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FORM 10-K
SEAGATE TECHNOLOGY
(Annual Report)
Filed 8/21/2003 For Period Ending 6/27/2003
Address P.O. BOX 309GT, UGLAND HOUSE SOUTH CHURCH STREET,
GEORGE TOWN
GRAND CAYMAN, 00000
Telephone 345-949-8066
CIK 0001137789
Industry Computer Storage Devices
Sector Technology
Fiscal
Year 06/30

Table of contents

  • Page 1
    SEAGATE TECHNOLOGY FORM 10-K (Annual Report) Filed 8/21/2003 For Period Ending 6/27/2003 Address P.O. BOX 309GT, UGLAND HOUSE SOUTH CHURCH STREET, GEORGE TOWN GRAND CAYMAN, 00000 Telephone 345-949-8066 CIK Industry Sector Fiscal Year 0001137789 Computer Storage Devices Technology 06/30

  • Page 2
    ...aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, based upon the closing price of Common Stock on June 27, 2003 as reported by the New York Stock Exchange, was approximately $1.579 billion. Shares of Common Stock held by each executive officer...

  • Page 3
    DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for its 2003 Annual Meeting of Stockholders (the "Proxy Statement") are incorporated by reference in Part II and Part III of this Form 10-K Report.

  • Page 4
    ... on manufacturing and supply chain efficiency and flexibility. This long-term plan involves: • increasing our commitment to investment in fundamental research and technological innovation leveraging our research investment to bring new products to market, such as our notebook rigid disc drives...

  • Page 5
    ... drives depends on highly advanced technology and manufacturing techniques, especially in the areas of read/write heads and recording media. Rigid disc drive manufacturers are distinguished by their level of integration, which is the degree to which they control the technology used in their products...

  • Page 6
    ... circuit boards. ASICs move data to and from the read/write head and the internal controller, or interface, which communicates with the host computer. Rigid disc drive manufacturers typically use one or more of several industry standard interfaces such as advanced technology architecture, or ATA...

  • Page 7
    ... licensed to use our intellectual property and technology. ASICs . We participate in the design of many of the ASICs used in our rigid disc drives for motor and actuator control, such as interface controllers, read/write channels and pre-amplifiers. We do not manufacture any ASICs but, rather, buy...

  • Page 8
    ... to packaging and shipment. Final assembly and test operations of our rigid disc drives occur primarily at facilities located in China and Singapore. We perform subassembly and component manufacturing operations at our facilities in Malaysia, Northern Ireland, Singapore, Thailand and, in the United...

  • Page 9
    ... in new markets, including television set-top boxes, printers, copiers and arcade and other dedicated gaming uses. Recently, we introduced our U Series X rigid disc drives for consumer electronics applications utilizing a single read/write head and a thinner profile in order to lower cost, improve...

  • Page 10
    ... product development roadmap to meet key OEM customers' technology requirements over the long term. Our business development group coordinates the qualification of new products with OEMs, determines product pricing and provides product service and support. Our marketing communications group focuses...

  • Page 11
    ... in our market share. Some of the principal factors used by customers to differentiate among rigid disc drive manufacturers are storage capacity; price per unit and price per megabyte; storage/retrieval access times; data transfer rates; product quality and reliability; production volume capability...

  • Page 12
    .... In fiscal year 1998, we established our Advanced Concepts Laboratory, which focuses rigid disc drive and component research on recording subsystems, including read/write heads and recording media, market-specific product technology as well as technology focused towards new business opportunities...

  • Page 13
    ...employed approximately 43,000 persons worldwide, of which approximately 33,000 employees were located in our Asian operations. In addition, we make use of temporary employees, principally in manufacturing, who are hired on an as-needed basis. We believe that our future success will depend in part on...

  • Page 14
    ... to the position of Chief Operating Officer, with responsibility for our disc drive manufacturing, recording media and recording head operations and product development. Prior to joining us, he was President and General Manager of the Disc Division at Conner Peripherals, Inc., an information storage...

  • Page 15
    ..., product development, disc drive integration, production launch, materials and volume production activities for the worldwide operations relating to heads and media, which are located in the United States, Asia and Europe. Mr. Glembocki joined us in the February 1996 merger with Conner Peripherals...

  • Page 16
    ... Communications Corp. and a number of private companies. Mr. Thompson became a member of our board of directors on the closing of the November 2000 transactions. Mr. Thompson is Chairman of the Board of Directors and Chief Executive Officer of Symantec Corporation, an Internet security technology...

  • Page 17
    ... Corporation and a number of private companies. ITEM 2. PROPERTIES Our headquarters is located in the Cayman Islands, while our U.S. executive offices are in Scotts Valley, California. Our principal manufacturing facilities are located in China, Malaysia, Northern Ireland, Singapore and Thailand...

  • Page 18
    .... We declined Convolve's offer of a license in late 1999. On July 13, 2000, Convolve and MIT filed suit against Compaq Computer Corporation and us in the U.S. District Court for the Southern District of New York, alleging patent infringement, misappropriation of trade secrets, breach of contract...

  • Page 19
    ... in the future. Although occasional adverse decisions or settlements may occur, we believe that the final disposition of such matters will not have a material adverse effect on our financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 16

  • Page 20
    ... shares have traded on the New York Stock Exchange under the symbol "STX" since December 11, 2002. Prior to that time there was no public market for our common shares. The high and low sales prices of our common shares, as reported by the New York Stock Exchange, are set forth below for the periods...

  • Page 21
    ...Partners LLC. The offering commenced on December 10, 2002 and has been completed. Of the 72,500,000 common shares registered, 24,000,000 shares were offered and sold by us and 48,500,000 shares were offered and sold by New SAC, our parent company, as selling shareholder. The aggregate offering price...

  • Page 22
    ... the periods indicated. Through November 22, 2000, the rigid disc drive business that we now operate and XIOtech Corporation ("XIOtech"), the storage area networks business that we operated through November 4, 2002, were the rigid disc drive and storage area networks divisions of Seagate Technology...

  • Page 23
    ...2000 transactions. Period Ended November 22, 2000 Includes $567 million of non-cash compensation expense related to the November 2000 transactions and losses recognized on investments in Lernout & Hauspie Speech Products N.V. and Gadzoox Networks, Inc., losses on the sale of marketable securities of...

  • Page 24
    ... to major original equipment manufacturers, or OEMs, and also market to distributors under our globally recognized brand name. For pro forma fiscal year 2001 and fiscal years 2002 and 2003, approximately 70%, 66% and 61%, respectively, of our combined rigid disc drive revenue was from sales to...

  • Page 25
    ... of the tax liabilities, and any amount exceeding $125 million will then be allocated among Seagate Technology HDD Holdings, Seagate Technology SAN Holdings, Certance Holdings and Seagate Software (Cayman) Holdings Corporation on a pro rata basis in accordance with the portion of the purchase price...

  • Page 26
    ... plan. On June 19, 2002, the board of directors accelerated vesting of all deferred compensation interests under the terms of the plan. As a result of certain distributions by New SAC to holders of its preferred shares in connection with our initial public offering, Seagate Technology HDD Holdings...

  • Page 27
    ...purchase price by New SAC (dollars in millions). Useful Life Description in Years Total New SAC Seagate Technology Certance Holdings Crystal Decisions STIH Net current assets (1) Long-term investments (2) Other long-lived assets Property, plant and equipment (3) Identified intangibles: Trade names...

  • Page 28
    24

  • Page 29
    ... to shifts in market share as newly combined companies focus on integrating their operations and OEMs maintain diversity by shifting their purchasing allocations to new suppliers. Also, as manufacturers merge or exit the rigid disc drive industry, they frequently liquidate their excess inventory...

  • Page 30
    ... to customers and take advantage of unforecasted sales opportunities to deliver products on short notice. Additionally, we have substantially improved our gross margin due to these ongoing cost savings from our restructuring activities and our programs to implement operating efficiencies...

  • Page 31
    ... the sale, Jabil became our primary source provider of warranty repair services for a multi-year period at costs defined in a long-term services agreement. During the term of this services agreement, we will be dependent upon Jabil to effectively manage warranty repair related costs and activities...

  • Page 32
    ... common stock held by New SAC. New SAC exercised this right and on July 30, 2003, we completed the secondary public offering of 69,000,000 of our common shares, including 9,000,000 shares subject to the over-allotment option, all of which were sold by New SAC, as selling shareholder, at a price of...

  • Page 33
    ... for the periods indicated. Seagate Technology Nov. 23, Fiscal Year Ended June 27, 2003 Fiscal Year Ended June 28, 2002 2000 to June 29, 2001 July 1, 2000 to Nov. 22, 2000 Predecessor (in millions) Revenue Cost of revenue Gross margin Product development Marketing and administrative Amortization...

  • Page 34
    ... compensation charge recorded as a result of the acceleration and net exercise of Seagate Delaware stock options held by employees of Seagate Technology at November 22, 2000; • • the reduction of depreciation expense by $107 million due to new, lower accounting basis in property, equipment and...

  • Page 35
    ... managing production and inventory levels. As a result, it is our expectation that for the first quarter of fiscal year 2004, price erosion will be at the low end of the industry's historical range. During fiscal year 2003, we continued to maintain various sales programs aimed at increasing customer...

  • Page 36
    ... Company and VERITAS Software Corporation. The tax indemnification amount was recorded by us in connection with the purchase of the operating assets of Seagate Delaware by New SAC and represents U.S. tax liabilities previously accrued by Seagate Delaware for periods prior to the acquisition date...

  • Page 37
    ... fiscal years. The increase in sales program expenses during fiscal year 2002 was due primarily to the higher cost of price protection programs, which are based on estimates of distributor inventory levels and current and future price erosion rates. As price erosion rates in the rigid disc drive...

  • Page 38
    ... our manufacturing plants located in China, Malaysia, Singapore and Thailand that operate under tax holidays (scheduled to expire in whole or in part at various dates through 2010) and (ii) an increase in our valuation allowance for U.S. deferred tax assets. As of June 28, 2002, we have recorded net...

  • Page 39
    ... Delaware, an increase in our allowance for U.S. deferred tax assets of certain subsidiaries, and income generated from our manufacturing plants located in China, Malaysia, Singapore and Thailand that operate under tax holidays (scheduled to expire in whole or in part at various dates through 2010...

  • Page 40
    ... of $32 million to deferred compensation plan participants, net of a $13 million income tax benefit. The borrowers under the new senior secured credit facility are Seagate Technology HDD Holdings and Seagate Technology (US) Holdings, Inc. Both of these companies are our wholly-owned direct or...

  • Page 41
    ... our senior secured credit facilities contains covenants that Seagate Technology HDD Holdings, our wholly-owned subsidiary that operates our rigid disc drive business, must satisfy in order to remain in compliance with the agreement. These covenants require Seagate Technology HDD Holdings, among...

  • Page 42
    ... related to our subassembly and disc drive final assembly and test facilities in the United States and the Far East; • $132 million for manufacturing facilities and equipment for our recording head operations in the United States, the Far East and Northern Ireland 144 million to upgrade the...

  • Page 43
    ... 2000 transactions, our principal liquidity requirements have been to service our debt and meet our working capital, research and development and capital expenditure needs. In addition, in the second half of fiscal year 2002 and through fiscal year 2003, we made distributions to our shareholders. 38

  • Page 44
    ... to make returns, our long history of conducting business with distributors on a sell-in basis in Asia and Europe, the nature of our historical relationships with our North American distribution customers and the daily reporting procedures through which we monitor inventory levels and sales to end...

  • Page 45
    ...We estimate probable product warranty costs at the time revenue is recognized. We generally warrant our products for a period of one to five years. We use estimated repair or replacement costs and use statistical modeling to estimate product return rates in order to determine our warranty obligation...

  • Page 46
    ... if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parities. FIN 46 is effective for all new variable...

  • Page 47
    ... operations will be adversely affected. In addition, in response to customer demand for high-quality, high-volume and low-cost rigid disc drives, manufacturers of rigid disc drives have had to develop large, in some cases global, production facilities with highly developed technological capabilities...

  • Page 48
    ... the level of economic activity in the United States and other major regions in which we do business; our high proportion of fixed costs, including research and development expenses; delays or problems in the introduction of our new products; announcements of new products, services or technological...

  • Page 49
    ... rigid disc drives in the market, a condition that is exacerbated when competitors exit the industry or specific product lines and liquidate their remaining inventory; manufacturing delays or interruptions, particularly at our major manufacturing facilities in China, Malaysia, Singapore and Thailand...

  • Page 50
    ...-The variability of product life cycles can make planning product transitions difficult. Historically the rate of increase of areal density has grown rapidly; however, recently this rate of increase is slowing. Higher areal densities mean that fewer read/write heads and rigid discs are required to...

  • Page 51
    ...likelihood of reliability, quality or operability problems. If our products suffer increases in failures, are of low quality or are not reliable, customers may reduce their purchases of our products and our manufacturing rework and scrap costs and service and warranty costs may increase. In addition...

  • Page 52
    ... of rigid disc drives over the long-term. To date, we have not yet developed a commercial product based on these technologies. Furthermore, based on our recent experience in the industry with respect to new product introductions, we believe that the rate of increase of areal density is slowing as...

  • Page 53
    ...not pass these price increases to our customers, our operating margin would decline; • • we might have to reengineer some products, which would likely cause production and shipment delays, make the reengineered products more costly and provide us with a lower rate of return on these products; we...

  • Page 54
    ... markets, tariffs and duties, price controls, potential adverse tax consequences, increased costs, our customers' credit and access to capital and health-related risks. We have significant operations in foreign countries, including manufacturing facilities, sales personnel and customer support...

  • Page 55
    ... managing our international manufacturing facilities, complying with local legal and regulatory requirements and protecting our intellectual property. We cannot assure you that we will continue to be found to be operating in compliance with applicable customs, currency exchange control regulations...

  • Page 56
    ... in Nanjing, China. In addition, as noted above, Read-Rite Corporation, in a letter dated November 20, 2002 and in correspondence since that date, asserted that we do not currently have a license to Read-Rite Corporation patented technology and that our rigid disc drive products infringe at least...

  • Page 57
    ... protect us from independently developing or acquiring technology that is similar to ours. For example, in its bankruptcy proceedings under Chapter 7 of the U.S. Bankruptcy Code, Read-Rite Corporation's patents and other intellectual property rights were sold to Western Digital Corporation, who will...

  • Page 58
    ..., retain and further incentivize highly skilled management, marketing, sales and product development personnel. A significant portion of the incentive compensation for our senior management vests in calendar year 2003 and substantially all of this compensation will have vested by November 2004...

  • Page 59
    ... to enable us to pay the principal of, or interest on, our indebtedness or to fund our other liquidity needs, including working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances, and other general corporate requirements. Our ability to...

  • Page 60
    ... imposed by our existing debt instruments will limit our ability to finance future operations or capital needs or engage in other business activities that may be in our interest. Our existing debt instruments, including the indenture governing our outstanding 8% senior notes, impose, and the terms...

  • Page 61
    ..., will continue to hold a controlling interest in us, the influence of our public shareholders over significant corporate actions will be limited. After the secondary public offering of our common shares by New SAC in July 2003, affiliates of Silver Lake Partners, Texas Pacific Group, August Capital...

  • Page 62
    .... The stock market in general, and the market for technology stocks in particular, has recently experienced volatility that has often been unrelated to the operating performance of companies. If these market or industry-based fluctuations continue, the trading price of our common shares could...

  • Page 63
    ...respect to the publicly traded securities of rigid disc drive companies and technology companies generally. The price of our common shares is likely to be volatile in the future. In the past, following periods of decline in the market price of a company's securities, class action lawsuits have often...

  • Page 64
    ... Cayman Islands exempted company must be approved at a shareholders' meeting by a majority of the company's shareholders who are present and voting (either in person or by proxy) at such meeting. The shares voted in favor of the scheme of arrangement must also represent at least 75% of the value...

  • Page 65
    ... maintain a highly liquid portfolio by investing only in marketable securities with active secondary or resale markets. We have both fixed and floating rate debt obligations. We enter into debt obligations to support general corporate purposes including capital expenditures and working capital needs...

  • Page 66
    ... taxes Current portion of long-term debt Total Current Liabilities Accrued warranty Other liabilities Long-term debt, less current portion Total Liabilities Commitments and contingencies SHAREHOLDERS' EQUITY Preferred shares, $.00001 par value-100 million authorized; no shares issued or outstanding...

  • Page 67
    ... STATEMENTS OF OPERATIONS (in millions, except per share data) Seagate Technology Predecessor Period from July 1, 2000 to November 22, 2000 Year Ended June 27, 2003 Year Ended June 28, 2002 Period from November 23, 2000 to June 29, 2001 Revenue Cost of revenue Product development Marketing and...

  • Page 68
    ... taxes In-process research and development charge Non-cash portion of restructuring charge Deferred compensation charge Debt refinancing charges Gain on sale of SanDisk stock Loss on certain equity investments, net Compensation expense related to accelerated vesting and exchange of stock options...

  • Page 69
    ... agreements with affiliates Investment by New SAC and issuance of common stock Issuance of common shares in initial public offering Proceeds from exercise of employee stock options Distributions to shareholders Other, net Net cash provided by (used in) financing activities Increase in cash and cash...

  • Page 70
    ... Income (Loss) Business Equity Balance at June 30, 2000 Comprehensive Income (Loss): Net loss for period ended November 22, 2000 Unrealized loss on marketable securities Foreign currency translation Comprehensive loss Net change in investment by Seagate Delaware Balance at November 22, 2000...

  • Page 71
    ... share plans Balance at June 28, 2002 Net income and comprehensive Income Proceeds from exercises of employee stock options Sale of XIOtech to New SAC in exchange for $32 note payable distributed to shareholders Distributions to shareholders Issuance of common shares in initial public offering...

  • Page 72
    Amortization of deferred compensation Compensation expense related to executive terminations Balance at June 27, 2003 - $ - 439 $ - $ 2 10 640 $ (9) $ 685 2 10 $1,316 See notes to consolidated and combined financial statements. 66

  • Page 73
    ... on December 13, 2002, the Company changed its corporate name from "Seagate Technology Holdings" to "Seagate Technology." In July 2003, the Company completed the secondary public offering of 69,000,000 of its common shares, all of which were sold by New SAC, as selling shareholder, at a price of $18...

  • Page 74
    ... levels, program participation and customer claim submittals. Significant variations in any of these factors could have a material effect on the Company's operating results. The Company's warranty provision considers estimated product failure rates, trends and estimated repair or replacement costs...

  • Page 75
    ...-time increase in total revenue, operating income and net income of approximately 4%, 9% and 9%, respectively. Estimated reductions to revenue for sales incentive programs, such as price protection, and sales growth bonuses, are recorded when revenue is recorded. Marketing development programs, when...

  • Page 76
    ... other assets. A substantial majority of the Company's marketable investments are classified as available-for-sale as of the balance sheet date and are reported at fair value, with unrealized gains and losses, net of tax, recorded in shareholder's equity. The cost of securities sold is based on the...

  • Page 77
    ... to reduce its manufacturing operations, which could have a material adverse effect upon its results of operations. Net Income Per Share On November 22, 2000, New SAC contributed the hard disc drive business to the Company in exchange for all the then-outstanding capital stock, which comprised of...

  • Page 78
    ... requires the use of option valuation models, such as the Black-Scholes option-pricing model used by the Company, that were not developed for use in valuing employee stock options. The BlackScholes option-pricing model was developed for use in estimating the fair value of trade options that have no...

  • Page 79
    ... of the fair value of available-for-sale securities at June 28, 2002: Amortized Cost (in millions) Fair Value Money market mutual funds U.S. government and agency obligations Auction rate preferred stock Municipal bonds Corporate securities Subtotal Marketable equity securities Total available-for...

  • Page 80
    ..., notes, marketable equity securities, debentures and interest rate swap agreements are estimated based on quoted market prices. The carrying values and fair values of the Company's financial instruments are as follows: June 27, 2003 Carrying amount Estimated fair value June 28, 2002 Carrying amount...

  • Page 81
    ...million for fiscal years 2003 and 2002 and the periods from November 23, 2000 to June 29, 2001 and July 1, 2000 to November 22, 2000, respectively. Intangibles Other intangible assets consist of trademarks, assembled workforces, distribution networks, developed technology, and customer bases related...

  • Page 82
    ... Company's wholly-owned subsidiaries, Seagate Technology HDD Holdings ("HDD") and Seagate Technology (US) Holdings, Inc., entered into new senior secured credit facilities with a group of banks that permit up to $500 million of borrowings consisting of a $150 million revolving credit and a five-year...

  • Page 83
    ... minimum principal payments on long-term debt and capital lease obligations were as follows: Fiscal Year 2004 2005 2006 2007 2008 Thereafter $ 5 3 4 336 - 400 $748 As of June 27, 2003, the Company had $31 million of outstanding standby letters of credit and bankers' guarantees issued under the...

  • Page 84
    ...'s common stock at $0.01 per share. The difference between the fair market value of the shares on the measurement date and the exercise price was recorded as deferred compensation by Seagate Delaware and was charged to operations of the Company over the vesting period of four to seven years. At...

  • Page 85
    ... market price of the stock at the end of any six-month purchase period is lower than the stock price at the beginning of the offering period. In that case, the plan is immediately canceled after that purchase date, and a new one-year plan is established using the then-current stock price as the base...

  • Page 86
    ...stock options granted to employees for fiscal years 2003 and 2002 was estimated assuming no expected dividends (for periods prior to December 27, 2002) and the following weighted average assumptions: Post-IPO 2003 Pre-IPO 2003 2002 Option Plan Shares Expected life (in years) Risk-free interest rate...

  • Page 87
    ...) Post-Retirement Health Care Plan In fiscal year 2000, Seagate Delaware adopted a post-retirement health care plan that offers medical coverage to eligible U.S. retirees and their eligible dependents. Substantially all U.S. employees become eligible for these benefits after 15 years of service and...

  • Page 88
    ... of June 27, 2003, there were no outstanding balances for taxes due to or from any New SAC affiliates. The provision for (benefit from) income taxes consisted of the following: Seagate Technology Fiscal Year Ended June 27, 2003 Fiscal Year Ended June 28, 2002 Period from November 23, 2000 to June 29...

  • Page 89
    ... their related tax bases. During the fourth quarter of fiscal year 2002, the Company reduced to zero the $104 million net carrying value of long-lived intangibles recorded in connection with the purchase of the operating assets of Seagate Delaware in order to reflect tax benefits recognized by the...

  • Page 90
    83

  • Page 91
    ... the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating loss or tax credit carry-forwards before utilization. The applicable statutory rate in the Cayman Islands was zero for Seagate Technology for fiscal years...

  • Page 92
    ... VERITAS Software Corporation. The tax indemnification amount was recorded by the Company in connection with the purchase of the operating assets of Seagate Delaware and represents U.S. tax liabilities previously accrued by Seagate Delaware for periods prior to the acquisition date of the operating...

  • Page 93
    ...fiscal year 2003 restructuring plan, established to continue the alignment of the Company's global workforce and manufacturing capacity with existing and anticipated future market requirements, primarily in its Far East operations. The restructuring charge was comprised of employee termination costs...

  • Page 94
    SEAGATE TECHNOLOGY AND ITS PREDECESSOR NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS-(CONTINUED) The following table summarizes the Company's and the Predecessor's restructuring activities for fiscal years ended June 27, 2003, June 28, 2002 and June 29, 2001: Severance and Benefits Excess ...

  • Page 95
    ... to the Company's sale of XIOtech Corporation to New SAC on November 4, 2002, the Company had two operating segments: rigid disc drives and storage area networks, however, only the rigid disc drive business was a reportable segment. See Note 12, Sale of XIOtech Corporation. The operating results for...

  • Page 96
    ... not owned by the Company. The fair value of the net assets exceeded the net purchase price by approximately $909 million. Accordingly, the resultant negative goodwill was allocated on a pro rata basis to acquired long-lived assets of New SAC, primarily property, plant and equipment, and identified...

  • Page 97
    ... net purchase price as it relates to the Company (in millions). Description Useful Life Estimated in Years Fair Value Net current assets (1)(3) Other long-lived assets Property, plant and equipment (2) Identified intangibles: Trade names (4) Developed technologies (4) Assembled workforces (4) Other...

  • Page 98
    ... in control of the Company and might harm the market price of its common stock and the voting and other rights of the holders of common stock. As of June 27, 2003, there were no shares of preferred stock outstanding. In connection with the Company's initial public offering in December 2002, all...

  • Page 99
    ... rental adjustments including, in certain cases, a provision based on increases in the Consumer Price Index. All of the leases require the Company to pay property taxes, insurance and normal maintenance costs. Future minimum lease payments for operating leases with initial or remaining terms of one...

  • Page 100
    ...The Company declined Convolve's offer of a license in late 1999. On July 13, 2000, Convolve and MIT filed suit against Compaq Computer Corporation and the Company in the U.S. District Court for the Southern District of New York, alleging patent infringement, misappropriation of trade secrets, breach...

  • Page 101
    ...-year period at costs defined in a long-term services agreement. During the term of this services agreement, the Company will be dependent upon Jabil to effectively manage warranty repair related costs and activities. The arrangement with Jabil is comprised of various elements, including the sale...

  • Page 102
    ... its products for a period of one to five years. The Company uses estimated repair or replacement costs and uses statistical modeling to estimate product return rates in order to determine its warranty obligation. Changes in the Company's product warranty liability during the fiscal years ended...

  • Page 103
    ... plan obligation to its participating officers and employees totaling $147 million which was paid in December 2002. In July 2003, the Company completed the secondary public offering of 69,000,000 of its common shares, all of which were sold by New SAC, its parent company, as selling shareholder...

  • Page 104
    ... consolidating results of operations and cash flows for the fiscal years ended June 27, 2003 and June 28, 2002. The information classifies the Company's subsidiaries into Seagate Technology-parent company guarantor, HDD-subsidiary issuer, and the combined non-guarantors based upon the classification...

  • Page 105
    ... CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS-(CONTINUED) Consolidating Balance Sheet June 28, 2002 (in millions) Seagate Technology Parent Company Guarantor HDD Subsidiary Issuer Combined NonGuarantors Eliminations Seagate Technology Consolidated Cash and cash equivalents Short-term investments...

  • Page 106
    ... Operations Fiscal Year Ended June 27, 2003 (in millions) Seagate Technology Parent Company Guarantor HDD Subsidiary Issuer Combined NonGuarantors Eliminations Seagate Technology Consolidated Revenue Cost of revenue Product development Marketing and administrative Restructuring Total operating...

  • Page 107
    ... Cash Flows Fiscal Year Ended June 27, 2003 (in millions) Seagate Technology Parent Company Guarantor HDD Subsidiary Issuer Combined NonGuarantors Eliminations Seagate Technology Consolidated Net Income Adjustments to reconcile net income to net cash from operating activities: Depreciation and...

  • Page 108
    ... Statement of Operations Fiscal Year Ended June 28, 2002 (in millions) Seagate Technology Parent Company Guarantor HDD Subsidiary Issuer Combined NonGuarantors Eliminations Seagate Technology Consolidated Revenue Cost of revenue Product development Marketing and administrative Amortization...

  • Page 109
    ...-Guarantor Loan to Parent Loan payment from Parent Distributions from HDD to Seagate Technology Distributions to shareholders Exercise of employee stock options Capital contributions to HDD Capital contributions to Non-Guarantors Net cash provided by (used in) financing activities Increase in cash...

  • Page 110
    ...$245 million distributed to officers and employees of the Company who hold ordinary shares of New SAC. 18. Supplementary Financial Data (Unaudited) Quarterly Data Fiscal Year 2003 Unaudited, in millions except per share data 1st 2nd 3rd 4th Revenue Gross margin Income from operations Net income Net...

  • Page 111
    ... cash flows of Seagate Technology Hard Disc Drive Business, an operating business of Seagate Delaware, for the period from July 1, 2000 to November 22, 2000, in conformity with accounting principles generally accepted in the United States. /s/ E RNST & Y OUNG LLP San Jose, California July 15, 2003...

  • Page 112
    ...Statement to be filed with the Commission within 120 days of the end of our 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 our Proxy Statement...

  • Page 113
    ...May 16, 2002) Consolidated Amendment to Stock Purchase Agreement, Agreement and Plan of Merger and Reorganization, and Indemnification Agreement, and Consent, dated as of August 29, 2000, by and among Suez Acquisition Company (Cayman) Limited, Seagate Technology, Inc., Seagate Software Holdings, Inc...

  • Page 114
    ... 8, 2002) Shareholders Agreement by and among Seagate Technology Holdings, New SAC, Silver Lake Technology Investors Cayman, L.P., Silver Lake Investors Cayman, L.P., Silver Lake Partners Cayman, L.P., SAC Investments, L.P., August Capital III, L.P., J.P. Morgan Partners, L.L.C., GS Capital Partners...

  • Page 115
    ... among New SAC, Seagate Technology HDD Holdings and the Senior Manager listed therein (incorporated by reference to Exhibit 10.5 to the registrant's registration statement on Form S-4 (reg. no. 333-88388) filed with the SEC on May 16, 2002) Seagate Technology HDD Holdings Deferred Compensation Plan...

  • Page 116
    ....10 Shareholders Agreement, dated as of November 22, 2000, by and among New SAC, Silver Lake Technology Investors Cayman, L.P., Silver Lake Investors Cayman, L.P., Silver Lake Partners Cayman, L.P., SAC Investments, L.P., August Capital III, L.P., Chase Equity Associates, L.P., GS Capital Partners...

  • Page 117
    ... No. 1, dated December 5, 2002, to the Credit Agreement, dated as of May 13, 2002, by and among Seagate Technology Holdings, Seagate Technology HDD Holdings, Seagate Technology (US) Holdings, Inc., the Lenders party thereto, JPMorgan Chase Bank, as administrative agent, J.P. Morgan Securities Inc...

  • Page 118
    ... the U.S. Securities and Exchange Commission thereunder in connection with the registrant's Annual Report on Form 10-K for the fiscal year ended June 27, 2003 (the "Annual Report"), including specifically, but without limiting the generality of the foregoing, power and authority to sign the name of...

  • Page 119
    ... Code of Business Conduct and Ethics Introduction Seagate Technology (the "Company") is committed to conducting its business with honesty and integrity. The policies outlined in this Code are designed to ensure that the Company's employees and officers ("employees") and members of its board...

  • Page 120
    The Company has a securities trading policy and all employees and directors must abide by its terms. This policy, among other things, provides that employees and directors may not buy or sell shares of the Company when they are in possession of material, non-public information. They also are ...

  • Page 121
    ... books, records, accounts and financial statements must be maintained in reasonable detail, must appropriately reflect the matters to which they relate and must conform both to applicable legal requirements and to the Company's system of internal controls. All assets of the Company must be carefully...

  • Page 122
    ...for the year ended June 27, 2003. /s/ San Jose, California August 19, 2003 EXHIBIT 31.1 CERTIFICATION I, Stephen J. Luczo, Chief Executive Officer of Seagate Technology, certify that: 1. I have reviewed this annual report on Form 10-K of Seagate Technology; 2. Based on my knowledge, this report does...

  • Page 123
    ...'s internal control over financial reporting. Date: August 21, 2003 Name: Title: CERTIFICATION I, Charles C. Pope, Chief Financial Officer of Seagate Technology, certify that: 1. I have reviewed this annual report on Form 10-K of Seagate Technology; 2. Based on my knowledge, this report does...

  • Page 124
    ...ACT OF 2002 In connection with the Annual Report of Seagate Technology (the "Company") on Form 10-K for the year ended June 27, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stephen J. Luczo, Chief Executive Officer of the Company, certify, pursuant...