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SEAGATE TECHNOLOGY, INC.
920 DISC DRIVE
SCOTTS VALLEY, CA 95066
(408) 438-6550
APRIL 28, 1995
VIA EDGAR
SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET, N.W.
WASHINGTON, D.C. 20549
RE: SEAGATE TECHNOLOGY, INC.
CIK NO. 0000354952
QUARTERLY REPORT ON FORM 10-Q
LADIES AND GENTLEMEN:
IN ACCORDANCE WITH REGULATION S-T, WE ARE SUBMITTING HEREWITH IN
ELECTRONIC FORMAT VIA EDGAR, ONE COPY OF THE QUARTERLY REPORT ON FORM 10-Q OF
SEAGATE TECHNOLOGY, INC. FOR THE FISCAL QUARTER ENDED MARCH 31, 1995 INCLUDING
THE EXHIBITS THERETO.
PLEASE DIRECT ALL QUESTIONS CONCERNING THE ENCLOSED MATERIALS TO THE
UNDERSIGNED.
VERY TRULY YOURS,
/S/ WALTER W. WORTH
WALTER W. WORTH
DIRECTOR, EXTERNAL FINANCIAL REPORTING
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
of
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1995
Commission File Number 0-10630
SEAGATE TECHNOLOGY, INC.
(Registrant)
Incorporated in the State of Delaware
I.R.S. Employer Identification Number 94-2612933
920 Disc Drive, Scotts Valley, California 95066
Telephone: (408) 438-6550
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
On March 31, 1995, 70,635,899 shares of the registrant's common stock were
issued and outstanding.
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INDEX
SEAGATE TECHNOLOGY, INC.
PART I. FINANCIAL INFORMATION PAGE NO.
- --------------------------------------------------------------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated condensed statements of income--
Three and nine months ended March 31, 1995 and
April 1, 1994 3
Consolidated condensed balance sheets--
March 31, 1995 and July 1, 1994 4
Consolidated condensed statements of cash flows--
Nine months ended March 31, 1995 and
April 1, 1994 5
Notes to consolidated condensed financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
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SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, April 1, March 31, April 1,
1995 1994 1995 1994
---- ---- ---- ----
Net sales $ 1,184,582 $ 909,270 $ 3,247,291 $ 2,499,038
Cost of sales 953,665 715,918 2,591,698 2,011,097
Product development 56,012 43,766 156,301 126,592
Marketing and administrative 59,385 52,305 177,632 149,044
Amortization of goodwill and
other intangibles 5,958 3,184 15,076 9,547
In-process research and development 12,780 -- 55,780 --
----------- ---------- ----------- -----------
Total Operating Expenses 1,087,800 815,173 2,996,487 2,296,280
Income from Operations 96,782 94,097 250,804 202,758
Interest income 17,451 10,312 47,138 23,830
Interest expense (8,112) (8,313) (24,404) (18,491)
Other 1,122 (316) 2,239 269
----------- ---------- ----------- -----------
Other Income 10,461 1,683 24,973 5,608
----------- ---------- ----------- -----------
Income before income taxes 107,243 95,780 275,777 208,366
Provision for income taxes 36,978 28,734 103,706 62,510
----------- ---------- ----------- -----------
Net Income $ 70,265 $ 67,046 $ 172,071 $ 145,856
=========== ========== =========== ===========
NET INCOME PER SHARE:
Primary $ 0.97 $ 0.91 $ 2.33 $ 2.01
Fully diluted 0.84 0.80 2.06 1.88
NUMBER OF SHARES USED IN
PER SHARE COMPUTATIONS:
Primary 72,462 73,796 73,829 72,637
Fully diluted 89,309 90,389 90,783 83,190
See notes to consolidated condensed financial statements.
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SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
(Unaudited)
March 31, July 1,
1995 1994(1)
--------- -------
ASSETS
Cash and cash equivalents $ 707,156 $ 804,717
Short-term investments 487,495 528,825
Accounts receivable 523,077 392,231
Inventories 365,944 342,537
Deferred income taxes 107,704 95,784
Other current assets 97,927 82,351
----------- -----------
Total Current Assets 2,289,303 2,246,445
Property, equipment and leasehold improvements, net 535,071 415,038
Goodwill and other intangibles, net 169,760 126,395
Other assets 104,334 89,652
----------- -----------
Total Assets $ 3,098,468 $ 2,877,530
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 403,607 $ 363,709
Accrued employee compensation 105,333 83,843
Accrued expenses 226,321 190,377
Accrued income taxes 19,605 64,687
Current portion of long-term debt 10,035 168
----------- -----------
Total Current Liabilities 764,901 702,784
Deferred income taxes 258,192 218,801
Other liabilities 111,313 78,054
Long-term debt, less current portion 539,538 549,492
----------- -----------
Total Liabilities 1,673,944 1,549,131
----------- -----------
Common stock 728 728
Additional paid-in capital 355,336 373,296
Foreign currency translation adjustment (1,040) (1,044)
Retained earnings 1,127,490 955,419
Treasury common stock at cost (56,429) --
Unrealized loss on marketable securities (1,561) --
----------- -----------
Total Shareholders' Equity 1,424,524 1,328,399
----------- -----------
Total Liabilities and Shareholders' Equity $ 3,098,468 $ 2,877,530
=========== ===========
See notes to consolidated condensed financial statements.
(1) The information in this column was derived from the Company's audited
consolidated balance sheet as of July 1, 1994.
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SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
March 31, April 1,
1995 1994
---- ----
OPERATING ACTIVITIES:
Net income $ 172,071 $ 145,856
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 151,418 131,674
Deferred income taxes 21,573 25,516
In-process research and development 55,780 --
Other (854) 1,043
Changes in operating assets and liabilities:
Accounts receivable (127,565) (34,473)
Inventories (49,350) 94,683
Other current assets 1,802 (4,526)
Accounts payable 33,251 77,246
Accrued employee compensation 21,150 18,641
Accrued expenses (9,324) 21,402
Accrued income taxes (34,533) (536)
Other liabilities 78,066 (30)
--------- ---------
Net cash provided by operating activities 313,485 476,496
INVESTING ACTIVITIES:
Acquisition of property, equipment and leasehold improvements, net (223,106) (137,296)
Purchases of short-term investments (887,518) (454,103)
Sales of short-term investments 928,147 303,953
Acquisitions of businesses, net of cash acquired (119,422) --
Equity investments (20,811) --
Increase in other non-current assets, net (1,823) (13,442)
Other, net 285 12
--------- ---------
Net cash used in investing activities (324,248) (300,876)
FINANCING ACTIVITIES:
Issuance of long-term debt -- 270,750
Repayment of long-term debt (426) (3,887)
Sale of common stock 28,470 33,881
Purchase of treasury stock (113,409) --
--------- ---------
Net cash provided by (used in) financing activities (85,365) 300,744
Effect of exchange rate changes on cash and cash equivalents (1,433) (482)
--------- ---------
Increase (decrease) in cash and cash equivalents (97,561) 475,882
Cash and cash equivalents at the beginning of the period 804,717 426,094
--------- ---------
Cash and cash equivalents at the end of the period $ 707,156 $ 901,976
========= =========
See notes to consolidated condensed financial statements.
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SEAGATE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated condensed financial statements have been prepared by
the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The
Company believes the disclosures included in the unaudited consolidated
condensed financial statements, when read in conjunction with the
consolidated financial statements of the Company as of July 1, 1994 are
adequate to make the information presented not misleading.
The consolidated condensed financial statements reflect, in the opinion
of management, all adjustments (which include only normal recurring
adjustments) necessary to summarize fairly the consolidated financial
position, results of operations and cash flows for such periods.
The results of operations for the nine months ended March 31, 1995 are
not necessarily indicative of the results that may be expected for the
entire year ending June 30, 1995.
The Company operates and reports financial results on a fiscal year of
52 or 53 weeks ending on the Friday closest to June 30. Accordingly,
fiscal 1994 ended on July 1, 1994 and fiscal 1995 will end on June 30,
1995.
2. NET INCOME PER SHARE
Primary net income per share is based on the weighted average number of
shares of common stock and common stock equivalents outstanding during
the period. Fully diluted net income per share further assumes the
conversion of the Company's 5% and 6-3/4% convertible subordinated
debentures.
3. BALANCE SHEET INFORMATION
(In thousands)
March 31, July 1,
1995 1994
---- ----
Accounts Receivable:
Accounts receivable $ 573,091 $ 435,061
Allowance for non-collection (50,014) (42,830)
--------- ---------
$ 523,077 $ 392,231
========= =========
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March 31, July 1,
1995 1994
---- ----
Inventories:
Components $ 184,978 $ 188,477
Work-in-process 67,248 56,735
Finished goods 113,718 97,325
----------- ---------
$ 365,944 $ 342,537
=========== =========
Property, Equipment and Leasehold Improvements:
Property, equipment and leasehold improvements $ 1,192,880 $ 970,853
Allowance for depreciation and amortization (657,809) (555,815)
----------- ---------
$ 535,071 $ 415,038
=========== =========
4. INCOME TAXES
The effective tax rate used to compute the income tax provision for the
nine months ended March 31, 1995 and April 1, 1994 is based on the
Company's estimate of its domestic and foreign operating income for
each respective year. The effective tax rate for the nine months ended
March 31, 1995 was 38% compared with 30% for the comparable period last
year. The increase in the effective tax rate was due to the $43,000,000
write-off, in the quarter ended September 30, 1994, of in-process
research and development incurred in connection with the acquisition of
Palindrome Corporation and the $12,780,000 write-off, in the current
quarter, of in-process research and development incurred in connection
with the acquisitions of Network Computing, Inc. and NetLabs Inc. that
is not deductible for domestic tax purposes.
Excluding the one time write-offs of in-process research and
development, the Company's overall effective tax rate was 30% for the
nine months ended March 31, 1995. The overall effective rate is less
than the statutory rate because a portion of the operating income is
not subject to foreign income taxes and is considered to be permanently
invested in non-U.S. operations. Accordingly, taxes have not been
provided on such income.
The Company's effective tax rate for the quarter ended March 31, 1995
was 34% compared with 30% for the comparable period last year. The
increase in the effective tax rate was due to the $12,780,000 write-off
of in-process research and development incurred in connection with the
acquisitions of Network Computing, Inc. and NetLabs Inc. The Company
expects that its effective tax rate, before the impact of any write-off
of in-process research and development that may result from future
acquisitions, will be 30% for the final quarter of fiscal 1995. The
overall effective tax rate for the year should be higher than 30% due
to the higher effective tax rates in the first and third quarters.
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5. SHAREHOLDERS' EQUITY
Shares authorized and outstanding are as follows:
Shares Outstanding
------------------
March 31, July 1,
1995 1994
---- ----
Preferred stock, par value $.01 per share,
1,000,000 shares authorized -- --
Common stock, par value $.01 per share, 200,000,000 shares authorized
(shares outstanding exclude treasury shares of
2,210,606 at March 31, 1995) 70,635,899 72,832,351
6. SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands)
Nine Months Ended
March 31, April 1,
1995 1994
---- ----
Cash Transactions:
Cash paid for interest $ 16,745 $10,179
Cash paid for income taxes 116,500 35,403
Non-Cash Transactions:
Receipt of note receivable for sale of building -- 5,000
Unrealized loss on marketable securities 1,561 --
7. CERTAIN INVESTMENTS
Effective July 2, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". In accordance with the
Statement, prior period financial statements have not been restated to
reflect the change in accounting principle. The cumulative effect as of
July 2, 1994 of the adoption of SFAS No. 115 did not have a material
effect on the Company's financial condition or results of operations.
The Company has classified its entire investment portfolio as
available-for-sale. Available-for-sale securities are stated at fair
value with unrealized gains and losses reported as a separate component
of shareholders' equity. The amortized cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in interest income. Realized
gains and losses are included in other income (expense). The cost of
securities sold is based on the specific identification method.
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The following is a summary of available-for-sale securities at March
31, 1995 (in thousands):
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAIN LOSS FAIR VALUE
--------- --------- --------- ----------
Corporate Bonds $ 369,406 $ 47 $ 582 $ 368,871
U.S. Government
Obligations 282,882 40 1,062 281,860
Commercial Paper 112,812 -- 4 112,808
Money Market
Instruments 77,124 -- -- 77,124
Municipal Bonds 86,899 15 15 86,899
Taxable Auction Rate
Preferreds 77,600 -- -- 77,600
----------- ----- ------- -----------
Total $ 1,006,723 $ 102 $ 1,663 $ 1,005,162
=========== ===== ======= ===========
Included in short-term investments $ 487,495
Included in cash and cash equivalents 517,667
-----------
Total $ 1,005,162
===========
The gross realized gains and losses on the sale of available-for-sale
securities were immaterial for the nine month period ended March 31,
1995.
The fair value of the Company's investment in debt securities at March
31, 1995, by contractual maturity, is as follows (in thousands):
Due in less than 1 year $ 829,708
Due in 1 to 2-1/2 years 175,454
-----------
Total $ 1,005,162
===========
8. ACQUISITIONS
During the nine-month period ended March 31, 1995 the Company acquired
Palindrome Corporation, a storage management software company, Network
Computing, Inc. and NetLabs Inc., both network management software
companies, and Applied Magnetics Corporation's tape head subsidiary
("Tape Head Technology"), a manufacturer of magnetic recording tape
heads for digital data storage. These acquisitions were accounted for
as purchases and, accordingly, the results of operations of the
acquired businesses have been included in the consolidated financial
statements from the date of acquisition. The total cost of the acquired
businesses, including acquisition costs was $119,422,000, net of cash
acquired. Goodwill and other intangibles arising from the acquisitions
are being
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amortized on a straight-line basis over periods ranging from eight
months to ten years. As a result of the acquisitions the Company
incurred one time write-offs of in-process research and development
totaling $55,780,000.
During the same period the Company acquired 25% of the outstanding
voting stock of Dragon Systems, Inc., a developer of advanced speech
recognition technology and products for personal computer and
workstation platforms, and increased its investment in SunDisk
Corporation, a flash memory manufacturer. The investment in Dragon
Systems, Inc. combined with the additional investment in SunDisk
Corporation totaled $20,811,000. Goodwill arising from the purchase of
Dragon Systems, Inc. is being amortized on a straight-line basis over
seven years.
9. LITIGATION
See Part II, Item 1 of this Form 10-Q for a description of legal
proceedings.
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SEAGATE TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Net sales for the quarter ended March 31, 1995 were $1,184,582,000 as compared
with $909,270,000 reported for the comparable year-ago quarter, and
$1,129,563,000 reported for the immediately preceding quarter ended December 30,
1994. Net sales for the nine months ended March 31, 1995 were $3,247,291,000 as
compared with $2,499,038,000 reported for the comparable period a year ago. The
increase in net sales from the comparable year-ago quarter, the immediately
preceding quarter and the comparable nine month period last year was primarily
due to a higher level of unit shipments and a shift in mix to the Company's
higher capacity products partially offset by a decline in the average unit sales
prices of the Company's products as a result of competitive market conditions.
The rigid disc drive industry in which the Company operates is characterized by
declining unit sales prices over the life of a product and the Company
anticipates this characteristic will continue.
Gross margin as a percentage of net sales was 19.5% and 20.2% for the three and
nine months ended March 31, 1995, respectively, compared with 21.3% and 19.5%,
respectively, for the comparable year-ago periods and 20.1% for the immediately
preceding quarter. The increase in gross margin as a percentage of net sales for
the nine month period ended March 31, 1995 over the comparable period last year
was primarily due to a shift in mix to the Company's newer, higher capacity disc
drives, an increase in units produced resulting in lower overhead costs per unit
and a reduction in material costs partially offset by a decline in average unit
sales prices of the Company's products as a result of competitive market
conditions. The decrease in gross margin as a percentage of net sales from the
immediately preceding quarter and the comparable year-ago quarter was primarily
due to a decline in average unit sales prices of the Company's products as a
result of competitive market conditions, and a shift in the customer mix to
higher volume OEMs who generally receive the most favorable prices. In addition,
with respect to the comparable year-ago quarter, longer warranty periods
resulted in higher unit costs. These adverse factors were partially offset by a
shift in mix to the Company's newer, higher capacity products, an increase in
units produced resulting in lower overhead costs per unit and a reduction in
material costs.
Effective January 1, 1995, the European Union ("EU") established a new General
System of Preferences (GSP). Under this revised code certain products which had
been exempt from customs duties under the previous GSP rules, including hard
disc drives imported into the EU from Singapore, again became subject to such
duties (although at a rate lower than Most Favored Nation [MFN] duties). In
addition, during calendar 1995 Singapore will progressively lose its status as a
beneficiary country under GSP with a major portion of this reduction occurring
as of April 1, 1995. Hard disc drives produced in Singapore and imported into
the EU will realize no reduction from full MFN customs duties after December 31,
1995. The imposition of such customs duties could negatively impact revenues or
increase costs and adversely impact gross margins depending upon the extent to
which such duties are absorbed by the Company.
Product development expenses for the three and nine months ended March 31, 1995
were $56,012,000 and $156,301,000 respectively, an increase of $12,246,000 and
$29,709,000
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respectively, when compared with the comparable periods last year and an
increase of $2,975,000 when compared with the immediately preceding quarter
ended December 30, 1994. These expenses represented 4.7% and 4.8% of net sales
for the three and nine months ended March 31, 1995, respectively, compared with
4.8% and 5.1%, respectively for the comparable year-ago periods, and 4.7% for
the immediately preceding quarter. The increase in expenses from the comparable
year-ago quarter was primarily due to increases in salaries and related costs,
ongoing product development expenses of the recently acquired businesses, and an
overall increase in the Company's product development efforts. The increase in
expenses from the comparable nine month period last year was primarily due to
increases in salaries and related costs, ongoing product development expenses of
the recently acquired businesses, costs incurred in connection with a joint
development agreement with Sony Corporation, Japan and an increase in outside
services, as well as an overall increase in the Company's product development
efforts.
Marketing and administrative expenses for the three and nine months ended March
31, 1995 were $59,385,000 and $177,632,000 respectively, an increase of
$7,080,000 and $28,588,000 respectively, when compared with the comparable
periods last year and a decrease of $2,699,000 when compared with the
immediately preceding quarter ended December 31, 1994. These expenses
represented 5.0% and 5.5% of net sales for the three and nine months ended March
31, 1995, respectively, compared with 5.8% and 6.0%, respectively, for the
comparable year-ago periods, and 5.5% for the immediately preceding quarter. The
increase in expenses from the comparable year-ago quarter was primarily due to
ongoing marketing and administrative expenses of the Company's recently acquired
businesses and increases in salaries and related costs and telephone expenses
partially offset by a decrease in legal expenses. The increase in expenses from
the comparable nine month period last year was primarily due to ongoing
marketing and administrative expenses of the Company's recently acquired
businesses and increases in salaries and related costs, advertising, telephone
and legal expenses partially offset by decreased travel and entertainment
expenses and a decrease in the provision for bad debts.
Amortization of goodwill and other intangibles increased by $2,774,000 and
$5,529,000 for the three and nine months ended March 31, 1995, when compared
with the same periods last year. The increase from both comparable year-ago
periods resulted primarily from additional goodwill and other intangibles
arising from the acquisition of Palindrome Corporation and the equity investment
in Dragon Systems, Inc., both of which occurred during the quarter ended
September 30, 1994, and the acquisition of Tape Head Technology which occurred
during the quarter ended December 30, 1994.
The $55,780,000 charge for in-process research and development in the nine
months ended March 31, 1995 consists of one time write-offs incurred in
connection with the acquisitions of Palindrome Corporation, Network Computing,
Inc. and NetLabs Inc. The Company intends to continue its expansion into
software and other complementary businesses and is actively pursuing discussions
with companies that fit with its strategy. As a result the Company expects that
it will continue to incur charges for in-process research and development as it
acquires businesses.
Net other income increased by $19,365,000 for the nine months ended March 31,
1995, when compared with the same period last year. The increase in net other
income was primarily due to increased interest income as a result of higher
levels of average invested
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cash and higher interest rates, partially offset by higher interest expense as a
result of higher average debt outstanding.
The effective tax rate for the nine months ended March 31, 1995 was
approximately 38% compared with 30% for the comparable period last year. The
increase in the effective tax rate was due to the $43,000,000 write-off, in the
quarter ended September 30, 1994, of in-process research and development
incurred in connection with the acquisition of Palindrome Corporation, and the
$12,780,000 write-off, in the current quarter, of in-process research and
development incurred in connection with the acquisitions of Network Computing,
Inc. and NetLabs Inc. that is not deductible for domestic tax purposes.
Excluding the one time write-offs of in-process research and development, the
Company's overall effective tax rate was 30% for the nine months ended March 31,
1995. The effective tax rate is less than the statutory rate because a portion
of the Company's operating income is not subject to foreign income taxes and is
considered to be permanently invested in non-U.S. operations.
The Company's effective tax rate for the quarter ended March 31, 1995 was 34%
compared to 30% for the comparable period last year. The increase in the
effective tax rate was due to the $12,780,000 write-off of in-process research
and development incurred in connection with the acquisitions of Network
Computing, Inc. and NetLabs Inc. The Company expects its effective tax rate,
before the impact of any write-off of in-process research and development that
may result from future acquisitions, will be 30% for the final quarter of fiscal
1995. The overall effective tax rate for the year should be higher than 30% due
to the higher effective tax rates in the first and third quarters.
LIQUIDITY AND CAPITAL RESOURCES:
At March 31, 1995, the Company's cash, cash equivalents and short-term
investments totaled $1,194,651,000, a decrease of $138,891,000 from the July 1,
1994 balance. This decrease was primarily a result of the Company's additions to
property, equipment and leasehold improvements, its acquisitions of businesses
(see note 8, "Acquisitions" of the Notes to Consolidated Condensed Financial
Statements) and the repurchase by the Company of 4,457,500 shares of its common
stock, largely offset by cash provided by operating activities. The Company's
cash, cash equivalents and short-term investments are being maintained in
short-term liquid investments until required for other purposes.
At March 31, 1995, accounts receivable were $523,077,000, an increase of
$130,846,000 from the July 1, 1994 balance. This increase was primarily a result
of the Company's higher sales volume.
As of March 31, 1995 the Company had a domestic credit facility consisting of a
$50 million line of credit. There were no borrowings under this line of credit
at March 31, 1995 although approximately $11 million had been utilized for
letters of credit. Additionally the Company had approximately $33 million of
non-domestic lines of credit which can be used for borrowings as well as letters
of credit, bankers' guarantees, and overdraft facilities. Although there were no
borrowings under these lines at March 31, 1995, approximately $3 million had
been utilized for bankers' guarantees and letters of credit. The Company also
had approximately $62 million of lines of credit worldwide which can be used for
letters of credit
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and bankers' guarantees, but not borrowings. Of the $62 million, approximately
$5 million had been utilized at March 31, 1995.
The Company expects investments in property and equipment in the current fiscal
year to approximate $400 million, of which approximately $233 million had been
incurred through March 31, 1995. The Company plans to finance these investments
from cash flows from operations and existing cash balances. The $233 million
comprised $93 million for manufacturing facilities and equipment related to the
Company's sub-assembly and disc drive final assembly and test facilities in the
U.S. and Far East, $86 million for manufacturing facilities and equipment in the
thin-film head operations in the U.S., Malaysia and Northern Ireland, $41
million for expansion of the Company's thin-film media operations in California
and $13 million for other purposes.
During the nine months ended March 31, 1995 the Company acquired 4,457,500
shares of its common stock for approximately $113 million. The repurchase of
these shares was in connection with a stock repurchase program announced in July
1994 in which up to 7,000,000 shares of the Company's common stock may be
acquired in the open market. The purpose of the stock repurchase program is to
enhance shareholder value. The repurchase program also provides shares to be
issued under the Company's employee stock plans and thereby reduces dilution
from such plans.
The Company anticipates that users of computer systems will increasingly rely
upon client/server network computing environments and believes that as this
reliance increases, users will demand software that more efficiently and
securely manages data across computer networked environments. As such, the
Company is broadening its core competencies to include software products that
meet these requirements. During the nine-month period ended March 31, 1995, the
Company acquired Palindrome Corporation, a storage management software company,
and Network Computing, Inc. and NetLabs Inc., both network management software
companies.
The Company is also pursuing a strategy to establish itself as a leading
supplier of selected magnetic recording components, including thin-film heads,
to other manufacturers. In line with this strategy, the Company, during the
nine-month period ended March 31, 1995, acquired Applied Magnetics Corporation's
tape head subsidiary, a manufacturer of magnetic recording tape heads for
digital data storage.
The total cost of all the businesses acquired during the nine-month period ended
March 31, 1995, including acquisition costs, was $119,422,000, net of cash
acquired. The Company intends to continue its expansion into software and other
complementary businesses and is actively pursuing discussions with companies
that fit with its strategy. The Company plans to finance this expansion
primarily from cash flows from operations and existing cash balances. However,
it is also possible that the Company may utilize funds raised through equity or
debt financing.
The Company believes that its cash balances together with cash flows from
operations and its borrowing capacity will be sufficient to meet its working
capital needs for the foreseeable future.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
SECURITIES LITIGATION
In 1988 a series of lawsuits were filed in Federal Court for the Northern
District of California against the Company, alleging violations of the federal
securities laws on behalf of a class of purchasers of the Company's securities.
These lawsuits have been the subject of much pretrial proceedings, which have
had the net effect of narrowing the claims made against the Company. On February
8, 1995 Judge Walker granted defendants summary judgment completely dismissing
all claims against the Company. On March 31, 1995 Judge Walker also denied
plaintiffs' motion for reconsideration of the summary judgment decision.
Plaintiffs have appealed this judgment to the Ninth Circuit Court of Appeals.
In 1991 another series of lawsuits were filed in Federal Court for the Northern
District of California against the Company, alleging violations of the federal
securities laws on behalf of a class of purchasers of the Company's securities.
Discovery is continuing and the trial date has been continued to an as yet
undetermined date, later than January 1996.
The Company believes the 1991 series of securities lawsuits are without merit
and intends to vigorously contest them.
ENVIRONMENTAL MATTERS
The United States Environmental Protection Agency (EPA) and/or similar state
agencies have identified the Company as a potentially responsible party with
respect to environmental conditions at several different sites to which
hazardous wastes had been shipped or from which they were released. These sites
were acquired by the Company from Control Data Corporation (CDC) in fiscal 1990.
Other parties have also been identified at certain of these sites as potentially
responsible parties. Many of these parties either have shared or likely will
share in the costs associated with the sites. Investigative and/or remedial
activities are ongoing at all such sites.
The estimated cost of investigation and remediation of known contamination at
the sites to be incurred after July 1, 1994 was approximately $15,200,000. At
July 1, 1994 the Company had recovered $1,500,000 from CDC through its
indemnification and cost sharing agreements with CDC and, in addition, expects
to recover approximately $10,400,000 over the next 30 years. After deducting the
expected recoveries from CDC, the expected aggregate undiscounted liability was
approximately $4,800,000 with expected payments of approximately $180,000 in
1998, $383,000 in 1999 and the remainder thereafter.
Approximately $14,500,000 of the $15,200,000 total estimated costs described
above is attributable to one site in Omaha, Nebraska. In 1994 the Company sold
the Omaha property; however, the Company retains responsibility for, and has
indemnified the buyer with respect to, all environmental contamination existing
on the site at the time of sale. IT Corporation, a nationally known
environmental consulting firm, has provided consulting
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services to CDC and the Company for the Omaha site for several years and
assisted the Company in estimating the liability related to the cost of
remediation. This liability is based on a plan of investigation and remediation
developed by IT Corporation pursuant to a Consent Order entered into by the
Company and the EPA in 1990. The extent of contamination in the groundwater is
still being investigated and defined. According to the plan the likely
technology for remediation of groundwater at the facility will be pumping and
treatment, while remediation of soils will most likely be accomplished by soil
vapor extraction, followed by in-situ bioremediation. A substantial portion of
the Omaha liability was discounted by applying a risk free rate of 4.53% to the
expected payments to be made by the Company over the next 30 years. None of the
liabilities for any of the other sites has been discounted. The total liability
for all sites recorded by the Company after discounting was $3,000,000 at July
1, 1994.
The Company believes that the indemnification and cost sharing agreements
entered into with CDC and the reserves that the Company has established with
respect to its future environmental costs are such that, based on present
information available to it, future environmental costs related to currently
known contaminations will not have a material adverse affect on its financial
condition or results of operations.
PATENT LITIGATION
In November 1992, Rodime, PLC ("Rodime") filed a complaint in Federal Court for
the Central District of California, alleging infringement of U.S. Patent No. B1
4,638,383 and various state law unfair competition claims. A pre-trial
conference has been tentatively scheduled for June 5, 1995. No trial date has
been scheduled.
Seagate filed a number of motions for summary judgment in this action, some of
which, if granted, would be completely dispositive of this action. All of these
motions are still under submission with the Court. A similar partially
dispositive motion for summary judgment was granted by the District Court of
Minnesota in the related action of Quantum Corporation v. Rodime, PLC, resulting
in a final judgment of invalidity of certain claims of Rodime's U.S. Patent No.
B1 4,638,383. Rodime appealed this adverse judgment to the Court of Appeals for
the Federal Circuit and the oral argument of this appeal was heard on November
10, 1994. The Court of Appeals has yet to render a decision on this appeal.
It is the opinion of the Company's patent counsel that the Company's products do
not infringe any valid claims of the Rodime patent in suit and thus the Company
refused Rodime's offer of a license for its patents. However, many other
companies, such as IBM, Conner Peripherals, Hewlett-Packard and a number of
Japanese companies have been reported to have made payments to and taken
licenses from Rodime.
On October 5, 1994 a patent infringement action was filed against the Company by
an individual James M. White in the U.S. District Court for the Northern
District of California for alleged infringement of U.S. Patent Nos. 4,673,996
and 4,870,519. Both patents relate to air bearing sliders.
Prior to the filing of the lawsuit, the Company filed a Petition for
Reexamination of U.S. Patent No. 4,673,996 with the United States Patent and
Trademark Office ("PTO") and this Petition was granted shortly after the lawsuit
was filed. Subsequently, the Company filed a Petition for Reexamination of U.S.
Patent No. 4,870,519. This second petition has also
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been granted by the PTO. The judge in the District court ordered a stay of the
action pending the outcome of the reexaminations.
The Company and the Company's patent counsel believe that the claims of the two
White patents are invalid for the reasons set forth in the two Petitions for
Reexamination.
TAX DEFICIENCY
The Internal Revenue Service ("IRS") in 1994 concluded a field audit of the
Company's income tax returns for the fiscal years 1988 through 1990 and issued
to the Company a "Notice of Deficiency" (the "Notice") for those fiscal years.
The majority of the proposed adjustments to income in those fiscal years related
to the allocation of income between the Company and its foreign subsidiaries.
The proposed adjustments to income and tax credits in the Notice resulted in
proposed tax deficiencies of approximately $66,000,000 plus penalties and
interest. The proposed income adjustments would also eliminate net operating
loss and tax credit carryovers that have been used to offset taxable income and
tax liabilities in other fiscal years. The impact on net operating loss and tax
credit carryovers from the adjustments proposed in the Notice would result in
additional taxes of approximately $22,000,000 plus interest for the three years
ended July 2, 1993. The Company on June 7, 1994 filed a Petition in the United
States Tax Court entitled Seagate Technology, Inc. and Consolidated Subsidiaries
v. Commissioner of Internal Revenue, Docket No. 9535-94, contesting these
proposed deficiencies and related penalties. The IRS filed its Answer on August
4, 1994. The Company believes that the outcome of this matter will not have a
material adverse effect on the Company's financial condition or results of
operations.
OTHER LITIGATION
Amstrad PLC ("Amstrad") initiated a lawsuit against the Company in London,
England on December 11, 1992 concerning the Company's sale of allegedly
defective disc drives to Amstrad. The Company replied to the allegations made
against it by Amstrad by denying all material points of Amstrad's claim and
asserting many affirmative defenses. Discovery is continuing and a trial date
has been set for April 1996 with various earlier dates for exchange of fact and
expert statements. The Company believes this lawsuit is without merit and will
continue to defend itself vigorously.
The Company is involved in a number of other judicial and administrative
proceedings incidental to its business. Although occasional adverse decisions
(or settlements) may occur, the Company believes that the final disposition of
such matters will not have a material adverse effect on the Company's financial
position or results of operations.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are included herein:
11.1 Computation of Net Income per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed with the Securities and Exchange
Commission during the three months ended March 31, 1995.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEAGATE TECHNOLOGY, INC.
(Registrant)
DATE: April 28, 1995 BY: /s/ Donald L. Waite
-----------------------
DONALD L. WAITE
Executive Vice President,
Chief Administrative Officer
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
DATE: April 28, 1995 BY: /s/ Alan F. Shugart
-----------------------
ALAN F. SHUGART
Chairman of the Board,
President and Chief Executive
Officer, (Principal Executive
Officer and Director)
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SEAGATE TECHNOLOGY, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER
- -------
11.1 Computation of Net Income per Share (see page 20)
27 Financial Data Schedule
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