;
(xiii) to institute an Option Exchange Program;
(xiv) to determine the terms and restrictions applicable to
Options; and
-5-
<PAGE>
(xv) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
5. Eligibility. Nonstatutory Stock Options may be granted to Employees
-----------
and Consultants. Incentive Stock Options may be granted only to Employees. If
otherwise eligible, an Employee or Consultant who has been granted an Option may
be granted additional Options.
6. Limitations.
-----------
(a) Each Option shall be designated in the Notice of Grant as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value:
(i) of Shares subject to an Optionee's incentive stock options
granted by the Company, any Parent or Subsidiary, which (ii) become
exercisable for the first time during any calendar year (under all plans of
the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock
Options. For purposes of this Section 6(a), incentive stock options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time of grant.
(b) Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's employment or consulting
relationship with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such employment or
consulting relationship at any time, with or without cause.
(c) Beginning October 28, 1993, the following limitations shall apply
to grants of Options to Officers:
(i) no Officer shall be granted in any fiscal year of the
Company, Options to purchase more than 160,000 Shares, provided that, a newly-
hired Officer may in addition receive a one-time grant of up to 300,000 Shares
upon acceptance of employment with the Company; and
(ii) over the remaining term of the Plan, no Officer shall be
granted Options to purchase more than 500,000 Shares.
The foregoing limitations set forth in this Section 6(c) are intended to
satisfy the requirements applicable to Options intended to qualify as
"performance-based compensation" (within the meaning of Section 162(k) of the
Code). In the event the Administrator determines that
-6-
<PAGE>
such limitations are not required to qualify Options as performance-based
compensation, the Administrator may modify or eliminate such limitations.
7. Term of Plan. Subject to Section 18 of the Plan, the Plan shall
------------
become effective upon the earlier to occur of its adoption by the Board or its
approval by the shareholders of the Company as described in Section 18 of the
Plan. It shall continue in effect for a term of ten (10) years unless
terminated earlier under Section 14 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Notice
--------------
of Grant; provided, however, that in the case of an Incentive Stock Option, the
term shall be ten (10) years from the date of grant or such shorter term as may
be provided in the Notice of Grant. Moreover, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant or
such shorter term as may be provided in the Notice of Grant.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to
--------------
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an
-7-
<PAGE>
Incentive Stock Option, the Administrator shall determine the acceptable form of
consideration at the time of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the Optionee's broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price;
(vi) any combination of the foregoing methods of payment; or
(vii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written notice of exercise (in accordance with the Option Agreement) from
the person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly after the Option is exercised. No adjustment
-8-
<PAGE>
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in Section 12 of
the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the
----------------------------------------------------
event that an Optionee's Continuous Status as an Employee or Consultant
terminates (other than upon the Optionee's death or Disability), the Optionee
may exercise his or her Option, but only within such period of time as is
determined by the Administrator, and only to the extent that the Optionee was
entitled to exercise it at the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Notice of Grant).
In the case of an Incentive Stock Option, the Administrator shall determine such
period of time (in no event to exceed ninety (90) days from the date of
termination) when the Option is granted. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. In the event that an Optionee's
----------------------
Continuous Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option at any time
within six (6) months from the date of such termination, but only to the extent
that the Optionee was entitled to exercise it at the date of such termination
(but in no event later than the expiration of the term of such Option as set
forth in the Notice of Grant). If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised at any time within six (6) months following the date of
death (but in no event later than the expiration of the term of such Option as
set forth in the Notice of Grant), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that the Optionee was entitled to exercise the Option at the date of
death. If, at the time of death, the Optionee was not entitled to exercise his
or her entire Option, the Shares covered by the unexercisable portion of the
Option shall immediately revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
-9-
<PAGE>
11. Non-Transferability of Options.
------------------------------
(a) Unless determined otherwise by the Administrator, an Option may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent and distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option transferable, such Option shall contain such
additional terms and conditions as the Administrator deems appropriate.
(b) An Optionee may file a written designation of a beneficiary who
is to receive any options that remain unexercised in the event of the Optionee's
death. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(c) Such designation of beneficiary may be changed by the Optionee at
any time by written notice, subject to the above spousal consent conditions. In
the event of the death of the Optionee and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such Optionee's,
the Company shall deliver such options to the executor or administrator of the
estate of the Optionee, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion, may
deliver such options to the spouse or to any one or more dependents or relatives
of the participant, or if no spouse, dependent or relative is known to the
Company, then to such other person as the Company may designate.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset
----------------------------------------------------------------------
Sale or Change of Control.
-------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it will
-10-
<PAGE>
terminate immediately prior to the consummation of such proposed action. The
Board may, in the exercise of its sole discretion in such instances, declare
that any Option shall terminate as of a date fixed by the Board and give each
Optionee the right to exercise his or her Option as to all or any part of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable.
(c) Merger or Asset Sale. Subject to the provisions of paragraph (d)
--------------------
hereof, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company, each
outstanding Option shall be assumed or an equivalent option shall be substituted
by the successor corporation or a Parent or Subsidiary of the successor
corporation. In the event that the successor corporation does not agree to
assume the Option or to substitute an equivalent option, the Administrator
shall, in lieu of such assumption or substitution, provide for the Optionee to
have the right to exercise the Option as to all or a portion of the Optioned
Stock, including Shares as to which it would not otherwise be exercisable. If
the Administrator makes an Option fully exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Administrator shall
notify the Optionee that the Option shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option will terminate
upon the expiration of such period. For the purposes of this paragraph, the
Option shall be considered assumed if, following the merger or sale of assets,
the option confers the right to purchase, for each Share subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets was not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation and the
participant, provide for the consideration to be received upon the exercise of
the Option, for each Share of Optioned Stock subject to the Option, to be solely
common stock of the successor corporation or its Parent equal in Fair Market
Value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
(d) Change in Control. In the event of a "Change in Control" of the
-----------------
Company, as defined in paragraph (e) below, then the following acceleration and
valuation provisions shall apply:
(i) Except as otherwise determined by the Board, in its
discretion, prior to the occurrence of a Change in Control, any Options
outstanding on the date such Change in Control is determined to have
occurred that are not yet exercisable and vested on such date shall become
fully exercisable and vested;
(ii) Except as otherwise determined by the Board, in its
discretion, prior to the occurrence of a Change in Control, all outstanding
Options, to the extent they are exercisable and vested (including Options
that shall become exercisable and vested pursuant to subparagraph (i)
above), shall be terminated in exchange for a cash payment equal to the
Change in Control Price (reduced by the exercise price applicable to such
Options). These
-11-
<PAGE>
cash proceeds shall be paid to the Optionee or, in the event of death of an
Optionee prior to payment, to the estate of the Optionee or to a person who
acquired the right to exercise the Option by bequest or inheritance.
(e) Definition of "Change in Control". For purposes of this Section
---------------------------------
12, a "Change in Control" means the happening of any of the following:
(i) When any "person," as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than the Company, a Subsidiary or a
Company employee benefit plan, including any trustee of such plan acting as
trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the combined voting
power of the Company's then outstanding securities entitled to vote
generally in the election of directors; or
(ii) The shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the
total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the shareholders of the Company approve an agreement for
the sale or disposition by the Company of all or substantially all the
Company's assets; or
(iii) A change in the composition of the Board of Directors of
the Company, as a result of which fewer than a majority of the directors
are Incumbent Directors. "Incumbent Directors" shall mean directors who
either (A) are directors of the Company as of the date the Plan is approved
by the shareholders, or (B) are elected, or nominated for election, to the
Board of Directors of the Company with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or
nomination is in connection with an actual or threatened proxy contest
relating to the election of directors to the Company).
(f) Change in Control Price. For purposes of this Section 12,
-----------------------
"Change in Control Price" shall be, as determined by the Board, (i) the highest
Fair Market Value of a Share within the 60 day period immediately preceding the
date of determination of the Change in Control Price by the Board (the "60-Day
Period"), or (ii) the highest price paid or offered per Share, as determined by
the Board, in any bona fide transaction or bona fide offer related to the Change
in Control of the Company, at any time within the 60-Day Period, or (iii) some
lower price as the Board, in its discretion, determines to be a reasonable
estimate of the fair market value of a Share.
-12-
<PAGE>
13. Date of Grant. The date of grant of an Option shall be, for all
-------------
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed or
quoted). Such shareholder approval, if required, shall be obtained in such a
manner and to such a degree as is required by the applicable law, rule or
regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws,
and the requirements of any stock exchange or quotation system upon which the
Shares may then be listed or quoted, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.
16. Liability of Company.
--------------------
(a) Inability to Obtain Authority. The inability of the Company to
-----------------------------
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the
-13-
<PAGE>
Company of any liability in respect of the failure to issue or sell such Shares
as to which such requisite authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered
--------------------------------
by an Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional shareholder approval, such Option shall
be void with respect to such excess Optioned Stock, unless shareholder approval
of an amendment sufficiently increasing the number of Shares subject to the Plan
is timely obtained in accordance with Section 14(b) of the Plan.
17. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the manner and to the degree required under applicable federal and state law.
-14-
<PAGE>
1991 INCENTIVE STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the 1991 Incentive
Stock Option Plan (the "Plan") shall have the same defined meanings in this
Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
Optionee's Name
Optionee's Address
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Stock Option Agreement,
as follows:
Grant Number __________________
Date of Grant __________________
Vesting Commencement Date __________________
Exercise Price per Share $
------------------
Total Number of Shares Granted __________________
Total Exercise Price $
------------------
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
----------------
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
<PAGE>
Termination Period:
------------------
This Option may be exercised for ninety (90) days after termination of
employment or consulting relationship, or such longer period as may be
applicable upon death or Disability of Optionee as provided in the Plan, but in
no event later than the Term/Expiration Date as provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants
---------------
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee"), an option (the "Option") to purchase a number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 14(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option,
this Option is intended to qualify as an Incentive Stock Option under Section
422 of the Code.
2. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement. In the event of
Optionee's death, Disability or other termination of Optionee's employment or
consulting relationship, the exercisability of the Option is governed by the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares. This Option shall
be deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange
<PAGE>
upon which the Shares are then listed. Assuming such compliance, for income tax
purposes the Exercised Shares shall be considered transferred to the Optionee on
the date the Option is exercised with respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be
-----------------
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the Optionee's broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, AND (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
4. Transferability of Option. This Option may not be transferred in any
-------------------------
manner otherwise than by will or by the laws of descent and distribution and may
be exercised during the lifetime of Optionee only by the Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to
----------------
this Option, as of the date of this Option, are set forth below. THIS SUMMARY
IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO
CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION
OR DISPOSING OF THE SHARES.
(a) Exercising the Option.
---------------------
(i) Nonqualified Stock Option ("NSO"). If this Option does not
---------------------------------
qualify as an ISO, the Optionee may incur regular federal income tax liability
upon exercise. The Optionee will be treated as having received compensation
income (taxable at ordinary income tax rates) equal to the excess, if any, of
the fair market value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price. If the Optionee is an employee, the Company will be
required to withhold
<PAGE>
from his or her compensation or collect from Optionee and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.
(ii) Incentive Stock Option ("ISO"). If this Option qualifies
------------------------------
as an ISO, the Optionee will have no regular federal income tax liability upon
its exercise, although the excess, if any, of the fair market value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price
will be treated as an adjustment to the alternative minimum tax for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise.
(b) Disposition of Shares.
---------------------
(i) NSO. If the Optionee holds NSO Shares for at least one
---
year, any gain realized on disposition of the Shares will be treated as long-
term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one year
---
after exercise AND two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the LESSER OF (A) the difference
between the FAIR MARKET VALUE OF THE SHARES ACQUIRED ON THE DATE OF EXERCISE and
the aggregate Exercise Price, or (B) the difference between the SALE PRICE of
such Shares and the aggregate Exercise Price.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
-------------------------------------------------
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement.
OPTIONEE: SEAGATE TECHNOLOGY, INC.
______________________________ By:___________________________
Signature
______________________________ Title:________________________
Print Name
<PAGE>
DESIGNATION OF BENEFICIARY
--------------------------
In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all of my options that are unexercised at that time.
NAME: (Please print) _______________________________________________
(First) (Middle) (Last)
______________________ __________________________________________
Relationship
__________________________________________
(Address)
Dated: _______________ __________________________________________
Signature of Employee
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
_______________________________________
Spouse of Optionee
<PAGE>
1991 INCENTIVE STOCK OPTION PLAN
STOCK OPTION AGREEMENT
EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the 1991 Incentive
Stock Option Plan (the "Plan") shall have the same defined meanings in this
Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
Optionee's Name
Optionee's Address
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Stock Option Agreement,
as follows:
Grant Number __________________
Date of Grant __________________
Vesting Commencement Date __________________
Exercise Price per Share $
------------------
Total Number of Shares Granted __________________
Total Exercise Price $
------------------
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
- ----------------
This Option vests in accordance with the following schedule:
Termination Period:
- ------------------
This Option may be exercised for ninety (90) days after termination of
employment or consulting relationship, or such longer period as may be
applicable upon death or Disability of
<PAGE>
Optionee as provided in the Plan, but in no event later than the Term/Expiration
Date as provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants
---------------
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee"), an option (the "Option") to purchase a number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 14(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option,
this Option is intended to qualify as an Incentive Stock Option under Section
422 of the Code.
2. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement; provided, however,
-------- -------
that upon execution of a Restricted Stock Agreement in the form of Exhibit A-1
hereto and upon compliance with the terms thereof, the Optionee may exercise
this Option with respect to unvested shares. In the event of Optionee's death,
Disability or other termination of Optionee's employment or consulting
relationship, the exercisability of the Option is governed by the applicable
provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares. This Option shall
be deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares are then
listed. Assuming such compliance, for income tax purposes the Exercised Shares
shall be considered transferred to the Optionee on the date the Option is
exercised with respect to such Exercised Shares.
<PAGE>
3. Method of Payment. Payment of the aggregate Exercise Price shall be
-----------------
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the Optionee's broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, AND (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
4. Transferability of Option. This Option may not be transferred in any
-------------------------
manner otherwise than by will or by the laws of descent and distribution and may
be exercised during the lifetime of Optionee only by the Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to
----------------
this Option, as of the date of this Option, are set forth below. THIS SUMMARY
IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO
CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION
OR DISPOSING OF THE SHARES.
(a) Exercising the Option.
---------------------
(i) Nonqualified Stock Option ("NSO"). If this Option does not
---------------------------------
qualify as an ISO, the Optionee may incur regular federal income tax liability
upon exercise. The Optionee will be treated as having received compensation
income (taxable at ordinary income tax rates) equal to the excess, if any, of
the fair market value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price. If the Optionee is an employee, the Company will be
required to withhold from his or her compensation or collect from Optionee and
pay to the applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
<PAGE>
(ii) Incentive Stock Option ("ISO"). If this Option qualifies
------------------------------
as an ISO, the Optionee will have no regular federal income tax liability upon
its exercise, although the excess, if any, of the fair market value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price
will be treated as an adjustment to the alternative minimum tax for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise.
(b) Disposition of Shares.
---------------------
(i) NSO. If the Optionee holds NSO Shares for at least one
---
year, any gain realized on disposition of the Shares will be treated as long-
term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one year
---
after exercise AND two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the LESSER OF (A) the difference
between the FAIR MARKET VALUE OF THE SHARES ACQUIRED ON THE DATE OF EXERCISE and
the aggregate Exercise Price, or (B) the difference between the SALE PRICE of
such Shares and the aggregate Exercise Price.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
-------------------------------------------------
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement.
OPTIONEE: SEAGATE TECHNOLOGY, INC.
______________________________ By:___________________________
Signature
______________________________ Title:________________________
Print Name
<PAGE>
DESIGNATION OF BENEFICIARY
--------------------------
In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all of my options that are unexercised at that time.
NAME: (Please print) _____________________________________________
(First) (Middle) (Last)
_____________________ _____________________________________
Relationship
_____________________________________
(Address)
Dated: ______________ _____________________________________
Signature of Employee
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
______________________________
Spouse of Optionee
<PAGE>
EXHIBIT A
---------
1991 INCENTIVE STOCK OPTION PLAN
EXERCISE NOTICE
Seagate Technology, Inc.
920 Disc Drive
Scotts Valley, California 95066
Attention: Secretary
1. Exercise of Option. Effective as of today, ___________, 199__, the
------------------
undersigned ("Purchaser") hereby elects to purchase _________ shares (the
"Shares") of the Common Stock of Seagate Technology, Inc. (the "Company") under
and pursuant to the 1991 Incentive Stock Option Plan (the "Plan") and the Stock
Option Agreement dated _______________ (the "Option Agreement"). The purchase
price for the Shares shall be $__________, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price for the Shares.
3. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Subject to the terms and conditions of this
---------------------
Agreement, Optionee shall have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that Optionee delivers full
payment of the Exercise Price until such time as Optionee disposes of the
Shares.
5. Tax Consultation. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
-------------------------------
incorporated herein by reference. This Exercise Notice, the Plan and the Option
Agreement constitute the entire agreement of the parties and supersede in their
entirety all prior undertakings and agreements of the
<PAGE>
Company and Optionee with respect to the subject matter hereof, and such
agreement is governed by Delaware law except for that body of law pertaining to
conflict of laws.
Submitted by: Accepted by:
OPTIONEE: SEAGATE TECHNOLOGY, INC.
______________________________ By:___________________________
Signature
______________________________ Its:__________________________
Print Name
Address: Address:
- ------- -------
______________________________ 920 Disc Drive
______________________________ Scotts Valley, California 95066
<PAGE>
EXHIBIT A-1
-----------
1991 INCENTIVE STOCK OPTION PLAN
RESTRICTED STOCK AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS, the Purchaser named in the Notice of Grant, (the "Purchaser") is
an employee or consultant of the Company, and the Purchaser's continued
participation is considered by the Company to be important for the Company's
continued growth; and
WHEREAS, in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Administrator has granted to the Purchaser the right
to exercise options relating to unvested shares subject to the terms and
conditions of the Plan and the Notice of Grant, which are incorporated herein by
reference, and pursuant to this restricted stock purchase agreement (the
"Agreement").
THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and
-------------
the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the exercise price per share and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be
-------------------------
paid by delivery to the Company at the time of execution of this Agreement by
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash; (b) check; or (c) surrender of other Shares which (i) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, AND (ii) have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.
3. Repurchase Option.
-----------------
a. In the event the Purchaser's Continuous Status as an Employee or
Consultant terminates for any or no reason (including death or disability)
before all of the Shares are released from the Company's repurchase option (see
Section 4), the Company shall, upon the date of such termination (as reasonably
fixed and determined by the Company) have an irrevocable, exclusive option for a
period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). Said option shall
be exercised by the Company by delivering written notice to the Purchaser or the
Purchaser's executor (with a copy to the Escrow Holder) AND, at the Company's
option, (i) by delivering to the Purchaser or the Purchaser's executor a check
in the amount of the aggregate Repurchase Price, or (ii) by the Company
canceling an amount of the
<PAGE>
Purchaser's indebtedness to the Company equal to the aggregate Repurchase Price,
or (iii) by a combination of (i) and (ii) so that the combined payment and
cancellation of indebtedness equals such aggregate Repurchase Price. Upon
delivery of such notice and the payment of the aggregate Repurchase Price in any
of the ways described above, the Company shall become the legal and beneficial
owner of the Shares being repurchased and all rights and interests therein or
relating thereto, and the Company shall have the right to retain and transfer to
its own name the number of Shares being repurchased by the Company.
b. Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's purchase rights under this Agreement and
purchase all or a part of such Shares; provided that if the Fair Market Value of
the Shares to be repurchased on the date of such designation or assignment (the
"Repurchase FMV") exceeds the aggregate Repurchase Price of such Shares, then
each such designee or assignee shall pay the Company cash equal to the
difference between the Repurchase FMV and the aggregate Repurchase Price of such
Shares.
4. Release of Shares From Repurchase Option.
----------------------------------------
a. ___________________ (_______) of the Shares shall be released
from the Company's repurchase option
_________________________________________________________________, provided in
each case that the Purchaser's Continuous Status as an Employee or Consultant
has not terminated prior to the date of any such release.
b. Any of the Shares which have not yet been released from the
Company's repurchase option are referred to herein as "Unreleased Shares."
c. The Shares which have been released from the Company's repurchase
option shall be delivered to the Purchaser at the Purchaser's request (see
Section 6).
5. Restriction on Transfer. Except for the escrow described in Section 6
-----------------------
or transfer of the Shares to the Company or its assignees contemplated by this
Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until the release of
such Shares from the Company's repurchase option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
----------------
a. To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Company's
repurchase option under Section 3 above, the Purchaser shall, upon execution of
this Agreement, deliver and deposit with an escrow holder designated by the
Company (the "Escrow Holder") the share certificates representing the Unreleased
Shares, together with the stock assignment duly endorsed in blank, attached
hereto as Exhibit A-2. The Unreleased Shares and stock assignment shall be held
by the Escrow Holder, pursuant to the Joint Escrow Instructions of the Company
and Purchaser attached as Exhibit A-3
<PAGE>
hereto, until such time as the Company's repurchase option expires. As a further
condition to the Company's obligations under this Agreement, the spouse of
Purchaser, if any, shall execute and deliver to the Company the Consent of
Spouse attached hereto as Exhibit A-4.
b. The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow and while
acting in good faith and in the exercise of its judgment.
c. If the Company or any assignee exercises its repurchase option
hereunder, the Escrow Holder, upon receipt of written notice of such option
exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
d. When the repurchase option has been exercised or expires
unexercised or a portion of the Shares has been released from such repurchase
option, upon Purchaser's request the Escrow Holder shall promptly cause a new
certificate to be issued for such released Shares and shall deliver such
certificate to the Company or the Purchaser, as the case may be.
e. Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to such Shares while they are held in
escrow, including without limitation, the right to vote the Shares and receive
any cash dividends declared thereon. If, from time to time during the term of
the Company's repurchase option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Company's repurchase option.
7. Legends. The share certificate evidencing the Shares issued hereunder
-------
shall be endorsed with the following legend (in addition to any legend required
under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares
--------------------------
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's own
----------------
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser
is relying solely on such advisors and not on any statements or representations
of the Company or any of its agents. The Purchaser understands that
<PAGE>
the Purchaser (and not the Company) shall be responsible for the Purchaser's own
tax liability that may arise as a result of this investment or the transactions
contemplated by this Agreement. The Purchaser understands that Section 83 of the
Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income
the difference between the purchase price for the Shares and the Fair Market
Value of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" includes the right of the Company to buy back the Shares
pursuant to its repurchase option. The Purchaser understands that the Purchaser
may elect to be taxed at the time the Shares are purchased rather than when and
as the Company's repurchase option expires by filing an election under Section
83(b) of the Code with the I.R.S. within 30 days from the date of purchase. The
form for making this election is attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
------------------
a. This Agreement shall be governed by the laws of the State of
California. This Agreement, subject to the terms and conditions of the Plan and
the Notice of Grant, represents the entire agreement between the parties with
respect to the purchase of Common Stock by the Purchaser. Subject to Section
15(c) of the Plan, in the event of a conflict between the terms and conditions
of the Plan and the terms and conditions of this Agreement, the terms and
conditions of the Plan shall prevail. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this
Agreement.
b. Any notice, demand or request required or permitted to be given
by either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
Any notice to the Escrow Holder shall be sent to the Company's address
with a copy to the other party not sending the notice.
c. The rights and benefits of the Company under this Agreement shall
be transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
d. Either party's failure to enforce any provision or provisions of
this Agreement shall not in any way be construed as a waiver of any such
provision or provisions, nor prevent that party from thereafter enforcing each
and every other provision of this Agreement. The rights granted
<PAGE>
both parties herein are cumulative and shall not constitute a waiver of either
party's right to assert all other legal remedies available to it under the
circumstances.
e. The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
f. PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE
OR CONSULTANT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED OR
PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS AN EMPLOYEE OR CONSULTANT FOR THE VESTING PERIOD, FOR ANY PERIOD,
OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT
TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH
OR WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
PURCHASER: SEAGATE TECHNOLOGY, INC.
______________________________ By:____________________________
Signature
______________________________ Title:_________________________
Print Name
<PAGE>
EXHIBIT A-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto__________________________________________ (__________) shares of
the Common Stock of Seagate Technology, Inc. standing in my name of the books of
said corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint _____________________________________________
to transfer the said stock on the books of the within named corporation with
full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between Seagate Technology, Inc. and the undersigned
dated ______________, 19__.
Dated: _______________, 19__
Signature:______________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"repurchase option," as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT A-3
-----------
JOINT ESCROW INSTRUCTIONS
-------------------------
________________, 19__
Seagate Technology, Inc.
920 Disc Drive
Scotts Valley, California 95066
Attention: Secretary
Dear Secretary:
As Escrow Agent for both Seagate Technology, Inc., a Delaware corporation
(the "Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively for convenience herein as the "Company") exercises the Company's
repurchase option set forth in the Agreement, the Company shall give to
Purchaser and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
<PAGE>
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within 90 days after cessation of Purchaser's continuous employment by or
services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree, you shall
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
<PAGE>
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Seagate Technology, Inc.
920 Disc Drive
Scotts Valley, California 95066
PURCHASER: __________________________________
ESCROW AGENT: Seagate Technology, Inc.
920 Disc Drive
Scotts Valley, California 95066
Attention: Secretary
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the laws of the State of California.
Very truly yours,
SEAGATE TECHNOLOGY, INC.
By: ________________________________
Title: _____________________________
PURCHASER:
_____________________________________
(Signature)
_____________________________________
(Typed or Printed Name)
ESCROW AGENT:
____________________________
Secretary
<PAGE>
EXHIBIT A-4
-----------
CONSENT OF SPOUSE
-----------------
I, ____________________, spouse of ___________________, have read and
approve the foregoing Agreement. In consideration of granting of the right to
my spouse to purchase shares of Seagate Technology, Inc., as set forth in the
Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws or
similar laws relating to marital property in effect in the state of our
residence as of the date of the signing of the foregoing Agreement.
Dated: _______________, 19____
______________________________
<PAGE>
EXHIBIT A-5
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to the above-referenced Federal
Tax Code, to include in taxpayer's gross income for the current taxable year,
the amount of any compensation taxable to taxpayer in connection with his
receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME : TAXPAYER: SPOUSE:
ADDRESS: :
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: __________ shares (the "Shares") of the Common Stock of Seagate
Technology, Inc. (the "Company").
3. The date on which the property was transferred is: ______________, 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, on certain
events. This right lapses with regard to a portion of the Shares based on
the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is:
$_______________.
6. The amount (if any) paid for such property is:
$_______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person per
forming the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: _______________, 19__ ___________________________________
_________________________, Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: _______________, 19__ ___________________________________
Spouse of Taxpayer
<PAGE>
EXHIBIT 11.1
SEAGATE TECHNOLOGY, INC.
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
JUNE 27, JUNE 28, JUNE 30,
1997 1996 1995
-------- -------- --------
(IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
PRIMARY
Weighted average number of common shares
outstanding during the year..................... 233,562 199,738 190,630
Incremental common shares attributable to
exercise of outstanding options (assuming
proceeds would be used to purchase treasury
stock).......................................... 7,481 7,138 4,900
-------- -------- --------
Total shares................................. 241,043 206,876 195,530
======== ======== ========
Net income:
Income before extraordinary gain............... $658,038 $213,261 $312,548
Extraordinary gain, net of tax effect.......... -- -- 6,171
-------- -------- --------
Net income................................... $658,038 $213,261 $318,719
======== ======== ========
Net income per share:
Income before extraordinary gain............... $ 2.73 $ 1.03 $ 1.60
Extraordinary gain, net of tax effect.......... -- -- .03
-------- -------- --------
Net income................................... $ 2.73 $ 1.03 $ 1.63
======== ======== ========
FULLY DILUTED
Weighted average number of common shares
outstanding during the year..................... 233,562 199,738 190,630
Incremental common shares attributable to
exercise of outstanding options (assuming
proceeds would be used to purchase treasury
stock) and conversion of 6%, 6 1/2% and 5%
convertible subordinated debentures............. 24,799 36,534(a) 56,512
-------- -------- --------
Total shares................................. 258,361 236,272(a) 247,142
======== ======== ========
Net income:
Income before extraordinary gain............... $658,038 $213,261 $312,548
Add 6 3/4% convertible subordinated debentures
interest, net of income tax effect............ -- 7,487 11,240
Add 5% convertible subordinated debentures
interest, net of income tax effect............ 4,376 8,228 8,448
Add 6 3/4% convertible subordinated debentures
interest, net of income tax effect 5,663 -- (a) 8,340
Add 6 1/2% convertible subordinated debentures
interest, net of income tax effect............ 6,465 -- (a) 12,012
-------- -------- --------
Income before extraordinary gain, as adjusted.. 674,542 228,976(a) 352,588
Extraordinary gain, net of tax effect.......... -- -- 6,171
-------- -------- --------
Net income, as adjusted........................ $674,542 $228,976(a) $358,759
======== ======== ========
Net income per share:
Income before extraordinary gain, as adjusted.. $ 2.61 $ .97(a) $ 1.43
Extraordinary gain, net of tax effect, as
adjusted...................................... -- -- .02
-------- -------- --------
Net income................................... $ 2.61 $ .97(a) $ 1.45
======== ======== ========
</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.
26
<PAGE>
EXHIBIT 13.1
SEAGATE TECHNOLOGY, INC.
ANNUAL REPORT TO STOCKHOLDERS
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended June 27, June 28, June 30, July 1, July 2,
In thousands except per share data 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $8,940,022 $8,588,350 $7,256,209 $5,865,255 $5,195,276
Gross profit 2,022,255 1,581,001 1,373,385 1,170,821 909,872
Income (loss) from operations 857,585 286,969 459,301 473,097 (195,442)
Income (loss) before extraordinary gain 658,038 213,261 312,548 329,685 (267,605)
Net income (loss) 658,038 213,261 318,719 329,685 (267,605)
Primary income (loss) per share before
extraordinary gain 2.73 1.03 1.60 1.71 (1.50)
Primary net income (loss) per share 2.73 1.03 1.63 1.71 (1.50)
Fully diluted income (loss) per share
before extraordinary gain 2.61 .97 1.43 1.56 (1.50)
Fully diluted net income (loss) per share 2.61 .97 1.45 1.56 (1.50)
Total assets 6,722,879 5,239,635 4,899,832 4,307,937 3,470,970
Long-term debt, less current portion 701,945 798,305 1,066,321 1,176,551 941,882
Stockholders' equity $3,475,666 $2,466,088 $1,936,132 $1,634,700 $1,228,829
Number of shares used in per share
computations:
Primary 241,043 206,876 195,530 192,320 178,374
Fully diluted 258,361 236,272 247,142 235,934 178,374
</TABLE>
The 1997 results of operations include a $153,000 charge as a result of the
adverse judgment in the Amstrad PLC litigation. 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. in February 1996 on a pooling of interests basis and a two-for-one stock
split, effected in the form of a stock dividend, in November 1996.
1
<PAGE>
<TABLE>
<CAPTION>
Quarterly/1997
Unaudited, in thousands except per share data 1st 2nd 3rd 4th
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $2,060,825 $2,400,156 $2,501,823 $1,977,218
Gross profit 392,776 541,499 630,834 457,146
Income from operations 173,711 289,473 346,857 47,544
Net income 129,361 212,600 256,750 59,327
Net income per share:
Primary .59 .91 1.01 .23
Fully diluted .53 .84 1.01 .23
Price range per share:
Low 18-1/16 25-7/8 37-3/8 32-1/2
High $ 29-5/16 $ 42-3/4 $ 56-1/4 $ 54-1/4
</TABLE>
The results for the first quarter include restructuring reversals of $9,554
related to the completion of certain aspects of the restructuring in connection
with the merger with Conner Peripherals, Inc. at less than originally estimated.
The results for the third quarter include compensation expense and in-process
research and development charges of $13,446 and $2,876, respectively, in
connection with additional amounts paid with respect to the June 1996
acquisition of Holistic Systems Ltd. The results for the fourth quarter include
a $153,000 charge as a result of the adverse judgment in the Amstrad PLC
litigation (See "Management's Discussion and Analysis of Financial Condition and
Results of Operations") and restructuring charges of $2,478 related to certain
software operations.
<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 .61 .74 (.78) .46
Fully diluted .52 .63 (.78) .42
Price range per share:
Low 19-9/16 19-5/16 22-15/16 21-1/4
High $ 24-5/16 $ 27 $ 33-9/16 $ 31-1/4
</TABLE>
2
<PAGE>
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. in February 1996 on a pooling of interests basis and a two-for-one stock
split, effected in the form of a stock dividend, in November 1996.
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 27, 1997,
there were approximately 6,388 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. In November 1996, the Company effected a two-for-one
stock split in the form of a stock dividend. Prior periods have been restated
to reflect the stock split.
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 1997 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
projected in such forward-looking statements. Certain of these risks and
uncertainties are set forth below under "Foreign Currency Risks," "Factors
Affecting Future Operating Results," elsewhere in this MD&A, elsewhere in this
Annual Report to Stockholders and in the Company's Annual Report on Form 10-K
for 1997. These forward-looking statements include the statements relating to
declining unit sales prices in the first paragraph under "Results of Operations-
1997 vs 1996," the statements relating to customs duties in the third paragraph
under "Results of Operations - 1997 vs 1996," the statements relating to
continued expansion into complementary markets and future write-offs of in-
process research and development, including the charge to operations in
connection with the acquisition of Quinta Corporation, in the seventh paragraph
under "Results of Operations - 1997 vs 1996," the statements relating to the
Amstrad PLC litigation in the ninth paragraph under "Results of Operations -1997
vs 1996," the statements relating to the 1998 effective tax rate in the eleventh
paragraph under "Results of Operations - 1997 vs 1996," the statements relating
to the IRS adjustments in the thirteenth paragraph under "Results of Operations-
1997 vs 1996," the statements regarding the decline in value of the Thai Baht
and Malaysian Ringgit relative to the U.S. Dollar and future movements in
currency exchange rates in the last paragraph of "Disclosures about Market Risk-
Foreign Currency Risk," the statements under "Environmental Matters," the
statements regarding capital expenditures in the third paragraph under
"Liquidity and Capital Resources," the statements regarding continued expansion
into complementary markets in the sixth paragraph under "Liquidity and Capital
Resources," the statements regarding the sufficiency of the Company's resources
in the last paragraph under "Liquidity and Capital Resources," the statements
under "Factors Affecting Future Operating Results," and the statements in the
Litigation and Environmental Matters note to the consolidated financial
statements, among others.
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
3
<PAGE>
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 statement of income
for the year ended December 30, 1995 has been combined with Seagate's statement
of income for the year ended June 30, 1995. 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 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. In addition, the Company designs, manufactures and markets a full
line of mini-cartridge and Digital Audio Tape ("DAT") products. These products
are dedicated back-up storage peripherals that combine high capacity, high
performance, low cost and reliability to meet the needs of the desktop and
workstation markets.
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 stores,
manages and accesses data and transforms it into usable information. As such,
the Company has broadened its core competencies to include software products and
technologies to meet these requirements.
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 27, 1997.
<TABLE>
<CAPTION>
Percentage of Net Sales
--------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100% 100% 100%
Cost of sales 77 82 81
---- ---- ----
Gross profit 23 18 19
Product development 5 5 5
Marketing and administrative 6 6 6
Amortization of goodwill and other intangibles - - 1
In-process research and development - 1 1
Restructuring - 3 -
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C> <C>
Unusual items 2 - -
---- ---- ----
Income from operations 10 3 6
Other income, net - 1 -
---- ---- ----
Income before income taxes and extraordinary gain 10 4 6
Provision for income taxes (3) (1) (2)
Extraordinary gain - - -
---- ---- ----
Net income 7% 3% 4%
==== ==== ====
</TABLE>
1997 VS 1996 Net sales in 1997 were 4% higher than those reported in
1996. The increase in net sales over the prior year 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.
Net sales decreased to $1,977,218,000 in the fourth quarter of 1997 from
$2,501,823,000 in the third quarter of 1997 as a result of weakness in customer
demand, primarily for the Company's higher performance products. The decreased
sales, together with internal production issues, adversely impacted the
Company's gross margins and results of operations for the fourth quarter of
1997. 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 increase in gross margin as a percentage of net sales over the
prior year was primarily due to improvements in gross margins for the Company's
desktop disc drive products, as well as a shift in mix to the Company's newer,
higher capacity and higher performance disc drives, particularly those with
capacities greater than 4 gigabytes, and a reduction in certain product costs,
such as material, scrap and warranty costs per unit. These factors were
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 Commission of the European Union is considering a proposal that
would assess duties on so-called multi-media products (e.g., personal computers
with multi-media capabilities) at a rate of 14%. Under the current code, duties
would decline to zero within two years. If this proposal were implemented,
certain high capacity drives of the Company could be subjected to this higher
tariff. The imposition of such higher customs duties would negatively impact
the Company's revenues or increase costs and adversely impact gross margins.
Product development expenses increased by $38,901,000 (9%) compared
with 1996, primarily due to increases in salaries and related costs, materials
and depreciation as well as increasing product development expenses related to
the Company's software products and services.
Marketing and administrative expenses increased by $6,750,000 (1%)
compared with 1996, primarily due to increasing marketing and administrative
expenses related to the Company's software products and services. These
increases in expenses were substantially offset by cost savings in non-software
activities resulting from the combination of the operations of the Company and
Conner pursuant to the February 1996 merger of the two companies. These cost
savings were primarily in the areas of salaries and related costs, outside
services, advertising and promotion, legal expenses and allocated occupancy
costs.
Amortization of goodwill and other intangibles increased by $3,148,000
(7%) compared with 1996, primarily due to the write-offs and write-downs of
certain intangible assets related to past acquisitions of software companies
whose value had become impaired and a full year of amortization in 1997, as
compared with a partial year in 1996, of certain intangible assets arising from
acquisitions of software companies in 1996. The increase in amortization from
1996 was partially offset by write-offs, in 1996, of certain intangible assets
related to past acquisitions of tape drive and software companies whose value
had become impaired. See Acquisitions note to consolidated financial
statements.
The $2,876,000 charge for in-process research and development in 1997
was incurred in connection with additional amounts paid with respect to the June
1996 acquisition of Holistic Systems Ltd. In August 1997, the Company completed
the acquisition of Quinta Corporation, a developer of ultra-high capacity disc
drive technologies, including a new optically assisted Winchester (OAW)
technology. Pursuant to the purchase agreement, the shareholders of Quinta,
other than Seagate, received cash payments aggregating $230 million upon closing
of the transaction and will be eligible to receive, upon the achievement of
certain product development and early production milestones, additional payments
aggregating $95 million. In April and June 1997, Seagate had invested an
aggregate of $20 million acquiring approximately ten percent (10%) of Quinta's
stock.
5
<PAGE>
As a result of this acquisition, the Company will incur a charge to operations
of approximately $217,000,000 in the first quarter of fiscal 1998 for the
write-off of in-process research and development. In addition, the Company
anticipates that its operating expenses, including product development
expenses, marketing and administrative expenses and amortization of goodwill
and other intangibles, will increase as a result of the ongoing operations of
Quinta and the payment of milestone payments if the milestones are achieved.
The Company intends to continue its expansion into software and other
complementary data technology markets and 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 companies.
During fiscal year 1996, the Company recorded restructuring charges
totaling $241,720,000 as a result of the merger with Conner. During 1997, the
Company reversed $9,554,000 of its restructuring reserves as a result of the
completion of certain aspects of the restructuring plan at less than the
originally estimated cost. The reversal consisted of $4,567,000 in severances
and benefits, $3,658,000 in excess facilities and $1,329,000 in other expenses.
Implementation of the restructure plan is substantially complete as of June 27,
1997. Offsetting the $9,554,000 reversal was a $2,478,000 charge for
restructuring costs in the Company's Seagate Software subsidiary.
Unusual items in 1997 consisted of a $153,000,000 charge as a result
of the judgment adverse to the Company in the Amstrad PLC ("Amstrad") litigation
and $13,446,000 for compensation expense in connection with additional amounts
paid with respect to the June 1996 acquisition of Holistic Systems Ltd. Amstrad
initiated a lawsuit against the Company in 1992 concerning the Company's sale of
allegedly defective disc drives to Amstrad. The Company and Amstrad have
appealed the Court's decision. See Litigation and Environment Matters note to
consolidated financial statements.
Net other income decreased by $10,841,000 compared with 1996,
primarily due to an increase in minority interest expense as a result of higher
income in the Company's majority-owned subsidiary in Shenzhen, China, an
increase in amortization of premiums on foreign currency option contracts and
mark-to-market losses on foreign currency forward exchange contracts partially
offset by lower interest expense as a result of the redemption or conversion of
the Company's 5%, 6.5% and 6.75% convertible subordinated debentures.
The provision for income taxes increased by $114,998,000 in 1997,
primarily due to the increase in pretax earnings in 1997 partially offset by a
decrease in the effective tax rate from 36% in 1996 to 26% in 1997. The higher
effective tax rate in 1996 was primarily due to nondeductible charges associated
with the merger with Conner and other acquisitions. Excluding the Amstrad
litigation charge, the effective tax rate was approximately 28% in 1997.
Excluding the restructuring costs, nonrecurring merger-related costs and the
write-off of in-process research and development, the effective tax rate was
approximately 30% in 1996. While the Company expects the fiscal year 1998
effective tax rate before unusual items to approximate 28%, the actual effective
tax rate is expected to differ from this rate due to the acquisition of Quinta
Corporation in August 1997 and certain additional costs the Company may incur in
connection with future acquisitions. See Subsequent Events note to the
consolidated financial statements.
The Company provided income taxes at the U.S. statutory rate in 1997
on approximately 66% of its earnings from foreign subsidiaries compared with
approximately 64% of such earnings in 1996. 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 1998 through 2005. The net impact of these tax holidays
was to increase net income by approximately $71,394,000 ($0.28 per share, fully
diluted) in 1997 and approximately $50,398,000 ($0.21 per share, fully diluted)
in 1996.
On June 30, 1997, the Company received a statutory notice of potential
deficiencies from the Internal Revenue Service (IRS) relative to taxable years
1991 through 1993 approximating $38,500,000 plus interest, as well as
approximately $5,700,000 of penalties. The Company believes it has meritorious
defenses to the IRS adjustments but has not yet determined the forum in which it
will contest this proposed deficiency. The Company believes that the likely
outcome of this matter will not have a material adverse effect on its financial
position or results of operations.
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
6
<PAGE>
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.
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 related to the Company's software products and
services 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 related to the Company's software products and services 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 certain intangible assets
arising from acquisitions of software companies in 1995, and write-offs in 1996
of certain intangible assets related to the Company's tape drive and software
products and services 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.
As a result of the merger with Conner, the Company recorded
restructuring costs of $241,720,000 in 1996. The restructuring costs comprised
$60,714,000 for employee severance benefits, $97,209,000 to write-off or write
down equipment, inventory, intangibles and other assets, $45,138,000 for closure
of duplicate and excess facilities, $23,980,000 for fees of financial advisors,
attorneys and accountants and $14,679,000 for contract cancellations and other
expenses.
Net other income 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, the conversion or
redemption of certain of the Company's subordinated debentures and higher
interest income earned on the Company's investment portfolio from higher
interest rates, partially offset by increased foreign currency remeasurement
losses.
The provision for income taxes decreased by $56,729,000 in 1996,
primarily due to the decrease in pretax earnings in 1996. The effective tax rate
for both years was approximately 36%. Excluding the restructuring costs,
nonrecurring merger-related costs and the write-off of in-process research and
development, the effective tax rate was 30% in 1996.
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. The net impact of these
tax holidays was to increase net income by approximately $50,398,000 ($0.21 per
share, fully diluted) in 1996 and approximately $59,788,000 ($0.24 per share,
fully diluted) in 1995.
DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK The Company's exposure to market risk for changes in
interest rates relates primarily to the Company's investment portfolio and long-
term debt obligations. The Company does not use derivative financial
instruments in its investment portfolio. The Company places its investments
with high credit quality issuers and, by policy, limits the amount of credit
exposure to any one issuer. As stated in its policy, the Company is averse to
principal loss and ensures the safety and preservation of its invested funds by
limiting default risk, market risk, and reinvestment risk.
7
<PAGE>
The Company mitigates default risk by investing in only the safest and
highest credit quality securities and by constantly positioning its portfolio to
respond appropriately to a significant reduction in a credit rating of any
investment issuer or guarantor. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity.
The Company has no cash flow exposure due to rate changes for long-
term debt obligations. The Company primarily enters into debt obligations to
support general corporate purposes including capital expenditures and working
capital needs.
The table below presents principal (or notional) amounts and related
weighted average interest rates by year of maturity for the Company's investment
portfolio and debt obligations. All investments mature, by policy, in three
years or less.
<TABLE>
<CAPTION>
Fair Value
-------------
In thousands 1998 1999 2000 2001 2002 Thereafter Total June 27, 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash equivalents
Fixed rate $ 915,631 $ - $ - $ - $ - $ - $ 915,631 $ 913,056
Average interest rate 5.40% - - - - - 5.40%
Short-term investments
Fixed rate 784,895 170,516 40,279 - - - 995,690 990,067
Average interest rate 5.76% 5.99% 6.36% - - - 5.82%
Variable rate 246,150 - - - - - 246,150 246,195
Average interest rate 5.62% - - - - - 5.62%
Total investment
securities 1,946,676 170,516 40,279 - - - 2,157,471* 2,149,318
Average interest rate 5.57% 5.99% 6.36% - - - 5.62%
LONG-TERM DEBT
Fixed rate - - - - - 700,000 700,000 702,180
Average interest rate - - - - - 7.33% 7.33%
</TABLE>
*Includes $8,006 of unaccreted interest to be received at maturity.
FOREIGN CURRENCY RISK The Company transacts business in various foreign
currencies, primarily in emerging market countries in Asia and in certain
European countries. The Company has established a foreign currency hedging
program utilizing foreign currency forward exchange contracts and purchased
currency options to hedge local currency cash flows for payroll, inventory,
other operating expenditures and fixed asset purchases in Singapore, Thailand
and Malaysia. Under this program, increases or decreases in the Company's local
currency operating expenses and other cash outflows are partially offset by
realized gains and losses on the hedging instruments. The goal of this hedging
program is to economically guarantee or lock in the exchange rates on the
Company's foreign currency cash outflows rather than to eliminate the
possibility of short-term earnings volatility. Based on recent volatility in
the Far East foreign currency markets, the Company has temporarily suspended
purchasing foreign currency forward exchange and option contracts for the Thai
Baht, Malaysian Ringgit and Singapore Dollar. The Company does not use foreign
currency forward exchange contracts or purchased currency options for trading
purposes.
Gains and losses related to qualified hedges of firm commitments and
anticipated transactions are deferred and are recognized in income or as
adjustments of carrying amounts when the hedged transaction occurs. All other
forward exchange and option contracts are marked-to-market and unrealized gains
and losses are included in current period net income.
The table below provides information about the Company's derivative
financial instruments, comprised of foreign currency forward exchange contracts
and purchased currency options. The information is provided in U.S. Dollar
equivalent amounts, as presented in the Company's financial statements. For
foreign currency forward exchange contracts, the table presents the notional
amounts (at the contract exchange rates) and the weighted average contractual
foreign currency exchange rates. All instruments mature within twelve months.
8
<PAGE>
<TABLE>
<CAPTION>
June 27, 1997
----------------------------------------
Notional Average Estimated
In thousands, except average contract rate Amount Contract Rate Fair Value*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign currency forward exchange contracts:
Malaysian Ringgit $ 264,000 2.53 $ (1,135)
Singapore Dollar 284,000 1.39 (5,269)
Thai Baht 458,000 26.57 (5,058)
---------- --------
$1,006,000 $(11,462)
Purchased currency options:
Malaysian Ringgit $ 82,000 2.53 $ 822
Singapore Dollar 244,000 1.39 1,079
---------- --------
$ 326,000 $ 1,901
</TABLE>
*Equivalent to the unrealized net gain (loss) on existing contracts.
As described above, the goal of the Company's hedging program is to
economically guarantee or lock in the exchange rates on a portion of the
Company's local currency cash flows and not to eliminate all short-term earnings
volatility. Because not all economic hedges qualify as accounting hedges,
unrealized gains and losses may be recognized in income in advance of the actual
foreign currency cash flows. This mismatch of accounting gains and losses and
foreign currency cash flows may be especially pronounced in the first quarter of
fiscal 1998 as a result of the declines in value of the Thai Baht and Malaysian
Ringgit, relative to the U.S. Dollar, subsequent to fiscal year end 1997.
Assuming no further change in the current U.S. Dollar exchange rates for the
Thai Baht and Malaysian Ringgit (Baht 31.5 to U.S. Dollar 1 and Ringgit 2.79 to
U.S. Dollar 1 on August 14, 1997), the mark-to-market adjustment would result in
an unrealized pretax charge of approximately $44 million, to be recognized as
Other Expense at the end of the Company's first quarter of fiscal 1998 ending on
October 3, 1997. The Company's ultimate realized gain or loss with respect to
currency fluctuations will depend on the currency exchange rates and other
factors in effect at the time such contracts mature over the next twelve months.
Although the Company cannot predict future movements in currency exchange rates,
the Company believes that the benefits from recording local currency
expenditures in lower U.S. Dollar terms over the period during which these
foreign currency forward exchange contracts are scheduled to mature should more
than offset the charges to be recorded in the first quarter of fiscal 1998.
OTHER
Gains and losses resulting from the remeasurement of foreign financial
statements into U.S. Dollars did not have a significant effect on the results of
operations for 1997, 1996 or 1995.
The effect of inflation on operating results for 1997, 1996 and 1995 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.
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 Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APBO 25") and requires additional disclosures. Effective with the Company's
fiscal year ended June 27, 1997, the Company has continued to account for its
employee stock plans in accordance with the provisions of APBO 25 while
providing the additional disclosures required by SFAS 123. Accordingly, SFAS
123 has no 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
9
<PAGE>
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 27,
1997, including the estimated effects of inflation, is approximately
$16,500,000. Through June 27, 1997, the Company had recovered approximately
$4,300,000 from Ceridian through its indemnification and cost-sharing
agreements with Ceridian and, in addition, expects to recover approximately
$9,700,000 from Ceridian over the next 30 years. After deducting the expected
recoveries from Ceridian, the expected aggregate undiscounted liability was
approximately $6,800,000 at June 27, 1997, 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 27, 1997.
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.
LIQUIDITY AND CAPITAL RESOURCES
At June 27, 1997, the Company's cash, cash equivalents and short-term
investments totaled $2.284 billion, an increase of $1.110 billion from the prior
year-end balances. This increase was primarily a result of cash provided by
operating activities and the issuance of $700 million principal amount of senior
notes and debentures, offset by the Company's additions to property, equipment
and leasehold improvements and the repurchase by the Company of approximately
13.5 million shares of its common stock. Until required for other purposes, the
Company's cash and cash equivalents are maintained in highly liquid investments
with remaining maturities of 90 days or less at the time of purchase, while its
short-term investments consist of readily marketable debt securities with
remaining maturities of more than 90 days at the time of purchase.
As of June 27, 1997, the Company had committed lines of credit of $82
million that can be used for standby letters of credit or bankers' guarantees.
At June 27, 1997, approximately $78 million had been utilized.
The Company made investments in property and equipment in 1997 totaling
$920 million. This amount comprised $301 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, $263 million for
manufacturing facilities and equipment for the thin-film head operations in the
United States, Malaysia, Northern Ireland and Thailand, $255 million for
expansion of the Company's thin-film media operations in California, Singapore
and Northern Ireland and $101 million for other purposes. The Company presently
anticipates investments of approximately $1.1 billion in property and equipment
in 1998. The Company plans to finance these investments from existing cash
balances and future cash flows from operations.
During the year ended June 27, 1997, the Company acquired approximately
13.5 million shares of its common stock for approximately $582 million. The
repurchase of these shares nearly completed a stock repurchase program announced
in September 1996 in which up to 14 million shares of the Company's common stock
were authorized to be acquired in the open market. In June 1997, the Company
announced a new stock repurchase program under which up to an additional $600
million worth of its stock may be acquired in the open market.
During the year ended June 27, 1997, the Company called for redemption
all of its 5%, 6.5% and 6.75% debentures. Approximately $788 million principal
amount of the 5%, 6.5% and 6.75% debentures were converted to approximately 38.4
million shares of the Company's common stock and approximately $1.2 million
principal amount of the 6.5% and 6.75% debentures were redeemed. During the
same year, the Company issued senior debt securities totaling $700 million
principal amount with interest rates ranging from 7.125% to 7.875% and
maturities ranging from seven years to forty years.
In August 1997, the Company completed the acquisition of Quinta
Corporation, a developer of ultra-high capacity disc drive technologies,
including a new optically assisted Winchester (OAW) technology. Pursuant to the
purchase agreement, the shareholders of Quinta, other than Seagate, received
cash payments aggregating $230 million upon closing of the transaction and will
be eligible to receive, upon the achievement of certain product development and
early production milestones, additional payments aggregating $95 million. In
April and June 1997, Seagate had invested an aggregate of $20 million acquiring
approximately ten percent (10%) of Quinta's stock. The Company intends to
continue its expansion into software and other complementary data technology
markets 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.
10
<PAGE>
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.
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. 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. 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. The
demand of drive customers for products with ever increasing storage capacity and
more advanced technology has resulted in increased dependence by the Company on
sales of high capacity disc drives. The increased difficulty and complexity
associated with production of higher capacity disc drives increases the
likelihood of reliability, quality or operability problems that could result in
reduced bookings, increased manufacturing rework and scrap costs, increased
service and warranty costs and a decline in the Company's competitive position.
In addition, the Company's operating results have been and may in the future be
subject to significant quarterly fluctuations as a result of a number of other
factors, including the timing of orders from and shipment of products to major
customers, product mix, pricing, delays in the development, introduction and
production of new products, delays or interruptions in the production of
existing products, competing technologies, variations in product cost, component
availability due to single or limited sources of supply, high fixed costs
resulting from the Company's vertical integration strategy, the Company's
ability to attract and retain key technical employees, foreign currency exchange
fluctuations (see "Results of Operations - Disclosures about Market Risk and
Derivatives - Foreign Currency Risk"), increased competition and general
economic and industry fluctuations. For example, net sales decreased to
$1,977,218,000 in the fourth quarter of 1997 from $2,501,823,000 in the third
quarter of 1997 as a result of weakness in customer demand, primarily for the
Company's higher performance products. The decreased sales, together with
internal production issues, adversely impacted the Company's gross margins and
results of operations for the fourth quarter of 1997. 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 and Environmental Matters note to consolidated financial
statements.
The Company has experienced and expects to continue to experience intense
competition from a number of domestic and foreign companies. These companies
include the other leading independent disc drive manufacturers as well as large
integrated multinational computer manufacturers such as Fujitsu Limited,
International Business Machines Corporation, NEC Corporation and Toshiba
Corporation. Such competition could materially adversely affect the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to compete successfully against current or future
competitors or that competitive pressures faced by the Company will not
materially adversely affect its business, operating results and financial
condition.
The cost, quality and availability of certain components, including heads,
media, application specific integrated circuits, motors, printed circuit boards
and custom semiconductors are critical to the successful production of disc
drives. The Company's strategy of vertical integration has allowed it to
internally manufacture many of the critical components used in its products.
The Company also relies on independent suppliers for certain components used in
its products. The Company has in the past experienced production delays when
unable to obtain sufficient quantities of certain components. Any prolonged
interruption or reduction in the supply of any key
11
<PAGE>
components could have a material adverse effect on the Company's business,
operating results and financial condition. The Company has pursued a strategy of
vertical integration of its manufacturing process in order to reduce costs,
control quality and assure availability and quality of certain components. A
strategy of vertical integration entails a high level of fixed costs and
requires a high volume of production and sales to be successful. During periods
of decreased production, these high fixed costs have had, and could in the
future have, a material adverse effect on the Company's operating results and
financial condition.
The Company has significant offshore operations. Offshore operations are
subject to certain inherent risks, including delays in transportation, changes
in governmental policies, tariffs and import/export regulations, political
unrest, fluctuations in currency exchange rates and geographic limitations on
management controls and reporting. There can be no assurance that the inherent
risks of offshore operations will not adversely affect the Company's business,
operating results and financial condition in the future.
The Company has incorporated its software acquisitions into a single entity
called Seagate Software, Inc. ("SSI") and is offering employees of SSI and
selected employees of the Company an opportunity to acquire an equity interest
in SSI. Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations and products of the acquired businesses and the
potential loss of key employees or customers of the acquired businesses. The
Company intends to continue its expansion into software and other complementary
data technology 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. For example, the Company
will incur a charge to operations in the first quarter of fiscal 1998 of
approximately $217 million for the write-off of in-process research and
development in connection with the acquisition of Quinta Corporation.
The Company's operations are dependent on its ability to protect its
computer equipment and the information stored in its databases against damage by
fire, natural disaster, power loss, telecommunications failures, unauthorized
intrusion and other catastrophic events. The Company believes it has taken
prudent measures to reduce the risk of interruption in its operations. However,
there can be no assurance that these measures are sufficient. Any damage or
failure that causes interruptions in the Company's operations could have a
material adverse effect on its business, results of operations and financial
condition.
The Company is currently in the process of transitioning to new computer
software for its financial, accounting, inventory control, order processing and
other management information systems. The successful implementation of these
new systems is crucial to the efficient operation of the Company's business.
There can be no assurance that the Company will implement its new systems in an
efficient and timely manner or that the new systems will be adequate to support
the Company's operations. Problems with installation or initial operation of
the new systems could cause substantial management difficulties in operations
planning, financial reporting and management and thus could have a material
adverse effect on the Company's business, financial condition and results of
operations.
12
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 27, June 28,
In thousands except share data 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $1,047,335 $ 503,754
Short-term investments 1,236,262 670,308
Accounts receivable, net 1,040,835 1,066,519
Inventories 808,280 790,821
Deferred income taxes 253,372 222,355
Other current assets 166,223 145,523
---------- ----------
Total Current Assets 4,552,307 3,399,280
---------- ----------
Property, equipment and leasehold improvements, net 1,786,625 1,399,883
Goodwill and other intangibles, net 199,061 274,046
Other assets 184,886 166,426
---------- ----------
Total Assets $6,722,879 $5,239,635
========== ==========
LIABILITIES
Accounts payable $ 863,141 $ 715,396
Accrued employee compensation 200,360 180,126
Accrued expenses 504,777 305,044
Accrued warranty 197,676 185,708
Accrued income taxes 69,275 49,437
Current portion of long-term debt 1,125 2,425
---------- ----------
Total Current Liabilities 1,836,354 1,438,136
---------- ----------
Deferred income taxes 478,840 351,527
Accrued warranty 190,577 140,670
Other liabilities 39,497 44,909
Long-term debt, less current portion 701,945 798,305
---------- ----------
Total Liabilities 3,247,213 2,773,547
---------- ----------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value-1,000,000 shares
authorized; none issued or outstanding - -
Common stock, $.01 par value-600,000,000 shares authorized;
shares issued-251,890,019 in 1997 and
213,430,184 in 1996 2,519 2,134
Additional paid-in capital 1,902,824 1,132,328
Retained earnings 1,946,963 1,390,322
Deferred compensation (57,439) (57,656)
Treasury common stock at cost, 7,341,645 shares in 1997 (318,617) -
Foreign currency translation adjustment (584) (1,040)
---------- ----------
Total Stockholders' Equity 3,475,666 2,466,088
---------- ----------
Total Liabilities and Stockholders' Equity $6,722,879 $5,239,635
========== ==========
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the years ended June 27, June 28, June 30,
In thousands except per share data 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $8,940,022 $8,588,350 $7,256,209
Cost of sales 6,917,767 7,007,349 5,882,824
Product development 459,330 420,429 353,506
Marketing and administrative 493,006 486,256 451,476
Amortization of goodwill and other intangibles 50,088 46,940 35,925
In-process research and development 2,876 98,687 73,177
Restructuring (7,076) 241,720 -
Unusual items 166,446 - -
---------- ---------- ----------
Total Operating Expenses 8,082,437 8,301,381 6,796,908
---------- ---------- ----------
Income from Operations 857,585 286,969 459,301
Interest income 92,843 93,788 89,885
Interest expense (34,840) (55,825) (70,332)
Other, net (24,353) 6,528 8,622
---------- ---------- ----------
Other Income, net 33,650 44,491 28,175
Income before income taxes and extraordinary gain 891,235 331,460 487,476
Provision for income taxes (233,197) (118,199) (174,928)
---------- ---------- ----------
Income before extraordinary gain 658,038 213,261 312,548
Extraordinary gain - - 6,171
---------- ---------- ----------
Net Income $ 658,038 $ 213,261 $ 318,719
========== ========== ==========
Primary net income per share:
Income per share before extraordinary gain $ 2.73 $ 1.03 $ 1.60
Extraordinary gain per share - - .03
---------- ---------- ----------
Primary net income per share $ 2.73 $ 1.03 $ 1.63
========== ========== ==========
Fully diluted net income per share:
Income per share before extraordinary gain $ 2.61 $ .97 $ 1.43
Extraordinary gain per share - - .02
---------- ---------- ----------
Fully diluted net income per share $ 2.61 $ .97 $ 1.45
========== ========== ==========
Number of shares used in per share computations:
Primary 241,043 206,876 195,530
Fully diluted 258,361 236,272 247,142
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended June 27, June 28, June 30,
In thousands 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 658,038 $ 213,261 $ 318,719
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 606,954 416,879 316,852
Deferred income tax 96,341 (84,533) (709)
In-process research and development 2,876 98,687 73,177
Amstrad litigation charge 153,000 - -
Other 27,938 34,078 (9,408)
Changes in operating assets and liabilities:
Accounts receivable 30,573 (58,183) (335,963)
Inventories (83,709) (259,262) (42,641)
Accounts payable 168,514 (15,609) 232,988
Accrued expenses,compensation and warranty (63,216) 84,567 6,384
Accrued income taxes 72,099 (15,573) 26,337
Other assets and liabilities 160,084 157,389 63,878
----------- ----------- -----------
Net cash provided by operating activities 1,829,492 571,701 649,614
INVESTING ACTIVITIES
Acquisition of property, equipment and
leasehold improvements, net (890,458) (906,937) (489,343)
Purchases of short-term investments (4,473,188) (3,024,487) (2,687,393)
Maturities and sales of short-term investments 3,906,945 3,130,638 2,749,697
Acquisitions of businesses, net of cash acquired - (110,611) (167,752)
Equity investments (44,001) (11,434) (29,811)
Other, net 20,313 37,859 26,364
----------- ----------- -----------
Net cash used in investing activities (1,480,389) (884,972) (598,238)
FINANCING ACTIVITIES
Issuance of long-term debt 698,592 - -
Repayment of long-term debt (8,233) (15,556) (121,219)
Sale of common stock 84,304 96,552 69,085
Purchase of treasury stock (581,721) (123,727) (113,409)
Other, net - (93) -
----------- ----------- -----------
Net cash provided by (used in) financing activities 192,942 (42,824) (165,543)
Effect of exchange rate changes on
cash and cash equivalents 1,536 1,088 (2,268)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 543,581 (355,007) (116,435)
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 503,754 890,667 1,007,102
----------- ----------- -----------
Cash and cash equivalents at the end of the year $ 1,047,335 $ 503,754 $ 890,667
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
15
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the years ended
June 27, 1997, June 28, Foreign
1996 and June 30, 1995 Common Stock Additional Treasury Currency
-------------------- Paid-In Retained Deferred Common Translation
In thousands Shares Amount Capital Earnings Compensation Stock Adjustment Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1994 192,040 $1,920 $ 639,191 $1,000,168 $ (5,535) $ - $ (1,044) $1,634,700
Purchase of treasury stock
at cost (113,409) (113,409)
Sale of stock 2,066 21 23,950 (45,456) 90,570 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 (4) 10 6
Unrealized gain on
marketable securities 1,013 1,013
Net income 318,719 318,719
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 194,106 1,941 686,224 1,274,440 (2,600) (22,839) (1,034) 1,936,132
Purchase of treasury
stock at cost (123,727) (123,727)
Sale of stock 6,842 68 76,332 (20,328) 40,480 96,552
Acquisition of Arcada
minority interest 2,554 26 85,062 (13) 85,075
Issuance of restricted
stock, net of cancellations 2,020 20 58,619 (10) (58,619) 10
Amortization of
deferred compensation 3,946 3,946
Income tax benefit from
stock options exercised 47,302 47,302
Conversion of debentures
to common stock 9,230 92 199,656 (38,448) 106,086 267,386
Foreign currency
translation adjustment 4 (6) (2)
Unrealized loss on
marketable securities (1,335) (1,335)
Net income 213,261 213,261
<CAPTION>
Elimination of Conner
activity for the
duplicated six months
ended December 31, 1995 (1,322) (13) (20,871) (37,245) (383) (58,512)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at June 28, 1996 213,430 2,134 1,132,328 1,390,322 (57,656) - (1,040) 2,466,088
Purchase of treasury
stock at cost (581,721) (581,721)
Sale of stock 3,635 37 42,229 (70,835) 112,873 84,304
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of restricted
stock, net of cancellations 95 1 7,529 (7,479) (7,530) 7,480 1
Amortization of
deferred compensation 7,747 7,747
Income tax benefit from
stock options exercised 52,261 52,261
Conversion of debentures
to common stock 34,730 347 668,477 (23,684) 142,751 787,891
Foreign currency
translation adjustment 456 456
Unrealized gain on
marketable securities 601 601
Net income 658,038 658,038
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at June 27, 1997 251,890 $2,519 $1,902,824 $1,946,963 $(57,439) $(318,617) $ (584) $3,475,666
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS Seagate Technology, Inc. (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 Company sells its products to
original equipment manufacturers for inclusion in their computer systems or
subsystems, and to distributors, resellers, dealers and retailers.
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 markets in which the Company participates,
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 and majority-owned subsidiaries
after eliminations. Total outstanding minority interests are not material for
any period presented.
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 1997
ended on June 27, 1997, fiscal 1996 ended on June 28, 1996 and fiscal 1995 ended
on June 30, 1995. All fiscal years comprised 52 weeks. Fiscal 1998 will be a 53
week year with the first fiscal quarter having 14 weeks. All references to
years in these notes to consolidated financial statements represent fiscal years
unless otherwise noted.
Certain amounts in prior year financial statements and notes thereto have
been reclassified to conform to current year presentation.
STOCK SPLIT In November 1996, the Company effected a two-for-one stock
split in the form of a stock dividend. Prior periods have been restated to
reflect the stock split.
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.
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. Foreign currency forward exchange contracts designated and effective
as hedges of firm commitments and option contracts designated and effective as
hedges of firm commitments or anticipated transactions are treated as hedges for
accounting purposes. Gains and losses related to qualified 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. All other foreign currency forward exchange and option contracts are
marked-to-market and unrealized gains and losses are included in current period
net income as a component of other income (expense).
Premiums on foreign currency option contracts used to hedge firm
commitments and anticipated transactions are amortized on a straight-line basis
over the life of the contract. Forward points on foreign currency
18
<PAGE>
forward exchange contracts which qualify as hedges of firm commitments are
recognized in income or as adjustments to the carrying amount when the hedged
transaction occurs.
The Company may, from time to time, adjust its foreign currency hedging
position by taking out additional contracts or by terminating or offsetting
existing foreign currency forward exchange and option contracts. These
adjustments may result from changes in the Company's underlying foreign currency
exposures or from fundamental shifts in the economics of particular exchange
rates, as has occurred recently with the Thai Baht and the Malaysian Ringgit.
(See Subsequent Events note.) For foreign currency forward exchange and option
contracts qualifying as accounting hedges, gains or losses on terminated
contracts and offsetting contracts are deferred and are recognized in income or
as adjustments to the carrying amount of the hedged item in the period the
hedged transaction occurs. For foreign currency forward exchange and option
contracts not qualifying as accounting hedges, gain and losses on terminated
contracts, or on contracts that are offset, are recognized in income in the
period of contract termination or offset.
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.
ADVERTISING EXPENSE The cost of advertising is expensed as
incurred. Advertising costs were not significant in 1997, 1996 or 1995.
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 Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APBO 25") and requires additional disclosure. SFAS 123
is effective for the Company's fiscal year ended June 27, 1997. The Company has
elected to continue to account for its employee stock plans in accordance with
the provisions of APBO 25 while providing the additional disclosures required by
SFAS 123. Accordingly, SFAS 123 had no impact on the Company's financial
position or results of operations.
IMPAIRMENT OF LONG-LIVED 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. The adoption of SFAS 121 did not have a material
impact on the Company's financial position or results of operations.
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.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share," ("SFAS 128")
which is required to be adopted in the Company's fiscal quarter ended January 2,
1998. At that time, the Company will be required to change the method currently
used to compute net income per share and to restate all prior periods. Under
the new requirements for calculating primary net income per share, the dilutive
effect of stock options will be excluded. If SFAS 128 had been effective for
1997 and 1996 it would have resulted in an increase in primary earnings per
share of $ .09 and $ .04, respectively. The impact of SFAS 128 on the
calculation of fully diluted earnings per share for those years would not have
been material.
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
primarily 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. Mortgage
backed securities, included in U.S. Government Obligations, are classified by
contractual maturity based upon the weighted average life of the securities.
19
<PAGE>
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 The Company's customer base for disc
drive products 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 noncollection 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.
FINANCIAL INSTRUMENTS
The following is a summary of available-for-sale securities at June 27,
1997:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
In thousands Cost Gain Loss Fair Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money market mutual funds $ 181,746 $ - $ - $ 181,746
U.S. government obligations 364,360 101 (238) 364,223
Repurchase agreements 150,000 - - 150,000
Commercial paper 615,595 - (8) 615,587
Auction rate preferred stock 227,150 - - 227,150
Euro/Yankee time deposits 416,759 - - 416,759
Municipal bonds 77,605 132 (35) 77,702
Corporate bonds 116,250 97 (196) 116,151
---------- ------ ------- ----------
Total $2,149,465 $ 330 $ (477) $2,149,318
========== ====== ======= ==========
Included in short-term investments $1,236,262
Included in cash and cash equivalents 913,056
----------
Total $2,149,318
==========
</TABLE>
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>
Money market mutual funds $ 111,522 $ - $ - $ 111,522
U.S. government obligations 164,810 83 (577) 164,316
Commercial paper 298,868 842 (1) 299,709
Auction rate preferred stock 121,123 - (23) 121,100
Euro/Yankee time deposits 85,918 3 - 85,921
Municipal bonds 90,463 61 (223) 90,301
Corporate bonds 126,131 111 (598) 125,644
---------- ------ ------- ----------
Total $ 998,835 $1,100 $(1,422) $ 998,513
========== ====== ======= ==========
Included in short-term investments $ 670,308
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
Included in cash and cash equivalents 328,205
----------
Total $ 998,513
==========
</TABLE>
The gross realized gains and losses on the sale of available-for-sale
securities were immaterial for the years ended June 27, 1997 and June 28, 1996.
The fair value of the Company's investment in debt securities, by
contractual maturity, is as follows (in thousands):
<TABLE>
<CAPTION>
June 27, 1997 June 28, 1996
------------- -------------
<S> <C> <C>
Due in less than 1 year $1,529,479 $534,258
Due in 1 to 3 years 210,943 231,633
---------- --------
Total $1,740,422 $765,891
========== ========
</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 27, 1997 June 28, 1996
- -------------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $1,047,335 $1,047,335 $ 503,754 $ 503,754
Short-term investments 1,236,262 1,236,262 670,308 670,308
5% convertible subordinated debentures, due 2003 - - (270,750) (469,413)
6.50% convertible subordinated debentures, due 2002 - - (309,335) (324,802)
6.75% convertible subordinated debentures, due 2001 - - (209,141) (211,232)
7.125% senior notes, due 2004 (200,000) (199,710) - -
7.37% senior notes, due 2007 (200,000) (200,518) - -
7.45% senior debentures, due 2037 (200,000) (202,018) - -
7.875% senior debentures, due 2017 (100,000) (99,934) - -
Italian Lira debentures, 14.65% to 15.25% (983) (983) (8,755) (8,755)
Foreign currency forward exchange and option contracts (2,159) (9,560)* (804) 3,302
Other borrowings (148) (148) (335) (335)
</TABLE>
*See Subsequent Events note.
DERIVATIVE FINANCIAL INSTRUMENTS The Company enters into foreign currency
forward exchange and option contracts to manage exposure related to certain
foreign currency commitments and anticipated foreign currency denominated
expenditures. The Company does not enter into derivative financial instruments
for trading
21
<PAGE>
purposes. At June 27, 1997, the Company had outstanding foreign currency forward
exchange and purchase option contracts with notional amounts totaling
approximately $1,006,000,000 and $326,000,000, respectively. These contracts,
which mature at various periods over the next twelve months, are hedges of cash
flow requirements in the Singapore Dollar, Malaysian Ringgit and Thai Baht. (See
Subsequent Events note.)
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 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable $1,101,248 $1,133,175
Less allowance for noncollection (60,413) (66,656)
---------- ----------
$1,040,835 $1,066,519
========== ==========
INVENTORIES
Inventories are summarized below:
In thousands 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
Components $ 358,667 $ 295,169
Work-in-process 134,198 138,854
Finished goods 315,415 356,798
---------- ----------
$ 808,280 $ 790,821
========== ==========
</TABLE>
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consisted of the following:
<TABLE>
<CAPTION>
Estimated
In thousands Useful Life 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 15,399 $ 15,560
Equipment 1-1/2 - 4 years 1,918,381 1,505,567
Building and leasehold improvements Life of lease - 30 years 762,397 556,026
Construction in progress 362,267 327,385
----------- -----------
3,058,444 2,404,538
Less accumulated depreciation and amortization (1,271,819) (1,004,655)
----------- -----------
$ 1,786,625 $ 1,399,883
=========== ===========
</TABLE>
Equipment and leasehold improvements include assets under capitalized
leases. Lease amortization is included in depreciation expense. Depreciation
expense was $451,109,000, $330,213,000, and $246,883,000 in 1997, 1996, and
1995, respectively.
22
<PAGE>
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of the purchase price of acquired companies
over the estimated fair value of the tangible and specifically identified
intangible net assets acquired. In accordance with SFAS 121, the carrying value
of these intangibles and related goodwill is reviewed if the facts and
circumstances suggest that they may be impaired. If this review indicates these
assets' carrying value will not be recoverable, as determined based on the
undiscounted net cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value is reduced to its estimated
fair value (generally based on an estimate of discounted future net cash flows).
Goodwill and other intangibles are being amortized on a straight-line basis over
periods ranging from two to fifteen years. Accumulated amortization was
$161,044,000 and $201,721,000 as of June 27, 1997 and June 28, 1996,
respectively.
LONG-TERM DEBT AND LINES OF CREDIT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
In thousands 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
5% convertible subordinated debentures $ - $270,750
6.50% convertible subordinated debentures - 309,335
6.75% convertible subordinated debentures - 209,141
7.125% senior notes, due 2004 200,000 -
7.37% senior notes, due 2007 200,000 -
7.45% senior debentures, due 2037 200,000 -
7.875% senior debentures, due 2017 100,000 -
Italian Lira debentures, 14.65% to 15.25% notes and loans
due through 1999 983 8,755
Capitalized lease obligations with interest at 14% to 19.25% collateralized
by certain manufacturing equipment and buildings 1,939 2,414
Other borrowings 148 335
-------- --------
703,070 800,730
Less current portion 1,125 2,425
-------- --------
$701,945 $798,305
======== ========
</TABLE>
At June 27, 1997, future minimum principal payments on long-term debt and
capitalized lease obligations were as follows:
<TABLE>
<CAPTION>
In thousands
- -------------------------------------------------------------------------------------------------
<S> <C>
1998 $ 1,125
1999 126
2000 165
2001 232
2002 315
After 2002 701,107
--------
$ 703,070
==========
</TABLE>
During 1996 and 1997, the Company called for redemption all its 6.5%,
6.75%, 5% and 6.75% Convertible Subordinated Debentures due 2002, 2001, 2003 and
2012, respectively. Approximately $1,053,500,000 principal amount of the
debentures were converted to approximately 50.8 million shares of the Company's
common stock and approximately $2,300,000 principal amount of the debentures
were redeemed. None of the 5% debentures were redeemed.
23
<PAGE>
The Company's 7.125% senior notes due 2004, 7.37% senior notes due 2007 and
7.875% senior debentures due 2017 are redeemable at the option of the Company at
any time, at a redemption price equal to the greater of (I) 100% of their
principal amount plus accrued interest or (ii) the sum of the present values of
the remaining scheduled payments of principal and interest discounted to the
date of redemption at a discount rate (the "discount rate") as set forth in the
indenture governing the notes and debentures plus 10 basis points. The
Company's 7.45% senior debentures due 2037 are redeemable at the option of the
Company at any time, at a redemption price equal to the greater of (i) 100% of
their principal amount plus accrued interest, (ii) the sum of the present values
of the remaining scheduled payments of principal and interest discounted to the
date of redemption at the discount rate plus 10 basis points, calculated as if
the principal amount were payable in full on March 1, 2009, or (iii) the sum of
the present values of the remaining scheduled payments of principal and interest
discounted to the date of redemption at the discount rate plus 10 basis points.
In addition, the Company's 7.45% senior debentures due 2037 will be redeemable
on March 1, 2009, at the option of the holders thereof, at 100% of their
principal amount, together with interest payable to the date of redemption. The
Company's 7.125% senior notes due 2004, 7.37% senior notes due 2007 and 7.875%
senior debentures due 2017 will not be redeemable at the option of the holders
thereof prior to maturity. These securities 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 $0.02 per share on a fully diluted basis.
As of June 27, 1997, the Company had committed lines of credit of $82
million which can be used for standby letters of credit or bankers' guarantees.
At June 27, 1997, approximately $78 million had been utilized.
EMPLOYEE PROFIT SHARING AND EXECUTIVE BONUS PLANS
The Company allocates a certain percentage of adjusted quarterly pretax
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 pretax 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
distributions to employees and/or corporate officers under these Plans during
1997, 1996 and 1995 were $114,970,000, $72,723,000 and $62,891,000,
respectively.
STOCK-BASED BENEFIT PLANS
STOCK OPTION 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 27, 1997:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------------------
Number Weighted Average
of Shares Exercise Price
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance July 1, 1994 25,595,748 $10.03
Granted 6,803,274 $13.72
Exercised (7,440,738) $ 6.80
Canceled (3,590,654) $15.27
----------
Balance June 30, 1995 21,367,630 $11.45
Granted 11,057,982 $22.30
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C>
Exercised (6,168,230) $ 8.71
Canceled (3,257,684) $14.27
Elimination of Conner Activity for
the duplicated six months ended December 31, 1995 700,326 $14.13
----------
Balance June 28, 1996 23,700,024 $16.91
Granted 5,966,688 $36.31
Exercised (5,213,201) $12.15
Canceled (2,481,741) $20.42
----------
Balance June 27, 1997 21,971,770 $22.92
==========
</TABLE>
Options available for grant were 5,126,775 at June 27, 1997; 9,031,638 at
June 28, 1996; and 11,089,072 at June 30, 1995. On July 29, 1997, 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 15,000,000, subject to stockholder approval at the 1997 Annual Meeting of
Stockholders. At June 27, 1997, options to purchase 6,413,380 shares of common
stock were exercisable. The following tables summarize information about
options outstanding at June 27, 1997.
<TABLE>
<CAPTION>
Outstanding Options
-------------------------------------------------
Weighted Average
Number Contractual Life Weighted Average
Range of exercise prices of Shares (in years) Exercise Price
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
$ .24 - $11.00 3,129,003 5.6 $ 6.87
$11.03 - $21.88 6,962,991 7.2 $14.87
$21.92 - $29.31 7,501,394 8.6 $26.93
$29.38 - $51.75 4,378,382 9.6 $40.31
----------
Total 21,971,770 7.9 $22.92
========== === ======
</TABLE>
<TABLE>
<CAPTION>
Exercisable Options
--------------------
Number Weighted Average
Range of exercise prices of Shares Exercise Price
- -------------------------------------------------------------------------------
<S> <C> <C>
$ .24 - $11.00 2,339,837 $ 6.95
$11.03 - $21.88 2,818,441 $14.07
$21.92 - $29.31 1,209,983 $27.76
$29.38 - $51.75 45,119 $32.16
----------
Total 6,413,380 $14.18
==========
</TABLE>
EXECUTIVE STOCK PLAN The Company has an Executive Stock Plan under which
senior executives of the Company are granted the right to purchase shares of the
Company's common stock at $.01 per share. The difference between the fair market
value of the shares on the measurement date and the exercise price is recorded
as deferred compensation and is charged to operations over the vesting period of
five or ten years. In November 1995, the Company's Board of Directors granted
1,604,000 shares under the plan, subject to stockholder approval of certain
amendments to the plan. These amendments included the addition of 2,000,000
shares to be issued under the plan. In February 1996, such stockholder approval
was obtained. Subsequently in May 1996, an additional
25
<PAGE>
416,500 shares were granted under the plan. In 1997, 249,500 shares were
granted and 85,000 shares were repurchased under the terms of the plan. At June
27, 1997, 315,000 shares were available for future grants. In addition, the
Company has a Restricted Stock Plan which also has a deferred compensation
component. Under this plan the deferred compensation is amortized over a period
of seven years. There are two employees remaining in the plan and no shares are
available for future grant. The aggregate amount charged to operations for
amortization of deferred compensation under both plans was $7,746,567,
$3,946,000 and $2,935,000 in 1997, 1996, and 1995, respectively.
STOCK PURCHASE PLANS The Company also maintains an Employee Stock Purchase
Plan. A total of 13,600,000 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, 1,053,651, 1,128,886 and
2,007,692 shares of common stock were issued in 1997, 1996 and 1995,
respectively.
Common stock reserved for future issuance under the Company's Employee
Stock Purchase Plan aggregated 2,773,763 shares at June 27, 1997.
PRO FORMA INFORMATION 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. The Company has elected to follow APBO 25 in
accounting for stock options granted (including shares issued under the Stock
Purchase Plans, collectively called "stock options"). Under APBO 25 the Company
generally recognized no compensation expense with respect to such options.
Pro forma information regarding net income and earnings per share is
required by SFAS 123 for stock options granted after June 30, 1996 as if the
Company had accounted for its stock options under the fair value method of SFAS
123. The fair value of the Company's stock options was estimated using a Black-
Scholes option valuation model. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition, the Black-Scholes
model requires the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's stock options granted to
employees have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its stock
options granted to employees. The fair value of the Company's stock options
granted to employees was estimated assuming no expected dividends and the
following weighted average assumptions:
<TABLE>
<CAPTION>
Stock Option Employee Stock
Plan Shares Purchase Plan Shares
--------------------- ----------------------
1997 1996 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expected life (in years) 3.5 3.5 .5 .5
Risk-free interest rate 6.2% 5.6% 5.4% 5.4%
Volatility .45 .45 .46 .46
</TABLE>
The weighted average exercise price and weighted average fair value of
stock options granted in 1997 under the Company's Stock Option Plans was $36.31
and $14.57 per share, respectively. The weighted average purchase price and
weighted average fair value of shares granted in 1997 under the Company's
Employee Stock Purchase Plans was $32.88 and $8.89, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period (for stock options) and
the six month purchase period for stock purchases under the Stock Purchase Plan.
The Company's pro forma information follows:
26
<PAGE>
<TABLE>
<CAPTION>
In thousands 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Pro forma net income $609,815 $194,537
Pro forma primary net income per share $ 2.56 $ .95
</TABLE>
The effects on pro forma disclosures of applying SFAS 123 are not likely to
be representative of the effects on pro forma disclosures of future years.
Because SFAS 123 is applicable only to options granted subsequent to June 30,
1995, the pro forma effect will not be fully reflected until 1999.
INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
In thousands 1997 1996 1995
________________________________________________________________________________
<S> <C> <C> <C>
Current Tax Expense
Federal $121,445 $167,586 $133,494
State 6,157 28,123 27,773
Foreign 9,254 7,023 14,370
-------- -------- --------
136,856 202,732 175,637
-------- -------- --------
Deferred Tax Expense
Federal 65,556 (76,075) (1,902)
State 14,205 (8,405) (5,330)
Foreign 16,580 (53) 6,523
-------- -------- --------
96,341 (84,533) (709)
-------- -------- --------
Provision for Income Taxes $233,197 $118,199 $174,928
======== ======== ========
</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 $52,261,000, $47,302,000 and $23,083,000 for 1997, 1996 and
1995, 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 27, 1997 June 28, 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS
Accrued warranty $165,903 $112,501
Inventory valuation accounts 32,895 46,176
Receivable reserves 29,472 31,727
Accrued compensation and benefits 36,199 29,596
Depreciation 23,222 22,611
Restructuring reserves 12,273 32,976
Other reserves and accruals 47,078 23,652
Acquisition related items 29,444 14,489
Net operating loss and tax credit carryforwards 30,829 44,714
Other assets 8,558 5,185
-------- --------
Total Deferred Tax Assets 415,873 363,627
Valuation allowance (57,120) (37,498)
-------- --------
Net Deferred Tax Assets 358,753 326,129
-------- --------
</TABLE>
27
<PAGE>
DEFERRED TAX LIABILITIES
<TABLE>
<S> <C> <C>
Unremitted income of foreign subsidiaries (561,340) (416,848)
Acquisition related items (20,418) (25,946)
Other liabilities (2,463) (12,507)
--------- ---------
Total Deferred Tax Liabilities (584,221) (455,301)
--------- ---------
Net Deferred Tax Liabilities $(225,468) $(129,172)
========= =========
AS REPORTED ON THE BALANCE SHEET
Deferred Income Tax Asset $ 253,372 $ 222,355
Deferred Income Tax Liability (478,840) (351,527)
--------- ---------
Net Deferred Tax Liability $(225,468) $(129,172)
========= =========
</TABLE>
The valuation allowance has been provided for deferred tax assets related
to certain foreign net operating loss carryforwards and future tax benefits
associated with the acquisition of certain software companies. The valuation
allowance increased by $19,622,000 and $15,062,000 in 1997 and 1996,
respectively.
The Company, as of June 27, 1997, has domestic and foreign net operating
loss carryforwards of approximately $82,000,000 expiring in 1999 through 2012 if
not used to offset future taxable income.
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 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision at U.S. statutory rate $311,932 $116,012 $170,617
State income taxes net of federal income tax benefit 19,049 10,472 14,408
Benefit from net earnings of foreign subsidiaries considered
to be permanently invested in non-U.S. operations (97,087) (59,120) (67,118)
Foreign income taxes (845) 800 16,698
Write-off of in-process research and development - 30,440 24,626
Restructuring - 18,008 -
Valuation reserve 19,622 15,062 1,524
Other (19,474) (13,475) 14,173
-------- -------- --------
Provision for Income Taxes $233,197 $118,199 $174,928
======== ======== ========
</TABLE>
A substantial portion of the Company's Far East manufacturing
operations in Singapore, Thailand, China and Malaysia operate free of tax under
various tax holidays which expire in whole or in part during fiscal years 1998
through 2005. Certain tax holidays may be extended if specific conditions are
met. The net impact of these tax holidays was to increase net income by
approximately $71,394,000 ($0.28 per share, fully diluted) in 1997,
approximately $50,398,000 ($0.21 per share, fully diluted) in 1996 and
approximately $59,788,000 ($0.24 per share, fully diluted) in 1995. Cumulative
undistributed earnings of the Company's Far East subsidiaries for which no
income taxes have been provided aggregated approximately $1,439,412,000 at June
27, 1997. These earnings are considered to be permanently invested in non-U.S.
operations. Additional state and federal taxes of approximately $574,515,000
would have to be provided if these earnings were repatriated to the U.S.
On June 30, 1997, the Company received a statutory notice of potential
deficiencies from the Internal Revenue Service (IRS) relative to taxable years
1991 through 1993 approximating $38,500,000 plus interest, as well as
approximately $5,700,000 of penalties. The Company believes it has meritorious
defenses to the IRS adjustments but has not yet determined the forum in which it
will contest this proposed deficiency. The Company believes that the likely
outcome of this matter will not have a material adverse effect on its financial
position or results of operations.
28
<PAGE>
Certain of the Company's foreign and state tax returns for various
fiscal years are under examination by taxing authorities. Conner's federal
income tax returns for the fiscal years 1991 and 1992 are under examination by
the IRS. The Company believes that adequate amounts of tax have been provided
for any final assessments which may result from these examinations.
MERGER WITH CONNER
On February 2, 1996, the Company and Conner Peripherals, Inc. ("Conner")
merged after approval by the stockholders of both companies. To effect the
combination, Seagate issued 48,956,044 shares of its common stock in exchange
for all the outstanding common stock of Conner and issued options to purchase
4,939,160 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 periods prior to the merger presented
in the accompanying consolidated financial statements have been restated to
include the accounts and operations of Conner. Conner was involved in the
design, manufacture and marketing of information storage products including disc
drives, tape drives and storage management software.
Because of differing fiscal year ends of the two companies, the
consolidated statement of income for fiscal year 1995 combines Seagate's twelve
months ended June 30, 1995 with Conner's twelve months ended December 31, 1995.
The consolidated balance sheets combine Seagate's fiscal year ended June 30,
1995 with Conner's year ended December 31, 1995. Combined and separate results
of the Company and Conner for the periods prior to the acquisition were as
follows:
<TABLE>
<CAPTION>
Years Ended
------------------------------
In thousands June 28, 1996 June 30, 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Net Sales:
Prior to December 30, 1995:
Seagate $3,016,590 $4,539,570
Conner 1,463,906 2,716,639
Combined results after December 29, 1995 4,107,854 -
---------- ----------
$8,588,350 $7,256,209
========== ==========
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
Conner 37,251 59,068
Combined results after December 29, 1995 (56,463) -
---------- ----------
$ 213,261 $ 318,719
========== ==========
</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
were made to conform accounting practices of the two companies. None of these
adjustments was material to any period presented.
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:
29
<PAGE>
<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 2,553,340 shares of Seagate common stock and
options to purchase 1,813,936 shares of Arcada common stock (equivalent to
approximately $85,075,000, net of the exercise proceeds of the options acquired,
based on a market value of $20.37 per share of Seagate common stock) for all the
outstanding common stock and options to purchase common stock of Arcada. Arcada
developed, marketed and supported data protection and storage management
software products that operate across multiple desktop and client/server
environments. This acquisition was accounted for as a purchase and, accordingly,
the results of operations of the minority interest have been included in the
consolidated financial statements from the date of acquisition of such minority
interest. Goodwill and other intangibles arising from the acquisition are being
amortized on a straight-line basis over periods ranging from two to seven years.
As a result of the acquisition, the Company incurred a one-time write-off of in-
process research and development of $43,900,000.
During the year ended June 28, 1996, the Company acquired Sytron
Corporation, a storage management software company, OnDemand Software, Inc. and
Calypso Software Systems, Inc., both network management software companies,
Holistic Systems Ltd., an information management software company, and Stormex,
S.A. de C.V., a media substrate manufacturer. These acquisitions were accounted
for as purchases and, accordingly, the results of operations of the acquired
businesses have been included in the consolidated financial statements from the
date of acquisition. The total cost of all businesses acquired for cash in 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. In 1997, $18,000,000 of the $20,800,000
held in escrow was paid out. 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 1996 acquisitions, the Company
incurred one-time write-offs of in-process research and development totaling
$98,687,000. As a result of the payments out of escrow in fiscal year 1997 to
former stockholders of Holistic, the Company incurred one-time write-offs of
compensation expense and in-process research and development of $13,446,000 and
$2,876,000, respectively. The compensation expense is included in unusual items
on the consolidated statement of income. The operations of the acquired
companies prior to the date of acquisition were not material to the Company's
net sales or net income.
In 1996, the Company increased its investment in SanDisk Corporation, a
flash memory manufacturer, by $10,086,000. Goodwill arising from the equity
investment in SanDisk Corporation is being amortized on a straight-line basis
over seven years.
RESTRUCTURING
During 1996, the Company recorded restructuring charges totaling
$241,720,000 as a result of the merger with 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 1,370 employees. Of that number, the employment of
1,313 employees has been terminated.
During 1997, the Company reversed $9,554,000 of its restructuring reserves
as a result of the completion of certain aspects of the restructuring plan at
less than the originally estimated cost. In addition, certain reclassifications
were made among certain categories of the restructure reserve, primarily between
employee termination benefits, and facilities and equipment. This was due to
modifications to the Company's estimates of costs associated with certain
specific aspects of the restructure plan as the plan approached completion. As
of June 27, 1997, the implementation of the restructure plan was substantially
complete.
30
<PAGE>
The following table summarizes the Company's restructuring activity for the
two years ended June 27, 1997:
<TABLE>
<CAPTION>
Equipment, Contract
Inventory, Cancellations
Severances Excess Intangibles Professional and Other
and Benefits Facilities and Other Assets Fees Expenses Total
------------- ----------- ----------------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Reserve balances,
June 30, 1995 $ 293 $ 3,239 $ 1,518 $ - $ - $ 5,050
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
December 31, 1995 813 731 (89) - - 1,455
-------- -------- -------- -------- ------- --------
Reserve balances,
June 28, 1996 33,166 35,319 11,954 3,185 9,792 93,416
Cash charges (17,999) (10,262) - (1,930) (6,185) (36,376)
Non-cash charges - (4,655) (19,080) - 69 (23,666)
Adjustments and
reclassifications (14,837) (8,733) 11,530 (1,255) 3,741 (9,554)
-------- -------- -------- -------- ------- --------
Reserve balances,
June 27, 1997 $ 330 $ 11,669* $ 4,404 $ - $ 7,417 $ 23,820
======== ======== ======== ======== ======= ========
</TABLE>
* Primarily relates to future lease payments on facilities that will no longer
be utilized.
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>
Year Ended June 27, 1997 United Far Adjustments and
In thousands States East Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $5,215,820 $ 3,724,202 $ - $8,940,022
Transfers between geographic areas 1,398,410 6,462,389 (7,860,799) -
---------- ----------- ------------- ----------
Total net sales $6,614,230 $10,186,591 $(7,860,799) $8,940,022
========== =========== ============= ==========
Income from operations $ 44,370 $ 813,215 $ - $ 857,585
Other income (expense), net (3,708) 37,358 - 33,650
---------- ----------- ------------- ----------
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Income before income taxes $ 40,662 $ 850,573 $ - $ 891,235
========== =========== ============= ==========
Identifiable assets $3,049,707 $ 3,673,172 $ - $6,722,879
========== =========== ============= ==========
</TABLE>
<TABLE>
<CAPTION>
Adjustments and
Year Ended June 28, 1996 United Far Eliminations
In thousands States East 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>
<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 and
extraordinary gain $ 49,728 $ 437,748 $ - $ 487,476
========== ========== =================== ==========
Identifiable assets $3,052,136 $1,847,696 $ - $4,899,832
========== ========== =================== ==========
</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 include sales offices and distribution
warehouses. The sales offices and distribution warehouses do not qualify as
revenue-producing operations in accordance with Statement of
32
<PAGE>
Financial Accounting Standards No. 14, "Financial Reporting for Segments of a
Business Enterprise" ("SFAS 14") and thus do not qualify to be disclosed as a
separate geographic area. The distribution warehouses merely facilitate sales
for the Singapore and Thailand manufacturing operations and are thus included in
the Far East geographic area in the tables above. Other European operations that
do qualify as revenue-producing operations do not meet the materiality criteria
of SFAS 14 and thus are not disclosed as a separate geographic area.
In 1997, one customer accounted for more than 10% of consolidated net sales
for a total of $995,466,000. No customer accounted for 10% or more of
consolidated net sales in 1996 or 1995.
Net foreign currency transaction gains (losses) included in the
determination of net income were $(2,427,000), $(7,794,000), and $4,287,000 for
1997, 1996 and 1995, respectively.
LITIGATION AND ENVIRONMENTAL MATTERS
BUSINESS LITIGATION Amstrad PLC ("Amstrad") initiated a lawsuit against the
Company in London, England on December 11, 1992 concerning the Company's sale of
allegedly defective disc drives to Amstrad. The Company replied to the
allegations made against it by Amstrad by denying all material points of
Amstrad's claim and asserted affirmative defenses. Trial began April 16, 1996
and concluded on July 31, 1996. The Court issued a final judgment on July 9,
1997 and awarded Amstrad approximately $144,000,000 in damages plus costs,
including Amstrad's legal fees, the amount of which will be determined by the
Court at a later date. The Company and Amstrad have appealed the judge's
decision. In June 1997, the Company accrued the damages of $144,000,000 plus
estimated additional costs of $9,000,000 for a total amount of $153,000,000 in
Accrued Expenses. Approximately $145,000,000 was paid in July 1997 and is
currently held in escrow pending the Court's final decision.
Prior to initiating its case against the Company in London, England,
Amstrad had previously filed an action against the Company in the Superior Court
of Santa Cruz County, California in September 1991. That Santa Cruz County
Superior Court action was dismissed with prejudice and judgment of dismissal was
entered on July 24, 1997. Amstrad has filed an objection to this judgment and
has filed a motion seeking to set aside the judgment in order to pursue a claim
for additional damages against the Company. That motion will be vigorously
opposed by the Company.
SECURITIES LITIGATION In 1991, a series of lawsuits was 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. The parties agreed to settle this series of lawsuits and
the settlement was approved by the U.S. District Court on June 24, 1997. One
member of the plaintiff class appealed from the order approving the settlement.
This appeal is currently pending in the United States Court of Appeals for the
Ninth Circuit. Because of this appeal, the settlement is not yet final.
In 1993, a series of lawsuits was filed in Federal Court for the
Northern District of California against Conner Peripherals, Inc. As a result of
the merger with Conner the Company assumed the defense of this litigation.
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. The
parties have agreed to settle this series of lawsuits. The settlement received
approval from the District Court during the last fiscal quarter of 1997. One
member of the plaintiff class appealed from the order approving the settlement.
This appeal is currently pending in the United States Court of Appeals for the
Ninth Circuit. Because of this appeal, the settlement is not yet final.
The Company believes that the final settlement of the 1991 and 1993
lawsuits will not have a material adverse effect on the Company's 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 was the opinion of the Company's patent counsel that the Company's products
do not infringe any valid claims of the Rodime patent in suit and thus the
Company refused Rodime's offer of a license for its patents. Other companies,
however, such as IBM, Hewlett-Packard and a number of Japanese companies have
reportedly made payments to and taken licenses from Rodime. In 1995, the Court
granted the Company's motions for summary judgment finding that all of the
Company's accused products, with the exception of the ST157, did not infringe
any claims of the Rodime patent, and that the majority of the claims in the
Rodime patent were invalid as a matter of law. The ST157 is no longer in
production. This case was reassigned to a different judge in July 1996. On
October 21, 1996, the judge granted in part Seagate's motion for summary
judgment on intervening rights,
33
<PAGE>
finding that the Company has no liability for any ST157 family products made
before November 29, 1988, the date when Rodime's reexamined patent was issued.
A patent law expert and a technical expert were appointed as advisors
to the Court, both of whom recommended an interpretation of the remaining
patent claims which, if adopted by the Court, may result in a judgment that the
Company's ST157 family products do not infringe. The Court received evidence on
February 25, 1997 regarding claim interpretation and the parties submitted post
hearing briefs. On July 3, 1997, the Court issued an Order in which it adjudged
that the Company's ST157 did not infringe the asserted claims of Rodime's patent
and that summary judgment be entered in favor of Seagate. However, the Court
also indicated that it would "proceed with an advisory jury trial if either
party so requests." It continues to be the opinion of the Company's patent
counsel that the Company's products do not infringe any valid or enforceable
claims of Rodime's patent. The Company intends to vigorously defend itself
against the remaining charges of infringement of Rodime's patent and Rodime's
other claims 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 was also granted by the PTO. The District
Court stayed the action pending the outcome of the Reexaminations. Both patents
have completed reexamination and the stay of the action has been lifted. Mr.
White's lawyers filed a motion seeking a preliminary injunction to stop the sale
of certain of the Company's products. The Court heard arguments on the motion
on June 26, 1997 and denied the motion on July 1, 1997. It is the opinion of
the Company's patent counsel that the Company's products subject to the motion
for a preliminary injunction and charged with infringement do not infringe any
valid claims of the patents involved in the suit. The Company intends to
vigorously defend itself against any and all charges of infringement of these
patents.
On December 16, 1996, a patent infringement action was filed against
the Company by an individual, Virgle Hedgcoth, in the U.S. District Court for
the Northern District of California, San Jose Division, for alleged infringement
of U.S. Patent Nos. 4,735,840, 5,082,747 and 5,316,864. These patents relate to
sputtered magnetic thin-film recording discs for computers and their
manufacture. The Company answered the complaint denying infringement, alleging
that the patents are invalid and unenforceable, and counterclaiming for
declaratory judgment that a fourth Hedgcoth patent, No. 4,894,133, is invalid,
unenforceable and not infringed. Additionally, on July 1, 1997 Mr. Hedgcoth
filed a patent infringement action against the Company in the same Court for
alleged infringement of a fourth patent, U.S. Patent No. 5,262,970, issued May
6, 1997. It is the opinion of the Company's patent counsel that the Company's
products do not infringe any valid or enforceable claims of the patents in the
two actions, and that the claims of the patents in the two actions are invalid
or unenforceable. The Company intends to vigorously defend itself against any
and all charges of infringement of Mr. Hedgcoth's patents.
Papst Licensing, GmbH, has given the Company notice that it believes
certain former Conner Peripherals, Inc. disc drives infringe several of its
patents covering the use of spindle motors in disc drives. It is the opinion of
the Company's patent counsel that the former Conner disc drives do not infringe
any claims of the patents and that the alleged claims of the patents are
invalid. The Company also believes that subsequent to the merger with Conner
Peripherals, the Company's earlier paid-up license under Papst's patents
extinguishes any ongoing liability. The Company also believes it enjoys the
benefit of a license under Papst's patents since Papst Licensing had granted a
license to motor vendors of Conner Peripherals.
In the normal course of business, the Company receives and makes
inquiry with regard to other possible intellectual property matters including
alleged patent infringement. Where deemed advisable, the Company may seek or
extend licenses or negotiate settlements.
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.
34
<PAGE>
The Company's portion of the estimated cost of investigation and
remediation of known contamination at the sites to be incurred after June 27,
1997 is approximately $16,500,000. Through June 27, 1997, the Company had
recovered approximately $4,300,000 from Ceridian through its indemnification and
cost-sharing agreements with Ceridian and, in addition, expects to recover
approximately $9,700,000 from Ceridian over the next 30 years. After deducting
the expected recoveries from Ceridian, the expected aggregate undiscounted
liability was approximately $6,800,000 at June 27, 1997, with expected payments
by the Company of approximately $146,000 in 1999, $460,000 in 2000, $394,000 in
2001 and the remainder after 2001.
Approximately $15,700,000 of the $16,500,000 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 estimated
liability is based on a plan of investigation and remediation developed by IT
Corporation pursuant to a Consent Order entered into by the Company and the EPA
in 1990. The extent of the contamination in the groundwater has been
investigated and generally defined. According to the plan, the likely
technology for remediation of groundwater at the facility will be pumping and
treatment, while remediation of soils will most likely be accomplished by soil
vapor extraction. A substantial portion of the Omaha liability was discounted
by applying a risk free rate of 6% to the expected payments to be made by the
Company over the next 30 years. None of the liabilities for any of the other
sites has been discounted. The total liability for all sites recorded by the
Company after considering the estimated effects of inflation, reimbursements by
Ceridian and discounting was approximately $3,100,000 at June 27, 1997.
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.
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
noncancelable 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 27, 1997:
<TABLE>
<CAPTION>
Operating
In thousands Leases
- -------------------------------------------------------------------------------------------------
<S> <C>
1998 $ 57,137
1999 59,809
2000 35,282
2001 27,877
2002 20,929
After 2002 182,734
--------
$383,768
========
</TABLE>
Total rent expense for all land, facility and equipment operating leases
was approximately $50,986,000, $44,781,000 and $49,313,000 for 1997, 1996 and
1995, respectively.
35
<PAGE>
CAPITAL EXPENDITURES The Company's commitments for construction of
manufacturing facilities and equipment approximated $199,700,000 at June 27,
1997.
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
In thousands 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Transactions:
Cash paid for interest $ 25,649 $ 64,422 $ 74,670
Cash paid for income taxes 58,507 207,767 152,642
Non-Cash Transactions:
Conversion of debentures $787,891 $265,500 $ -
</TABLE>
SUBSEQUENT EVENTS
The goal of the Company's hedging program is to economically guarantee or
lock in the exchange rates on a portion of the Company's local currency cash
flows and not to eliminate all short-term earnings volatility. Because not all
economic hedges qualify as accounting hedges, unrealized gains and losses may be
recognized in income in advance of the actual foreign currency cash flows. This
mismatch of accounting gains and losses and foreign currency cash flows may be
especially pronounced in the first quarter of fiscal 1998 as a result of the
declines in value of the Thai Baht and Malaysian Ringgit, relative to the U.S.
Dollar, subsequent to fiscal year end 1997. Assuming no further change in the
U.S. Dollar exchange rates for the Thai Baht and Malaysian Ringgit (Baht 31.5 to
U.S. Dollar 1 and Ringgit 2.79 to U.S. Dollar 1 on August 14, 1997), the mark-
to-market adjustment would result in an unrealized pretax charge of
approximately $44 million, to be recognized as Other Expense at the end of the
Company's first quarter of fiscal 1998 ending on October 3, 1997. The Company's
ultimate realized gain or loss with respect to currency fluctuations will depend
on the currency exchange rates and other factors in effect at the time such
contracts mature over the next twelve months. Although the Company cannot
predict future movements in currency exchange rates, the Company believes that
the benefits from recording local currency expenditures in lower U.S. Dollar
terms over the period during which these foreign currency forward exchange
contracts are scheduled to mature should more than offset the charges to be
recorded in the first quarter of fiscal 1998. Based on recent volatility in the
Far East foreign currency markets, the Company has temporarily suspended
purchasing foreign currency forward exchange and option contracts for the Thai
Baht, Malaysian Ringgit and Singapore Dollar.
In August 1997, the Company completed the acquisition of Quinta
Corporation, a developer of ultra-high capacity disc drive technologies,
including a new optically assisted Winchester (OAW) technology. Pursuant to the
purchase agreement, the shareholders of Quinta, other than Seagate, received
cash payments aggregating $230 million upon closing of the transaction and will
be eligible to receive, upon achievement of certain product development and
early production milestones, additional payments aggregating $95 million. In
April and June 1997, Seagate had invested an aggregate of $20 million acquiring
approximately ten percent (10%) of Quinta's stock. As a result of this
acquisition, the Company will incur a charge to operations in the first quarter
of fiscal 1998 of approximately $217 million for the write-off of in-process
research and development.
36
<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. as of June 27, 1997 and June 28, 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended June 27, 1997. 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 Seagate Peripherals,
Inc. (formerly Conner Peripherals, Inc.) and subsidiaries, which statements
reflect net income constituting approximately 19.4% of the related 1995
consolidated financial statement total. Those financial statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to data included for Seagate Peripherals, Inc. (formerly
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, 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. at June 27, 1997 and June 28, 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 27, 1997, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
San Jose, California
July 9, 1997, except for the second paragraph of the Business Litigation note,
as to which the date is July 24, 1997, the third paragraph of the Stock Option
Plans note, as to which the date is July 29, 1997, and the Subsequent Events
note, as to which the date is August 15, 1997.
37
<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 Technology (Hong Kong) Limited Hong Kong
Seagate Distribution (UK) Limited Scotland
Seagate Singapore Distribution Ptd. Ltd. Singapore
Quinta Corporation California
Seagate Technology International Cayman Islands, BWI
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) Limited Thailand
Seagate Technology China Holding Company Cayman Islands, BWI
Seagate Technology Shenzhen Co. Ltd. China
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 Media (Ireland) Cayman Islands, BWI
Seagate Technology (Philippines) Cayman Islands, BWI
Seagate Technology International Holdings Cayman Islands, BWI
Seagate Software Information Management Group, Inc. Canada
Seagate Software, Inc. Delaware
Seagate Software Network & Storage Management Group, Inc. Delaware
Seagate Software Australia Pty. Limited Australia
Seagate Software S.A. France
Seagate Software Limited United Kingdom
Seagate Software GmbH Germany
Seagate Software Information Management Group Ltd. United Kingdom
Seagate Software Information Management Group Pty. Ltd. Australia
Seagate Software Information Management Group AB Sweden
Seagate Software Information Management Group BV Holland
Seagate Software (Hong Kong) Limited Hong Kong
Seagate Software Information Management Group KK Japan
Seagate Software Information Management Group GmbH Germany
Seagate Software Information Management Group AG Switzerland
Seagate Software Information Management Group Pte. Ltd. Singapore
Seagate Software Information Management Group, Inc. Colorado
</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 9, 1997, except for the
second paragraph of the Business Litigation note as to which the date is July
24, 1997, the third paragraph of the Stock Option Plans note, as to which the
date is July 29, 1997, and the Subsequent Event note as to which the date is
August 15, 1997, included in the 1997 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 Seagate Peripherals, Inc.
(formerly Conner Peripherals, Inc.) and subsidiaries, which statements reflect
net income constituting approximately 19.4% of the related 1995 consolidated
financial statement total. 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 related prospectus, of
our report dated July 9, 1997, except for the second paragraph of the Business
Litigation note as to which the date is July 24, 1997, the third paragraph of
the Stock Option Plans note, as to which the date is July 29, 1997, and the
Subsequent Event note as to which the date is August 15, 1997, 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 15, 1997
<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-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 24 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 25 of this Form 10-K.
Price Waterhouse LLP
San Jose, California
August 13, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of June 27, 1997, the Consolidated Statement of
Income for the twelve months ended June 27, 1997, the Consolidated Balance
Sheets as of June 28, 1996 and June 30, 1995 and the Consolidated Statements of
Income for the twelve months ended June 28, 1996 and June 30, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-27-1997 JUN-28-1996 JUN-30-1995
<PERIOD-START> JUN-29-1996 JUL-01-1995 JUL-02-1994
<PERIOD-END> JUN-27-1997 JUN-28-1996 JUN-30-1995
<CASH> 1,047,335 503,754 890,667
<SECURITIES> 1,236,262 670,308 709,759
<RECEIVABLES> 1,101,248 1,133,175 1,185,117
<ALLOWANCES> 60,413 66,656 71,702
<INVENTORY> 808,280 790,821 591,956
<CURRENT-ASSETS> 4,552,307 3,399,280 3,649,152
<PP&E> 3,058,444 2,404,538 1,906,551
<DEPRECIATION> 1,271,819 1,004,655 993,662
<TOTAL-ASSETS> 6,722,879 5,239,635 4,899,832
<CURRENT-LIABILITIES> 1,836,354 1,438,136 1,381,950
<BONDS> 701,945 798,305 1,066,321
0 0 0
0 0 0
<COMMON> 2,519 2,134<F1> 1,942<F1>
<OTHER-SE> 3,473,147 2,463,954<F1> 1,934,190<F1>
<TOTAL-LIABILITY-AND-EQUITY> 6,722,879 5,239,635 4,899,832
<SALES> 8,940,022 8,588,350 7,256,209
<TOTAL-REVENUES> 8,940,022 8,588,350 7,256,209
<CGS> 6,917,767 7,007,349 5,882,824
<TOTAL-COSTS> 6,917,767 7,007,349 5,882,824
<OTHER-EXPENSES> 671,664 807,778 462,608
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 34,840 55,825 70,332
<INCOME-PRETAX> 891,235 331,460 487,476
<INCOME-TAX> 233,197 118,199 174,928
<INCOME-CONTINUING> 658,038 213,261 312,548
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 6,171
<CHANGES> 0 0 0
<NET-INCOME> 658,038 213,261 318,719
<EPS-PRIMARY> 2.73 1.03<F1> 1.63<F1>
<EPS-DILUTED> 2.61 .97<F1> 1.45<F1>
<FN>
<F1>Restated for a two-for-one stock split, effected in the form of a stock
dividend, in November 1996
</FN>
</TABLE>
