UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2000
Commission File Number 001-11403
SEAGATE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2612933
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
920 Disc Drive, Scotts Valley, California 95066
(Address of principal executive offices) (Zip Code)
Telephone: (831) 438-6550
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
On March 31, 2000, 227,222,348 shares of the registrant's common stock were
issued and outstanding.
1
INDEX
SEAGATE TECHNOLOGY, INC.
PART I FINANCIAL INFORMATION PAGE NO.
- --------- ----------------------------------------------------------- --------
Item 1. Financial Statements (Unaudited)
Consolidated condensed statements of operations--
Three and nine months ended March 31, 2000 and
April 2, 1999 3
Consolidated condensed balance sheets--
March 31, 2000 (As amended June 14, 2000)
and July 2, 1999 4
Consolidated condensed statements of cash flows--
Nine months ended March 31, 2000 and
April 2, 1999 5
Notes to consolidated condensed financial statements
(As Amended June 14, 2000 to revise Note 8) 6
PART II OTHER INFORMATION
- --------- -----------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In Millions, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
March 31, April 2, March 31, April 2,
2000 1999 2000 1999
--------- -------- --------- --------
Revenue $1,573 $1,805 $4,900 $5,159
Cost of sales 1,245 1,371 3,984 3,976
Product development 144 143 430 440
Marketing and administrative 123 135 366 401
Amortization of goodwill and
other intangibles 15 9 32 29
In-process research and development 105 - 105 -
Restructuring costs 49 60 183 60
Unusual items - - 325 78
------ ------ ------ ------
Total Operating Expenses 1,681 1,718 5,425 4,984
Income (Loss) from Operations (108) 87 (525) 175
Interest income 27 28 69 81
Interest expense (13) (12) (39) (37)
Activity related to equity interest
in VERITAS (74) - (256) -
Gain on sale of VERITAS stock - - 537 -
Gain on sale of SanDisk stock 453 - 515 -
Other - 2 (3) 10
------ ------ ------ ------
Other Income (Expense), net 393 18 823 54
------ ------ ------ ------
Income before income taxes 285 105 298 229
Provision for income taxes 149 23 219 72
------ ------ ------ ------
Net Income $ 136 $ 82 $ 79 $ 157
====== ====== ====== ======
Net income per share:
Basic $ 0.61 $ 0.35 $ 0.36 $ 0.65
Diluted 0.58 0.34 0.35 0.63
Number of shares used in
per share computations:
Basic 223.4 236.6 218.9 242.2
Diluted 235.6 243.9 227.6 247.3
See notes to consolidated condensed financial statements.
3
SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Millions)
(Unaudited)
March 31, July 2,
2000 1999 (1)
--------- -------
ASSETS
- ------
Cash and cash equivalents $1,125 $ 396
Short-term investments 765 1,227
Accounts receivable, net 761 872
Inventories 334 451
Deferred income taxes 248 252
Other current assets 155 114
------ -------
Total Current Assets 3,388 3,312
Property, equipment and leasehold improvements, net 1,539 1,687
Investment in VERITAS Software, net 1,191 1,745
Goodwill and other intangibles, net 409 144
Other assets (2) 853 184
------ -------
Total Assets $7,380 $ 7,072
====== =======
LIABILITIES
- -----------
Accounts payable $ 598 $ 714
Accrued employee compensation 193 205
Accrued expenses 476 577
Accrued income taxes 244 43
Current portion of long-term debt 1 1
------ -------
Total Current Liabilities 1,512 1,540
Deferred income taxes (2) 1,189 1,103
Other liabilities 126 163
Long-term debt, less current portion 703 703
------ -------
Total Liabilities 3,530 3,509
------ -------
STOCKHOLDERS' EQUITY
- --------------------
Common stock 3 3
Additional paid-in capital 1,919 1,991
Retained earnings 2,311 2,355
Accumulated other comprehensive income (loss) (2) 418 (7)
Deferred compensation (34) (43)
Treasury common stock at cost (767) (736)
------ -------
Total Stockholders' Equity 3,850 3,563
------ -------
Total Liabilities and Stockholders' Equity $7,380 $ 7,072
====== =======
(1) The information in this column was derived from the Company's audited
consolidated balance sheet as of July 2, 1999.
(2) See Note 8 to the consolidated condensed financial statements.
See notes to consolidated condensed financial statements.
4
SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Millions)
(Unaudited)
Nine Months Ended
-------------------------
March 31, April 2,
2000 1999
-------- --------
OPERATING ACTIVITIES:
Net income $ 79 $ 157
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 541 507
Deferred income taxes (223) 73
In-process research and development 105 -
Non-cash portion of restructuring charge 88 34
Activity related to equity interest in VERITAS 256 -
Gain on sale of VERITAS stock (537) -
Gain on sale of SanDisk stock (515) -
Compensation expense for SSI exchange offer 284 -
Other, net 34 38
Changes in operating assets and liabilities:
Accounts receivable 106 (118)
Inventories 94 129
Accounts payable (125) 20
Accrued income taxes (9) 13
Accrued expenses and employee compensation (216) (23)
Other assets and liabilities, net (17) 170
------- -------
Net cash provided by (used in) operating activities (55) 1,000
INVESTING ACTIVITIES:
Acquisition of property, equipment and leasehold
improvements, net (385) (420)
Purchases of short-term investments (1,796) (5,332)
Maturities and sales of short-term investments 2,249 5,243
Proceeds from sale of VERITAS stock 834 -
Proceeds from sale of SanDisk stock 535 -
Other, net (14) (31)
------- -------
Net cash provided by (used in) investing activities 1,423 (540)
FINANCING ACTIVITIES:
Sale of common stock 138 74
Purchase of treasury stock (776) (843)
Other, net - (1)
------- -------
Net cash used in financing activities (638) (770)
Effect of exchange rate changes on cash and cash equivalents (1) (2)
------- -------
Increase (decrease) in cash and cash equivalents 729 (312)
Cash and cash equivalents at the beginning of the period 396 666
------- -------
Cash and cash equivalents at the end of the period $ 1,125 $ 354
======= =======
See notes to consolidated condensed financial statements.
5
SEAGATE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The consolidated condensed financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The Company
believes the disclosures included in the unaudited consolidated condensed
financial statements, when read in conjunction with the consolidated
financial statements of the Company as of July 2, 1999 and notes thereto,
are adequate to make the information presented not misleading.
The consolidated condensed financial statements reflect, in the opinion of
management, all material adjustments necessary to summarize fairly the
consolidated financial position, results of operations and cash flows for
such periods. Such adjustments are of a normal recurring nature.
The results of operations for the three and nine month periods ended March
31, 2000 are not necessarily indicative of the results that may be expected
for the entire fiscal year ending June 30, 2000.
The Company operates and reports financial results on a fiscal year of 52
or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal
1999 was 52 weeks and ended on July 2, 1999 and fiscal 2000 will be 52
weeks and will end on June 30, 2000.
2. Net Income Per Share
--------------------
The following table sets forth the computation of basic and diluted net
income (loss) per share:
(In Millions, Except Three Months Ended Nine Months Ended
Per Share Data) ------------------- -------------------
March 31, April 2, March 31, April 2,
2000 1999 2000 1999
--------- -------- --------- --------
Numerator:
Net income $ 136 $ 82 $ 79 $ 157
------ ------ ------ --------
Denominator:
Denominator for basic net
income per share - weighted
average shares outstanding 223.4 236.6 218.9 242.2
6
Incremental common shares
attributable to exercise of
outstanding options (assuming
proceeds would be used to
purchase treasury stock) 12.2 7.3 8.7 5.1
------ ------ ------ ------
Denominator for diluted net
income per share - adjusted
weighted average shares 235.6 243.9 227.6 247.3
====== ====== ====== ======
Basic net income
per share $ 0.61 $ 0.35 $ 0.36 $ 0.65
====== ====== ====== ======
Diluted net income
per share $ 0.58 $ 0.34 $ 0.35 $ 0.63
====== ====== ====== ======
Options to purchase 0.1 million shares and 1.6 million shares of common
stock were outstanding during the quarter and nine months ended March 31,
2000, respectively, but were not included in the computation of diluted net
income per share because the options' exercise price was greater than the
average market price of the common stock and, therefore, the effect would
be antidilutive. Options to purchase 1.6 million shares and 7.2 million
shares of common stock were outstanding during the quarter and nine months
ended April 2, 1999, respectively, but were not included in the computation
of diluted net income per share because the options' exercise price was
greater than the average market price of the common stock and, therefore,
the effect would be antidilutive.
3. Balance Sheet Information
-------------------------
(In millions)
March 31, July 2,
2000 1999
--------- -------
Accounts Receivable:
Accounts receivable $ 835 $ 925
Allowance for non-collection (74) (53)
------- -------
$ 761 $ 872
======= =======
Inventories:
Components $ 118 $ 143
Work-in-process 64 54
Finished goods 152 254
------- -------
$ 334 $ 451
======= =======
Property, Equipment and Leasehold Improvements:
Property, equipment and leasehold improvements $ 3,580 $ 3,533
Allowance for depreciation and amortization (2,041) (1,846)
------- -------
$ 1,539 $ 1,687
======= =======
7
4. Income Taxes
------------
The effective tax rate used to record the provision for income taxes for
the nine months ended March 31, 2000 was 74% compared with a 32% effective
tax rate used to record the provision for income taxes for the nine months
ended April 2, 1999. The higher effective tax rate used to record the
provision for income taxes for the nine months ended March 31, 2000
resulted primarily from the effects of net non-deductible charges
associated with the acquisition of the minority interest in Seagate
Software, the acquisition of XIOtech Corporation ("XIOtech"), the net gain
from the sales of SanDisk Corporation ("SanDisk") and VERITAS Software
Corporation ("VERITAS") common stock and activity related to the Company's
equity interest in VERITAS. Excluding these items, and considering the
effects of the Company's settlement of litigation with Rodime PLC (the
"Rodime Settlement") and certain non-recurring restructuring costs, the pro
forma effective tax rate used to record the provision for income taxes for
the nine months ended March 31, 2000 would have been 28%. The pro forma
effective tax rate of 28% is less than the statutory rate because a portion
of the Company's anticipated foreign operating income is not subject to
foreign income taxes and is considered to be permanently reinvested in non-
U.S. operations.
5. Supplemental Cash Flow Information
----------------------------------
(In millions)
Nine Months Ended
------------------------
March 31, April 2,
2000 1999
--------- --------
Cash Transactions:
Cash paid for interest $ 52 $ 52
Cash paid for income taxes, net of refunds 447 (115)
Non-Cash Transactions:
Acquisition of minority interest 19 -
Acquisition of XIOtech 359 -
6. Restructuring Costs
-------------------
During the nine months ended March 31, 2000, the Company recorded
restructuring charges totaling $184 million including $49 million recorded
in the quarter ended March 31, 2000. These charges were a result of a
restructuring plan established to align the Company's global workforce and
manufacturing capacity with existing and anticipated future market
requirements and necessitated by the Company's improved productivity and
operating efficiencies (the "fiscal 2000 restructuring plan"). These
actions include workforce reductions, capacity reductions including closure
of facilities or portions of facilities, write-off of excess equipment and
consolidation of operations in the Company's recording media operations,
disc drive assembly and test facilities, printed circuit board assembly
manufacturing, recording head operations, software operations, customer
service operations, sales and marketing activities, and research and
development activities. The restructuring charges were comprised of $60
million for the write-off of excess manufacturing, assembly and test
equipment formerly utilized in Singapore, Thailand and
8
Northern California; $81 million for employee termination costs; $29
million for the write-off of owned facilities located in Singapore; $7
million in lease termination and holding costs; $5 million in renovation
costs to restore facilities in Singapore and Northern California to their
pre-lease condition; and $2 million in contract cancellations associated
with one of the Singapore facilities. Prior to this period, there was no
indication of permanent impairment of the assets associated with the
closure and consolidation of facilities.
In connection with the restructuring activities taken to date, the Company
plans to reduce its workforce by approximately 21,800 primarily
manufacturing employees. Approximately 17,500 of the 21,800 employees had
been terminated as of March 31, 2000. As a result of employee terminations
and the write-off of equipment and facilities in connection with the
restructuring charges recorded during the nine months ended March 31, 2000
related to the fiscal 2000 restructuring plan, the Company estimates that
after completion of these restructuring activities, annual salary and
depreciation expense will be reduced by approximately $118 million and $76
million, respectively. The Company may implement additional actions
pursuant to the fiscal 2000 restructuring plan, and, if such additional
actions are implemented, the Company anticipates that additional charges
would be taken related to these actions. The Company expects the
implementation of the fiscal 2000 restructuring plan will be substantially
complete by September 30, 2000.
In connection with the restructuring plan implemented in fiscal 1999, the
Company's planned workforce reduction has been completed as of March 31,
2000 and the other restructuring activities were substantially complete as
of March 31, 2000.
The following table summarizes the Company's restructuring activities for
the nine months ended March 31, 2000:
Severance
and Excess Contract
In millions Benefits Facilities Equipment Cancellations Other Total
-------------------------------------------------------------------
Reserve balances,
July 2, 1999 $ 4 $ 18 $ - $3 $11 $ 36
Q1FY00 restructuring charge 27 33 48 2 2 112
Q2FY00 restructuring charge 19 1 - - 3 23
Q3FY00 restructuring charge 35 2 12 - - 49
Cash charges (62) (11) - - (2) (75)
Non-cash charges - (28) (60) - - (88)
Adjustments and
reclassifications (2) - - - 2 -
------------------------------------------------------------
Reserve balances,
March 31, 2000 $ 21 $ 15 $ - $5 $16 $ 57
============================================================
7. Business Segments
-----------------
The Company has three operating segments, disc drives, software and tape
drives, however, only the disc drive business is a reportable segment under
the criteria of SFAS 131. The "other" category in the following tables
consists of tape drives, software, and out-of-warranty repair. The Chief
Executive Officer (the "CEO") has been identified as the
9
Chief Operating Decision Maker as defined by SFAS 131. The CEO evaluates
performance and allocates resources based on revenue and gross profit from
operations. Gross profit from operations is defined as revenue less cost of
sales. The following tables summarize the Company's operations by business
segment:
In millions
Three Months Ended Nine Months Ended
-------------------- --------------------
March 31, April 2, March 31, April 2,
2000 1999 2000 1999
--------- -------- --------- --------
Revenue:
Disc Drives $ 1,468 $ 1,614 $4,568 $4,627
Other 105 191 332 532
-------- -------- ------ ------
Consolidated $ 1,573 $ 1,805 $4,900 $5,159
======== ======== ====== ======
Gross Profit:
Disc Drives $ 279 $ 322 $ 768 $ 885
Other 49 112 148 298
-------- -------- ------ ------
Consolidated $ 328 $ 434 $ 916 $1,183
======== ======== ====== ======
March 31, July 2,
2000 1999
--------- --------
Total Assets (see note 8):
Disc Drives $ 19,346 $ 16,553
Other 504 586
-------- --------
Operating Segments 19,850 17,139
Investment in VERITAS 1,191 1,745
Eliminations (13,661) (11,812)
-------- --------
Consolidated $ 7,380 $ 7,072
======== ========
8. Comprehensive Income (As amended June 14, 2000)
--------------------
During the quarter ended October 1, 1999, Gadzoox Networks Inc.
("Gadzoox"), a company in which Seagate Technology held a 19.89% interest
as of that date, completed an initial public offering of its common stock.
The Company is required to account for its investment under Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). The Company has identified
this investment as "available-for-sale". Under SFAS 115, an available-for-
sale security is recorded at fair value on the balance sheet and unrealized
holding gains and losses are reported, net of taxes, in a separate
component of stockholders' equity called accumulated other comprehensive
income, until realized. For the nine months ended March 31, 2000, the
Company recorded net unrealized gains on securities of $130 million, net of
tax, with respect to its investment in Gadzoox.
The recorded investment in SanDisk has been amended to revise the
calculation of its fair value, unrealized holding gain and related taxes.
As a result, the balance sheet caption amounts of other assets, deferred
income tax liabilities and accumulated other comprehensive income increased
by $224 million, $88 million and $136 million, respectively. No other
financial statements were affected by this matter. The Company has also
10
updated information related to the decrease in the fair value of its
investment in SanDisk to reflect recent sales and declines in market value
from March 31, 2000 through June 9, 2000. Decreases in the fair value of
its investment in Gadzoox have also been updated for the same period.
During the quarter ended December 31, 1999, the Company identified its
investment in SanDisk as "available-for-sale" after it had sold 2,000,000
shares of stock it held in SanDisk, adjusted for a 2 for 1 stock split on
February 23, 2000, resulting in an ownership percentage of 15.8% as of
December 31, 1999. The Company recorded an unrealized gain on securities
of $285 million, net of $184 million of tax, to record its investment in
SanDisk at fair value as of December 31, 1999. For the nine months ended
March 31, 2000, the Company recorded unrealized gains on securities of $298
million, net of $192 million of tax, with respect to its investment in
SanDisk.
Between March 31, 2000 and June 9, 2000, the quoted market prices of
SanDisk and Gadzoox common stocks declined. As a result, the Company
experienced a decrease in the fair values of its remaining investments in
SanDisk and Gadzoox of $154 million and $62 million, respectively. On an
after tax basis, these unrealized losses were $93 million and $38 million,
respectively.
The components of comprehensive income, net of related tax, for the three
and nine months ended March 31, 2000 and April 2, 1999 were as follows (in
millions):
Three Months Ended Nine Months Ended
------------------- -------------------
March 31, April 2, March 31, April 2,
2000 1999 2000 1999
-------- -------- --------- --------
Net income $ 136 $ 82 $ 79 $ 157
Unrealized gain (loss) on securities 27 (3) 425 (2)
Foreign currency translation adjustments - - - (1)
----- ----- ----- -----
Comprehensive income $ 163 $ 79 $ 504 $ 154
===== ===== ===== =====
The components of accumulated other comprehensive income (loss), net of
related tax, at March 31, 2000 and July 2, 1999 were as follows (in
millions):
March 31, July 2,
2000 1999
--------- -------
Unrealized gain (loss) on securities $ 420 $ (5)
Foreign currency translation adjustments (2) (2)
----- -----
Accumulated other comprehensive income (loss) $ 418 $ (7)
===== =====
11
9. Equity Investment in VERITAS Software Corporation
-------------------------------------------------
During the quarters ended October 1, 1999 and December 31, 1999, Seagate
Software sold 18,523,502 and 9,000,000 shares, respectively, of VERITAS
common stock, adjusted for 3 for 2 stock splits on November 22, 1999 and
March 6, 2000, for proceeds of $397 million and $437 million,
respectively, net of underwriting discounts and commissions. Seagate
Software acquired such shares in connection with the contribution of its
Network & Storage Management Group business to VERITAS in May 1999. The
sale of shares of VERITAS common stock by Seagate Software in the quarters
ended October 1, 1999 and December 31, 1999 resulted in pre-tax gains of
$193 million and $344 million, respectively. As of March 31, 2000, Seagate
Software held approximately 33% of the outstanding common stock of VERITAS.
The Company accounts for its investment in VERITAS under the equity method
and records its equity interest in VERITAS' net income (loss) on a one-
quarter lag.
Summarized income statement information for VERITAS for the three and nine
months ended December 31, 1999 is as follows (in millions):
Three Months Ended Nine Months Ended
December 31, December 31,
1999 1999
------------------- ------------------
Revenue $ 226 $ 524
Gross profit 188 438
Net loss (171) (517)
The Company's recorded equity in the net income of VERITAS for the three
and nine months ended March 31, 2000 was $12 million and $20 million,
respectively, and differs from the Company's proportionate share of
VERITAS' reported net loss for the three and nine months ended December 31,
1999. This difference is primarily because the Company eliminates from
VERITAS' net income (loss) the effect of VERITAS' accounting for the
Network & Storage Management Group business contribution, including
VERITAS' amortization expense related to intangible assets.
The Company's activity related to equity interest in VERITAS for the three
and nine months ended March 31, 2000 consisted of the recorded equity in
the net income of VERITAS of $12 million and $20 million, respectively, as
described above, and the Company's amortization expense for goodwill and
other intangible assets relating to the investment in VERITAS amounting to
$86 million and $276 million, respectively.
10. Seagate Software Reorganization
-------------------------------
On October 20, 1999, the stockholders of Seagate Software, a majority-owned
subsidiary of the Company, approved the merger of Seagate Daylight Merger
Corp., a wholly-owned subsidiary of the Company, with and into Seagate
Software. Seagate Software's assets consisted of the assets of the
Information Management Group ("IMG") and its investment in the common stock
of VERITAS Software Corporation. The merger was effected on October 20,
1999. As a result of the merger, Seagate Software became a wholly-owned
12
subsidiary of the Company. In connection with the merger, Seagate
Software's stockholders and optionees received payment in the form of 3.23
shares of the Company's common stock per share of Seagate Software common
stock less any amounts due for the payment of the exercise price for such
options. All outstanding Seagate Software stock options were accelerated
immediately prior to the merger. Seagate Technology issued 9,124,046
shares to optionees and minority stockholders of Seagate Software.
In connection with the reorganization, Seagate Software also formed a
wholly-owned subsidiary that assumed the name "Seagate Software, Inc."
("Software Operating Company"). Seagate Software transferred the IMG
assets into Software Operating Company. This new company, Software
Operating Company, is now the operating entity for the IMG business. In
October 1999, a new stock option plan was established for Software
Operating Company, and employees of the IMG business are eligible to
participate in the plan.
Seagate Software accounted for the exchange of shares of its common stock
as the acquisition of a minority interest for Seagate Software common stock
outstanding and vested more than six months held by employees and all stock
held by former employees and consultants. The fair value of the shares of
Seagate Technology issued was $19 million and was recorded as purchase
price and allocated to the assets and liabilities received. The Company
accounted for the exchange of shares of its common stock for stock options
in Seagate Software held by employees and stock held and vested by
employees less than six months as the settlement of an earlier stock award.
During the quarter ended December 31, 1999, the Company recorded
compensation expense of $284 million, plus $2 million in payroll taxes,
related to the purchase of minority interest in Seagate Software.
Allocation of minority interest purchase price to the intangible
assets of Seagate Software
In millions
-------------------------------------------------------------------
Distribution channel.......................................... $ 1
Developed technology.......................................... 1
Goodwill...................................................... 18
---
Subtotal................................................... 20
Deferred tax liability........................................ (1)
---
Total......................................................... 19
===
Compensation relating to stock purchased from employees
Dollars in millions, except per share data
-------------------------------------------------------------------
Seagate Software options exercised and
exchanged for Seagate Technology stock........................ 3,723,015
Plus: Seagate Software stock held for less than 6 months
and exchanged for Seagate Technology stock.................... 17,952
----------
Total Seagate Software shares exchanged......................... 3,740,967
Times: Exchange ratio into Seagate Technology stock............. 3.23
----------
Number of Seagate Technology shares issued...................... 12,083,323
----------
Value per share of Seagate Technology common
stock on October 20, 1999..................................... $ 29.00
Less: Average price paid per Seagate Technology share........... $ (5.50)
----------
Average compensation expense per
Seagate Technology share issued............................... $ 23.50
----------
Total compensation expense...................................... $ 284
==========
13
11. Acquisition of XIOtech Corporation
----------------------------------
On January 28, 2000, the Company acquired XIOtech Corporation ("XIOtech"),
a provider of virtual storage and Storage Area Network (SAN) solutions, for
Seagate Technology common stock with a value of $359 million. This
acquisition was accounted for as a purchase and, accordingly, the results
of operations of XIOtech have been included in the consolidated financial
statements from the date of acquisition. The purchase price has been
allocated based on the estimated fair market value of net tangible and
intangible assets acquired as well as in-process research and development
costs. As a result of the acquisition, the Company incurred a one-time
write-off of in-process research and development of $105 million. Goodwill
and other intangibles arising from the acquisition are being amortized on a
straight-line basis over periods ranging from four months to seven years.
Amortization of goodwill and other intangibles is expected to be
approximately $51 million the first year and approximately $47 million in
subsequent years. XIOtech's revenue and expenses are immaterial to the
Company's consolidated revenue and expenses.
The following is a summary of the purchase price allocation (in millions):
Tangible assets less liabilities assumed $ 12
Developed technology 90
Tradenames 5
Assembled workforce 2
Customer list 2
In-process research and development 105
Goodwill 182
Deferred tax liability (39)
----
$359
====
12. Stock Purchase Agreement and Merger Agreement
---------------------------------------------
On March 29, 2000, Seagate Technology, Seagate Software Holdings, Inc.
("Seagate Software") and Suez Acquisition Company (Cayman) Limited ("SAC"),
an entity affiliated with, among others, Silver Lake Partners and Texas
Pacific Group entered into a Stock Purchase Agreement (the "Stock Purchase
Agreement"), and Seagate Technology, VERITAS and a wholly owned subsidiary
of VERITAS entered into an Agreement and Plan of Merger and Reorganization
(the "Merger Agreement").
Under the Stock Purchase Agreement, SAC has agreed to purchase, in exchange
for $2 billion in cash, all of the assets of Seagate Technology and its
consolidated subsidiaries, including Seagate's disc drive, tape drive and
software businesses and operations, but
14
excluding the approximately 128 million shares of VERITAS common stock
currently held by Seagate Software and Seagate Technology's equity
investments in Gadzoox Networks, SanDisk Corporation, CVC, Inc. and Dragon
Systems, Inc., a privately held company. In addition, under the Stock
Purchase Agreement, SAC has agreed to assume substantially all of the
liabilities of Seagate Technology and its consolidated subsidiaries. This
transaction is referred to herein as the SAC transaction.
Under the Merger Agreement, immediately following and contingent upon the
consummation of the SAC transaction, a wholly-owned subsidiary of VERITAS
will merge with and into Seagate Technology, with Seagate Technology to
survive the merger and to become a wholly-owned subsidiary of VERITAS. This
transaction is referred to herein as the Merger. VERITAS is not acquiring
Seagate Technology's disc drive business or any other Seagate operating
business. In the Merger, the Seagate stockholders will receive merger
consideration consisting of:
- Approximately 109.3 million shares of VERITAS common stock issued
in exchange for the approximately 128 million shares of VERITAS common
stock that Seagate currently holds,
- additional shares of VERITAS common stock issued in exchange for
the investment securities, and, at VERITAS' election, for up to $750
million in retained cash, and
- all cash on the Seagate balance sheet in excess of $800 million
(including cash generated from the SAC transaction) and after giving
effect to VERITAS retained cash, debt repayment, taxes and other
liabilities.
The Merger is intended to qualify as a tax-free reorganization.
On March 29, 2000, Seagate Technology, VERITAS and SAC entered into an
Indemnification Agreement, pursuant to which these entities and certain
other subsidiaries of Seagate Technology have agreed to certain
indemnification provisions regarding tax and other matters that may arise
in connection with the SAC transaction and the Merger. Also on March 29,
2000, VERITAS and SAC entered into a letter agreement, pursuant to which
VERITAS agreed to a no-shop provision and an alternative termination fee
provision.
All of the transactions contemplated by the SAC transaction and the Merger
are herein referred to as the Veritas/Silver Lake transaction. The
Veritas/Silver Lake transaction is expected to close in the first quarter
of fiscal year 2001, subject to the approval of VERITAS and Seagate
stockholders, funding of the debt commitments and clearance by the U.S.
Securities and Exchange Commission, as well as clearance under antitrust
laws and other customary closing conditions. The Company expects that while
the Veritas/Silver Lake transaction is pending, the value of Seagate common
stock will depend primarily on the value of VERITAS common stock.
13. Litigation
----------
Following the Company's announcement of the Veritas/Silver Lake
transaction, a number of stockholders filed lawsuits against the Company,
the individual members of the Board of Directors and certain executive
officers in both Delaware and California. As of April 11,
15
2000, 17 complaints had been filed in the Chancery Court of Delaware. In
California, three complaints were filed in Santa Clara County Superior
Court and two complaints were filed in Santa Cruz County Superior Court.
The complaints in these jurisdictions each allege that the members of the
Company's Board of Directors breached their fiduciary duties to the
Company's shareholders by entering into the Veritas/Silver Lake
transaction. The complaints also allege that the Company's directors and
executive officers have conflicting financial interests and did not secure
the highest possible price for the Company's shares. All the complaints are
styled as class actions, and seek to enjoin the Veritas/Silver Lake
transaction and secure damages from all defendants. The Company believes
that none of the lawsuits has any merit and intends to defend all these
claims vigorously.
In late 1992, Rodime PLC filed a complaint alleging infringement on a
certain patent. The process of litigation ensued and elapsed through
January 2000. On January 18, 2000, the U.S. Supreme Court denied the
Company's petition for certiorari. On the following day, through a
mediation process, the Company and Rodime agreed to a settlement amount of
$45 million to bring the related litigation to an end. As a result, a
previously recorded estimate of related settlement costs was revised and a
charge of $39 million was recorded in the three months ended December 31,
1999. See Part II, Item 1 of this Form 10-Q for a description of legal
proceedings.
16
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
The following exhibits are included herein:
27. Financial Data Schedule (As amended June 14, 2000)
(b) Reports on Form 8-K
The following report on Form 8-K was filed with the Securities and Exchange
Commission during the three months ended March 31, 2000:
A Form 8-K dated January 27, 2000 regarding the Company's announcement that it
had entered into a settlement with Rodime PLC.
17
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: June 14, 2000 BY: /s/ Charles C. Pope
_______________________
CHARLES C. POPE
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
DATE: June 14, 2000 BY: /s/ Stephen J. Luczo
_______________________
STEPHEN J. LUCZO
Chief Executive Officer
(Principal Executive Officer
and Director)
18
SEAGATE TECHNOLOGY, INC.
INDEX TO EXHIBITS
Exhibit
Number
_______
27 Financial Data Schedule (As amended June 14, 2000)
19