<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2000
Commission File Number 001-11403
SEAGATE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2612933
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
920 Disc Drive, Scotts Valley, California 95066
(Address of principal executive offices) (Zip Code)
Telephone: (831) 438-6550
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
On March 31, 2000, 227,222,348 shares of the registrant's common stock were
issued and outstanding.
1
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INDEX
SEAGATE TECHNOLOGY, INC.
PART I FINANCIAL INFORMATION PAGE NO.
- --------------------------------------------------------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated condensed statements of operations--
Three and nine months ended March 31, 2000 and
April 2, 1999 3
Consolidated condensed balance sheets--
March 31, 2000 and July 2, 1999 4
Consolidated condensed statements of cash flows--
Three and nine months ended March 31, 2000 and
April 2, 1999 5
Notes to consolidated condensed financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
PART II OTHER INFORMATION
- -------------------------------
Item 1. Legal Proceedings 32
Item 6. Exhibits and Reports on Form 8-K 33
SIGNATURES 34
2
<PAGE>
SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In Millions, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
March 31, April 2, March 31, April 2,
2000 1999 2000 1999
---- ---- ---- ----
Revenue $1,573 $1,805 $4,900 $5,159
Cost of sales 1,245 1,371 3,984 3,976
Product development 144 143 430 440
Marketing and administrative 123 135 366 401
Amortization of goodwill and
other intangibles 15 9 32 29
In-process research and development 105 - 105 -
Restructuring costs 49 60 183 60
Unusual items - - 325 78
------ ------ ------ ------
Total Operating Expenses 1,681 1,718 5,425 4,984
Income (Loss) from Operations (108) 87 (525) 175
Interest income 27 28 69 81
Interest expense (13) (12) (39) (37)
Activity related to equity interest
in VERITAS (74) - (256) -
Gain on sale of VERITAS stock - - 537 -
Gain on sale of SanDisk stock 453 - 515 -
Other - 2 (3) 10
------ ------ ------ ------
Other Income (Expense), net 393 18 823 54
------ ------ ------ ------
Income before income taxes 285 105 298 229
Provision for income taxes 149 23 219 72
------ ------ ------ ------
Net Income $ 136 $ 82 $ 79 $ 157
====== ====== ====== ======
Net income per share:
Basic $ 0.61 $ 0.35 $ 0.36 $ 0.65
Diluted 0.58 0.34 0.35 0.63
Number of shares used in
per share computations:
Basic 223.4 236.6 218.9 242.2
Diluted 235.6 243.9 227.6 247.3
See notes to consolidated condensed financial statements.
3
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SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Millions)
(Unaudited)
March 31, July 2,
2000 1999 (1)
---- -------
ASSETS
- ------
Cash and cash equivalents $1,125 $ 396
Short-term investments 765 1,227
Accounts receivable, net 761 872
Inventories 334 451
Deferred income taxes 248 252
Other current assets 155 114
------ -------
Total Current Assets 3,388 3,312
Property, equipment and leasehold improvements, net 1,539 1,687
Investment in VERITAS Software, net 1,191 1,745
Goodwill and other intangibles, net 409 144
Other assets 629 184
------ -------
Total Assets $7,156 $ 7,072
====== =======
LIABILITIES
- -----------
Accounts payable $ 598 $ 714
Accrued employee compensation 193 205
Accrued expenses 476 577
Accrued income taxes 244 43
Current portion of long-term debt 1 1
------ -------
Total Current Liabilities 1,512 1,540
Deferred income taxes 1,101 1,103
Other liabilities 126 163
Long-term debt, less current portion 703 703
------ -------
Total Liabilities 3,442 3,509
------ -------
STOCKHOLDERS' EQUITY
- --------------------
Common stock 3 3
Additional paid-in capital 1,919 1,991
Retained earnings 2,311 2,355
Accumulated other comprehensive income (loss) 282 (7)
Deferred compensation (34) (43)
Treasury common stock at cost (767) (736)
------ -------
Total Stockholders' Equity 3,714 3,563
------ -------
Total Liabilities and Stockholders' Equity $7,156 $ 7,072
====== =======
(1) The information in this column was derived from the Company's audited
consolidated balance sheet as of July 2, 1999.
See notes to consolidated condensed financial statements.
4
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SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Millions)
(Unaudited)
Nine Months Ended
-----------------
March 31, April 2,
2000 1999
---- ----
OPERATING ACTIVITIES:
Net income $ 79 $ 157
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 541 507
Deferred income taxes (223) 73
In-process research and development 105 -
Non-cash portion of restructuring charge 88 34
Activity related to equity interest in VERITAS 256 -
Gain on sale of VERITAS stock (537) -
Gain on sale of SanDisk stock (515) -
Compensation expense for SSI exchange offer 284 -
Other, net 34 38
Changes in operating assets and liabilities:
Accounts receivable 106 (118)
Inventories 94 129
Accounts payable (125) 20
Accrued income taxes (9) 13
Accrued expenses and employee compensation (216) (23)
Other assets and liabilities, net (17) 170
------- -------
Net cash provided by (used in) operating activities (55) 1,000
INVESTING ACTIVITIES:
Acquisition of property, equipment and leasehold
improvements, net (385) (420)
Purchases of short-term investments (1,796) (5,332)
Maturities and sales of short-term investments 2,249 5,243
Proceeds from sale of VERITAS stock 834 -
Proceeds from sale of SanDisk stock 535 -
Other, net (14) (31)
------- -------
Net cash provided by (used in) investing activities 1,423 (540)
FINANCING ACTIVITIES:
Sale of common stock 138 74
Purchase of treasury stock (776) (843)
Other, net - (1)
------- -------
Net cash used in financing activities (638) (770)
Effect of exchange rate changes on cash and
cash equivalents (1) (2)
------- -------
Increase (decrease) in cash and cash equivalents 729 (312)
Cash and cash equivalents at the beginning of the period 396 666
------- -------
Cash and cash equivalents at the end of the
period $ 1,125 $ 354
======= =======
See notes to consolidated condensed financial statements.
5
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SEAGATE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The consolidated condensed financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The Company
believes the disclosures included in the unaudited consolidated condensed
financial statements, when read in conjunction with the consolidated
financial statements of the Company as of July 2, 1999 and notes thereto,
are adequate to make the information presented not misleading.
The consolidated condensed financial statements reflect, in the opinion of
management, all material adjustments necessary to summarize fairly the
consolidated financial position, results of operations and cash flows for
such periods. Such adjustments are of a normal recurring nature.
The results of operations for the three and nine month periods ended March
31, 2000 are not necessarily indicative of the results that may be expected
for the entire fiscal year ending June 30, 2000.
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
1999 was 52 weeks and ended on July 2, 1999 and fiscal 2000 will be 52
weeks and will end on June 30, 2000.
2. Net Income Per Share
--------------------
The following table sets forth the computation of basic and diluted net
income (loss) per share:
(In Millions, Except Three Months Ended Nine Months Ended
Per Share Data) ------------------ ------------------
March 31, April 2, March 31, April 2,
2000 1999 2000 1999
------ ------ ------ --------
Numerator:
Net income $ 136 $ 82 $ 79 $ 157
------ ------ ------ --------
Denominator:
Denominator for basic net
income per share - weighted
average shares outstanding 223.4 236.6 218.9 242.2
<PAGE>
Incremental common shares
attributable to exercise of
outstanding options (assuming
proceeds would be used to
purchase treasury stock) 12.2 7.3 8.7 5.1
------ ------ ------ ------
Denominator for diluted net
income per share - adjusted
weighted average shares 235.6 243.9 227.6 247.3
====== ====== ====== ======
Basic net income
per share $ 0.61 $ 0.35 $ 0.36 $ 0.65
====== ====== ====== ======
Diluted net income
per share $ 0.58 $ 0.34 $ 0.35 $ 0.63
====== ====== ====== ======
Options to purchase 0.1 million shares and 1.6 million shares of common
stock were outstanding during the quarter and nine months ended March 31,
2000, respectively, but were not included in the computation of diluted net
income per share because the options' exercise price was greater than the
average market price of the common stock and, therefore, the effect would
be antidilutive. Options to purchase 1.6 million shares and 7.2 million
shares of common stock were outstanding during the quarter and nine months
ended April 2, 1999, respectively, but were not included in the computation
of diluted net income per share because the options' exercise price was
greater than the average market price of the common stock and, therefore,
the effect would be antidilutive.
3. Balance Sheet Information
-------------------------
(In millions)
March 31, July 2,
2000 1999
---- ----
Accounts Receivable:
Accounts receivable $ 835 $ 925
Allowance for non-collection (74) (53)
------- -------
$ 761 $ 872
======= =======
Inventories:
Components $ 118 $ 143
Work-in-process 64 54
Finished goods 152 254
------- -------
$ 334 $ 451
======= =======
Property, Equipment and Leasehold Improvements:
Property, equipment and leasehold improvements $ 3,580 $ 3,533
Allowance for depreciation and amortization (2,041) (1,846)
------- -------
$ 1,539 $ 1,687
======= =======
7
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4. Income Taxes
------------
The effective tax rate used to record the provision for income taxes for
the nine months ended March 31, 2000 was 74% compared with a 32% effective
tax rate used to record the provision for income taxes for the nine months
ended April 2, 1999. The higher effective tax rate used to record the
provision for income taxes for the nine months ended March 31, 2000
resulted primarily from the effects of net non-deductible charges
associated with the acquisition of the minority interest in Seagate
Software, the acquisition of XIOtech Corporation ("XIOtech"), the net gain
from the sales of SanDisk Corporation ("SanDisk") and VERITAS Software
Corporation ("VERITAS") common stock and activity related to the Company's
equity interest in VERITAS. Excluding these items, and considering the
effects of the Company's settlement of litigation with Rodime PLC (the
"Rodime Settlement") and certain non-recurring restructuring costs, the pro
forma effective tax rate used to record the provision for income taxes for
the nine months ended March 31, 2000 would have been 28%. The pro forma
effective tax rate of 28% is less than the statutory rate because a portion
of the Company's anticipated foreign operating income is not subject to
foreign income taxes and is considered to be permanently reinvested in non-
U.S. operations.
5. Supplemental Cash Flow Information
----------------------------------
(In millions)
Nine Months Ended
-----------------
March 31, April 2,
2000 1999
---- ----
Cash Transactions:
Cash paid for interest $ 52 $ 52
Cash paid for income
taxes, net of refunds 447 (115)
Non-Cash Transactions:
Acquisition of minority
interest 19 -
Acquisition of XIOtech 359 -
6. Restructuring Costs
-------------------
During the nine months ended March 31, 2000, the Company recorded
restructuring charges totaling $184 million including $49 million recorded
in the quarter ended March 31, 2000. These charges were a result of a
restructuring plan established to align the Company's global workforce and
manufacturing capacity with existing and anticipated future market
requirements and necessitated by the Company's improved productivity and
operating efficiencies (the "fiscal 2000 restructuring plan"). These
actions include workforce reductions, capacity reductions including closure
of facilities or portions of facilities, write-off of excess equipment and
consolidation of operations in the Company's recording media operations,
disc drive assembly and test facilities, printed circuit board assembly
manufacturing, recording head operations, software operations, customer
service operations, sales and marketing activities, and research and
development activities. The restructuring charges were comprised of $60
million for the write-off of excess manufacturing, assembly and test
equipment formerly utilized in Singapore, Thailand and
8
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Northern California; $81 million for employee termination costs; $29
million for the write-off of owned facilities located in Singapore; $7
million in lease termination and holding costs; $5 million in renovation
costs to restore facilities in Singapore and Northern California to their
pre-lease condition; and $2 million in contract cancellations associated
with one of the Singapore facilities. Prior to this period, there was no
indication of permanent impairment of the assets associated with the
closure and consolidation of facilities.
In connection with the restructuring activities taken to date, the Company
plans to reduce its workforce by approximately 21,800 primarily
manufacturing employees. Approximately 17,500 of the 21,800 employees had
been terminated as of March 31, 2000. As a result of employee terminations
and the write-off of equipment and facilities in connection with the
restructuring charges recorded during the nine months ended March 31, 2000
related to the fiscal 2000 restructuring plan, the Company estimates that
after completion of these restructuring activities, annual salary and
depreciation expense will be reduced by approximately $118 million and $76
million, respectively. The Company may implement additional actions
pursuant to the fiscal 2000 restructuring plan, and, if such additional
actions are implemented, the Company anticipates that additional charges
would be taken related to these actions. The Company expects the
implementation of the fiscal 2000 restructuring plan will be substantially
complete by September 30, 2000.
In connection with the restructuring plan implemented in fiscal 1999, the
Company's planned workforce reduction has been completed as of March 31,
2000 and the other restructuring activities were substantially complete as
of March 31, 2000.
The following table summarizes the Company's restructuring activities for
the nine months ended March 31, 2000:
<TABLE>
<CAPTION>
Severance
and Excess Contract
In millions Benefits Facilities Equipment Cancellations Other Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Reserve balances,
July 2, 1999 $ 4 $ 18 $ - $3 $11 $ 36
Q1FY00 restructuring charge 27 33 48 2 2 112
Q2FY00 restructuring charge 19 1 - - 3 23
Q3FY00 restructuring charge 35 2 12 - - 49
Cash charges (62) (11) - - (2) (75)
Non-cash charges - (28) (60) - - (88)
Adjustments and
reclassifications (2) - - - 2 -
-------------------------------------------------------------------
Reserve balances,
March 31, 2000 $ 21 $ 15 $ - $5 $16 $ 57
-------------------------------------------------------------------
</TABLE>
7. Business Segments
-----------------
The Company has three operating segments, disc drives, software and tape
drives, however, only the disc drive business is a reportable segment under
the criteria of SFAS 131. The "other" category in the following tables
consists of tape drives, software, and out-of-warranty repair. The Chief
Executive Officer (the "CEO") has been identified as the
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Chief Operating Decision Maker as defined by SFAS 131. The CEO evaluates
performance and allocates resources based on revenue and gross profit from
operations. Gross profit from operations is defined as revenue less cost of
sales. The following tables summarize the Company's operations by business
segment:
In millions
Three Months Ended Nine Months Ended
------------------ -----------------
March 31, April 2, March 31, April 2,
2000 1999 2000 1999
---- ---- ---- ----
Revenue:
Disc Drives $ 1,468 $ 1,614 $4,568 $4,627
Other 105 191 332 532
-------- -------- ------ ------
Consolidated $ 1,573 $ 1,805 $4,900 $5,159
======== ======== ====== ======
Gross Profit:
Disc Drives $ 279 $ 322 $ 768 $ 885
Other 49 112 148 298
-------- -------- ------ ------
Consolidated $ 328 $ 434 $ 916 $1,183
======== ======== ====== ======
March 31, July 2,
2000 1999
---- ----
Total Assets:
Disc Drives $ 19,122 $ 16,553
Other 504 586
-------- --------
Operating Segments 19,626 17,139
Investment in VERITAS 1,191 1,745
Eliminations (13,661) (11,812)
-------- --------
Consolidated $ 7,156 $ 7,072
======== ========
8. Comprehensive Income
--------------------
During the quarter ended October 1, 1999, Gadzoox Networks Inc.
("Gadzoox"), a company in which Seagate Technology held a 19.89% interest
as of that date, completed an initial public offering of its common stock.
The Company is required to account for its investment under Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). The Company has identified
this investment as "available-for-sale". Under SFAS 115, an available-for-
sale security is recorded at fair value on the balance sheet and unrealized
holding gains and losses are reported, net of taxes, in a separate
component of stockholders' equity called accumulated other comprehensive
income, until realized. For the nine months ended March 31, 2000, the
Company recorded net unrealized gains on securities of $130 million, net of
tax, with respect to its investment in Gadzoox.
During the quarter ended December 31, 1999, the Company identified its
investment in SanDisk as "available-for-sale" after it had sold 2,000,000
shares of stock it held in SanDisk, adjusted for a 2 for 1 stock split on
February 23, 2000, resulting in an ownership percentage of 15.8% as of
December 31, 1999. The Company recorded an unrealized gain
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on securities, net of tax, of $97 million to record its investment in
SanDisk at fair value as of December 31, 1999. For the nine months ended
March 31, 2000, the Company recorded unrealized gains on securities of $162
million, net of tax, with respect to its investment in SanDisk.
Between March 31, 2000 and April 26, 2000, the Company experienced a
decline in the market values on its investments in SanDisk and Gadzoox of
$133 million and $69 million, respectively. On an after tax basis, these
unrealized losses were $81 million and $42 million, respectively.
The components of comprehensive income, net of related tax, for the three
and nine months ended March 31, 2000 and April 2, 1999 were as follows (in
millions):
Three Months Ended Nine Months Ended
------------------ -----------------
March 31, April 2, March 31, April 2,
2000 1999 2000 1999
---- ---- ---- ----
Net income $ 136 $ 82 $ 79 $ 157
Unrealized gain (loss) on securities 78 (3) 289 (2)
Foreign currency translation adjustments - - - (1)
----- ----- ----- -----
Comprehensive income $ 214 $ 79 $ 368 $ 154
===== ===== ===== =====
The components of accumulated other comprehensive income (loss), net of
related tax, at March 31, 2000 and July 2, 1999 were as follows (in
millions):
March 31, July 2,
2000 1999
---- ----
Unrealized gain (loss) on securities $ 284 $ (5)
Foreign currency translation adjustments (2) (2)
----- -----
Accumulated other comprehensive income (loss) $ 282 $ (7)
===== =====
9. Equity Investment in VERITAS Software Corporation
-------------------------------------------------
During the quarters ended October 1, 1999 and December 31, 1999, Seagate
Software sold 18,523,502 and 9,000,000 shares, respectively, of VERITAS
common stock, adjusted for 3 for 2 stock splits on November 22, 1999 and
March 6, 2000, for proceeds of $397 million and $437 million, respectively,
net of underwriting discounts and commissions. Seagate Software acquired
such shares in connection with the contribution of its Network & Storage
Management Group business to VERITAS in May 1999. The sale of shares of
VERITAS common stock by Seagate Software in the quarters ended October 1,
1999 and December 31, 1999 resulted in pre-tax gains of $193 million and
$344 million, respectively. As of March 31, 2000, Seagate Software held
approximately 33% of the outstanding common stock of VERITAS. The Company
accounts for its investment in VERITAS under the equity method and records
its equity interest in VERITAS' net income (loss) on a one-quarter lag.
11
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Summarized income statement information for VERITAS for the three and nine
months ended December 31, 1999 is as follows (in millions):
Three Months Ended Nine Months Ended
December 31, December 31,
1999 1999
---- ----
Revenue $ 226 $ 524
Gross profit 188 438
Net loss (171) (517)
The Company's recorded equity in the net income of VERITAS for the three
and nine months ended March 31, 2000 was $12 million and $20 million,
respectively, and differs from the Company's proportionate share of
VERITAS' reported net loss for the three and nine months ended December 31,
1999. This difference is primarily because the Company eliminates from
VERITAS' net income (loss) the effect of VERITAS' accounting for the
Network & Storage Management Group business contribution, including
VERITAS' amortization expense related to intangible assets.
The Company's activity related to equity interest in VERITAS for the three
and nine months ended March 31, 2000 consisted of the recorded equity in
the net income of VERITAS of $12 million and $20 million, respectively, as
described above, and the Company's amortization expense for goodwill and
other intangible assets relating to the investment in VERITAS amounting to
$86 million and $276 million, respectively.
10. Seagate Software Reorganization
-------------------------------
On October 20, 1999, the stockholders of Seagate Software, a majority-owned
subsidiary of the Company, approved the merger of Seagate Daylight Merger
Corp., a wholly-owned subsidiary of the Company, with and into Seagate
Software. Seagate Software's assets consisted of the assets of the
Information Management Group ("IMG") and its investment in the common stock
of VERITAS Software Corporation. The merger was effected on October 20,
1999. As a result of the merger, Seagate Software became a wholly-owned
subsidiary of the Company. In connection with the merger, Seagate
Software's stockholders and optionees received payment in the form of 3.23
shares of the Company's common stock per share of Seagate Software common
stock less any amounts due for the payment of the exercise price for such
options. All outstanding Seagate Software stock options were accelerated
immediately prior to the merger. Seagate Technology issued 9,124,046 shares
to optionees and minority stockholders of Seagate Software.
In connection with the reorganization, Seagate Software also formed a
wholly-owned subsidiary that assumed the name "Seagate Software, Inc."
("Software Operating Company"). Seagate Software transferred the IMG assets
into Software Operating Company. This new company, Software Operating
Company, is now the operating entity for the IMG business. In October 1999,
a new stock option plan was established for Software Operating Company, and
employees of the IMG business are eligible to participate in the plan.
12
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Seagate Software accounted for the exchange of shares of its common stock
as the acquisition of a minority interest for Seagate Software common stock
outstanding and vested more than six months held by employees and all stock
held by former employees and consultants. The fair value of the shares of
Seagate Technology issued was $19 million and was recorded as purchase
price and allocated to the assets and liabilities received. The Company
accounted for the exchange of shares of its common stock for stock options
in Seagate Software held by employees and stock held and vested by
employees less than six months as the settlement of an earlier stock award.
During the quarter ended December 31, 1999, the Company recorded
compensation expense of $284 million, plus $2 million in payroll taxes,
related to the purchase of minority interest in Seagate Software.
Allocation of minority interest purchase price to the intangible assets of
Seagate Software
In millions
---------------------------------------------------------------------------
Distribution channel.......................................... $ 1
Developed technology.......................................... 1
Goodwill...................................................... 18
-----------
Subtotal.................................................... 20
Deferred tax liability........................................ (1)
-----------
Total......................................................... 19
===========
Compensation relating to stock purchased from employees
Dollars in millions, except per share data
-----------------------------------------------------------------------------
Seagate Software options exercised and
exchanged for Seagate Technology stock...................... 3,723,015
Plus: Seagate Software stock held for less than 6 months
and exchanged for Seagate Technology stock.................. 17,952
-----------
Total Seagate Software shares exchanged....................... 3,740,967
Times: Exchange ratio into Seagate Technology stock........... 3.23
-----------
Number of Seagate Technology shares issued.................... 12,083,323
-----------
Value per share of Seagate Technology common
stock on October 20, 1999................................... $ 29.00
Less: Average price paid per Seagate Technology share......... $ (5.50)
-----------
Average compensation expense per
Seagate Technology share issued............................. $ 23.50
-----------
Total compensation expense.................................... $ 284
===========
11. Acquisition of XIOtech Corporation
----------------------------------
On January 28, 2000, the Company acquired XIOtech Corporation ("XIOtech"),
a provider of virtual storage and Storage Area Network (SAN) solutions, for
Seagate Technology
13
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common stock with a value of $359 million. This acquisition was accounted
for as a purchase and, accordingly, the results of operations of XIOtech
have been included in the consolidated financial statements from the date
of acquisition. The purchase price has been allocated based on the
estimated fair market value of net tangible and intangible assets acquired
as well as in-process research and development costs. As a result of the
acquisition, the Company incurred a one-time write-off of in-process
research and development of $105 million. Goodwill and other intangibles
arising from the acquisition are being amortized on a straight-line basis
over periods ranging from four months to seven years. Amortization of
goodwill and other intangibles is expected to be approximately $51 million
the first year and approximately $47 million in subsequent years. XIOtech's
revenue and expenses are immaterial to the Company's consolidated revenue
and expenses.
The following is a summary of the purchase price allocation (in millions):
Tangible assets less liabilities assumed $ 12
Developed technology 90
Tradenames 5
Assembled workforce 2
Customer list 2
In-process research and development 105
Goodwill 182
Deferred tax liability (39)
----
$359
====
12. Stock Purchase Agreement and Merger Agreement
---------------------------------------------
On March 29, 2000, Seagate Technology, Seagate Software Holdings, Inc.
("Seagate Software") and Suez Acquisition Company (Cayman) Limited ("SAC"),
an entity affiliated with, among others, Silver Lake Partners and Texas
Pacific Group entered into a Stock Purchase Agreement (the "Stock Purchase
Agreement"), and Seagate Technology, VERITAS and a wholly owned subsidiary
of VERITAS entered into an Agreement and Plan of Merger and Reorganization
(the "Merger Agreement").
Under the Stock Purchase Agreement, SAC has agreed to purchase, in exchange
for $2 billion in cash, all of the assets of Seagate Technology and its
consolidated subsidiaries, including Seagate's disc drive, tape drive and
software businesses and operations, but excluding the approximately 128
million shares of VERITAS common stock currently held by Seagate Software
and Seagate Technology's equity investments in Gadzoox Networks, SanDisk
Corporation, CVC, Inc. and Dragon Systems, Inc., a privately held company.
In addition, under the Stock Purchase Agreement, SAC has agreed to assume
substantially all of the liabilities of Seagate Technology and its
consolidated subsidiaries. This transaction is referred to herein as the
SAC transaction.
Under the Merger Agreement, immediately following and contingent upon the
consummation of the SAC transaction, a wholly-owned subsidiary of VERITAS
will merge with and into Seagate Technology, with Seagate Technology to
survive the merger and to become a wholly-owned subsidiary of VERITAS. This
transaction is referred to herein as the Merger. VERITAS is not acquiring
Seagate Technology's disc drive business or any other
14
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Seagate operating business. In the Merger, the Seagate stockholders will
receive merger consideration consisting of:
- Approximately 109.3 million shares of VERITAS common stock issued in
exchange for the approximately 128 million shares of VERITAS common stock
that Seagate currently holds,
- additional shares of VERITAS common stock issued in exchange for the
investment securities, and, at VERITAS' election, for up to $750 million in
retained cash, and
- all cash on the Seagate balance sheet in excess of $800 million
(including cash generated from the SAC transaction) and after giving effect
to VERITAS retained cash, debt repayment, taxes and other liabilities.
The Merger is intended to qualify as a tax-free reorganization.
On March 29, 2000, Seagate Technology, VERITAS and SAC entered into an
Indemnification Agreement, pursuant to which these entities and certain
other subsidiaries of Seagate Technology have agreed to certain
indemnification provisions regarding tax and other matters that may arise
in connection with the SAC transaction and the Merger. Also on March 29,
2000, VERITAS and SAC entered into a letter agreement, pursuant to which
VERITAS agreed to a no-shop provision and an alternative termination fee
provision.
All of the transactions contemplated by the SAC transaction and the Merger
are herein referred to as the Veritas/Silver Lake transaction. The
Veritas/Silver Lake transaction is expected to close in the first quarter
of fiscal year 2001, subject to the approval of VERITAS and Seagate
stockholders, funding of the debt commitments and clearance by the U.S.
Securities and Exchange Commission, as well as clearance under antitrust
laws and other customary closing conditions. The Company expects that while
the Veritas/Silver Lake transaction is pending, the value of Seagate common
stock will depend primarily on the value of VERITAS common stock.
13. Litigation
----------
Following the Company's announcement of the Veritas/Silver Lake
transaction, a number of stockholders filed lawsuits against the Company,
the individual members of the Board of Directors and certain executive
officers in both Delaware and California. As of April 11, 2000, 17
complaints had been filed in the Chancery Court of Delaware. In California,
three complaints were filed in Santa Clara County Superior Court and two
complaints were filed in Santa Cruz County Superior Court. The complaints
in these jurisdictions each allege that the members of the Company's Board
of Directors breached their fiduciary duties to the Company's shareholders
by entering into the Veritas/Silver Lake transaction. The complaints also
allege that the Company's directors and executive officers have conflicting
financial interests and did not secure the highest possible price for the
Company's shares. All the complaints are styled as class actions, and seek
to enjoin the Veritas/Silver Lake transaction and secure damages from all
defendants. The Company believes that none of the lawsuits has any merit
and intends to defend all these claims vigorously.
In late 1992, Rodime PLC filed a complaint alleging infringement on a
certain patent. The process of litigation ensued and elapsed through
January 2000. On January 18, 2000, the
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U.S. Supreme Court denied the Company's petition for certiorari. On the
following day, through a mediation process, the Company and Rodime agreed
to a settlement amount of $45 million to bring the related litigation to an
end. As a result, a previously recorded estimate of related settlement
costs was revised and a charge of $39 million was recorded in the three
months ended December 31, 1999. See Part II, Item 1 of this Form 10-Q for a
description of legal proceedings.
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SEAGATE TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain Forward-Looking Information:
- ------------------------------------
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements include the statements
relating to continued price erosion in the first paragraph under "Results of
Operations," the statements relating to amortization charges for goodwill and
other intangibles associated with the acquisition of XIOtech Corporation
("XIOtech") in the sixth paragraph under "Results of Operations," the statements
relating to restructuring activities in the seventh paragraph under "Results of
Operations," the statements relating to the Stock Purchase Agreement and the
Merger Agreement in the thirteenth through eighteenth paragraphs under "Results
of Operations," the statements regarding capital expenditures in the third
paragraph under "Liquidity and Capital Resources," the statements below under
"Factors Affecting Future Operating Results" and the statements under "Part II
Other Information - Item 1. Legal Proceedings," among others. These forward-
looking statements are based on current expectations and entail various risks
and uncertainties that could cause actual results to differ materially from
those projected in the forward-looking statements. Such risks and uncertainties
are set forth below under "Factors Affecting Future Operating Results."
Results of Operations:
- ----------------------
Revenue for the quarter ended March 31, 2000 was $1.573 billion, as compared
with $1.805 billion for the comparable year-ago quarter ended April 2, 1999, and
$1.645 billion for the immediately preceding quarter ended December 31, 1999.
The decrease in revenue from both comparable year-ago periods 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 a shift in mix to the
Company's lower priced products partially offset by a higher level of unit
shipments. The Company shipped a record 10.5 million disc drives in its quarter
ended March 31, 2000. Price erosion accounted for $0.7 billion of the revenue
decline from the quarter ended April 2, 1999 partially offset by $0.5 billion in
improved sales volume. When compared to the immediately preceding quarter ended
December 31, 1999, the decrease in revenue was primarily due to price erosion
and a shift in mix to the Company's lower priced products. Revenue for the nine
months ended March 31, 2000 was $4.900 billion, as compared with $5.159 billion
for the comparable year-ago period. Excluding the Network & Storage Management
Group business, which was contributed to VERITAS Software Corporation
("VERITAS") in May 1999, revenue for the nine months ended April 2, 1999 would
have been $4.989 billion. Price erosion accounted for $2.1 billion of the
revenue decline in the nine months ended March 31, 2000. This decline was
partially offset by $2.0 billion in improved sales volume and product mix. The
Company expects that price erosion in the data storage industry will continue
for the foreseeable future. Industry competition and continuing price erosion
could adversely affect the Company's results of operations in any given quarter
and such adverse effects often cannot be anticipated until late in any given
quarter.
Gross margin as a percentage of revenue was 20.9% and 18.7% for the three and
nine months ended March 31, 2000, compared with 24.0% and 22.9% for the
comparable year-ago periods and 18.9% for the immediately preceding quarter
ended December 31, 1999. The decrease in gross margin as a percentage of revenue
from both year-ago periods was partially due to the Company's contribution of
the Network & Storage Management Group business to VERITAS during the quarter
ended July 2, 1999. Excluding the Network & Storage Management Group business,
the
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Company's gross margins would have been 21.5% and 20.7%, respectively, for the
three and nine month periods ended April 2, 1999. In addition, the decrease in
gross margins from both year-ago periods was a result of price erosion due to
intense price competition for disc drive products in the three and nine months
ended March 31, 2000. These decreases were partially offset by cost savings as a
result of the Company's program to implement operational efficiencies. These
efficiencies include implementation of advanced manufacturing processes
resulting in lower average unit costs per disc drive produced. The increase in
gross margin as a percentage of revenue from the immediately preceding quarter
was primarily due to these cost savings partially offset by price erosion.
Product development expenses for the three and nine months ended March 31, 2000
were $144 million and $430 million, respectively, an increase of $1 million and
a decrease of $10 million when compared with the comparable year-ago periods and
a decrease of $2 million when compared with the immediately preceding quarter
ended December 31, 1999. These expenses represented 9.2% and 8.8%, respectively,
of revenue for the three and nine months ended March 31, 2000 compared with 7.9%
and 8.5%, respectively, for the comparable year-ago periods and 8.9% for the
immediately preceding quarter ended December 31, 1999. The increase in expenses
from the comparable year-ago quarter was primarily due to increases of $5
million in salaries and related costs, $4 million in occupancy costs and $3
million in depreciation. These increases were partially offset by decreases of
$9 million in product development expenses related to the Company's Network &
Storage Management business and $2 million in equipment costs. The decrease in
expenses from the comparable year-ago nine month period was primarily due to
decreases of $27 million in product development expenses related to the
Company's Network & Storage Management business, $5 million in equipment costs,
$4 million in accruals for profit sharing and management bonuses and $4 million
in recruitment and relocation costs. These decreases were partially offset by
increased investment in product development for the Company's core business
resulting in an increase of $13 million in salaries and related costs, $9
million in occupancy costs and $8 million in depreciation.
Marketing and administrative expenses for the three and nine months ended March
31, 2000 were $123 million and $366 million, respectively, a decrease of $12
million and $35 million when compared with the comparable year-ago periods and a
decrease of $2 million from the immediately preceding quarter ended December 31,
1999. These expenses represented 7.8% and 7.5%, respectively, of revenue for the
three and nine months ended March 31, 2000 compared with 7.5% and 7.8%,
respectively, for the comparable year-ago periods and 7.6% for the immediately
preceding quarter ended December 31, 1999. The decrease in expenses from the
comparable year-ago quarter was primarily due to decreases of $28 million in
marketing and administrative expenses related to the Company's Network & Storage
Management business and $5 million in advertising and promotion expenses. These
decreases were partially offset by increases of $8 million in outside services,
$7 million in salaries and related costs, $2 million in marketing and
administrative expenses related to the Company's Information Management Group
("IMG") software products and services, $2 million in the provision for bad
debts and $1 million in legal expenses. The decrease in expenses from the
comparable year-ago nine month period was primarily due to decreases of $81
million in marketing and administrative expenses related to the Company's
Network & Storage Management business, $15 million in advertising and promotion
expenses and $4 million in occupancy costs. These decreases were partially
offset by increases of $22 million in the provision for bad debts, $14 million
in salaries and related costs, $14 million in outside services and $13 million
in marketing and administrative expenses related to the Company's IMG software
products and services.
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Amortization of goodwill and other intangibles increased $6 million and $3
million for the three and nine months ended March 31, 2000, when compared with
the comparable year-ago periods and increased $7 million when compared with the
immediately preceding quarter ended December 31, 1999. The increase in
amortization from both the year-ago quarter and the immediately preceding
quarter was primarily due to additional amortization related to goodwill and
intangibles arising from the acquisition of XIOtech. The increase in
amortization from the comparable year-ago nine month period was primarily due to
additional amortization of $5 million related to goodwill and intangibles
arising from the acquisition of XIOtech partially offset by $2 million in write-
offs, in the nine months ended April 2, 1999, of certain intangible assets
related to past acquisitions of companies whose value had become permanently
impaired.
On January 28, 2000, the Company acquired XIOtech, a provider of virtual storage
and Storage Area Network (SAN) solutions, for Seagate Technology common stock
with a value of $359 million. This acquisition was accounted for as a purchase
and, accordingly, the results of operations of XIOtech have been included in the
consolidated financial statements from the date of acquisition. The purchase
price has been allocated based on the estimated fair market value of net
tangible and intangible assets acquired as well as in-process research and
development costs. As a result of the acquisition, the Company incurred a one-
time write-off of in-process research and development of $105 million. Goodwill
and other intangibles arising from the acquisition are being amortized on a
straight-line basis over periods ranging from four months to seven years.
Amortization of goodwill and other intangibles is expected to be approximately
$51 million the first year and approximately $47 million in subsequent years.
XIOtech's revenue and expenses are immaterial to the Company's consolidated
revenue and expenses.
During the nine months ended March 31, 2000, the Company recorded restructuring
charges totaling $184 million including $49 million recorded in the quarter
ended March 31, 2000. These charges were a result of a restructuring plan
established to align the Company's global workforce and manufacturing capacity
with existing and anticipated future market requirements and necessitated by the
Company's improved productivity and operating efficiencies (the "fiscal 2000
restructuring plan"). These actions include workforce reductions, capacity
reductions including closure of facilities or portions of facilities, write-off
of excess equipment and consolidation of operations in the Company's recording
media operations, disc drive assembly and test facilities, printed circuit board
assembly manufacturing, recording head operations, software operations, customer
service operations, sales and marketing activities, and research and development
activities. In connection with the restructuring activities taken to date, the
Company plans to reduce its workforce by approximately 21,800 primarily
manufacturing employees. Approximately 17,500 of the 21,800 employees had been
terminated as of March 31, 2000. As a result of employee terminations and the
write-off of equipment and facilities in connection with the restructuring
charges recorded during the nine months ended March 31, 2000 related to the
fiscal year 2000 restructuring plan, the Company estimates that after completion
of these restructuring activities, annual salary and depreciation expense will
be reduced by approximately $118 million and $76 million, respectively. The
Company may implement additional actions pursuant to the fiscal 2000
restructuring plan, and, if such additional actions are implemented, the Company
anticipates that additional charges would be taken related to these actions. The
Company expects the implementation of the fiscal 2000 restructuring plan will be
substantially complete by September 30, 2000. In connection with the
restructuring plan implemented in fiscal 1999, the Company's planned workforce
reduction has been completed as of March 31, 2000 and the other restructuring
activities were substantially complete as of March 31, 2000.
Unusual items during the quarter ended December 31, 1999 consisted of a $39
million charge as a result of the settlement in the Rodime PLC ("Rodime")
litigation (see Note 13, Litigation, to the
19
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consolidated condensed financial statements) and $284 million for compensation
expense, plus payroll taxes of $2 million, related to the purchase of the
minority interest in the Company's Seagate Software Holdings, Inc. ("Seagate
Software") subsidiary. On October 20, 1999, the stockholders of Seagate
Software, a majority-owned subsidiary of the Company, approved the merger of
Seagate Daylight Merger Corp., a wholly-owned subsidiary of the Company, with
and into Seagate Software. Seagate Software's assets consisted of the assets of
the Information Management Group ("IMG") and an investment in the common stock
of VERITAS. The merger was effected on October 20, 1999. As a result of the
merger, Seagate Software became a wholly- owned subsidiary of the Company. In
connection with the merger, Seagate Software's stockholders and optionees
received payment in the form of 3.23 shares of the Company's common stock per
share of Seagate Software common stock less any amounts due for the payment of
the exercise price for such options. All outstanding Seagate Software stock
options were accelerated immediately prior to the merger. Seagate Technology
issued 9,124,046 shares to optionees and minority stockholders of Seagate
Software. In connection with the reorganization, Seagate Software also formed a
wholly-owned subsidiary that assumed the name "Seagate Software, Inc."
("Software Operating Company"). Seagate Software transferred the IMG assets into
Software Operating Company. This new company, Software Operating Company, is now
the operating entity for the IMG business. In October 1999, a new stock option
plan was established for Software Operating Company, and employees of the IMG
business are eligible to participate in the plan. Seagate Software accounted for
the exchange of shares of its common stock as the acquisition of a minority
interest for Seagate Software common stock outstanding and vested more than six
months held by employees and all stock held by former employees and consultants.
The fair value of the shares of Seagate Technology issued was $19 million and
was recorded as purchase price and allocated to the assets and liabilities
received. The Company accounted for the exchange of shares of its common stock
for stock options in Seagate Software held by employees and stock held and
vested by employees less than six months as the settlement of an earlier stock
award. See Note 10, Seagate Software Reorganization, to the consolidated
condensed financial statements.
Net other income increased by $375 million and $769 million for the three and
nine months ended March 31, 2000, respectively, when compared with the
comparable year-ago periods and increased by $63 million when compared with the
immediately preceding quarter ended December 31, 1999. The increase in net other
income from the comparable year-ago quarter was primarily due to a gain on sale
of a portion of the Company's investment in SanDisk Corporation ("SanDisk")
common stock of $453 million partially offset by activity related to the
Company's equity interest in VERITAS of $74 million. The increase in net other
income from the comparable year-ago nine month period was primarily due to gains
on sales of portions of the Company's investments in VERITAS and SanDisk common
stock of $537 million and $515 million, respectively, partially offset by
activity related to the Company's equity interest in VERITAS of $256 million and
a decrease of $12 million in interest income primarily resulting from lower
average invested cash.
During the quarters ended October 1, 1999 and December 31, 1999, Seagate
Software sold 18,523,502 and 9,000,000 shares, respectively, of VERITAS common
stock, adjusted for 3 for 2 stock splits on November 22, 1999 and March 6, 2000,
for proceeds of $397 million and $437 million, respectively, net of underwriting
discounts and commissions. Seagate Software acquired such shares in connection
with the contribution of its Network & Storage Management Group business to
VERITAS in May 1999. The sale of shares of VERITAS common stock by Seagate
Software in the quarters ended October 1, 1999 and December 31, 1999 resulted in
pre-tax gains of $193 million and $344 million, respectively. As of March 31,
2000, Seagate Software held approximately 33% of the outstanding common stock of
VERITAS. The Company accounts for its investment in VERITAS under the equity
method and records its equity interest in VERITAS'
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net income (loss) on a one-quarter lag.
During the quarters ended December 31, 1999 and March 31, 2000, the Company sold
2,000,000 and 12,400,000 shares, respectively, of SanDisk common stock, adjusted
for a 2 for 1 stock split on February 23, 2000, for proceeds of $67 million and
$468 million, respectively, net of underwriting discounts and commissions. The
sale of shares of SanDisk common stock by the Company in the quarters ended
December 31, 1999 and March 31, 2000 resulted in pre-tax gains of $62 million
and $453 million, respectively.
The effective tax rate used to record the provision for income taxes for the
nine months ended March 31, 2000 was 74% compared with a 32% effective tax rate
used to record the provision for income taxes for the nine months ended April 2,
1999. The higher effective tax rate used to record the provision for income
taxes for the nine months ended March 31, 2000 resulted primarily from the
effects of net non-deductible charges associated with the acquisition of the
minority interest in Seagate Software, the acquisition of XIOtech, the net gain
from the sales of SanDisk and VERITAS common stock and activity related to the
Company's equity interest in VERITAS. Excluding these items, and considering the
effects of the Company's settlement of litigation with Rodime PLC (the "Rodime
Settlement") and certain non-recurring restructuring costs, the pro forma
effective tax rate used to record the provision for income taxes for the nine
months ended March 31, 2000 would have been 28%. The pro forma effective tax
rate of 28% is less than the statutory rate because a portion of the Company's
anticipated foreign operating income is not subject to foreign income taxes and
is considered to be permanently reinvested in non-U.S. operations.
On March 29, 2000, Seagate Technology, Seagate Software and Suez Acquisition
Company (Cayman) Limited ("SAC"), an entity affiliated with, among others,
Silver Lake Partners and Texas Pacific Group, entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement"), and Seagate Technology, VERITAS and
a wholly owned subsidiary of VERITAS entered into an Agreement and Plan of
Merger and Reorganization, (the "Merger Agreement").
Under the Stock Purchase Agreement, SAC has agreed to purchase, in exchange for
$2 billion in cash, all of the assets of Seagate Technology and its consolidated
subsidiaries, including Seagate's disc drive, tape drive and software businesses
and operations, but excluding the approximately 128 million shares of VERITAS
common stock currently held by Seagate Software and Seagate Technology's equity
investments in Gadzoox Networks, SanDisk Corporation, CVC, Inc. and Dragon
Systems, Inc., a privately held company. In addition, under the Stock Purchase
Agreement, SAC has agreed to assume substantially all of the liabilities of
Seagate Technology and its consolidated subsidiaries. This transaction is
referred to herein as the SAC transaction.
Under the Merger Agreement, immediately following and contingent upon the
consummation of the SAC transaction, a wholly-owned subsidiary of VERITAS will
merge with and into Seagate Technology, with Seagate Technology to survive the
merger and to become a wholly-owned subsidiary of VERITAS. This transaction is
referred to herein as the Merger. VERITAS is not acquiring Seagate Technology's
disc drive business or any other Seagate operating business. In the Merger, the
Seagate stockholders will receive merger consideration consisting of:
- Approximately 109.3 million shares of VERITAS common stock issued in
exchange for the approximately 128 million shares of VERITAS common stock
that Seagate currently holds,
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- additional shares of VERITAS common stock issued in exchange for the
investment securities, and, at VERITAS' election, for up to $750 million
in retained cash, and
- all cash on the Seagate balance sheet in excess of $800 million
(including cash generated from the SAC transaction) and after giving effect
to VERITAS retained cash, debt repayment, taxes and other liabilities.
The Merger is intended to qualify as a tax-free reorganization.
On March 29, 2000, Seagate Technology, VERITAS and SAC entered into an
Indemnification Agreement, pursuant to which these entities and certain other
subsidiaries of Seagate Technology have agreed to certain indemnification
provisions regarding tax and other matters that may arise in connection with the
SAC transaction and the Merger. Also on March 29, 2000, VERITAS and SAC entered
into a letter agreement, pursuant to which VERITAS agreed to a no-shop provision
and an alternative termination fee provision.
All of the transactions contemplated by the SAC transaction and the Merger are
herein referred to as the Veritas/Silver Lake transaction. The Veritas/Silver
Lake transaction is expected to close in the first quarter of fiscal year 2001,
subject to the approval of VERITAS and Seagate stockholders, funding of the debt
commitments and clearance by the U.S. Securities and Exchange Commission, as
well as clearance under antitrust laws and other customary closing conditions.
The Company expects that while the Veritas/Silver Lake transaction is pending,
the value of Seagate common stock will depend primarily on the value of VERITAS
common stock.
Liquidity and Capital Resources:
- --------------------------------
At March 31, 2000, the Company's cash, cash equivalents and short-term
investments totaled $1.890 billion, an increase of $267 million from the July 2,
1999 balance. This increase was primarily a result of proceeds from sales of
VERITAS and SanDisk common stock of $834 million and $535 million, respectively.
However, this increase was partially offset by expenditures for property,
equipment and leasehold improvements of $385 million and the repurchase of 25
million shares of the Company's common stock for $776 million. 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. The Company's short-term investments consist primarily of
readily marketable debt securities with remaining maturities of more than 90
days at the time of purchase.
As of March 31, 2000, the Company had committed lines of credit of $61 million
that can be used for standby letters of credit and bankers' guarantees. At March
31, 2000, these lines of credit were fully utilized. In addition, the Company
has a $300 million credit facility that can be used for borrowings. As of March
31, 2000 this facility was unutilized.
The Company expects investments in property and equipment in the current fiscal
year to approximate $650 million, of which approximately $393 million had been
incurred as of March 31, 2000. The Company plans to finance these investments
from existing cash balances and cash flows from operations. The $393 million
year-to-date investment comprised $185 million for manufacturing facilities and
equipment related to the Company's subassembly and disc drive final assembly and
test facilities in the United States and the Far East; $113 million for
manufacturing facilities and equipment for the recording head operations in the
United States, Northern Ireland,
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Thailand and Malaysia; $62 million to upgrade the capabilities of the Company's
thin-film media operations in California, Singapore, Northern Ireland and
Mexico; and $33 million for other purposes.
During the nine months ended March 31, 2000, the Company acquired approximately
25 million shares of its common stock for approximately $776 million. The
repurchase of a portion of these shares completed the June 1997 stock repurchase
program as amended in February 1999. The remainder of the shares were
repurchased under an April 1999 amendment to the program in which up to an
additional 25 million shares of the Company's common stock may be acquired in
the open market. In November 1999, the Company's Board of Directors authorized
an increase to the existing stock repurchase program pursuant to which an
additional 50 million shares of the Company's common stock may be acquired in
the open market. The Company effected no repurchases in the quarter ended March
31, 2000.
During the quarter ended October 1, 1999, Gadzoox Networks Inc. ("Gadzoox"), a
company in which Seagate Technology held a 19.89% interest as of that date,
completed an initial public offering of its common stock. The Company is
required to account for its investment under Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). The Company has identified this investment as
"available-for-sale". Under SFAS 115, an available-for-sale security is recorded
at fair value on the balance sheet and unrealized holding gains and losses are
reported, net of taxes, in a separate component of stockholders' equity called
accumulated other comprehensive income, until realized. For the nine months
ended March 31, 2000, the Company recorded net unrealized gains on securities of
$130 million, net of tax, with respect to its investment in Gadzoox.
On January 28, 2000, the Company paid $45 million to Rodime PLC in settlement of
patent litigation. See Note 13, Litigation, to the consolidated condensed
financial statements.
Factors Affecting Future Operating Results:
- -------------------------------------------
We face risks from the Veritas/Silver Lake transaction
We announced the Veritas/Silver Lake transaction with Suez Acquisition Company
and VERITAS on March 29, 2000. In connection with the Veritas/Silver Lake
transaction, we have agreed to sell all of our operating businesses and assets
(including our disc drive, tape drive and software businesses and assets, but
excluding our equity interests in VERITAS, Gadzoox Networks, SanDisk
Corporation, CVC, Inc. and Dragon Systems), to Suez Acquisition Company in
exchange for $2 billion in cash. Immediately following and contingent upon the
foregoing transaction with Suez Acquisition Company, we have agreed to merge
with a wholly owned subsidiary of VERITAS pursuant to which we will become a
subsidiary of VERITAS. As a result of this merger, VERITAS will acquire all of
our cash reserves in excess of $800 million (and we will deliver the initial
$800 million to Suez Acquisition Company), and our equity interests in VERITAS,
Gadzoox Networks, SanDisk Corporation, CVC, Inc. and Dragon Systems. Suez
Acquisition Company will acquire substantially all of the liabilities of our
company and its consolidated subsidiaries. VERITAS will not acquire any other
assets from us in connection with the merger. Our stockholders will be entitled
to receive shares of VERITAS common stock and cash in the merger and, as a
result, will become VERITAS stockholders. We expect that while the
Veritas/Silver Lake transaction is pending, the value of our common stock will
depend primarily on the value of VERITAS' common stock.
Holders of Seagate common stock face a number of risks in connection with their
investment in Seagate common stock as a result of the pending Veritas/Silver
Lake transaction, including the following:
. the transaction may not close for many reasons including but not limited
to: our stockholders or VERITAS' stockholders do not approve it, Suez
Acquisition Corporation may not be able to obtain the funding to finance
the transaction, the transaction fails to obtain regulatory approvals, the
transaction can not close due to pending litigation, or other reasons;
. changes in the price of VERITAS' common stock and our inability to exert
significant control over the management of VERITAS, although currently we
have two representatives on its board of directors;
. we may be required to pay a substantial termination fee to the private
equity investors participating in the stock purchase and/or to VERITAS if
the stock purchase agreement and/or the merger agreement are terminated for
certain reasons; and
. our employees may be distracted by concerns about the Veritas/Silver Lake
transaction, and therefore may not meet critical deadlines in their
assigned tasks or otherwise perform effectively.
However, if we do not close the Veritas/Silver Lake transaction, we face a
number of risks resulting from the announcement and pendency of the
Veritas/Silver Lake transaction which could negatively affect our business,
financial condition, results of operations, and ultimately, the market price of
our common stock and we face other risks, including:
. our management personnel may be distracted from our day to day operations
by the time demands associated with closing the transactions, and
therefore may be unable to timely identify and address business issues as
they arise;
. our customers and vendors may discontinue their relationships with us, or
delay or cancel orders as a result of uncertainty about our business in
light of the announced transactions;
. our earnings will be impacted because our income statement will reflect the
fees, costs and expenses we incurred in connection with the stock purchase
and the merger, such as legal, accounting and financial advisor fees, costs
and expenses, even if the transactions are not completed;
. our stockholders may be unable to realize the value of the VERITAS common
stock we hold and the price of our common stock may not reflect the full
value of the VERITAS shares; and
. the market price of our common stock may decline to the extent that the
current market price of our common stock reflects a market assumption that
the transactions will be completed.
In addition to the risks related to the Veritas/Silver Lake transaction, we face
other risks related to our ongoing business operations. We compete in the data
storage industry, and there are a number of factors that, in the past, have
affected all of the companies in our industry, including Seagate. Many of these
factors may also impact our business in the future.
Slowdown in demand for computer systems may cause a decline in demand for our
products
Our products are components in computer systems. The demand for computer systems
has been volatile in the past and often has had an exaggerated effect on the
demand for our disc drive and tape drive products, in any given period. In the
past, unexpected slowdowns in demand for computer systems have generally caused
sharp declines in demand for disc drives and tape drive products. We expect that
this situation will occur again in the future and that at such time demand for
our disc drive and tape drive products may be reduced.
In the data storage industry, the supply of drives periodically exceeds demand.
When this happens, the over supply of available products causes the Company to
have higher than anticipated inventory levels and it experiences intense price
competition from other disc drive and/or tape drive manufacturers.
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Our financial results will vary
We often experience a high volume of sales at the end of a quarter, so we may be
unable to determine whether our fixed costs are too high relative to sales until
late in any given quarter. As a result, we often do not have enough time to
reduce these fixed costs. Consequently, our net income would be reduced or we
may even incur a loss. In addition, our 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;
. our product mix, and the related margins of the various products;
. accelerated reduction in the price of our disc drive products due to an
oversupply of disc drives in the world market;
. manufacturing delays or interruptions, particularly at our major
manufacturing facilities in Malaysia, Thailand, China and Singapore;
. acceptance by customers of competing technologies in lieu of our products;
. variations in the cost of components used in manufacturing our products;
. limited access to components that we obtain from a single or a limited
number of suppliers;
. our inability to reduce our fixed costs to match revenue in any quarter
because of our vertical manufacturing strategy;
. our ability to develop, introduce and market new products and product
enhancements in a timely fashion;
. the impact of changes in foreign currency exchange rates on the cost of our
products and the effective price of such products to foreign consumers; and
. competition and consolidation in the data storage industry.
In addition, our future operating results may also be adversely affected if we
receive an adverse judgment or settlement in any of the legal proceedings to
which we are a party. For example, we incurred a one-time expense of $39 million
in the quarter ended December 31, 1999 in connection with the settlement of our
litigation with Rodime PLC.
We face intense competition and may not be able to compete effectively
Even during periods when demand is stable, the data storage industry is
intensely competitive and vendors experience price erosion over the life of a
product. Historically our competitors have offered new or existing products at
lower prices as part of a strategy to gain or retain market share and customers.
We expect these practices to continue in the future. We also expect that price
erosion in our industry will continue for the foreseeable future. Because we may
need to reduce our prices to retain our market share, the competition could
adversely affect our results of operations in any given quarter. We have
experienced and expect to continue to experience intense competition from a
number of domestic and foreign companies including other independent disc drive
manufacturers, and large integrated multinational manufacturers such as:
INTEGRATED INDEPENDENT
---------- -----------
Fujitsu Limited Maxtor Corporation
International Business Machines Corporation Quantum Corporation
NEC Corporation Western Digital Corporation
Samsung Electronics Co. Ltd.
Toshiba Corporation
24
<PAGE>
Integrated multinational manufacturers are formidable competitors because they
possess greater resources and are able to access their customers without having
to consider the profitability of the disc drive business in pricing their
components. For example, IBM entered into agreements with both EMC and Dell
under which IBM will likely supply a substantial portion of EMC's and Dell's
disc drive needs. We face the risk that IBM and other integrated multinational
manufacturers will enter into similar agreements with a substantial number of
our customers to supply those customers' disc drive requirements as part of a
more expansive agreement.
We also face indirect competition from present and potential customers,
including several of the computer manufacturers listed above, who are
continuously evaluating whether to manufacture their own drives or whether to
purchase their drives from outside sources. If our customers manufacture their
own drives, it could have a material adverse effect on our business, results of
operations and financial condition.
We also compete with manufacturers of products that use alternative data storage
and retrieval technologies. Products based upon such alternative technologies,
including optical recording technology and semiconductor memory (flash memory,
SRAM and DRAM), may become competition for our products.
We may not be able to compete successfully against current or future
competitors. If we fail to compete successfully, our business, operating results
and financial condition may be materially adversely affected.
We may not develop products in time to meet changing technologies
Our customers have demanded new generations of drive products as advances in
other hardware components and software have created the need for improved
storage products with features such as increased storage capacity or improved
performance and reliability. As a result, the life cycles of our products have
been shortened, and we have been required to constantly develop and introduce
new cost-effective drive products quickly in order to meet market windows that
become progressively shorter. We had research and development expenses of $430
million, $581 million and $585 million in the nine months ended March 31, 2000,
fiscal 1999, and fiscal 1998, respectively.
When we develop new disc and tape drive products with higher capacity and more
advanced technology, our operating results may decline because the increased
difficulty and complexity associated with producing such disc drives increases
the likelihood of reliability, quality or operability problems. If our products
suffer increased failure rates, are of low quality or are not reliable,
customers may reduce their purchases of our products. Our manufacturing rework
and scrap costs and our service and warranty costs may also increase. In
addition, a decline in the reliability of our products may reduce our
competitiveness in the data storage industry.
Our products are used in combination with other hardware, such as
microprocessors, and other software. The Company's future success will also
require strong demand by consumers and businesses for computer systems, storage
upgrades to computer systems and multimedia applications. If delivery of our
products is delayed, our original equipment manufacturer ("OEM") customers may
use our competitors' products in order to meet their production requirements. In
addition, if delivery of those OEMs' computer systems into which our products
are integrated is delayed, consumers and businesses may purchase comparable
products from the OEMs'
25
<PAGE>
competitors. If customers elect to wait to make their purchases in anticipation
of a new product, or buy from a competitor instead, our operating results may be
significantly adversely impacted.
Consumers have shown that they want to purchase personal computers costing less
than $1,000. We are producing and selling low cost disc drives to meet the
demand for disc drives that are components of low cost personal computers.
However, we may not be able to produce disc drives that meet our quality and
performance standards at a cost low enough to yield gross margins at acceptable
levels to sustain the development efforts for our future products.
The Company discontinued production of disc drives that use media that is 2.5
inches or smaller in January 1998. We are continuing research and development of
smaller drives, because we believe that to successfully compete in the supply of
components for mobile, laptop, notebook and ultraportable computers, we must
produce a smaller product. We intend to re-enter this market with a durable, low
power application in the future, although there can be no assurance that we will
be able to do so successfully.
Our vertical integration strategy entails a high level of fixed costs
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. Our strategy of vertical integration has allowed us to internally
manufacture many of the critical components used in our products. We have
pursued a strategy of vertical integration of our manufacturing processes in
order to reduce costs, control quality and assure availability and quality of
certain components.
The Company's vertical integration strategy 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 our operating results and our
financial condition. In addition, a strategy of vertical integration has delayed
in the past and could continue to delay in the future our ability to introduce
products containing market-leading technology. Such delays may be due to the
fact that we may not have developed the technology in-house or because we do not
have access to inexpensive external sources of supply. For example, over the
past two years we have experienced delays in product launches due to delays in
production of certain components as a result of slower than anticipated internal
development and manufacturing scale-up of new designs.
We have experienced delays in the introduction of products due to supply of
components
The Company also relies on independent suppliers for certain components. In the
past we have experienced production delays when we were unable to obtain
sufficient quantities of certain components. Any prolonged interruption or
reduction in the supply of a key component could have a material adverse effect
on our business, our operating results and our financial condition. We may rely
on single or limited source suppliers for certain components used in our
products. We may not be able to obtain components that meet our specifications
and quality standards at prices that enable us to earn a profit on the finished
products. For example, in the past the Company has experienced delays obtaining
head stack assemblies and certain integrated circuits for printed circuit board
assemblies due to lead-time requirements or changes in specifications. As a
result, a few of our suppliers substantially increased the price of such
components, and we have incurred increased costs for certain of these components
as a result of supply shortages.
26
<PAGE>
If our customers delay or cancel orders, our revenue will be adversely affected
The data storage industry has been characterized by large volume OEM purchase
agreements and large distributor orders. Typically, our OEM purchase agreements
permit the OEMs to cancel orders and reschedule delivery dates without
significant penalties. In the past, orders from many of our OEMs were cancelled
or delivery schedules were delayed as a result of changes in the requirements of
the OEMs' customers. These order cancellations and delays in delivery schedules
have had a material adverse effect on our results of operations in the past, and
may again in the future. Our OEMs and foreign distributors typically furnish us
with non-binding indications of their near-term requirements, with their product
deliveries based on weekly confirmations. To the extent actual orders from
foreign distributors and OEMs are reduced from their non-binding forecasts, the
Company's business, results of operations and financial condition could be
adversely effected.
We face risks from our international operations
The Company has significant offshore operations including manufacturing
facilities, sales personnel and customer support operations. We have
manufacturing facilities in Singapore, Thailand, the People's Republic of China,
Northern Ireland, Malaysia, and Mexico, in addition to those in the United
States. Our offshore operations are subject to certain inherent risks including:
. fluctuations in currency exchange rates;
. longer payment cycles for sales in foreign countries;
. difficulties in staffing and managing international manufacturing
operations;
. seasonal reductions in business activity in the summer months in Europe and
certain other countries;
. increases in tariffs and duties, price controls, restrictions on foreign
currencies and trade barriers imposed by foreign countries; and
. political unrest, particularly in areas in which we have manufacturing
facilities.
These factors could have a material adverse effect on our business, operating
results and financial condition in the future.
In addition to the risks we face from the Veritas/Silver Lake transaction, we
face risks from our investment in VERITAS
We contributed our Network & Storage Management Group business to VERITAS
Software Corporation ("VERITAS"), consisting of NSMG and VERITAS Software
Corporation on May 28, 1999 and received a 40% interest in VERITAS. As of March
31, 2000, the Company held approximately 33% of the outstanding common stock of
VERITAS.
In addition to the risks we face from the Veritas/Silver Lake transaction, we
face a number of risks from our investment in VERITAS including:
. we do not have significant control over the management of VERITAS, although
currently we have two representatives on its board of directors; and
. our financial statements and results of operations reflect our ownership of
approximately 33% of VERITAS which impacts our stock price.
27
<PAGE>
Acquisition related accounting charges will reduce our profits
We intend to continue our expansion into complementary data technology
businesses through internal growth as well as acquisitions. 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. We expect that we will continue to incur
substantial expenses as we acquire other businesses including charges for the
write-off of in-process research and development. Our operating results have
fluctuated in the past and may fluctuate in the future because of the timing of
such write-offs. For example, we incurred a charge to operations in the third
quarter of fiscal 2000 of $105 million for the write-off of in- process research
and development related to our acquisition of XIOtech Corporation ("XIOtech")
and we will experience ongoing charges related to that acquisition for
amortization of purchased intangibles currently amounting to approximately $14
million per quarter. We also incurred a charge to operations in the fourth
quarter of fiscal 1999 related to the contribution of the Network & Storage
Management Group business to VERITAS of approximately $85 million for the
write-off of in-process research and development, and we will experience ongoing
charges related to that contribution for amortization of purchased intangibles
currently amounting to approximately $86 million per quarter.
Systems failures could adversely affect our business
The Company's operations are dependent on our ability to protect our computer
equipment and the information stored in our databases from damage by fire,
natural disaster, power loss, telecommunications failures, unauthorized
intrusion and other catastrophic events. We believe that we have taken prudent
measures to reduce the risk of interruption in our operations. However, we
cannot be sure that these measures are sufficient. Any damage or failure that
causes interruptions in our operations could have a material adverse effect on
our business, results of operations and financial condition.
We may experience Year 2000 computer problems that harm our business
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or a
miscalculation causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
normal business activities. The Company considers a product to be in "Year 2000
compliance" if
. the product's performance and functionality are unaffected by processing of
dates prior to, during and after the year 2000; but only if
. all products (for example hardware, software and firmware) used with the
product properly exchange accurate date data with it.
As of the date of this filing, we have not incurred any significant business
disruptions nor any significant product issues as a result of Year 2000 issues.
However, while no such occurrence has developed as of the date of this filing to
our knowledge, Year 2000 issues may not become apparent as of this date and
therefore, there is no assurance that the Company will not be affected by future
disruptions. The Company will continue to monitor the issue vigilantly and work
to remediate any issues that arise.
28
<PAGE>
While the Company currently does not expect Year 2000 issues to pose significant
operational problems, we could still experience material adverse effects on our
business. Those material adverse effects could include delays in the delivery or
sale of the Company's products. Therefore, the Company has developed contingency
plans, such as a reversion to manual procedures, for continuing operations in
the event such problems arise.
Our dependence on key personnel
Our future performance depends to a significant degree upon the continued
service of our key members of management as well as marketing, sales, and
product development personnel. The loss of one or more of our key personnel
would have a material adverse effect on our business, operating results, and
financial condition. We believe our future success will also depend in large
part upon our ability to attract and retain highly skilled management,
marketing, sales, and product development personnel. We have experienced intense
competition for such personnel and there can be no assurance that we will be
able to retain our key employees or that we will be successful in attracting,
assimilating and retaining them in the future.
Our stock price will fluctuate
Our stock price has varied greatly as has the volume of shares of our common
stock that are traded. We expect that while the Veritas/Silver Lake transaction
is pending, the value of our common stock will depend primarily on the value of
VERITAS' common stock. In the event that the Veritas/Silver Lake transaction
does not occur, we expect these fluctuations to continue due to factors such as:
. announcements of new products, services or technological innovations by the
Company or its competitors;
. announcements of major restructurings by the Company or its competitors;
. quarterly variations in our results of operations as a result of our fixed
short-term cost structure and volatility in the demand for our products;
. changes in revenue or earnings estimates by the investment community and
speculation in the press or investment community stemming from our past
performance, concerns about demand for our products, or announcements by
our competitors;
. general conditions in the data storage industry or the personal computer
industry such as the substantial decline in demand for disc drive products
that occurred during fiscal 1998;
. changes in our revenue growth rates or the growth rates of our competitors;
. sales of large blocks of our stock that may lead to investors' concerns
that our performance will falter and leading those investors to liquidate
their holdings of our shares;
. adverse impacts on our operating results if we receive an adverse judgment
or settlement in any of the legal proceedings to which we are a party, such
as the impact on our earnings in the second quarter of fiscal 2000 from the
settlement of a lawsuit by Rodime PLC; and
. price erosion.
The stock market may from time to time experience extreme price and volume
fluctuations. Many technology companies have experienced such fluctuations. In
addition, our stock price may be affected by general market conditions and
domestic and international macroeconomic factors
29
<PAGE>
unrelated to our performance. Often such fluctuations have been unrelated
to the operating performance of the specific companies. The market price of our
common stock may experience significant fluctuations in the future. For example,
our stock price fluctuated from a high of $76 to a low of $25 1/8 during the
nine months ended March 31, 2000.
30
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The following discussion contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements relate to the Company's legal proceedings
described below. Litigation is inherently uncertain and may result in adverse
rulings or decisions. Additionally, the Company may enter into settlements or be
subject to judgments that may, individually or in the aggregate, have a material
adverse effect on the Company's results of operations. Accordingly, actual
results could differ materially from those projected in the forward-looking
statements.
Securities Class Actions
- ------------------------
Following the Company's announcement of the Veritas/Silver Lake transaction, a
number of stockholders filed lawsuits against the Company, the individual
members of the Board of Directors and certain executive officers in both
Delaware and California. As of April 11, 2000, 17 complaints had been filed in
the Chancery Court of Delaware. In California, three complaints were filed in
Santa Clara County Superior Court and two complaints were filed in Santa Cruz
County Superior Court. The complaints in these jurisdictions each allege that
the members of the Company's Board of Directors breached their fiduciary duties
to the Company's shareholders by entering into the Veritas/Silver Lake
transaction. The complaints also allege that the Company's directors and
executive officers have conflicting financial interests and did not secure the
highest possible price for the Company's shares. All the complaints are styled
as class actions, and seek to enjoin the Veritas/Silver Lake transaction and
secure damages from all defendants. The Company believes that none of the
lawsuits has any merit and intends to defend all these claims vigorously.
Intellectual Property Litigation
- --------------------------------
Papst Licensing, GmbH ("Papst"), has given the Company notice that it believes
certain former Conner Peripherals, Inc. ("Conner") 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 valid claims of the patents. The Company also believes that
subsequent to the merger with Conner, 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. Papst is currently
involved in litigation with other disc drive and disc drive motor manufacturers.
Ronald Maynard and Microdomain Corporation filed suit in Santa Clara County
Superior Court against Quinta Corporation, the Quinta Venture, the Quinta
founders as individuals, Sierra Ventures, Read-Rite Corporation and the Company
alleging misappropriation of trade secrets, breach of contract, conspiracy,
unfair competition and unjust enrichment. Quinta, Read-Rite and the Company
filed a cross-complaint against Ronald Maynard for misappropriation of trade
secrets, breach of contract and fraud. The case relates to concepts and design
for magneto optical recording heads. The case was resolved in March 2000 and the
complaints have been dismissed with prejudice as to all parties.
31
<PAGE>
In November 1997, TeraStor Corporation ("TeraStor") filed a cross-complaint
against the Company in an action pending in the Superior Court of California,
County of Santa Clara entitled Maxoptix Corporation v. TeraStor Corporation and
Gordon Knight. The cross-complaint alleges causes of action against the Company
for unfair business practices, misappropriation of trade secrets, attempted
monopolization, refusal to deal, breach of contract, specific performance,
breach of the covenant of good faith and fair dealing, fraud, negligent
misrepresentation, intentional interference with prospective economic advantage
and negligent interference with prospective economic advantage. The allegations
against the Company arose out of the Company's dealings with TeraStor pursuant
to a joint development agreement concerning the development of magneto optical
recording heads. In December 1997 TeraStor sought a preliminary injunction
against the Company seeking to prevent certain Company employees who formerly
worked with TeraStor under the joint development agreement from engaging in work
related to the Company's Quinta subsidiary. In January 1998 the Court denied
TeraStor's motion for injunctive relief. The Company has asserted cross-claims
against TeraStor for trade secret misappropriation, fraud, negligent
misrepresentation, breach of contract, declaratory relief, recission, violation
of Business & Professions Code Section 17200, common law unfair competition,
intentional interference with contractual relations, negligent interference with
contractual relations, and inducing breach of fiduciary duty. The Company also
filed claims against Rick Wilmer and Amyl Ahola, two former Seagate employees
employed by TeraStor, for breach of contract and breach of fiduciary duty.
Discovery is ongoing and trial is currently set to begin on September 18, 2000.
The Company denies TeraStor's allegations and intends to vigorously defend
itself.
On March 15, 2000 Royston White filed a breach of contract action against the
Company in Oklahoma State Court. The complaint is styled as a class action, and
White, as the sole named defendant, alleges that some 600 former employees have
been damaged through Seagate's breach of separation and release agreements
entered into in connection with a reduction in force. The Company has not yet
filed responsive pleadings, but it believes that it has substantive defenses and
intends to pursue such defenses vigorously.
Other Matters
- -------------
The Company is involved in a number of other judicial and administrative
proceedings incidental to its business. Although occasional adverse decisions
(or settlements) may occur, the Company believes that the final disposition of
such matters will not have a material adverse effect on the Company's financial
position or results of operations.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
The following exhibits are included herein:
27 Financial Data Schedule
(b) Reports on Form 8-K
The following report on Form 8-K was filed with the Securities and Exchange
Commission during the three months ended March 31, 2000:
A Form 8-K dated January 27, 2000 regarding the Company's announcement that it
had entered into a settlement with Rodime PLC.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEAGATE TECHNOLOGY, INC.
------------------------
(Registrant)
DATE: April 28, 2000 BY: /s/ Charles C. Pope
------------------------
CHARLES C. POPE
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
DATE: April 28, 2000 BY: /s/ Stephen J. Luczo
------------------------
STEPHEN J. LUCZO
Chief Executive Officer and President
(Principal Executive Officer
and Director)
33
<PAGE>
SEAGATE TECHNOLOGY, INC.
INDEX TO EXHIBITS
Exhibit
Number
- ------
27 Financial Data Schedule
34
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEET AS OF MARCH 31, 2000 AND THE CONSOLIDATED
CONDENSED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-03-1999
<PERIOD-END> MAR-31-2000
<CASH> 1,125
<SECURITIES> 765
<RECEIVABLES> 835
<ALLOWANCES> 74
<INVENTORY> 334
<CURRENT-ASSETS> 3,388
<PP&E> 3,580
<DEPRECIATION> 2,041
<TOTAL-ASSETS> 7,156
<CURRENT-LIABILITIES> 1,512
<BONDS> 703
0
0
<COMMON> 3
<OTHER-SE> 3,711
<TOTAL-LIABILITY-AND-EQUITY> 7,156
<SALES> 4,900
<TOTAL-REVENUES> 4,900
<CGS> 3,984
<TOTAL-COSTS> 3,984
<OTHER-EXPENSES> 1,075
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39
<INCOME-PRETAX> 298
<INCOME-TAX> 219
<INCOME-CONTINUING> 79
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79
<EPS-BASIC> 0.36
<EPS-DILUTED> 0.35
</TABLE>
