Item 1. BUSINESS
Maxtor Corporation (Maxtor or the Company) was organized in 1982 and develops, manufactures and markets mass-storage products for desktop and mobile computer systems. Products range from low- capacity flash cards to 546 megabyte (MB) Winchester disk drives in 1.8-inch and 3.5-inch form factors and include ATA, SCSI and PCMCIA (Personal Computer Memory Card International Association) interfaces.
The Company owns 62% of Maxoptix Corporation (Maxoptix) which develops, manufactures and markets optical disk drive products. Maxoptix was formed in March 1989 as a joint venture with Kubota Corporation (Kubota).
In August 1993, the Company signed a letter of intent for the creation of a strategic relationship with Hyundai Electronics Industries Co., Ltd. and several related members of the Hyundai Business Group (Hyundai). In September 1993, the Company signed the Stock Purchase Agreement (the Agreement) with Hyundai. Conclusion of the transaction was conditional upon approval of the U.S. and Korean governments, Maxtor stockholders and a number of other conditions. In November 1993, the U.S. government provided all necessary approvals. In December 1993, Maxtor stockholders approved all matters submitted to them regarding the proposed investment. At the end of January 1994, Korean government approval was granted. The transaction closed on February 3, 1994. Under the terms of the Agreement, Hyundai invested approximately $150 million in the Company and received approximately 19.5 million shares of Class A common stock, representing a per share price of $7.70, and constituting approximately 40% of the Company's outstanding voting stock at that date. The stock issued to Hyundai is a special series of common stock, entitling Hyundai to representation on the Company's Board of Directors proportionate to its share of ownership and certain voting rights. In addition, the Agreement requires the Company's Board of Directors to elect the director designated by Hyundai as Chairman of the Board, which occurred in February 1994. The Agreement also provides that Hyundai may not acquire more than 45% of the Company except in a tender for all outstanding shares or in certain other cases.
PRODUCTS
The disk drive industry is subject to rapid technological change and short product life cycles as data storage manufacturers continually strive for smaller form factors, larger storage capacities, higher performance and lower cost. Short product life cycles dictate the importance of the Company's ability to successfully manage product transitions. The failure to adequately manage product transitions could result in the loss of market opportunities, decreased sales of existing products, cancellation of products or product lines, the accumulation of obsolete and excess inventory, and unanticipated charges related to obsolete capital equipment.
During the fourth quarter of fiscal year 1994, the Company announced a major shift in strategy to devote Company resources primarily to the design, manufacture and sale of its 7000 Series of 3.5-inch disk drives and its new family of mobile computing products, including the MobileMaxTM family of PCMCIA-based mobile computing data storage products. In keeping with the Company's product strategy, the Company will concentrate its research and development (R&D) efforts on new products targeted at the desktop personal computing market and the emerging mobile computing market.
Desktop Personal Computer Products
The 7000 Series of 3.5-inch, low profile disk drives addresses the demand for desktop PC drives. This Series presently includes four capacity points: the 171MB product, the 7171, is designed for entry level PCs; the 273MB product, the 7273, is designed for mid-range PCs; and the 345MB and 546MB products, the 7345 and 7546, respectively, are designed for high-end PCs and entry-level workstations. The newest products, the 273MB and 546MB versions, were announced in November 1993 and are both currently in volume production. Both the 7273 and 7546 share a common mechanical and electronic platform and manufacturing process with previously introduced 7000 Series products. The 7000 Series continues to account for a substantial portion of the Company's revenue and gross margins.
In April 1993, to service the growing retail market, the Company began packaging the 3.5-inch 7000 Series hard drive family into complete kits designed for end users. The retail kits are available in 245MB, 345MB, and 546MB capacities, and feature an IDE/AT interface. The 345MB version also supports SCSI.
Mobile Computing Products
Introduced in the third quarter of fiscal year 1994, the MobileMaxTM Family of products is a line of data storage products that addresses the needs of the emerging mobile computing market. The MobileMax Family includes MobileMaxTM Hard Drives, the MobileMaxTM DeskRunnerTM and MobileMaxTM Flash Memory Cards.
MobileMax Hard Drives presently include 1.8-inch, PCMCIA Type III drives in 105MB and 131MB capacities. They are designed for use in notebook, subnotebook and desktop computers equipped with PCMCIA Type III interface card slots, as well as for emerging non- computer applications. The Company initially announced the MXL- 105-III disk drive product in January 1993; it is now marketed as the MobileMax 105 Hard Drive (MobileMax 105). The MobileMax 105 was the Company's first entry into the PCMCIA market. Volume production commenced in the third quarter of fiscal year 1994. In April 1994, the Company announced the MobileMax 131 Hard Drive (MobileMax 131). The MobileMax 131 is currently in volume production.
The MobileMax DeskRunner, announced in November 1993, is a PCMCIA Type III reader/writer socket designed for the large installed base of desktop PCs that are not equipped with PCMCIA technology. The DeskRunner is fully PCMCIA compatible with Type I, Type II or Type III cards, including popular modems and network attachments.
MobileMax Flash Memory Cards are a series of flash-memory based PCMCIA Type I cards ranging in capacity from 2MBs to 20MBs. These Cards are designed to fit the smaller PCMCIA Type I and Type II slots found on most personal digital assistants and on some notebook PCs - as well as the larger Type III slot on the MobileMax DeskRunner.
The Company believes that the growth of the MobileMax product line is primarily dependent on the growth of the emerging mobile computing market, as well as the Company's ability to anticipate market trends and to successfully develop, manufacture in volume and sell new products in a timely manner. Although the Company believes that PCMCIA storage devices are an important part of the future disk drive marketplace, there can be no assurance that the Company will be successful in such efforts, and the market has been in fact slower to develop than some industry analysts had predicted.
Other Products
Through its subsidiary, Maxoptix, the Company develops, manufactures and markets high capacity, write once and rewritable optical disk drives.
MARKETING AND CUSTOMERS
The Company markets and sells its products through a direct sales force to OEMs (original equipment manufacturers), distributors and retailers. As the market for Maxtor's products has become increasingly segmented, diverse sales channels have developed for different products.
Direct sales to OEM customers accounted for approximately one- half of total revenue for both fiscal years 1994 and 1993. As a result of volatile business conditions in the PC industry, including the trend toward consolidation among PC manufacturers, sales to the major PC manufacturers have become increasingly important to the success of the disk drive industry participants. In the last quarter of fiscal year 1994, the Company announced OEM design wins for its MobileMax Hard Drives with both Hewlett- Packard Company and Toshiba America Information Systems, Inc. Although the Company intends to continue in its efforts to increase its share of the OEM market for disk drives, particularly in the marketing of its new products, there can be no assurance that the Company will be successful in such efforts.
In addition to selling its products to OEMs and through distributors, the Company is also pursuing the consumer retail channel, which directly targets end-users. As end users become more technically sophisticated, these users are upgrading their own systems and adding peripherals. The Company has concentrated on establishing its presence in this channel and offers comprehensive end-user support services. Maxtor sells its retail- packaged products directly and through distributors to major retail computer dealers, superstores, warehouse clubs, aggregators and mass merchants nationwide. In April 1994, the Company announced that its MobileMax family is available through Maxtor's comprehensive retail sales program, and that it expanded its retail offerings to include the 7546 and the 7273 3.5-inch disk drives. The Company believes that distributors and retailers are important in supporting the large aftermarket. In addition, the Company believes that the market for replacement drives will result in the growth of retail sales. Sales to distributors and retailers accounted for approximately one-half of total revenue in fiscal years 1994 and 1993.
During fiscal years 1994 and 1993, sales to International Business Machines accounted for approximately 24% and 14% of the Company's revenue, respectively; however, this percentage may fluctuate in future periods and the Company expects it will decline substantially in fiscal year 1995. The Company did not have any customer that accounted for 10% or more of its revenue in fiscal year 1992.
As of June 3, 1994, the Company has 27 direct sales persons located in ten offices in the United States, 12 direct sales persons in the Far East located in six offices, and 12 direct sales persons in Europe located in three offices. The Company's export sales represented 43%, 50% and 37% of total revenue in fiscal years 1994, 1993 and 1992, respectively.
For financial data relating to major customers and geographic information refer to Part II, Item 8, Footnote 3 on pages 28 and 29.
MANUFACTURING AND SUPPLIERS
The Company has sought to maintain the flexibility necessary to accommodate the continuous changes in product mix and volume requirements resulting from the short product life cycles characteristic of the disk drive industry through a relatively low level of vertical integration and utilizing capital equipment for the manufacture of multiple product lines.
The Company's disk drive manufacturing operations consist mainly of the final assembly of high-level subassemblies and testing of completed products. The Company manufactures all magnetic disk drive products in volume production at its manufacturing facility located in Singapore and conducts all printed circuit board assembly in its facility in Hong Kong. In addition to risks typically associated with the concentration of vital operations, foreign manufacturing is subject to additional risks, including changes in governmental policies, transportation delays and interruptions, and the impositions of tariffs and export controls. A disruption of manufacturing operations at the Company's facilities could have an adverse effect on the Company's results of operations and customer relations.
Pilot production of the Company's magnetic products and cost reduction, quality and product improvement engineering on current products are now conducted in the Company's Longmont, Colorado facilities, and the San Jose, California R&D facilities have been closed. When a new product or a design change to a current product is ready for volume production, it is transferred from the Longmont, Colorado facilities to the Company's Far East manufacturing facilities.
Since the Company's manufacturing operations consists primarily of the final assembly of subassemblies, the quality and yield of the Company's products is highly dependent on its ability to obtain high quality components and sub-assemblies. The Company has implemented a number of programs with its vendors to improve the quality of its key components and sub-assemblies. These programs include a rating system for vendors which tracks such items as on time delivery, quality, technology and pricing which is then used as a basis for purchasing decisions. In the past, the Company has nevertheless experienced production delays due to yield shortfalls and there can be no assurance that the Company will not experience similar problems in the future.
The Company's manufacturing process uses large volumes of components supplied by outside suppliers and it is the Company's goal to have multiple sources for most components. In the past, the Company's operating results have been adversely affected by production delays and quality problems resulting from its inability to obtain certain key components and by the failure of certain components to meet requisite quality standards. During the first quarter of fiscal year 1994, the Company temporarily shut down production of its 3.5-inch MXT product line as a result of a quality problem related to a particular supplier's component. Production resumed when it was determined that the problem was limited to that particular supplier's component and that an alternate supplier's components were not affected by the quality problem. The Company's 25252 2.5-inch drive was also subject to significant and on-going production delays as a result of both design and vendor problems. The Company has recently been unable to obtain required volumes of a key component for its 7000 Series product line which is supplied by a sole source vendor who is experiencing production problems. It is expected that this shortage will adversely affect the Company's operating results for the quarter ending June 25, 1994, and that it will prevent the Company from returning to profitability during this quarter.
While the Company has qualified and continues to qualify multiple sources for many components, it is reliant on and will continue to be reliant on single sources for several semi-custom and custom integrated circuits and other key components. The Company does not have long-term supply contracts with most of its single source vendors, some of which are companies with limited financial and operational resources. The Company intends to continue to pursue qualification of alternative sources for single source components where practicable; the Company believes, however, that it will have to continue to utilize leading edge components which may only be available from a single source. With the expansion of production experienced by the disk drive industry during the last quarter of fiscal year 1994 and continuing into the first quarter of fiscal year 1995, shortages of certain key components for the disk drive industry have increased and the Company expects it is likely that industry shortages of key components may continue into future quarters. The Company will continue to aggressively work with its vendor base to minimize its exposure. There can be no assurance, however, that the Company will be successful in such efforts or that in the future the Company's vendors will meet the Company's requirements for required volumes of high-quality components in a timely and cost effective manner. In addition, there can be no assurance that the Company's operating results or customer relationships will not be adversely affected by production delays, including delays in bringing new products into volume production in a timely manner, resulting from an interruption or reduction in its supply of any key components, excessive rework costs associated with defective or substandard components, or its inability to obtain continued reduction of component costs.
The Company's engineering focus is on developing families of products from single platforms that have proven to be highly manufacturable, cost-effective and timely. The 7000 Series and the MobileMax family are both examples of products that have been designed around a single architecture. Prior to transferring a product from pilot line to volume production, engineering is responsible for proving the manufacturability of the product. The Company believes that this integration of product design and manufacturing process development will enable the Company to more rapidly achieve high volume, high quality production. However, there can be no assurance that the Company will be able to achieve volume production of new products in a timely manner relative to its competitors.
RESEARCH AND DEVELOPMENT
As previously mentioned, the Company participates in an industry that is characterized by rapid technological change and short product life cycles. The Company's ability to compete effectively will depend on, among other things, its ability to anticipate such change. To compete effectively, the Company has and will continue to devote substantial resources to producing high-quality products which address the needs of expanding segments of the disk drive market and which can be produced in volume on a cost effective basis. In order to effectively implement its product strategy, the Company intends to continue to make significant investments in research and development. A key element of the Company's strategy is to decrease the time required to achieve volume production of new products through the involvement of process engineers in developing manufacturing processes during the research and development phase. However, there can be no assurance that the Company will be able to bring new products to market before its competitors or that such new products will receive market acceptance.
The Company has focused its efforts on developing products that incorporate components which may be shared by a broad range of products, thereby reducing the time to develop a product and the cost of components. The Company believes that the integration of low cost manufacturing design into the development of a broad range of the Company's products, combined with its ability to utilize common platforms and electronics both within product families and between different product families will enable the Company to compete more effectively.
The Company believes that success in developing smaller form factors, increasing performance and lowering production costs depends in part on developing and incorporating new data storage technologies into the Company's products. While the Company believes that it needs to utilize the new technologies in order to achieve technology and product leadership, to the extent that such development efforts result in more advanced technology and components, it may be more difficult to transition disk drives to volume manufacturing or to obtain acceptable yields.
In connection with the Company's restructuring plan initiated in the third quarter of fiscal year 1994, the Company consolidated its R&D activities in Longmont, Colorado, which eliminated the need for certain facilities in San Jose, California, and also resulted in a substantial reduction in headcount associated with R&D and related activities previously conducted in San Jose. R&D expenses declined in absolute dollars in fiscal year 1994 as compared to fiscal year 1993 as a result of these actions. In fiscal years 1994, 1993 and 1992, respectively, the Company's R&D expenses amounted to $97.2 million, $112.6 million and $72.4 million, respectively. While R&D spending in absolute dollars is expected to decrease in fiscal year 1995, the Company will continue to make substantial investment in R&D since the timely introduction and transition to volume production of new products is essential to its success. In February 1994, the Company announced a major shift in product strategy devoting Company resources primarily to the design, manufacture and sale of its 7000 Series disk drives and its new family of mobile computing products, including the MobileMax family of PCMCIA-based mobile computing data storage products. The Company's efforts will focus on new products targeted at the desktop personal computing and mobile computing markets.
COMPETITION
The disk drive industry is intensely competitive and is characterized by rapid technological change which can cause substantial shifts in product capabilities and prices. The principal competitive factors in the industry include time to volume production, price, customer service, storage capacity and performance. In addition, smaller form factors, height, power consumption, ruggedness and interfaces are important competitive factors.
Many of the Company's competitors have greater financial, marketing and technological resources than the Company, which may have enabled them to better withstand the intense price competition most recently experienced during the last four months of fiscal year 1993 which continued into the third quarter of fiscal 1994. In February 1994, the Company received approximately $150 million upon the closing of a stock purchase agreement with Hyundai, as previously discussed. This cash infusion is intended to be used for working capital needs, including developing new products and technologies. However, there can be no assurance that the Company will be able to compete more effectively as a result of this cash infusion.
The disk drive industry is also subject to short product life cycles, which increase the importance of the Company's ability to successfully manage product transitions. The failure to adequately manage product transitions could result in the loss of market opportunities, decreased sales of existing products, cancellation of products or product lines and the accumulation of obsolete and excess inventory. As previously mentioned, the Company announced a major shift in strategy in February 1994. As a result of this shift in strategy, the Company's financial results will be heavily dependent on the success of certain products, namely its 7000 Series of 3.5-inch disk drives and its new family of mobile computing products, including the MobileMax family of PCMCIA-based mobile computing data storage products. In the past, the Company has been less successful than its competitors in managing product transitions, and successful new products introduced by competitors have tended to displace older products, including the Company's products. The Company's ability to anticipate market trends and to successfully develop, manufacture in volume and sell new products in a timely manner and at favorable gross margins will be important factors affecting the Company's future results, and there can be no assurance that the Company will be successful in such efforts.
Significant price erosion is typical during the life of a disk drive product. Industry participants include both independent suppliers and large computer manufacturers that both supply their own internal requirements and sell disk drives to third parties. Sales by such large computer manufacturers to third parties are an important factor in the market. Bringing new products to market on a timely basis is critical to competing in this market environment. When a new product is not brought to market on a timely basis, the selling prices of older products must be reduced in order to compete effectively with competitors' new products, which are being produced at lower costs. If competitors introduce products which offer greater capacity, better performance, lower prices or any combination of these factors, or if certain customers produce more disk drives for internal use, the Company's results of operations would be adversely affected.
As a result of volatile business conditions in the PC industry, including the trend toward consolidation among PC manufacturers, sales to the major PC manufacturers have become increasingly important to the success of the disk drive industry participants. Although the Company intends to continue in its efforts to increase its share of this large OEM market, particularly in the marketing of its new products, there can be no assurance the Company will be successful in such efforts. Furthermore, fluctuations in demand for computer systems, or other end-user demand, can result, and have in the past resulted, in deferral or cancellation of orders for the Company's products.
The Company presently competes primarily with independent manufacturers of 3.5-inch disk drives, including companies such as Conner Peripherals, Quantum, Seagate Technology and Western Digital. The Company also competes directly and indirectly with disk drive divisions of large computer manufacturers such as Digital Equipment, Fujitsu, Hewlett-Packard, Hitachi, NEC, Toshiba and IBM. Should other major OEMs develop disk drive manufacturing capabilities, the demand for the Company's products could be reduced. The Company competes for sales of optical disk drives with such companies as Canon, Hitachi, Ricoh, Sharp Electronics, Sony and Hewlett-Packard.
BACKLOG
The Company's sales are primarily made for delivery of standard products according to standard purchase orders. Delivery dates are specified by purchase orders, such orders may be subject to change or cancellation by the customer without significant penalties. The quantity actually purchased, as well as the shipment schedules, therefore, are frequently revised to reflect changes in the customer's needs. At times when industry- wide production is believed to be insufficient to meet demand, the Company believes that certain customers may place purchase orders beyond their projected needs in order to maintain a greater portion of product allocation. Conversely, at times when price competition is intense and price moves are frequent, the Company believes that most customers may place purchase orders below their projected needs, or delay placing or even cancel purchase orders with the expectation that future price reductions may occur. In light of these factors, backlog as of any particular date may not be indicative of the Company's actual revenues for any succeeding period, and, therefore, are not material to an evaluation of the Company's future revenue.
PATENTS AND LICENSES
The Company has been granted approximately 70 U.S. and foreign patents related to disk drive products and technology. The Company has additional patents pending in the United States and foreign countries. The Company has entered into cross-license agreements with certain of its competitors and has discussed entering into cross-licenses with others.
As in other sectors of the electronics industry, the disk drive industry has been characterized by significant litigation relating to patent and other intellectual property rights. Many patents have been issued in the United States and foreign countries covering disk drive products and their manufacture. These patents have been issued both to competitors of the Company and to parties who are not disk drive vendors. The Company has received notices from competitors and other patent holders claiming infringement by the Company and litigation has been commenced related to one such claim, made by Rodime plc (Rodime) and described below, with respect to which the Company believes it has a license. See Legal Proceedings. There can be no assurance that other litigation will not be commenced based upon such claims or that additional claims of patent infringement will not be made against the Company in the future, nor can there be any assurance that the Company would be able to obtain a license under the patents asserted or that any such license, if available, would be offered on terms acceptable to the Company. Adverse resolution of litigation based upon claims of patent infringement could subject the Company to substantial liabilities and require the Company to refrain from manufacturing or selling certain of its products in the country where the patents were issued.
As part of the acquisition of the MiniScribe business in June 1990, the Company was assigned a patent license agreement between MiniScribe and Rodime covering patents related to 3.5-inch disk drives. The Company believes that the assignment was valid; however, Rodime has taken the position that the assignment was invalid and would not in any event cover 3.5-inch drives manufactured and sold by the Company before the acquisition of MiniScribe's assets. See Legal Proceedings.
WARRANTY AND SERVICE
The Company currently warrants its products against defects in parts and labor for varying periods from the date of shipment with an additional 3 months allowed for distributors to account for "shelf life". The 7000 Series of disk drives are warranted for a period of 12 or 24 months after shipment depending on the model. The MobileMax disk drives are warranted for a period of 12 months after shipment.
Products are generally repaired or refurbished by the Company's Singapore facility. The Company operates a European drive exchange center in Ireland, a domestic drive exchange center in San Jose, California and an Asian drive exchange center in Singapore.
EMPLOYEES
As of June 3, 1994, the Company had approximately 6,400 employees, of whom approximately 1,100 were located in the United States, 100 in Europe and 5,200 in the Far East. Of the employees, approximately 5,400 were engaged in manufacturing and quality assurance and 200 in research and development.
The Company believes that its future success will depend on its ability to continue to attract and retain a team of highly motivated and skilled individuals. None of the Company's employees are represented by a labor organization. The Company believes that its employee relations are good.
INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES, AND FINANCIAL INFORMATION
The Company operates in a single industry segment: the design, manufacture and marketing of data storage products for desktop and mobile computer systems. It has a worldwide sales, service and distribution network. The Company markets and sells its products through a direct sales force to OEMs, distributors and other emerging sales channels. For financial information relating to foreign and domestic operations and export sales refer to Part II, Item 8, Footnote 3, on pages 28 and 29.
Item 2.
Item 2. PROPERTIES
The Company's administrative offices are located in San Jose, California and its research and development facilities are located in Longmont, Colorado. These facilities are all leased. The Company's manufacturing facilities include a disk drive manufacturing facility in Singapore and a printed circuit board manufacturing facility in Hong Kong. The Company owns and occupies a 384,000 square-foot building in Singapore which is situated on land leased through the year 2016 (subject to an option to renew for an additional 30 years). All other facilities located in Singapore and Hong Kong are leased. The corporate offices for Maxoptix are located in San Jose, California and are held under lease.
All of the Company's facilities are well maintained, suitable for the advanced technological products and services of the Company. The Company believes that its current facilities are sufficient to meet its expected requirements.
Item 3.
Item 3. LEGAL PROCEEDINGS
As part of the acquisition of the MiniScribe business in June 1990, the Company was assigned a patent license agreement between MiniScribe and Rodime covering patents related to 3.5-inch disk drives. The Company believes that the assignment was valid; however, Rodime has taken the position that the assignment was invalid and would not in any event cover 3.5-inch drives manufactured and sold by the Company before the acquisition of MiniScribe's assets. In February 1993, Maxtor commenced an action for declaratory relief in U. S. Bankruptcy Court in Denver, Colorado seeking a judgment that the assignment was valid. Rodime filed a denial and counterclaim for patent infringement. In April 1994, the relevant claims of the Rodime patent at issue in Rodime's counterclaims were declared invalid in litigation between Rodime and another disk drive manufacturer. The Company's litigation with Rodime has been stayed pending Rodime's appeal of the finding of invalidity. Certain other patent infringement claims against the Company have arisen in the course of its business. There is presently no litigation involving such claims, and the Company believes the outcome of these claims will not have a material adverse effect, if any, on the Company's financial position or results of operations.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the last quarter of its fiscal year ended March 26, 1994.
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Maxtor has two classes of stock issued and outstanding: common stock, with a $.01 par value; and Class A common stock, also with a $.01 par value. Maxtor common stock is designated on the National Market System of NASDAQ under the symbol MXTR.
As of June 3, 1994, Maxtor had approximately 1,906 stockholders of record.
For the dividend policy of the Company, refer to Part II, Item 7, Dividend Policy, on page 20.
Item 6.
Item 6. SELECTED FINANCIAL INFORMATION
[FN] Fiscal year ended March 30, 1991 results include the acquisition of substantially all of the assets of MiniScribe on June 30, 1990. See Note 2 of Notes to Consolidated Financial Statements for additional information.
Income used in the fully diluted net income per share calculation is $19,493, $19,519 and $29,381 for the quarterly periods ended December 26, 1992, September 26, 1992 and June 27, 1992, respectively, each of which includes the addition of interest related to convertible subordinated debentures.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto. (Tabular information: Dollars in millions, except per share amounts)
RESULTS OF OPERATIONS
General Since its inception in 1982, Maxtor Corporation (Maxtor or the Company) has been subject to the highly cyclical nature of the disk drive industry. In fiscal year 1993, as a result of an industry-wide increase in demand and the related stabilization in prices, the Company grew its revenue to over $1.4 billion. However, during the last four months of fiscal year 1993 and continuing into the third quarter of fiscal year 1994, the disk drive industry was experiencing intense price competition and excess industry capacity, which resulted in lower revenue for the Company. The Company began to experience an increase in demand in the third quarter of fiscal year 1994, with most products in short supply, as well as concurrent easing of price reductions and price increases on certain products. In the fourth quarter of fiscal year 1994, revenue declined in connection with the Company's decision in the third quarter of fiscal year 1994 to discontinue certain unprofitable products, as described below. In all quarters of fiscal year 1994, revenues were below the levels in the same quarters of the prior fiscal year. In fiscal year 1994, the Company reported revenue of approximately $1.2 billion.
The Company reported net income of $46.1 million for fiscal year 1993. For fiscal year 1994, the Company reported a net loss of $257.6 million. The Company incurred quarterly losses in each of the five consecutive quarters beginning with the fourth quarter of fiscal year 1993 and continuing through the fourth quarter of fiscal year 1994. Such losses through the second quarter of fiscal year 1994 and continuing into the third quarter of fiscal year 1994 were primarily the result of negative industry conditions and the Company's inability to bring certain products to market in a timely and cost effective manner. The negative industry conditions were primarily the result of intense price competition and excess industry capacity. In addition, the Company's losses were the result of insufficient differentiation between the products of the Company and its competitors, and efforts by better financed competitors to increase market share. As noted above, the Company began to experience an increase in demand in the third quarter of fiscal year 1994, with most products in short supply, as well as concurrent easing of price reductions and price increases on certain products. Although general industry conditions improved during the third and fourth quarters of fiscal year 1994, the Company continued to incur losses as a result of continuing cost and time-to-market issues with regard to its new products. The high start-up costs associated with developing and commencing volume production on the new 1.8-inch form factor products also contributed to the quarterly losses during that period. In addition, the Company recorded special and restructuring charges totaling $88.4 million during the third quarter of fiscal year 1994, as described below, which contributed significantly to the loss incurred during that period.
During the first three quarters of fiscal year 1994, the Company experienced significant production delays with certain product lines as a result of both design and vendor problems. Due to continuing production and sales issues, the Company assessed its competitive position and determined that it was unable to bring to market profitable successor products to certain existing products. The Company therefore decided to discontinue certain products, reduce manufacturing capacity and write down inventory and equipment that were no longer productive. The Company recorded special charges amounting to $68.9 million in cost of revenue in the third quarter of fiscal year 1994 as a result of these decisions. These decisions reduced the scope of the Company's product and manufacturing activities and, as a result, the Company then initiated a restructuring plan and recorded a restructuring charge of $19.5 million in the third quarter of fiscal 1994. The restructuring plan provides for the consolidation and streamlining of certain operations and administration, including a reduction in worldwide headcount by approximately 500 employees. At the same time, the Company announced a major shift in strategy to devote Company resources primarily to the design, manufacture and sale of its 7000 Series disk drives and its new family of mobile computing products, including the MobileMax family of PCMCIA-based mobile computing data storage products. The Company's research and development efforts will focus on new products targeted at the desktop personal computing and mobile computing markets.
The disk drive industry is subject to rapid technological change and short product life cycles as data storage manufacturers continually strive for smaller form factors, larger storage capacities, higher performance and lower cost. As a result, Maxtor expects that the Company's new products will replace the products which accounted for a majority of the Company's revenues in fiscal years 1993 and 1994. Shorter product life cycles also increase the importance of the Company's ability to successfully manage product transitions. The failure to adequately manage product transitions could result in the loss of market opportunities, decreased sales of existing products, cancellation of products or product lines, the accumulation of obsolete and excess inventory and unanticipated charges related to obsolete capital equipment. As previously mentioned, the Company announced a major shift in strategy, devoting Company resources primarily to the design, manufacture and sale of its 7000 Series of inch-high, 3.5-inch disk drives and its new family of mobile computing products, including the MobileMax family of PCMCIA-based mobile computing data storage products. As a result of this shift in strategy, the Company's financial results will be heavily dependent on the success of these products. The Company's ability to anticipate market trends and to successfully develop, manufacture in volume and sell new products in a timely manner and at favorable gross margins will be important factors affecting the Company's future results and there can be no assurance that the Company will be successful in such efforts. The Company has been less successful than its competitors in managing product transitions, and successful new products introduced by competitors have tended to displace older products, including the Company's products. If the Company does not successfully manage new product transitions in the near-term, further losses will be incurred.
The disk drive industry is intensely competitive and significant price erosion is typical during the life of a product. Industry participants include both independent suppliers and large computer manufacturers that both supply their own internal requirements and sell disk drives to third parties. Sales by such large computer manufacturers to third parties are an increasingly important factor in the market. Bringing new products to market on a timely basis has become increasingly critical to competing in this market environment. When a new product is not brought to market on a timely basis, the selling price of older products must be reduced in order to compete effectively with competitors' new products, which are being produced at lower costs. If competitors introduce products which offer greater capacity, better performance, lower prices or any combination of these factors, or if certain customers produce more disk drives for internal use, the Company's results of operations would be adversely affected.
As a result of volatile business conditions in the personal computer (PC) industry, including the trend toward consolidation among PC manufacturers, sales to the major PC manufacturers have become increasingly important to the success of the disk drive industry participants. Although the Company intends to continue in its efforts to increase its share of this large OEM market, particularly in the marketing of its new products, there can be no assurance that the Company will be successful in such efforts. Furthermore, fluctuations in demand for computer systems, or other end-user demand, can result, and have in the past resulted, in deferral or cancellation of orders for the Company's products.
The Company's manufacturing process requires large volumes of high quality components supplied by outside suppliers. The Company periodically receives communication from vendors that they may be unable to supply required volumes of certain key components. During the first quarter of fiscal year 1994, the Company temporarily shut down production of its MXT product line as a result of a quality problem related to a particular supplier's component. Production resumed when it was determined that the problem was limited to that particular supplier's component and that an alternate supplier's components were not affected by the quality problem. The Company's 25252 2.5-inch drive has also been subject to significant and on- going production delays as a result of both design and vendor problems. The Company is currently unable to obtain required volumes of a key component for its 7000 Series product line which is supplied by a sole source vendor who is experiencing production problems. It is expected that this shortage will adversely affect the Company's operating results for the forthcoming quarter ending June 25, 1994 and that it will prevent the Company from returning to profitability during that quarter.
While the Company has qualified and continues to qualify multiple sources for many components, it is reliant on, and will continue to be reliant on, single sources for many semi-custom and custom integrated circuits and other key components. The Company does not have long-term supply contracts with most of its single source vendors, some of which are companies with limited financial and operational resources. The Company intends to continue to pursue qualification of alternative sources for single source components where practicable; the Company believes, however, that it will have to continue to utilize leading edge components which may only be available from a single source. With the expansion of production experienced by the disk drive industry during the last quarter of fiscal year 1994 and continuing into the first quarter of fiscal year 1995, shortages of certain key components for the disk drive industry have increased and the Company expects it is likely that industry shortages of key components may continue into future quarters. The Company will continue to aggressively work with its vendor base to minimize its exposure. There can be no assurance, however, that the Company will be successful in such efforts or that in the future the Company's vendors will meet the Company's requirements for required volumes of high-quality components in a timely and cost effective manner. In addition, there can be no assurance that the Company's operating results or customer relationships will not be adversely affected by production delays, including delays in bringing new products into volume production in a timely manner, resulting from an interruption or reduction in its supply of any key components, excessive rework costs associated with defective or substandard components or its inability to obtain continued reduction of component costs.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993 - - ------------------------------------------------------------------- Year Ended March 26, March 27, Change 1994 1993 - - ------------------------------------------------------------------- Revenue $ 1,152.6 $ 1,442.5 $ (289.9)
Gross margin $ (52.4) $ 265.1 $ (317.5) As a percentage of revenue (4.5%) 18.4%
Net income (loss) $ (257.6) $ 46.1 $ (303.7) As a percentage of revenue (22.3%) 3.2%
Net income (loss) per share. $ (8.00) $ 1.46 $ (9.46) - - -------------------------------------------------------------------
Revenue Unit sales of the Company's 7000 Series disk drives accounted for a significant portion of the Company's revenue during both the current fiscal year and the prior fiscal year, and increased modestly during fiscal year 1994 over fiscal year 1993. However, these product offerings, particularly 100-200 megabyte products, were subject to intense price competition and excess industry capacity during most of the first nine months of fiscal year 1994, which negatively impacted per unit revenue in fiscal year 1994 despite the increase in unit volumes. The Company began to experience an increase in demand during the third quarter of fiscal year 1994, which continued through the fourth quarter of fiscal year 1994 with most products in short supply, as well as concurrent easing of price reductions and certain price increases. While there was a significant shift in product mix from the older, lower capacity 3.5-inch and 5.25-inch product offerings to the higher capacity 7000 Series and MXT product offerings, average unit selling prices, in terms of megabyte per dollar, declined substantially between fiscal years 1993 and 1994. Revenue for fiscal year 1993 included approximately $61 million generated by the Company's wholly-owned subsidiary, Storage Dimensions, Inc. (SDI); no such revenue was recognized in fiscal year 1994 due to the sale of SDI on December 26, 1992. In addition, revenue for fiscal year 1994 did not include $16.1 million, net, of non-recurring revenue recognized in fiscal year 1993 related to certain royalty and licensing agreements.
During fiscal year 1994, the Company had one customer which accounted for approximately 24% of the Company's revenue. This percentage may fluctuate in future periods and the Company expects it will decline substantially in fiscal year 1995.
As a result of the Company's shift in strategy, as discussed above, the Company will be heavily dependent on the success of certain products. During the third and fourth quarters of fiscal year 1994, the Company announced several new products, including additions to the MobileMax family of PCMCIA-compatible storage products for mobile computing applications. These new products did not contribute significantly to revenue in the fourth quarter of fiscal year 1994, and the Company anticipates that these new products will not contribute significantly to revenue during fiscal year 1995. The Company's ability to increase revenues is dependent on its ability to anticipate market trends and to successfully develop, manufacture in volume and sell new products in a timely manner. There can be no assurance that the Company will be successful in such efforts.
Gross Margin Gross margin as a percentage of revenue decreased significantly to (4.5)% in fiscal year 1994 from 18.4% in fiscal year 1993. As discussed previously, the Company recorded special charges amounting to $68.9 million in cost of revenue in the third quarter of fiscal year 1994. The charges consist of estimated costs associated with the termination of certain products, a reduction in manufacturing capacity, write downs of inventory and equipment that are no longer productive, and related future commitments to third parties. Excluding the special charges of $68.9 million, gross margin for fiscal year 1994 was 1.4%. Excluding the non-recurring revenue of approximately $16.1 million, gross margin was 17.5% for fiscal year 1993.
Excluding the impact of the special charges, the significant decline in gross margin during fiscal year 1994 is primarily attributable to the prevailing negative business conditions in the disk drive industry, including intense price competition and excess industry capacity, as well as to cost and time-to-market issues with regard to the Company's new products. During the last four months of fiscal year 1993 and continuing into the third quarter of fiscal year 1994, gross margin declined significantly due to increased price competition on 100-200 megabyte 3.5-inch products, price erosion on older products as they were being phased out, and costs associated with the startup and initial production of the Company's MXT products. Gross margin began to improve during the third and fourth fiscal quarters of fiscal year 1994 from (3.3%) for the second quarter to 4.8% for the third quarter, excluding the special charges of $68.9 million, to 11.4% for the fourth quarter as a result of increased unit sales volumes of certain products for which average unit selling prices were relatively constant while average unit manufacturing costs declined from quarter to quarter.
During most of the first nine months of fiscal year 1994, gross margin was negatively impacted by the Company's failure to produce planned unit volumes of its MXT product line due to a quality problem involving a particular supplier's component, plus higher costs than planned due to related design and manufacturing issues, in addition to failure to produce planned unit volumes of its 2.5- inch product line due to design and component issues. A temporary shutdown of production of the MXT product occurred during the first quarter and resulted in an estimated loss of $25.0 million of revenue and an accompanying negative gross margin for this product offering during that quarter. This first quarter production shutdown of the MXT product also adversely affected production costs in the second quarter of fiscal year 1994 until efficient production levels were achieved. The design and component issues related to the 2.5-inch product line resulted in a negative gross margin for this product line during most of fiscal year 1994.
The Company believes that the reduced rate of decline in average unit selling prices experienced in the latter months of fiscal year 1994 will continue through the first quarter of fiscal year 1995. The Company will continue its efforts to reduce its average unit manufacturing costs and to introduce and produce in volume new higher margin products in an effort to improve gross margin during fiscal year 1995. However, there can be no assurance that average unit selling prices will not decline at a more rapid rate or that the Company will be successful in its efforts to improve gross margin.
Operating expenses - - ------------------------------------------------------------------- Year Ended March 26, March 27, Change 1994 1993 - - -------------------------------------------------------------------
Research and development $ 97.2 $ 112.6 $ (15.4) As a percentage of revenue 8.4% 7.8%
Selling, general and administrative $ 78.9 $ 98.5 $ (19.6) As a percentage of revenue 6.8% 6.8%
Restructuring $ 19.5 - $ (19.5) As a percentage of revenue 1.7% n/a - - -------------------------------------------------------------------
Research and Development Research and development (R&D) expenses decreased from the prior fiscal year in absolute dollars due primarily to the consolidation of the Company's R&D activities in Longmont, Colorado in connection with the Company's restructuring plan. This consolidation eliminated the need for certain facilities in San Jose, California, and also resulted in a substantial reduction in headcount associated with R&D and related activities previously conducted in San Jose. R&D increased as a percentage of revenue as a result of the decreased revenue base between fiscal years 1993 and 1994. While R&D spending in absolute dollars is expected to decrease during fiscal year 1995, the Company must continue to make substantial investments in R&D since the timely introduction and transition to volume production of new products is essential to its future success. In addition, R&D expenses may fluctuate in the future resulting from the cost of acquiring rights to new technologies.
Selling, General and Administrative Selling, general and administrative (SG&A) expenses declined in absolute dollars primarily due to the sale of the assets of SDI, and were relatively unchanged as a percentage of revenue for fiscal year 1994 compared to the prior fiscal year given the decline in the revenue base during that period. SG&A for the first nine months of fiscal year 1993 included expenses incurred by SDI until December 1992 at which time the Company sold the assets of SDI. The decline in SG&A expenses also reflects the Company's efforts to control and reduce expenditures. The Company has ongoing efforts to control costs and expenditures and reduce SG&A expenses in future quarters, however, there can be no assurance that the Company will be successful in such efforts.
Restructuring The Company recorded a restructuring charge of $19.5 million in the third quarter of fiscal year 1994. The restructuring plan provides for the consolidation and streamlining of certain operations and administration, including a reduction in the Company's worldwide headcount, and is expected to be completed within the twelve-month period from the date of the charge. The charge consists of approximately $11.8 million in estimated costs related to the worldwide reduction in headcount and approximately $7.7 million associated with facility consolidations, including lease and other obligations on certain facility leases, none of which extend beyond calendar year 1994. The plan provides for a worldwide headcount reduction of approximately 500 employees, which was substantially completed during February 1994. The Company's research and development activities will be consolidated at its Longmont, Colorado facilities, which will eliminate the need for certain facilities in San Jose, California. In addition, the Company's actions will eliminate the need for certain manufacturing facilities in Singapore. The Company anticipates that these restructuring actions will require the expenditure of approximately $9.0 million of cash over the first nine months of fiscal year 1995, which will be provided by cash flow from operations or capital infusions. As of March 26, 1994, approximately $9.0 million of the $19.5 million charge remained in current liabilities. As a result of these activities, the Company has eliminated an estimated $9.0 million per quarter of operating costs, beginning with the fourth quarter of fiscal year 1994.
Interest expense, interest income, and minority interest in loss of joint venture - - ---------------------------------------------------------------- Year ended March 26, March 27, Change 1994 1993 - - ---------------------------------------------------------------- Interest expense $ 10.1 $ 10.1 $ -
Interest income $ 2.3 $ 2.6 $ (.3)
Minority interest $ - $ 1.0 $ (1.0) - - ----------------------------------------------------------------
The Company's minority interest account is related to Maxoptix Corporation (Maxoptix), a joint venture formed in March 1989 with Kubota Corporation (Kubota), 62% owned by Maxtor and 34% owned by Kubota, subject to certain adjustments. All operating losses incurred by Maxoptix from March 31, 1990 through June 27, 1992 were allocated to the minority interest account and, therefore, did not impact Maxtor's net income (loss). During the fiscal quarter ended September 26, 1992, the minority interest account was reduced to zero. Thereafter, all future operating losses incurred by Maxoptix were and will continue to be fully allocated to Maxtor. See Note 2 to Notes to Consolidated Financial Statements.
Provision for income taxes and effective tax rate - - ------------------------------------------------------------------- Year ended March 26, March 27, Change 1994 1993 - - ------------------------------------------------------------------- Provision for income taxes $ 1.9 $ 1.3 $ .6
Effective tax rate n/a 2.7% - - -------------------------------------------------------------------
The provision for income taxes consists primarily of foreign taxes. The Company's effective tax rate for fiscal year 1994 differs from the combined federal and state rate due to the repatriation of foreign earnings absorbed by current year losses, the Company's U.S. operating losses not providing current tax benefits, and valuation of temporary differences, offset in part by the tax savings associated with the Company's Singapore operations. Income from the Singapore operations is not taxable in Singapore as a result of the Company's pioneer tax status, and those earnings which are permanently reinvested outside the United States are not taxable in the United States. The Company's effective tax rate for fiscal year 1993 was 2.7%, which is below the combined federal and state rate due to the tax benefits associated with the Company's Singapore operations, valuation of temporary differences and the non-recurring reduction of taxes provided in prior periods, offset by the Company's U.S. operating losses not providing current tax benefits.
In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). Under SFAS No. 109, the liability method is used in accounting for income taxes. For purposes of this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured by applying enacted tax rates and laws to the taxable years in which such differences are expected to reverse. The Company adopted the provisions of SFAS No. 109 in its financial statements effective March 28, 1993 for fiscal year 1994. Adoption of SFAS No. 109 had no financial impact on the Company's consolidated financial position or results of operations.
FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992 - - ----------------------------------------------------------------- Year ended March 27, March 28, Change 1993 1992 - - ------------------------------------------------------------------ Revenue $ 1,442.5 $ 1,037.5 $ 405.1
Gross margin $ 265.1 $ 189.0 $ 76.0 As a percentage of revenue 18.4% 18.2%
Net income $ 46.1 $ 7.1 $ 39.0 As a percentage of revenue 3.2% .1%
Net income per share: - Primary $ 1.46 $ 0.27 $ 1.19 - Fully diluted $ 1.46 $ 0.24 $ 1.22 - - --------------------------------------------------------------------
Revenue The Company's revenue increased to $1.4 billion in fiscal year 1993, an increase of 39% over the prior fiscal year. This increase was primarily due to strong unit sales of the Company's 7000 Series of one-inch high 3.5-inch products, partially offset by a decrease in unit sales of the Company's full height, 3.5-inch products and 5.25- inch products. In addition, revenue increased due to a shift in product mix to higher capacity, higher price drives within certain product series, partially offset by a decline in the latter part of the fiscal year in the average unit selling prices of the Company's products, particularly with respect to the 100-200 megabyte 3.5-inch products. Revenue also increased during fiscal year 1993 as a result of $16.1 million, net, of non-recurring revenue related to certain royalty and licensing agreements. This compares to approximately $8.0 million of non-recurring revenue recognized in fiscal year 1992 in connection with a patent cross license agreement and the gain on the sale of certain manufacturing rights and assets. Revenue increases during fiscal year 1993 over fiscal year 1992 were impacted by the sale of the assets of the Company's wholly-owned subsidiary, Storage Dimensions, Inc. (SDI) at the end of the Company's third fiscal quarter. Fiscal year 1993 revenues include only nine months of revenues generated by SDI, whereas a full year of SDI revenues were included in the fiscal year 1992 results of operations, a decline of approximately $26.8 million.
Gross Margin Gross margin as a percentage of revenue increased to 18.4% in fiscal year 1993 from 18.2% in fiscal year 1992. Excluding the non- recurring revenue of approximately $16.1 million recognized in fiscal year 1993, gross margin was 17.5%, as compared to 17.4% for fiscal year 1992, which excludes non-recurring revenue of approximately $8.0 million and an aggregate net reduction to cost of revenue of approximately $2.3 million related to special charges and certain non-recurring reductions to cost of revenue.
Over a nine-month period through September 28, 1991, the Company experienced downward pressure on gross margins as a result of difficult business conditions and intense price competition which forced the Company to decrease average unit selling prices more quickly than it could reduce manufacturing costs. Beginning in the quarter ended December 28, 1991, there was an industry-wide increase in demand for disk drive products which led to a stabilization in prices. This increase in demand, combined with a shift in the product mix to higher capacity, higher gross margin products, led to improved gross margins during the first eight months of fiscal year 1993 over the prior fiscal year. In addition, gross margins improved during that eight-month period as a result of manufacturing efficiencies resulting from the consolidation and reorganization of the Company's manufacturing organization, decreased material costs and increased unit volume, which helped to lower fixed costs per unit. During the four-month period ended March 27, 1993, however, gross margins declined significantly due to increased price competition for the 100-200 megabyte 3.5-inch products, price erosion on older products as they are being phased out, and costs associated with the startup and initial production of the 3.5-inch MXT products.
Operating expenses - - ------------------------------------------------------------------- Year ended March 27, March 28, Change 1993 1992 - - ------------------------------------------------------------------- Research and development $ 112.6 $ 72.4 $ 40.2 As a percentage of revenue 7.8% 7.0%
Selling, general and administrative $ 98.5 $ 104.3 $ (5.8) As a percentage of revenue 6.8% 10.1% - - --------------------------------------------------------------------
Research and Development R&D expenses increased in fiscal year 1993 over the prior fiscal year primarily due to planned expenses to support the development and engineering production of new products, including increased headcount and new product/technology expenditures.
Selling, General & Administrative SG&A expenses as a percentage of revenue declined in fiscal year 1993 from the prior fiscal year primarily due to relatively flat spending in absolute dollars over a significantly increased revenue base in fiscal year 1993 compared to the prior fiscal year. In addition, fiscal year 1992 expenses included special charges of $3.8 million which were not incurred in fiscal year 1993. Exclusive of these special charges, SG&A expenses would have been 9.7% of revenue in fiscal year 1992.
Interest expense, interest income, and minority interest in loss of joint venture - - -------------------------------------------------------------------- Year ended March 27, March 28, Change 1993 1992 - - -------------------------------------------------------------------- Interest expense $ 10.1 $ 12.6 $ (2.4)
Interest income $ 2.6 $ 1.4 $ 1.2
Minority interest $ 1.0 $ 7.2 $ (6.2) - - --------------------------------------------------------------------
Interest expense decreased in fiscal year 1993 compared to the prior fiscal year primarily due to average short-term bank borrowings being significantly lower during fiscal year 1993.
Interest income increased in fiscal year 1993 compared to the prior fiscal year due to an improved cash and cash equivalents position, partly offset by a decrease in interest rates.
Provision for income taxes and effective tax rate - - ------------------------------------------------------------------- Year ended March 27, March 28, Change 1993 1992 - - ------------------------------------------------------------------- Provision for income taxes $ 1.3 $ 1.1 $ .2
Effective tax rate 2.7% 13.8% - - -------------------------------------------------------------------
The Company's effective tax rate for fiscal year 1993 was 2.7%, which is below the combined federal and state rate due to the tax benefits associated with the Company's Singapore operations, valuation of temporary differences and the non-recurring reduction of taxes provided in prior periods, offset by the Company's U.S. operating losses not providing current tax benefits. Income from the Singapore operations is not taxable in Singapore as a result of the Company's pioneer tax status, and earnings which are permanently reinvested outside the United States are not taxable in the United States. The effective tax rate for fiscal year 1992 was also below the combined federal and state statutory rate due to the tax benefits associated with the Company's Singapore operations and the Company's U.S. operating loss.
LIQUIDITY AND CAPITAL RESOURCES - - ------------------------------------------------------------------- March 26, Year ended 1994 - - ------------------------------------------------------------------- Cash and cash equivalents $ 144.5
Short-term investments $ 74.9
Net cash used in operating activities $ 16.5
Net cash used in investing activities $ 103.7
Net cash provided by financing activities $ 129.4 - - --------------------------------------------------------------------
During fiscal year 1994, the Company's losses impacted its financial position by decreasing available cash and requiring the Company to seek alternative financing, including replacing its existing revolving line of credit and seeking other long-term financing. In February 1994, the Company received approximately $150 million from Hyundai Electronics Industries Co., Ltd. and several related members of the Hyundai Business Group (Hyundai) pursuant to the Stock Purchase Agreement described below.
As of March 26, 1994, the Company had net cash and cash equivalents of $114.5 million, excluding $30.0 million of short-term borrowings, as compared to $102.3 million as of March 27, 1993, an increase of $12.2 million. In addition, the Company had short-term investments of $74.9 million at the end of fiscal year 1994. The combined increase in the Company's cash and cash equivalents, and short-term investments of $87.1 million was primarily the result of the $150 million investment by Hyundai in February 1994 offset by debt repayments, capital expenditures and operating activities.
Of the net cash used in operating activities during fiscal year 1994, net loss less non-cash depreciation and amortization accounted for approximately $171.7 million. This was offset in part by the decreases in accounts receivable and inventories, and increases in current liabilities which totaled approximately $151.3 million. The decline in accounts receivable primarily reflects lower sales levels in the quarter ending March 26, 1994 than in the quarter ending March 27, 1993 and improved days sales outstanding. Days sales outstanding improved to 34 days at the end of fiscal year 1994 from 39 days at the end of fiscal year 1993. Inventories decreased primarily because of the Company's efforts to balance production with demand and control inventory purchases. Despite the Company's efforts to tightly control inventory levels, inventories may increase in the future based on changes in market demand or industry- wide production. Current liabilities increased by approximately $42 million primarily as a result of the special and restructuring charges recorded by the Company in the third quarter of fiscal year 1994.
Net cash used in investing activities was primarily attributable to the $74.9 million of short-term investment purchases and $29.7 million of capital expenditures. A significant portion of the capital expenditure activity was related to the acquisition of manufacturing equipment. Depending on business conditions, the Company currently expects to make capital expenditures of approximately $35 to $40 million during fiscal year 1995, as compared to approximately $30 million during fiscal year 1994.
Net cash provided by financing activities during fiscal year 1994 primarily reflects the issuance of approximately 19.5 million shares of Maxtor Class A common stock to Hyundai pursuant to the Stock Purchase Agreement described below, offset in part by cash used to reduce outstanding debt.
In September 1992, the Company established a $70.0 million domestic unsecured revolving line of credit. In April 1993, in consideration of the amendment of certain financial covenants, the Company agreed to grant the lenders a security interest in the Company's inventories and receivables which would automatically become effective under certain circumstances. In July 1993, the Company obtained a waiver and second amendment of certain financial covenants through September 27, 1993, and in connection with the waiver, agreed to grant the lenders a security interest in the Company's inventories and receivables and agreed to limit its borrowings to the $27.0 million of current borrowings at that time. During fiscal year 1993, the Company also established a $48.0 million term loan facility in Singapore with several banks. In July 1993, the Company repaid in full the outstanding borrowings on that term loan facility and terminated the agreement.
On September 17, 1993, the Company obtained a secured, asset-based revolving line of credit of $76.0 million. This line of credit replaced the existing $70.0 million line of credit from different lenders, as well as $6.0 million of equipment term loans. This asset-based revolving line of credit provides for borrowings up to $76.0 million based on eligible receivables at various interest rates over a two-year term and is secured by receivables, certain inventories and other assets. As of March 26, 1994, $30.0 million of borrowings and $2.9 million of letters of credit were outstanding. The $30.0 million of borrowings was fully repaid during the first fiscal week of April 1994. The availability of this line of credit in the future depends on the Company meeting certain covenants. The line of credit expires in September 1995.
In August 1993, the Company signed a letter of intent for the creation of a strategic relationship with Hyundai. In September 1993, the Company then signed the Stock Purchase Agreement (the Agreement) with Hyundai. The transaction closed on February 3, 1994 and was recorded in the fourth quarter of fiscal year 1994. Under the terms of the Agreement, Hyundai invested approximately $150 million in Maxtor and received approximately 19.5 million shares of common stock, representing a per share price of $7.70, and constituting approximately 40% of the Company's outstanding voting stock at the time. The stock issued to Hyundai is a special series of common stock, entitling Hyundai to representation on the Company's Board of Directors proportionate to its share of ownership and certain voting rights. In addition, the Agreement requires the Company's Board of Directors to elect the director designated by Hyundai as Chairman of the Board, which occurred in February 1994. The Agreement also provides that Hyundai may not acquire more than 45% of Maxtor except in a tender for all outstanding shares or in certain other cases. These provisions could deter a third party from making a tender or exchange offer for the stock of the Company.
The Company believes that the $150 million of funding generated by the Hyundai investment, and the Company's expected cash flow from operations, equipment financing and available lines of credit will be sufficient to fund the Company's working capital and capital expenditure requirements through fiscal year 1995.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock. It is the present policy of the Board of Directors to retain earnings for use in the business. The Company does not anticipate paying cash dividends in the near future. Under the terms of the Company's line of credit and term loan facilities, the Company may not declare or pay any dividends without the prior consent of its lenders.
Item 8.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements Page
Financial Statements: Consolidated Balance Sheets - March 26, 1994 and March 27, 1993 21 Consolidated Statements of Income (Loss) - Years ended March 26, 1994, March 27, 1993 and March 28, 1992 22 Consolidated Statements of Stockholders' Equity - Years ended March 26, 1994, March 27, 1993 and March 28, 1992 23 Consolidated Statements of Cash Flows - Years ended March 26, 1994, March 27, 1993 and March 28, 1992 24 - 25 Notes to Consolidated Financial Statements 25 - 36 Report of Ernst & Young, Independent Auditors 37
Financial Statement Schedules: The following consolidated financial statement schedules of Maxtor Corporation are filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Maxtor Corporation.
Schedule I Short-term investments S-1
Schedule II Amounts receivable from related parties and underwriters, promoters and employees other S-2, than related parties S-3
Schedule V Property, plant and equipment S-4
Schedule VI Accumulated depreciation and amortization of property, plant and equipment S-5
Schedule VIII Valuation and qualifying accounts S-6
Schedule IX Short-term borrowings S-7
Schedules not listed above have been omitted since they are not applicable or are not required or the information required to be set therein is included in the Consolidated Financial Statements or notes thereto.
CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) - - -------------------------------------------------------------------- March 26, March 27, ASSETS 1994 1993 - - -------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 144,520 $ 135,324 Short-term investments 74,911 - Accounts receivable, net of allowance for doubtful accounts of $3,653 at March 26, 1994 and $4,190 at March 27, 1993 99,806 149,397 Inventories: Raw materials 51,419 77,039 Work-in-process 19,196 32,650 Finished goods 25,408 45,654 - - ------------------------------------------------------------------- 96,023 155,343 Prepaid expenses and other 7,936 10,675 - - ------------------------------------------------------------------- Total current assets 423,196 450,739 Property, plant and equipment, at cost: Buildings 21,387 8,585 Machinery and equipment 195,820 204,090 Furniture and fixtures 18,195 19,214 Leasehold improvements 17,506 17,940 - - ------------------------------------------------------------------- 252,908 249,829 Less accumulated depreciation and amortization (191,750) (130,713) - - ------------------------------------------------------------------- Net property, plant and equipment 61,158 119,116 Other assets 8,021 9,258 - - ------------------------------------------------------------------- $ 492,375 $ 579,113 ===================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY - - ------------------------------------------------------------------- Current liabilities: Short-term borrowings $ 30,000 $ 33,000 Accounts payable 137,566 130,192 Income taxes payable 7,530 4,664 Accrued payroll and payroll- related expenses 11,720 16,516 Accrued warranty 27,281 16,089 Accrued special and restructuring 21,777 - Accrued expenses 25,700 21,753 Long-term debt and capital lease obligations due within one year 4,155 16,373 - - ------------------------------------------------------------------- Total current liabilities 265,729 238,587 Long-term debt and capital lease obligations due after one year 107,393 119,868 Deferred tax liabilities 66 1,000 Commitments and contingencies Stockholders' equity: Preferred stock, $0.01 par value, 5,000,000 shares authorized; no shares issued or outstanding - - Class A common stock, $0.01 par value, 19,480,000 shares authorized; issued and outstanding: March 26, 1994 - 19,480,000 shares 195 - Common stock, $0.01 par value, 180,520,000 shares authorized; issued and outstanding: March 26, 1994 - 30,425,242 shares; March 27, 1993 - 28,809,277 shares 304 288 Additional paid-in capital 320,564 163,747 Retained earnings (deficit) (201,749) 55,840 - - ------------------------------------------------------------------- 119,314 219,875 Less notes receivable from stockholders (127) (217) - - ------------------------------------------------------------------- Total stockholders' equity 119,187 219,658 - - ------------------------------------------------------------------- $ 492,375 $ 579,113 =================================================================== See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (In thousands, except per share amounts) Year ended - - -------------------------------------------------------------------- March 26, March 27, March 28, 1994 1993 1992 - - -------------------------------------------------------------------- Revenue $ 1,152,615 $ 1,442,546 $ 1,037,481 Cost of revenue 1,205,014 1,177,460 848,435 - - -------------------------------------------------------------------- Gross margin (52,399) 265,086 189,046 - - -------------------------------------------------------------------- Operating expenses: Research and development 97,168 112,621 72,417 Selling, general and administrative 78,854 98,497 104,325 Restructuring 19,500 - - - - -------------------------------------------------------------------- Total operating expenses 195,522 211,118 176,742 - - -------------------------------------------------------------------- Income (loss) from operations (247,921) 53,968 12,304 Interest expense (10,087) (10,140) (12,584) Interest income 2,283 2,557 1,387 Minority interest in loss of joint venture - 1,014 7,187 - - -------------------------------------------------------------------- Income (loss) before income taxes (255,725) 47,399 8,294 Provision for income taxes 1,864 1,287 1,145 - - -------------------------------------------------------------------- Net income (loss) $ (257,589) $ 46,112 $ 7,149 ==================================================================== Net income (loss) per share -primary $ (8.00) $ 1.46 $ 0.27 -fully diluted $ (8.00) $ 1.46 $ 0.24 ==================================================================== Shares used in computing net income (loss) per share -primary 32,203 31,534 26,721 -fully diluted 32,203 31,599 29,215 ==================================================================== See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year ended - - -------------------------------------------------------------------- March 26, March 27, March 28, 1994 1993 1992 - - -------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents Cash flows from operating activities: Net income (loss) $(257,589) $ 46,112 $ 7,149 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 85,865 62,028 55,190 Forgiveness of notes receivable from stockholders 61 74 72 Change in non-current deferred tax liabilities (934) 1,000 - Gain on sale of facility - - (5,500) Loss on disposal of property, plant and equipment 2,135 2,301 4,920 Minority interest in loss of joint venture - (1,023) (7,187) Other, net - (796) - Change in assets and liabilities: Accounts receivable 49,591 (17,248) (16,953) Inventories 59,320 (45,740) 21,418 Prepaid expenses and other 2,739 (6,256) 449 Accounts payable 7,374 20,020 12,772 Income taxes payable 2,866 (3,894) 2,077 Accrued payroll and payroll-related expenses (4,796) (1,066) 4,894 Accrued warranty 11,192 1,657 (3,409) Accrued special and restructuring 21,777 - - Accrued expenses 3,947 12,706 3,922 - - -------------------------------------------------------------------- Total adjustments 241,137 23,763 72,665 - - -------------------------------------------------------------------- Net cash provided by (used in) operating activities (16,452) 69,875 79,814 - - -------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sale of subsidiary, net of costs - 15,842 - Purchase of short-term investments (74,911) - - Purchase of property, plant and equipment, net (29,746) (91,700) (36,833) Proceeds from disposal of property, plant and equipment 1,013 1,930 12,969 Proceeds from sale of facility - - 7,600 Other assets (72) (1,686) (509) - - -------------------------------------------------------------------- Net cash used in investing activities (103,716) (75,614) (16,773) - - -------------------------------------------------------------------- Cash flows from financing activities: Proceeds from issuance of debt, including short-term borrowings 2,870 79,798 3,006 Principal payments of debt, including capital lease obligations (30,563) (30,092) (35,977) Proceeds from issuance of Class A common stock 149,343 - - Proceeds from issuance of common stock, net of issuance of notes receivable, stock repurchase and tax benefits 7,685 15,193 3,188 Payments on notes receivable from stockholders 29 305 115 - - -------------------------------------------------------------------- Net cash provided by (used in) financing activities 129,364 65,204 (29,668) - - -------------------------------------------------------------------- Net change in cash and cash equivalents 9,196 59,465 33,373 Cash and cash equivalents at beginning of period 135,324 75,859 42,486 - - -------------------------------------------------------------------- Cash and cash equivalents at end of period $ 144,520 $ 135,324 $ 75,859 ==================================================================== See accompanying notes.
Supplemental disclosures of cash flow information:
(In thousands) Year ended - - ------------------------------------------------------------------- March 26, March 27, March 28, 1994 1993 1992 - - ------------------------------------------------------------------- Cash paid (received) during the year for: Interest $ 9,985 $ 9,250 $ 12,820 Income taxes 1,337 4,661 298 Income tax refunds (1,824) (292) (1,504) - - -------------------------------------------------------------------
Supplemental information on noncash investing and financing activities:
Capital lease obligations of approximately $122,000, $520,000 and $695,000 were incurred when the Company entered into capitalized leases for new equipment in fiscal years 1994, 1993 and 1992, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation The consolidated financial statements include the accounts of Maxtor Corporation (Maxtor or the Company) and its wholly owned subsidiaries, after elimination of all intercompany accounts and transactions. The consolidated financial statements also include the accounts of Maxoptix Corporation (Maxoptix), a majority owned joint venture (see Note 2). In connection with the sale of the assets of SDI, Maxtor acquired a 32.8% interest in the company formed for the purpose of purchasing the net assets of SDI. Maxtor accounts for its investment under the equity method (see Note 2).
Cash and cash equivalents The Company considers all highly liquid instruments, which are purchased with a maturity of three months or less, to be cash equivalents. Cash equivalents are stated at cost, which approximates market. A substantial portion of the Company's cash and cash equivalents is held by foreign subsidiaries and is generally in U.S. dollar-denominated holdings. Certain amounts held by foreign subsidiaries would be subject to U.S. income taxation should repatriation to the United States to meet domestic cash needs become necessary (see Note 8).
Fair value of financial instruments The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents The carrying value reported in the Company's balance sheet as cash and cash equivalents approximates its fair value.
Short-term investments The carrying value reported in the Company's balance sheet as short- term investments approximates its fair value.
Note receivable The carrying value of the note receivable, which is classified in other assets on the Company's balance sheet, approximates its fair value.
Short and long-term debt The fair value of the Company's fixed rate debt is estimated based on the current rates offered to the Company for similar debt instruments of the same remaining maturities. The fair value of the Company's variable rate debt approximates its carrying value as these instruments are repriced frequently at market rates.
Convertible subordinated debentures The fair value of the Company's convertible subordinated debentures is based on the quoted market price at March 26, 1994.
Foreign currency contracts The fair value of foreign currency contracts used for hedging purposes is estimated based on the quoted market price at the end of the quarter.
The carrying value and fair values of the Company's financial instruments at March 26, 1994, are as follows:
(In thousands) Carrying Value Fair Value - - ----------------------------------------------------------------- Cash and cash equivalents $ 144,520 $ 144,520 Short-term investments 74,911 74,911 Note receivable 4,000 4,000
Short and long-term debt -fixed rate 7,405 7,350 -variable rate 33,368 33,368 Convertible subordinated debentures 100,000 66,000
Foreign currency contracts - 2 - - -----------------------------------------------------------------
Accounting for certain investments in debt and equity securities The Company considers all highly liquid instruments, which are purchased with a maturity between three and twelve months, to be short-term investments. The Company is required to adopt Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115), on or before the end of the first quarter of fiscal year 1995. SFAS No. 115 superseded Statement of Financial Accounting Standards No. 12, "Accounting for Certain Marketable Securities", and requires unrealized holding gains and losses on securities classified as available-for-sale to be reported as a separate component of stockholders' equity, and unrealized holding gains and losses on securities classified as trading to be reported as earnings. The Company has evaluated the impact of SFAS No. 115 on its financial statements, and believes if SFAS No. 115 were adopted in fiscal year 1994, its impact would have been immaterial to the Company's fiscal year 1994 financial condition and results of operations.
Inventories Inventories are stated at the lower of cost (computed on a first-in, first-out basis) or market.
Depreciation and amortization Depreciation and amortization are provided on the straight-line basis over the estimated useful lives of the assets, which are generally from three to five years, except for buildings which are depreciated over thirty years. Assets under capital leases and leasehold improvements are amortized over the shorter of the asset life or the remaining lease term. Capital lease amortization is included with depreciation expense.
Revenue recognition & product warranty Revenue is recognized upon product shipment. Revenue from sales to certain distributors is subject to agreements providing limited rights of return, as well as price protection on unsold merchandise. Accordingly, the Company records reserves upon shipment for estimated returns, exchanges and credits for price protection. The Company also provides for the estimated cost to repair or replace products under warranty at the time of sale.
Off balance sheet risk and concentration of credit risk The Company's products are sold worldwide to original equipment manufacturers (OEMs) through a direct sales force and to an extensive network of domestic and international industrial distributors, as well as to end users and retail sales outlets via commercial distributors. Concentration of credit risk with respect to the Company's trade receivables is limited by the Company's credit evaluation process and the geographical dispersion of sales transactions, therefore the Company generally requires no collateral from its customers. The Company also has cash equivalent and short- term investment policies that limit the amount of credit exposure to any one financial institution and restrict placement of these investments to financial institutions evaluated as highly credit- worthy.
Foreign exchange gains and losses The functional currency for all foreign operations is the U.S. dollar. As such, all material foreign exchange gains or losses are included in net income (loss). Approximately $865,000, $659,000 and $2,300,000 of foreign exchange losses were included in net income (loss) in fiscal years 1994, 1993 and 1992, respectively.
The Company enters into foreign currency forward exchange contracts to reduce the impact of currency fluctuations on monetary asset and liability positions. The cash flows related to gains and losses on these contracts are classified as operating activities in the Consolidated Statements of Cash Flows.
The foreign currency forward exchange contracts described above require the Company to exchange U.S. dollars for foreign currencies at rates agreed to at the inception of the contract. These contracts generally have maturities that do not exceed three months. At March 26, 1994, the Company had approximately $18,026,000 of foreign currency forward exchange contracts outstanding.
Accounting for income taxes In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured by applying enacted tax rates and laws for the taxable years in which those differences are expected to reverse.
The Company adopted the provisions of SFAS No. 109 in its financial statements effective March 28, 1993 for fiscal year 1994. The adoption of SFAS No. 109 did not have a material effect on the Company's consolidated financial position or results of operations in fiscal year 1994. Prior years were accounted for under Statement of Financial Accounting Standards No. 96, "Accounting for Income Taxes" (SFAS No. 96), and have not been restated.
Net income (loss) per share Net loss per share is based upon the weighted average number of shares of common stock outstanding during fiscal year 1994. For fiscal years 1993 and 1992, net income per share is based upon the weighted average number of shares of common stock and common stock equivalents outstanding during the fiscal year. Common stock equivalents include shares issuable upon the assumed exercise of stock options reflected under the treasury stock method. The convertible subordinated debentures are excluded from the calculation of primary and fully diluted earnings per share as they had an anti-dilutive impact on net income per share in fiscal years 1993 and 1992.
Fiscal year The Company maintains a 52/53-week fiscal year cycle. Fiscal years 1994, 1993 and 1992 were each comprised of 52 weeks.
2. JOINT VENTURE, ACQUISITION AND INVESTMENT IN AFFILIATE
Maxoptix Corporation In March 1989, the Company entered into an agreement with Kubota Corporation (Kubota), a Japanese company based in Osaka, Japan, to organize a jointly-owned corporation. Maxtor retains a 62% interest, subject to adjustment upon exercise of Maxoptix employee stock options, in the resulting corporation, Maxoptix. Maxoptix is engaged in research, development, manufacturing and marketing of optical storage products.
Effective March 31, 1990, the Company's net investment in Maxoptix was reduced to zero as a result of its share of accumulated losses of Maxoptix. All operating losses incurred by Maxoptix from March 31, 1990 through June 27, 1992 were allocated to the minority interest account and, therefore did not impact Maxtor's net income (loss). During the second quarter of fiscal year 1993, the minority interest account was reduced to zero. Thereafter, all future operating losses were and will continue to be fully allocated to Maxtor until such time as the total profits of Maxoptix exceed the aggregate accumulated losses fully absorbed by Maxtor. After such time, profits will then be fully allocated to the minority interest account until the total profits of Maxoptix exceed the excess aggregate losses allocated to the minority interest account. In fiscal year 1994, approximately $5,363,000 of Maxoptix losses have been fully allocated to Maxtor.
MiniScribe Acquisition On June 30, 1990, the Company acquired substantially all of the assets and certain liabilities of MiniScribe from the U.S. Bankruptcy Court. Payment to the bankruptcy court and to receivers for such assets totaled approximately $41,500,000, which consisted of $21,500,000 in cash, 1,423,488 shares of the Company's common stock with an estimated value of approximately $6,932,000 and a note estimated at approximately $13,068,000. The acquisition was accounted for as a purchase.
In fiscal year 1992, the Company repaid $2,500,000 on the note. In addition, in fiscal years 1992 and 1993, the 1,423,488 shares were registered and subsequently sold resulting in proceeds to Standard Chartered Bank of $4,545,000 and $9,510,000 in fiscal years 1992 and 1993, respectively. Adjustments of $5,618,000 and $1,505,000 in fiscal years 1992 and 1993, respectively, were recorded to increase additional paid-in capital to reflect the changes in the fair market value of the shares of common stock.
In October 1992, the Company repaid in full the note of approximately $3,445,000 due to Standard Chartered Bank afterwhich no further obligation existed between the Company and Standard Chartered Bank related to the acquisition of the net assets of MiniScribe. The Company also issued rights to certain of the vendors of MiniScribe's foreign subsidiaries to receive approximately 2 million shares of the Company's common stock at no cost to the vendors. The related shares were issued on March 30, 1992.
Investment in Affiliate On December 26, 1992, the Company sold the assets and liabilities of its wholly-owned subsidiary, SDI. The consideration received by the Company in connection with the transaction consisted of $17,400,000 in cash, a $4,000,000 three-year subordinated promissory note and a minority interest of 32.8% in the company formed for the purpose of purchasing the assets of SDI. The Company recognized a nominal gain on the transaction. Terms of the note include principal payments due in three equal installments on the first, second, and third anniversary dates, and interest payments due monthly at rates of 8%, 10%, and 12% per annum through the first, second and third anniversary dates, respectively. The terms of the note were amended in fiscal year 1994 to provide for an additional six-month period from the first anniversary date for payment of the first principal installment. If SDI had not been included in the consolidated financial statements during the fiscal years 1993 and 1992, the Company's results of operations would have been as follows:
Year ended March 27, March 28, (In millions , except percentages 1993 1992 and per share amounts) - - --------------------------------------------------------------------
Revenue $ 1,388.2 $ 971.8 Gross margin 246.2 167.1 As a percentage of revenue 17.7% 17.2% Income from operations $ 50.3 $ 13.7 Net income 43.5 8.0 Net income per share -primary $ 1.38 $ 0.30 -fully diluted $ 1.38 $ 0.27 - - --------------------------------------------------------------------
Maxtor's investment in the company formed for the purpose of purchasing the assets of SDI amounted to $1,095,000 at March 26, 1994. Maxtor's share of the loss of the affiliate was $594,000 and $138,000 in fiscal years 1994 and 1993, respectively.
3. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company operates in a single industry segment: the design, manufacture and sale of data storage products. It has a world-wide sales, service and distribution network. The Company markets and sells its products through a direct sales force to OEMs, distributors and other emerging sales channels such as computer specialty retailers and computer superstores. Retail sales started to grow in the first quarter of fiscal year 1994.
During fiscal years 1994 and 1993, one customer accounted for approximately 24% and 14% of the Company's revenue, respectively. During fiscal year 1992, no customer accounted for more than 10% of the Company's revenue.
The Company had export sales of approximately 43%, 50% and 37% of revenue in fiscal years 1994, 1993 and 1992, respectively. Approximately 35%, 57% and 51% of export sales were to the Far East in fiscal years 1994, 1993 and 1992, respectively. The balance of export sales was primarily to Europe in each of the three fiscal years.
Operations outside the United States consist of manufacturing plants in Singapore and Hong Kong that produce subassemblies and final assemblies for the Company's disk drive products. The geographic breakdown of the Company's activities for each of the three fiscal years in the period ended March 26, 1994 is presented in the following table:
Revenue from unaffiliated customers is based on the location of the customer. Transfers between geographic locations are accounted for at amounts that are above cost. Such transfers are eliminated in the consolidated financial statements. Identifiable assets are those assets that can be directly associated with a particular geographic location through acquisition and/or utilization. In determining each of the geographic locations' income (loss) from operations and identifiable assets, the expenses and assets relating to general corporate or headquarter activities are included in the amounts for the geographic locations where they were incurred, acquired or utilized.
4. LINES OF CREDIT, DEBT AND CAPITAL LEASE OBLIGATIONS
Lines of credit, debt and capital lease obligations consist of the following:
March 26, March 27, (In thousands) 1994 1993 - - -------------------------------------------------------------------- 5.75% Convertible Subordinated Debentures due March 1, 2012 $100,000 $100,000 Short-term borrowings, interest payable at a rate of 1.75% above bank's prime rate per annum (6.0% at March 26, 1994) 30,000 33,000 Term loans, principal payable in varying monthly, quarterly and semi annual installments through October 1996; interest payable at rates ranging from 5.5% to 8.46% per annum; secured by equipment 3,139 23,834 Term loans, principle payable in varying monthly, bi-monthly and quarterly installments through December 1996; interest payable at rates ranging from 7.15% to 9.5% per annum; secured by equipment 7,634 10,729 Capital lease obligations 775 1,678 - - ------------------------------------------------------------------ 141,548 169,241 Less amounts due within one year 34,155 49,373 - - ------------------------------------------------------------------ Due after one year $107,393 $119,868 ==================================================================
Future aggregate maturities (exclusive of capital lease obligations) are as follows:
Fiscal Year Ending (In thousands) - - ---------------------------------------------------------------- 1995 $ 33,729 1996 3,647 1997 2,599 1998 798 1999 - Later years 100,000 - - --------------------------------------------------------------- Total $140,773 ===============================================================
The 5.75% Convertible Subordinated Debentures (Debentures) are convertible at any time prior to maturity, unless previously redeemed, into shares of common stock of the Company at a conversion rate of 25 shares per each $1,000 principal amount of Debentures (equivalent to a conversion price of $40 per share), subject to adjustment in certain events. Interest on the Debentures is payable on March 1 and September 1 of each year. The Debentures, at the option of the Company, are redeemable at 101.725% of the principal amount as of March 26, 1994 and thereafter at prices adjusting to the principal amount on or after March 1, 1997, plus accrued interest. The Debentures are entitled to a sinking fund of $5,000,000 principal amount of Debentures, payable annually beginning March 1, 1998, which is calculated to retire at least 70% of the Debentures prior to maturity. The Debentures are subordinated in right to payment to all senior indebtedness.
In September 1993, the Company replaced its existing secured credit facility and certain equipment term loans and obtained a new secured asset-based revolving line of credit with several banks providing for borrowings of up to $76,000,000 over a two-year term. This revolving line of credit includes sublines for letters of credit and bears interest at various rates. Borrowings under this line of credit are limited to a percentage of eligible receivables. The agreement includes covenants to maintain certain financial ratios and precludes the Company from paying cash dividends. The Company was in compliance with such ratios during the most recent quarter ended March 26, 1994. The balance available for additional borrowings under this line of credit at March 26, 1994 was approximately $9.8 million using the March 26, 1994 borrowing base. As of March 26, 1994, $30.0 million of borrowings and $2.9 million of letters of credit were outstanding. The $30.0 million of borrowings were repaid the first week after fiscal year end.
The Company leases certain equipment under long-term leases. These leases have been accounted for as installment purchases and, accordingly, capitalized costs of $4,317,000 and $4,452,000 have been included in machinery and equipment at March 26, 1994 and March 27, 1993, respectively. Accumulated amortization of the leased equipment amounted to $3,558,000 and $3,153,000 at March 26, 1994 and March 27, 1993, respectively.
The future minimum lease payments under capital lease obligations and the present value of the minimum lease payments as of March 26, 1994 are as follows:
Fiscal Year Ending (In thousands) - - ---------------------------------------------------------------- 1995 $ 503 1996 263 1997 56 1998 43 - - ---------------------------------------------------------------- Minimum lease payments 865 Less amount representing interest 90 - - ---------------------------------------------------------------- Present value of minimum lease payments $ 775 ================================================================
5. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its principal facilities and certain machinery and equipment under operating lease arrangements. The future minimum annual rental commitments as of March 26, 1994 are as follows:
Fiscal Year Ending (In thousands) - - -------------------------------------------------------------- 1995 $ 12,136 1996 7,628 1997 2,134 1998 495 1999 486 Later years 8,747 - - -------------------------------------------------------------- Total $ 31,626 ==============================================================
The above commitments extend through fiscal year 2017. Rental expense was approximately $15,668,000, $12,804,000 and $11,297,000 for fiscal years 1994, 1993 and 1992, respectively.
As part of the acquisition of the MiniScribe business in June 1990, the Company was assigned a patent license agreement between MiniScribe and Rodime plc (Rodime) covering patents related to 3.5- inch disk drives. The Company believes that the assignment was valid; however, Rodime has taken the position that the assignment was invalid and would not in any event cover 3.5-inch drives manufactured and sold by the Company before the acquisition of MiniScribe's assets. In February 1993, Maxtor commenced an action for declaratory relief in the U. S. Bankruptcy Court in Denver, Colorado seeking a judgment that the assignment was valid. Rodime filed a denial and counterclaim for patent infringement. In April 1994, the relevant claims of the Rodime patent at issue in Rodime's counterclaims were declared invalid in litigation between Rodime and another disk drive manufacturer. The Company's litigation with Rodime has been stayed pending Rodime's appeal of the finding of invalidity. Certain other patent infringement claims against the Company have arisen in the course of its business. There is presently no litigation involving such claims, and the Company believes the outcome of these claims will not have a material adverse effect, if any, on the Company's financial position or results of operations.
6. HYUNDAI INVESTMENT
In August 1993, the Company signed a letter of intent for the creation of a strategic relationship with Hyundai Electronics Industries Co., Ltd. and several related members of the Hyundai Business Group (Hyundai). In September 1993, the Company signed the Stock Purchase Agreement (the Agreement) with Hyundai. Conclusion of the transaction was conditional upon approval of the U.S. and Korean governments, Maxtor stockholders and a number of other conditions. In November 1993, the U.S. government provided all necessary approvals. In December 1993, Maxtor stockholders approved all matters submitted to them regarding the proposed investment. At the end of January 1994, Korean government approval was granted. The transaction closed on February 3, 1994.
Under the terms of the Agreement, Hyundai invested approximately $150 million in the Company and received approximately 19.5 million shares of Class A common stock, representing a per share price of $7.70, and constituting approximately 40% of the Company's outstanding voting stock at that date. Each share of Class A common stock converts, at the option of the holder, into one share of the Company's common stock, subject to certain adjustments. Further, automatic conversion into shares of the Company's common stock will occur upon the sale or other disposition of Class A common stock to a person or entity other than Hyundai, as defined in the Agreement. The stock issued to Hyundai is a special series of common stock, entitling Hyundai to representation on the Company's Board of Directors proportionate to its share of ownership and certain voting rights. In addition, the Agreement requires the Company's Board of Directors to elect the director designated by Hyundai as Chairman of the Board, which occurred in February 1994. The Agreement also provides that Hyundai may not acquire more than 45% of the Company except in a tender for all outstanding shares or in certain other cases.
7. STOCKHOLDERS' EQUITY
Stock options
At March 26, 1994, the Company has approximately 2,806,000 shares available for grant under the Fiscal 1985, 1988 and 1992 Stock Option Plans (the Plans). Since inception of the Plans, the Company has reserved 13,800,000 shares of common stock for issuance under the Plans. The Plans generally provide for non-qualified stock options to be granted to eligible employees, consultants, contractors and employee directors of the Company at a price not less than 85% of the fair market value at the date of grant, as determined by the Board of Directors. Under the 1992 Plan, officers and directors of the Company are not eligible for stock option grants. The 1985 Plan also provides for incentive stock options to be granted to key employees at the fair market value at the date of grant, as determined by the Board of Directors.
Options granted under the Plans are generally immediately exercisable, and shares purchased on the exercise thereof are subject to monthly vesting over a one, three or four year period. Shares that are not vested at the date of termination of employment may be repurchased by the Company at the lower of the original purchase price or the fair market value at the time of repurchase. Options granted prior to September 1991 may be exercised within five years from the date of grant and options granted thereafter may be exercised within ten years from the date of grant.
The Company has reserved 250,000 shares of common stock for issuance under the 1986 Outside Directors Stock Option Plan (the 1986 Plan). The 1986 Plan provides for nonqualified stock options to be granted to non-employee directors of the Company at fair market value at the date of grant. Options are exercisable 90 days from the date of grant and vest monthly over a four year period provided the grantee remains in service as a director. Options may be exercised within ten years from the date of grant.
The following table summarizes option activity through March 26, 1994:
Options Outstanding ------------------------------- (In thousands, except Shares Average share and per share Available Price Aggregate amounts) for Grant Shares Per Share Value - - -------------------------------------------------------------------- Balance at March 30, 1991 1,114,536 4,248,985 $ 6.08 $ 25,823 Shares reserved 3,525,000 - - - Options granted (6,195,565) 6,195,565 4.33 26,834 Options exercised - (349,929) 5.63 (1,971) Options canceled 1,993,529 (1,993,529) 5.56 (11,086) - - -------------------------------------------------------------------- Balance at March 28, 1992 437,500 8,101,092 4.89 39,600 Shares reserved 1,388,439 - - - Options granted (1,604,129) 1,604,129 10.92 17,517 Options exercised - (2,075,738) 5.61 (11,636) Options canceled 808,709 (808,709) 5.65 (4,571) - - -------------------------------------------------------------------- Balance at March 27, 1993 1,030,519 6,820,774 6.00 40,910 Shares reserved 1,600,000 - - - Options granted (1,566,031) 1,566,031 6.32 9,891 Options exercised - (792,920) 4.24 (3,365) Options canceled 1,742,008 (1,742,008) 5.80 (10,104) - - -------------------------------------------------------------------- Balance at March 26, 1994 2,806,496 5,851,877 $ 6.38 $ 37,332 ====================================================================
Of the options outstanding, 2,915,116 were vested as of March 26, 1994. There were no shares outstanding subject to repurchase as of March 26, 1994, March 27, 1993 and March 28, 1992.
Employee Stock Purchase Plan The Employee Stock Purchase Plan provides that substantially all employees may purchase the Company's common stock at a price equal to 85% of its fair market value on certain specified dates via a payroll deduction plan. The number of shares reserved for future issuance under this Plan totals approximately 1,356,000 shares.
Stockholder's Rights Plan In January 1988, the Board of Directors adopted a stockholder rights plan which granted to holders of record one stock purchase right per share of common stock which becomes exercisable upon the occurrence of certain triggering events. Such events would include the acquisition of 20% or more of the Company's outstanding shares or the commencement of a tender or exchange offer for 25% or more of the Company's outstanding shares of common stock.
Should a triggering event occur, holders of such rights would be entitled to purchase Maxtor common stock at an exercise price of $50 per share. If the Company is acquired in a merger or other business combination, each right then exercisable will entitle its holder to purchase that number of shares of the acquiring company's common stock that has a market value equal to twice the right's exercise price. If a 20% or greater stockholder acquires the Company through a transaction in which the Company and its common stock survive, or engages in certain self-dealing transactions with the Company, each holder of a right, other than the 20% stockholder, will have the right to receive, upon payment of the exercise price, that number of shares of the Company's common stock having a market value at the time of the transaction equal to two times the exercise price. Such rights do not extend to any holder whose action triggered the rights. The stockholder rights plan was amended effective upon the closing of the transaction with Hyundai to provide for certain provisions applicable to Hyundai.
The rights expire in January 1998 and may be redeemed prior to that time at the option of the Board of Directors for nominal consideration subject to certain time limitations. Until a triggering event occurs, the rights will not trade separately from the related Maxtor common shares.
8. INCOME TAXES
The provision for income taxes consists of the following:
Year ended March 26, March 27, March 28, (In thousands) 1994 1993 1992 - - -------------------------------------------------------------------- Current Federal $ - $ (4,018) $ 179 State - 1,326 - Foreign 2,798 2,979 966 - - -------------------------------------------------------------------- 2,798 287 1,145 Deferred Foreign (934) 1,000 - - - -------------------------------------------------------------------- Total $ 1,864 $ 1,287 $ 1,145 ====================================================================
The provision for income taxes differs from the amount computed by applying the statutory rate of 35% for fiscal year 1994 (34% for fiscal years 1993 and 1992) to income (loss) before income taxes. The principal reasons for this difference are listed in the following table:
Year ended March 26, March 27, March 28, (In thousands) 1994 1993 1992 - - -------------------------------------------------------------------- Tax at federal statutory rate $(89,504) $ 16,116 $ 2,820 State income tax, net of federal benefit - 875 - Tax costs (savings) from foreign operations (19,281) (16,035) 966 Benefit of net operating loss carryforwards - - (2,735) Repatriated foreign earnings absorbed by current year losses 74,855 - - U.S. loss not providing current tax benefit 14,627 8,064 - Valuation of temporary differences 18,995 (3,965) 70 Reduction of taxes provided in prior years - (4,018) - Other 2,172 250 24 - - -------------------------------------------------------------------- Total $ 1,864 $ 1,287 $ 1,145 ====================================================================
Deferred income taxes reflect the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income taxes purposes. The significant components of the Company's deferred tax assets and liabilities under SFAS No. 109 as of March 26, 1994 are as follows:
(In thousands) - - -------------------------------------------------------------- Deferred tax assets: Inventory valuation account $ 10,940 Depreciation 9,079 Sales related reserves 10,842 Net operating loss carryforwards 59,978 Tax credit carryforwards 5,963 Accrued special and restructuring 8,938 Other 3,921 - - -------------------------------------------------------------- Total deferred tax assets 109,661 Valuation allowance for deferred tax assets 96,847 - - -------------------------------------------------------------- Net deferred tax assets $ 12,814 ==============================================================
Deferred tax liabilities: Unremitted earnings of certain foreign entities $ 12,814 - - -------------------------------------------------------------- Total deferred tax liabilities $ 12,814 ==============================================================
Total net deferred tax liabilities $ - ==============================================================
The change in the valuation allowance was a net increase of $38,252,000 from the effective date of the adoption of SFAS No. 109 on March 27, 1993. Approximately $10,226,000 of the valuation allowance is attributable to stock options, the benefit of which will be credited to additional paid-in capital when realized.
Pretax income from foreign operations was approximately $61,000,000, $110,000,000 and $100,200,000 in fiscal years 1994, 1993 and 1992, respectively. The Company enjoys a tax holiday for its operations in Singapore. This holiday will expire in fiscal year 1998. The net impact of this tax holiday was to increase net income by approximately $15,000,000 in fiscal year 1994, $28,000,000 in fiscal year 1993 and $30,600,000 in fiscal year 1992. This equates to $0.47, $0.89 and $1.05 per share fully diluted, for fiscal years 1994, 1993 and 1992, respectively. At March 26, 1994, accumulated earnings of approximately $30,000,000 are intended to be permanently reinvested outside of the United States and no tax has been provided on these earnings. Repatriation of these earnings would result in no additional taxes.
At March 26, 1994, for federal income tax purposes, the Company had net operating loss carryforwards of $171,000,000 which will expire beginning in fiscal year 1997 and tax credit carryforwards of approximately $6,000,000 which will expire beginning in fiscal year 1995. Certain changes in stock ownership can result in a limitation on the amount of net operating loss and tax credit carryovers that can be utilized each year. The Company determined it has undergone such an ownership change. Consequently, utilization of approximately $147,000,000 of net operating loss carryforwards and the deduction equivalent of approximately $6,000,000 of tax credit carryforwards will be limited to approximately $12,000,000 per year.
The Company has reached settlement of certain issues with the Internal Revenue Service. As a result of this settlement, the Company's fiscal year 1993 provision for income taxes reflects a $4,000,000 reduction of taxes provided in prior periods.
9. SPECIAL ITEMS AND RESTRUCTURING
During fiscal year 1994, the Company experienced significant production delays with certain product lines as a result of both design and vendor problems. Due to continuing production and sales issues, the Company assessed its competitive position during the third quarter of fiscal year 1994 and determined that it was unable to bring to market profitable successor products to certain existing products. The Company therefore decided to discontinue certain products and manufacturing activities, and recorded special charges amounting to $68.9 million in cost of revenue in the third quarter of fiscal year 1994. The charges consist of estimated costs associated with the termination of certain products, a reduction in manufacturing capacity, write downs of inventory and equipment that were no longer productive, and related future commitments to third parties. The charges are comprised of approximately $45.4 million of inventory-related expenses, approximately $19.8 million of equipment-related expenses, and approximately $3.7 million of other associated expenses. The Company anticipates that the net expenditure of approximately $7.5 million of cash will be required during the first nine months of fiscal year 1995 to fund the expenses accrued. Such expenditures are expected to be funded by cash flow from operations and capital infusions. As of March 26, 1994, current liabilities included accruals related to these special charges totaling approximately $24.0 million.
The decisions described above reduced the scope of the Company's product and manufacturing activities and, as a result, the Company then initiated a restructuring plan which provides for the consolidation and streamlining of certain operations and administration. The Company recorded a restructuring charge of $19.5 million in the third quarter of fiscal year 1994 related to these activities, which are expected to be completed within the twelve-month period from the date of the charge. The plan provides for a worldwide headcount reduction of approximately 500 employees, which was substantially completed during February 1994. The Company's research and development activities will be consolidated at its Longmont, Colorado facilities, which will eliminate the need for certain facilities in San Jose, California. In addition, the Company's actions will eliminate the need for certain manufacturing facilities in Singapore. The charge consists of approximately $11.8 million in estimated costs related to the worldwide reduction in headcount and approximately $7.7 million associated with facility consolidations, including lease and other obligations on certain facility leases, none of which extend beyond calendar year 1994. The Company anticipates that these restructuring actions will require the expenditure of approximately $9.0 million of cash during the first nine months of fiscal year 1995, which are expected to be funded by cash flow from operations and capital infusions. As of March 26, 1994, approximately $9.0 million of the $19.5 million charge remained in current liabilities. As a result of these activities, the Company has eliminated an estimated $9.0 million per quarter of operating costs, beginning with the quarter ended March 26, 1994.
Fiscal year 1993 consolidated income from operations includes non recurring revenue of approximately $10.0 and $6.1 million recognized in the first and third quarters of fiscal year 1993, respectively, which was primarily related to certain royalty and licensing agreements.
Fiscal year 1992 consolidated income from operations includes a net pretax gain of approximately $6.5 million which is comprised of non recurring revenue and other special gains offset by certain special charges. Non recurring revenue of approximately $8.0 million was recognized in the fourth quarter from patent cross license fees and the gain on sale of certain manufacturing rights and assets. In addition, a net gain of approximately $5.5 million was recorded against cost of revenue in the third quarter from the sale of the Company's Penang, Malaysia headstack assembly operation. Special charges totaling approximately $7.0 million were recorded in the first half of fiscal year 1992 to cost of revenue and selling, general and administrative expenses for write-downs of obsolete and excess assets, costs to consolidate certain facilities and functions, and other charges.
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
The Board of Directors and Stockholders Maxtor Corporation
We have audited the accompanying consolidated balance sheets of Maxtor Corporation as of March 26, 1994 and March 27, 1993, and the related consolidated statements of income (loss), stockholders' equity and cash flows for each of the three fiscal years in the period ended March 26, 1994. Our audits also included the financial statement schedules listed in the Index at Item 14 (a). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Maxtor Corporation at March 26, 1994 and March 27, 1993, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended March 26, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
San Jose, California April 22, 1994 /s/ ERNST & YOUNG ----------------- ERNST & YOUNG
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company and their ages as of June 3, 1994 are as follows:
Name Age Position with the Company ---- --- -------------------------
Mong Hun Chung 45 Chairman of the Board Laurence R. Hootnick * 52 President, Chief Executive Officer and Director In Baik Jeon 46 Vice President, Strategic Development and Director J. Larry Smart 46 Executive Vice President and Chief Operating Officer Walter D. Amaral 42 Vice President, Finance and Chief Financial Officer Mark Chandler 38 Vice President, Corporate Development, General Counsel and Secretary Gary Galusha 49 Vice President, Worldwide Sales William M. Hake 41 Vice President, Product Management Skip Kilsdonk 50 Vice President, Strategic Planning Gregory M. Gallo 52 Director Charles Hill 58 Director James M. McCoy 47 Director Juan A. Rodriguez 53 Director Dr. Chong Sup Park 46 Director
* On June 15, 1994, Laurence R. Hootnick announced he will resign as President, Chief Executive Officer and Director effective upon completion of the Company's annual meeting scheduled on August 18, 1994.
All other information required by this Item related to the directors of the Company is incorporated herein by reference to the Proxy Statement.
Laurence R. Hootnick joined the Company as President, Chief Executive Officer and a Director in May 1991. Prior to joining the Company, Mr. Hootnick was employed by Intel Corporation (Intel), a semiconductor manufacturer, from 1973 through May 1991. Mr. Hootnick held a variety of management positions while at Intel, most recently President of the Embedded Controller and Memory Group from 1988 to May 1991; General Manager of the Microcomputer Components Group from 1987 to 1988; Senior Vice President, Worldwide Sales and Marketing from 1984 to 1987; and Senior Vice President, Finance and Administration from 1979 to 1984. Mr. Hootnick also serves as a director of Network General Corporation and Net Manage, Inc.
J. Larry Smart joined the Company as Executive Vice President and Chief Operating Officer in March 1994. Prior to joining Maxtor, Mr. Smart was President and Chief Executive Officer of Southwall Technologies Inc., a thin film technology company, and from November 1987 to July 1991, he was a Senior Vice President at SCI Systems, a contract manufacturer. Mr. Smart is also Chairman of the Board of Southwall Technologies, Inc.
Walter D. Amaral joined the Company as Vice President, Finance and Chief Financial Officer in April 1992. For a period of 15 years prior to joining the Company, Mr. Amaral held various finance and marketing positions at Intel, where most recently he served as Corporate Controller from April 1991 to April 1992.
Mark Chandler joined Maxtor in July 1988 as Director of Legal Affairs and served as Vice President, General Counsel and Secretary from September 1990 until April 1992. In June 1992, Mr. Chandler rejoined Maxtor as Vice President, Corporate Development. In July 1993, he added the positions of General Counsel and Secretary to his duties. During March - May 1992, he served as Vice President and Managing Director of European Operations of Mission Energy Company.
Gary Galusha joined the Company as Vice President, North American Sales in July 1990 and has served as Vice President, Worldwide Sales since January 1991. Prior to joining the Company, Mr. Galusha served as the Vice President of U.S. and European Sales and other positions, including service as an officer, at MiniScribe from October 1986 until July 1990, at which time Maxtor purchased the assets of MiniScribe subsequent to MiniScribe's bankruptcy filing.
William M. Hake has served as the Company's Vice President, Product Management since joining the Company in July 1990. From May 1989 to June 1990, Mr. Hake served as the Vice President of Sales and Marketing at MiniScribe. From July 1985 to July 1990, Mr. Hake held various sales, marketing and product management positions, including service as an officer, at MiniScribe until July 1990, at which time Maxtor purchased the assets of MiniScribe subsequent to MiniScribe's bankruptcy filing.
Skip Kilsdonk joined the Company as Vice President, Marketing in August 1991 and has served as Vice President, Strategic Planning since January 1994. Prior to joining the Company, Mr. Kilsdonk served as a Senior Product Line Manager at Apple Computer, Inc., a computer manufacturer, from October 1990 to July 1991 and as Vice President of Marketing at SunDisk Corporation, a flash memory corporation, from October 1989 to October 1990. Prior to joining SunDisk Corporation, Mr. Kilsdonk was the President of his own consulting company, Skillstech Associates, from May 1988 to October 1989. Mr. Kilsdonk served as Maxtor's Vice President of Marketing from its inception in 1982 to 1988.
Item 11.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the Proxy Statement.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the Proxy Statement.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the Proxy Statement.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements and Financial Statement Schedules - See Index to Consolidated Financial Statements under Item 8 on page 20 of this report.
(2) Exhibits See Index to Exhibits on pages 57 to 64 hereof.
(b) Reports on Form 8-K None.
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, in the City of San Jose, State of California, on the 22nd day of June, 1994.
MAXTOR CORPORATION (Registrant)
By /s/Laurence R. Hootnick ----------------------- Laurence R. Hootnick President, Director, Chief Executive Officer
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/ Laurence R. Hootnick President, Director, June 22, 1994 - - ------------------------ Chief Executive Officer ------------- Laurence R. Hootnick
/s/ Walter D. Amaral Vice President, Finance, June 22, 1994 - - ------------------------ Chief Financial Officer ------------- Walter D. Amaral (Principal Financial Officer)
/s/ Michael M. Cully Vice President, Finance, June 22, 1994 - - ------------------------ Corporate Controller ------------- Michael M. Cully (Principal Accounting Officer)
/s/ Mong Hun Chung Chairman of the Board June 22, 1994 - - ------------------------ ------------- Mong Hun Chung
/s/ In Baik Jeon Vice President, Strategic June 22, 1994 - - ------------------------ Development, Director ------------- In Baik Jeon
/s/ Gregory M. Gallo Director June 22, 1994 - - ------------------------ ------------- Gregory M. Gallo
/s/ Charles Hill Director June 22, 1994 - - ------------------------ ------------- Charles Hill
/s/ James M. McCoy Director June 22, 1994 - - ------------------------ ------------- James M. McCoy
/s/ Juan A. Rodriguez Director June 22, 1994 - - ------------------------ ------------- Juan A. Rodriguez
s/ Dr. Chong Sup Park Director June 22, 1994 - - ------------------------ ------------- Dr. Chong Sup Park
MAXTOR CORPORATION
SCHEDULE I
SHORT-TERM INVESTMENTS
(In thousands)
Balance at Year Ended March 26, 1994 End of Period (A) - - -------------------------------- ------------------
Certificates of Deposit: - - ------------------------ RaboBank Netherlands Euro $ 9,994 Credit Suisse Yankee 10,004 Scotia Bank Euro 10,020 Nat Westminister Euro 10,068 Societe General Yankee 10,004 Hessen-Thuringen Bank Euro 9,997 --------- 60,087
Commercial Paper: - - ----------------- ATT Capital 7,429 Waste Management 7,395 --------- 14,824 --------- Total Short-Term Investments $ 74,911 =========
(A) Stated at cost which approximates its fair value.
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MAXTOR CORPORATION
SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
- - ----------------------------------------------------------------- Balance at Collections, Balance Year Ended Beginning Addi- Repurchases at End of Name of Debtor of Period tions & Forgive- of ness Period - - -----------------------------------------------------------------
Year Ended March 28, 1992: S. Kitrosser (note 1) $ 72,756 $291,021 $ 72,756 $291,021 J. Miller (note 1) 114,576 - 114,576 - J. Seaver (note 1) 114,176 - - 114,176 -------- -------- -------- -------- Total $301,508 $291,021 $187,332 $405,197 ======== ======== ======== ========
Year Ended March 27, 1993: S. Kitrosser (note 1) $291,021 $ - $291,021 $ - J. Seaver (note 1) 114,176 - 85,632 28,544 J. McCoy (note 2) - 166,273 - 166,273 T. Burniece (note 3) - 300,000 300,000 - P. Roboostoff (note 4) - 114,000 19,625 94,375 -------- -------- -------- -------- Total $405,197 $580,273 $696,278 $289,192 ======== ======== ======== ========
Year Ended March 26, 1994: J. Seaver (note 1) $ 28,544 $ - $ 28,544 $ - J. McCoy (note 2) 166,273 - 41,568 124,705 P. Roboostoff (note 4) 94,375 - 94,375 - R. Wilmer (note 5) - 150,000 - 150,000 M. Chandler (note 6) - 100,000 - 100,000 -------- -------- -------- -------- Total $289,192 $250,000 $164,487 $374,705 ======== ======== ======== ========
S-2
NOTES:
The Company has granted stock options to certain of its officers pursuant to the 1985 and 1988 Stock Option Plans to purchase shares of common stock at prices equal to the fair market value at the date of grant. The following conditions apply to certain of these stock options: a) the options are nonqualified and are exercisable at various dates commencing in October 1986, pursuant to payment by promissory notes equal to 100% of the exercise price; b) these notes bear interest rates between 5.98% and 9.00% with principal and interest payable in four equal annual installments; c) the notes are forgiven over specific periods of time based upon the years of service completed with the Company following exercise of the options; and, d) additions represent promissory notes for options exercised under the 1985 and 1988 Plans including the certain options referred to above.
1) These promissory notes were issued in exchange for the issuance of common stock to S. Kitrosser, J. Miller and J. Seaver. In May 1991, when J. Miller terminated his employment with the Company, he repaid the full principle amount of the note, $114,576. Amounts forgiven for S. Kitrosser amounted to $72,756 and $72,755 in fiscal years 1992 and 1993, respectively. In February 1993, S. Kitrosser's note was repaid as part of his termination agreement with the Company; principle and interest amounted to $219,820. J. Seaver repaid $85,632 of his note in fiscal 1993 and the remaining balance of $31,127 in March 1994, including principle and interest.
2) This promissory note was issued in exchange for the issuance of common stock to J. McCoy in September 1992. The note bears interest at a rate of 5.98% per annum. The note was issued under the 1985 Stock Option Plan and the principle and interest will be forgiven in four equal installments commencing on the first anniversary date of the note, provided that J. McCoy is an employee of the Company on that date. The amount forgiven in fiscal year 1994 amounted to $41,568. The note is secured by a pledge of shares of the Company's common stock.
3) This promissory note was delivered to the Company in November 1992 by T. Burniece in order for him to finance the purchase of his personal residence. The annual interest rate on the loan was 7% with principle and interest payable in full on February 28, 1993. On December 15, 1992, T. Burniece repaid the entire amount of principle and interest due on his loan which amounted to $301,225.
4) This promissory note was delivered to the Company in December 1992 by P. Roboostoff. The annual interest rate on the loan is 5%. As originally required under the terms of the note, P. Roboostoff made a partial payment towards interest and principle of $20,000 prior to February 15, 1993. The balance of the note and accrued interest was payable in equal semi-annual installments commencing March 15, 1993 and was fully due and payable on May 2, 1997. In September 1993, the principle balance due of $94,375 was forgiven for P. Roboostoff.
5) This promissory note was delivered to the Company in May 1993 by R. Wilmer, and was subsequently amended by the Company in January 1994. The annual interest rate on the loan is 6%. The amendment stipulates that the principle portion of the note will be forgiven at a rate of $25,000, plus accrued interest, on the last day of each full calendar quarter commencing with the first calendar quarter of 1994 ending March 30, 1994, provided R. Wilmer is an employee of the Company on that date. R. Wilmer left the Company in February 1994. According to the amended promissory note, R. Wilmer will pay the interest due on an annual basis, and will pay the principle in full and the balance of any interest accrued thereon on May 28, 1998. The note is secured by certain property owned by R. Wilmer and by a pledge of shares of the Company's common stock.
6) This promissory note was delivered to the Company in November 1993 by M. Chandler. The annual interest rate on the loan is 6% with principle and interest payable in full on November 24, 1994. The note is secured by a pledge of options to purchase shares of the Company's common stock.
S-3
S-4
S-5
MAXTOR CORPORATION
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Allowance for Doubtful Accounts - - ----------------------------------------------------------------- Additions Balance at Charged to Balance at Beginning Costs and Deductions End of Year Ended of Period Expenses(1) Period - - -----------------------------------------------------------------
March 28, 1992 $ 3,679 $ 6,915 $ 5,694 $ 4,900
March 27, 1993 $ 4,900 $ 2,708 $ 3,418 $ 4,190
March 26, 1994 $ 4,190 $ 253 $ 790 $ 3,653
(1) Uncollectible accounts written off, net of recoveries.
S-6
MAXTOR CORPORATION
SCHEDULE IX
SHORT-TERM BORROWINGS
(In thousands)
Year Ended - - ------------------------------------------------------------ March 26, March 27, March 28, 1994 1993 1992 - - ------------------------------------------------------------
Short-Term Borrowings:
Balance at end of year $ 30,000 $ 33,000 $ -
Weighted average interest rate at end of year 7.75% 6.5% -
Maximum amount outstanding at any month end $ 64,842 $ 33,000 $ 43,035
Average amount outstanding during the year (1) $ 21,002 $ 2,750 $ 14,690
Weighted average interest rate during the year (2) 4.43% 5.85% 11.00%
Short-term borrowings represent obligations payable under line of credit agreements. Borrowings are arranged on an as-needed basis at various terms.
(1) The average amount outstanding during the year was computed by averaging the month-end balances during the year.
(2) The weighted average interest rate during the year was computed by dividing the average actual interest incurred by the average amount outstanding during the year.
S-7
INDEX TO EXHIBITS
Exhibit No. Description Sequentially Numbered Pages - - ----------- ---------------------------------------- -------------- 3.1 (6) Certificate of Incorporation
3.2 (8) Certificate of Amendment of Certificate of Incorporation of Maxtor Corporation,dated December 23, 1987
3.3 (8) By-Laws as amended July 21, 1987
3.4 (21) Amended and Restated By-Laws of Maxtor Corporation, A Delaware Company, effective February 3, 1994
3.5 (21) Restated Certificate of Incorporation of Maxtor Corporation effective February 3,
4.1 (3) Form of Certificate of Shares of Registrant's Common Stock
4.2 (7) Maxtor Corporation Rights Plan
4.3 Amendment to Rights Agreement between 65 - 68 Registrant and the First National Bank of Boston, dated September 10, 1993
10.1 (1) Omnilease Corporation Master Lease Agreement No. 300362, dated as of January 14, 1983 and addenda thereof
10.2 (1) Lease Agreement between Orchard Investment Company No. 801, formerly Nelo, a California general partnership and Registrant, dated March 23, 1984
10.3 (1) Lease Commitment between Walter E. Heller & Company and Registrant, dated as of March 11, 1985
10.4 (1) Stock Purchase Agreement between Steven P. Kitrosser and Registrant, dated May 21, 1985
10.5 (1) Stock Purchase Agreement between James McCoy and Registrant, dated May 21, 1985
10.6 (1) Equipment Lease Agreement between Pacific Western (formerly Pacific Valley) Bank and Registrant, dated June 26, 1985
10.7 (1) Continuing Guaranty between Maxtor Singapore Limited and Bank of America N.T. & S.A., dated July 27, 1985
10.8 (9) Lease Agreement between John Arrillaga, Separate Property Trust, Richard T. Perry, Separate Property Trust and Registrant, dated August 27, 1986
10.9 (3) Marketing and Distribution Agreement between Ricoh Company, Ltd. and Registrant, dated October 14, 1986
10.10 (3) Land Lease Agreement between Housing and Development Board, Singapore and Maxtor Singapore Limited, dated December 22,
10.11 (3) Indenture dated February 16, 1987
10.12 (8) Stock Bonus Plan and Cash Bonus Plan between Storage Dimensions, Inc. and Registrant dated June 15, 1987
10.13 (8) Merger Agreement between MAXSUB II, Inc., and Storage Dimensions, Inc. dated October 26, 1987
10.14 (3) 1986 Outside Directors' Stock Option Plan
10.15 (3) Commitment from Union Bank to Registrant regarding letters of credit for the benefit of the officers and directors of the Registrant
10.16 (4) Agreement and Plan of Reorganization
10.17 (9) Revised Equipment Lease Agreement between Capital Associates International, Inc. and Registrant, dated September 28, 1988
10.18 (9) Credit Agreement between Bank of America National Trust and Savings Association and Registrant, dated October 18, 1988
10.19 (9) Equipment Lease Agreement between Pitney Bowes Credit Corporation and Registrant, dated November 2, 1988
10.20 (9) Equipment Lease Agreement between Concord Leasing (Asia) Pte Ltd. and Maxtor Singapore, Limited, dated November 16,
10.21 (9) Lease Agreement between Maxtor Singapore, Limited and Jurong Town Corporation, dated November 16, 1988
10.22 (9) Lease Agreement between Greylands Business Park Phase II and Storage Dimensions, Inc., dated December 14, 1988
10.23 (8) Stock Purchase Agreement among Registrant, Storage Dimensions, Inc., David A. Eeg, Gene E. Bowles, Jr., David P. Williams and David Lance Robinson
10.24 (8) Fiscal 1988 Stock Option Plan
10.25 (8) Employee Stock Purchase Plan
10.26 (8) Dual Currency Loan Agreement between Maxtor Singapore Limited, Maxtor Delaware, Maxtor California and American Express Bank Limited
10.27 (8) Amended and Restated Fiscal 1985 Stock Option Plan, including the Immediately Exercisable Incentive Stock Option Agreement and the Immediately Exercisable Nonqualified Stock Option Agreement
10.28 (9) Loan Agreement between Probo Pacific Pte Ltd. and Maxtor Singapore Limited, dated March 20, 1989
10.29 (9) Loan Agreement between Concord Leasing (Asia) Pte, Ltd. and Maxtor Singapore Limited, dated April 14, 1989
10.30 (10) Product Discontinuance Agreement between Matsushita Communication Industrial Co., Ltd. (MCI) and Registrant, dated August 23, 1989
10.31 (10) Equipment Lease Agreement between Capital Associates International, Inc. and Registrant, dated October 17, 1989
10.32 (10) Maxoptix Corporation 1989 Stock Option Plan
10.33 (9) Forms for Promissory Note and Amended and Restated Promissory Note
10.34 (10) Amended and Restated Credit Agreement between Bank of America National Trust and Savings Association and Registrant, dated January 31, 1990
10.35 (10) Amendment to Lease Agreement between Orchard Investment Company No. 801, formerly Nelo, a California general partnership, and Registrant, dated February 15, 1990
10.36 (10) Sublease Agreement between RACAL-VADIC, a Division of Racal Data Communications, Inc. ("Sublessor"), and Storage Dimensions, Inc. ("Sublessee"), dated February 16, 1990
10.37 (10) Collateral Sharing and Subordination Agreement between Registrant and Standard Chartered Bank, dated April 5, 1990
10.38 (10) Loan and Security Agreement between Registrant and MiniScribe Corporation, dated April 5, 1990
10.39 (11) Agreement for the Sale and Purchase of Shares in Tratford Pte. Ltd. between the Registrant, MiniScribe Peripherals (Pte) Ltd. and certain Individuals, dated May 8, 1990
10.40 (11) Agreement for the Sale and Purchase of Shares in Silkmount Limited between MaxSub Corporation, Silkmount Limited and certain Individuals, dated May 18, 1990
10.41 (11) Assignment of Debt between Registrant, MiniScribe (Hong Kong) Limited and certain Individuals, dated May 18, 1990
10.42 (10) Asset Purchase Agreement between Registrant, MiniScribe Corporation and Standard Chartered Bank, dated May 30,
10.43 (14) License Agreement with Rodime PLC, dated December 8, 1987 assigned to Registrant on June 29, 1990
10.44 (14) Patent Cross License Agreement with IBM dated October 1, 1984 assigned to Registrant effective June 30, 1990
10.45 (14) Lease Agreement between MiniScribe Corporation and 345 Partnership dated June 6, 1990, assigned to the Registrant effective June 30, 1990
10.46 (14) Lease Agreement between Maxtor Colorado and Pratt Partnership (Lot 1A), dated July 5, 1990
10.47 (14) Lease Agreement between Maxtor Colorado and Pratt Partnership (Lot 1C), dated July 5, 1990
10.48 (14) Lease Agreement between Maxtor Colorado and Pratt Partnership (Lot 4), dated July 5, 1990
10.49 (14) Agreement for the Purchase of Land and Improvements between Registrant and Nixdorf, dated August 16, 1990
10.50 (15) Grant Agreement dated 25 October 1990 between the Industrial Development Authority, Maxtor Ireland Limited and Registrant
10.51 (12) Amendment of Agreement between Registrant, Maxtor Colorado, Maxtor California and Standard Chartered Bank, dated November 6, 1990
10.52 (14) Guarantee for Dastek between Registrant, Dastek and Silicon Valley Bank, dated November 30, 1990
10.53 (10) Judgment, William Lubliner vs. Maxtor Corporation, James M. McCoy, William J. Dobbin, B.J. Cassin, W. Charles Hazel and George M. Scalise
10.54 (10) Settlement Agreement, William Lubliner vs. Maxtor Corporation, et al
10.55 (10) Fiscal 1991 Profit Sharing Plan Document
10.56 (10) Board of Director Compensation Approved for fiscal 1991
10.57 (14) Resignation Agreement and General Release of Claims between Alexander E. Malaccorto and the Registrant, dated January 11,
10.58 (14) Employment Agreement between James M. McCoy and Registrant, dated January 17,
10.59 (14) Resignation Agreement and General Release of Claims between James N. Miler and the Registrant, dated January 20, 1991
10.60 (14) Letter Agreement between George Scalise and the Registrant, dated February 22,
10.61 (14) Resignation Agreement and General Release of Claims between Steven Strain and the Registrant, dated February 22, 1991
10.62 (14) Foothill Capital Credit Facility between Registrant, certain of its subsidiaries and Foothill Capital Corporation, dated April 22, 1991
10.63 (14) Employment Agreement between Laurence Hootnick and Registrant, dated May 3,
10.64 (14) Employment Agreement between Roger Nordby and Registrant, dated May 7, 1991
10.65 (14) Employment Agreement between Thomas F. Burniece and the Registrant, dated May 12, 1991
10.66 (15) Amendment of the Registrant's Continuing Guarantee in favor of Foothill Capital Corporation, dated July 10, 1991
10.67 (15) Settlement, Resignation and General Release of Claims between Registrant and Taroon C. Kamdar, dated August 2, 1991
10.68 (15) Amendment of Registrant's Continuing Guarantee in favor Foothill Capital Corporation, dated August 9, 1991
10.69 (15) Amendment No. 1 to Lease by and between John Arrillaga, Trustee, and Richard T. Peery, Trustee, and Registrant, dated August 23, 1991
10.70 (15) Amendment of Registrant's Continuing Guarantee in favor of Foothill Capital Corporation, dated September 20, 1991
10.71 (13) Amendment of Agreement between Registrant, Maxtor Colorado, Maxtor California and Standard Chartered Bank, dated December 27, 1990, and further amended July 26, 1991 and October 4, 1991
10.72 (15) Lease Agreement between Registrant and Devcon Associates 31, dated December 6,
10.73 (15) Deed of Partial Discharge and Release between Barclays Bank PLC and Maxtor Singapore Limited, dated December 19,
10.74 (15) Agreement for Purchase and Sale of Assets among Registrant, Read-Rite International, Read-Rite Corporation and Maxtor Singapore Limited, dated November 14, 1991, and amended December 20, 1991
10.75 (15) Asset Purchase Agreement among Registrant, Storage Dimensions, Inc. and USD Acquisition, Inc., dated December 27,
10.76 (15) Resignation Agreement and General Release of Claims between Registrant and David S. Dury, dated January 31, 1992
10.77 (15) Sublease between Registrant and Hauser Chemical Research, Inc., dated March 23,
10.78 (15) First Amendment to Lease Agreement between PCA San Jose Associates and Registrant, dated March 25, 1992
10.79 (15) Asset Purchase Agreement among Registrant, Maxtor Singapore LTD., and Sequel, Inc., dated March 12, 1992, and amended March 25, 1992
10.80 (5) Fiscal 1992 Stock Option Plan
10.81 (15) Form of Indemnity Agreement between the Registrant and each of its directors and executive officers
10.82 (15) Maxtor/Sequel 8K/Panther Subcontract Manufacturing and Warranty Services Agreement, dated March 23, 1992
10.83 (15) Maxtor Corporation 1992 Employee Stock Purchase Plan
10.84 (15) Maxtor Corporation 1991 Employee Stock Purchase Plan
10.85 (15) Maxtor Corporation FY'93 Incentive Plan Summary
10.86 (15) Fiscal 1992 Profit Sharing Plan Document
10.87 (17) Security Agreement between Registrant and Chrysler Capital Corporation, dated April 14, 1992
10.88 (17) Subordination, Non-Disturbance, Estoppel and Attornment Agreement between Loma Mortgage USA, Inc. and Registrant, dated June 4, 1992
10.89 (17) Office Lease between Cabot Associates and Registrant, dated July 23, 1992
10.90 (17) Revolving Credit Agreement among Registrant, Barclays Bank PLC and The First National Bank of Boston, dated as of September 9, 1992
10.91 (17) Security Agreement between Registrant and the CIT Group/Equipment Financing, Inc., dated September 18, 1992
10.92 (17) Deed of Priorities among Maxtor (Hong Kong) Limited and Registrant and General Electric Capital Corporation, dated September 25, 1992
10.93 (17) Lease among Dares Developments (Woking) Limited, Maxtor Europe Limited and Registrant, dated October 1992
10.94 (16) Stock Purchase and Asset Acquisition Agreement among David A. Eeg, Gene E. Bowles, Jr., CP Acquisition, L.P. No. 4A, CP Acquisition, L.P. No. 4B, Capital Partners, Inc., FGS, Inc., Registrant, Storage Dimensions, Inc. and SDI Acquisition Corporation, dated December 4, 1992
10.95 (17) Loan and Security Agreement between Registrant and Household Bank, f.s.b., dated December 11, 1992
10.96 (17) Global Master Rental Agreement between Comdisco, Inc. and Registrant, dated December 16, 1992
10.97 (17) Amendment No. 1 to Lease between Devcon Associates 31 and Registrant, dated December 21, 1992
10.98 (17) Continuing Guaranty among Maxtor Peripherals (S) Pte., Ltd., Barclays Bank PLC and Registrant, dated January 26,
10.99 (17) Amendment No. 2 to Lease between Devcon Associates 31 and Registrant, dated February 1, 1993
10.100 (17) Instrument of Resignation, Appointment and Acceptance among Registrant, The First National Bank of Boston and Bank of America National Trust and Savings, dated as of March 22, 1993
10.101 (17) Waiver and First Amendment to Credit Agreement among Registrant, Barclays Bank PLC and the First National Bank of Boston, dated as of April 16, 1993
10.102 (17) Waiver and First Amendment to Continuing Guaranty Among Registrant, Barclays Bank PLC and the Lenders dated as of April 19,
10.103 (17) Security Agreement between Registrant and Barclays Bank PLC, dated April 16, 1993
10.104 (17) Lease Agreement between Registrant and Pratt Partnership, dated April 30, 1993
10.105 (17) Agreement for Stock Transfer Services between Registrant and The First National Bank of Boston, dated May 6, 1993
10.106 (17) Maxtor Corporation CY93 Profit Sharing Plan
10.107 (17) Maxtor Corporation Management Incentive Plan for CY93
10.108 (18) Production Agreement between International Business Machines Corporation and Registrant, dated July 27, 1993 (with certain information deleted and indicated by blackout text)
10.109 (19) Letter of Intent between Registrant and Hyundai Electronics Co., Ltd., dated August 18, 1993
10.110 (20) Financing Agreement between Registrant and The CIT Group/Business Credit, Inc., dated September 16, 1993
10.111 (21) Form Letter Agreement between Registrant and all of its named executive officers, except Laurence Hootnick, dated November 17, 1993
10.112 (21) Waiver to Financing Agreement among Registrant and The CIT Group/Business Credit, Inc., dated January 12, 1994
10.113 (21) Stock Purchase Agreement between Registrant and Hyundai Electronics Industries Co., Ltd., Hyundai Heavy Industries Co., Ltd., Hyundai Corporation, and Hyundai Merchant Marine Co., Ltd., dated September 10, 1993
10.114 Confidential Resignation Agreement and 69 - 73 General Release of Claims between Registrant and Thomas F. Burniece III, dated February 4, 1994
10.115 License Agreement between Registrant and 74 - 78 MiniStor Peripherals Corporation, dated February 23, 1994
10.116 Confidential Resignation Agreement and 79 - 82 General Release of Claims between Registrant and John P. Livingston, dated April 8, 1994
10.117 Tenancy Agreement between Barinet Company 83 - 110 Limited and Maxtor (Hong Kong) Limited, dated April 26, 1994
11.1 Computation of Net Income (Loss) Per Share 111 - 112
22.1 Subsidiaries of Maxtor Corporation, Incorporated in Delaware ("Maxtor") 113 - 114
24.1 Consent of Ernst & Young, Independent Auditors 115 - 116
- - ------------------------------------------------------------------- (1) Incorporated by reference to exhibits to Registration Statement No. 2-98568 effective August 7, 1985 (2) Incorporated by reference to exhibits to Registration Statement No. 33-4092 effective April 2, 1986 (3) Incorporated by reference to exhibits to Registration Statement No. 33-12123 effective February 26, 1987 (4) Incorporated by reference to exhibits to Registration Statement No. 33-12768 effective April 23, 1987 (5) Incorporated by reference to exhibits to Registration Statement No. 33-43172 effective October 7, 1992 (6) Incorporated by reference to exhibits to Registration Statement No. 33-8607 effective September 10, 1986 (7) Incorporated by reference to exhibits to report on Form 8-K effective February 8, 1988 (8) Incorporated by reference to exhibits to Annual Report on Form 10-K effective June 24, 1988 (9) Incorporated by reference to exhibits to Annual Report on Form 10-K effective June 24, 1989 (10) Incorporated by reference to exhibits to Annual Report on Form 10-K effective June 1, 1990 (11) Incorporated by reference to exhibits of Form 8- K filed July 13, 1990 (12) Incorporated by reference to exhibits of Form 8 filed November 13, 1990 (13) Incorporated by reference to exhibits of Form 8 filed January 8, 1991 (14) Incorporated by reference to exhibits to Annual Report on Form 10-K effective July 15, 1991 (15) Incorporated by reference to exhibits to Annual Report on Form 10-K effective June 25, 1992 (16) Incorporated by reference to exhibits of Form 8- K filed January 8, 1993 (17) Incorporated by reference to exhibits to Annual Report on Form 10-K effective May 27, 1993 (18) Incorporated by reference to exhibits of Form 10- Q filed August 10, 1993 (19) Incorporated by reference to exhibits of Form 8- K filed August 19, 1993 (20) Incorporated by reference to exhibits of Form 10- Q filed November 8, 1993 (21) Incorporated by reference to exhibits of Form 10- Q filed February 7, 1994