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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 March 31, 1999
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[ ] 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
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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)
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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 32,257,951
(Class of common stock) (Shares outstanding at March 31, 1999)
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This report on Form 10-Q, including all exhibits, contains 21 pages.
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SEEQ TECHNOLOGY INCORPORATED
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
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 .......................................................................... 19
Item 2. Changes in Securities ...................................................................... 19
Item 3. Defaults upon Senior Securities ............................................................ 19
Item 4. Submission of Matters to a Vote of Security Holders ........................................ 19
Item 5. Other Information .......................................................................... 19
Item 6. Exhibits and Reports on Form 8-K ........................................................... 20
</TABLE>
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This Quarterly Report of Form 10-Q may contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in any such forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed under the caption "Factors Affecting Operating
Results" contained herein and under the caption "Risk Factors That May Affect
Future Results" in the Company's fiscal 1998 annual report on Form 10-K.
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 Six months ended
-------------------------- --------------------------
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 6,780 $ 7,880 $ 12,413 $ 15,432
Cost of revenues 4,825 4,442 9,038 8,625
-------- -------- -------- --------
Gross profit 1,955 3,438 3,375 6,807
-------- -------- -------- --------
Operating expense
Research and development 1,100 1,072 2,447 1,922
Marketing, general and administrative 1,174 1,445 2,516 2,979
Merger expenses 556 -- 556 --
-------- -------- -------- --------
Total operating expenses 2,830 2,517 5,519 4,901
-------- -------- -------- --------
Income (loss) from operations (875) 921 (2,144) 1,906
Interest expense (95) (80) (197) (168)
Interest and other income, net 108 164 223 299
-------- -------- -------- --------
Income (loss) before income taxes (862) 1,005 (2,118) 2,037
Income tax (provision), benefit -- (32) -- 16
-------- -------- -------- --------
Net income (loss) $ (862) $ 973 $ (2,118) $ 2,053
======== ======== ======== ========
Net income (loss) per share:
Basic $ (0.03) $ 0.03 $ (0.07) $ 0.07
Diluted $ (0.03) $ 0.03 $ (0.07) $ 0.06
Shares used in per share calculation:
Basic 32,251 30,624 32,123 30,549
Diluted 32,251 32,036 32,123 32,315
</TABLE>
See accompanying notes to condensed financial statements.
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SEEQ TECHNOLOGY INCORPORATED
CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
BALANCE SHEETS
March 31, September 30,
1999 1998
--------- -------------
(Thousands, except share amounts)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,970 $10,172
Accounts receivable, less allowances for sales
returns and doubtful accounts of $525 and $245 4,937 5,971
Inventories 4,053 4,080
Other current assets 514 426
------- -------
Total current assets 18,474 20,649
------- -------
Property and equipment, net 6,039 6,560
Other assets 145 1,540
------- -------
$24,658 $28,749
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,859 $ 3,315
Accrued salaries, wages and employee benefits 702 732
Other accrued liabilities 995 2,489
Deferred income on sales to distributors 440 543
Current portion of capitalized lease obligations 1,583 1,644
------- -------
Total current liabilities 7,579 8,723
------- -------
Long-term liabilities 3,588 4,448
------- -------
Total stockholders' equity 13,491 15,578
------- -------
$24,658 $28,749
======= =======
</TABLE>
See accompanying notes to financial statements
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SEEQ TECHNOLOGY INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
--------------------------
Mar. 31, Mar. 31,
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (2,118) $ 2,053
Adjustments to reconcile net income (loss) to cash provided
by (used for) operating activities:
Depreciation and amortization 1,076 916
Deferred taxes -- (79)
(Gain) on equipment disposal (41)
Changes in assets and liabilities:
Accounts receivable 1,034 1,694
Inventories 27 (1,154)
Prepaid expenses and other assets (87) (110)
Accounts payable 544 753
Accrued liabilities and long term obligations (1,719) (335)
-------- --------
Net cash provided by (used for) operating activities (1,284) 3,738
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (488) (125)
Release of funds held in escrow 1,368 --
-------- --------
Net cash provided by (used for) investing activities 880 (125)
-------- --------
FINANCING ACTIVITIES:
Payments of capital lease obligations (829) (578)
Proceeds from issuance of stock 31 314
-------- --------
Net cash used for financing activities (798) (264)
-------- --------
Net increase (decrease) in cash and cash equivalents (1,202) 3,349
Cash and cash equivalents at beginning of period 10,172 6,937
-------- --------
Cash and cash equivalents at end of period $ 8,970 $ 10,286
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
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SEEQ TECHNOLOGY INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. 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, 1998. These financial
statements reflect, in the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position and results of operations as of and for the periods indicated.
The results of operations for the six months ended March 31, 1999 are
not necessarily indicative of the results expected for the year ending September
30, 1999.
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
27, March 28, June 27 and September 26 for the year ending September 30, 1999,
and actually December 28, March 29, June 28 and September 27 for the year ending
September 30, 1998.
NOTE 2. INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or
market and include materials, labor and manufacturing overhead costs.
Inventories as of March 31, 1999 and September 30, 1998 consisted of:
<TABLE>
<CAPTION>
Mar. 31, Sep. 30,
1999 1998
-------- ---------
(in thousands)
<S> <C> <C>
Work in process $2,137 $1,686
Finished goods 1,916 2,394
------ ------
$4,053 $4,080
====== ======
</TABLE>
NOTE 3. NON-RECURRING PRODUCTION TRANSFER COSTS
Non-recurring costs such as tooling and engineering costs resulting
from transferring production of current products 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 associated with the development of new products are expensed
as research and development costs when incurred. During the six month periods
ended March 31, 1999 and March 31, 1998, the Company did not capitalize any of
such costs. Amortization of aggregate capitalized non-recurring costs for the
six month periods ended March 31, 1999 and March 31, 1998 was $26,000 and
$207,000, respectively. There were no remaining capitalized non-recurring
production transfer costs as of March 31, 1999, compared to $219,000 remaining
as of March 31, 1998.
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NOTE 4. NET INCOME PER SHARE
Basic EPS is computed by dividing net income available to common
stockholders (numerator) by the weighted average number of common shares
outstanding (denominator) during the period. In computing diluted EPS, the
average stock price for the period is used in determining the number of shares
assumed to be purchased from the exercise of stock options. Diluted EPS is
computed using the weighted average number of common and all potential dilutive
common shares outstanding during the period.
Following is a reconciliation of the numerators and denominators of
the Basic and Diluted EPS computations for the periods presented below:
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
-------------------------- --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) available to common
stockholders (numerator) $ (862) $ 973 $ (2,118) $ 2,053
Shares calculation (denominator):
Weighted average shares outstanding 32,251 30,624 32,123 30,549
Effect of dilutive securities:
Options -- 1,412 -- 1,766
-------- -------- -------- --------
Average shares outstanding assuming dilution 32,251 32,036 32,123 32,315
======== ======== ======== ========
Basic earnings (loss) per share $ (0.03) $ 0.03 $ (0.07) $ 0.07
======== ======== ======== ========
Diluted earnings per share $ (0.03) $ 0.03 $ (0.07) $ 0.06
======== ======== ======== ========
</TABLE>
Options to purchase 4,877,000 shares of common stock were outstanding
during the three month period ended March 31, 1999, but were not included in the
computation of diluted EPS as their effect was anti-dilutive. Options to
purchase 621,000 shares of common stock were outstanding during the three month
period ended March 31, 1998 but were not included in the computation of diluted
EPS as the option exercise price was higher than the average market price of the
common shares.
Options to purchase 4,793,000 shares of common stock were outstanding
during the six month period ended March 31, 1999, but were not included in the
computation of diluted EPS as their effect was anti-dilutive. Options to
purchase 383,000 shares of common stock were outstanding during the six month
period ended March 31, 1998 but were not included in the computation of diluted
EPS as the option exercise price was higher than the average market price of the
common shares.
NOTE 5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). FAS 133 establishes a new
model for accounting for derivatives and hedging activities and supersedes and
amends a number of existing accounting standards. SFAS 133 requires that all
derivatives be recognized in the balance sheet at their fair market value, and
the corresponding derivative gains or losses be either reported in the statement
of operations or as a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. Adopting the provisions of SFAS 133
is not expected to have a material effect on the Company's financial statements,
which will be effective for the Company's fiscal 2000.
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NOTE 6. MERGER WITH LSI LOGIC CORPORATION
On February 21, 1999, the Registrant entered into an Agreement and
Plan of Reorganization and Merger (the "Merger Agreement") with LSI Logic
Corporation ("LSI"), a Delaware corporation, and Stealth Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of LSI,
pursuant to which LSI will acquire the Company. The Merger Agreement was amended
on March 5, 1999 to make certain technical corrections to reflect the intent of
the parties thereto. Pursuant to the Merger Agreement, each outstanding share of
Common Stock, par value $0.01 per share, of the Company will be converted into
the right to receive that number of shares of Common Stock of LSI equal to the
Exchange Ratio. "Exchange Ratio" for purposes of the Merger Agreement means
0.1095; provided, that if the average closing sale price of one share of LSI's
Common Stock as reported on the New York Stock Exchange for the ten (10)
consecutive trading days ending on the trading day immediately preceding the
closing date of the Merger (the "Average Price") is less than $24.00, Exchange
Ratio shall mean the quotient determined by dividing 2.628 by the Average Price;
provided, further, that if the Average Price is higher than $30.00, Exchange
Ratio shall mean the quotient determined by dividing 3.285 by the Average Price.
The closing of the Merger is subject to approval by the stockholders
of the Company.
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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,
1998.
This Quarterly Report of Form 10-Q may contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in any such forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed under the caption "Factors Affecting Operating
Results" contained herein and under the caption "Risk Factors That May Affect
Future Results" in the Company's fiscal 1998 annual report on Form 10-K.
RESULTS OF OPERATIONS
Revenues
Net revenues were $6,780,000 in the second quarter of fiscal 1999, a
decrease of $1,100,000 or 14% compared to net revenues of $7,880,000 for the
second quarter of fiscal 1998. Net revenues were $12,413,000 in the six month
period ended March 31, 1999 compared to $15,432,000 for the six month period
ended March 31, 1998, a decrease of $3,019,000 or 20%. Allowances for product
returns are netted against revenues. The respective revenue declines are caused
primarily by a reduction in demand for the Company's Media Access Controller
(MAC) products. In the second quarter of fiscal 1999, products servicing the
Fast Ethernet and Gigabit Ethernet markets accounted for approximately 88% of
revenues compared to 80% of revenues for the second quarter of fiscal 1998.
Revenues from Fast Ethernet and Gigabit Ethernet products were approximately 86%
and 74% of total revenues for the six month periods ended March 31, 1999 and
1998, respectively.
Gross Product Margins
The Company includes in cost of revenues all costs associated with
subcontractor manufacturing, electrical testing, subcontractor assembly and
final test of its integrated circuits and subsystems, warehousing, shipping and
reserves for inventory obsolescence. Gross profit for the second quarter of
fiscal 1999 was $1,955,000 or 29% of net revenues, a decrease of $1,483,000 from
the second quarter of fiscal 1998's gross profit of $3,438,000 or 44% of net
revenues. For the six month period ended March 31, 1998, the gross profit margin
was $3,375,000 or 27% of net revenues, a decrease of $3,432,000 from the
$6,807,000 or 44% of revenues in the comparable period of fiscal 1998. The
decrease in gross profit margins is primarily attributable to a shift in product
mix toward lower margin transceiver products, and higher yield losses. Gross
margins in future periods will be affected primarily by revenue levels and
changes in product mix, average selling prices, factory utilization, wafer
yields, the introduction of new products, and changes in manufacturing costs.
Research and Development
Research and development expenditures increased $28,000 from
$1,072,000 in the second quarter of fiscal 1998 to $1,100,000 in the second
quarter of fiscal 1999 primarily due to an increase in tooling and payroll
costs, partially offset by lower outside consulting services. For the six month
periods ended March 31, 1998 and 1999, research and development expenses
increased $525,000 from $1,922,000 to $2,447,000. As a percentage of net
revenues, research and development expenditures increased from 14% in the second
quarter of fiscal 1998 to 16% in the second quarter of fiscal 1999 and from 12%
to 20% for the six month periods ended March 31, 1998 and 1999, respectively.
The Company expects that research and development spending will increase in
absolute dollars during the third fiscal quarter due to a high level of new
product design activity.
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Marketing, General and Administrative Expenses
Marketing, general and administrative expenses decreased $271,000
from $1,445,000, or 18% of revenues in the second quarter of fiscal 1998 to
$1,174,000, or 17% or revenues in the second quarter of fiscal 1999. The
decrease was primarily due to lower sales commissions. For the six month periods
ended March 31, 1998 and 1999, marketing, general and administrative expenses
decreased $463,000 from $2,979,000, or 19% of revenues to $2,516,000, or 20% or
revenues, respectively. The Company anticipates that the level of marketing,
general and administrative expenses will increase in future periods based on
expected revenue growth.
Merger Expenses
In the second quarter of fiscal 1999, the Company incurred investment
banking, legal and accounting fees of $556,000 associated with its announced
plans to merge with LSI Logic Corporation. There were no such fees in fiscal
1998. The Company expects to incur approximately $400,000 in merger related
expenses in the third quarter of fiscal 1999. Additional investment banker fees
of approximately $1.9 million will be paid by SEEQ only in the event that the
merger is completed.
Interest and other, net
Interest and other income, net decreased from $164,000 in the second
quarter of fiscal 1998 to $108,000 in the second quarter of fiscal 1999 and
decreased from $299,000 for the six months ended March 31, 1998 to $223,000 for
the six months ended March 31, 1999. The fluctuations in interest income are
directly affected by average cash balances. Interest expense increased from
$80,000 in the second fiscal quarter of 1998 to $95,000 in the second quarter of
fiscal 1999. Interest expense increased from $168,000 for the six months ended
March 31, 1998 to $197,000 for the six months ended March 31, 1999. The
increases are primarily due to increased capital lease obligations.
Income Taxes
For the three months ended March 31,1999 the Company did not record a
provision for income taxes, due to the year to date loss. This compares to a
provision for income taxes of $32,000 in the second quarter of fiscal 1998. For
the first six months of fiscal 1999 the Company did not record a provision for
income taxes, due to the year to date loss. During the first six months of
fiscal 1998 the Company recognized a portion of its deferred tax asset in the
amount of $79,000. This was partially offset by a provision of $63,000 for
income taxes. The Company's provisions were computed by applying the estimated
annual tax rate to income taxes, taking into account net operating loss
carryforwards and alternative minimum taxes.
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.
The Company 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 1999. 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
$10,172,000 as of September 30, 1998 to $8,970,000 as of March 31, 1999,
primarily due to cash used by operating activities, and payments of capital
lease obligations and partially offset by cash provided by investing activities.
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Operating Activities
Cash flows used by operating activities were $1,284,000 for the six
months ended March 31, 1999 compared to cash provided of $3,738,000 for the six
months ended March 31, 1998. The change is primarily a result of the net loss
during the six months ended March 31, 1999 compared to a profit in the six
months ended March 31, 1998, and a large decrease in accrued liabilities during
the six months ended March 31, 1999, which related to the settlement of
litigation in fiscal 1998.
Investing Activities
Cash flows provided by investing activities were $880,000 during the
first six months of fiscal 1999, compared to cash used of $125,000 for the first
six months of fiscal 1998. The difference is due to the release of funds from
escrow in the first six months of fiscal 1999, partly offset by higher capital
expenditures compared to the comparable period of fiscal 1998.
Financing Activities
Cash flows used for financing activities were $798,000 in the six
month period ended March 31, 1999 compared to $264,000 in the six month period
ended March 31, 1998. Principal payments against capital lease obligations were
$829,000 for the six months ended March 31, 1999 compared to $578,000 for the
six months ended March 31, 1998. Net proceeds from the issuance of stock
pursuant to stock options and the Company's employee periodic stock purchase
plan were $31,000 for the first six months of fiscal 1999 compared to $314,000
for the first six months of fiscal 1998.
In August 1996, the Company entered into a one-year revolving line of
credit agreement with Silicon Valley Bank. The Company renewed this credit
agreement in August 1997 and November 1998. Under the current terms of the bank
revolving line of credit, the Company can borrow the lesser of $7,000,000 or an
amount determined by a formula applied to eligible accounts receivable, at a
variable interest rate equal to the prime rate plus 0.25%. The revolving line of
credit is secured by a security interest in the Company's assets, including
intellectual property. The loan agreement requires the Company to meet certain
profitability levels and to maintain certain financial ratios. The agreement
requires profitability in the quarter ended March 31, 1999. However, the Company
has received a waiver from Silicon Valley Bank for this covenant. With this
waiver, the Company is in compliance with all covenants.
To date, the Company has not utilized the line of credit.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a rapidly changing environment that involves
a number of risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks. Other risks are presented elsewhere
in this report.
PROPOSED MERGER WITH LSI LOGIC
On February 22, 1999 LSI Logic Corporation (LSI) announced its
intention to merge with SEEQ in a pooling of interest transaction. The proposed
merger requires federal regulatory approval as well as a majority vote of SEEQ
stockholders. Failure to complete the merger could result in material adverse
effects to the Company. If the merger is completed, SEEQ stockholders would
receive LSI shares according to a conversion ratio which may fluctuate with LSI
stock price. Although SEEQ and LSI expect the merger to result in benefits, such
benefits are dependent upon successful integration of the two companies'
technology, operations and personnel, and may not occur. In the second quarter
of fiscal 1999, the Company incurred investment banking, legal and accounting
fees of $556,000 associated with its plans to merge with LSI. The Company
expects to incur approximately $400,000 in merger related expenses in the third
quarter of fiscal 1999. Additional investment banker fees of approximately $1.9
million will be paid by SEEQ only in the event that the merger is completed. The
proposed combined company would continue
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to face the risks and uncertainties inherent in the semiconductor industry, as
well as those specific to LSI. Investors are referred to the most recent report
on Form 10-K filed by LSI.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE FINANCIAL RESULTS
The Company incurred a net loss in fiscal 1998 of $5,510,000. The
Company incurred net losses during each of the five fiscal years ended September
30, 1994. During the fiscal years ended September 30, 1990, 1991, 1992, 1993 and
1994, the Company incurred net losses of $26.1 million, $3.2 million, $11.3
million, $4.1 million and $7.9 million, respectively. The Company achieved a
profit of approximately $1.3 million for the fiscal year ended September 30,
1995, approximately $2.9 million for the fiscal year ended September 30, 1996,
and approximately $4.7 million for the fiscal year ended September 30, 1997. The
Company had an accumulated deficit of approximately $110 million at September
30, 1998. There can be no assurance that the Company will be able to sustain
profitability or revenue growth in the future. The Company's ability to maintain
profitability in the future will depend, among other things, on its ability to
successfully manufacture and sell its products, to develop new products and to
control its costs and expenses. Failure by the Company to maintain revenue
growth or profitability would impair the Company's ability to sustain its
operations.
CUSTOMER CONCENTRATION
During certain periods, a relatively small number of the Company's
customers have accounted for a significant portion of the Company's revenues.
Sales to Bay Networks and Cabletron accounted for approximately 25% and 17% of
the Company's revenues in fiscal 1997, respectively. Sales to Bay Networks and
Cabletron accounted for approximately 41% and 14% of the Company's revenues in
fiscal 1998, respectively. The reduction, delay or cancellation of orders from
one or more of the Company's significant customers for any reason, including a
reduction in the demand for data communications products that include the
Company's products, could have a material adverse effect on the Company's
results of operations and financial condition. The Company's sales to its
customers are made under purchase orders and not pursuant to any long-term
agreements. In addition, the Company's products are often sole-sourced to its
customers, and the Company's operating results and financial condition could be
materially and adversely affected if one or more of the Company's major
customers were to develop other sources of supply. Furthermore, in view of the
short product life cycles, in the market for data communications products, the
Company's operating results would be materially and adversely affected if one or
more of the Company's significant customers were to purchase integrated circuits
manufactured by one of the Company's competitors for inclusion in new
generations of products developed by its customers. The Company is also
dependent upon sales representatives and distributors for the sales of its
products to systems manufacturers. There can be no assurance that the Company's
current customers will continue to place orders with the Company, that orders by
existing customers will continue at the levels of previous periods, or that the
Company will be able to obtain orders from new customers. The loss of one or
more of the Company's current customers could have a material adverse effect on
the Company's business, operating results and financial condition.
FACTORS AFFECTING OPERATING RESULTS
The Company believes that its future annual and quarterly operating
results will be subject to quarterly variations based upon a wide variety of
factors that could have a material adverse effect on the Company's revenues and
profitability, 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 its
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 sales vary depending upon the mix of products
sold. Any unfavorable changes in manufacturing yields or product mix, delays in
new product introductions, under-utilization of manufacturing capacity,
increased price competition or other factors
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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 the future. 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 substantial
non-cancelable backlog, the Company typically plans its production and inventory
levels based on internal forecasts of customer demand, which is 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 the foregoing factors, as well as other unanticipated factors,
it is likely that in some future quarter the Company's operating results will be
below the expectations of public market analysts or investors. In such event,
the price of the Company's Common Stock would be materially adversely affected.
DEPENDENCE ON NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE
The average selling prices of the Company's products historically
have decreased over the products' lives and are expected to continue to do so.
To offset average selling price decreases typically experienced over the life of
any particular product, the Company relies primarily on obtaining cost
reductions in the manufacture of those products and on introducing new, higher
priced products which incorporate advanced features or address new or emerging
markets. To the extent that such cost reductions and new product introductions
do not occur in a timely manner, the Company's operating results will be
adversely affected. As a result, the Company's operating results will depend to
a substantial extent on its ability to continue to successfully introduce new
products on a timely basis that compete effectively on the basis of price and
performance and that address customer requirements. The success of new product
introductions into the marketplace is dependent upon several factors, including
proper new product definition, timely completion and introduction of new product
designs, availability of production capacity, achievement of acceptable
manufacturing yields and market acceptance of such new products. The development
cycle for new products is generally one to two years, depending upon the
complexity of the product. Accordingly, new product development requires a
long-term forecast of market trends and customers' needs and may be adversely
affected by competing technologies serving markets addressed by the Company's
products. Although the Company has successfully developed new products in the
past, there can be no assurance that it will continue to be able to do so in the
future. In this regard, as a result of the Company's financial results in the
past several years and other factors, the Company has been unable to introduce
new products as fast as existing products become obsolete or as such product
sales decline, as reflected by the reductions in sales over such period. The
Company has experienced certain delays in the development of certain of its new
products, which the Company believes may have a material adverse effect on the
Company's results of operations in future periods. Although the Company has
increased its development efforts over the past year, there can be no assurance
that such delays will not continue to occur in future periods. The markets for
the original equipment manufacturers who purchase the Company's products are
characterized by rapidly changing technology, evolving industry standards and
improvements in products and services. If technologies or standards supported by
the Company's products become obsolete or fail to gain widespread commercial
acceptance, the Company's business may be materially adversely affected. As a
result, the Company believes that continued significant expenditures for
research and development will be required in the future. If the Company were
unable to design, develop and introduce competitive products on a timely basis,
its future operating results would be materially adversely affected.
New products are generally incorporated into a customer's products or
systems at the design stage. However, design wins, which can often require
significant expenditures by the Company, may precede the generation of volume
sales, if any, by a year or more. Moreover, the value of any design win will
depend in large part on the ultimate success of the customer's product and on
the extent to which the system's design accommodates components manufactured by
the Company's competitors. No assurance can be given that the Company will
achieve design wins or that any design win will result in significant future
revenue.
13
<PAGE> 14
LIQUIDITY; FUTURE CAPITAL REQUIREMENTS
The Company presently believes that anticipated cash provided by
operations, and existing cash will be adequate to meet its cash needs for at
least the next 12 months. However, the Company requires substantial working
capital to fund its business, particularly to finance inventories and accounts
receivable and/or capital expenditures. The Company's future capital
requirements will depend on many factors, including the timing and extent of
spending to support product development efforts and expansion of sales and
marketing, the timing of introductions of new products and enhancements to
existing products, and market acceptance of the Company's products. Accordingly,
the Company expects that it may need to raise additional equity or debt
financing in the future. There can be no assurance that additional debt and/or
equity financing, if required, will be available on acceptable terms or at all.
DEPENDENCE UPON INDEPENDENT MANUFACTURERS AND ASSEMBLY SUPPLIERS
All of the Company's products are currently manufactured to the
Company's specifications by independent subcontractors, and the Company
maintains no wafer manufacturing or assembly operations of its own. The Company
currently utilizes semiconductor wafer manufacturing subcontractors located in
South Korea, Japan, Taiwan and the United States. The Company also contracts
with independent assembly suppliers located in Asia for the assembly of all of
its products, and relies principally on one assembly contractor located in South
Korea. As a result, all of the Company's products are manufactured by
independent foundries and assembled by foreign assembly contractors.
Consequently, the Company currently relies exclusively on the manufacturing,
assembly and other resources of these independent manufacturers and assembly
suppliers. Currently, certain of these independent manufacturers serve as the
sole source for several of the Company's products. The Company's reliance on
subcontractors to manufacture and assemble its products involves significant
risks, including reduced control over delivery schedules, the potential lack of
adequate capacity, reduced control over fluctuations in manufacturing yields,
discontinuation or phase-out of such subcontractors' production processes, and
potential misappropriation of proprietary intellectual property. There can be no
assurance that the Company will not experience problems in timeliness, yields
and quality of wafer deliveries from its wafer manufacturing subcontractors,
each of which could have a material adverse effect on the Company's operations
and operating results. In addition, although the Company has entered into
manufacturing agreements with each of these independent manufacturers, there can
be no assurance that such manufacturers will continue to manufacture products
for the Company.
The Company generally does not have long-term, non-cancelable
contracts with its wafer suppliers. Therefore, the Company's wafer suppliers
could choose to prioritize capacity for other uses or reduce or eliminate
deliveries to the Company on short notice. Accordingly, there can be no
assurance that the Company's foundries will allocate sufficient wafer
manufacturing capacity to the Company to satisfy the Company's product
requirements. In addition, the Company has been, and expects to continue to be
in the future, particularly dependent on one or more foundries for its wafer
manufacturing requirements. Any sudden demand for an increased amount of wafers
or sudden reduction or elimination of any existing source or sources of wafers
could result in a material delay in the shipment of the Company's products.
There can be no assurance that material disruptions in supply, which have
occurred periodically in the past, will not occur in the future. Any such
disruption could have a material adverse effect on the Company's operating
results and financial condition. In the event the Company were unable to qualify
alternative manufacturing sources for existing or new products in a timely
manner or such sources were unable to produce wafers with acceptable
manufacturing yields, the Company's business, operating results and financial
condition would be materially and adversely affected.
DEPENDENCE ON FOUNDRY MANUFACTURING
The manufacture of semiconductor wafers for the Company's products is
a highly complex process that requires a high degree of technical skill,
state-of-the-art equipment and effective cooperation between the wafer foundry
and the Company's engineering staff to produce acceptable yields. Worldwide
manufacturing capacity for these products is limited. Therefore, significant
interruptions in supply from any of the Company's independent foundries could
adversely affect the Company and its results of operations.
14
<PAGE> 15
Other unanticipated changes in the Company's wafer supply or assembly
arrangements could reduce product availability, increase cost, impair quality
and reliability or decrease yield. Many of the factors that could result in such
changes are beyond the Company's control. To a considerable extent, the
Company's ability to succeed in the future will depend on its ability to
maintain access to advanced wafer fabrication technologies. Since the Company
does not own or operate its own wafer fabrication or process development
facility, the Company depends upon independent companies to provide access to
such technologies. In light of this dependency, and the intensely competitive
nature of the semiconductor industry, there is no assurance that either
technology advantages or timely product introduction can be maintained in the
future. In connection with its arrangements with foreign independent wafer
suppliers, it is necessary for the Company to provide such suppliers with
proprietary information regarding its process and product technologies. Although
the Company has entered into confidentiality and nondisclosure agreements with
its foreign suppliers, there can be no assurance that the Company will be able
to protect its rights under its patents, copyrights, mask-work rights or such
confidentiality and nondisclosure agreements in foreign countries.
MANUFACTURING; VARIATION IN PRODUCTION YIELDS
The manufacture of semiconductor products is highly complex,
involving many precise and critical steps, and is sensitive to a wide variety of
factors, including the level of contaminants in the manufacturing environment,
impurities in the materials used and the performance of sophisticated electronic
equipment. Technical problems which may arise in the manufacturing process at
the manufacturing facilities of any of the Company's independent foundries can
adversely affect manufacturing yields and the overall profitability of the
Company. Such technical problems may occur or new problems may arise as the
Company begins using new manufacturing processes in connection with the
introduction of new products. While the Company is attempting to minimize the
impact of such factors and potential problems by developing several sources of
wafer supply, certain of the foundries utilized by the Company have experienced
lower than anticipated yields. No assurance can be given that the Company or its
suppliers will not experience yield problems in the future, which could have a
material adverse effect on the Company's results of operations.
YEAR 2000
The "Year 2000 issue" arises because many computer systems and
programs were designed to handle only a two-digit year, not a four-digit year.
When the year 2000 begins, these computers may interpret "00" as the year 1900
and could either stop processing date-related computations or could process them
incorrectly. As is true for most companies, the Year 2000 issue creates risk for
the Company. The Company has identified four areas of potential problems
stemming from the Year 2000 issue: product, internal systems, vendor
dependencies, and economic factors.
The Company's products are designed to move data. The products
contain no date functions or dependencies and therefore will operate according
to specification through the year 2000 and beyond. The Company's customers,
however, incorporate the Company's components in products that are very complex,
and the Company has no control over the design and manufacture of such products.
The Company can make no assurance that its customers' products will not be
adversely affected by the year 2000 issue. In that event that such products are
affected, the Company's financial results could be materially adversely
affected.
The Year 2000 issue has the potential to disrupt the systems that
perform the Company's business transactions including financial systems (general
ledger, accounts payable, accounts receivable, and purchasing), order entry,
inventory and production control, and material requirements planning. The Year
2000 issue could also disrupt the Company's personal computer applications,
engineering workstations, product testing systems, telecommunications and
network systems. The Company has performed a detailed inventory and assessment
of these systems with respect to Year 2000 issues, and is in the process of
modifying, upgrading and testing affected systems. Management believes that it
has identified all of the significant internal systems related exposures, and
expects to complete its Year 2000 testing by July, 1999.
15
<PAGE> 16
The Company believes that the most likely Year 2000 problem relates
to the area of vendor dependencies. The Company is in the process of contacting
critical outside vendors to determine that the vendors' operations, and the
products and services they provide are Year 2000 compliant. If the Company
determines that the vendor will not be compliant, the Company will attempt to
seek alternative sources of products and services, where practicable. However,
the Company does not have the resources to definitively determine the Year 2000
readiness of its vendors, and relies wholly on the written assurances of the
vendors in this regard. Moreover, the Company believes that the greatest risk
arises from infrastructure, i.e., power and water supplies, telecommunications,
government services, and transportation supply chains, over which the Company
has minimal influence. If critical suppliers fail to achieve compliance, the
Company could be materially adversely affected.
The Company believes that the Year 2000 problem may cause significant
economic effects that could materially affect the Company's results. The
infrastructure problems discussed above could result in regional or worldwide
recessions, which could reduce demand for the Company's products. Additionally,
as businesses commit resources to the Year 2000 problem, networking projects
could be delayed or cancelled, thus also reducing demand for the Company's
products.
The Company is developing contingency plans to address the Year 2000
issues that may pose a significant risk to its operations, and expects these
plans substantially complete by June 1999. The Company will monitor potential
Year 2000 exposures thereafter, and adjust its contingency plans as necessary.
Such plans could include adjustment of production and shipping schedules,
changes in the work schedules of key information systems personnel, accelerated
replacement of affected equipment or software, temporary use of back-up
equipment or software or the implementation of manual procedures to compensate
for system deficiencies. However, there can be no assurance that any contingency
plans implemented by the Company would be adequate to meet the Company's needs
without materially impacting its operations, that any such plan would be
successful or that the Company's results of operations would not be materially
and adversely affected.
The Company estimates that the cost of its Year 2000 efforts will be
approximately $800,000. (This includes approximately $750,000 for the Company's
enterprise computer system, which was installed in 1997 to replace a
non-compliant system. This cost is included here because, although the Company
had already planned to install this system, and is deriving benefits over and
above Year 2000 compliance from the system, the Year 2000 situation was a factor
in expediting its installation.) The Company estimates that the remaining cost
to complete the project will be approximately $25,000. This cost estimate was
derived utilizing numerous assumptions, including the assumption that the
Company has already identified its most significant Year 2000 issues and that
the compliance plans of its third party suppliers will be fulfilled in a timely
manner without cost to the Company. However, there can be no guarantee that
these assumptions are accurate, and actual results could differ materially from
those anticipated.
RISKS ASSOCIATED WITH FOREIGN SUPPLIERS
A substantial number of the Company's products are
manufactured, and all of the Company's products are
assembled, by independent foundries and assembly suppliers located in foreign
countries, including Taiwan, Japan and South Korea. The Company is, therefore,
subject to certain risks generally associated with contracting with foreign
suppliers, including currency exchange fluctuations, political and economic
instability, trade restrictions and changes in tariff and freight rates.
THE SEMICONDUCTOR INDUSTRY
The semiconductor industry is subject to rapid technological change,
price erosion, occasional shortages of materials, variations in manufacturing
efficiencies, significant expenditures for capital equipment and product
development, and cyclical market patterns. In recent years, the industry has
experienced intermittent significant economic downturns characterized by
diminished product demand, accelerated erosion of selling prices and production
over-capacity. Similar fluctuations may occur in the future, and there can be no
assurance that the Company will not be materially and adversely affected is the
16
<PAGE> 17
future by such fluctuations or by cyclical conditions in the semiconductor
industry or slower growth in any of the markets for the Company's products.
DEPENDENCE ON DATA COMMUNICATION MARKET
The Company anticipates that substantially all of the Company's
revenues for the foreseeable future will be attributable to sales of data
communication products. The market for data communications products is
characterized by intense competition, relatively short product life cycles and
rapid technological change. In addition, the market for data communications
products has undergone a period of extremely rapid growth and has experienced
consolidation among the competitors in the marketplace. The Company's results of
operations and financial condition would be materially adversely affected in the
event of any future slowdown or adverse events in the market for data
communications products.
LITIGATION
On September 25, 1998, SEEQ settled a lawsuit filed by Level One
Communications, Level One Communications, Inc. v. SEEQ Technology, Inc.. As part
of the settlement the Company received a license to Level One's asserted
technology, and both parties entered into an initial agreement not to sue or
counter-sue each other for patent infringement or otherwise for a period of two
years from the date of execution of the settlement agreement. None of the
Company's product lines will be affected by the settlement, nor will any
continuing royalty or fee obligation exist in the future with respect to Level
One's asserted technology. The Company took a one-time charge for the settlement
of $3,156,000 in the fourth quarter ending September 30, 1998. Settlement costs
included a cash payment and common stock issuance to Level One. In September of
1997 and June 1995, the Company settled litigation with a former supplier and
landlord, respectively. As of March 31, 1999 there was no litigation pending
against the Company. However, there can be no assurance that such litigation
will not arise in the future. 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.
COMPETITION
The semiconductor industry is intensely competitive and is
characterized by price erosion, rapid technological change, short product life
cycles, cyclical market patterns and heightened domestic and international
competition in many markets. The Company competes with major domestic and
international semiconductor companies, most of which have substantially greater
financial, technical, manufacturing and marketing resources than the Company, as
well as other substantial resources with which to more effectively pursue
engineering, manufacturing, marketing and distribution of their products. In
addition, many of the Company's competitors maintain their own wafer fabrication
and manufacturing facilities, which the Company considers to be a competitive
advantage. Accordingly, the Company believes that it is at a substantial
competitive disadvantage in comparison to larger companies with wafer
fabrication and manufacturing facilities, broader product lines, greater
technical, financial and other resources and a higher level of customer service
and support. New entrants may also increase their participation in the
semiconductor market. The ability of the Company to compete successfully in the
rapidly evolving area of high performance integrated circuit technology depends
on factors both within and outside of its control, including success in
designing and subcontracting the manufacture of new products that implement new
technologies, adequate sources of raw materials, protection of Company products
by effective utilization of intellectual property laws, product quality,
reliability, price, efficiency of production, the pace at which customers
incorporate the Company's integrated circuits into their products, success of
competitors' products and general economic conditions. Because the Company does
not currently manufacture its own semiconductor wafers, the Company is
vulnerable to process technology advances utilized by competitors to manufacture
higher performance or lower cost products. There is no assurance that the
Company will be able to compete successfully in the future.
17
<PAGE> 18
PATENTS, LICENSES AND INTELLECTUAL PROPERTY CLAIMS
The Company's success depends in part on its ability to obtain
patents, licenses and other intellectual property rights covering its products
and manufacturing processes. To that end, the Company has in the past acquired
certain patents and patent licenses and intends to continue to seek patents on
its inventions and manufacturing processes in appropriate circumstances. The
process of seeking patent protection can be long and expensive and there can be
no assurance that patents will issue from currently pending or future
applications or that existing patents or any new patents that may be issued will
be of sufficient scope or strength to provide meaningful protection or any
commercial advantage to the Company. The Company may be subject to or may
initiate interference proceedings in the patent office, which can demand
significant financial and management resources. As is typical in the
semiconductor industry, the Company has from time to time received, and may in
the future receive, communications alleging possible infringement of patents or
other intellectual property rights of others. Based on industry practice, the
Company believes that any necessary licenses or other rights are often
obtainable on commercially reasonable terms, but no assurance can be given that
licenses would be available or that litigation would not ensue. Litigation,
which could result in substantial cost to and diversion of effort by the
Company, may be necessary to enforce patents or other intellectual property
rights of the Company or to defend the Company against claimed infringement of
the rights of others. The failure to obtain necessary licenses or other rights
or litigation could have a material adverse effect on the Company's operations.
See "Risk Factors--Litigation."
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS
Certain of the Company's foundry and assembly subcontractors are
subject to a variety of government regulations related to the discharge or
disposal of toxic, volatile or otherwise hazardous chemicals used in their
manufacturing process. The failure by the Company's subcontractors to comply
with present or future environmental regulations could result in fines,
suspension of production or cessation of operations. Such regulations could also
require the subcontractors to acquire equipment or to incur substantial other
expenses to comply with environmental regulations. If substantial additional
expenses were incurred by the Company's subcontractors, product costs could
significantly increase, thus materially adversely affecting the Company's
results of operations. Additionally, the Company is subject to a variety of
government regulations relating to its operations, such as environmental, labor
and export control regulations. While the Company believes it has all permits
necessary to conduct its business, the failure to comply with present or future
regulations could result in fines being imposed on the Company or suspension or
cessation of operations. Any failure by the Company or its subcontractors to
control the use of, or adequately restrict the discharge of hazardous substances
could subject it to future liabilities, and could have a material adverse effect
on the Company.
ATTRACTION AND RETENTION OF KEY PERSONNEL
The Company's future success is dependent upon its ability to hire
and retain qualified technical and management personnel, particularly highly
skilled design engineers involved in new product development. The competition
for such personnel is intense and there can be no assurance that the Company
will be able to attract and retain skilled and experienced personnel in the
future. Any failure to attract or retain such personnel could adversely affect
the Company's future prospects and profitability.
VOLATILITY OF STOCK PRICE
The Company's Common Stock has experienced substantial price
volatility and such volatility may occur in the future, particularly as a result
of quarter to quarter variations in the actual or anticipated financial results
of, or announcements by, the Company, its competitors, its customers, and other
companies in the semiconductor industry. In addition, the stock market has
experienced extreme price and volume fluctuations which have affected the market
price of many technology companies in particular and which have often been
unrelated to the operating performance of these companies. Broad market
fluctuations, as well as general economic and political conditions, may
adversely affect the market price of the Common Stock.
18
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 25, 1999 an Annual Meeting of Stockholders was held. The
following Directors were elected at this meeting:
Charles H. Giancarlo
Alan V. Gregory
Phillip J. Salsbury
Other matter voted upon:
<TABLE>
<CAPTION>
Votes
--------------------------------------------------
Affirmative Negative Abstain
----------- -------- -------
<S> <C> <C> <C>
Ratify the appointment of 29,146,347 112,143 42,716
PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal
year ending September 26, 1999
</TABLE>
ITEM 5. OTHER INFORMATION
On February 21, 1999, the Company entered into an Agreement and Plan
of Reorganization and Merger (the "Merger Agreement") with LSI Logic Corporation
("LSI"), a Delaware corporation, and Stealth Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of LSI, pursuant to which LSI will
acquire the Company. The Merger Agreement was amended on March 5, 1999 to make
certain technical corrections to reflect the intent of the parties thereto.
Pursuant to the Merger Agreement, each outstanding share of Common Stock, par
value $0.01 per share, of the Company will be converted into the right to
receive that number of shares of Common Stock of LSI equal to the Exchange
Ratio. "Exchange Ratio" for purposes of the Merger Agreement means 0.1095;
provided, that if the average closing sale price of one share of LSI's Common
Stock as reported on the New York Stock Exchange for the ten (10) consecutive
trading days ending on the trading day immediately preceding the closing date of
the Merger (the "Average Price") is less than $24.00, Exchange Ratio shall mean
the quotient determined by dividing 2.628 by the Average Price; provided,
further, that if the Average Price is higher than $30.00, Exchange Ratio shall
mean the quotient determined by dividing 3.285 by the Average Price.
The closing of the Merger is subject to approval by the
stockholders of the Company.
The foregoing summary is qualified in its entirety by
reference to the Merger Agreement, attached to the Company's report on Form
8-K/A as Exhibit 99.1.
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data
(b) The Company filed a report on Form 8-K/A on March 5, 1999. The
Company filed a report on Form 8-K on March 11, 1999. Both of these
filings were pursuant to Item 5 (Other Information.)
20
<PAGE> 21
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: May 11, 1999 By:
/s/ Phillip J. Salsbury
-------------------------------------
Phillip J. Salsbury
President and Chief Executive Officer
Dated: May 11, 1999 By:
/s/ Gary R. Fish
-------------------------------------
Gary R. Fish
Vice President, Finance,
Chief Financial Officer and Secretary
21
<PAGE> 22
INDEX TO EXHIBITS
Exhibits
Number Description
- -------- -----------
27.1 Financial Data
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,970
<SECURITIES> 0
<RECEIVABLES> 4,937
<ALLOWANCES> 0
<INVENTORY> 4,053
<CURRENT-ASSETS> 18,474
<PP&E> 16,927
<DEPRECIATION> 10,888
<TOTAL-ASSETS> 24,658
<CURRENT-LIABILITIES> 7,580
<BONDS> 2,928
0
0
<COMMON> 323
<OTHER-SE> 13,168
<TOTAL-LIABILITY-AND-EQUITY> 24,658
<SALES> 6,780
<TOTAL-REVENUES> 6,780
<CGS> 4,825
<TOTAL-COSTS> 4,825
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95
<INCOME-PRETAX> (862)
<INCOME-TAX> 0
<INCOME-CONTINUING> (862)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (862)
<EPS-PRIMARY> (0.03)<F1>
<EPS-DILUTED> (0.03)
<FN>
<F1>For Purposes Of This Exhibit, Primary Means Basic.
</FN>
</TABLE>
