Seagate 2004 Annual Report Download

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FORM 10-K
SEAGATE TECHNOLOGY
(Annual Report)
Filed 8/1/2005 For Period Ending 7/1/2005
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 8/1/2005 For Period Ending 7/1/2005 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
    ... transition period from to Commission File No. 001-31560 SEAGATE TECHNOLOGY (Exact name of Registrant as specified in its charter) Cayman Islands (State or other jurisdiction of incorporation or organization) 98-0355609 (I.R.S. Employer Identification Number) P.O. Box 309GT Ugland House, South...

  • Page 3

  • Page 4
    ... SEAGATE TECHNOLOGY TABLE OF CONTENTS Page No. Item PART I 1. 2. 3. 4. Business Properties Legal Proceedings Submission of Matters to a Vote of Security Holders PART II Market for Registrant's Common Stock and Related Shareholder Matters Selected Financial Data Management's Discussion and Analysis...

  • Page 5
    ...; and consumer electronics applications where our products are used in a wide variety of devices such as digital video recorders, digital music players and gaming devices. We sell our disc drives primarily to major original equipment manufacturers, or OEMs, and also market to distributors under our...

  • Page 6
    ...disc drives incorporate the same basic technology although individual products vary. One or more discs are attached to a spindle assembly powered by a spindle motor that rotates the discs at a high constant speed around a hub. The discs, or recording media, are the components on which data is stored...

  • Page 7
    ...the read/write head technology. Furthermore, perpendicular recording technology requires a complex interplay between the read/write heads, the recording media, the ASICs and the disc drive software. We believe that because of our vertical design and manufacturing strategy, we are well suited to meet...

  • Page 8
    ... the production of individual components and ends with a fully assembled unit. We design, assemble and/or manufacture a number of the most important components found in our disc drives, including read/write heads, recording media, printed circuit boards, spindle motors and ASICs. Read/Write Heads...

  • Page 9
    ... to packaging and shipment. Final assembly and test operations of our disc drives occur primarily at facilities located in China, Singapore and Thailand. We perform subassembly and component manufacturing operations at our facilities in China, Malaysia, Northern Ireland, Singapore, Thailand, and...

  • Page 10
    ... Barracuda ATA/SATA Family . The U Series X and Barracuda ATA/SATA families of disc drives are used in desktop applications and other markets, including digital video recorders, video game consoles, audio jukeboxes, home media centers, and home and industrial security systems. The ST1 series of disc...

  • Page 11
    ... distributors throughout most of the world. The worldwide sales group is organized regionally among North America, Japan, Asia-Pacific (excluding Japan) and Europe, Africa and the Middle East. In addition, we have a sales operation group which focuses on aligning our production levels with customers...

  • Page 12
    ...limited number of major customers. Some of the principal factors used by customers to differentiate among disc drive manufacturers are: • storage capacity price per unit and price per gigabyte; storage/retrieval access times; data transfer rates; product quality and reliability; production volume...

  • Page 13
    ... to improve storage capacity. Our Advanced Technology Integration effort focuses 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. The primary...

  • Page 14
    ... with other major disc drive companies and component manufacturers with respect to ongoing patent cross-licenses. For a discussion of the related risks, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Risk Factors-Risks Related to Our Business...

  • Page 15
    ...Marketing and Customer Service Executive Vice President, General Counsel and Corporate Secretary Senior Vice President and General Manager, Asia Operations Senior Vice President, Heads and Media Senior Vice President, Research and Technology and Chief Technical Officer Senior Vice President, Product...

  • Page 16
    ...for managing worldwide product and process development for design centers located in Minnesota, Colorado and Singapore. His experience includes nearly 20 years in the disc drive industry. Prior to his current position, he was Senior Vice President of Product Development Engineering from 2002 to 2004...

  • Page 17
    ... 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. As Vice President of Engineering for our Recording Media Group, Mr...

  • Page 18
    ...Hutchins was a Senior Managing Director of The Blackstone Group L.P., where he focused on its private equity investing. Mr. Hutchins is a member of the boards of directors of Gartner, Inc., Ameritrade Holding Corp., the NASDAQ Stock Market, Inc and a number of private companies including New SAC. Mr...

  • Page 19
    ...the laws of the Cayman Islands. ITEM 2. PROPERTIES Our company 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 and, in the...

  • Page 20
    ... 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS Market Information Our common 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...

  • Page 21
    ... will be excluded from the application of the personal holding company rules of the Internal Revenue Code of 1986, as amended (the "Code"), effective for taxable years of foreign corporations beginning after December 31, 2004. For the Company, the effective date is its fiscal year beginning...

  • Page 22
    ... million reduction in operating expenses related to the reduction in accrued benefit obligations associated with our postretirement medical plan and approximately $10 million in income from the settlement of a litigation matter. Year Ended July 2, 2004 Includes a $125 million income tax benefit from...

  • Page 23
    ...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 $138...

  • Page 24
    ... applications where our products are used in digital video recorders, digital music players and gaming devices. We sell our disc drives primarily to major original equipment manufacturers, or OEMs, and also market to distributors under our globally recognized brand name. For fiscal years 2005, 2004...

  • Page 25
    ..., we recorded a $125 million income tax benefit in our third quarter of fiscal year 2004 from the reversal of accrued income taxes relating to the tax indemnification amounts due to VERITAS pursuant to the Indemnification Agreement between Seagate Delaware, New SAC and VERITAS. Overview Industry...

  • Page 26
    ... 2005 quarter with what we believe to be more than 5 weeks of distribution channel inventory. Seagate Overview . We are a leader in the disc drive industry with products that address substantially all of the available consumer electronics, mobile computing, enterprise and desktop storage markets. We...

  • Page 27
    ...2.5-inch, 160 GB notebook disc drive utilizing perpendicular recording technology, and the Momentus FDE, a notebook disc drive with hardware based encryption technology designed to address concerns over notebook computer theft and data protection. Enterprise- We experienced four consecutive quarters...

  • Page 28
    ... in future years. In this period of rapid industry unit growth and strain on industry capacity and component availability, we believe that our areal density and vertical design and manufacture of heads and media have contributed to the increased demand for our products and our ability to supply that...

  • Page 29
    ... of our common stock. We did not receive any of the proceeds from the sale of these shares by New SAC. Any sale of shares registered through the January 19, 2005 registration statement will be reflected in a Form 4 filing with the SEC within 2 business days after such sale or transfer. In addition...

  • Page 30
    ... 641 Fiscal Year Ended July 1, 2005 July 2, 2004 June 27, 2003 Revenue Cost of revenue Gross margin Product development Marketing and administrative Restructuring Income from operations Other income (expense), net Income before income taxes Provision for (benefit from) income taxes Net income 100...

  • Page 31
    28

  • Page 32
    ... aimed at increasing customer demand. We exercise judgment in formulating the underlying estimates related to distributor inventory levels, sales program participation and customer claims submittals in determining the provision for such programs. During fiscal year 2005, sales programs recorded as...

  • Page 33
    ... pre-change net operating losses and tax credit carryforwards will not be realized, a valuation allowance has been provided. The impact of the IRC Sec. 382 limitation was to increase our current tax expense related to the tax benefit of stock options credited to shareholders equity by approximately...

  • Page 34
    ... applications in the fourth fiscal quarter which can be attributed to an unexpected decline in industry distribution channel sell-through. Despite this decline, we believe that we maintained our market share. Unit shipments for enterprise storage disc drives were 10.4 million during fiscal year 2004...

  • Page 35
    ... varying rates of tax or is exempt from tax due to tax holidays or tax incentive programs we operate under in China, Malaysia, Singapore and Thailand. These tax holidays or incentives are scheduled to expire in whole or in part at various dates through 2015. The benefit for income taxes recorded for...

  • Page 36
    ... million had been utilized for outstanding letters of credit. The credit agreement that governs our senior secured credit facilities contains covenants that Seagate Technology HDD Holdings, or HDD, our wholly-owned subsidiary that operates our disc drive business, must satisfy in order to remain in...

  • Page 37
    ... drive final assembly and test facilities in the United States and the Far East; $240 million to upgrade the capabilities of our thin-film media operations in the United States, Singapore and Northern Ireland; $165 million for manufacturing facilities and equipment for our recording head operations...

  • Page 38
    ... financing activities for fiscal year 2004 was zero and was primarily attributable to dividends to our shareholders and principal payments on our senior secured credit facilities completely offset by cash provided by employee stock option exercises and employee stock purchases. Net cash provided by...

  • Page 39
    ... table below (in millions): Fiscal Year(s) 20072008 20092010 Thereafter Total 2006 Contractual Cash Obligations: Long term debt Capital expenditures Operating leases (1) Purchase obligations (2) Subtotal Commitments: Letters of credit or bank guarantees Total $ 740 267 144 1,428 2,579 35 $2,614...

  • Page 40
    ... at increasing customer demand. These programs are typically related to a distributor's level of sales, order size, advertising or point of sale activity or an OEM's level of sale activity or agreed upon rebate programs. We provide for these obligations at the time that revenue is recorded based...

  • Page 41
    ...number of new products, of which we are in the early stages of volume shipment. In addition, effective June 1, 2004, we extended our standard warranty from one year to five years on all internal desktop and notebook disc drives shipped through the distribution and retail channels. If the actual rate...

  • Page 42
    ...using the modified prospective application method. We expect that the adoption of SFAS 123-R will have a material impact on our results of operations subsequent to adoption. In June 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" ("SFAS 154"). SFAS 154 replaces APBO No...

  • Page 43
    ... of operations. Based on our recent experience in the industry with respect to new product introductions, we believe that the rate of growth in areal density, or the storage capacity per square inch on a disc, is slowing from its previous levels. This trend may contribute to increased average price...

  • Page 44
    .... In addition, in response to customer demand for high-quality, high-volume and low-cost disc drives, manufacturers of disc drives have had to develop large, in some cases global, production facilities with highly developed technological capabilities and internal controls. The development of large...

  • Page 45
    ...growing markets for disc drives. We initiated volume shipments of our first small form factor disc drive, the Momentus notebook disc drive, to a number of OEMs in the second quarter of fiscal year 2004. In June 2004, we announced our first 1-inch form factor disc drive, additional capacity models of...

  • Page 46
    ... for disc drives include read/write heads, recording media, ASICs, spindle motors, printed circuit boards and suspension assemblies. We rely on sole suppliers or a limited number of suppliers for some of these components, including recording media that we do not manufacture, ASICs, spindle motors...

  • Page 47
    ... glass substrates used to make the recording media for such drives. Increasing unit growth for 3.5-inch disc drives could also put a strain on aluminum media production capacity. Historically, the technology sector specifically, and the economy generally have experienced economic pressure, which has...

  • Page 48
    ...such as read/write heads and discs. However, in contrast to when the rate of growth in areal density is increasing, a slowing rate of growth in areal density can limit the cost benefits of new products because it is technologically more difficult to reduce the number of read/write heads and discs in...

  • Page 49
    ... the first-to-market and achieving sufficient production volume with our new products. To achieve consistent success with our OEM customers, it is important that we be an early provider of new types of disc drives featuring leading, high-quality technology. Historically, our operating results have...

  • Page 50
    ...products may make us less competitive as compared with other disc drive manufacturers. Impact of Technological Change-Increases in the areal density of disc drives may outpace customers' demand for storage capacity. The rate of increase in areal density, or storage capacity per square inch on a disc...

  • Page 51
    ...technologies and, while it has higher read performance than disc drives, it has lower write performance. Flash EEPROM could become competitive in the near future for applications requiring less storage capacity than that required in traditional markets for our products. High Fixed Costs-Our vertical...

  • Page 52
    ..., sales personnel and customer support operations. We have manufacturing facilities in China, Malaysia, Northern Ireland, Singapore and Thailand, in addition to those in the United States. A substantial portion of our desktop disc drive assembly occurs in our facility in China. Our international...

  • Page 53
    ... 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 54
    ... the claim by Papst that its license agreement was not properly transferred. We received a letter dated November 20, 2002 from Read-Rite Corporation asserting that we do not currently have a license to its patented technology and that our disc drive products infringe at least two of its patents...

  • Page 55
    ... 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 disc drive products infringe at least two Read-Rite Corporation patents. Intellectual property...

  • Page 56
    ... laws to which our domestic operations are subject, our extensive international manufacturing operations subject us to environmental regulations imposed by foreign governments. Although our policy is to apply strict standards for environmental protection at our sites inside and outside the United...

  • Page 57
    ... our industry. We are leveraged and have significant debt service obligations. Our significant debt and debt service requirements could adversely affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities. For example, our high level of...

  • Page 58
    ... service obligations could limit our flexibility in planning for, or reacting to, changes in our business and our industry and could limit our ability to pursue other business opportunities, borrow more money for operations or capital in the future and implement our business strategies; our level...

  • Page 59
    ... internal controls are ineffective in future periods, our financial results or the market price of our stock could be adversely affected. We will incur additional expenses and commitment of management's time in connection with further evaluations. Ownership of Our Common Shares by Our Sponsor Group...

  • Page 60
    ...August Capital can unilaterally require that we file registration statements covering common shares held by New SAC. In addition, either Silver Lake Partners or Texas Pacific Group can unilaterally cause New SAC to distribute its shares in us to our sponsor group and New SAC's other shareholders. By...

  • Page 61
    ...; general stock market conditions; the occurrence of major catastrophic events; changes in financial estimates by investment research analysts; and the sale of our common shares held by New SAC, members of our sponsor group or members of management. Failure to Pay Quarterly Dividends-Our...

  • Page 62
    ... respect to the publicly traded securities of 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 been...

  • Page 63
    ... typically required to consummate a merger in the United States. Under Cayman Islands law and practice, a scheme of arrangement in relation to a solvent Cayman Islands exempted company must be approved at a shareholders' meeting by a majority of the company's shareholders who are present and voting...

  • Page 64
    ... exposure to market risk for changes in interest rates relates primarily to our investment portfolio and long-term debt. We currently do not use derivative financial instruments in either our investment portfolio, or to hedge debt. We invest in high credit quality issuers and, by policy, limit the...

  • Page 65
    ... to the derivatives consist of major financial institutions, and we manage the notional amount of contracts entered into with any one counterparty. We maintain settlement and revaluation limits as well as maximum tenor of contracts based on the credit rating of the financial institutions. We...

  • Page 66
    ... Accounts payable Accrued employee compensation Accrued expenses Accrued warranty Accrued income 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...

  • Page 67
    ... 2004 Fiscal Year Ended June 27, 2003 Revenue Cost of revenue Product development Marketing and administrative Restructuring, net Total operating expenses Income from operations Interest income Interest expense Other, net Other income (expense), net Income before income taxes Provision for (benefit...

  • Page 68
    ... FINANCING ACTIVITIES Repayment of long-term debt Issuance of common shares in initial public offering Proceeds from exercise of employee stock options and employee stock purchase plan Dividends to shareholders Net cash provided by (used in) financing activities Increase (decrease) in cash and...

  • Page 69
    ... 2004 Comprehensive income: Unrealized loss on marketable securities Unrealized loss on cash flow hedges Net income Comprehensive income Issuance of common shares related to employee stock options and employee stock purchase plan Dividends to shareholders Tax benefit from stock options Amortization...

  • Page 70
    ...1. Summary of Significant Accounting Policies Nature of Operations -The Company designs, manufactures and markets rigid disc drives. Rigid disc drives, which are commonly referred to as disc drives, are used as the primary medium for storing electronic information in systems ranging from desktop and...

  • Page 71
    ...-1 , "Accounting for Separately Priced Extended Warranty and Product Maintenance contracts" for sales of extended warranties. Estimated reductions to revenue for sales incentive programs, such as price protection, and sales growth bonuses, are recorded when revenue is recorded. Marketing development...

  • Page 72
    ... 2005, 2004 and 2003, respectively. Stock-Based Compensation -The Company accounts for employee stock-based compensation using the intrinsic value method under Accounting Principles Board Opinion ("APBO") No. 25, "Accounting for Stock Issued to Employees" ("APBO 25"), and related interpretations...

  • Page 73
    ...the timing thereof; the valuation model chosen by the Company to value stock-based awards; the assumed award forfeiture rate; the accounting policies adopted concerning the method of recognizing the fair value of awards over the service period; the potentially significant effect of income taxes; and...

  • Page 74
    ...Options to purchase 6.8 million, 3.7 million and 0.5 million shares of common stock were outstanding during fiscal years 2005, 2004 and 2003, respectively, but were not included in the computation of diluted net income per share because the options' exercise price was greater than the average market...

  • Page 75
    ...of Contents SEAGATE TECHNOLOGY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Pro Forma Effects of Stock-Based Compensation on Net Income Per Share The Company continues to use the intrinsic value method under APBO 25 and related interpretations in accounting for employee stock options until...

  • Page 76
    ...former officers and employees of the Company who hold ordinary shares of New SAC. On January 3, 2005, New SAC satisfied its delivery obligation under the forward sale contract and transferred all of its voting, dividend and economic rights to the Shares to GSFM. On June 15, 2005, final settlement of...

  • Page 77
    ... the fair value of available-for-sale securities at July 2, 2004: Amortized Cost Unrealized Loss (in millions) Fair Value Money market mutual funds U.S. government and agency obligations Auction rate preferred stock Corporate securities Total available-for-sale securities Included in cash and cash...

  • Page 78
    ... exchange or purchased currency option contracts during fiscal year 2003. The Company has both fixed and floating rate debt obligations. The Company enters into debt obligations to support general corporate purposes including capital expenditures and working capital needs. The Company has used...

  • Page 79
    ... at Beginning of Period Charged to Costs and Expenses Balance Deductions (1) (in millions) at End of Period Seagate Technology Fiscal year ended July 1, 2005 Fiscal year ended July 2, 2004 Fiscal year ended June 27, 2003 (1) Uncollectible accounts written off, net of recoveries. $ $ $ 30 32 29...

  • Page 80
    $ 1,529 76 $ 1,301

  • Page 81
    ... $350 million term loan facility and a $150 million revolving credit facility, are secured by a first priority pledge of substantially all the tangible and intangible assets of Seagate Technology HDD Holdings ("HDD"), the Company's wholly-owned direct subsidiary, and many of HDD's subsidiaries. The...

  • Page 82
    ... basis. The Company may make annual contributions at the discretion of its board of directors. During fiscal years 2005, 2004 and 2003, the Company made contributions of $13 million, $14 million and $15 million, respectively. Stock-Based Benefit Plans Seagate Technology 2001 Share Option Plan -In...

  • Page 83
    ... the Seagate Technology 2004 Stock Compensation Plan (the "2004 Plan"), and on October 28, 2004, the Company's shareholders approved the 2004 Plan. The purpose of the 2004 Plan, which is intended to supplement and eventually succeed the Company's 2001 Plan, is to promote the Company's long-term...

  • Page 84
    ...by the Company's board of directors. In no event shall the total number of shares issued under the ESPP exceed 75,000,000 shares. The ESPP permits eligible employees who have completed thirty days of employment prior to the commencement of any offering period to purchase common stock through payroll...

  • Page 85
    ... of stock options issued to employees using the Black-Scholes valuation method with a volatility factor based on the stock volatilities of its largest publicly traded competitors because the Company did not have a sufficient trading history. Beginning with its fiscal quarter ended December 31, 2004...

  • Page 86
    Table of Contents SEAGATE TECHNOLOGY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 4. Income Taxes Certain U.S. subsidiaries of the Company have been included in certain unitary and combined U.S. state tax returns with certain U.S. affiliates of New SAC and have entered into a tax sharing ...

  • Page 87
    ... SEAGATE TECHNOLOGY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Approximately $15 million of U.S. income tax benefits related to the exercise of certain employee stock options decreased accrued income taxes and was credited to additional paid-in capital in the fiscal year ended July...

  • Page 88
    ... credit carryforwards will not be realized, a valuation allowance has been provided. The impact of the IRC Sec. 382 limitation was to increase the Company's current tax expense related to the tax benefit of stock options credited to shareholders equity by approximately $15 million during the current...

  • Page 89
    .... In the fiscal year ended July 2, 2004, the Company recorded a $125 million income tax benefit from the reversal of accrued income taxes relating to tax indemnification amounts due to VERITAS pursuant to the Indemnification Agreement between Seagate Delaware, New SAC and VERITAS. The $125 million...

  • Page 90
    ... in its U.S. design centers and Far East operations. The restructuring costs were comprised of employee termination costs relating to a reduction in the Company's workforce of approximately 650 employees. These restructuring activities were substantially complete at July 2, 2004. During fiscal year...

  • Page 91
    ... customer accounted for more than 10% of consolidated revenues in any year presented. Long-lived assets consist of property, equipment and leasehold improvements, capital leases, equity investments, goodwill and other intangibles, and other non-current assets as recorded by the Company's operations...

  • Page 92
    ... summarizes the Company's operations by geographic area: Fiscal Years Ended July 1, 2005 July 2, 2004 (in millions) June 27, 2003 Revenue from external customers (1): United States The Netherlands Singapore Other Consolidated Long-lived assets: United States Singapore Thailand Other Consolidated...

  • Page 93
    ... 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 year or...

  • Page 94
    ..., Shao Tong, and a private Chinese company, Nanjing Yisike Network Safety Technique Co., Ltd. The complaint alleged that two of our personal storage disc drive products infringe Chinese patent number ZL94111461.9, which prevents the corruption of systems data stored on disc drives. The suit, which...

  • Page 95
    ...to retain the benefits of the Patent Cross-License Agreement. Securities and Exchange Commission's Request for Information In October 2003, we received from the Securities and Exchange Commission a request for all third-party research analyst reports regarding Seagate Technology published during the...

  • Page 96
    ... of Contents SEAGATE TECHNOLOGY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) a portion of the costs it may incur in the clean-up of contamination at most sites. In the opinion of management, including internal counsel, the probability is remote that the losses to the Company arising from...

  • Page 97
    ... to five years on all internal desktop and notebook disc drives shipped through the distribution and retail channels. 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...

  • Page 98
    ..., related to purchases of various components. At July 1, 2005 and July 2, 2004, the Company had accounts payable to LSI Logic of $46 million and $17 million, respectively. Another member of our board of directors became a director of Lenovo Group Limited on May 17, 2005. The Company recorded revenue...

  • Page 99
    Table of Contents SEAGATE TECHNOLOGY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) During fiscal year 2004, pursuant to its quarterly dividend policy, the Company paid dividends to its shareholders aggregating approximately $90 million. Of the $90 million paid, New SAC received ...

  • Page 100
    ... Total Assets Accounts payable Accrued employee compensation Accrued expenses Accrued income taxes Intercompany loan payable Current portion of long-term debt Total Current Liabilities Other liabilities Long-term debt, less current portion Total Liabilities Shareholders' Equity Total Liabilities...

  • Page 101
    ... Assets Accounts payable Intercompany payable Accrued employee compensation Accrued expenses Accrued income taxes Intercompany loan payable Current portion of long-term debt Total Current Liabilities Other liabilities Long-term debt, less current portion Total Liabilities Shareholders' Equity Total...

  • Page 102
    ... Parent Company Guarantor HDD Subsidiary Issuer Combined NonGuarantors Seagate Technology Consolidated Eliminations Revenue Cost of revenue Product development Marketing and administrative Restructuring Total operating expenses Income from operations Interest income Interest expense Equity in...

  • Page 103
    ... of long-term debt Issuance of common shares for employee stock plans Loan from HDD to Non-Guarantor Loan repayment from Non-Guarantor to HDD Distribution from HDD to Parent Investment by Parent in HDD Dividends to shareholders Net cash provided by (used in) financing activities Increase (decrease...

  • Page 104
    ... Fiscal Year Ended July 2, 2004 (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 expenses Income...

  • Page 105
    ... Ended July 2, 2004 (in millions) Seagate Technology Parent Company Guarantor HDD Subsidiary Issuer Combined NonGuarantors Seagate Technology Consolidated Eliminations Net Income Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization VERITAS tax...

  • Page 106
    ... Parent Company Guarantor HDD Subsidiary Issuer Combined NonGuarantors Seagate Technology Consolidated Eliminations Revenue Cost of revenue Product development Marketing and administrative Restructuring Total operating expenses Income (loss) from operations Interest income Interest expense Equity...

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

  • Page 108
    ... reduction in operating expenses related to the reduction in accrued benefit obligations associated with the Company's post-retirement medical plan. The results for the fourth quarter include approximately $10 million in income from the settlement of a litigation matter. Fiscal Year 2004 Unaudited...

  • Page 109
    ... 2, 2004, and the related consolidated statements of operations, shareholders' equity and cash flows of Seagate Technology for the fiscal years ended July 1, 2005, July 2, 2004, and June 27, 2003. These consolidated financial statements are the responsibility of Seagate Technology's management. Our...

  • Page 110
    ... REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders Seagate Technology We have audited management's assessment, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting, that Seagate Technology maintained effective internal control...

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    ...a company's controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC...

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    ... to provide additional information regarding the compensation awarded to the named executive officers in respect of and during the year ended July 1, 2005, in the proxy statement for our 2005 annual meeting of shareholders, which is expected to be filed with the Securities and Exchange Commission...

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    ... entitled "Certain Relationships and Related Transactions" in our Proxy 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 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this Item 14...

  • Page 114
    ... not applicable or the required information is shown in the Financial Statements or in the notes thereto. Exhibits: Description 2.1 Stock Purchase Agreement, dated as of March 29, 2000, by and among Suez Acquisition Company (Cayman) Limited, Seagate Technology, Inc. and Seagate Software Holdings...

  • Page 115
    ... Number Description 2.6 Consolidated Amendment No. 2 to Stock Purchase Agreement, Agreement and Plan of Merger and Reorganization, and Indemnification Agreement, and Consent, dated as of October 18, 2000, by and among Suez Acquisition Company (Cayman) Limited, Seagate Technology, Inc., Seagate...

  • Page 116
    ... registrant's quarterly report on Form 10-Q (file no. 001-13560) filed with the SEC on February 10, 2003) Amendment, dated as of April 23, 2004, to the Shareholders Agreement dated as of December 6, 2002, among Seagate Technology, New SAC, Silver Lake Technology Investors Cayman, L.P., Silver Lake...

  • Page 117
    ...2002) Seagate Technology Holdings 2001 Share Option Plan (incorporated by reference to Exhibit 10.9 to the registrant's registration statement on Form S-4 (reg. no. 333-88388) filed with the SEC on May 16, 2002) Shareholders Agreement, dated as of November 22, 2000, by and among New SAC, Silver Lake...

  • Page 118
    ... Technology International (Wuxi) Co., Ltd., Seagate Microelectronics Limited and Seagate Peripherals, Inc. (incorporated by reference to Exhibit 10.12 to the registrant's registration statement on Form S-4 (reg. no. 333-88388) filed with the SEC on May 16, 2002) World-Wide Services Agreement, dated...

  • Page 119
    ...SEC on October 29, 2004) Seagate Technology 2004 Stock Compensation Plan Form of Option Agreement (For Non-Officer Employees) (incorporated by reference to Exhibit 10.27 to the registrant's quarterly report on Form 10-Q (reg. no. 001-31560) filed with the SEC on October 29, 2004) Summary description...

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    ..., but without limiting the generality of the foregoing, power and authority to sign the name of the registrant and the name of the undersigned, individually and in his capacity as a director or officer of the registrant, to the Annual Report as filed with the U.S. Securities and Exchange Commission...

  • Page 121
    ... (Singapore Branch) Penang Seagate Industries (M) Sdn. Bhd. Perai Seagate Storage Products Sdn. Bhd. Seagate Singapore International Headquarters Pte. Ltd. New Delhi Representative Office Seagate Technology Asia Holdings Cayman Cayman California Delaware Delaware Delaware Delaware Sweden Australia...

  • Page 122
    ... Inc. Seagate Technology International (Wuxi) Co. Ltd. Seagate Technology (Ireland) Northern Ireland Branch (Springtown, Londonderry) Seagate Technology (Malaysia) Holding Company Senai Seagate Industries (M) Sdn. Bhd. Seagate Technology (Marlow) Limited Cork Branch Seagate Technology Media (Ireland...

  • Page 123
    ... of the Annual Report of Seagate Technology (the "Company") on Form 10-K for the fiscal year ended July 1, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"). In connection with the Report we, William D. Watkins, Chief Executive Officer of the Company, and...

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