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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 3, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-10630
SEAGATE TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 94-2612933
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
920 DISC DRIVE
SCOTTS VALLEY, CALIFORNIA 95066
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (831) 438-6550
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SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing price of Common Stock on July 3, 1998 as
reported by the New York Stock Exchange, was approximately $5.182 billion.
Shares of Common Stock held by each officer and director and by each person
who owns 5% or more of the outstanding Common Stock have been excluded in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
The number of outstanding shares of the registrant's Common Stock on July 3,
1998 was 244,757,152
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference to Parts I,
II, III, IV of this form 10-K Report: (1) Proxy Statement for registrant's
1998 Annual Meeting of Stockholders (the "Proxy Statement") and (2)
registrant's Annual Report to Stockholders for the fiscal year ended July 3,
1998 (the "Annual Report to Stockholders").
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PART I
The information contained in this report includes forward-looking
statements, based on current expectations, that involve risks and
uncertainties which could cause actual results to differ materially from those
expressed in the forward-looking statements. Various important factors known
to Seagate Technology, Inc. that could cause such material differences are
identified below in Part I, Item 1 of this report and in the "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
included in the Company's 1998 Annual Report to Stockholders, which is
incorporated by reference into Part II, Item 7 of this Report.
ITEM 1. BUSINESS
GENERAL
Seagate operates in a single industry segment by designing, manufacturing
and marketing products for storage, retrieval and management of data on
computer and data communications systems. These products include disc drives
and disc drive components, tape drives and software.
Seagate designs, manufactures and markets a broad line of rigid magnetic
disc drives for use in computer systems ranging from desktop personal
computers to workstations and supercomputers as well as in multimedia
applications such as digital video and video-on-demand. The Company's products
currently include rigid disc drive models with form factors from 3.5 to 5.25
inches and capacities from 1 gigabyte ("GB") to 47 GB. In January 1998, the
Company discontinued production of 2.5 inch disc drives for the mobile
computer market due to intense competition resulting in a substantial loss of
market share. However, the Company is continuing research and development in
this area and intends to reenter this market at a future date. The Company
sells its products to original equipment manufacturers ("OEMs") for inclusion
in their computer systems or subsystems, and to distributors, resellers,
dealers, system integrators and retailers. The Company has pursued a strategy
of vertical integration and accordingly designs and manufactures rigid disc
drive components including recording heads, discs, disc substrates, motors and
custom integrated circuits. It also assembles certain of the key subassemblies
for use in its products including printed circuit board and head stack
assemblies. The Company's products are currently manufactured primarily in the
Far East with limited production in the United States.
In addition to its core product line of rigid disc drives and related
components, the Company has broadened its strategy to more fully address the
markets for storage, retrieval and management of data. In line with this
broadened strategy, the Company has made the following investments:
In January 1993, the Company began investing in SanDisk Corporation
("SanDisk"), a flash memory company.
In July 1994, the Company began investing in Dragon Systems, Inc., a
developer of speech and language technology, including speech recognition
software.
In December 1994, the Company acquired Applied Magnetics Corporation's tape
head subsidiary, a manufacturer of magnetic recording heads for tape drives.
In February 1996, The Company added tape drives to its product line as a
result of its merger with Conner Peripherals, Inc. ("Conner").
In June 1997, the Company began investing in Gadzoox Networks, Inc., a
manufacturer of Fibre Channel based storage network connectivity products.
In August 1997, the Company acquired Quinta Corporation ("Quinta"), a
developer of optically assisted Winchester disc drives.
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The Company has also invested in, and currently intends to continue
investigating opportunities to invest in software activities. See "Seagate
Software, Inc."
The Company anticipates that its broadened strategy may include additional
acquisitions of, investments in and strategic alliances with complementary
businesses, products and technologies to enable lower cost per megabyte,
faster time to market, increased capacity, and better performance
characteristics for its products. The Company's strategy includes acquiring
companies that possess technology and development personnel which provide
long-term growth potential to the Company's business. However, implementation
of this broadened strategy entails risks of entering markets in which the
Company may have limited or no experience. In addition, such broadened
strategy could result in the diversion of management's attention from the core
rigid disc drive business which could adversely impact the core business.
Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations and products of the acquired businesses,
retention of management and the potential loss of key employees or customers
of the acquired businesses.
RIGID DISC DRIVE TECHNOLOGY
Magnetic disc drives are used in computer systems to record, store and
retrieve digital information. Most computer applications require access to a
greater volume of data than can economically be stored in the random access
memory of the computer's central processing unit (commonly known as
"semiconductor" memory). This information can be stored on a variety of
storage devices, including rigid disc drives, both fixed and removable,
flexible disc drives, magnetic tape drives, optical disc drives and
semiconductor memory. Rigid disc drives provide access to large volumes of
information faster than optical disc drives, flexible disc drives or magnetic
tape drives and at substantially lower cost than high-speed semiconductor
memory.
Although products vary, all rigid disc drives incorporate the same basic
technology. One or more rigid discs are attached to a spindle assembly that
rotates the discs at a high constant speed around a hub. The discs (also known
as media or disc media) are the components on which data is stored and from
which it is retrieved. Each disc typically consists of a substrate of finely
machined aluminum or glass with a magnetic layer of a "thin-film" metallic
material.
Rigid disc drive performance is commonly measured by five key
characteristics: average seek time (commonly expressed in milliseconds), which
is the time needed to position the heads over a selected track on the disc
surface; media data transfer rate (commonly expressed in megabits per second),
which is the rate at which data is transferred to and from the disc; storage
capacity (commonly expressed in megabytes or gigabytes), which is the amount
of data that can be stored on the disc; spindle rotation speed (commonly
expressed in revolutions per minute), which has an effect on speed of access
to data; and interface transfer rate (commonly expressed in megabytes per
second), which is the rate at which data moves between the disc drive and the
computer controller.
Read/write heads, mounted on an arm assembly similar in concept to that of a
record player, fly extremely close to each disc surface and record data on and
retrieve it from concentric tracks in the magnetic layers of the rotating
discs.
Upon instructions from the drive's electronic circuitry, a head positioning
mechanism (an "actuator") guides the heads to the selected track of a disc
where the data will be recorded or retrieved. The disc drive communicates with
the host computer through an internal controller. Disc drive manufacturers may
use one or more of several industry standard interfaces, such as SCSI (Small
Computer System Interface), ATA (AT Attachment), and FC-AL (Fibre Channel--
Arbitrated Loop).
Areal density is a measure of storage capacity per square inch on the
recording surface of a disc. It represents the number of bits of information
on a linear inch of the recording track (specified in bits per inch or bpi)
multiplied by the number of recording tracks on a radial inch of the disc.
Current areal densities are sufficient to meet the requirements of most
applications today. However, the long-term demand for increased drive
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capacities is expected to increase at an accelerating rate since sound and
moving pictures require many times the storage capacity of simple text. The
Company has and continues to aggressively pursue a range of technologies to
increase areal densities across the entire range of its products not only to
increase drive capacities, but to allow the elimination of components at a
stated capacity as areal density increases, thus reducing costs. As a result,
Seagate drives today use advanced signal processing techniques such as PRML
(Partial Response Maximum Likelihood) read/write channels, advanced servo
systems, higher precision mechanics and advanced head technologies. To attain
greater areal densities, the Company currently incorporates magneto-resistive
("MR") heads into a substantial portion of its disc drives. MR heads have
discrete read and write structures which take advantage of special magnetic
properties in certain metals to achieve significantly higher storage
capacities. There can be no assurance that the Company's MR head development
effort will continue to be successful. See "Product Development."
MARKET OVERVIEW
Rigid disc drives are used in a broad range of computer systems as well as
for multimedia applications such as digital video and video-on-demand. The
Company defines the major computer system markets to include mobile computers,
desktop personal computers, workstation systems and server/multi-user systems.
Users of computer systems are increasingly demanding additional data storage
capacity with higher performance in order to (i) use more sophisticated
applications software, including database management, CAD/CAM/CAE, desktop
publishing, video editing and enhanced graphics applications and (ii) operate
in multi-user, multitasking and multimedia environments. There is also an
emerging market for ultra-low cost personal computers. Additionally, there is
a sizable market for rigid disc drives in the existing installed base of
computer systems, some of which require additional storage capacity. These
requirements for storage upgrades can be served through authorized
distribution channels.
Personal Computers--Desktop and Mobile
Desktop and portable personal computers are used in a number of
environments, ranging from homes to businesses and multi-user networks.
Software applications are primarily word processing, spreadsheet, desktop
publishing, database management, multimedia, internet caching, digital photos,
games, audio/video applications and other related applications. The Company
believes the minimum storage requirements in the past year for entry-level
personal computers were generally 1 GB to 2.1 GB of formatted capacity with
seek times ranging from 12.5 milliseconds ("msec") down to 10.5 msec. The
entry level capacities continue to increase. In addition, users of personal
computers have become increasingly price sensitive. The Company's objective
for the personal computer market is to design drives for high-volume, low-cost
manufacturing.
Seagate divides the desktop market into three segments: entry-level,
mainstream and performance. The Company designs and manufactures drives for
each of these segments--Medalist drives for the entry-level and mainstream
market segments and Medalist Pro for the performance segment.
Smaller footprint systems, such as mobile, laptop, notebook and
ultraportable computers require rigid disc drives in form factors of less than
3.5 inches that emphasize durability and low power consumption in addition to
capacity and performance characteristics found in their desktop functional
equivalents. Personal digital assistants, hand-held and pen-based computers
may use 1.8 inch or 2.5 inch hard disc drives or flash memory such as a PCMCIA
card for additional memory. These mobile applications also emphasize low power
consumption as well as very high degrees of durability. The Company
discontinued production of disc drives in form factors of less than 3.5 inches
in January 1998. However, the Company is continuing research and development
in this area and intends to reenter this market at a future date.
Workstation Systems
Workstation systems include high performance microcomputers, technical
workstations, servers and minicomputers. Applications are characterized by
compute-intensive and data-intensive solutions, such as
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CAD/CAM/CAE, network management, larger database management systems,
scientific applications and small to medium-sized business applications such
as materials requirement planning, payroll, general ledger systems and related
management reports. Workstation systems typically require rigid disc drive
storage capacities of 2 GB and greater per drive, average seek times of 8 msec
and rotation speeds of 7,200 rpm to 10,000 rpm. Due to the leading edge
characteristics required by end-users of workstation systems, manufacturers of
such systems emphasize performance as well as price as the key selling points.
Server/Multi-user Systems
Large systems include mainframes and supercomputers. Typical applications
are medium and large business management systems, transaction processing,
parallel processing and other applications requiring intensive data
manipulation. Also included in high-end applications are systems designed for
video-on-demand and near-line storage.
Users of these systems generally require capacities of 4 GB and greater per
drive with average seek times of 8 msec and rotation speeds of 5,400 rpm to
10,000 rpm. End-users of large systems are less concerned than users of
smaller systems with the size, weight, power consumption and absolute cost of
the drive. As with workstation systems, disc drive products are typically
designed into these systems by the OEM with emphasis on performance,
reliability and capacity. In this market segment, data storage subsystems are
used containing large numbers of disc drives. Because data integrity is
paramount, high device reliability and maintainability are key features.
Mainframe, supercomputer and digital video systems also benefit from very high
data transfer rates (up to ten times that in small computer systems).
Users of these systems may also utilize redundant arrays of inexpensive disc
drives ("RAID"). A RAID combines multiple small drives into an array of disc
drives which yield performance equal to or exceeding a single high performance
drive. The array of drives appears to the computer as a single storage drive.
PRODUCTS
Rigid Disc Drives
The Company produces a broad line of rigid disc drives in 3.5 and 5.25 inch
form factors and capacities from 1 GB to 47 GB. The Company provides more than
one product at some capacity points and differentiates products on a
price/performance and form factor basis. The Company believes that its broad
range of rigid disc drives is particularly appealing to customers, such as
large OEMs, which require a wide variety of drive capacities, performance
levels and interfaces. Producing for several market segments also broadens the
Company's customer base and reduces the Company's reliance on any one segment
of the computer market. The Company continues to devote its resources to
developing products with industry leading performance characteristics and to
being among the first to introduce such products to market. The Company
continuously seeks to enhance its market presence in emerging segments of the
rigid disc drive market by drawing on its established capabilities in high-
volume, low-cost production. The Company believes it offers the broadest range
of disc storage products available. See "Product Development".
Mobile Computing
In April 1997, the Company announced the 2.5 inch Marathon 2130sl and 1420sl
in the 12.7 mm high form factor with formatted capacities of 2.1 GB and 1.4
GB, respectively. These two models began volume production during the first
quarter of fiscal 1998. In January 1998, the Company discontinued production
of 2.5 inch disc drives for the mobile computer market due to intense
competition resulting in a substantial loss of market share. The design center
for mobile drives in San Jose, California was closed and relocated to
Longmont, Colorado. The Company is continuing research and development for
mobile products and intends to reenter this market at a future date.
4
Desktop Computing
In fiscal 1998, the Company continued to introduce new 3.5 inch disc drive
products for the desktop computing market.
During the fourth quarter of fiscal 1997, the Company began production of
the Medalist 4340 (ST34340A), a value-class 4.3 GB hard drive with a 4,500 rpm
spindle rotation speed, a 12 msec seek time and multimedia-ready performance,
meaning the drive can run full-screen, full-motion video. Depopulated versions
of the Medalist 4340 also began production, including the Medalist 2120
(ST32120A), an entry level 2.1 GB hard drive, and the Medalist 1010
(ST31010A), an entry level, single platter 1 GB hard drive. The Medalist 1010
is targeted to entry level systems and emerging markets such as the ultra-low
cost personal computer market. Volume shipments of the Medalist 4340, 2120 and
1010 began in the first quarter of fiscal 1998.
The Medalist 4342 family started volume production in the first quarter of
fiscal 1998. This product added the Ultra ATA interface to the Medalist 4340
product family. Products in the Medalist 4342 family include the 4.3 GB
Medalist 4342 (ST34342A), the 3.2 GB Medalist 3232 (ST33232A), the 2.1 GB
Medalist 2122 (ST32122A) and the 1 GB Medalist 1022 (ST31022A).
The Medalist 8641 family started volume production in the third quarter of
fiscal 1998. This mainstream product family has a spindle rotation speed of
5,400 rpm, features low acoustics and the Ultra-ATA interface, and includes
Seagate's exclusive SeaShield to protect the printed circuit board from
handling and electrostatic damage. Products include the 8.6 GB Medalist 8641
(ST38641A), 6.5 GB Medalist 6531 (ST36531A), 4.3 GB Medalist 4321 (ST34321A),
3.2 GB Medalist 3221 (ST33221A), and 2.1 GB Medalist 2110 (ST32110A). These
products are positioned for the mainstream personal computer market.
The Medalist 10240 family started volume production in the first quarter of
fiscal 1999. This product family extensively leverages the Medalist 8641
product family, and includes the 10.2 GB Medalist 10240 (ST310240A) and the
single-disc 2.5 GB Medalist 2510 (ST32510A). It has the same features as the
Medalist 8641 family with more capacity. The 10.2 GB product is targeted at
mainstream desktop systems while the 2.5 GB product is targeted at entry-
level, low-cost systems.
The Medalist Pro 9140 family was announced during the second fiscal quarter
of fiscal 1998 and production began during the third quarter. This family
targets the performance market segment. These drives are available in three
capacities, the Medalist Pro 9140 (ST39140A) at 9.1 GB, the Medalist Pro 6530
(ST36530A) at 6.5 GB, and the Medalist Pro 4520 (ST34520A) at 4.5 GB.
During fiscal 1998, Seagate addressed the new sub-$1,000 personal computer
market with design and manufacturing efforts to provide an appropriate disc
drive to OEMs. These efforts culminated in the announcement in June 1998 of
the ST32111A. This 3.5 inch drive provides 2.1 GB of storage capacity for the
entry level or first time buyer market.
Workstation Systems
In 1992, the Company introduced the Barracuda family of 3.5 inch disc
drives. At 7,200 rpm the Barracuda had the highest spindle rotation speed of
any drives produced at that time. In fiscal year 1997, the Company introduced
two new products in the Barracuda family, the Barracuda 4LP and the Barracuda
4XL. The Barracuda 4 LP is a 4 GB formatted capacity, high-performance drive
in the low-profile form factor. Volume production of the Barracuda 4LP began
in the second quarter of fiscal 1997. The Barracuda 4XL is a 4.5 GB formatted
capacity drive in the low-profile form factor. The Barracuda 4XL, which began
volume production during the fourth quarter of fiscal 1997, is designed to
provide a balance of price and performance for the workstation market as it
matures. In the third quarter of fiscal 1998, volume production began on the
Barracuda 9LP and the Barracuda 18. These are 9 GB and 18 GB formatted
capacity, high-performance drives with read seek times of 7.1 msec and 7.6
msec, respectively. The Barracuda 9LP has a low-profile form factor design.
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Server/Multi-user Systems
High-end applications range from digital video, video-on-demand, high-end
file servers, mainframes and minicomputers to supercomputers. The Barracuda 9,
a 9.1 GB formatted capacity drive, is the third generation of ultrahigh
performance disc drives in the Barracuda family, described above. The
Barracuda 9 began volume production in the second quarter of fiscal 1997. The
Barracuda 4LP and 4XL and the Barracuda 9LP and 18, discussed under
"Workstation Systems" above, are also used in server/multi-user systems.
In August 1996, the Company announced the 3.5 inch Cheetah family, with
spindle rotation speeds of 10,000 rpm, formatted capacities of 4.5 GB and 9.1
GB, seek times of 7.5 msec and sustained data transfer rates in excess of 15
megabytes ("MB") per second. This drive family is focused at the very high
performance segment of the market. Volume production of the Cheetah 4LP and
the Cheetah 9 began in the third and fourth quarters of fiscal 1997,
respectively. The Cheetah 9LP and the Cheetah 18 are the second generation
10,000 rpm drives and have formatted capacities of 9 GB and 18 GB,
respectively, and read seek times of 5.2 msec and 5.7 msec, respectively.
Volume production of these drives began in the fourth quarter of fiscal 1998.
Both drives have data transfer rates up to 80 MB per second with the Ultra2
ATA interface or 100 MB per second with the Fibre Channel interface.
Addressing the high-end 5.25 inch market the Company has continued to
leverage its Elite product line. In the third quarter of fiscal 1997,
production commenced on the Elite 23, a high performance, 5.25 inch disc drive
with 23 GB of formatted capacity and a spindle rotation speed of 5,400 rpm. In
the second quarter of fiscal 1998, production of the Elite 47 began. This
drive is a 5.25 inch disc drive with 47 GB of formatted capacity and read seek
times of 13 msec.
The Barracuda, Cheetah and Elite families all utilize industry leading
technologies such as MR heads, PRML channels, embedded servo and laser
textured media.
Tape Drives
Tape drives are peripheral hardware devices which enable low cost storage
and protection of large volumes of data through the use of small tape
cartridges. Computer systems of all types increasingly need dedicated backup
storage peripherals that combine high capacity, high performance, low cost and
reliability. Seagate markets a broad line of Travan, Digital Audio Tape (DAT)
and Advanced Intelligent Tape (AIT) drives and autoloaders ranging from 8 GB
to 200 GB in capacity, for a wide range of backup and removable storage needs.
The Company currently produces backup solutions for market segments from
desktop personal computers to midrange servers to complement its line of disc
drive products. A substantial portion of the Company's tape drive products
employ head technologies developed by the Company. The Company offers tape
products through a variety of channels including OEMs, distributors, VARs,
resellers and system integrators. The Company works closely with OEMs to
customize storage solutions that meet their customers' needs.
Hornet Travan Drives
Seagate's family of low-profile Hornet Travan tape drives provides backup
solutions for low-cost servers with 8 GB to 20 GB of data storage on a single
low-cost removable cartridge. In September 1997, Seagate launched the Hornet
Travan Network Series (NS) products with read-while-write technology and
hardware data compression. The Company's 8 GB Hornet Travan products are
available with either SCSI or IDE interfaces and address the need for higher
performance tape solutions at an economical price. All Hornet tape drives are
sold either as bare drives or are bundled with software and other accessories
and marketed under the "TapeStor" brand. The Company's Hornet Travan drives
are manufactured by Seagate in Singapore.
DAT Drives
High-speed networked computer environments need automatic data protection
and backup in the form of dedicated removable storage peripherals that combine
high capacity, reliability, and low cost per megabyte in a
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small form factor. The Seagate family of DAT drives and autoloaders provides a
balance of these features, storing up to 96 GB of data. All Seagate DAT
products use the industry accepted high speed SCSI-2 interface which is the
dominant systems interface for storage peripherals of this class. In June
1998, Seagate announced its commitment to DAT technology with plans to produce
a DAT drive based on the latest Digital Data Storage (DDS) standard, DDS-4.
The new standard will allow up to 40 GB of storage with compression on a
single DDS-4 cartridge. All DAT products are currently manufactured by
Matsushita-Kotobuki Electronics Industries, Ltd. ("MKE") in Japan.
Sidewinder AIT Drives
Seagate's Sidewinder AIT drives and autoloaders offer high data integrity,
reliability and performance for midrange servers and tape libraries. Seagate's
stand alone drive, the Sidewinder 50, offers up to 50 GB of capacity while the
Sidewinder 200 autoloader offers up to 200 GB of storage on four AIT tapes.
AIT offers many performance advantages such as fast cartridge load and file
access times, a thorough self-cleaning head and durable AME (Advanced Metal
Evaporation) media. In addition, Sidewinder drives are available in both
external and compact internal form factors for easy integration. Sidewinder
drives are currently manufactured for Seagate by Sony.
Linear Tape Open (LTO)
In April 1998, Seagate, Hewlett-Packard and IBM jointly announced Linear
Tape Open ("LTO") technology for licensing to storage manufacturers. LTO is a
powerful open tape architecture for tape storage products that is expected to
surpass current tape capacity and performance levels. LTO is available for
licensing to vendors in two formats: Accelis, for applications with fast-
access requirements and Ultrium for high capacity needs. Products based on LTO
technology are expected to be available sometime in 1999.
Other Products
The Company offers warranty and out-of-warranty repair service to users of
its disc and tape drives. The Company also offers software products directed
towards the client/server and network computing environments. See "Seagate
Software, Inc.."
SOFTWARE SOFTWARE, INC.
The Company is continuing its strategy of developing and marketing software
products enabling business users and Information Technology (IT) professionals
to manage enterprise information. The Company believes that managing the
exponential growth of information and the growing need for information
infrastructures combined with increasingly decentralized decision making are
key challenges inherent in today's mission critical client/server computing
environments. The Company's strategy is to respond to these challenges by
offering Enterprise Information Management ("EIM") software solutions which
consist of three core components -- Information Delivery, Information Analysis
and Information Availability. EIM integrates departmental information,
optimizes decision-making and ensures consistent access to information by
providing comprehensive data availability and protection.
In April 1996, pursuant to the acquisition of a number of software companies
beginning in May 1994 and the merger with Conner and its Arcada Software
subsidiary in February 1996, the Company consolidated its software operations
under Seagate Software, Inc. ("Seagate Software"). Headquartered in Scotts
Valley, California and having over 40 offices and operations in 17 countries
worldwide, Seagate Software is comprised of two operating groups, each focused
on the growing need for superior EIM.
Seagate Software's Information Management Group ("IMG") offers business
intelligence ("BI") software solutions featuring the information delivery and
analysis components of EIM. IMG's products include features
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such as query and reporting, automated report scheduling and distribution,
information delivery across the World Wide Web, on-line analytical processing,
forecasting, statistical analysis, discovery and data mining.
Seagate Software's Network and Storage Management Group ("NSMG") offers
network and storage management software solutions which focus on the
availability component of EIM by enabling IT professionals to manage
distributed network resources and secure and protect enterprise data. NSMG's
products include features such as system backup, disaster recovery, migration,
replication, automated client protection, storage resource management,
scheduling, event correlation and desktop management.
Seagate Software is a majority-owned and consolidated subsidiary of the
Company to which the Company contributed most of its software product assets
in 1996. In connection with the contribution, Seagate Software issued
preferred stock and common stock to the Company and its subsidiaries. As of
July 3, 1998, the Company and one of its subsidiaries held 99.7% of Seagate
Software's outstanding capital stock. Seagate Software is subject to the
reporting and other requirements of the Securities Exchange Act of 1934, as
amended, and grants options to its employees and certain employees of the
Company through the Seagate Software, Inc. 1996 Stock Option Plan. No public
market currently exists for the common stock of Seagate Software into which
such options are exercisable. On a diluted basis, the outstanding minority
interests of Seagate Software were approximately 17.8% as of July 3, 1998, and
such interests consisted of outstanding common stock and options to acquire
common stock held by certain employees and directors of Seagate Software and
the Company.
MARKETING AND CUSTOMERS
The Company sells its products to OEMs, distributors, resellers, dealers,
system integrators and retailers. OEM customers incorporate Seagate drives
into computer systems for resale. OEMs either manufacture and assemble
computer system components into computer systems; purchase components to build
their systems; or purchase complete computer systems and integrate the drives
and other hardware and software. Distributors typically resell Seagate disc
drives to small OEMs, dealers, system integrators and other resellers. Certain
resellers to which the Company directly sells its products also resell Seagate
drives as part of enhanced packages (e.g., an add-on kit for a computer or as
part of their own computers). Shipments to OEMs were 65%, 71% and 72% of disc
drive revenue in fiscal 1998, 1997 and 1996, respectively. In 1998 and 1997
sales to Compaq Computer Corporation accounted for approximately 13% and 11%,
respectively, of the Company's consolidated revenue. No other customer
accounted for 10% or more of consolidated revenue in 1998 or 1997. No customer
accounted for 10% or more of consolidated revenue in 1996. In 1998,
consolidated revenue declined to $6.819 billion from $8.940 billion in 1997.
In response to this decline in revenue the Company initiated a restructuring
plan to align its worldwide operations with market conditions and to improve
the productivity of its operations and the efficiency of its development
efforts. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations--1998 vs 1997."
OEMs
OEM customers typically enter into purchase agreements with the Company.
These agreements provide for pricing, volume discounts, order lead times,
product support obligations and other terms and conditions, usually for
periods of 12 to 24 months, although product support obligations generally
extend substantially beyond this period. These master agreements typically do
not commit the customer to buy any minimum quantity of products. Deliveries
are scheduled only after receipt of purchase orders. In addition, with limited
lead time, customers may cancel or defer most purchase orders without
significant penalty. Anticipated orders from many of Seagate's customers have
in the past failed to materialize or OEM delivery schedules have been deferred
as a result of changes in their business needs. Such order fluctuations and
deferrals have had a material adverse effect on the Company's operations in
the past, and there can be no assurance that the Company will not experience
such adverse effects in the future.
Distributors
The Company's distributors, located throughout the world, generally enter
into non-exclusive agreements for the redistribution of the Company's
products. Distributors typically furnish the Company with a non-binding
8
indication of their near-term requirements. Product deliveries are generally
scheduled based on a weekly confirmation by the distributor of its
requirements for that week. The agreements typically provide the distributors
with price protection with respect to their inventory of Seagate drives at the
time of a reduction by Seagate in its selling price for the drives, and also
provide limited rights to return the product.
Service and Warranty
Seagate warrants its products against defects in design, materials and
workmanship by the Company generally for two to five years depending upon the
capacity category of the drive, with the higher capacity products being
warranted for the longer periods. Warranty periods for drives have been
increasing and may continue to increase. The Company's products are
refurbished or repaired at facilities located in the United States, Singapore
and Malaysia.
Sales Offices
The Company maintains sales offices throughout the United States and in
Australia, England, France, Germany, Hong Kong, Ireland, Japan, Singapore,
South Korea, Sweden and Taiwan. Foreign sales are subject to certain controls
and restrictions, including, in the case of certain countries, approval by the
office of Export Administration of the United States Department of Commerce
and other United States governmental agencies.
BACKLOG
In view of customers' rights to cancel or defer orders with little or no
penalty, the Company believes backlog in the disc drive industry may be
misleading. The Company's backlog includes only those orders for which a
delivery schedule has been specified by the customer. Substantially all orders
shown as backlog at July 3, 1998 were scheduled for delivery within six
months. Because many customers place large orders for delivery throughout the
year, and because of the possibility of customer cancellation of orders or
changes in delivery schedules, the Company's backlog as of any particular date
is not indicative of the Company's potential sales for any succeeding fiscal
period. The Company's order backlog at July 3, 1998 was approximately $793
million compared with approximately $960 million at June 27, 1997.
MANUFACTURING
The Company's business objectives require it to establish manufacturing
capacity in anticipation of market demand. The key elements of the Company's
manufacturing strategy are: high-volume, low-cost assembly and test; vertical
integration in the manufacture of selected components; and establishment and
maintenance of key vendor relationships. The highly competitive disc drive
industry requires that the Company manufacture significant volumes of high-
quality drives at low unit cost. To do this, the Company must rapidly achieve
high manufacturing yields and obtain uninterrupted access to high-quality
components in required volumes at competitive prices.
Manufacturing of the Company's rigid disc drives is a complex process,
requiring a "clean room" environment, the assembly of precision components
within narrow tolerances and extensive testing to ensure reliability. The
first step in the manufacturing of a rigid disc drive is the assembly of the
actuator mechanism, heads, discs, and spindle motor in a housing to form the
head-disc assembly (the "HDA"). The assembly of the HDA involves a combination
of manual and semiautomated processes. After the HDA is assembled, a servo
pattern is magnetically recorded on the disc surfaces. Upon completion,
circuit boards are mated to the HDA and the completed unit is thoroughly
tested prior to packaging and shipment. Final assembly and test operations of
the Company's disc drives take place primarily at facilities located in
Singapore, Malaysia, China, Minnesota and Oklahoma. Subassembly and component
operations are performed at the Company's facilities in Singapore, Malaysia,
Thailand, Minnesota, California, Northern Ireland, Indonesia, Mexico, and
Scotland. In addition, independent entities manufacture or assemble components
for the Company in the United States, Europe and
9
various Far East countries including Hong Kong, Japan, Korea, China, the
Philippines, Singapore, Malaysia, Taiwan and Thailand.
The Company believes that it must continue to develop automated
manufacturing processes in order to remain competitive. In this regard, the
Company continually selectively evaluates which steps in the manufacturing
process would benefit from automation. There can be no assurance that the
Company's efforts to develop and improve its automated manufacturing processes
will be successful. Any failure of the Company to continue to develop and
improve its automated manufacturing processes could have a material adverse
effect on the Company's business.
The cost, quality and availability of certain components including heads,
media, ASICs (application specific integrated circuits), spindle motors,
actuator motors, printed circuit boards and custom semiconductors are critical
to the successful production of disc drives. The Company's design and vertical
integration have allowed it to internally manufacture substantial percentages
of its critical components other than ASICs and motors. The Company's
objectives of vertical integration are to maintain control over component
technology, quality and availability, and to reduce costs. The Company
believes that its strategy of vertical integration gives it an advantage over
other disc drive manufacturers. However, this strategy entails a high level of
fixed costs and requires a high volume of production to be successful. During
periods of decreased production, these high fixed costs in the past have had
and in the future could have a material adverse effect on the Company's
results of operations.
All three stages of manufacturing for both magneto-resistive and inductive
thin-film heads are carried out at the Company's facilities. These three
stages are wafer production, slider fabrication and head gimbal assembly.
While the majority of its requirements for magnetic recording heads are
produced internally, the Company, in the past year, has begun purchasing some
heads from third party suppliers to afford it access to the widest possible
head technology available. However, the Company plans to continue to
manufacture the majority of its head requirements internally. For disc, or
media, production the Company purchases aluminum substrate blanks from third
parties mainly in the U.S. and Japan. These blanks are machined, plated and
polished to produce finished substrates at the Company's plants in California,
Mexico and Northern Ireland. The Company's media manufacturing plants in
California and Singapore put these substrates through the manufacturing
processes necessary to deposit the magnetic storage layer, the protective
carbon overcoat and the lubricant as well as to achieve the proper degree of
final surface smoothness and also carry out the quality assurance activities
necessary to deliver finished media to Seagate's disc drive manufacturing
plants. The Company's internal media manufacturing operations supply the
majority of its needs for media but media is also purchased from third party
suppliers located in the U.S. and the Far East. Spindle motors are sourced
principally from outside vendors in the Far East. The Company designs, in
partnership with a major ASIC manufacturer, nearly all of its ASICs for motor
and actuator control and manufactures a small portion of these circuits. It
designs all or part of many of the other ASICs in the drive such as interface
controllers, read/write channels and pre-amplifiers, and procures these from
third parties. The vast majority of the high-volume surface-mount printed
circuit assemblies are assembled internally. The Company evaluates the need
for second sources for all of its components on a case-by-case basis and,
where it is deemed desirable and feasible to do so, secures multiple sources.
The Company has experienced production delays when unable to obtain sufficient
quantities of certain components or assembly capacity. The Company attempts to
maintain component inventory levels adequate for its short-term needs.
However, an inability to obtain essential components, if prolonged, would
adversely affect the Company's business.
Because of the significant fixed costs associated with the production of its
products and components and the industry's history of declining prices, the
Company must continue to produce and sell its disc drives in significant
volume, continue to lower manufacturing costs and carefully monitor inventory
levels. Toward these ends, the Company continually evaluates its components
and manufacturing processes as well as the desirability of transferring volume
production of disc drives and related components between facilities, including
transfer overseas to countries where labor costs and other manufacturing costs
are significantly lower than in the U.S., principally Singapore, Thailand,
Malaysia and China. Frequently, transfer of production of a product to a
different facility requires qualification of such new facility by certain of
the Company's OEM customers. There
10
can be no certainty that such changes and transfers will be implemented on a
cost-effective basis without delays or disruption in the Company's production
and without adversely affecting the Company's results of operations. Due to
declining customer orders and price erosion as a result of intensely
competitive market conditions in fiscal 1998, the Company has initiated a
restructuring plan resulting in the closure of certain manufacturing
facilities to reduce excess capacity. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations--1998 vs 1997."
Offshore operations are subject to certain inherent risks, including delays
in transportation, changes in governmental policies, tariffs, import/export
regulations, and fluctuations in currency exchange rates in addition to
geographic limitations on management controls and reporting. Although the
Company has not had any significant adverse experience in this regard and has
significant experience in the offshore production of its products, there can
be no assurance that the inherent risks of offshore operations will not
adversely effect the Company's future operating results. During fiscal 1998,
several Far East currencies significantly declined in value relative to the
U.S. dollar. As a result during fiscal 1998, the Company was required to mark-
to-market a portion of its foreign currency forward exchange contracts that it
had taken out as a hedge of these currencies and take a $76 million charge
against income. As of July 3, 1998, the Company had effectively closed out all
of its foreign currency forward exchange contracts by purchasing offsetting
contracts. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Disclosures about Market Risk." Certain of the Far
East countries in which the Company operates have experienced political unrest
and the Company's operations have been adversely affected for short periods of
time.
PRODUCT DEVELOPMENT
The Company's strategy for new products emphasizes developing and
introducing on a timely and cost effective basis products that offer
functionality and performance equal to or better than competitive product
offerings. The rigid disc drive industry is characterized by ongoing, rapid
technological change, relatively short product life cycles and rapidly
changing user needs. The Company believes that its future success will depend
upon its ability to develop, manufacture and market products which meet
changing user needs, and to successfully anticipate or respond to changes in
technology and standards on a cost-effective and timely basis. Accordingly,
the Company is committed to the development of new component technologies, new
products, and the continuing evaluation of alternative technologies.
The Company develops new disc drive products and the processes to produce
them at four locations: Longmont, Colorado; Oklahoma City, Oklahoma;
Bloomington, Minnesota; and Singapore. Generally speaking, Longmont and
Singapore are responsible for development of 3.5 inch form factor drives
intended for desktop personal computer systems; Oklahoma City is responsible
for development of 3.5 inch disc drives with capacities and interfaces
intended for use in minicomputers, supermicrocomputers, workstations and file
servers; and Bloomington is responsible for 3.5 inch and 5.25 inch products
principally intended for use in systems ranging from workstations and
superminicomputers to mainframe and supercomputers as well as new markets such
as digital video and video-on-demand. Development of 2.5 inch form factor
drives intended for mobile personal computers is also conducted in Longmont.
The Company is increasing its focus on research and development and is
realigning its disc drive development process. Seagate's Advanced Concepts
Labs program focuses the Company's disc drive and component research efforts
into three lab groups that specialize in developing advanced technologies for
future data storage products. The three groups are storage products, recording
heads and recording media. These labs are designed to deliver significant
advances in disc drive science to meet the advanced requirements of future
data storage devices. The charter of Advanced Concepts is to ensure timely
availability of mature component and subsystem technologies to the Company's
product development teams and allow the Company to leverage and coordinate
those technologies across products. The drive development process is being
realigned to ensure a common and standard process that will consistently
deliver time-to-market products. In August 1997, the Company acquired Quinta,
a developer of ultra-high capacity disc drive technologies, including a
11
new optically assisted Winchester ("OAW") technology. OAW technology is
designed to integrate optical, magnetic and telecommunications technologies
for the purpose of building a new class of high capacity cost-effective disc
drive storage devices. There can be no assurance that Quinta's OAW technology
development effort will be successful.
The Company has focused its component research and development efforts in
four main areas: heads, media, motors and ASICs. The major emphasis of this
research and development effort is higher capacity, reduced size and power
consumption, improved performance and reliability, and reduced cost.
The principal areas of research and development relating to spindle motors
are improved bearings, lowered power requirements, reduced noise level,
improved reliability, improved magnet strength, and reduced cost. With a
continuous demand for increased data storage density, the Company is
researching alternative motor technologies in addition to current ball bearing
spindle motors, including fluid dynamic motors and air bearing motors. The
motor design and development center is located in Scotts Valley, California.
The Company's head research and development efforts are focused on
increasing recording densities, reducing the size and mass of the slider,
developing suspensions and assembly technology for reduced head size, reducing
the cost and increasing the reliability. This research and development
includes substantial effort to develop and manufacture MR and other head
technologies such as Giant MR ("GMR") heads and advanced air bearing sliders
for high areal density and small form factor products. There can be no
assurance that the Company's head development efforts will be successful and a
failure of the Company to successfully manufacture and market products
incorporating its advanced head technology in a timely manner could have a
material adverse effect on the Company's business and results of operations.
Media research and development is primarily related to achieving higher
areal densities consistent with the efforts undertaken in the head operations
of the Company as well as developing the capability to produce media of
reduced dimensions from those of current main-stream products. These media
research and development efforts are subdivided into several main approaches
to achieving these goals: developing smoother, flatter substrates that permit
lower head flying heights; developing thinner, smaller-diameter substrates to
support development of physically smaller disc drives; developing improved
magnetic storage alloys, overcoat materials and surface lubricants that permit
higher coercivities and improved electromagnetic performance while providing
enhanced wear and reliability performance; and, finally, developing enhanced
substrate and media manufacturing processes that allow the Company to
implement the results of its other developments while increasing the
consistency and reducing the cost of producing high performance magnetic
storage media. As a consequence of these efforts, the Company reviews, on an
on-going basis, not only new versions and smaller size versions of the
industry-standard aluminum and glass substrates but also substrates of
alternative materials. The Company experiments with the elemental content of
the storage alloys and overcoat materials and the sputtering processes used to
deposit them. The Company evaluates different lubricants and pursues
variations in the techniques used to obtain the proper degree of surface
smoothness including both mechanical and other processes. There can be no
assurance that the Company's media development efforts will be successful.
ASIC development has been and will continue to be focused on optimizing the
architecture for system performance, cost and reliability. In addition, the
focus has been and will continue to be on reducing the number of parts, the
amount of power consumption, and the size, and increasing areal densities by
use of advanced signal processing techniques such as PRML read/write channels.
In addition to developing new products and components, the Company devotes
significant resources to product engineering aimed at improving manufacturing
processes, lowering manufacturing costs and increasing volume production of
new and existing products. Process engineering groups are located with the
disc drive development groups and the reliability engineering groups in
locations listed above; however, most of the Company's volume production is
done in locations remote from these groups and the development of the volume
processes are completed at the volume manufacturing sites.
12
No assurance can be given that the Company will be able to successfully
complete the design or introduction of new products in a timely manner, that
the Company will be able to manufacture new products in volume with acceptable
manufacturing yields, or successfully market these products, or that these
products will perform to specifications on a long-term basis. Failure to meet
any of the above objectives in a timely manner has in the past and may in the
future have a material adverse effect on the Company's business and results of
operations.
During the fiscal years ended July 3, 1998, June 27, 1997 and June 28, 1996,
the Company's product development expenses were $585 million, $459 million and
$420 million, respectively.
PATENTS AND LICENSES
The Company has approximately 905 U.S. patents and 450 foreign patents and
has approximately 696 U.S. and 831 foreign patent applications pending. Due to
the rapid technological change that characterizes the rigid disc drive
industry, the Company believes that the improvement of existing products,
reliance upon trade secrets and unpatented proprietary know-how and
development of new products are generally more important than patent
protection in establishing and maintaining a competitive advantage.
Nevertheless, the Company believes that patents are of value to its business
and intends to continue its efforts to obtain patents, when available, in
connection with its research and development program. There can be no
assurance that any patents obtained will provide substantial protection or be
of commercial benefit to the Company, or that their validity will not be
challenged.
Because of rapid technological development in the disc drive industry,
certain of the Company's products have been and it is possible other products
could be accused of infringement of existing patents. The rigid disc drive
industry has been characterized by significant litigation relating to patent
and other intellectual property rights. From time to time, the Company
receives claims that certain of its products infringe patents of third
parties. Although the Company has been able to resolve some such claims or
potential claims by obtaining licenses or rights under the patents in question
without a material adverse affect on the Company, other such claims are
pending which if resolved unfavorably to the Company could have a material
adverse effect on the Company's business. For a description of current
disputes see the "Litigation" note to the Company's consolidated financial
statements. In addition, the costs of engaging in intellectual property
litigation may be substantial regardless of outcome. The Company has patent
cross licenses with a number of companies in the computer industry.
Additionally, the Company has agreements in principle with other major disc
drive companies.
COMPETITION
The rigid disc drive industry is intensely competitive, with manufacturers
competing for a limited number of major customers. The principal competitive
factors in the rigid disc drive market include product quality and
reliability, form factor, storage capacity, price per unit, price per
megabyte, product performance, production volume capability and responsiveness
to customers. The relative importance of these factors varies with different
customers and for different products. The Company believes that it is
generally competitive as to these factors.
The Company has experienced and expects to continue to experience intense
competition from a number of domestic and foreign companies, some of which
have far greater resources than the Company. In addition to independent rigid
disc drive manufacturers, the Company also faces competition from present and
potential customers, including IBM, Toshiba, NEC, Fujitsu Limited and Samsung
who continually evaluate whether to manufacture their own drives or purchase
them from outside sources. These manufacturers also sell drives to third
parties which results in direct competition with the Company.
Product life cycles are relatively short in the disc drive industry. The
Company expects its competitors to offer new and existing products at prices
necessary to gain or retain market share and customers. To remain competitive,
the Company believes it will be necessary to continue to reduce its prices and
aggressively enhance its product offerings. In addition to the foregoing, the
ability of the Company to compete successfully will also
13
depend on its ability to provide timely product introductions and to continue
to reduce production costs. The Company's establishment of production
facilities in Singapore, Thailand, Malaysia and China are directed toward such
cost reductions. The Company believes that its future success will depend upon
its ability to develop, manufacture and market products of high quality and
reliability which meet changing user needs, and which successfully anticipate
or respond to changes in technology and standards on a cost-effective and
timely basis, of which there can be no assurance.
The introduction of products using alternative technologies could be a
significant source of competition. For example, high-speed semiconductor
memory could compete with the Company's products in the future. Semiconductor
memory (SRAM and DRAM) is much faster than magnetic disc drives, but currently
is volatile (i.e., subject to loss of data in the event of power failure) and
much more costly. Flash EE prom, a nonvolatile semiconductor memory, is
currently much more costly and, while it has higher read performance than disc
drives, it has lower write performance. Flash EE prom could become competitive
in the near future for applications requiring less storage capacity (i.e.,
less than 200 MB) than is required in the Company's more traditional computer
related market place.
EMPLOYEES
From June 27, 1997 to July 3, 1998, the number of persons employed worldwide
by the Company was reduced from approximately 111,000 to approximately 87,000.
This reduction was part of a restructuring plan begun in January 1998 to align
the Company's worldwide operations with market conditions and to improve the
productivity of its operations and the efficiency of its development efforts.
Approximately 71,000 of the Company's employees were located in the Company's
Far East operations as of July 3, 1998. In addition, the Company makes use of
supplemental employees, principally in manufacturing, who are hired on an as-
needed basis. Management believes that the future success of the Company will
depend in part on its ability to attract and retain qualified employees at all
levels, of which there can be no assurance. The Company believes that its
employee relations are good.
14
ITEM 2. PROPERTIES
Seagate's executive offices are located in Scotts Valley, California.
Principal manufacturing facilities are located in Singapore, Thailand,
Malaysia, Minnesota, California, Oklahoma, China and Northern Ireland. A major
portion of the Company's facilities are occupied under leases which expire at
various times through 2015. The following is a summary of square footage owned
or leased by the Company:
FACILITIES (SQUARE FEET)
- --------------------------------------------------------------------------------
MANUFACTURING PRODUCT ADMINIS-
LOCATION & WAREHOUSE DEVELOPMENT TRATIVE TOTAL
-------- ------------- ----------- --------- ----------
NORTH AMERICA
California
Central California...... 16,768 36,934 30,325 84,027 (1)
Northern California..... 451,813 208,722 281,830 942,365 (2)
Southern California..... 345,590 107,888 46,844 500,322 (3)
Colorado.................. 48,849 225,424 25,849 300,122
Minnesota................. 891,805 73,498 217,631 1,182,934 (4)
Oklahoma.................. 294,301 110,097 93,502 497,900 (5)
Northeast USA............. -- 21,890 12,818 34,708
Southeast USA............. 6,750 36,618 93,957 137,325 (6)
Other USA................. 46,341 947 14,562 61,850 (7)
Canada/Mexico............. 172,095 46,654 92,546 311,295 (8)
--------- ------- --------- ----------
TOTAL NORTH AMERICA......... 2,274,312 868,672 909,864 4,052,848
--------- ------- --------- ----------
EUROPE
England................... 19,878 15,632 31,283 66,793 (9)
Ireland................... -- -- 1,200 1,200 (10)
Northern Ireland.......... 266,031 4,900 50,169 321,100 (11)
Netherlands............... 92,234 -- 28,955 121,189 (12)
Scotland.................. 89,555 3,680 19,988 113,223 (13)
Other Europe.............. -- -- 55,105 55,105 (14)
--------- ------- --------- ----------
TOTAL EUROPE................ 467,698 24,212 186,700 678,610
--------- ------- --------- ----------
ASIA
China..................... 165,420 -- 25,972 191,392 (15)
Malaysia.................. 1,321,931 -- 148,556 1,470,487 (16)
Philippines............... -- -- 999 999 (17)
Singapore................. 1,530,717 35,519 288,569 1,854,805 (18)
Thailand.................. 1,532,265 -- 226,846 1,759,111 (19)
Other Pacific Rim......... 38,470 -- 66,544 105,014 (20)
--------- ------- --------- ----------
TOTAL ASIA.................. 4,588,803 35,519 757,486 5,381,808
--------- ------- --------- ----------
TOTAL....................... 7,330,813 928,403 1,854,050 10,113,266
========= ======= ========= ==========
- --------
(1) Includes approximately 30,598 square feet owned by the Company.
(2) Includes approximately 324,756 square feet owned by the Company. Excludes
460,356 square feet unoccupied and approximately 50,322 square feet
subleased to others.
(3) Includes approximately 114,182 square feet owned by the Company. Excludes
approximately 38,209 square feet subleased to others.
(4) Includes approximately 650,846 square feet owned by the Company. Excludes
approximately 217,802 square feet subleased to others. Excludes
approximately 350,000 square feet under construction.
(5) Includes approximately 268,220 square feet owned by the Company.
15
(6) Excludes approximately 5,000 square feet unoccupied.
(7) Excludes approximately 19,206 square feet unoccupied.
(8) Excludes approximately 478,000 square feet under construction.
(9) Excludes approximately 32,206 square feet subleased to others.
(10) Excludes approximately 155,000 square feet owned by the Company and
unoccupied.
(11) Includes approximately 321,100 square feet owned by the Company. Excludes
approximately 250,000 square feet under construction.
(12) Excludes approximately 130,290 square feet unoccupied.
(13) Excludes approximately 10,775 square feet unoccupied. Excludes
approximately 16,000 square feet under construction.
(14) Excludes approximately 3,263 square feet subleased to others.
(15) Excludes approximately 32,056 square feet unoccupied.
(16) Includes approximately 1,639,322 square feet owned by the Company.
Excludes approximately 170,595 square feet unoccupied.
(17) Excludes approximately 312,365 square feet owned by the Company and
unoccupied.
(18) Includes approximately 1,634,039 square feet owned by the Company.
Excludes approximately 218,498 square feet unoccupied. Excludes
approximately 8,271 square feet under construction.
(19) Includes approximately 844,594 square feet owned by the Company. Excludes
approximately 201,417 square feet unoccupied.
(20) Includes approximately 8,303 square feet owned by the Company.
16
ITEM 3. LEGAL PROCEEDINGS
The information required by this item is incorporated by reference to pages
30 and 35 of the Annual Report to Stockholders, filed as Exhibit 13.1 hereto.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The present executive officers of the Company are as follows:
EXECUTIVE
OFFICER
NAME AGE POSITION SINCE
---- --- -------- ---------
Stephen J. Luczo........ 41 Chief Executive Officer, President, Chief 1993
Operating Officer and Director of the Company
and Chairman of the Board of Directors,
Seagate Software, Inc.
Bernardo A. Carballo.... 49 Executive Vice President, Worldwide Sales, 1991
Marketing, Product Line Management, Tape
Operations and Customer Service
Don G. Colton........... 50 Executive Vice President, Corporate Quality 1997
Brendan C. Hegarty...... 55 Executive Vice President, Chief Operating 1989
Officer, Recording Heads Group
Thomas F. Mulvaney...... 49 Senior Vice President, General Counsel, and 1996
Corporate Secretary
Charles C. Pope......... 43 Senior Vice President, Finance and Chief 1998
Financial Officer
Townsend H. Porter, Jr.. 52 Executive Vice President, Drive Operations 1997
and Chief Technical Officer, Storage Products
Group
Donald L. Waite......... 65 Executive Vice President, Chief 1983
Administrative Officer and Assistant
Secretary
William D. Watkins...... 45 Executive Vice President, Disc Drive 1996
Operations and Chief Operating Officer,
Recording Media Group
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board.
Mr. Luczo joined the Company in October 1993 as Senior Vice President,
Corporate Development. In March 1995, he was appointed Executive Vice
President, Corporate Development and Chief Operating Officer of Seagate
Software. In July 1997, he was appointed Chairman of the Board of Seagate
Software. Mr. Luczo was promoted to President and Chief Operating Officer of
the Company in September 1997. In July 1998, Mr. Luczo was promoted to Chief
Executive Officer and appointed to the Board of Directors of the Company.
Prior to joining the Company he was Senior Managing Director of the Global
Technology Group of Bear, Stearns & Co. Inc., an investment banking firm, from
February 1992 to October 1993.
Mr. Carballo was General Manager, Product Line Management for the Company's
Oklahoma City operations at the time of the Company's acquisition of Imprimis
in 1989. In 1990 he was promoted to Vice President, Product Line Management,
Oklahoma City operations, in September 1991 he was promoted to Senior Vice
President, Sales, Marketing and Product Line Management and in March 1995 he
was promoted to
17
Executive Vice President Worldwide Sales, Marketing, Product Line Management
and Customer Service. In September 1997, he also assumed responsibility for
Seagate's Tape Division.
Mr. Colton was Vice President, Product Line Management for Seagate's
Oklahoma City and Twin Cities operations from 1991 until his promotion to
Senior Vice President, Product Line Management in August 1995. In September
1997 he was promoted to Executive Vice President, Corporate Quality. Mr.
Colton joined the Company in 1989 upon the Company's acquisition of Imprimis,
Inc.
Dr. Hegarty joined Control Data/Imprimis in 1988 as Vice President, Thin-
Film Heads. In October 1989 he was named Seagate's Vice President of Recording
Heads Group in Bloomington, Minnesota, and in August 1990 was promoted to
Senior Vice President and Chief Technical Officer. In March 1995 he was
promoted to Executive Vice President, Chief Operating Officer, Recording Heads
Group. From October 1990 to October 1993 Dr. Hegarty was also a Director of
the Company. Dr. Hegarty serves as a Director of MTS Systems Corporation, an
engineering company.
Mr. Mulvaney joined the Company in February 1996 with the Company's merger
with Conner Peripherals as Senior Vice President, General Counsel, and
Assistant Secretary. In July 1998, Mr. Mulvaney was appointed Corporate
Secretary. Mr. Mulvaney was Vice President, General Counsel and Secretary at
Conner Peripherals from May 1995 until February 1996. Prior to joining Conner
Peripherals, Mr. Mulvaney was with VLSI Technology, Inc., a semiconductor
company, from May 1990 to May 1995 where he served as Vice President, General
Counsel and Secretary, and held departmental responsibility for legal, human
resources, corporate communications and facilities.
Mr. Pope was promoted to Senior Vice President in January 1997 and Chief
Financial Officer in February 1998. Mr. Pope joined Seagate as director of
Budgets and Analysis with the Company's acquisition of Grenex in 1985. He has
held a variety of positions in his 13 years with Seagate including Director of
Finance for Thailand operations; Vice President, Finance, Far East operations;
Vice President, Finance and Treasurer; Vice President and General Manager,
Seagate Magnetics; and most recently, Senior Vice President Finance, Storage
Products.
Mr. Porter joined the Company on June 2, 1997 as Chief Technology Officer,
Storage Products Group. In September 1997 he was promoted to Executive Vice
President. Mr. Porter was Vice President of Research and Development,
Enterprise Storage Group at Western Digital, a disc drive company, from
November 1994 to May 1997. From 1968 to 1994, Mr. Porter held engineering,
program management, and executive positions at IBM.
Mr. Waite joined the Company in 1983 as Vice President of Finance and Chief
Financial Officer, and was promoted to Senior Vice President, Finance in 1984.
In March 1995 he was promoted to Executive Vice President, Chief
Administrative Officer and Chief Financial Officer. Mr. Waite was Chief
Financial Officer of the Company from October 1983 until February 1998 and
Secretary of the Company from October 1983 until July 1998. He was appointed
Assistant Secretary of the Company in July 1998. Mr. Waite serves as a
Director of California Micro Devices, a manufacturer of integrated passive
devices, and Seagate Software, Inc., a subsidiary of the Company.
Mr. Watkins joined the Company in February 1996 with the Company's merger
with Conner Peripherals as Executive Vice President, Recording Media Group. In
October 1997, Mr. Watkins' was appointed Executive Vice President, Disc Drive
Operations and Chief Operating Officer, Recording Media Group. Prior to
joining the Company he was President and General Manager of the Conner
Peripherals Disk Division from January 1990 until December 1992. In January
1993, Mr. Watkins was promoted to Senior Vice President, Manufacturing
Operations.
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to pages
1-3 of the Annual Report to Stockholders, filed as Exhibit 13.1 hereto.
There have been no sales of unregistered securities by the Company since
July 1, 1995.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to pages
1-3 of the Annual Report to Stockholders, filed as Exhibit 13.1 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to pages
3-14 of the Annual Report to Stockholders, filed as Exhibit 13.1 hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to pages
1-3 and 15-37 of the Annual Report to Stockholders, filed as Exhibit 13.1
hereto.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company and compliance with Section
16(a) of the Securities Exchange Act of 1934, as amended, are hereby
incorporated herein by reference to the sections entitled "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance,"
respectively, in the Company's Proxy Statement to be filed with the Commission
within 120 days of the end of the Registrant's fiscal year pursuant to General
Instruction G(3) to Form 10-K. The information required by that Item
concerning executive officers is set forth in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission within 120 days of
the end of the Registrant's fiscal year pursuant to General Instruction G(3)
to Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission within 120 days of
the end of the Registrant's fiscal year pursuant to General Instruction G(3)
to Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission within 120 days of
the end of the Registrant's fiscal year pursuant to General Instruction G(3)
to Form 10-K.
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1.Financial Statements. The following Consolidated Financial Statements of
Seagate Technology, Inc. and Report of Independent Auditors are incorporated
by reference in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets July 3, 1998 and June 27, 1997.
Consolidated Statements of Operations Years Ended July 3, 1998; June
27, 1997; and June 28, 1996.
Consolidated Statements of Stockholders' Equity Years Ended July 3,
1998; June 27, 1997; and June 28, 1996.
Consolidated Statements of Cash Flows Years Ended July 3, 1998; June
27, 1997; and June 28, 1996.
Notes to Consolidated Financial Statements.
2.Financial Statement Schedules. The following consolidated financial
statement schedule of Seagate Technology, Inc. is filed as part of this Report
and should be read in conjunction with the Consolidated Financial Statements
of Seagate Technology, Inc.:
SCHEDULE PAGE
-------- ----
II--Valuation and Qualifying Accounts................................. 24
Schedules not listed above have been omitted because they are not applicable
or are not required or the information required to be set forth therein is
included in the Consolidated Financial Statements or notes thereto.
3.Exhibits:
NOTES:
------
3.1 Certificate of Incorporation of Registrant, as amended. (A)
3.2 By-Laws of Registrant, as amended. (B)
4.1 Indenture, dated as of March 1, 1997 (the "Indenture"),
between Seagate Technology, Inc. (the "Company") and First
Trust of California, National Association, as Trustee. (C)
4.2 Officers' Certificate pursuant to Section 301 of the
Indenture, without Exhibits, establishing the terms of the
Company's senior notes and senior debentures. (C)
4.3 Form of Senior Note. (C)
4.4 Form of Senior Debenture. (C)
10.1 1983 Incentive Stock Option Plan and form of Stock Option
Agreement. (E)
10.2 Seagate Technology Employee Stock Purchase Plan, as amended.
10.3 Registrant's Executive Stock Plan. (I)
10.4 Conner Peripherals, Inc. 1986 Incentive Stock Plan. (I)
10.5 Building Agreement for Land At Private Lot A14547 in Yio Chu
Kang dated May 30, 1996 between Seagate Technology
International and Jurong Town Corporation.
10.6 Lease Agreement dated July 18, 1994 between Universal
Appliances Limited and Seagate Technology (Thailand)
Limited.
10.7 1991 Incentive Stock Option Plan and Form of Option
Agreement, as amended.
10.8 Acquisition Agreement dated as of September 29, 1989 by and
among Seagate Technology, Inc. and Control Data Corporation,
Imprimis Technology Incorporated and Magnetic Peripherals,
Inc. (G)
10.9 Amended and Restated Directors' Option Plan and Form of
Option Agreement. (H)
21
NOTES:
------
10.10 Amended and Restated Archive Corporation Stock Option and
Restricted Stock Purchase Plan--1981. (I)
10.11 Amended and Restated Archive Corporation Incentive Stock
Option Plan--1981. (I)
10.12 Conner Peripherals, Inc.--Arcada Holdings, Inc. Stock
Option Plan. (J)
10.13 Arcada Holdings, Inc. 1994 Stock Option Plan. (J)
10.14 Separation Agreement and Release between the Registrant and
Alan F. Shugart dated as of July 29, 1998.
13.1 Portions of the 1998 Annual Report to Stockholders.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (included on page 23).
27 Financial Data Schedule
- --------
(A) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-3 (File No.
33-13430) filed with the Securities and Exchange Commission on April 14,
1987.
(B) Incorporated by reference to exhibits filed in response to Item 14 (a),
"Exhibits," of the Company's Form 10-K, as amended, for the year ended
June 30, 1990.
(C) Incorporated by reference to exhibits filed in response to Item 7(b),
"Financial Statements and Exhibits" of the Company's Current Report on
Form 8-K dated March 4, 1997.
(E) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's Form 10-K for the year ended June 30, 1983.
(G) Incorporated by reference to exhibits filed in response to Item 7(c),
"Exhibits," of the Company's Current Report on Form 8-K dated October 2,
1989.
(H) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's Form 10-K for the year ended June 30, 1991.
(I) Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-8 (registration number 333-00697) as filed with the
Commission on February 5, 1996.
(J) Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-8 (registration number 333-01059) as filed with the
Commission on February 21, 1996.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the quarter ended July 3, 1998.
22
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
/s/ Stephen J. Luczo
By: _________________________________
(Stephen J. Luczo, Chief Executive
Officer,
President, Chief Operating Officer
and a Director)
Dated: August 20, 1998
POWER OF ATTORNEY
Know All Men By These Presents, that each person whose signature appears
below constitutes and appoints Stephen J. Luczo and Charles C. Pope, jointly
and severally, his or her attorney-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-
in-fact, or his substitute or substitutes, may do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ STEPHEN J. LUCZO Chief Executive Officer, August 20, 1998
____________________________________ President, Chief Operating
Stephen J. Luczo Officer and a Director
(Principal Executive
Officer)
/s/ CHARLES C. POPE Senior Vice President and August 20, 1998
____________________________________ Chief Financial Officer
Charles C. Pope (Principal Financial and
Accounting Officer)
/s/ GARY B. FILLER Co-Chairman of the Board August 20, 1998
____________________________________
Gary B. Filler
/s/ LAWRENCE PERLMAN Co-Chairman of the Board August 20, 1998
____________________________________
Lawrence Perlman
/s/ KENNETH HAUGHTON Director August 20, 1998
____________________________________
Kenneth Haughton
/s/ ROBERT A. KLEIST Director August 20, 1998
____________________________________
Robert A. Kleist
/s/ THOMAS P. STAFFORD Director August 20, 1998
____________________________________
Thomas P. Stafford
/s/ LAUREL L. WILKENING Director August 20, 1998
____________________________________
Laurel L. Wilkening
23
SEAGATE TECHNOLOGY, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E COL. F
------ ------------ ---------- ---------- ------------ -----------
ADDITIONS
---------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING OF COSTS AND ACCOUNTS-- DEDUCTIONS-- END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE (1) PERIOD
----------- ------------ ---------- ---------- ------------ -----------
YEAR ENDED JULY 3, 1998:
Deducted from asset
accounts:
Allowance for
doubtful accounts.. $60,413,000 $1,182,000 $-- $ 7,465,000 $54,130,000
=========== ========== ==== =========== ===========
YEAR ENDED JUNE 27,
1997:
Deducted from asset
accounts:
Allowance for
doubtful accounts.. $66,656,000 $5,729,000 $-- $11,972,000 $60,413,000
=========== ========== ==== =========== ===========
YEAR ENDED JUNE 28,
1996:
Deducted from asset
accounts:
Allowance for
doubtful accounts.. $71,702,000 $3,744,000 $-- $ 8,790,000 $66,656,000
=========== ========== ==== =========== ===========
- --------
(1)Uncollectible accounts written off, net of recoveries.
24
SEAGATE TECHNOLOGY, INC.
INDEX TO EXHIBITS
EXHIBITS NOTES:
-------- ------
3.1 Certificate of Incorporation of Registrant, as amended. (A)
3.2 By-Laws of Registrant, as amended. (B)
4.1 Indenture, dated as of March 1, 1997 (the "Indenture"),
between Seagate Technology, Inc. (the "Company") and First
Trust of California, National Association, as Trustee. (C)
4.2 Officers' Certificate pursuant to Section 301 of the
Indenture, without Exhibits, establishing the terms of the
Company's senior notes and senior debentures. (C)
4.3 Form of Senior Note. (C)
4.4 Form of Senior Debenture. (C)
10.1 1983 Incentive Stock Option Plan and form of Stock Option
Agreement. (E)
10.2 Seagate Technology Employee Stock Purchase Plan, as amended.
10.3 Registrant's Executive Stock Plan. (I)
10.4 Conner Peripherals, Inc. 1986 Incentive Stock Plan. (I)
10.5 Building Agreement for Land At Private Lot A14547 in Yio Chu
Kang dated May 30, 1996 between Seagate Technology
International and Jurong Town Corporation.
10.6 Lease Agreement dated July 18, 1994 between Universal
Appliances Limited and Seagate Technology (Thailand)
Limited.
10.7 1991 Incentive Stock Option Plan and Form of Option
Agreement, as amended.
10.8 Acquisition Agreement dated as of September 29, 1989 by and
among Seagate Technology, Inc. and Control Data Corporation,
Imprimis Technology Incorporated and Magnetic Peripherals,
Inc. (G)
10.9 Amended and Restated Directors' Option Plan and Form of
Option Agreement. (H)
10.10 Amended and Restated Archive Corporation Stock Option and
Restricted Stock Purchase Plan--1981. (I)
10.11 Amended and Restated Archive Corporation Incentive Stock
Option Plan--1981. (I)
10.12 Conner Peripherals, Inc.--Arcada Holdings, Inc. Stock Option
Plan. (J)
10.13 Arcada Holdings, Inc. 1994 Stock Option Plan. (J)
10.14 Separation Agreement and Release between the Registrant and
Alan F. Shugart dated as of July 29, 1998.
13.1 Portions of the 1998 Annual Report to Stockholders.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (included on page 23).
27 Financial Data Schedule
- --------
(A) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-3 (File No.
33-13430) filed with the Securities and Exchange Commission on April 14,
1987.
(B) Incorporated by reference to exhibits filed in response to Item 14 (a),
"Exhibits," of the Company's Form 10-K, as amended, for the year ended
June 30, 1990.
(C) Incorporated by reference to exhibits filed in response to Item 7(b),
"Financial Statements and Exhibits" of the Company's Current Report on
Form 8-K dated March 4, 1997.
(E) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's Form 10-K for the year ended June 30, 1983.
(G) Incorporated by reference to exhibits filed in response to Item 7(c),
"Exhibits," of the Company's Current Report on Form 8-K dated October 2,
1989.
(H) Incorporated by reference to exhibits filed in response to Item 14(a),
"Exhibits," of the Company's Form 10-K for the year ended June 30, 1991.
(I) Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-8 (registration number 333-00697) as filed with the
Commission on February 5, 1996.
(J) Incorporated by reference to exhibits filed with Registrant's Registration
Statement on Form S-8 (registration number 333-01059) as filed with the
Commission on February 21, 1996.