<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended June 30, 1996
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from _____ to_____
Commission file number: 0-11778
--------------------
SEEQ TECHNOLOGY INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 94-2711298
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
47200 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94538
(510) 226-7400
(Address, including zip code, of Registrant's principal
executive offices and 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.01 par value 30,216,884
(Class of common stock) (Shares outstanding at June 30, 1996)
================================================================================
This report on Form 10=Q, including all exhibits, contains 15 pages.
1
<PAGE> 2
SEEQ TECHNOLOGY INCORPORATED
FORM 10-Q
Table of Contents
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Condensed Financial Statements ...................................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................................... 13
Item 2. Changes in Securities ............................................................... 13
Item 3. Defaults upon Senior Securities ..................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders ................................. 13
Item 5. Other Information ................................................................... 13
Item 6. Exhibits and Reports on Form 8-K .................................................... 13
</TABLE>
2
<PAGE> 3
This Quarterly Report of Form 10-Q contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed under the captions "Legal Proceedings" and "Factors Affecting
Operating Results" contained herein.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEEQ TECHNOLOGY INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------ ------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 8,644 $ 5,353 $ 20,832 $ 17,722
Costs and expenses:
Cost of revenues 5,893 3,331 14,254 11,594
Research and development 890 740 2,594 2,384
Marketing, general and administrative 1,210 1,028 3,252 2,900
Restructuring (benefit) and other, net -- (73) -- (399)
-------- -------- -------- --------
Total costs and expenses 7,993 5,026 20,100 16,479
-------- -------- -------- --------
Income from operations 651 327 732 1,243
Interest expense (49) (118) (168) (313)
Interest and other income, net 67 113 308 368
-------- -------- -------- --------
Income before income taxes 669 322 872 1,298
Provision for income taxes (19) (1) (25) (13)
-------- -------- -------- --------
Net income $ 650 $ 321 $ 847 $ 1,285
======== ======== ======== ========
Net income per share:
Primary $ 0.02 $ 0.01 $ 0.03 $ 0.05
======== ======== ======== ========
Fully diluted $ 0.02 $ 0.01 $ 0.03 $ 0.04
======== ======== ======== ========
Shares used in per share calculation:
Primary 32,082 30,287 32,065 27,365
======== ======== ======== ========
Fully diluted 32,082 31,629 32,067 30,182
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 4
SEEQ TECHNOLOGY INCORPORATED
CONDENSED BALANCE SHEETS
(In thousands, except share and per share amounts))
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1996 Sep. 30, 1995
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,139 $ 3,682
Restricted cash -- 3,000
Accounts receivable, less allowances 5,926 3,900
Inventories 3,034 2,230
Other current assets 576 212
--------- ---------
Total current assets 12,675 13,024
Property and equipment, net 3,141 1,500
Other assets 4,788 4,410
--------- ---------
Total assets $ 20,604 $ 18,934
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable to bank $ -- $ 3,000
Accounts payable 3,958 1,938
Accrued salaries, wages and employee benefits 420 467
Other accrued liabilities 670 950
Current portion of long-term obligations 651 287
--------- ---------
Total current liabilities 5,699 6,642
Long-term obligations 2,746 1,524
--------- ---------
Total liabilities 8,445 8,166
--------- ---------
Stockholders' equity:
Common stock, $0.01 par value; 40,000,000 shares
authorized, 30,216,884 and 29,769,766 shares outstanding 302 298
Additional paid-in capital 123,394 122,854
Accumulated deficit (111,537) (112,384)
--------- ---------
Total stockholders' equity 12,159 10,768
--------- ---------
Total liabilities and stockholders' equity $ 20,604 $ 18,934
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 5
SEEQ TECHNOLOGY INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(Increase/(Decrease) in cash and cash equivalents, in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
-------------------------------
June 30, 1996 June 30, 1995
-------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 847 $ 1,285
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization 789 525
Benefit from restructuring -- (399)
Gain on equipment disposal -- (19)
Changes in assets and liabilities:
Accounts receivable (2,026) (1,215)
Inventories (804) (400)
Other current assets (501) 465
Other assets (378) 64
Accounts payable 2,020 (727)
Accrued salaries, wages and employee benefits (47) (19)
Other accrued liabilities (280) (1,528)
Other long-term obligations (85) (451)
------- -------
Net cash used for operating activities (465) (2,419)
------- -------
INVESTING ACTIVITIES
Capital expenditures (169) (648)
Proceeds on disposal of equipment -- 46
Short-term investments in restricted account 3,000 --
------- -------
Net cash provided by (used for) investing activities 2,831 (602)
------- -------
FINANCING ACTIVITIES
Payments on short term borrowings (3,000) --
Payments of capital lease obligations (453) (398)
Proceeds from issuance of stock 544 3,387
------- -------
Net cash provided by (used for) financing activities (2,909) 2,989
------- -------
Net decrease in cash and cash equivalents (543) (32)
Cash and cash equivalents at beginning of period 3,682 2,253
------- -------
Cash and cash equivalents at end of period $ 3,139 $ 2,221
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 190 $ 313
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITY:
Capital lease obligations incurred for the acquisition
of equipment $ 2,124 $ --
Issuance of stock for settlement of litigation $ -- $ 527
</TABLE>
See notes to condensed financial statements.
5
<PAGE> 6
SEEQ TECHNOLOGY INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. THE COMPANY
SEEQ Technology Incorporated (the "Company"), incorporated in Delaware,
was formed on January 13, 1981 to engage in the development and sale of
semiconductor devices.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements of SEEQ
Technology Incorporated ("SEEQ" or the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual Report to
Stockholders for the fiscal year ended September 30, 1995. These financial
statements reflect, in the opinion of management, all adjustments (which include
only normal recurring adjustments, except for those adjustments related to
certain restructuring and other expenses) necessary to present fairly the
financial position and results of operations as of and for the periods
indicated.
For purposes of presentation, the Company has shown its fiscal quarters
as ending on December 31, March 31, June 30 and September 30; whereas, in fact,
the Company operates on a 52/53-week fiscal year ending on the last Sunday in
September of each year. The fiscal quarter ends are actually December 31, March
31, June 30 and September 29 for the year ending September 30, 1996 and December
25, March 26, June 25, and September 24 for fiscal 1995.
The results of operations for the three month and nine month periods
ended June 30, 1996 are not necessarily indicative of the results expected for
the year ending September 30, 1996.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined on a first-in, first-out basis. Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, 1996 Sep. 30, 1995
------------- -------------
(in thousands)
<S> <C> <C>
Raw materials $ 18 $ 16
Work in process 1,876 1,379
Finished goods 1,140 835
------ ------
$3,034 $2,230
====== ======
</TABLE>
6
<PAGE> 7
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets,
generally five years. Depreciation of leasehold improvements is computed using
the shorter of the remaining term of the leases or the estimated useful lives of
the improvements. Depreciation for federal income tax purposes is computed using
accelerated methods. The following table sets forth property and equipment
during the periods indicated:
<TABLE>
<CAPTION>
June. 30, Sep. 30,
1996 1995
-------------- -----------
(in thousands)
<S> <C> <C>
Machinery and equipment $ 7,621 $ 5,596
Furniture and fixtures 2,634 2,446
Leasehold improvements 401 321
-------- --------
Total property and equipment, at cost 10,656 8,363
Less: Accumulated depreciation and amortization (7,515) (6,863)
-------- --------
Total property and equipment, net $ 3,141 $ 1,500
======== ========
</TABLE>
Non-recurring production transfer costs
Non-recurring costs such as tooling, engineering and pre-production
wafers resulting from the transfer of in-production product to new foundries are
capitalized and amortized to cost of revenues over the shorter of: the remaining
life of the product, the term of the foundry agreement or two years.
Non-recurring costs which are associated with the development of new products
are expensed as research and development costs when incurred. During the nine
month period ending June 30, 1996 the Company capitalized $713,000 of
non-recurring production transfer costs of which $137,000 has been amortized.
Non-recurring production transfer costs in fiscal 1995 were not material.
Net Income (Loss) Per Share
Primary and fully diluted net income per share for the three and nine
month periods ended June 30, 1996 and June 30, 1995 were determined using the
treasury stock method. Primary income (loss) per common and common equivalent
share is computed using the weighted average number of shares outstanding during
the respective periods, including dilutive stock options and warrants. Fully
diluted income per common and common equivalent share also reflects additional
dilution related to stock options due to the use of the market price at the end
of the period, when higher than the average price for the period.
7
<PAGE> 8
3. LITIGATION
On November 28, 1995, Level One Communications Incorporated ("Level One") filed
a complaint against the Company, in the United States District Court of Northern
California, alleging patent infringement. In the complaint, Level One claims
that the Company has used and sold products in violation of two of Level One's
patents. Level One seeks immediate and permanent injunctive relief preventing
the Company from making, using, or selling any devices that infringe such
patents and unspecified damages. The Company intends to vigorously contest all
of Level One's claims. Based on the Company's review to date, management
believes that the claims asserted by Level One are without merit and that the
outcome of these legal proceedings will not have a material adverse effect on
the Company's financial position or results of operations. There can be no
assurance, however, that Level One will not obtain a favorable determination in
judicial proceeding, which could have a material adverse effect on the Company's
business, financial condition and results of operations. Patent litigation is
often highly complex, can extend for a protracted period of time, can involve
substantial cost to the Company and may divert the attention of the Company's
management and technical personnel, which can substantially increase the cost of
such litigation. There can be no assurance that such costs and diversion of
resources would not have a material adverse effect on the Company's business,
financial condition and results of operations.
On June 25, 1996, Praxair, Inc. ("Praxair") filed a complaint against the
Company, entitled Praxair, inc., a Delaware Corporation v. SEEQ, Inc., a
California Corporation and SEEQ Technology, Inc., a Delaware Corporation
(Superior Court of the State of California, County of Santa Clara, Case No.
CV758882). The suit arises out of a nitrogen supply contract between the Company
and the plaintiff. The Complaint purports to state causes of action for breach
of contract and promissory estoppel. The Complaint alleges that as a result of
purported breaches of the nitrogen supply contract, the Company is obligated to
pay plaintiff approximately $1,300,000 plus costs of suit, not including
attorneys' fees. The case has only recently been filed, and no discovery has
taken place to date. The Company intends to contest all of Praxair's claims
vigorously. Based on the Company's limited review to date, management believes
that the claims asserted by Praxair are without merit. However, there can be no
assurance that Praxair will not obtain a favorable result in the lawsuit which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Interim
Condensed Financial Statements and Notes thereto and the SEEQ Technology
Incorporated Annual Report and Form 10-K for the fiscal year ended September 30,
1995.
This Quarterly Report of Form 10-Q contains forward-looking statements
that involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed under the captions "Legal Proceedings" and "Factors Affecting
Operating Results" contained herein.
RESULTS OF OPERATIONS
Revenues
Net revenues were $8,644,000 in the third quarter of fiscal 1996 and
$20,832,000 for the nine month period ended June 30, 1996, representing an
increase of $3,291,000 from net revenues of $5,353,000 for the third quarter of
fiscal 1995 and an increase of $3,110,000 from net revenues of $17,722,000 for
the nine month period ended June 30, 1995. Apple Computer stopped ordering LAN
subsystem products in March 1995. Consequently, there were no LAN subsystem
product sales for the nine month period ended June 30, 1996, compared to LAN
subsystem product revenues of $3,940,000 for the nine months ended June 30,
1995. Data communication integrated circuit revenues for the nine month period
ended June 30, 1996 were $20,832,000, which represented an increase of
$7,050,000, or 51%, over the nine month period ended June 30, 1995. The revenue
increases were due primarily to increases in unit sales volumes of 22% in the
fiscal quarter ending June 30, 1996 and 34% for the nine month period ended June
30, 1996 over their respective periods in the prior fiscal year. During the
first quarter of fiscal 1996, production volumes were not sufficient to meet
demand due primarily to issues relating to the transfer of products to new
foundries. In the second and third quarters of fiscal 1996, production volumes
from three foundries increased which contributed significantly to the increase
in revenue. Two customers, Bay Networks and Serial Systems, accounted for
approximately 50% and 13% of revenues in the quarter ended June 30, 1996,
respectively. Bay Networks and Serial Systems accounted for approximately 34%
and 12% of revenues for the nine months ended June 30, 1996, respectively. No
other customer accounted for more than 10% of revenues for the nine months ended
June 30, 1996.
Gross Product Margins
The Company includes in cost of revenues all costs associated with the
subcontract manufacturing, electrical testing, subcontract assembly and final
test of its integrated circuits and subsystems, warehousing, shipping, product
returns and reserves for inventory obsolescence. Allowances for product returns
are netted against revenues. Gross profit for the third quarter of fiscal 1996
was $2,751,000, an increase of $729,000 over the third quarter of fiscal 1995
primarily attributable to higher revenues. Gross profit for the nine month
period ended June 30, 1996 was $6,578,000, an increase of $450,000 from the nine
month period ended June 30, 1995 primarily due to increased revenues. Gross
margins in future periods will be affected primarily by revenue levels and
product mix, average selling prices, wafer yields, the introduction of new
products and changes in manufacturing costs.
Research and Development
Research and development expenditures increased from $740,000 in the
third quarter of fiscal 1995 to $890,000 in the third quarter of fiscal 1996
primarily due to an increase in new product development. As a percentage of net
revenues, research and development expenditures decreased from 14% in the third
quarter of fiscal 1995 to 10% in the third quarter of fiscal 1996 due to higher
revenues.
9
<PAGE> 10
For the nine month period ended June 30, 1996, research and development
expenditures increased to $2,594,000 or 13% of revenues from $2,384,000 or 14%
of revenues for the nine month period ended June 30, 1995. The Company expects
that the level of research and development spending will increase in absolute
dollars in the next several quarters as a result of increased development
efforts on new LAN products, but may vary as a percentage of net revenues.
Marketing, General and Administrative Expenses
Marketing, general and administrative expenses increased from
$1,028,000 in the third quarter of fiscal 1995 to $1,210,000 in the third
quarter of fiscal 1996, and decreased as a percentage of revenues from 19% to
14% for the same periods, respectively. For the nine months ended June 30, 1996,
marketing, general and administrative expenses increased to $3,252,000 from
$2,900,000 for the nine months ended June 30, 1995, representing no change as a
percentage of revenues of 16% for each period. The increases are attributable
primarily to an increase in commissions payable to outside sales
representatives. The Company anticipates that the level of marketing, general
and administrative expenses will vary in future periods based on expected
revenue growth and anticipates legal expense, related to current litigation will
increase.
Restructuring
During the first nine months of fiscal 1995, the Company sublet the
entire facility in which its headquarters and operations were located at a
higher rental rate than previously estimated, and as a result recorded an
$842,000 reduction to its restructuring reserves. Offsetting this benefit, the
Company recorded changes in estimates to the restructuring reserves for the
EEPROM Asset Sale, litigation costs and end-user Ethernet adapter board products
write-off of $443,000, resulting in a net benefit for the nine months of
$399,000. There was no restructuring charge or benefit during the first nine
months of fiscal 1996. The restructuring reserve balance at September 30, 1995
of $996,000 was reduced by $283,000 to $713,000 during the nine month period
ended June 30, 1996. This reduction in the reserve resulted from payments of
$195,000 for costs associated with the settlement agreement with Hualon
Microelectronics Corporation. In addition, $88,000 for rent payments in excess
of the sublease on the Company's former facility were made during the nine month
period ended June 30, 1996.
Interest Expense
Interest expense has resulted primarily from borrowings under the
Company's credit facility and from equipment under capital leases. Interest
expense decreased from $118,000 in the third quarter of fiscal 1995 to $49,000
in the third quarter of fiscal 1996 and from $313,000 for the nine month period
ended June 30, 1995 to $168,000 for the six month period ended June 30, 1996,
primarily as a result of the lower average balances of borrowings on the
Company's credit facility.
Interest Income and Other, Net
Interest income and other, net decreased from $113,000 in the third
quarter of fiscal 1995 to $67,000 in the third quarter of fiscal 1996 and from
$368,000 for the nine month period ended June 30, 1995 to $308,000 for the nine
month period ended June 30, 1996, primarily due to lower cash balances and lower
interest rates from investments of the cash balances in cash, restricted cash
and cash held in escrow invested in short-term investment instruments.
Income Taxes
The Company's provision for income taxes is computed by applying the
estimated annual effective tax rate to income before taxes. The estimated annual
effective tax rate takes into account the effects of net operating loss
carryforwards and alternative minimum taxes.
10
<PAGE> 11
Factors Affecting Operating Results
The Company's quarterly operating results have varied significantly in
the past and are likely to vary significantly in the future, depending on a
number of factors, many of which are outside the control of the Company. These
factors include fluctuations in manufacturing yields, the timing of introduction
of new products by the Company and its competitors, changes in the markets
addressed by the Company's products, market acceptance of the Company's and it's
customers' products, the volume and timing of orders received, changes in the
Company's product mix and customer base, the timing and extent of research and
development expenditures, the availability and cost of semiconductor wafers from
outside foundries, product obsolescence, price erosion, competitive factors,
cyclical semiconductor industry conditions and general economic conditions. The
Company's net revenue and cost of revenues vary depending upon the mix of
products sold. Any unfavorable change in manufacturing yields or product mix,
delays in new product introductions, underutilization of manufacturing capacity,
increased price competition or other factors could have a material adverse
effect on the Company's operating results and financial condition. Historically,
average selling prices in the semiconductor industry have decreased over the
life of any particular product. There can be no assurance that the average
selling prices of the Company's current or future products will not be subject
to significant pricing pressures. In addition, the Company's business is
characterized by short-term orders and shipment schedules, and customer orders
typically can be canceled or rescheduled without significant penalty to the
customer. Due to the absence of substantially noncancellable backlog, the
Company typically plans its production and inventory levels based on internal
forecasts of customer demand, which are highly unpredictable and can fluctuate
substantially. In addition, the Company is limited in its ability to reduce
costs quickly in response to any revenue shortfalls, which could have a material
adverse effect on the Company's business, operating results and financial
condition. Due to all of the foregoing factors, it is likely that in some future
quarter the Company's operating results will be below the expectations of public
market analysts and investors. In such event, the price of the Company's Common
Stock would likely be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company has satisfied its cash requirements principally through
cash flow from operations, borrowings under bank lines of credit, capital lease
financing and the public and private sale of securities.
Management believes that existing sources of liquidity, anticipated
cash flow from operations, and borrowings under the Company's credit facility
will be adequate to satisfy its cash requirements at least through the end of
fiscal 1997. However, there can be no assurance that the Company will have
adequate resources to satisfy such requirements. It may become necessary for the
Company to raise funds from debt and/or equity financing. There can be no
assurance that such funds will be available on terms acceptable to the Company,
if at all. Issuance of additional equity securities could result in dilution to
stockholders. The inability to fund capital requirements would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's cash and cash equivalents balance decreased from
$3,682,000 as of September 30, 1995 to $3,139,000 as of June 30, 1996, primarily
from cash used for operating activities and for the payment of capital lease
obligations which were offset by proceeds from stock option and warrant
exercises during the nine month period ended June 30, 1996.
Operating Activities
Cash flows used for operating activities decreased from $2,419,000 in
the nine months ended June 30, 1995 to $465,000 for the nine month period ended
June 30, 1996, due primarily to increases in accounts receivable, other assets
and accounts payable, which was partially offset by decrease in other
11
<PAGE> 12
accrued liabilities. The increase in other current assets and other assets is
primarily due to the capitalization of non-recurring foundry transfer costs.
Investing Activities
Cash flows provided by investing activities of $2,831,000 during the
first nine months of fiscal 1996 includes $3,000,000 from the maturity of short
term investments of restricted cash, the proceeds of which were used to pay off
the Company's short term borrowings. Capital expenditures during the nine month
period ended June 30, 1996 were $2,293,000 of which $2,124,000 was leased and
$169,000 was paid in cash.
Financing Activities
Cash flows used for financing activities was $2,909,000 in the nine
month period ended June 30, 1996 compared to $2,989,000 in the nine month period
ended June 30, 1995. During the nine month period ended June 30, 1996, the
Company paid off short term borrowings of $3,000,000 with restricted cash. Net
proceeds from the issuance of stock pursuant to the exercise of warrants and
stock options and the company's employee periodic stock purchase plan was
$544,000 for the first nine months of fiscal 1996 compared to $3,387,000 during
the first nine months of fiscal 1995.
In November 1993, the Company entered into a two-year line of credit
agreement with The CIT Group ("CIT"). Although the Company was not required to
make use of the bank line of credit, during the second quarter of fiscal 1994 it
used cash resources to reduce its effective short-term credit borrowings
interest rate by borrowing the minimum required borrowings of $3,000,000 under a
secured bank line of credit with CIT, and investing the proceeds in a short-term
certificate of deposit. Effective November 22, 1995, the Company renewed the
credit facility with CIT for a two year term, subject to renewal thereafter.
Under the terms of the new credit agreement, the Company may borrow up to
$5,000,000 against eligible receivables. In addition, the minimum borrowing
requirement has been reduced to $1,500,000 and is only applicable in the event
the Company has a loan balance outstanding with CIT. The credit agreement does
not contain any restrictive or financial covenants. Interest on borrowings is
payable at the lender's reference prime rate plus 2.0% per annum. There were no
borrowings under this line as of June 30, 1996.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 28, 1995, Level One Communications Incorporated ("Level One") filed
a complaint against the Company, in the United States District Court of Northern
California, alleging patent infringement. In the complaint, Level One claims
that the Company has used and sold products in violation of two of Level One's
patents. Level One seeks immediate and permanent injunctive relief preventing
the Company from making, using, or selling any devices that infringe such
patents and unspecified damages. The Company intends to vigorously contest all
of Level One's claims. Based on the Company's review to date, management
believes that the claims asserted by Level One are without merit and that the
outcome of these legal proceedings will not have a material adverse effect on
the Company's financial position or results of operations. There can be no
assurance, however, that Level One will not obtain a favorable determination in
judicial proceeding, which could have a material adverse effect on the Company's
business, financial condition and results of operations. Patent litigation is
often highly complex, can extend for a protracted period of time, can involve
substantial cost to the Company and may divert the attention of the Company's
management and technical personnel, which can substantially increase the cost of
such litigation. There can be no assurance that such costs and diversion of
resources would not have a material adverse effect on the Company's business,
financial condition and results of operations.
On June 25, 1996, Praxair, Inc. ("Praxair") filed a complaint against the
Company, entitled Praxair, inc., a Delaware Corporation v. SEEQ, Inc., a
California Corporation and SEEQ Technology, Inc., a Delaware Corporation
(Superior Court of the State of California, County of Santa Clara, Case No.
CV758882). The suit arises out of a nitrogen supply contract between the Company
and the plaintiff. The Complaint purports to state causes of action for breach
of contract and promissory estoppel. The Complaint alleges that as a result of
purported breaches of the nitrogen supply contract, the Company is obligated to
pay plaintiff approximately $1,300,000 plus costs of suit, not including
attorneys' fees. The case has only recently been filed, and no discovery has
taken place to date. The Company intends to contest all of Praxair's claims
vigorously. Based on the Company's limited review to date, management believes
that the claims asserted by Praxair are without merit. However, there can be no
assurance that Praxair will not obtain a favorable result in the lawsuit which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11.1 Schedule of Computation of Earnings Per Share
(b) No reports on Form 8-K were filed for the period for which this
report is being filed.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEEQ TECHNOLOGY INCORPORATED
(Registrant)
Dated: July 26, 1996 By:
/s/ Phillip J. Salsbury
--------------------------------------------------
Phillip J. Salsbury
President and Chief Executive Officer
Dated: July 26, 1996 By:
/s/ Robert O. Hersh
--------------------------------------------------
Robert O. Hersh
Vice President, Finance, Chief Financial Officer
and Secretary
14
<PAGE> 15
SEEQ TECHNOLOGY INCORPORATED
EXHIBIT 11
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- --------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
------- ------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
PRIMARY
Earnings: $ 650 $ 321 $ 847 $ 1,285
======= ======= ======= =======
Shares:
Average common shares outstanding 30,168 27,854 30,018 26,525
Add effect of dilutive options and warrants
(as determined by the treasury stock method
and the modified treasury stock method) 1,914 2,433 2,047 840
------- ------- ------- -------
As adjusted 32,082 30,287 32,065 27,365
======= ======= ======= =======
Primary earnings per share $ 0.02 $ 0.01 $ 0.03 $ 0.05
======= ======= ======= =======
FULLY DILUTED
Earnings:
Net income (loss) $ 650 $ 321 $ 847 $ 1,285
======= ======= ======= =======
Shares:
Average common shares outstanding 30,168 27,854 30,018 26,525
Add effect of dilutive options and warrants (as
determined by the treasury stock method)
1,914 3,775 2,049 3,657
------- ------- ------- -------
As adjusted 32,082 31,629 32,067 30,182
======= ======= ======= =======
Fully diluted earnings per share $ 0.02 $ 0.01 $ 0.03 $ 0.04
======= ======= ======= =======
</TABLE>
15
<PAGE> 16
EXHIBIT INDEX
Exhibit 11.1 Schedule of Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000702756
<NAME> SEEQ TECHNOLOGY INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 3139
<SECURITIES> 0
<RECEIVABLES> 5926
<ALLOWANCES> 0
<INVENTORY> 3034
<CURRENT-ASSETS> 12675
<PP&E> 10656
<DEPRECIATION> 7515
<TOTAL-ASSETS> 20604
<CURRENT-LIABILITIES> 5699
<BONDS> 2746
0
0
<COMMON> 302
<OTHER-SE> 11857
<TOTAL-LIABILITY-AND-EQUITY> 20604
<SALES> 20832
<TOTAL-REVENUES> 20832
<CGS> 14254
<TOTAL-COSTS> 14254
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 168
<INCOME-PRETAX> 872
<INCOME-TAX> 25
<INCOME-CONTINUING> 847
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 847
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
