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As filed with the Securities and Exchange Commission on June 2, 1994.
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-12390
QUANTUM CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 94-2665054 500 McCarthy Blvd.
(State or other jurisdiction of (I.R.S. Employer Milpitas, California 95035
incorporation or organization) Identification No.) (408) 894-4000
(Address of principal
executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
6 3/8% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
PREFERRED SHARE RIGHTS
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of May 2, 1994: $702,725,166 based upon the last sale price
reported for such date on the NASDAQ National Market System. For purposes of
this disclosure, shares of Common Stock held by persons who hold more than 5%
of
the outstanding shares of Common Stock and shares held by officers and directors
of the Registrant have been excluded in that such persons may be deemed to be
affiliates. This determination is not necessarily conclusive.
The number of shares outstanding of the Registrant's Common Stock as of May 2,
1994 was 44,692,410.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 1994 Annual Meeting of
Shareholders (the "Proxy Statement") are incorporated by reference into Part III
of this Form 10-K Report.
TABLE OF CONTENTS
PART I Item 1. Business
Executive Officers
Products
Product Development
Manufacturing
Sales and Marketing
Warranty and Service
Backlog
Competition
Patents and Licenses
Employees
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters
Item 6. Selected Consolidated Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
PART III Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K:
(a) Documents Filed with Report
(b) Reports on Form 8-K
(c) Exhibits
(d) Financial Statement Schedules
PART I
Item 1.
Business
Quantum Corporation (the "Company" or "Quantum") was incorporated as a
California corporation in February 1980, and reincorporated as a Delaware
corporation in April 1987.
Quantum Corporation is a leader in designing, manufacturing and marketing
advanced small-form-factor hard disk drives for a broad range of computer
systems, including desktop workstations, personal computers and advanced
notebook computers. The Company markets its products directly to major OEMs
and
through a broad range of distributors, resellers and systems integrators in more
than 40 countries worldwide.
Executive Officers
The executive officers of the Company, and certain information about them as of
March 31, 1994, are as follows:
Name Age Position with the Company
William J. Miller 48 Chairman and Chief Executive Officer
Michael A. Brown 35 President, Desktop and Portable Storage Group
Robert K. Maeser 54 President, High-Capacity Storage Group
Kenneth Lee 57 Executive Vice President, Technology and
Engineering, Chief Technical Officer
William F. Roach 50 Executive Vice President, Worldwide Sales
Joseph T. Rodgers 51 Executive Vice President, Finance,
Chief Financial Officer and Secretary
Deborah E. Barber 55 Vice President, Human Resources
Gina M. Bornino 33 Vice President, Corporate Development and
Planning
Kenneth F. Potashner 37 Vice President, Quality and Business Excellence
Mr. Miller joined the Company as Chief Executive Officer in March 1992 and was
elected Chairman in September 1993. He has been a member of the Board of
Directors since May 1992. He previously served 11 years at Control Data
Corporation, where his last position was Executive Vice President and President
of Information Services. He also served as President and Chief Executive
Officer of Imprimis Technology, formerly a subsidiary of Control Data
Corporation.
Mr. Brown joined the Company's marketing organization in August 1984, was
named
Vice President, Marketing, in June 1990, and became Executive Vice President in
February 1992. In August 1993, he was named President of the Desktop and
Portable Storage Group. Prior to June 1990, Mr. Brown held positions in product
and marketing management. Prior to joining the Company, he served in the
marketing organization at Hewlett-Packard Company and provided management
consulting services at Braxton Associates.
Mr. Maeser joined the Company in 1992 as Vice President and General Manager,
High-Capacity Storage Group, and was promoted to President, High-Capacity
Storage Group, in August 1993. Prior to joining the Company, he served as
Executive Vice President, Operations and Development, for the Automated
Wagering
Division of Control Data Corporation from September 1991 to July 1992, and as
Vice President, Product Line Management and Product Development, for Seagate
Technology from October 1989 to September 1991. Prior to that time, Mr. Maeser
was employed by Control Data Corporation for over 26 years, last serving as Vice
President, Operations, for Imprimis Technology.
Dr. Lee joined the Company in 1989 as Director of Advanced Recording
Technologies and was promoted to Vice President, Engineering, in August 1990.
In August 1993, he was promoted to Executive Vice President, Technology and
Engineering, and Chief Technical Officer. Prior to joining the Company, he
served for five years as Vice President, Product Development, for Domain
Technology, and previously spent 15 years at IBM Research Laboratory in San
Jose, California, working on advanced magnetic storage devices.
Mr. Roach joined the Company in September 1989 as Vice President, Sales, and
was
promoted to Executive Vice President, Worldwide Sales, in August 1993. Prior to
joining the Company, he spent 12 years in sales at Intel Corporation, last
serving as Worldwide Director, Distribution Sales and Marketing.
Mr. Rodgers joined the Company in December 1980 as its Vice President,
Finance,
and was elected Secretary in May 1981, Treasurer in September 1981 and
Executive
Vice President, Finance, in April 1986. Mr. Rodgers is currently serving as
Executive Vice President, Finance, Chief Financial Officer and Secretary. From
July 1979 to December 1980, he served as Vice President, Finance, of Braegen
Corporation, a manufacturer of computer equipment. He also has more than
nine
years experience at Price Waterhouse, last serving as an audit manager.
Ms. Barber joined the Company in October 1992 as Vice President, Human
Resources. Prior to joining the Company, she served as Vice President, Human
Resources, for Cray Research from January 1988 to October 1992. From June 1978
to January 1988, Ms. Barber was employed by Honeywell, Inc., last serving as
Director of Human Resources for the Military Avionics Division.
Ms. Bornino joined the Company in August 1993 as Vice President, Corporate
Development and Planning. Prior to joining the Company, she served as Director
of Strategic Planning for Silicon Graphics, Inc., from July 1992 to August 1993.
From November 1989 to July 1992, Ms. Bornino was employed by MIPS Computer
Systems, Inc., last serving as Director of Engineering. Prior to joining MIPS,
she was a general management consultant with the consulting firm of Arthur D.
Little, Inc., from June 1988 to November 1989.
Mr. Potashner joined Quantum in March 1992 as Vice President, Quality and
Business Excellence. Prior to joining the Company, he served 11 years at
Digital Equipment Corporation (DEC) where he held several positions in
engineering, operations and manufacturing, and most recently as Group
Technology
Manager, providing strategic leadership to DEC's quality and technology
organization.
Products
Quantum's major products are shown below and are described following the
chart.
Average
Capacity No. No. Seek Time
Products (MB) Disks Heads (millisec.) Interface
Manufacturer
3.5-inch:
ProDrive ELS 85 85 1 2 17 SCSI-2, AT MKE *
ProDrive ELS 127 127 2 3 17 SCSI-2, AT MKE
ProDrive ELS 170 170 2 4 17 SCSI-2, AT MKE
ProDrive LPS 240 245 2 4 16 SCSI-2, AT MKE
ProDrive LPS 525 525 3 6 10 SCSI-2, AT Quantum
ProDrive LPS 170 170 1 2 14 SCSI-2, AT MKE
ProDrive LPS 270 270 1 2 12 SCSI-2, AT MKE
ProDrive LPS 340 342 2 4 12 SCSI-2, AT MKE
ProDrive LPS 540 541 2 4 12 SCSI-2, AT MKE
ProDrive 700 700 4 8 10 SCSI-2 Quantum
ProDrive 1050 1,050 6 12 10 SCSI-2 Quantum
ProDrive 1225 1,225 7 14 10 SCSI-2 Quantum
ProDrive 1800 1,800 7 14 10 SCSI-2 Quantum
Quantum Empire 540 540 2 4 9.5 SCSI-3 Quantum
Quantum Empire 1080 1,080 4 8 9.5 SCSI-3 Quantum
Quantum Empire 1440 1,440 4 8 9.5 SCSI-3 Quantum
Quantum Empire 2160 2,160 6 12 9.5 SCSI-3 Quantum
2.5-inch:
Go-Drive GRS 80 85 1 2 <17 SCSI-2, AT MKE
Go-Drive 120 127 2 4 <17 SCSI-2, AT MKE
Go-Drive GRS 160 169 2 4 <17 SCSI-2, AT MKE
Go-Drive GLS 85 85 1 2 17 SCSI-2, AT MKE
Go-Drive GLS 127 127 2 3 17 SCSI-2, AT MKE
Go-Drive GLS 170 170 2 4 17 SCSI-2, AT MKE
Go-Drive GLS 256 256 3 6 17 SCSI-2, AT MKE
Quantum Daytona 127 127 1 2 17 SCSI-2, AT MKE
Quantum Daytona 256 256 2 4 17 SCSI-2, AT MKE
Quantum Daytona 341 341 3 6 17 SCSI-2, AT MKE
Quantum Daytona 540 541 4 8 17 SCSI-2, AT MKE
* Matsushita-Kotobuki Electronics Industries, Ltd., of Japan. See
"Manufacturing."
ProDrive (Reg. U.S. Pat. & Tm. Off.) and Quantum Empire (trademark) 3.5-inch
Products:
Quantum's 3.5-inch hard drives consist of the ProDrive ELS (trademark),
ProDrive
LPS (trademark), ProDrive Series (Reg. U.S. Pat. & Tm. Off.) and Quantum
Empire
products. These products are designed to meet the needs of the desktop PC and
workstation, disk array and file server markets and currently represent the
majority of the Company's product shipments.
ProDrive ELS 85/127/170. Mass production of the ProDrive ELS products began in
July 1992. These 1-inch-high drives are designed to serve a major segment of
the personal computer market: entry-level, low-cost desktop PC systems. The
enhanced reliability and price performance of the ProDrive ELS product line were
achieved through a reduced parts count, low-power requirements and the use of
features such as Quantum's proprietary WriteCache (Reg. U.S. Pat. & Tm. Off.)
and DisCache (Reg. U.S. Pat. & Tm. Off.) firmware for faster data retrieval and
throughput.
ProDrive LPS 240. Quantum began mass production of this 1-inch-high, 245-
megabyte product in July 1991. The ProDrive LPS 240 product was designed to
meet the increasing capacity and performance requirements of desktop PCs, and
was the first 1-inch-high 200-megabyte-range drive to be offered by a major hard
disk drive supplier. The ProDrive LPS 240 includes a number of performance-
enhancing features and has an average seek time of 16 milliseconds.
ProDrive LPS 525. Announced in conjunction with the high-capacity ProDrive
Series 700 and 1225 products, the ProDrive LPS 525 began mass production in
December 1992. With an average seek time of 10 milliseconds, the ProDrive LPS
525 product is a 1-inch-high, three-disk drive that meets the performance and
capacity needs of high-end personal computers and workstations.
ProDrive LPS 170/270/340/540. Announced in September 1993, Quantum's
ProDrive
170/270/340/540 1-inch-high products are designed to meet the capacity and
performance needs of entry-level, mid-range and high-end desktop PCs. The
ProDrive LPS 170/340 drives provide the best value for price-sensitive PCs in
terms of performance, reliability and versatility. With internal data transfer
rates of 46 megabits-per-second and a 12 millisecond seek time, the ProDrive LPS
270/540 drives provide leading areal density, plus superior performance and
reliability for high-end, multi-user PC environments. These ProDrive LPS
products began shipping in volume during the third quarter of fiscal 1994.
ProDrive 700/1050/1225. Designed to meet the high-performance and reliability
needs of technical workstations and multi-user systems, the Company began
mass
production shipments of the ProDrive 1050 product in June 1992. In August 1992,
the Company began mass production of the ProDrive 700/1225 products, which
extended the Company's high-capacity, high-performance product line.
Quantum's
high-capacity products follow the Company's approach of reducing parts count to
increase reliability and incorporating performance-enhancing firmware to speed
data throughput and retrieval.
ProDrive 1800. In August 1993, Quantum announced its first 2-gigabyte-class
drive, the ProDrive 1800 product. This 1.6-inch-high drive is designed for
workstations, file servers, redundant arrays of independent disks (RAIDs) and
other disk arrays, and provides a 350,000-hour Mean-Time-Between-Failures
rating. With average seek times of 10 milliseconds, the ProDrive 1800 includes
Quantum's proprietary AutoRead (trademark) and AutoWrite (trademark) ASIC
hardware and other features designed to optimize drive and overall system
performance. Volume production of the ProDrive 1800 began in the third quarter
of fiscal 1994.
Quantum Empire 540/1080. Introduced in September 1993, Quantum Empire
540/1080
drives broaden Quantum's offering for workstations, servers and disk arrays.
The 1-inch-high Quantum Empire 540/1080 drives offer average seek times of 9.5
milliseconds, 5,400 RPM rotational rate and include Quantum's proprietary
ORCA
(trademark) (Optimized Reordering of Commands Algorithm) feature, which
increases system performance. These low-power, high-performance drives began
shipping in volume during October 1993.
Quantum Empire 1440/2160. These high-capacity products for advanced
workstations, servers and disk arrays include Quantum's first 3.5-inch drive
with more than 2 gigabytes of formatted capacity - the Quantum Empire 2160.
The
Quantum Empire 1440 drive is a 1-inch-high model with a formatted capacity of
1.44 gigabytes. These drives are also the first to incorporate Quantum's
patented PRML (Partial Response Maximum Likelihood) read channel
technology.
PRML technology leads to the very high sustained data transfer rates that are
critical to disk-intensive applications such as multimedia and graphics.
Go-Drive (Reg. U.S. Pat. & Tm. Off.) and Quantum Daytona (trademark) 2.5-inch
Products:
Go-Drive 120, Go-Drive GRS (trademark) 80/160. Quantum's Go-Drive products
are
designed to meet the performance, reliability and low-power requirements of
portable notebook computers. Mass production of the Go-Drive 120 began in
March
1992. With the June 1992 announcement of the Go-Drive GRS products, Quantum
was
the first major supplier of 2.5-inch hard drives to offer more than 80 megabytes
of storage per disk. Mass production of the Go-Drive GRS products began in
September 1992.
Go-Drive GLS (trademark) 85/127/170/256. In September 1993, Quantum
announced
its Go-Drive GLS series of products for subnotebooks and standard-sized advanced
notebook computers. These low-power drives provide capacity, height and
performance to meet the needs of emerging segments within the notebook
computer
marketplace. Go-Drive GLS drives include heights of 12.5, 17 and 19
millimeters, and include Quantum's ShockLock (trademark) pivoting magnetic
actuator latch, which increases drive resistance to non-operating shock, the
type of shock to which notebook computers are most frequently subjected.
Quantum Daytona 127/256/341/514. The Quantum Daytona drive family,
announced in
November 1993, provides four leading capacities and PC-class performance for
subnotebook and notebook systems. The 2.5-inch drive family includes an
industry first - 256 megabytes of storage in a slim 12.5-millimeter-high package
for subnotebook systems, as well as a 127-megabyte version for subnotebooks.
For full-function notebooks, the Quantum Daytona drives provide 341- and 514-
megabyte, 19-millimeter-high products. Quantum Daytona drives spin at a rate of
4,500 RPM, provide a typical seek time of 17 milliseconds and transfer data
disk-to-buffer at 36 megabits per second.
Additional Products:
The Company also sells products in the Apple after-market directly to end users
through its wholly-owned subsidiary, La Cie, Ltd.
During fiscal 1994, Quantum discontinued production of the Quantum Hardcard
EZ
(trademark) and Quantum DriveKit (Reg. U.S. Pat. & Tm. Off.) products. In
March
1994, Quantum sold the Quantum Passport XL (Reg. U.S. Pat. & Tm. Off.) product
line to MountainGate Data Systems, Inc., the proceeds of which were immaterial
to the financial results of the Company.
Product Development
Quantum operates in an industry characterized by rapid technological change
and
shortening product life cycles. As a result, the Company's future is dependent
on its ability to develop new products, successfully introduce these products to
the market and ramp production to meet customer demands. Accordingly, the
Company is committed to the timely development of new products and the
continuing evaluation of new technologies. For the three fiscal years ended
March 31, 1994, 1993 and 1992, the Company's research and development
expenses
were $89.8 million, $63.0 million and $59.3 million, respectively.
The Company is currently concentrating its product development efforts on
broadening its existing 3.5-inch and 2.5-inch product lines, introducing new
generations of products and developing new mass storage technologies. The
Company expects that sales from new products will account for a significant
portion of fiscal 1995 revenue and will continue to replace sales from current
products. Accordingly, the failure of the Company to successfully develop and
manufacture new products and manage the transition of customers to these
products would adversely affect the Company's results of operations.
Manufacturing
The Company believes that its unique manufacturing strategy is a key to its
success. For production of its high-volume products, Quantum relies on
Matsushita-Kotobuki Electronics Industries, Ltd. (MKE), of Japan. MKE is a
substantial manufacturer of hard disk drives and other electronic components
and
is a majority-owned subsidiary (57.6%) of Matsushita Electric Industries
Company, Ltd., of Japan. MKE produces hard disk drives for Quantum in Japan
and
in Dundalk, Ireland. In addition, MKE will begin production of Quantum
products
in its Singapore facility during the first quarter of fiscal 1995. During
fiscal 1994, approximately 90% of the Company's sales were derived from products
manufactured by MKE. MKE's state-of-the-art manufacturing process is highly
automated, employing integrated computer networks and advanced control
systems.
Quantum uses its own state-of-the-art manufacturing facility at its headquarters
site in California to manufacture its higher capacity, more technically complex
products. Quantum's product design efforts are integrated with the design of
the manufacturing process, enabling the Company to rapidly achieve high-
volume,
high-quality production to meet customer requirements.
The Company and MKE purchase components, some of which are made to the
Company's
specifications, from outside vendors. Most of the components used in the
Company's products are available from more than one supplier. In the past,
limited availability of certain key components has constrained the Company's
revenue growth. There can be no assurance that similar shortages will not recur
in the future, and the Company's inability to obtain essential components or to
qualify additional sources as necessary, if prolonged, could have a material
adverse effect on the Company's results of operations.
The Company and MKE have had a continuous relationship since 1984. The
current
agreement between the Company and MKE gives MKE the exclusive worldwide
right to
manufacture, and the Company the exclusive worldwide right to design and
market,
certain products as agreed between the companies. The Company provides MKE
with
forecasts of its requirements and places purchase orders approximately three
months prior to delivery. The Company has only a limited right to modify these
purchase orders. The pricing structure is renegotiated periodically, generally
on an annual basis.
Sales and Marketing
The Company markets its products directly to major OEMs and distributors
through
its worldwide sales force. During fiscal 1994, sales to Apple Computer, Inc.
and Compaq Computer, Inc. represented 22% and 10%, respectively, of
consolidated
sales. For fiscal 1993 and 1992, sales to Apple Computer represented 20% and
25%, respectively, while sales to Compaq Computer represented less than 10% of
consolidated sales in each year.
Quantum maintains a European headquarters in Neuchatel, Switzerland, an
Asia-
Pacific headquarters in Singapore, a Japanese headquarters in Tokyo, and sales
offices throughout the world. International sales, which include sales to
foreign subsidiaries of United States companies, accounted for 53% of sales for
the year ended March 31, 1994, as compared with 48% of sales for the year ended
March 31, 1993, and 52% of sales for the year ended March 31, 1992. See also
Note 11 in the "Notes to Consolidated Financial Statements."
Warranty and Service
Quantum generally warrants its products against defects in design, materials
and
workmanship for one to five years. The Company believes its accrual for
warranty liability is adequate. The Company maintains in-house facilities for
refurbishment or repair of its products in Milpitas, California; Frankfurt,
Germany, and a temporary facility in Penang, Malaysia. However, the Company
is
currently in the process of closing its Frankfurt facility and establishing a
permanent worldwide repair facility in Malaysia.
Backlog
The Company's six-month order backlog at May 2, 1994, was approximately $574
million compared with approximately $304 million at May 2, 1993. Backlog
increased year-to-year as a result of increased customer demand, primarily for
the Company's new products. Backlog includes only firm orders for which the
customers have released a specific purchase order and specified a delivery
schedule.
Lead time for the release of purchase orders depends upon the scheduling
practices of the individual customer, and the rate of booking of new orders
varies from month to month. For this reason and because of the possibility of
customer changes in delivery schedules or cancellations of orders, Quantum's
backlog as of any particular date may not be representative of actual sales for
any succeeding period. In addition, it has been the Company's practice to
permit customers to increase or decrease (including canceling) orders for
products with relatively short notice to the Company. The Company believes that
this practice enables customers to improve the management of their inventory,
minimizes the Company's exposure to disputed accounts receivable and improves
the Company's relationships with customers.
Competition
Competition in the hard disk drive industry is intense and is based principally
on time to market, product availability, reliability, performance, product
capacity and price. The Company believes that it competes favorably in these
areas although certain of its competitors have greater financial, marketing and
technological resources.
Quantum faces intense direct competition for its 3.5-inch products from
companies such as Conner Peripherals, Maxtor, Seagate Technology and
Western
Digital. The Company expects continued strong competition in the 3.5-inch form
factor in all ranges of capacity and performance. In the 2.5-inch hard disk
drive market, the Company competes primarily with Conner Peripherals, JVC,
Maxtor, Seagate Technology, Toshiba and Western Digital. The Company also
competes indirectly with disk drive divisions of large computer manufacturers
such as Digital Equipment Corporation, Hewlett-Packard and IBM. These
companies
also have a presence in the OEM market. Should other major OEMs develop
internal disk drive manufacturing capabilities, the demand for the Company's
products would be reduced.
The Company also competes with companies offering products based on
alternative
data storage and retrieval technologies. Technological advances in magnetic,
optical or other technologies, or the development of new technologies, could
result in the introduction of competitive products with superior performance to
and substantially lower prices than the Company's products, which could
adversely affect the Company's results of operations.
Patents and Licenses
Quantum has been granted 65 United States patents, including patents originally
issued to its former subsidiary Plus Development Corporation. As a general
rule, these patents have 17-year terms from the date of issuance. Quantum also
has certain foreign patents and applications relative to certain of the products
and technologies. Although Quantum believes that its patents and applications
have significant value, the rapidly changing technology of the computer industry
makes Quantum's future success dependent primarily upon the technical
competence
and creative skills of its personnel rather than on patent protection. See also
"Legal Proceedings."
Several companies and individuals have approached Quantum concerning the
need
for a license under patented technology that Quantum has assertedly used, or is
assertedly using, in the manufacture and sale of one or more of Quantum's
products. Quantum conducts ongoing investigations into these assertions and
presently believes that any licenses ultimately determined to be required could
be obtained on commercially reasonable terms. However, there is no assurance
that such licenses are presently obtainable, or if later determined to be
required, could be obtained. See also "Legal Proceedings."
Quantum has a cross-licensing agreement with IBM that commenced on May 10,
1986,
and runs until expiration of the last of the licensed IBM patents (including
patents issued and issuing on patent applications filed prior to January 1,
1991). This agreement enables Quantum to use certain patents owned by IBM,
and
it enables IBM to use certain patents owned by Quantum.
Quantum also has a patent cross-licensing agreement with Seagate Technology
that
commenced on July 7, 1992, and runs until expiration of the last of the licensed
Seagate patents (including patents issued and issuing on patent applications
filed prior to January 1, 2002). This agreement enables Quantum to use certain
patents owned by Seagate, and it enables Seagate to use certain patents owned by
Quantum.
Quantum also has a patent cross-licensing agreement with the Hewlett-Packard
Corporation that commenced on September 21, 1993, and runs until expiration of
the last of the licensed Hewlett-Packard patents (including patents issued and
issuing on patent applications which are filed during the (5) five-year period
which begins on the first day after September 21, 1993). This agreement enables
Quantum to use certain patents owned by Hewlett-Packard, and it enables
Hewlett-
Packard to use certain patents owned by Quantum.
Quantum has also entered into limited patent cross-license and license
agreements with Integral Peripherals, Inc., and Syquest Technology.
Employees
At March 31, 1994, the Company employed 2,984 persons including 593 in
engineering, 1,729 in manufacturing, 347 in sales and marketing and 315 in
general management and administration. In the advanced electronics industry,
competition for highly skilled employees is intense. Quantum believes that a
great part of its future success will depend on its continued ability to attract
and retain qualified employees. None of the Company's employees are
represented
by a trade union, and the Company has experienced no work stoppage. Quantum
believes that its employee relations are favorable.
Item 2.
Properties
During fiscal 1992, the Company moved its corporate headquarters and
manufacturing operations to a new 37-acre leased campus complex in Milpitas,
California. The Company currently occupies four buildings of the planned five-
building campus and will begin construction on the fifth building during the
first quarter of fiscal 1995. The Company also leases office and warehouse
space and repair facilities throughout the world, typically on a short-term
basis. In addition, the Company is currently in the process of constructing a
new repair facility in Malaysia. Currently all of the Company's facilities are
fully utilized. The Company believes that its configuration and warehouse
facilities are adequate to support customer requirements during fiscal 1995.
The aggregate lease payments for these facilities in fiscal year 1994 were
approximately $12.1 million.
Item 3.
Legal Proceedings
On February 26, 1993, Quantum commenced a declaratory judgment lawsuit
against
Rodime PLC of Glasgow, Scotland, in the U.S. District Court for the District of
Minnesota. Minnesota is the site of Rodime's only U.S. office. Rodime has
counterclaimed by asserting that certain Quantum 3.5-inch hard disk drive
products infringe its U.S. Patent No. 4,638,383 and is seeking royalty payments
under that patent. That patent purports to cover hard disk drives using 3.5-
inch disks and specifies an architecture including attributes such as a head
positioning mechanism consisting of a rotary actuator moved by an open loop
stepper motor. Quantum's complaint alleges that the Rodime patent is invalid
and unenforceable, and that it has not been infringed by Quantum. On April 11,
1994, the United States District Court entered a summary judgment in
Quantum's
favor, ruling that claims 4, 6, 7, 9, 14 and 19-27 of the Rodime patent are
invalid because they were impermissibly broadened during earlier patent
reexamination proceedings conducted by the U.S. Patent and Trademark Office.
Quantum believes that this ruling, if upheld on appeal, is fully dispositive of
its dispute with Rodime. Due to the inherent uncertainties of litigation, there
can be no assurance that such ruling will be affirmed.
On March 26, 1993, Harry Aine, an individual, filed a complaint with the United
States International Trade Commission seeking an importation exclusion order
against hard disks which he alleged infringed his U.S. Reissue Patent No. 32,464
relating to sputtered carbon coated computer disks. Quantum was named as a
respondent, along with certain other disk drive makers and disk manufacturers
and suppliers. Quantum believed that the Aine patent was invalid and
unenforceable and was not infringed by Quantum. Quantum asked its disk
vendors
to participate actively in defending the proceedings before the International
Trade Commission, and to indemnify Quantum with regard to disk components
they
supply to Quantum. The dispute was settled by agreement during fiscal 1994 on
immaterial terms, and Quantum is awaiting receipt of a formal dismissal of the
ITC investigation.
Item 4.
Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5.
Market for the Registrant's Common Equity and Related Stockholder Matters
Quantum Corporation's common stock has been traded in the over-the-counter
market under the NASDAQ symbol QNTM since the Company's initial public
offering
on December 10, 1982.
The prices per share reflected in the table represent the range of high and low
closing prices in the NASDAQ National Market System for the quarter indicated.
Fiscal 1994 High Low
Fourth quarter ended March 31, 1994 19 1/4 14 1/8
Third quarter ended January 2, 1994 14 3/4 9 7/8
Second quarter ended October 3, 1993 13 1/2 9 1/2
First quarter ended July 4, 1993 14 1/2 10 1/2
Fiscal 1993 High Low
Fourth quarter ended March 31, 1993 17 1/4 12 3/4
Third quarter ended December 27, 1992 17 1/8 12 1/2
Second quarter ended September 27, 1992 16 12 7/8
First quarter ended June 28, 1992 15 3/4 12 1/2
The Company has not paid cash dividends on its common stock and does not plan
to
pay cash dividends to its shareholders in the near future. The Company
presently intends to retain its earnings to finance future growth of its
business.
As of May 2, 1994, there were approximately 1,677 shareholders of record of the
Company.
Item 6.
Selected Consolidated Financial Data
(In thousands except per Year Ended March 31,
share amounts, number of
employees and ratios) 1994 1993 1992 1991 1990
Sales $2,131,054 $1,697,240 $1,127,733 $877,733 $446,291
Net income $ 2,674 $ 93,811 $ 46,845 $ 73,881 $ 47,212
Net income per share
Primary $ .06 $ 2.05 $ 1.05 $ 1.69 $ 1.14
Fully diluted $ .06 $ 1.77 $ 1.04 $ 1.68 $
1.14
Total assets $ 997,438 $ 926,633 $ 550,864 $489,420 $243,209
Total long-term debt $ 212,500 $ 212,500 - - -
Shareholders' equity
per share $ 9.22 $ 9.19 $ 7.19 $ 6.09 $ 4.14
Number of employees 2,984 2,455 1,752 1,445 763
Sales per average number
of employees $ 772 $ 778 $ 713 $ 706 $ 663
Ratio of earnings to
fixed charges 1.2 9.3 8.1 19.1 27.5
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Quantum's results of operations for fiscal 1994 reflect a significant increase
in sales over the prior fiscal year. Sales for the year ended March 31, 1994
grew 26%, to $2.1 billion, compared to sales of $1.7 billion recorded in fiscal
1993. This increase in sales is the result of an increase in unit shipments
offset by a significant decline in average unit sales prices.
Unit shipments for fiscal 1994 increased 56% when compared to fiscal 1993.
Contributing to this increase in unit shipments in fiscal 1994 was a shift in
product mix to higher capacity products as well as the expansion of product line
offerings. The positive impact of these factors on sales was partially offset
by a significant decline in average unit sales prices, especially during the
first half of the fiscal year, due to severe pricing pressures in both the
distribution and OEM channels.
The Company is currently unable to meet demand for certain key products and is
taking steps to increase the availability of such products. Should the Company
be unable to meet customer demand for a prolonged period, results of operations
could be adversely affected.
Sales for the year ended March 31, 1993, of $1.7 billion increased 51% when
compared to fiscal 1992. This increase reflected primarily an increase in unit
shipments.
The Company continues to focus on meeting the needs of major OEM customers.
Sales to the top five OEM customers represented 47% of sales for fiscal 1994,
compared to 45% and 40% for fiscal 1993 and 1992, respectively. Sales to Apple
Computer, Inc. were $458 million or 22%, of consolidated sales in fiscal 1994,
compared to $333 million or 20% of sales in fiscal 1993 and $277 million or 25%
of sales in fiscal 1992. Sales to Compaq Computer, Inc. were $220 million or
10%, of consolidated sales in fiscal 1994 compared to less than 10% in fiscal
1993 and 1992. Any significant decrease in sales to a major customer or the
loss of a major customer would have a material adverse effect on the Company's
results of operations.
Sales to the distribution channel were 20% of consolidated sales or $428 million
for fiscal 1994, compared to 33%, or $568 million for fiscal 1993 and 36% or
$406 million for fiscal 1992. Due to the large degree of volatility experienced
in the distribution channel during the first half of fiscal 1994, combined with
the Company's decision to focus on the OEM channel, sales to the distribution
channel decreased as a percentage of consolidated sales for the year.
Gross margin declined to 11% for fiscal 1994, compared to 19% for fiscal 1993
and 1992. The decrease in gross margin is attributable to intense pricing
pressures in both the distribution and OEM sales channels resulting primarily
from an industry-wide oversupply of disk drives particularly during the second
quarter. During the second half of fiscal 1994 the Company began to transition
its customers from existing products to the Company's newer more cost effective
products. These product transitions along with stabilizing industry conditions
contributed to an increase in gross margin to 11% for the third quarter and 18%
for the fourth quarter of fiscal 1994; however, due to the cyclical nature of
the disk drive industry and the Company's dependence on new product
introductions, there can be no assurance that the Company will be able to
sustain the current gross margin levels.
Over the past ten years, Quantum has established a strong business relationship
with Matsushita Kotobuki Electronics Industries, Ltd. (MKE) of Japan. This
relationship has been built on Quantum's engineering and design expertise and
MKE's high-volume, high-quality manufacturing expertise. The Company's
master
agreement with MKE, which covers the general terms of the business
relationship,
was renegotiated during fiscal 1993 for a period of five years. In fiscal 1994,
approximately 90% of Quantum's sales were derived from products
manufactured by
MKE. In the event MKE is unable to supply such products or increases its prices
for manufacturing services, the Company's results of operations would be
adversely affected. The Company's transactions with MKE are denominated in
U.S.
dollars with prices for product purchases negotiated periodically, usually on an
annual basis. Thus fluctuations in the exchange rate have no material short-
term impact on Quantum's results of operations, however, such fluctuations may
impact future negotiated prices.
During fiscal 1994, the Company invested $90 million, or 4.2% of sales, in
research and development, compared to $63 million, or 3.7% of sales, in fiscal
1993 and $59 million, or 5.2% of sales, in fiscal 1992. The increases are due
to increased headcount and higher expenses related to preproduction activity for
an increased number of new products. Quantum intends to continue its
investment
in research and development as the hard disk drive industry is subject to rapid
technological advances and the future success of the Company is dependent upon
continued successful and timely introductions of new products and technologies.
Sales and marketing expenses in fiscal 1994 were $74 million, or 3.5% of sales,
compared to $77
million, or 4.5% of sales, in fiscal 1993 and $55 million, or 4.9% of sales, in
fiscal 1992. The decrease in sales and marketing expenses in fiscal 1994 is
attributable to lower co-op marketing and channel development expenses as a
result of a decline in sales to the distribution channel. These decreases were
partially offset by costs associated with supporting the higher sales volume and
expanding the Company's international infrastructure. The increase in
expenses
in fiscal 1993 over 1992 is due to costs associated with supporting the higher
sales volume, expanding the Company's international infrastructure and the
introduction of multiple new products.
General and administrative expenses in fiscal 1994 were $42 million, or 2.0% of
sales, compared
to $34 million, or 2.0% of sales, in fiscal 1993, and $24 million, or 2.1% of
sales, in fiscal 1992. The absolute increase in general and administrative
expenses of $8.1 million reflects the increased costs necessary to support the
Company's international growth, including the establishment of European and
Asia-Pacific headquarters operations in Switzerland and Singapore during fiscal
1993. Fiscal 1994 was the first full year of operations at these headquarters.
Included in the Company's fiscal 1994 results of operations are restructuring
and non-recurring charges of $22.8 million. The charges were primarily
associated with the write-off of goodwill associated with its former subsidiary,
Plus Development, the Company's reduction in work force, accelerated product
transitions, and the consolidation of sales offices and other facilities. In
addition, the Company is in the process of consolidating repair facilities from
three facilities worldwide into a single location in Malaysia, the costs of
which are included in these restructuring charges.
Net interest and other income and expense for fiscal 1994 was $6.7 million net
expense compared to $2.3 million net expense and $.9 million net expense for
fiscal 1993 and 1992, respectively. This increase is due mainly to lower
interest income resulting from lower interest rates and lower cash balances
during fiscal 1994. The increase in fiscal 1993 over 1992 is due primarily to
interest incurred on the issuance in April 1992 of the Company's convertible
subordinated debentures.
The Company's effective tax rates were 27%, 36% and 37% for the fiscal years
1994, 1993 and 1992, respectively. The reduction in the rate for fiscal 1994
was attributable to the benefit of foreign earnings taxed at a lower rate.
The Company recorded net income for fiscal 1994 of $2.7 million compared to net
income of $94 million and $47 million for fiscal 1993 and 1992, respectively.
The decrease in net income for fiscal 1994 is due to a decrease in gross margin
from lower average sales prices combined with a charge of $22.8 million recorded
in the second quarter for expenses associated with certain non-recurring write-
offs and restructuring of the Company. The increase in net income in fiscal
1993 over fiscal 1992 is due to the increased level of sales combined with gross
margin and operating expenses remaining flat as a percentage of sales.
Quantum operates in an extremely competitive industry and its rapid growth has
been the result of the Company's ability to identify customer needs and develop
quality products to meet those requirements. The Company expects that sales
from new products will continue to account for a majority of sales in 1995 and
will replace sales of some current products. The Company's ability to produce
new products economically and manage the transition of customers to these new
products is essential for continued success. The hard disk drive industry is
characterized by increasingly shorter product life cycles and is dependent on
the strength of unit demand in the personal computer market. As a result, the
industry tends to experience periods of excess product inventory and intense
price competition. These and other factors may affect the Company's results of
operations, and past financial performance should not be considered a reliable
indicator of future performance. Investors should not use historical trends to
anticipate results of trends in future periods.
Liquidity and Capital Resources
At March 31, 1994, the Company had $330 million in cash and cash equivalents
and
short-term marketable securities, compared to $289 million at March 31, 1993.
The increase is due primarily to a reduction in inventory that existed at the
beginning of the year combined with significant cash collections. Cash
generated from the reduction in inventory was primarily used to fund operations.
The Company also has available $85 million under a bank agreement for the
issuance of standby letters of credit. This credit agreement is secured by cash
deposits totaling $85 million. The Company manages its foreign exchange risk,
to the extent it has any, through the purchase of foreign exchange contracts.
Major expenditures during fiscal 1994 included the investment of $38 million in
leasehold improvements and capital equipment and $17.5 million to repurchase
1.5
million shares of its common stock in the open market.
At this time, the Company expects to spend approximately $40 to $60 million for
leasehold improvements, capital equipment and the expansion of the Company's
facilities. Additionally, the Company has an authorization outstanding from the
Board of Directors to repurchase an additional 1.5 million shares of its common
stock in the open market. The Company believes that its current cash position
and its anticipated future cash flow from operations are sufficient to meet all
currently planned expenditures and sustain operations during the next fiscal
year.
Item 8.
Financial Statements and Supplementary Data
Index to Consolidated Financial Statements Page
Financial Statements:
Report of Ernst & Young, Independent Auditors
Consolidated Statements of Income for each of the
three years in the period ended March 31, 1994
Consolidated Balance Sheets at March 31, 1994 and 1993
Consolidated Statements of Cash Flows for each of the
three years in the period ended March 31, 1994
Consolidated Statements of Shareholders' Equity for
each of the three years in the period ended
March 31, 1994
Notes to Consolidated Financial Statements
Financial Statement Schedules:
Schedule I - Marketable Securities and Investments
Schedule VIII - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
Item 9.
Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure
Not applicable.
Report of Ernst & Young, Independent Auditors
To the Board of Directors and Shareholders
Quantum Corporation
We have audited the accompanying consolidated balance sheets of Quantum
Corporation as of March 31, 1994 and 1993, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended March 31, 1994. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules 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 Quantum
Corporation at March 31, 1994 and 1993, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 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.
Palo Alto, California
April 22, 1994
CONSOLIDATED STATEMENTS OF INCOME
Year ended March 31,
(In thousands except per share data) 1994 1993 1992
Sales $2,131,054 $1,697,240 $1,127,733
Cost of sales 1,892,211 1,374,422 914,348
238,843 322,818 213,385
Operating expenses:
Research and development 89,837 63,019 59,255
Sales and marketing 74,015 77,085 55,027
General and administrative 41,910 33,849 23,852
Restructuring and non-recurring charges 22,753 - -
228,515 173,953 138,134
Income from operations 10,328 148,865 75,251
Interest and other income 8,217 12,077 6,868
Interest expense (14,882) (14,363) (7,763)
Income before income taxes 3,663 146,579 74,356
Income tax provision 989 52,768 27,511
Net income $ 2,674 $ 93,811 $ 46,845
Net income per share:
Primary $ .06 $ 2.05 $ 1.05
Fully diluted $ .06 $ 1.77 $ 1.04
Common and common equivalent shares:
Primary 44,967 45,728 44,672
Fully diluted 44,967 57,499 45,106
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
March 31, March 31,
(In thousands except share and per share data) 1994 1993
Assets
Current assets:
Cash and cash equivalents $217,531 $121,838
Marketable securities 112,508 167,114
Accounts receivable, net of allowance for
doubtful accounts of $9,391 in 1994 and
$8,118 in 1993 324,376 266,994
Inventories 194,083 223,162
Deferred taxes 32,821 37,479
Other current assets 14,365 13,094
Total current assets 895,684 829,681
Property, plant and equipment, less
accumulated depreciation 85,874 74,698
Investments - 3,220
Other assets 15,880 19,034
$997,438 $926,633
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $267,189 $215,445
Accrued warranty expense 55,617 42,410
Accrued compensation 15,315 17,189
Income taxes payable - 19,026
Other accrued liabilities 35,545 21,825
Total current liabilities 373,666 315,895
Subordinated debentures 212,500 212,500
Commitments and contingencies (Notes 9 and 10)
Shareholders' equity:
Preferred stock, $.01 par value; authorized:
4,000,000 shares; issued: none in 1994 and
1993 - -
Common stock, $.01 par value; authorized:
150,000,000 shares; issued and outstanding:
44,603,808 in 1994 and 43,321,588 in 1993 446 433
Capital in excess of par value 124,084 99,616
Retained earnings 286,742 298,189
Total shareholders' equity 411,272 398,238
$997,438 $926,633
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended March 31,
(In thousands) 1994 1993 1992
Cash flows from operating activities:
Net income $ 2,674 $ 93,811 $ 46,845
Adjustments to reconcile net income to
net cash provided by (used in)
operations:
Depreciation and amortization 29,340 26,929 28,126
Write-off of goodwill 6,338 - -
Changes in assets and liabilities:
Accounts receivable (57,382) (72,644) (32,601)
Inventories 29,079 (135,787) 14,334
Accounts payable 51,744 44,099 (26,523)
Accrued warranty expense 13,207 12,843 11,810
Other assets and liabilities (3,710) 658 8,453
Net cash provided by (used in)
operating activities 71,290 (30,091) 50,444
Cash flows from investing activities:
Purchase of marketable securities (134,581) (434,797) (62,024)
Proceeds from sale of marketable
securities 192,407 351,228 -
Investment in property and equipment (38,372) (36,055) (37,766)
Net cash provided by (used in)
investing activities 19,454 (119,624) (99,790)
Cash flows from financing activities:
Repurchase of common stock (17,479) (19,868) -
Proceeds from issuance of common stock 22,428 10,095 9,111
Net proceeds from issuance of
convertible subordinated debentures - 206,840 -
Net cash provided by financing activities 4,949 197,067 9,111
Increase (decrease) in cash and
cash equivalents 95,693 47,352 (40,235)
Cash and cash equivalents at beginning
of year 121,838 74,486 114,721
Cash and cash equivalents at end of year $217,531 $ 121,838 $ 74,486
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $13,707 $ 7,939 $ 7,559
Income taxes $18,100 $ 59,738 $ 22,642
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Capital
Common Stock in excess Retained
(In thousands) Shares Amount of par value Earnings Total
Balances at March 31, 1991 39,146 $ 391 $ 62,584 $175,280
$238,255
Shares repurchased from
employees (232) (2) (473) (2,747) (3,222)
Shares issued under employee
stock option plans 3,530 35 8,686 - 8,721
Shares issued under employee
stock purchase plan 449 5 3,607 - 3,612
Tax benefits related to stock
option plans - - 14,178 - 14,178
Net income for year ended
March 31, 1992 - - - 46,845 46,845
Balances at March 31, 1992 42,893 429 88,582 219,378
308,389
Shares repurchased in the open
market (1,500) (15) (5,211) (14,642) (19,868)
Shares repurchased from
employees (29) - (104) (358) (462)
Shares issued under employee
stock option plans 1,449 14 5,784 - 5,798
Shares issued under employee
stock purchase plan 509 5 4,754 - 4,759
Tax benefits related to stock
option plans - - 5,811 - 5,811
Net income for year ended
March 31, 1993 - - - 93,811 93,811
Balances at March 31, 1993 43,322 433 99,616 298,189
398,238
Shares repurchased in the open
market (1,500) (15) (3,494) (13,970) (17,479)
Shares repurchased from
employees (11) - (63) (151) (214)
Shares issued under employee
stock option plans 2,058 21 15,581 - 15,602
Shares issued under employee
stock purchase plan 735 7 6,251 - 6,258
Tax benefits related to stock
option plans and other - - 6,193 - 6,193
Net income for year ended
March 31, 1994 - - - 2,674 2,674
Balances at March 31, 1994 44,604 $446 $124,084 $286,742
$411,272
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of significant accounting policies
The summary of significant accounting policies is presented to assist the reader
in understanding and evaluating the consolidated financial statements. These
policies are in conformity with generally accepted accounting principles.
Principles of consolidation: The accompanying consolidated financial statements
include the accounts of Quantum Corporation and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Revenue recognition: Revenue from sales of products is recognized upon
shipment
to customers with provision made for estimated returns.
Foreign currency transactions and translation: A significant percentage of the
Company's sales are made to customers in non-U.S. locations, and a significant
percentage of the Company's products are manufactured by MKE in Japan.
However,
the majority of the Company's transactions are denominated in U.S. dollars.
Accordingly, the application of SFAS No. 52, "Foreign Currency Transactions," to
the Company's historical financial statements has not resulted in transaction or
translation gains or losses which are material to the Company's consolidated
financial statements for any year presented. The effect of foreign
currency exchange rate fluctuations on cash flows was also not material for any
year presented.
Net income per share: Net income per share is computed using the weighted
average number of common and dilutive common equivalent shares outstanding.
Net
income per share in fiscal 1993 computed on a fully diluted basis, assumes
conversion of the Company's outstanding 6 3/8% convertible subordinated
debentures having a principal value of $212.5 million. For fiscal 1994, the net
income per share is the same for both primary and fully diluted, as the
convertible subordinated debentures are anti-dilutive.
Cash equivalents and marketable securities: The Company has classified all cash
and highly liquid investments with original maturities of three months or less
at the date of acquisition as cash equivalents. All other short-term
investments have been classified as marketable securities and are stated at
cost, which approximates fair value. The carrying amount for the short-term
investments approximates fair value due to the short-term maturity of these
instruments. The Company will adopt Statement of Financial Accounting
Standards
No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity
Securities," effective April 1, 1994. Had SFAS 115 been adopted for the March
31, 1994 balance sheet, the impact on the Company's financial position would be
immaterial.
Concentration of credit risk: The Company designs, manufactures and sells hard
disk drives to desktop personal computer, workstation and notebook computer
manufacturers and distributors throughout the world. The Company performs
ongoing credit evaluations of its customers' financial condition and generally
requires no collateral from its customers. The Company maintains reserves for
potential credit losses and such losses have historically been within
management's expectations.
The Company invests its excess cash in deposits with major banks and in money
market and short-term debt securities of companies with strong credit ratings
from a variety of industries. These securities mature within 365 days and,
therefore, bear minimal risk. The Company has not experienced any material
losses on its investments. The Company, by Corporate policy, limits the amount
of credit exposure to any one issuer and to any one type of investment.
Foreign exchange contracts: The Company enters into foreign exchange contracts
to minimize the effects of exchange rate fluctuations on foreign cash flows
which are converted into U.S. dollars. Foreign exchange gains and losses from
market rate changes on these contracts are recorded as offsets to the underlying
transactions. At March 31, 1994, the Company had foreign exchange contracts
with maturities between April 8, 1994 and August 5, 1994 to sell 2.7 billion yen
for $25.3 million. The fair value of the yen underlying these instruments at
March 31, 1994 totaled $26.3 million.
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined on a first-in, first-out basis.
Property, plant and equipment: Property, plant and equipment are stated at cost
and depreciated using the straight-line method over the estimated useful lives
of the assets, which range from three to seven years. Amortization of leasehold
improvements is computed over the useful life of the improvements or the terms
of their respective leases, whichever is shorter.
Goodwill: Goodwill and purchased intangibles of approximately $8 million are
included in other assets at March 31, 1993 and represented the excess of cost
over fair value of net assets acquired as a result of the acquisition of the
minority interest in Plus Development Corporation (Plus) on December 22, 1987,
and the acquisition of La Cie, Ltd., on November 19, 1990. The unamortized
balance of $6.4 million related to goodwill and purchased intangibles for Plus
was written off during fiscal 1994 (see Note 7). The goodwill and purchased
intangibles relating to La Cie, Ltd. are being amortized using the straight-line
method over a 10-year period.
Warranty expense: The Company generally warrants its products against defect
for
a period of one to five years. A provision for estimated future costs relating
to warranty expense is recorded when products are shipped.
Note 2: Inventories
Inventories consisted of:
Year ended March 31,
(In thousands) 1994 1993
Materials and purchased parts $ 27,841 $ 25,994
Work in process 14,729 14,517
Finished goods 151,513 182,651
$194,083 $223,162
Note 3: Property, plant and equipment
Property, plant and equipment consisted of:
Year ended March 31,
(In thousands) 1994 1993
Machinery and equipment $ 81,800 $ 72,049
Furniture and fixtures 32,329 25,740
Leasehold improvements 44,546 34,351
158,675 132,140
Less accumulated depreciation and amortization (72,801) (57,442)
$ 85,874 $ 74,698
Note 4: Credit agreements
The Company has a secured credit agreement expiring in August 1994, with
certain
banks totaling $85 million for the issuance of standby letters of credit. The
Company has pledged as collateral cash of $85 million related to this agreement.
This agreement requires the Company to maintain a specific financial covenant
relating to tangible net worth and as of March 31, 1994, the Company was in
compliance with this covenant.
Note 5: Long-term debt
In April 1992, the Company issued $212.5 million of 6 3/8% convertible
subordinated debentures. Each debenture is convertible, at the option of the
holder, into the Company's common stock at a conversion price of $18.15 per
share. The debentures are redeemable at the Company's option on or after April
2, 1995, at prices ranging from 104.5% of the principal to 100% at maturity.
The debentures are due April 1, 2002, and are subordinated to all existing and
future senior indebtedness of the Company.
The estimated fair value at March 31, 1994, of the Company's subordinated
debentures was $219 million, based on the quoted market price as of that date.
Note 6: Shareholders' equity
Stock Option Plans: The Company has Stock Option Plans (the "Plans") under
which
an aggregate of 6.3 million shares of common stock have been reserved for future
issuance. Options under the Plan are granted at prices determined by the Board
of Directors, but at not less than the fair market value, and expire five to ten
years from the date of grant. Options generally vest ratably over one to four
years. At March 31, 1994, options with respect to 435,000 shares were available
for grant.
A summary of transactions relating to outstanding stock options follows:
Year ended March 31,
1994 1993
(In thousands) Options Price Options Price
Outstanding beginning of
period 6,985 $ .82-16.00 5,968 $ .82-13.75
Granted 1,637 $ 9.50-12.00 3,201 $12.50-16.00
Canceled (680) $ 2.22-13.75 (735) $ .82-16.00
Exercised (2,028) $ .82-13.75 (1,449) $ .82-13.75
Outstanding end of period 5,914 $ .82-16.00 6,985 $ .82-16.00
Exercisable end of period 1,887 1,807
Stock Purchase Plan: The Company has an employee stock purchase plan (the
"Purchase Plan") under which 4.3 million shares of common stock have been
reserved for issuance. The Purchase Plan is qualified under Section 423 of the
Internal Revenue Code.
During fiscal 1994, 1993 and 1992, 735,000, 509,000 and 449,000 shares,
respectively, were issued under this plan.
1993 Long-Term Incentive Plan: During fiscal 1994, shareholders approved the
Company's 1993 Long-Term Incentive Plan which provides for the issuance of
stock
options, stock appreciation rights, stock purchase rights and long-term
performance awards. The plan has available and reserved for issuance 2,000,000
shares and allows for an annual increase in the number of shares available for
issuance, subject to a limitation. As of March 31, 1994, only stock options had
been granted under this plan.
A summary of transactions relating to the 1993 Long-Term Incentive Plan
follows:
Year ended March 31, 1994
(In thousands) Shares Option Price
Outstanding beginning of
period - $ -
Granted 1,045 $9.875-15.50
Canceled (3) $ 9.875
Exercised (30) $ 9.875
Outstanding end of period 1,012 $9.875-15.50
Exercisable end of period 170
Shareholder Rights Plan: The Company has a shareholder rights plan (the
"Rights
Plan") which provides existing shareholders with the right to purchase 1/100
preferred share for each common share held in the event of certain changes in
the Company's ownership. The Rights Plan may serve as a deterrent to takeover
tactics which are not in the best interests of shareholders.
Note 7: Restructuring and non-recurring expenses
During fiscal 1994, the Company recorded $22.8 million in restructuring and non-
recurring charges to operations. The charges were primarily related to the
write-off of goodwill associated with its former subsidiary, Plus Development,
the Company's reduction in force, accelerated product transitions, and the
consolidation of sales offices and other facilities, including the costs
associated with the consolidation of repair facilities into a single location in
Malaysia.
Note 8: Income taxes
The provision for income taxes computed under Statement of Financial
Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes," consists of the
following:
Year ended March 31,
(In thousands) 1994 1993 1992
Federal: current $(10,396) $ 48,637 $ 28,466
deferred 4,805 (12,725) (7,500)
(5,591) 35,912 20,966
State: current 3,965 11,066 5,874
deferred (3,219) (2,255) -
746 8,811 5,874
Foreign: current 1,244 7,915 671
deferred 4,590 130 -
5,834 8,045 671
$ 989 $ 52,768 $ 27,511
The tax benefits associated with nonqualified stock options, disqualifying
dispositions of stock options, or employee stock purchase plan shares, as shown
above, are $5.4 million, $5.8 million and $14.2 million in fiscal 1994, 1993 and
1992, respectively. Such benefits are credited to capital in excess of par
value when realized.
The Company's provision for income taxes differs from the amount computed by
applying the Federal statutory rates of 35% for 1994 and 34% for 1993 and 1992
to income before income taxes for the following reasons:
Year ended March 31,
(In thousands) 1994 1993 1992
Tax at Federal statutory rate $ 1,282 $49,837 $25,281
State income tax, net of
Federal benefit 485 5,815 3,877
Amortization and write-off of goodwill 2,386 299 299
Foreign earnings taxed at different
rates (3,007) (517) 58
Research and development
credit - - (1,531)
Other (157) (2,666) (473)
$ 989 $52,768 $27,511
Effective tax rate 27% 36% 37%
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of deferred tax assets and liabilities are as follows:
Year ended March 31,
(In thousands) 1994 1993
Deferred tax assets
Inventory valuation methods $ 18,221 $ 10,995
Accrued warranty expense 13,627 16,159
Allowance for doubtful accounts 3,218 2,993
Distribution reserves 1,402 4,130
Capital equipment reserve 136 271
Depreciation methods 4,730 1,728
Foreign tax on unremitted foreign earnings
net of related U.S. tax liability - 3,066
Other accruals and reserves not currently
deductible for tax purposes 3,318 2,369
Deferred tax liabilities 44,652 41,711
Tax on unremitted foreign earnings
net of foreign tax credits and
foreign deferred taxes (8,454) -
Other (3,240) (2,577)
$ 32,958 $ 39,134
Management has concluded that no valuation allowance in any year is required
based on its assessment that current levels of taxable income will be sufficient
to realize the tax benefit.
Pretax income from foreign operations was $49.2 million, $14.8 million and
$923,000 for the years ended March 31, 1994, 1993 and 1992, respectively. U.S.
taxes have not been provided for unremitted foreign earnings of $15.7 million.
The residual U.S. tax liability if such amounts were remitted would be
approximately $3,925,000.
Note 9: Litigation
On February 26, 1993, Quantum commenced a declaratory judgment lawsuit
against
Rodime PLC of Glasgow, Scotland, in the U.S. District Court for the District of
Minnesota. Minnesota is the site of Rodime's only U.S. office. Rodime has
counterclaimed by asserting that certain Quantum 3.5-inch hard disk drive
products infringe its U.S. Patent No. 4,638,383 and is seeking royalty payments
under that patent. That patent purports to cover hard disk drives using 3.5-
inch disks and specifies an architecture including attributes such as a head
positioning mechanism consisting of a rotary actuator moved by an open loop
stepper motor. Quantum's complaint alleges that the Rodime patent is invalid
and unenforceable, and that it has not been infringed by Quantum. On April 11,
1994, the United States District Court entered a summary judgment in
Quantum's
favor, ruling that claims 4, 6, 7, 9, 14 and 19-27 of the Rodime patent are
invalid because they were impermissibly broadened during earlier patent
reexamination proceedings conducted by the U.S. Patent and Trademark Office.
Quantum believes that this ruling, if upheld on appeal, is fully dispositive of
its dispute with Rodime. Due to the inherent uncertainties of litigation, there
can be no assurance that such ruling will be affirmed. The Company is also
subject to other legal proceedings and claims which arise in the ordinary course
of its business.
In the opinion of management, the amount of ultimate liability, if any, with
respect to these actions will not materially affect the financial position or
results of operations of the Company.
On March 26, 1993, Harry Aine, an individual, filed a complaint with the United
States International Trade Commission seeking an importation exclusion order
against hard disks which he alleged infringed his U.S. Reissue Patent No. 32,464
relating to sputtered carbon coated computer disks. Quantum was named as a
respondent, along with certain other disk drive makers and disk manufacturers
and suppliers. Quantum believed that the Aine patent was invalid and
unenforceable and was not infringed by Quantum. Quantum asked its disk
vendors
to participate actively in defending the proceedings before the International
Trade Commission, and to indemnify Quantum with regard to disk components
they
supply to Quantum. The dispute was settled by agreement during fiscal 1994 on
immaterial terms, and Quantum is awaiting receipt of a formal dismissal of the
ITC investigation.
Note 10: Commitments
The Company leases its present facilities under non-cancelable operating lease
agreements for periods of up to 15 years with various expiration dates through
2006. Some of the leases have renewal options ranging from one to ten years and
contain provisions for maintenance, taxes or insurance.
Rent expense was $12.1 million, $8.3 million and $7.9 million for the years
ended March 31, 1994, 1993 and 1992, respectively.
Future minimum lease payments under operating leases are as follows:
Year ended March 31, (In thousands)
1995 $ 11,282
1996 10,764
1997 8,992
1998 8,202
1999 8,355
Thereafter 68,284
Total future minimum lease payments $115,879
Note 11: Business segment and foreign operations
The Company is engaged in a single business segment consisting of the design,
manufacture and marketing of hard disk drives based on Winchester technology.
The Company is a leading supplier of small-form-factor hard disk drives for
desktop personal computers, workstations and notebook computers, providing a
broad range of 3.5-inch and 2.5-inch hard disk drives with capacities ranging
from 80 megabytes to 2.1 gigabytes. The Company also designs and markets
storage enhancement products that upgrade the capacity of existing desktop
personal computer systems.
During fiscal 1994, the Company began operations in its European headquarters.
Prior to fiscal 1994, export sales from domestic operations accounted for a
significant portion of the Company's sales. Following is a table that
summarizes U.S. export sales to certain geographic areas for each of the three
years ended March 31:
(In thousands) 1994 1993 1992
Europe $140,000 $408,000 $344,000
Asia-Pacific 59,000 322,000 220,000
Other 21,000 91,000 27,000
$220,000 $821,000 $591,000
Geographic information at March 31, 1994 and for the year ended March 31, 1994
is presented in the table below. Transfers between geographic areas are
accounted for at amounts which are generally above cost and are eliminated in
the consolidated financial statements. Identifiable assets are those assets
that can be directly associated with a particular geographic location.
Operating income (loss) by geographic segment does not include an allocation of
general corporate expenses.
Geographic Area
Rest
(In millions) U.S. Europe of World Eliminations Total
Revenue from unaffiliated
customers $1,218 $ 837 $ 76 $ - $2,131
Transfers between geographic
locations 261 77 - (338) -
Total net sales $1,479 $ 914 $ 76 $ (338) $2,131
Operating income (loss) $ (106) $ 120 $ (4) $ - $ 10
Identifiable assets $ 692 $ 252 $ 53 $ - $ 997
Foreign operations in prior years were not material.
One major customer accounted for 22%, 20% and 25% of consolidated sales in
1994,
1993 and 1992, respectively. In addition, another customer accounted for 10% of
consolidated sales in 1994 and less than 10% in 1993 and 1992.
Note 12: Unaudited quarterly consolidated financial data
(In thousands except Fiscal 1994
per share data) 1st Quarter 2nd Quarter 3rd Quarter 4th
Quarter
Sales $479,112 $493,955 $523,021 $634,966
Gross profit 58,494 10,533 56,822 112,994
Net income (loss) 3,373 (45,340) 6,139 38,502
Net income (loss) per share
Primary .08 (1.02) .14 .83
Fully diluted .08 (1.02) .14 .70
(In thousands except Fiscal 1993
per share data) 1st Quarter 2nd Quarter 3rd Quarter 4th
Quarter
Sales $368,549 $362,806 $459,315 $506,570
Gross profit 74,365 66,343 89,689 92,421
Net income 21,492 18,040 28,011 26,268
Net income per share
Primary .47 .39 .62 .58
Fully diluted .41 .35 .52 .50
Item 9.
Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure
Not applicable.
Part III
Item 10.
Directors and Executive Officers of the Registrant
The information required by this item is incorporated by reference to Part I,
Item 1 of this document and to the Company's Proxy Statement.
Item 11.
Executive Compensation
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
Item 13.
Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
With the exception of the information incorporated in Items 10, 11, 12 and 13 of
this Form 10-K Annual Report, the Company's definitive Proxy Statement for its
1994 Annual Meeting of Stockholders is not deemed "filed" as part of this Form
10-K Annual Report.
PART IV
Item 14.
Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements and Financial Statement Schedules - See Index to
Consolidated Financial Statements at Item 8 on page of this report.
2. Exhibits
Sequentially
Exhibit Numbered
Number Page
3.1(a) (2) Certificate of Incorporation of Registrant
3.1(b) (11) Certificate of Amendment of Certificate of
Incorporation of Registrant
3.2 (11) By-laws of Registrant, as amended
4.1 (10) Indenture between Registrant and LaSalle National
Bank, Trustee, covering $212.5 million of 6 3/8%
Convertible Subordinated Debentures due 2002
(including form of Debenture)
4.2 (16) Shareholder Rights Plan
10.7 (2) Registrant's 1984 Incentive Stock Option Plan and
Agreement
10.8 (4) Registrant's 1986 Stock Option Plan and
Agreement, as amended
10.9 (5) Registrant's Employee Stock Purchase Plan and
form of Subscription Agreement, as amended
10.10 (1) Form of Indemnification Agreement between
Registrant and Certain Officers and Directors
10.11 (12) Agreement between Registrant and MKE
10.12 (3) (6) Purchase Agreement between Registrant and MKE
10.13 (7) Lease (dated October 13, 1989) between Registrant
and John Arrillaga and Richard T. Perry, Separate
Property Trusts
10.14 (8) Lease (dated September 17, 1990) between
Registrant and John Arrillaga and Richard T.
Perry, Separate Property Trusts
10.15 (11) Lease (dated April 10, 1992) between Registrant
and John Arrillaga and Richard T. Perry, Separate
Property Trusts
10.16 (11) Loan agreement dated March 30, 1992, between
Registrant and William F. Roach
10.17 (9) Form of Statement of Employment Terms executed by
Stephen M. Berkley, David A. Brown and William J.
Miller, directors of Registrant, and Joseph T.
Rodgers, William F. Roach and Michael A. Brown,
executive officers of Registrant
10.18 (12) Lease (dated November 13, 1992) and First
Amendment to Lease (dated November 17, 1992)
between Registrant and Milpitas Realty Delaware,
Inc.
10.19 (3)(13) Credit Agreement dated August 18, 1992, among
Registrant, Bank of America NT&SA as agents and
other financial institutions party hereto
10.20 (14) Third Amendment to the Purchase Agreement between
Registrant and MKE dated December 31, 1992
10.21 (15) 1993 Long-Term Incentive Plan
10.22 Amendment dated August 18, 1993 to Credit
Agreement (dated August 18, 1992), among
Registrant, Bank of America NT&SA as agents and
other financial institutions party hereto
10.23 Second Amendment (dated April 15, 1993) to Lease
(dated November 13, 1992) between Registrant and
Milpitas Realty Delaware, Inc.
10.24 Lease (dated April 14, 1993) between Registrant
and Milpitas Realty Delaware, Inc.
11 Statement of Computation of Earnings Per Share
12 Statement of Computation of Ratios of Earnings to
Fixed Charges
21 Subsidiaries of Registrant
23 Consent of Ernst & Young, Independent Auditors
24 Power of Attorney. See page 35.
(1) Incorporated by reference to the Registrant's Definitive Special
Meeting Proxy Statement filed with the Securities and Exchange
Commission on March 24, 1987.
(2) Incorporated by reference from Annual Report on Form 10-K for
Registrant's fiscal year ended March 31, 1987.
(3) Confidential Treatment Requested. Granted by the Securities and
Exchange Commission.
(4) Incorporated by reference from exhibits filed with Registrant's Form
S-8, No. 33-52190 filed with the Securities and Exchange Commission
on September 21, 1992.
(5) Incorporated by reference from exhibits filed with Registrant's Form
S-8, No. 33-52192 filed with the Securities and Exchange Commission
on September 21, 1992.
(6) Incorporated by reference from Annual Report on Form 10-K for
Registrant's fiscal year ended March 31, 1988.
(7) Incorporated by reference from exhibits filed with Registrant's Form
10-Q for the quarterly period ended December 31, 1989, filed with the
Securities and Exchange Commission on February 14, 1990.
(8) Incorporated by reference from exhibits filed with Registrant's Form
10-Q for the quarterly period ended December 30, 1990, filed with the
Securities and Exchange Commission on February 13, 1991.
(9) Incorporated by reference to the Registrant's Amendment No. 1 to Form
10-Q for the quarter ended June 30, 1991.
(10) Incorporated by reference from Registration Statement No. 33-46387 on
Form S-3.
(11) Incorporated by reference from exhibits filed with Registrant's
Annual Report on Form 10-K for fiscal year ended March 31, 1992.
(12) Incorporated by reference from exhibits filed with Registrant's Form
10-Q for the quarterly period ended December 27, 1989, filed with the
Securities and Exchange Commission on February 10, 1993.
(13) Incorporated by reference from exhibits filed with Registrant's Form
10-Q for the quarterly period ended September 27, 1992, filed with
the Securities and Exchange Commission on November 10, 1992.
(14) Incorporated by reference from Annual Report on Form 10-K for
Registrant's fiscal year ended March 31, 1993.
(15) Incorporated by reference from Registration Statement No. 33-72222 on
Form S-8 filed with the Securities and Exchange Commission on
November 30, 1993.
(16) Incorporated by reference from Form 8-A filed with the Securities and
Exchange Commission on August 5, 1988.
(b) Reports on Form 8-K
None.
(c) Exhibits
See Item 14(a) above.
(d) Financial Statement Schedules
See Item 14(a) above.
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.
QUANTUM CORPORATION
Dated: June 1, 1994
Joseph T. Rodgers
Executive Vice President, Finance
Chief Financial Officer
and Secretary
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears
below constitutes and appoints William J. Miller and Joseph T. Rodgers, jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form 10-
K, and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons in the capacities and on June 1,
1994.
Signature Title
Chairman of the Board and Chief Executive
(William J. Miller) Officer (principal executive officer)
Executive Vice President, Finance, Chief
(Joseph T. Rodgers) Financial Officer and Secretary (principal
financial and accounting officer)
Director
(Stephen M. Berkley)
Director
(David A. Brown)
Director
(Robert J. Casale)
Director
(Edward M. Esber, Jr.)
Directorfiler
(Steven C. Wheelwright)
SCHEDULE I
MARKETABLE SECURITIES AND INVESTMENTS
Marketable Securities:
March 31, 1994
Value on
Market Balance
Type of security (In thousands) Principal Cost Value Sheet
Ford Motor Credit MTN $ 2,000 $ 2,090 $ 2,098 $ 2,033
TransAmerica Finance MTN 1,700 1,766 1,776 1,743
New Zealand Govt Notes 3,000 3,102 3,115 3,064
Key Corp MTN 5,000 5,204 5,333 5,187
US Government Notes 5,650 5,727 5,745 5,665
Dillard Dept Stores Inc CP 1,000 1,069 1,076 1,046
Hydro Quebec MTN 1,000 1,067 1,073 1,046
Bank of America: 140-day
Eurodollar CD 36,825 36,825 36,825 36,825
ABN-AMRO Bank: 140-day
Eurodollar CD 26,332 26,332 26,332 26,332
CIBC: 140-day Eurodollar CD 26,347 26,347 26,347 26,347
Puerto Rico Bonds 3,220 3,304 3,249 3,220
$112,074 $112,833 $112,969 $112,508
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
Balance at Additions Balance at
Classification beginning of charged to end of
(In thousands) period expense Write-offs period
Allowance for doubtful
accounts year ended:
March 31, 1994 $8,118 $6,296 $(5,023) $9,391
March 31, 1993 6,474 4,724 (3,080) 8,118
March 31, 1992 5,397 3,595 (2,518) 6,474