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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
{X}Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended March 25, 1995
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or
{ }Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file Number: 0-14016
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Maxtor Corporation
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(Exact name of registrant as specified in its charter)
Delaware 77-0123732
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
211 River Oaks Parkway, San Jose, CA 95134
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 432-1700
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of class)
Indicate by checkmark 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
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Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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As of June 2, 1995, 32,800,361 shares of the registrant's Common Stock, $.01
par value, and 19,480,000 shares of the registrant's Class A Common Stock,
$.01 par value, were issued and outstanding, respectively. The aggregate
market value of the registrant's voting stock held by nonaffiliates of the
registrant as of June 2, 1995 was $167,229,804, based on the closing price
on NASDAQ National Market System reported for such date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1995 Annual Meeting of Stockholders
(the Proxy Statement), to be filed within 120 days of the end of the fiscal
year ended March 25, 1995, are incorporated by reference in Part III hereof.
Except with respect to information specifically incorporated by reference in
this Form 10-K, the Proxy is not deemed to be filed as part hereof.
This Annual Report on Form 10-K contains 200 pages of which this is number
1. The Index to Exhibits begins on page 48.
PART I
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 1.8-inch mobile storage
products to 3.5-inch AT drives for the desktop in capacities up to 1.2
gigabytes.
In March 1989, the Company and Kubota Corporation (Kubota) organized a
jointly-owned corporation, Maxoptix Corporation (Maxoptix). On December 26,
1994, the Company entered into an agreement for the sale of the Company's
interest in Maxoptix to Kubota Electronics America Corporation, a Delaware
company, whose ultimate parent is Kubota. Prior to the sale, Maxtor and
Kubota owned 67% and 33% interests in Maxoptix, respectively. The
transaction was completed on February 18, 1995. As consideration for the
sale, Maxtor received $1.5 million in cash and was relieved of certain
liabilities. The Company recorded a gain of approximately $10 million on
the sale.
In November 1994, the Company formed a new wholly-owned subsidiary, IMS
International Manufacturing ServicesTM, Ltd. (IMS), whose primary business
is contract manufacturing for electronic original equipment manufacturers
(OEMs). The Company's printed circuit board (PCB) assembly plant in Hong
Kong formed the foundation of the subsidiary, and a second plant was added
in Thailand in May 1995. IMS will not only supply the Company, but a
variety of customers, with PCB assemblies, sub-assemblies and fully
integrated box-build products.
In January 1995, the Company announced it had signed a memorandum of
understanding for creation of a manufacturing partnership with Hyundai
Electronics Industries Co., Ltd. (HEI). In May 1995, the Company entered
into a definitive agreement with HEI. Under the terms of the agreement, HEI
will manufacture Maxtor-designed hard disk drives for the Company. The two
companies plan to begin production at a Korean manufacturing site during
summer 1995. The additional manufacturing capacity provided by HEI is
intended to supplement current production capacity at the Company's
manufacturing plant in Singapore without any capital expenditure on Maxtor's
part. The two companies intend to participate in an ongoing exchange of
technology to enable HEI to assume a leadership role in disk drive
manufacturing and to enable Maxtor to obtain high-quality, low-cost
manufacturing capacity. As of June 22, 1995, no compensation has been paid
by the Company to HEI under this agreement.
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. Shorter product life cycles also increase the importance of the
Company's ability to successfully manage product transitions. 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
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.
The Company's financial results continue to be heavily dependent on the
success of certain products. The Company's strategy in part is focused on
accelerating the end-of-life of certain older desktop products and replacing
them with new products developed on lower-cost platforms. 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.
Desktop Personal Computer Products
The 7000 SeriesTM of 3.5-inch disk drives addresses the demand for
desktop personal computer (PC) disk drives and presently include a broad
range of capacity points from 270 megabytes (MBs) to 1.2 gigabytes (GBs).
Current product offerings primarily consist of products which were
introduced during fiscal year 1995.
The value line of 7000 Series 3.5-inch drives were announced initially in
the second quarter of fiscal year 1995 and were designed to meet the needs
of the highly price-sensitive entry level to mid-range desktop PC market.
Initial offerings included the 540MB 7540AV and the 270MB 7270AV. The
drives are ATA/IDE interface compatible and use the same technological
platform of the Company's previous generation of 7000 Series drives, but
were developed on a new, lower-cost electronics architecture.
In the fourth quarter of fiscal year 1995, the Company began shipping an
extension to its 7000 Series, the Excalibur Family of products, which are
intended to address the high-end PC market's storage-intensive applications,
such as CAD/CAE and multimedia. The 1.2 GB Excalibur 71260A and 1.0GB
Excalibur 71050A disk drives feature both enhanced IDE and SCSI interfaces,
allowing the Company's 7000 Series value line to be used in both ATA and
SCSI-based high-end systems. The design for these products adds a third
disk to the design of the 7000 Series platform and feature 429 MBs per disk.
Also in the fourth quarter of fiscal year 1995, the Company added the
850MB 7850AV and the 425MB 7425AV disk drives, two new capacity points in
the Company's 7000 Series value line of 3.5-inch disk drives. The 7850AV
combines the low-cost electronics architecture of previously introduced 7000
Series value line of drives with the integrated heads, disks and channel
technology developed for the high-end Excalibur 71260A and 71050A products.
In May 1995, the Company announced a further addition to the 7000 Series
of 3.5-inch disk drives. The DurangoTM Family of products is available in
capacities of 541MBs, 1.0GBs and 1.6GBs. This family of products offers ATA
disk areal density of 400 M/bits per square inch through a refinement of
thin film head technology referred to as proximity recording, which reduces
head flying height and improves head/media interface signal quality. The
1.6GB drive in particular is intended to meet the increasing storage demands
of power-users to fully utilize Internet services and operate storage-
intensive multimedia applications. The Company expects to commence volume
production of this family of products by the end of the first quarter of
fiscal year 1996. Should there be a delay in commencing volume production,
a subsequent inability to grow production volumes during fiscal year 1996 or
an inability to manufacture the products with competitive costs and quality
standards, the Company's results of operations would be adversely affected.
Mobile Computing Products
The MobileMaxTM Family of products is a line of data storage products
intended to address the needs of the emerging mobile computing market and
includes the 1.8-inch MobileMax Hard Drives, 1.8-inch MobileMax Lite Hard
Drives, MobileMax Flash Memory Cards, and the MobileMax DeskRunnerTM. The
growth of this product line has been primarily dependent on the growth of
the emerging mobile computing market. The market has been significantly
slower to develop than anticipated and the revenue generated by this family
of products has been less than anticipated. During the fourth quarter of
fiscal year 1995, the Company decided to curtail its research and
development efforts related to this particular product family in favor of
mainstream disk drive products with stronger market and revenue potential.
MARKETING AND CUSTOMERS
The Company markets and sells its products through a direct sales force
to original equipment manufacturers (OEMs), distributors and other emerging
sales channels such as computer specialty retailers and computer
superstores. As the market for Maxtor's products has become increasingly
segmented, diverse sales channels have developed for different products.
As a result of volatile business conditions in the personal computer (PC)
industry, including the trend toward consolidation among PC manufacturers,
sales to OEMs have become increasingly important to the success of the disk
drive industry participants. During the third and fourth quarters of fiscal
year 1995, the Company's OEM revenue increased to more than 50 percent of
total revenue. The Company attributes this growth in part to the Company's
value line 3.5-inch 7000 Series drives which were designed to meet the
performance and price requirements of the desktop PC market. 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.
Although there was an increase in OEM revenue during the latter half of
fiscal year 1995, as mentioned above, the Company continues to be heavily
dependent on the distribution channel. The Company expanded its share of
the traditional commercial distribution and consumer retail markets during
fiscal year 1995. In particular, the Company signed six new major U.S.
retailers during the year, increasing the total number of U.S. retail
outlets carrying the Company's products to over 2,000 outlets. The Company
currently sells its retail-packaged products directly and through
distributors to major retail computer dealers, superstores, warehouse clubs,
aggregators and mass merchants nationwide. The Company believes that
distributors and retailers are important in supporting a large aftermarket,
and that the market for replacement drives in particular should result in
the growth of retail sales. Sales to distributors and retailers accounted
for approximately one-half of total revenue in fiscal years 1995 and 1994.
The Company's dependence on distributors and retailers is greater than most
other disk drive producers. This dependence subjects the Company to certain
pricing pressures and other factors unique to distribution, including
historically higher levels of product returns compared to the levels of
returns experienced with OEM customers.
During fiscal year 1995, no customer accounted for more than 10% of the
Company's revenue. During fiscal years 1994 and 1993, sales to
International Business Machines, Inc. (IBM) accounted for approximately 24%
and 14% of the Company's revenue, respectively.
As of June 2, 1995, the Company has 31 direct sales persons located in
ten offices in the United States, 14 direct sales persons in the Far East
located in six offices, and 11 direct sales persons in Europe located in
three offices. The Company's export sales represented 48%, 43% and 50% of
total revenue in fiscal years 1995, 1994 and 1993, respectively.
Approximately 38%, 35% and 57% of export sales were to the Far East in
fiscal years 1995, 1994 and 1993, respectively. The balance of export sales
was primarily to Europe in each of the three fiscal years.
For financial data relating to major customers and geographic information
refer to Part II, Item 8, Footnote 4 on page 30.
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 primarily 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 PCB assembly in its facility in Hong Kong. As discussed
earlier, the Company added a plant in Thailand in May 1995 to support the
contract manufacturing activities of IMS. The Company recently entered into
a manufacturing partnership with HEI under which HEI will manufacture Maxtor-
designed hard disk drives for the Company at a Korean manufacturing site.
Initial production is expected to commence during summer 1995. The
additional manufacturing capacity provided by this HEI-owned facility
located in Korea is intended to supplement the current production capacity
at the Company's manufacturing plant in Singapore without any capital
expenditure on Maxtor's part. 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 products, and cost reduction, quality
and product improvement engineering on current products are conducted in the
Company's Longmont, Colorado facilities. 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 consist primarily of the
final assembly of subassemblies, the quality and yield of the Company's
products are highly dependent on the Company's ability to obtain large
volumes of high-quality components and sub-assemblies. In the past, the
Company's operating results have been adversely affected by higher costs
relative to its competitors, 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. In the
first quarter of fiscal year 1995, in particular, the Company's revenue
declined primarily as a result of a shortage of a key component for the
Company's 7000 Series product line supplied by a sole source vendor who was
experiencing production problems. There can be no assurance that the
Company will not experience similar problems in the future.
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. The Company periodically receives communications from
vendors that they may be unable to supply required volumes of certain key
components. With the expansion of production experienced by the disk drive
industry during fiscal year 1995, shortages of certain key components for
the disk drive industry have increased. The Company has experienced
shortages during fiscal year 1995 and the Company expects it is likely that
industry shortages and cost increases of key components will 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.
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 developing
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.
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 within product
families will enable the Company to compete more effectively.
The Company believes that success in developing smaller form factors,
increasing storage capacities, increasing performance and lowering cost
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 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
production yields.
In connection with the Company's restructuring plan initiated in the
fourth quarter of fiscal year 1994, the Company consolidated its research
and development (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
fiscal year 1995 as compared to fiscal year 1994 as a result of these
actions. In fiscal years 1995, 1994 and 1993, respectively, the Company's
R&D expenses amounted to $60.8 million, $97.2 million and $112.6 million,
respectively. In order to effectively implement its product strategy, the
Company intends to continue to make significant investments in R&D. R&D
spending in absolute dollars is expected to increase in fiscal year 1996
because the Company believes that it 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 success. Although the
Company has no technology purchases currently planned, R&D expenses may
fluctuate in the future resulting from the cost of acquiring rights to new
technologies.
COMPETITION
The disk drive industry is intensely competitive and 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. The principal competitive
factors in the disk drive industry include time-to-volume production, price,
customer service, storage capacity, quality 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
and there can be no assurance that the Company will be able to compete
effectively. In particular, most of the Company's competitors have
significantly higher cash reserves than the Company which may enable them to
better withstand the competitive factors inherent in the disk drive
industry.
Shorter product life cycles increase the importance of the Company's
ability to successfully manage product transitions. 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 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. 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.
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 generally 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.
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 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.
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 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. Conversely, 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. 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 85 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. 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 PLC, a United Kingdom company, 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 product. 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 2, 1995, the Company had approximately 7,130 employees, of
whom approximately 1,190 were located in the United States, 70 in Europe and
5,870 in the Far East. Of the employees, approximately 6,130 were engaged
in manufacturing and quality assurance and 605 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
positive.
EXECUTIVE OFFICERS
The following table lists the executive officers of the Company and their
ages as of June 2, 1995. There are no family relationships between any
director or executive officer of the Company. Executive officers serve at
the discretion of the Board of Directors.
Name Age Position with the Company
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Mong Hun Chung 46 Chairman of the Board
Dr. Chong Sup Park 47 President, Chief Executive Officer
and Director
Dr. Richard D. Balanson 46 Executive Vice President, Chief Technical
Officer and Director
Gary Galusha 50 Senior Vice President, Marketing and
Strategic Accounts
Katherine Curtin Young 55 Senior Vice President, Worldwide
Operations
Robert G. Behlman 51 President and Chief Executive Officer, IMS
International Manufacturing Services, Ltd.
Nathan Kawaye 42 Vice President, Finance, Corporate
Controller and Chief Accounting Officer
William M. Hake 42 Vice President, Worldwide Sales and Product
Line Management
Glenn H. Stevens 44 Vice President, General Counsel and
Secretary
Dr. Kimberly Cuff 36 Vice President, Human Resources
Nelson Diaz 45 Vice President, Quality
Mong Hun Chung was elected Chairman of the Board in February 1994. Mr.
Chung has been Chairman of the Board of Directors of Hyundai Electronics
Industries Co., Ltd. in Korea since January 1992. He was President of
Hyundai Electronics Industries Co., Ltd. in Korea from February 1984 to
December 1991. Currently, Mr. Chung is also Vice Chairman of Hyundai
Merchant Marine Co., Ltd. and holds directorship positions on the boards of
other Hyundai Business Group companies.
C.S. Park was elected President and Chief Executive Officer of Maxtor in
February 1995. Previously, Dr. Park was President and Chief Executive
Officer at Axil Computer, Inc., a workstation computer manufacturer, in San
Jose, He also held various management positions with Hyundai Electronics
Industries Co., Ltd., including the position of Senior Vice President,
Semiconductor Sales and Marketing, which he held from 1990 to 1992. From
1985 to 1989, Dr. Park was President and Chief Executive Officer of Hyundai
Electronics America.
Richard D. Balanson was elected a director of Maxtor in October 1994.
Dr. Balanson was appointed Executive Vice President and Chief Technical
Officer in October 1994. He joined Maxtor in August 1994 as Vice President
and Chief Technical Officer. Prior to joining Maxtor, Dr. Balanson was
President and Chief Operating Officer of Applied Magnetics Corporation from
1992 to 1994. From 1975 until 1992, he served in several managerial
positions with International Business Machines Corporation ("IBM"), where
his last position included the management of IBM's mid-range and high-end
disk drive development and manufacturing groups.
Gary Galusha joined the Company as Vice President, North American Sales
in July 1990 and served as Vice President, Worldwide Sales from January 1991
to January 1995, at which time he was named Senior Vice President, Marketing
and Strategic Accounts. 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.
Katherine Curtin Young joined the Company as Senior Vice President of
Worldwide Materials in August 1994 and was promoted to Senior Vice
President, Worldwide Operations in January 1995. From February 1993 to July
1994, Ms. Young was president of worldwide supplier management at AST
Research Inc., a supplier of desktop, file server and notebook computers.
From September 1988 to January 1993, Ms. Young served as vice president,
corporate materials at Conner Peripherals, a disk drive manufacturer.
Robert G. Behlman joined the Company in November 1994 as President and
Chief Executive Officer of IMS. From May 1994 to October 1994, Mr. Behlman
had a private consulting business. From September 1992 to April 1994, Mr.
Behlman was chief operating officer at Sanmina Corp., an integrated contract
manufacturer. From August 1988 to August 1992, Mr. Behlman held various
executive management positions in marketing and operations at SCI Systems, a
contract manufacturer.
Nathan Kawaye joined the Company as Vice President, Finance and Financial
Planning & Analysis in November 1991. In October 1994, Mr. Kawaye was
appointed Vice President, Finance and Corporate Controller. In April 1995,
Mr. Kawaye was named Vice President, Finance, Corporate Controller and Chief
Accounting Officer. Prior to joining the Company, he served as vice
president, finance & administration and chief financial officer of Sigma
Circuits Incorporated, a printed circuit board manufacturer, from May 1989
to October 1991.
William M. Hake joined the Company as Vice President, Product Management
in July 1990. In January 1995, Mr. Hake was named Vice President, Worldwide
Sales and Product Line Management. 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.
Glenn H. Stevens joined the Company as Vice President, General Counsel
and Secretary in June 1994. From August 1992 to May 1994, Mr. Stevens had a
private law practice. From 1979 to August 1992, he held various legal
positions at U S West, Inc., a telecommunications products and services
provider, including chief counsel and secretary for its research and
development organization and chief intellectual property counsel for the
family of U S West companies.
Dr. Kimberly Cuff joined the Company as Vice President, Human Resources
in March 1995. From June 1985 to February 1995, Dr. Cuff held various
positions at Western Digital Corporation, a disk drive manufacturer, most
recently as director of human resources.
Nelson Diaz joined the Company as Vice President, Quality in March 1995.
From October 1976 to February 1995, Mr. Diaz held various positions at
Digital Equipment Corporation (DEC), a personal computer and information
systems supplier, including engineering, manufacturing and quality
management positions; his most recent position was division quality manager
of DEC's components division.
INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES, AND
FINANCIAL INFORMATION
The Company operates in a single industry segment: the development,
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 4, on page 30.
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 leased. The Company's manufacturing
facilities include a disk drive manufacturing facility in Singapore and a
PCB assembly facility in Hong Kong. In May 1995, another facility was added
in Thailand to support the contract manufacturing activities of IMS. 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, Hong Kong and Thailand are leased.
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. 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 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 claims, including 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 and the claim concerning Rodime described above will not have a
material adverse effect, if any, on the Company's financial position,
results of operations or cash flows.
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 fourth quarter of its fiscal year ended March 25, 1995.
PART II
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. There is no established public trading market for
Class A common stock.
As of June 2, 1995, Maxtor had 1,823 holders of record of common stock
and 4 holders of record of Class A common stock.
For the range of high and low closing prices in the National Market
System of NASDAQ for the fiscal quarters of the two most recent fiscal years
ended March 25, 1995 and March 26, 1994, refer to Part II, Item 6, Selected
Financial Information, on page 11
For the dividend policy of the Company, refer to Part II, Item 7,
Dividend Policy, on page 21.
Item 6. SELECTED FINANCIAL INFORMATION (In thousands, except per share
amounts)
- -----------------------------------------------------------------------------
ANNUAL
- -----------------------------------------------------------------------------
Fiscal year March 25, March 26, March 27, March 28, March 30,
ended 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------
Revenue $ 906,799 $1,152,615 $1,442,546 $1,037,481 $ 871,305
Income (loss)
from operations (76,026) (247,921) 53,968 12,304 (49,077)
Net income (loss) (82,222) (257,589) 46,112 7,149 (45,429)
Net income (loss)
per share:
- primary (1.63) (8.00) 1.46 0.27 (1.89)
- fully diluted (1.63) (8.00) 1.46 0.24 (1.89)
Total assets 381,847 492,375 579,113 445,182 453,856
Long-term debt and
capital lease
obligations due
after one year 101,967 107,393 119,868 110,744 128,066
Minority interest - - - 1,023 8,201
- -----------------------------------------------------------------------------
QUARTERLY (Unaudited)
- -----------------------------------------------------------------------------
Fiscal quarter March 25, Dec. 24, Sept. 24, June 25,
ended 1995 1994 1994 1994
- -----------------------------------------------------------------------------
Revenue $ 275,947 $ 238,174 $ 174,368 $ 218,310
Gross margin 27,474 21,328 (16,696) 24,024
Net income (loss) 1,119 (16,435) (54,717) (12,189)
Net income (loss)
per share 0.02 (0.32) (1.09) (0.24)
Price range per
common share $6.3125-$4.0625 $5.75-$3.25 $5.50-$4.3125 $7.875-$4.6875
- ------------------------------------------------ ----------------------------
- -----------------------------------------------------------------------------
Fiscal quarter March 26, Dec. 25, Sept. 25, June 26,
ended 1994 1993 1993 1993
- -----------------------------------------------------------------------------
Revenue $ 260,397 $ 318,098 $ 313,546 $ 260,574
Gross margin 29,696 (53,633) (10,453) (18,009)
Net loss (4,482) (121,305) (59,623) (72,179)
Net loss per
share (0.11) (4.12) (2.02) (2.50)
Price range per
common share $5.4375-$8.3125 $4.625-$6.75 $4.50-$6.6875 $6.0625-$8.0625
- -----------------------------------------------------------------------------
Primary net income (loss) per share is the same as fully diluted net
income (loss) per share.
Price range is based on the quarterly high and low closing prices as
quoted from NASDAQ.
Net income included non-recurring income of approximately $10.2 million
primarily related to the gain on the sale of the Company's interest in
Maxoptix Corporation.
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.
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.
During most of fiscal year 1994, the disk drive industry experienced intense
price competition and excess industry capacity, which resulted in lower
revenue for the Company. This, coupled with the Company's decision in the
latter half of fiscal year 1994 to discontinue certain unprofitable
products, resulted in a decline in revenue from $1.4 billion for fiscal year
1993 to $1.2 billion for fiscal year 1994. Although competitive pricing
pressures continued during fiscal year 1995, general industry conditions
improved. However, the Company's fiscal year 1995 revenue continued to
decline to approximately $907 million as a result of a number of factors.
In the first quarter of fiscal year 1995 revenue declined primarily as a
result of a shortage of a key component for the Company's 7000 SeriesTM
product line supplied by a sole source vendor who was experiencing
production problems. During the second quarter, revenue continued to
decline as a result of industry-wide pricing pressures coupled with the
Company's product mix of predominantly lower-capacity products which were
nearing end-of-life while the industry began transitioning to new, higher-
capacity products. As the year progressed, revenue increased in the third
and fourth fiscal quarters as a result of an improvement in product mix to
the Company's newer, higher-capacity products, as well as a substantial
increase in unit volumes. During the fourth quarter, however, pricing
pressures intensified for certain products and in certain markets,
offsetting in part the favorable impact of product mix and unit volume
growth. Although the Company expects that price erosion for certain
products will continue during fiscal year 1996 at a level near or below the
erosion experienced in the fourth quarter of fiscal year 1995, there can be
no assurance that price erosion will not increase substantially.
The Company incurred quarterly losses in each of the quarters of fiscal year
1994 and through the third quarter of fiscal year 1995. Such losses through
the third quarter of fiscal year 1994 were primarily the result of intense
price competition and excess industry capacity, as mentioned above, and the
Company's inability to bring certain products to market in a timely and cost
effective manner. The Company began to experience an increase in demand
during the third quarter of fiscal year 1994, with most products in short
supply and price reductions easing. Although general industry conditions
began to improve during that quarter and continued through fiscal year 1995,
the Company continued to incur losses. The Company's losses were due, in
part, to continuing cost and time-to-market issues with regard to its new
products, including the high start-up costs associated with developing and
commencing volume production on the 1.8-inch form factor products. In
addition, during fiscal year 1995, the disk drive industry was transitioning
to new, higher-capacity products while the Company was shipping the lower-
capacity products which were delayed by the component shortage mentioned
earlier. This shift in market demand created additional pricing pressures
on the Company's lower-capacity products.
Although most of the Company's competitors were profitable during the latter
half of fiscal year 1994 and through fiscal year 1995, the Company was not
profitable until the fourth quarter of fiscal year 1995. The Company's net
income of approximately $1.1 million for the fourth quarter of fiscal year
1995 included non-recurring income of approximately $10.2 million primarily
related to the gain on the sale of the Company's interest in Maxoptix
Corporation (Maxoptix). Given the uncertainties confronting the Company,
including pricing pressures and other competitive factors, component
availability, cost and time-to-market issues with regard to its new
products, and general industry conditions, the Company does not expect to be
profitable during the first quarter of fiscal year 1996 and the Company
cannot provide any assurance as to its profitability during fiscal year
1996.
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. Shorter product life cycles also increase the importance of the
Company's ability to successfully manage product transitions. 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
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.
The Company's financial results continue to be heavily dependent on the
success of certain products. The Company's strategy in part is focused on
accelerating the end-of-life of certain older desktop products and replacing
them with new products developed on lower-cost platforms. 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 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 generally 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. Many of the Company's competitors have greater financial and
other resources and broader product lines than the Company with which to
compete in this environment. Due to the narrowness of the Company's product
offerings relative to its competition, any delay in bringing a product to
market will have a more significant adverse effect on the Company's results
of operations than a similar delay would have on its competitors' results of
operations.
As a result of volatile business conditions in the personal computer (PC)
industry, including the trend toward consolidation among PC manufacturers,
sales to original equipment manufacturers (OEMs) 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 the
OEM market, there can be no assurance that the Company will be successful in
such efforts. Although there was a substantial increase in OEM revenue
during the latter half of fiscal year 1995 compared to the first half, the
Company continues to be heavily dependent on the distribution channel, which
subjects the Company to certain pricing pressures and other factors unique
to that channel, including historically higher levels of product returns
compared to the levels of returns experienced with OEM customers.
The quality and yield of the Company's products is highly dependent on the
Company's ability to obtain high-quality components and sub-assemblies, and
its internal manufacturing processes. In the past, the Company's operating
results have been 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. However,
the Company has implemented a number of programs to improve the quality of
its key components and subassemblies, and its internal manufacturing
processes. As a result of these efforts, the Company has made significant
strides in improving the quality of its products. The Company believes that
it must continue to focus on product quality to improve its competitive
position in the disk drive industry.
The Company's manufacturing process requires large volumes of high-quality
and low-cost 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. 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 fiscal year 1995, shortages of certain key components for
the disk drive industry have increased, the Company has experienced
shortages during fiscal year 1995, and the Company expects that industry
shortages and increased costs of key components will continue into future
quarters. The Company will continue to aggressively work with its vendor
base to minimize its component supply 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 needs for required
volumes of high-quality components in a timely and cost effective manner.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
- ----------------------------------------------------------------------
(In millions) March 25, March 26,
Fiscal year ended 1995 1994 Change
- ----------------------------------------------------------------------
Revenue $ 906.8 $ 1,152.6 $ (245.8)
Gross margin $ 56.1 $ (52.4) $ 108.5
As a percentage of revenue 6.2% (4.5%)
Net loss $ (82.2) $ (257.6) $ 175.4
As a percentage of revenue (9.1%) (22.3%)
Net loss per share $ (1.63) $ (8.00) $ 6.37
- ----------------------------------------------------------------------
Revenue
Revenue for fiscal year 1995 decreased by 21.3% from the prior fiscal year
generally as a result of competitive pricing pressures, offset in part by an
increase in unit volumes and a shift in product mix to higher-capacity
product offerings. Average unit selling prices, in terms of megabyte per
dollar, dropped substantially during fiscal year 1995. The rate of
sequential quarter-to-quarter decline in average unit selling prices ranged
from approximately 15% - 20% for the first two quarters of fiscal year 1995,
to less than 10% for the third quarter of fiscal year 1995, and intensified
again during the fourth quarter of fiscal year 1995 to approximately 15%.
Unit volumes increased modestly during fiscal year 1995 with the most
significant growth occurring during the second half of the fiscal year.
Quarterly revenue declined during the first quarter of fiscal year 1995 from
the previous quarter as a result of the significant shortage in required
volumes of a key component described earlier and also as a result of the
Company's decision in the latter half of fiscal year 1994 to discontinue
certain unprofitable products. Quarterly revenue continued to decline
during the second quarter of fiscal year 1995 as the disk drive industry was
transitioning to new, higher-capacity products while the Company was
shipping the lower-capacity products nearing end-of-life which were delayed
by the component shortage. During the third quarter of fiscal year 1995
revenue increased over the second quarter of fiscal year 1995 as a result of
a reduction in the rate of decline of average unit selling prices, a 30%
increase in unit volumes and an improvement in product mix. The increase in
quarterly revenue continued for the fourth quarter of fiscal year 1995 as a
result of continued improvement in product mix coupled with an increase in
unit volumes of nearly 25% over the previous quarter, offset in part by
intensified pricing pressures on certain products.
During fiscal year 1995, the Company did not have any customer which
accounted for 10% or greater of the Company's revenue. During fiscal year
1994, the Company had one customer which accounted for approximately 24% of
the Company's revenue.
Gross margin
Gross margin as a percentage of revenue increased to 6.2% for fiscal year
1995 from (4.5%) for fiscal year 1994. During fiscal year 1994, the Company
recorded special charges amounting to $68.9 million in Cost of Revenue
consisting 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. Excluding the special charges of $68.9 million, gross
margin for fiscal year 1994 was 1.4%.
The increase in gross margin for fiscal year 1995 as compared to the prior
fiscal year, excluding special charges of $68.9 million, was primarily
attributable to a shift in product mix to higher-capacity, higher-margin
products and a modest increase in unit volume, offset in part by competitive
pricing pressures. The increase in gross margin also is the result of the
Company's decision in the third quarter of the prior fiscal year to
discontinue certain unprofitable products.
During the first half of fiscal year 1995, product mix was primarily
comprised of the Company's older, lower-capacity products which were nearing
end-of-life and generally contributing at a zero gross margin. The
Company's product mix for the second half of fiscal year 1995 primarily was
comprised of its value-line 7000 Series one-inch drives which were developed
on a lower-cost platform and, to a lesser extent, the new, higher-capacity,
higher-margin, 850 megabyte - 1.2 gigabyte drives shipped in volume during
the fourth quarter. In part offsetting the improvement in gross margin, the
Company recorded a charge of $6.4 million to Cost of Revenue during the
fourth quarter of fiscal year 1995 for the write down of inventory and fixed
assets, and expensing certain commitments to third parties associated with
the Company's 1.8-inch product line. The charge resulted from the Company's
decision during the fourth quarter of fiscal year 1995 to discontinue
manufacturing and curtail development efforts related to this particular
product line in favor of mainstream disk drive products with stronger market
and revenue potential.
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 1996.
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. In addition, given the cyclical nature of
the disk drive industry, there can be no assurance that the Company will be
able to sustain its current gross margin.
Operating expenses
- -------------------------------------------------------------------------
(In millions) March 25, March 26,
Fiscal year ended 1995 1994 Change
- -------------------------------------------------------------------------
Research and development $ 60.8 $ 97.2 $ (36.4)
As a percentage of revenue 6.7% 8.4%
Selling, general and administrative $ 81.6 $ 78.9 $ 2.7
As a percentage of revenue 9.0% 6.8%
Restructuring and other $ (10.2) $ 19.5 $ (29.7)
As a percentage of revenue (1.1%) 1.7%
- -------------------------------------------------------------------------
Research and development (R&D)
R&D expenses decreased from the prior fiscal year primarily due to the
consolidation of the Company's R&D activities in Longmont, Colorado during
the fourth quarter of fiscal year 1994 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 spending in absolute dollars is expected to increase during fiscal year
1996 because the Company believes that it 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. Although the
Company has no technology purchases currently planned, R&D expenses may
fluctuate in the future resulting from the cost of acquiring rights to new
technologies.
Selling, general and administrative (SG&A)
SG&A expenses increased as a percentage of revenue in fiscal year 1995
compared to the prior fiscal year primarily due to the decline in the
revenue base. SG&A spending in absolute dollars increased modestly as a
result of higher advertising costs and an increase in bad debt expense,
offset in part by lower general and administrative costs, particularly
headcount related, as a result of the Company's restructuring plan initiated
during fiscal year 1994. 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 and other
During the third quarter of fiscal year 1995 the Company entered into an
agreement for the sale of the Company's interest in Maxoptix to Kubota
Electronics America Corporation, a Delaware company, whose ultimate parent
is Kubota Corporation (Kubota). Prior to the sale, Maxtor and Kubota owned
67% and 33% interests in Maxoptix, respectively. The transaction was
completed during the fourth quarter of fiscal year 1995. As consideration
for the sale, the Company received $1.5 million in cash and was relieved of
certain liabilities. The Company recorded a gain of approximately $10.0
million on the sale.
The Company recorded a restructuring charge of $19.5 million in the third
quarter of fiscal year 1994. The restructuring plan provided for the
consolidation and streamlining of certain operations and administration.
The plan provided for a worldwide headcount reduction of approximately 500
employees, which was substantially completed during February 1994. The
Company's research and development activities were consolidated at its
Longmont, Colorado facilities, which eliminated the need for certain
facilities in San Jose, California. In addition, the Company's actions
eliminated the need for certain manufacturing facilities in Singapore. The
charge consisted 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. As of March 25, 1995, the Company
has completed all of its restructuring actions. As a result of these
actions, worldwide headcount was reduced by approximately 500 employees from
manufacturing, research and development, sales, marketing and administrative
functions and facilities space was reduced by approximately 350,000 square
feet. The Company's savings from operations as a result of these actions
amounted to approximately $9.0 million per quarter, beginning with the
quarter ended March 26, 1994. Certain actions were completed at a cost
which was slightly higher or lower than originally estimated. On a net
basis, total actual costs were lower than originally estimated by
approximately $0.2 million. The net adjustment of approximately $0.2
million was recorded to Restructuring and Other during the fourth quarter of
fiscal year 1995 upon completion of the Company's restructuring actions.
The following table presents a roll-forward reconciliation of the activity
in the restructuring accrual balance from December 25, 1993 to March 25,
1995:
Severances, Rent and
benefits other
and other facilities-
headcount- related
related charges
(In thousands) charges Total
- ----------------------------------------------------------------------------
December 1993 restructuring charges $ 11,769 $ 7,731 $ 19,500
Cash expenditures (8,891) (1,744) (10,635)
- ----------------------------------------------------------------------------
Balance at March 26, 1994 2,878 5,987 8,865
- ----------------------------------------------------------------------------
Cash expenditures (2,474) (5,682) (8,156)
Adjustments (404) 197 (207)
- ----------------------------------------------------------------------------
Balance at March 25, 1995 $ - $ 502 $ 502
============================================================================
At March 25, 1995, the Company had $502,000 of accrued restructuring charges
remaining related to recurring payments under certain non-cancelable
operating leases. The Company expects to expend cash for these items during
fiscal year 1996.
Interest expense and interest income
- -----------------------------------------------------------------
(In millions) March 25, March 26,
Fiscal year ended 1995 1994 Change
- -----------------------------------------------------------------
Interest expense $ 8.4 $ 10.1 $ (1.7)
Interest income $ 4.2 $ 2.3 $ 1.9
- -----------------------------------------------------------------
Interest expense decreased as a result of lower average borrowings
outstanding during fiscal year 1995 as compared to the prior fiscal year.
Interest income increased as a result of higher cash and short-term
investments balances during fiscal year 1995 as compared to the prior fiscal
year.
Provision for income taxes
- -----------------------------------------------------------------------
(In millions) March 25, March 26,
Fiscal year ended 1995 1994 Change
- -----------------------------------------------------------------------
Provision for income taxes $ 2.0 $ 1.9 $ 0.1
- -----------------------------------------------------------------------
The provision for income taxes consists primarily of foreign taxes. The
Company's effective tax rate for fiscal year 1995 differs from the combined
federal and state rate due to the repatriation of foreign earnings absorbed
by current year losses and the Company's U.S. operating losses not providing
current tax benefits, offset in part by the tax savings associated with the
Company's Singapore operations and valuation of temporary differences.
Income from the Singapore operations is not taxable in Singapore as a result
of the Company's pioneer tax status. The Company's effective tax rate for
fiscal year 1994 is below 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.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
- -------------------------------------------------------------------------
(In millions) March 26, March 27,
Fiscal year ended 1994 1993 Change
- -------------------------------------------------------------------------
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 fiscal years 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, 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 MXTTM 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 $61.0 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.
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. 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 was 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 products 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 products 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.
Operating expenses
- ---------------------------------------------------------------------------
(In millions) March 26, March 27,
Fiscal year ended 1994 1993 Change
- ---------------------------------------------------------------------------
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 and other $ 19.5 - $ 19.5
As a percentage of revenue 1.7% n/a
- ---------------------------------------------------------------------------
Research and development (R&D)
R&D expenses decreased from the prior fiscal year in absolute dollars
primarily due 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.
Selling, general and administrative (SG&A)
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
reflected the Company's efforts to control and reduce expenditures.
Restructuring and other
As discussed previously, the Company recorded a restructuring charge of
$19.5 million in the third quarter of fiscal year 1994.
Interest expense, interest income, and minority interest in loss of joint
venture
- ------------------------------------------------------------------
(In millions) March 26, March 27,
Fiscal year ended 1994 1993 Change
- ------------------------------------------------------------------
Interest expense $ 10.1 $ 10.1 $ -
Interest income $ 2.3 $ 2.6 $ (.3)
Minority interest in loss
of joint venture $ - $ 1.0 $ (1.0)
- ------------------------------------------------------------------
The Company's minority interest account was related to Maxoptix. During the
second quarter of fiscal year 1993, the minority interest account was
reduced to zero. Thereafter, all operating losses incurred by Maxoptix were
fully allocated to Maxtor.
Provision for income taxes
- ------------------------------------------------------------------------
(In millions) March 26, March 27,
Fiscal year ended 1994 1993 Change
- ------------------------------------------------------------------------
Provision for income taxes $ 1.9 $ 1.3 $ .6
- ------------------------------------------------------------------------
The provision for income taxes consisted primarily of foreign taxes. The
Company's effective tax rate for fiscal year 1994 differed from the combined
federal and state rate due to the Company's U.S. operating losses not
providing current tax benefits, repatriation of foreign earnings absorbed by
current year losses and valuation of temporary differences, offset in part
by the tax benefits associated with the Company's Singapore operations.
Income from the Singapore operations was not taxable in Singapore as a
result of the Company's pioneer tax status, and those earnings which were
permanently reinvested outside the United States were not taxable in the
United States. The Company's effective tax rate for fiscal year 1993 was
2.7%, which was 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.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------------------------------------
March 25,
(In millions) 1995
- -------------------------------------------------------------
Cash and cash equivalents $ 96.5
Short-term investments 12.0
Short-term borrowings 30.0
Net cash used in operating activities 80.2
Net cash provided by investing activities 29.5
Net cash provided by financing activities 2.7
- -------------------------------------------------------------
As of March 25, 1995, the Company had cash and cash equivalents of $96.5
million as compared to $144.5 million as of March 26, 1994, a decrease of
$48.0 million. The Company had short-term investments of $12.0 million as
of March 25, 1995 as compared to $74.9 million as of March 26, 1994, a
decrease of $62.9 million. The combined decrease in the Company's cash and
cash equivalents, and short-term investments of $110.9 million was primarily
the result of operating losses.
Of the net cash used in operating activities during fiscal year 1995, net
loss less non-cash depreciation and amortization accounted for approximately
$47.4 million. The increase in accounts receivable and the decrease in
current liabilities together accounted for net uses of cash of approximately
$24.0 million. The increase in accounts receivable primarily reflects a
higher concentration of sales during the last month of the quarter for the
quarter ended March 25, 1995 compared to the quarter ended March 26, 1994.
Current liabilities decreased by approximately $29.8 million primarily as a
result of the reduction of accrued special and restructuring charges
recorded by the Company in fiscal year 1994.
Net cash provided by investing activities was primarily attributable to
$62.9 million of short-term investment maturities, net of purchases, offset
by $32.6 million of capital expenditures. A significant portion of the
capital expenditure activity was related to the acquisition of manufacturing
equipment. Depending on business conditions, including the successful
introduction of new products, the Company currently expects to make capital
expenditures of approximately $60.0 million during fiscal year 1996. The
Company expects to fund these capital expenditures through bank and
equipment financing and cash flow from operations.
Net cash provided by financing activities primarily reflects proceeds from
the issuance of common stock under the Company's stock purchase plan and
stock option plans, offset in part by cash used to reduce outstanding debt.
In September 1993, the Company obtained a secured, asset-based revolving
line of credit. The original committed line of credit provided for
borrowings up to $76.0 million over a two-year term and is secured by
receivables, certain inventories and other assets. 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. On
June 17, 1994, the Company received an amendment to its line of credit for
the minimum operating profit which is measured at the end of each quarter.
With such amendment, the Company was in compliance with all financial
covenants during the quarter ended June 25, 1994. On October 11, 1994, the
Company received an unconditional waiver of defaults of minimum operating
profit, minimum net worth and leverage ratio covenants defaults that
occurred as of the fiscal quarter ended September 24, 1994. On October 31,
1994, the Company received another amendment to its line of credit with
respect to each of the financial covenants that are measured at the end of
each fiscal quarter and fiscal year end. The amendment extended the
commitment on the revolving line of credit for an additional year, thereby
providing for borrowings over a two-year term, ending September 1996. The
Company also elected to reduce its line of credit from $76.0 million to
$50.0 million. The Company was in compliance with its financial covenants
for the quarter and fiscal year ended March 25, 1995. As of March 25, 1995,
$30.0 million of borrowings and $1.3 million of letters of credit were
outstanding. The weighted average interest rate on the borrowings
outstanding was 10.75% and 7.75% at March 25, 1995 and March 26, 1994,
respectively. The $30.0 million of borrowings were fully repaid the first
week after fiscal year end. The balance available for additional borrowings
under this line of credit at March 25, 1995 was approximately $18.7 million
using the March 25, 1995 borrowing base.
As discussed earlier, the Company entered into an agreement for the sale of
the Company's interest in Maxoptix to Kubota during the third quarter of
fiscal year 1995. The transaction was completed during the fourth quarter
of fiscal year 1995. As consideration for the sale, the Company received
$1.5 million in cash and was relieved of certain liabilities. The Company
recorded a gain of approximately $10.0 million on the sale during the fourth
quarter of fiscal year 1995.
The liquidity of the Company was adversely affected during fiscal year 1995
by significant losses from operations and liquidity has been significantly
reduced compared to the same period last year. The Company is implementing
ongoing measures with the goal of improving liquidity. In addition to
attempting to improve operating margins on product sales through the
introduction of new products and reduction of manufacturing costs, the
Company remains focused on controlling other operating expenses. However,
the Company believes that it 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. If the Company is unable
to accomplish these measures, or if the results of these measures do not
meet expectations, the Company will be required to seek alternative sources
of liquidity, including additional sources of financing. The Company
recognizes that given the uncertainties of the disk drive industry and the
risks inherent in accomplishing the above measures, or if the results of
those measures do not meet expectations, it may be prudent to seek
additional sources of financing. The Company has initiated discussions with
various parties should it become necessary to seek additional sources of
financing. While the Company believes that additional sources of financing
would be available if needed, there can be no assurance that they would be
available on terms which are favorable to the Company.
Subject to unforeseen changes in general business conditions, the Company
believes that the combination of the measures described above and other
available actions, together with its balances of cash, cash equivalents, and
short-term investments, expected cash flow from operations, equipment
financing and line of credit borrowing capabilities will be sufficient to
fund the Company's working capital and capital expenditure requirements
through fiscal year 1996.
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. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements Page
Financial Statements:
Consolidated Balance Sheets -
March 25, 1995 and March 26, 1994 23
Consolidated Statements of Income (Loss) -
Fiscal years ended March 25, 1995,
March 26, 1994 and March 27, 1993 24
Consolidated Statements of Stockholders' Equity -
Fiscal years ended March 25, 1995,
March 26, 1994 and March 27, 1993 25
Consolidated Statements of Cash Flows -
Fiscal years ended March 25, 1995,
March 26, 1994 and March 27, 1993 26 - 27
Notes to Consolidated Financial Statements 27 - 36
Report of Ernst & Young LLP, Independent Auditors 37
Financial Statement Schedules:
The following consolidated financial statement schedule of Maxtor
Corporation is filed as part of this Report and should be read in
conjunction with the Consolidated Financial Statements of Maxtor
Corporation.
Schedule II Valuation and qualifying accounts S-1
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 25, March 26,
ASSETS 1995 1994
- ----------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 96,518 $ 144,520
Short-term investments 11,998 74,911
Accounts receivable, net of allowance for
doubtful accounts of $3,850 at March 25,
1995 and $3,653 at March 26, 1994 111,530 99,806
Inventories:
Raw materials 40,528 51,419
Work-in-process 28,398 19,196
Finished goods 20,754 25,408
- ----------------------------------------------------------------------
89,680 96,023
Prepaid expenses and other 8,695 7,936
- ----------------------------------------------------------------------
Total current assets 318,421 423,196
Property, plant and equipment, at cost:
Buildings 22,575 21,387
Machinery and equipment 146,020 195,820
Furniture and fixtures 12,177 18,195
Leasehold improvements 9,262 17,506
- ----------------------------------------------------------------------
190,034 252,908
Less accumulated depreciation and
amortization (133,890) (191,750)
- ----------------------------------------------------------------------
Net property, plant and equipment 56,144 61,158
Other assets 7,282 8,021
- ----------------------------------------------------------------------
$ 381,847 $ 492,375
======================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------
Current liabilities:
Short-term borrowings $ 30,000 $ 30,000
Accounts payable 136,746 137,566
Income taxes payable 6,807 7,530
Accrued payroll and payroll-related
expenses 14,802 11,720
Accrued warranty 25,058 27,281
Accrued special and restructuring 635 21,777
Accrued expenses 18,972 25,700
Long-term debt and capital lease
obligations due within one year 2,957 4,155
- ----------------------------------------------------------------------
Total current liabilities 235,977 265,729
Long-term debt and capital lease
obligations due after one year 101,967 107,393
Deferred tax liabilities - 66
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 195 195
Common stock, $0.01 par value, 180,520,000
shares authorized; issued and outstanding:
March 25, 1995 - 32,217,287 shares;
March 26, 1994 - 30,425,242 shares 322 304
Additional paid-in capital 327,357 320,564
Accumulated deficit (283,971) (201,749)
- ----------------------------------------------------------------------
43,903 119,314
Less notes receivable from stockholders - (127)
- ----------------------------------------------------------------------
Total stockholders' equity 43,903 119,187
- ----------------------------------------------------------------------
$ 381,847 $ 492,375
======================================================================
See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except per share amounts)
Fiscal year ended
- ----------------------------------------------------------------------
March 25, March 26, March 27,
1995 1994 1993
- ----------------------------------------------------------------------
Revenue $ 906,799 $ 1,152,615 $ 1,442,546
Cost of revenue 850,669 1,205,014 1,177,460
- ----------------------------------------------------------------------
Gross margin 56,130 (52,399) 265,086
- ----------------------------------------------------------------------
Operating expenses:
Research and development 60,769 97,168 112,621
Selling, general and
administrative 81,600 78,854 98,497
Restructuring and other (10,213) 19,500 -
- ----------------------------------------------------------------------
Total operating expenses 132,156 195,522 211,118
- ----------------------------------------------------------------------
Income (loss) from operations (76,026) (247,921) 53,968
Interest expense (8,379) (10,087) (10,140)
Interest income 4,216 2,283 2,557
Minority interest in loss of
joint venture - - 1,014
- ----------------------------------------------------------------------
Income (loss) before income
taxes (80,189) (255,725) 47,399
Provision for income taxes 2,033 1,864 1,287
- ----------------------------------------------------------------------
Net income (loss) $ (82,222) $ (257,589) $ 46,112
======================================================================
Net income (loss) per share $ (1.63) $ (8.00) $ 1.46
======================================================================
Shares used in computing net
income (loss) per share 50,583 32,203 31,534
======================================================================
See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
- ----------------------------------------------------------------------------
Common Addi- Retained Notes Total
stock tional earnings receiv- stock-
paid-in (accumu- able holders'
capital lated from equity
----------------- deficit) stock-
Shares Amount holders
- ----------------------------------------------------------------------------
Balance, March 28,
1992 24,012,231 $240 $146,246 $ 9,728 $(429) $155,785
Issuance of common
stock under stock
option plans and
related tax benefit 2,075,738 21 12,767 - (167) 12,621
Payments on and
forgiveness of
notes receivable
from stockholders - - - - 379 379
Issuance of common
stock under stock
purchase plan 721,308 7 3,249 - - 3,256
Adjustment to common
stock held by
Standard
Chartered Bank - - 1,505 - - 1,505
Issuance of common
stock from
exercise of stock
rights 2,000,000 20 (20) - - -
Net income - - - 46,112 - 46,112
- ----------------------------------------------------------------------------
Balance, March 27,
1993 28,809,277 288 163,747 55,840 (217) 219,658
Issuance of common
stock under stock
option plans 792,920 8 3,362 - - 3,370
Payments on and
forgiveness of
notes receivable
from stockholders - - - - 90 90
Issuance of common
stock under stock
purchase plan 823,045 8 4,307 - - 4,315
Issuance of Class A
common stock, net
of issuance costs 19,480,000 195 149,148 - - 149,343
Net loss - - - (257,589) - (257,589)
- ----------------------------------------------------------------------------
Balance, March 26,
1994 49,905,242 499 320,564 (201,749) (127) 119,187
Issuance of common
stock under stock
option plans 1,112,825 11 4,133 - - 4,144
Payments on and
forgiveness of
notes receivable
from stockholders - - - - 127 127
Issuance of common
stock under stock
purchase plan 679,220 7 2,660 - - 2,667
Net loss - - - (82,222) - (82,222)
- ----------------------------------------------------------------------------
Balance, March 25,
1995 51,697,287 $517 $327,357 $(283,971) $ - $ 43,903
============================================================================
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- ----------------------------------------------------------------------------
Fiscal year ended
- ----------------------------------------------------------------------------
March 25, March 26, March 27,
1995 1994 1993
- ----------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents
Cash flows from operating
activities:
Net income (loss) $ (82,222) $ (257,589) $ 46,112
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and amortization 34,865 85,865 62,028
Forgiveness of notes receivable
from stockholders 41 61 74
Change in non-current deferred
tax liabilities (66) (934) 1,000
Gain on sale of interest in
joint venture (10,005) - -
Loss on disposal of property,
plant and equipment 2,233 2,135 2,301
Minority interest in loss of
joint venture - - (1,023)
Other, net - - (796)
Changes in assets and
liabilities:
Accounts receivable (18,563) 49,591 (17,248)
Inventories (150) 59,320 (45,740)
Prepaid expenses and other (925) 2,739 (6,256)
Accounts payable 14,813 7,374 20,020
Income taxes payable (723) 2,866 (3,894)
Accrued payroll and payroll-
related expenses 3,573 (4,796) (1,066)
Accrued warranty (1,637) 11,192 1,657
Accrued special and
restructuring (21,142) 21,777 -
Accrued expenses (283) 3,947 12,706
- ----------------------------------------------------------------------------
Total adjustments 2,031 241,137 23,763
- ----------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (80,191) (16,452) 69,875
- ----------------------------------------------------------------------------
Cash flows from investing
activities:
Proceeds from sale of interest
in joint venture, net (1,463) - -
Proceeds from sale of subsidiary,
net of costs - - 15,842
Purchase of short-term investments - (74,911) -
Purchase of available-for-sale
investments (30,091) - -
Proceeds from maturity of
available-for-sale investments 93,004 - -
Purchase of property, plant
and equipment, net (32,612) (29,746) (91,700)
Proceeds from disposal of
property, plant and equipment 1,077 1,013 1,930
Other assets (417) (72) (1,686)
- ----------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 29,498 (103,716) (75,614)
- ----------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of debt,
including short-term borrowings 238 2,870 79,798
Principal payments on debt, includ-
ing capital lease obligations (4,444) (30,563) (30,092)
Proceeds from issuance of Class A
common stock - 149,343 -
Proceeds from issuance of common
stock, net of issuance of notes
receivable and stock repurchase 6,810 7,685 15,193
Payments on notes receivable
from stockholders 87 29 305
- ----------------------------------------------------------------------------
Net cash provided by financing
activities 2,691 129,364 65,204
- ----------------------------------------------------------------------------
Net change in cash and cash
equivalents (48,002) 9,196 59,465
Cash and cash equivalents at
beginning of period 144,520 135,324 75,859
- ----------------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 96,518 $ 144,520 $ 135,324
============================================================================
See accompanying notes.
Fiscal year ended
- ----------------------------------------------------------------------------
March 25, March 26, March 27,
(In thousands) 1995 1994 1993
- ----------------------------------------------------------------------------
Supplemental disclosures of cash
flow information:
Cash paid (received) during the
year for:
Interest $ 6,657 $ 9,985 $ 9,250
Income taxes 2,822 1,337 4,661
Income tax refunds (65) (1,824) (292)
Supplemental information on noncash
investing and financing activities:
Capital lease obligations $ 245 $ 122 $ 520
- ----------------------------------------------------------------------------
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. All
significant intercompany accounts and transactions have been eliminated.
Cash, cash equivalents and short-term investments
The Company considers all highly liquid investments, which are purchased
with a maturity of three months or less, to be cash equivalents. Other
short-term investments consists of floating rate notes, certificates of
deposit and commercial paper. The Company generally purchases investments
with a maturity from three to twelve months.
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 and 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.
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). The Company adopted the provisions of SFAS No. 109 in its
financial statements 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. Prior years were accounted for under Statement of
Financial Accounting Standards No. 96, "Accounting for Income Taxes," 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 and Class A common stock outstanding during each of fiscal years 1995
and 1994. For fiscal year 1993, 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
year 1993.
Foreign currency translation and foreign currency financial instruments
The functional currency for all foreign operations is the U.S. dollar. As
such, all material foreign exchange gains or losses are included in the
determination of net income (loss). Approximately $1,014,000, $865,000 and
$659,000 of net foreign exchange losses were included in net income (loss)
in fiscal years 1995, 1994 and 1993, respectively. To reduce the impact of
foreign currency fluctuations on the Company's monetary asset and liability
positions, the Company enters into foreign currency forward exchange
contracts. Gains and losses are deferred and offset by gains and losses on
the underlying hedged exposures. See Note 2 for further disclosure
regarding the Company's derivative financial instruments.
Concentration of credit risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of accounts receivable,
cash equivalents and short-term investments. The Company's products are
sold worldwide to original equipment manufacturers (OEMs), distributors, and
other emerging sales channels such as computer specialty retailers and
computer superstores. Concentration of credit risk with respect to the
Company's trade receivables is limited by the Company's ongoing credit
evaluation process and the geographical dispersion of sales transactions,
therefore the Company generally requires no collateral from its customers.
The allowance for uncollectible accounts receivable is based upon the
expected collectibility of all accounts receivable. The Company 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.
Fiscal year
The Company maintains a 52/53-week fiscal year cycle. Fiscal years 1995,
1994 and 1993 were each comprised of 52 weeks. Fiscal year 1996 will be
comprised of 53 weeks. The Company's fiscal year ends on the last Saturday
of March.
2. FINANCIAL INSTRUMENTS
Investments
Effective at the beginning of fiscal year 1995, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS No. 115). SFAS No. 115
requires the Company to determine the appropriate classification of its
investments in debt and equity securities at the time of purchase and to re-
evaluate such classification as of each balance sheet date. At March 27,
1994 and March 25, 1995, all investments in debt securities are classified
as available-for-sale, and as such are carried at fair value. The Company
has no investments in equity securities at March 25, 1995. Realized gains
and losses and declines in value judged to be other than temporary are
included in interest income. The cost of debt securities sold is based on
the specific identification method. As of March 25, 1995, unrealized gains
and losses on available-for-sale investments were not material. Realized
gains and losses on available-for-sale investments were not material for the
fiscal year ended March 25, 1995. Due to insignificant differences between
the cost and fair value of the Company's investments, the adoption of SFAS
No. 115 had no material effect on the Company's financial statements at
March 27, 1994. In accordance with SFAS No. 115, prior period financial
statements have not been restated.
The following is a summary of the Company's investments by major security
type at fair value as of March 25, 1995:
Gross Gross Estimated
unrealized unrealized fair
(In thousands) Cost gains losses value
- ----------------------------------------------------------------------
Money market instruments $ 78,194 $ - $ - $ 78,194
Floating rate notes 11,998 - - 11,998
- ----------------------------------------------------------------------
$ 90,192 $ - $ - $ 90,192
======================================================================
Included in cash and
cash equivalents $ 78,194 $ - $ - $ 78,194
Included in short-term
investments 11,998 - - 11,998
- ----------------------------------------------------------------------
$ 90,192 $ - $ - $ 90,192
======================================================================
Fair value disclosures
The fair values of cash and cash equivalents, and short-term investments
approximate cost due to the short period of time to maturity or due to
floating rate resets on investments. The carrying values of the note
receivable and the investment in affiliate, both of which are classified in
other assets, approximate their fair values. 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. The
fair value of the Company's convertible subordinated debentures is based on
quoted market prices. The fair value of foreign currency forward exchange
contracts used for hedging purposes is estimated based on quoted market
prices.
The carrying values and fair values of the Company's financial instruments
are as follows:
(In thousands) March 25, 1995 March 26, 1994
- ----------------------------------------------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
- ----------------------------------------------------------------------
Cash and cash equivalents $ 96,518 $ 96,518 $ 144,520 $ 144,520
Short-term investments 11,998 11,998 74,911 74,911
Note receivable 4,000 4,000 4,000 4,000
Investment in affiliate 1,010 1,010 1,095 1,095
Short and long-term debt
- fixed rate 4,445 4,359 7,405 7,350
- variable rate 30,000 30,000 33,368 33,368
Convertible subordinated
debentures 100,000 55,000 100,000 66,000
Foreign currency forward
exchange contracts - 37 - 2
- ----------------------------------------------------------------------
Derivative financial instruments
The Company enters into currency forward contracts to manage foreign
currency exchange risk associated with the Company's manufacturing
operations in Singapore. The Company's policy is to hedge all material
transaction and translation exposures on a quarterly basis. Contracts are
generally entered into at the end of each fiscal quarter to reduce foreign
currency exposures for the following fiscal quarter. Contracts generally
have maturities of three months or less. Any gains or losses on these
instruments are accounted for in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation", and are
generally included in Cost of Revenue. Deferred gains or losses
attributable to these instruments were not material as of March 25, 1995.
Notional amounts of outstanding currency forward contracts were $33,769,000
and $18,026,000, for fiscal years ended 1995 and 1994, respectively.
3. JOINT VENTURE AND INVESTMENT IN AFFILIATE
Joint venture
In March 1989, the Company and Kubota Corporation (Kubota) organized a
jointly-owned corporation, Maxoptix Corporation (Maxoptix). On December 26,
1994, the Company entered into an agreement for the sale of the Company's
interest in Maxoptix to Kubota Electronics America Corporation, a Delaware
company, whose ultimate parent is Kubota. Prior to the sale, Maxtor and
Kubota owned 67% and 33% interests in Maxoptix, respectively. The
transaction was completed on February 18, 1995. As consideration for the
sale, the Company received $1.5 million in cash and was relieved of certain
liabilities. The Company recorded a gain of approximately $10.0 million on
the sale. The results of operations of Maxoptix for fiscal years 1995, 1994
and 1993 have been immaterial to the Company's statements of income (loss),
balance sheets and statements of cash flows.
Investment in affiliate
On December 26, 1992, the Company sold the assets and liabilities of its
wholly-owned subsidiary, Storage Dimensions, Inc. (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. The terms of the note were amended in fiscal year 1994 and
again in fiscal year 1995. The latter amendment provides for a deferral of
principal payments; the final payment is due in December 1996. Interest
payments continue to be due and paid monthly at a rate of 12% per annum on
the unpaid balance. Maxtor accounts for its investment under the equity
method of accounting. If SDI had not been included in the consolidated
financial statements during fiscal year 1993, the Company's results of
operations would have been as follows:
(In millions, except percentages Fiscal year ended
and per share amounts) March 27, 1993
- ---------------------------------------------------------------------
Revenue $ 1,388.2
Gross margin 246.2
As a percentage of revenue 17.7%
Income from operations $ 50.3
Net income 43.5
Net income per share $ 1.38
- ---------------------------------------------------------------------
4. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company operates in a single industry segment: the design, manufacture
and sale of data storage products for desktop and mobile computer systems.
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.
During fiscal year 1995, no customer accounted for more than 10% of the
Company's revenue. During fiscal years 1994 and 1993, one customer
accounted for approximately 24% and 14% of the Company's revenue,
respectively.
The Company had export sales of approximately 48%, 43%, and 50% of revenue
in fiscal years 1995, 1994 and 1993, respectively. Approximately 38%, 35%
and 57% of export sales were to the Far East in fiscal years 1995, 1994 and
1993, 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 25, 1995 is presented in the following table:
(In thousands) U.S. Far East Eliminations Consolidated
Fiscal year ended
March 25, 1995
- ----------------------------------------------------------------------------------
Revenue from unaffiliated
customers $ 901,812 $ 4,987 $ - $ 906,799
Transfers between
geographic locations 35,268 874,746 (910,014) -
- ----------------------------------------------------------------------------------
Revenue 937,080 879,733 (910,014) 906,799
- ----------------------------------------------------------------------------------
Income (loss) from operations (135,848) 59,558 264 (76,026)
- ----------------------------------------------------------------------------------
Identifiable assets 338,139 293,096 (249,388) 381,847
- ----------------------------------------------------------------------------------
Fiscal year ended
March 26, 1994
- ----------------------------------------------------------------------------------
Revenue from unaffiliated
customers $ 1,150,146 $ 2,469 $ - $ 1,152,615
Transfers between
geographic locations 75,233 1,169,240 (1,244,473) -
- ----------------------------------------------------------------------------------
Revenue 1,225,379 1,171,709 (1,244,473) 1,152,615
- ----------------------------------------------------------------------------------
Income (loss) from operations (305,824) 57,903 - (247,921)
- ----------------------------------------------------------------------------------
Identifiable assets 470,787 306,574 (284,986) 492,375
- ----------------------------------------------------------------------------------
Fiscal year ended
March 27, 1993
- ----------------------------------------------------------------------------------
Revenue from unaffiliated
customers $ 1,440,737 $ 1,809 $ - $ 1,442,546
Transfers between
geographic locations 81,412 1,265,548 (1,346,960) -
- ----------------------------------------------------------------------------------
Revenue 1,522,149 1,267,357 (1,346,960) 1,442,546
- ----------------------------------------------------------------------------------
Income (loss) from operations (55,882) 109,257 593 53,968
- ----------------------------------------------------------------------------------
Identifiable assets 619,439 464,697 (505,023) 579,113
- ----------------------------------------------------------------------------------
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.
5. LINES OF CREDIT, DEBT AND CAPITAL LEASE OBLIGATIONS
Lines of credit, debt and capital lease obligations consist of the
following:
March 25, March 26,
(In thousands) 1995 1994
- ----------------------------------------------------------------------
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 (9.0% at March 25, 1995) 30,000 30,000
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 1,844 3,139
Term loans, principal 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 2,601 7,634
Capital lease obligations 479 775
- ----------------------------------------------------------------------
134,924 141,548
Less amounts due within one year 32,957 34,155
- ----------------------------------------------------------------------
Due after one year $ 101,967 $ 107,393
======================================================================
Future aggregate maturities (exclusive of capital lease obligations) are as
follows:
Fiscal year ending (In thousands)
- -------------------------------------------------------------
1996 $ 32,668
1997 1,777
1998 5,000
1999 5,000
2000 5,000
Later years 85,000
- -------------------------------------------------------------
Total $ 134,445
=============================================================
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 101.150% of the
principal amount as of March 25, 1995 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 obtained a secured, asset-based revolving
line of credit. The original committed line of credit provided for
borrowings up to $76.0 million over a two-year term and is secured by
receivables, certain inventories and other assets. 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. On
June 17, 1994, the Company received an amendment to its line of credit for
the minimum operating profit covenant which is measured at the end of each
quarter. With such amendment, the Company was in compliance with all
financial covenants during the quarter ended June 25, 1994. On October 11,
1994, the Company received an unconditional waiver of defaults of minimum
operating profit, minimum net worth and leverage ratio covenants that
occurred as of the fiscal quarter ended September 24, 1994. On October 31,
1994, the Company received another amendment to its line of credit with
respect to all of the financial covenants, all of which are measured at the
end of each fiscal quarter and fiscal year end. The amendment extended the
commitment on the revolving line of credit for an additional year, thereby
providing for borrowings over a two-year term, ending September 1996. The
Company also elected to reduce its line of credit from $76.0 million to
$50.0 million. The Company was in compliance with its financial covenants
for the quarter and fiscal year ended March 25, 1995. As of March 25, 1995,
$30.0 million of borrowings and $1.3 million of letters of credit were
outstanding. The weighted average interest rate on the borrowings
outstanding was 10.75% and 7.75% at March 25, 1995 and March 26, 1994,
respectively. The $30.0 million of borrowings were fully repaid the first
week after fiscal year end. The balance available for additional borrowings
under this line of credit at March 25, 1995 was approximately $18.7 million
using the March 25, 1995 borrowing base.
The Company leases certain equipment under long-term leases. These leases
have been accounted for as installment purchases and, accordingly,
capitalized costs of $1,845,000 and $4,317,000 have been included in
machinery and equipment at March 25, 1995 and March 26, 1994, respectively.
Accumulated amortization of the leased equipment amounted to $1,352,000 and
$3,558,000 at March 25, 1995 and March 26, 1994, respectively.
6. 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 25, 1995 are as follows:
Fiscal year ending (In thousands)
- --------------------------------------------------------------
1996 $ 12,514
1997 6,724
1998 3,700
1999 3,288
2000 2,694
Later years 13,234
- --------------------------------------------------------------
Total $ 42,154
==============================================================
The above commitments extend through fiscal year 2017. Rental expense was
approximately $16,998,000, $15,668,000 and $12,804,000 for fiscal years
1995, 1994 and 1993, 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 claims, including 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 and the claim concerning Rodime described above will not have a
material adverse effect, if any, on the Company's financial position,
results of operations or cash flows.
7. RELATED PARTY TRANSACTIONS
During fiscal year 1994, the Company entered into an agreement (the
Agreement) for the creation of a strategic relationship with Hyundai
Electronics Industries Co., Ltd. and several related members of the Hyundai
Business Group (Hyundai). 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, constituting
approximately 40% of the Company's outstanding voting stock at that date.
The Agreement specifies the conditions for conversion of the Class A common
stock into the Company's common stock. The special series of common stock
entitles Hyundai to representation on the Company's Board of Directors
proportionate to its share of ownership and certain voting rights. 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.
In January 1995, the Company announced it had signed a memorandum of
understanding for the creation of a manufacturing partnership with Hyundai
Electronics Industries Co., Ltd. (HEI). In May 1995, the Company announced
it had finalized a definitive agreement with HEI. Under the terms of the
agreement, HEI will manufacture Maxtor-designed hard disk drives for the
Company. The two companies plan to begin volume production within several
months at a Korean manufacturing site. The additional manufacturing
capacity provided by HEI is intended to supplement current production
capacity at the Company's manufacturing facility in Singapore without any
capital expenditure on Maxtor's part. The two companies plan to participate
in an ongoing exchange of technology to enable HEI to assume a leadership
role in disk drive manufacturing for Maxtor and to enable Maxtor to obtain
high-quality, low-cost manufacturing capacity.
8. STOCKHOLDERS' EQUITY
Stock options
At March 25, 1995, the Company has approximately 3,180,000 shares available
for grant under the Fiscal 1988, 1992, 1995 Stock Option Plans and the 1986
Outside Directors Stock Option Plans (the Plans). The Company's 1985 Plan
expired during fiscal year 1995. Since inception of the Plans, the Company
has reserved 15,815,000 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. Officers and directors of
the Company are eligible for stock option grants under the 1988 and the 1995
Plans but are not eligible for stock option grants under the 1992 Plan. The
1995 Plan, which was approved by the Company's stockholders on August 18,
1994, provides for the grant of incentive stock options as well as non-
qualified stock options and provides for options to be granted at a price
not less than the fair market value at the date of grant.
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 1986 Outside Directors Stock Option 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 25, 1995:
Options outstanding
----------------------------------
Share Average
(In thousands, except share available price per Aggregate
and per share amounts) for grant Shares share value
- -------------------------------------------------------------------------------
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
Shares reserved 2,015,000 - - -
Options granted (2,752,075) 2,752,075 4.51 12,400
Options exercised - (1,112,825) 3.78 (4,209)
Options canceled 1,338,162 (1,338,162) 6.49 (8,690)
Cancellation of 1985 Stock
Option Plan (227,071) - - -
- -------------------------------------------------------------------------------
Balance at March 25, 1995 3,180,512 6,152,965 $ 5.99 $ 36,833
===============================================================================
Of the options outstanding, 2,938,225 were vested as of March 25, 1995.
There were no shares outstanding subject to repurchase as of March 25, 1995,
March 26, 1994 and March 27, 1993.
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 676,645 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.
9. INCOME TAXES
The provision for income taxes consists of the following:
(In thousands) March 25, March 26, March 27,
Fiscal year ended 1995 1994 1993
- --------------------------------------------------------------------
Current:
Federal $ - $ - $ (4,018)
State - - 1,326
Foreign 2,099 2,798 2,979
- --------------------------------------------------------------------
2,099 2,798 287
Deferred:
Foreign (66) (934) 1,000
- --------------------------------------------------------------------
Total $ 2,033 $ 1,864 $ 1,287
====================================================================
The provision for income taxes differs from the amount computed by applying
the statutory rate of 35% for fiscal years 1995 and 1994 (34% for fiscal
year 1993) to income (loss) before income taxes. The principal reasons for
this difference are listed in the following table:
(In thousands) March 25, March 26, March 27,
Fiscal year ended 1995 1994 1993
- ----------------------------------------------------------------------
Tax at federal statutory rate $ (28,066) $ (89,504) $ 16,116
State income tax, net of
federal benefit - - 875
Tax savings from foreign
operations (19,732) (19,281) (16,035)
Repatriated foreign earnings
absorbed by current year losses 33,045 74,855 -
U.S. loss not providing current
tax benefit 32,663 14,627 8,064
Valuation of temporary differences (17,142) 18,995 (3,965)
Reduction of taxes provided in
prior years - - (4,018)
Other 1,265 2,172 250
- ----------------------------------------------------------------------
Total $ 2,033 $ 1,864 $ 1,287
======================================================================
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 are as follows:
(In thousands) March 25, March 26,
Fiscal year ended 1995 1994
- ----------------------------------------------------------------------
Deferred tax assets:
Inventory valuation account $ 9,276 $ 10,940
Depreciation 2,977 9,079
Sales related reserves 11,112 10,842
Net operating loss carryforwards 87,746 59,978
Tax credit carryforwards 18,543 5,963
Accrued special and restructuring - 8,938
Other 2,084 3,921
- ----------------------------------------------------------------------
Total deferred tax assets 131,738 109,661
Valuation allowance for deferred tax assets 124,760 96,847
- ----------------------------------------------------------------------
Net deferred tax assets $ 6,978 $ 12,814
======================================================================
Deferred tax liabilities:
Unremitted earnings of certain foreign
entities $ 6,978 $ 12,814
- ----------------------------------------------------------------------
Total deferred tax liabilities $ 6,978 $ 12,814
======================================================================
Approximately $12,346,000 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 $62,200,000,
$61,000,000 and $110,000,000 in fiscal years 1995, 1994 and 1993,
respectively. The Company currently enjoys a tax holiday for its operations
in Singapore that expires on June 30, 1995. This holiday can be extended
until June 30, 1997 provided the Company meets certain conditions. The
Company is confident it can meet these conditions and receive an extension
through June 30, 1997. The net impact of this tax holiday was to increase
net income by approximately $15,000,000 in each of fiscal years 1995 and
1994 and $28,000,000 in fiscal year 1993. This equates to $0.29, $0.47 and
$0.89 per share fully diluted, for fiscal years 1995, 1994 and 1993,
respectively.
At March 25, 1995, for federal income tax purposes, the Company had net
operating loss carryforwards of $251,000,000 which will expire beginning in
fiscal year 1997 and tax credit carryforwards of approximately $18,500,000
which will expire beginning in fiscal year 1999. 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 $134,000,000 of net operating loss
carryforwards and the deduction equivalent of approximately $12,900,000 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.
10. SPECIAL ITEMS AND RESTRUCTURING
In the fourth quarter of fiscal year 1995, the Company recorded a non-
recurring gain of approximately $10.0 million related to the sale of the
Company's interest in Maxoptix to Kubota (see Note 3).
During fiscal year 1994, the Company experienced significant production
delays with certain product lines as a result of both design and vendor
problems 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 consisted 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 were 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. As of March 25,
1995, all actions have been substantially completed. As of March 25, 1995,
approximately $1.5 million remained accrued for payments related to certain
non-cancelable operating leases for equipment, vendor cancellation charges
and warranty-related costs associated with certain discontinued products.
The Company expects to expend cash for these items during the first half of
fiscal year 1996.
The decisions described above reduced the scope of the Company's product and
manufacturing activities and, as a result, the Company initiated a
restructuring plan which provided 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 actions. The plan provided for a worldwide headcount reduction of
approximately 500 employees, which was substantially completed during
February 1994. The Company's research and development activities were
consolidated at its Longmont, Colorado facilities, which eliminated the need
for certain facilities in San Jose, California. In addition, the Company's
actions eliminated the need for certain manufacturing facilities in
Singapore. The charge consisted 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.
As of March 25, 1995, the Company has completed all of its restructuring
actions. As a result of these actions, worldwide headcount was reduced by
approximately 500 employees from manufacturing, research and development,
sales, marketing and administrative functions, and facilities space was
reduced by approximately 350,000 square feet. The Company's savings from
operations as a result of these actions amounted to approximately $9.0
million per quarter, beginning with the quarter ended March 26, 1994.
Certain actions were completed at a cost which was slightly higher or lower
than originally estimated. On a net basis, costs were lower than originally
estimated by approximately $0.2 million. The net adjustment of
approximately $0.2 million was recorded to Restructuring and Other during
the fourth quarter of fiscal year 1995 upon completion of the Company's
restructuring actions.
The following table presents a roll-forward reconciliation of the activity
in the restructuring accrual balance from December 25, 1993 to March 25,
1995:
Severances, Rent and
benefits and other
other head- facilities-
count-related related
(In thousands) charges charges Total
- ----------------------------------------------------------------------
December 1993 restructuring
charges $ 11,769 $ 7,731 $ 19,500
Cash expenditures (8,891) (1,744) (10,635)
- ----------------------------------------------------------------------
Balance at March 26, 1994 2,878 5,987 8,865
- ----------------------------------------------------------------------
Cash expenditures (2,474) (5,682) (8,156)
Adjustments (404) 197 (207)
- ----------------------------------------------------------------------
Balance at March 25, 1995 $ - $ 502 $ 502
======================================================================
At March 25, 1995, the Company had $502,000 of accrued restructuring charges
remaining related to recurring payments under certain non-cancelable
operating leases. The Company expects to expend cash for these items during
fiscal year 1996.
Fiscal year 1993 consolidated income from operations includes non-recurring
revenue of approximately $10.0 million 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.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheets of Maxtor
Corporation as of March 25, 1995 and March 26, 1994, 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 25, 1995.
Our audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule 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 25, 1995 and March 26, 1994, and the
consolidated results of its operations and its cash flows for each of the
three fiscal years in the period ended March 25, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
San Jose, California
April 19, 1995
ERNST & YOUNG LLP
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 Item 10 of Form 10-K with respect to
identification of directors is incorporated by reference to the information
contained in the section captioned "Election of Directors" in the Proxy
Statement. For information with respect to the executive officers of the
Company, see "Executive Officers" at the end of Item 1, Part I of this
report.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
to the information contained in the section captioned "Executive
Compensation and Other Matters" in the Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
to the information contained in the section captioned "Stock Ownership of
Management and Certain Beneficial Owners" in the Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
to the information contained in the section captioned "Certain Relationships
and Related Transactions" in the Proxy Statement.
PART IV
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 22 of this report.
(2) Exhibits
See Index to Exhibits on pages 48 to 57 hereof.
(b) Reports on Form 8-K
None.
UNDERTAKING
Undertaking to Comply with Rules Governing Form S-8
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, as
amended, the undersigned registrant hereby undertakes as follows, which
undertaking shall be incorporated by reference into the Company's
Registration Statements on Form S-8 Nos. 33-2206, 33-18323, 33-18324, 33-
21514, 33-21518, 33-28427 and 33-32190.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933
and will be governed by the final adjudication of such issue.
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, 1995.
MAXTOR CORPORATION
(Registrant)
By /s/ Dr. Chong Sup Park
---------------------------
Dr. Chong Sup Park
President, Chief Executive
Officer, Director
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/ Dr. Chong Sup Park President, Chief Executive June 22, 1995
- --------------------------- Officer, Director -------------
Dr. Chong Sup Park
/s/ Nathan Kawaye Vice President, Finance, June 22, 1995
- --------------------------- Corporate Controller, -------------
Nathan Kawaye Chief Accounting Officer
/s/ Mong Hun Chung Chairman of the Board June 22, 1995
- --------------------------- -------------
Mong Hun Chung
/s/ Dr. Richard D. Balanson Director June 22, 1995
- --------------------------- -------------
Dr. Richard D. Balanson
/s/ In Baik Jeon Director June 22, 1995
- --------------------------- -------------
In Baik Jeon
/s/ Gregory M. Gallo Director June 22, 1995
- --------------------------- -------------
Gregory M. Gallo
/s/ Director June , 1995
- --------------------------- -------------
Charles Hill
/s/ Ryal Poppa Director June 22, 1995
- --------------------------- -------------
Ryal Poppa
MAXTOR CORPORATION
SCHEDULE II
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 27, 1993 $ 4,900 $ 2,708 $ 3,418 $ 4,190
March 26, 1994 $ 4,190 $ 253 $ 790 $ 3,653
March 25, 1995 $ 3,653 $ 1,092 $ 895 $ 3,850
(1) Uncollectible accounts written off, net of recoveries.
S-1
INDEX TO EXHIBITS
Exhbit 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, 1994
4.1 (3) Form of Certificate of Shares of Registrant's
Common Stock
4.2 (7) Maxtor Corporation Rights Plan
4.3 (22) Amendment to Rights Agreement between 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, 1986
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, 1988
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, 1990
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, 1991
10.58 (14) Employment Agreement between James M. McCoy and
Registrant, dated January 17, 1991
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, 1991
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, 1991
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 of 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, 1991
10.73 (15) Deed of Partial Discharge and Release between
Barclays Bank PLC and Maxtor Singapore Limited,
dated December 19, 1991
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, 1991
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, 1992
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,
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
amoung 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, 1993
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, 1993
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 (22) Confidential Resignation Agreement and General
Release of Claims between Registrant and Thomas
F. Burniece III, dated February 4, 1994
10.115 (22) License Agreement between Registrant and MiniStor
Peripherals Corporation, dated February 23, 1994
10.116 (22) Confidential Resignation Agreement and General
Release of Claims between Registrant and John P.
Livingston, dated April 8, 1994
10.117 (22) Tenancy Agreement between Barinet Company
Limited and Maxtor (Hong Kong) Limited, dated
April 26, 1994
10.118 (23) Confidential Resignation Agreement and General
Release of Claims between Registrant and Laurence
R. Hootnick, dated June 14, 1994
10.119 (23) Confidential Resignation Agreement and General
Release of Claims between Registrant and Mark
Chandler, dated June 28, 1994
10.120 (24) Amendment No.2 to Lease between John Arrillaga &
Richard T. Peery and Registrant, dated June 28, 1994
10.121 (24) Amendment No. 3 to Lease between Devcon Associates
31 and Registrant, dated June 28, 1994
10.122 (24) Confidential Resignation Agreement and General
Release of Claims between Registrant and Skip
Kilsdonk, dated September 7, 1994
10.123 (24) Confidential Resignation Agreement and General
Release of Claims between Registrant and Sallee
Peterson, dated September 23, 1994
10.124 (24) Waiver to Financing Agreement among Registrant
and The CIT Group/Business Credit, Inc., dated
October 11, 1994
10.125 (24) Amendment No. 1 to Financing Agreement between
Registrant and The CIT Group/Business Credit,
Inc., dated October 31, 1994
10.126 (27) License agreement between Registrant and NEC
Corporation, dated October 18, 1994
10.127 (27) Lease Agreement for Premises Located at 1821
Lefthand Circle, Suite D, between Registrant and
Pratt Land Limited Liability Company, dated
October 19, 1994
10.128 (27) Lease Agreement for Premises Located at 1841
Lefthand Circle between Registrant and Pratt Land
Limited Liability Company, dated October 19, 1994
10.129 (27) Lease Agreement for Premises Located at 1851
Lefthand Circle between Registrant and Pratt Land
Limited Liability Company, dated October 19, 1994
10.130 (27) Lease Agreement for Premises Located at 2121 Miller
Drive between Registrant and Pratt Land Limited
Liability Company, dated October 19, 1994
10.131 (27) Lease Agreement for Premises Located at 2190 Miller
Drive between Registrant and Pratt Land Limited
Liability Company, dated October 19, 1994
10.132 (27) Confidential Resignation Agreement and General
Release of Claims between Registrant and Patricia
M. Roboostoff, dated November 30, 1994
10.133 (27) Stock Purchase Agreement between Registrant,
Maxoptix Corporation and Kubota Electronics
America Corporation, dated December 26, 1994
10.134 Confidential Resignation Agreement and General 58 - 63
Release of Claims between Registrant and Larry
J. Smart, dated Feburuary 7, 1995
10.135 Lease Agreement by and between 345 Partnership 64 - 100
and Registrant, dated February 24, 1995
10.136 Lease Agreement for Premises Located at 1900 101 - 121
Pike Road, Suite A, Longmont, CO, between
Registrant as Tenant and Pratt Land Limited
Liability Company as Landlord, dated
February 24, 1995
10.137 Lease Agreement for Premises Located at 2040 122 - 142
Miller Drive, Suite A, B, & C between Registrant
as Tenant and Pratt Land Limited Liability
Company as Landlord, dated February 24, 1995
10.138 Manufacturing and Purchase Agreement by and 143 - 168
Between Registrant and Hyundai Electronics
Industries Co., Ltd., dated April 27, 1995
(with certain information deleted and
indicated by blank spaces)
10.139 Lease Agreement for Premises Located at 2040 169 - 192
Miller Drive, Suites D, E, & F, Longmont, CO,
between Registrant as Tenant and Pratt Management
Company, LLC as Landlord
11.1 Computation of Net Loss Per Share 193
20.1 (25) Maxtor Corporation 1995 Stock Option Plan
20.2 (26) Maxtor Corporation Individual Stock Option
Agreement, dated November 8, 1994
21.1 Subsidiaries of Maxtor Corporation, incorporated 194
in Delaware ("Maxtor")
23.1 Consent of Ernst & Young LLP, Independent Auditors 195
27 Financial Data Schedule 196
- ---------------------------------------------------------------------------
(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 of Form 8-K filed 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
(22) Incorporated by reference to exhibits of Form 10-K filed June 24, 1994
(23) Incorporated by reference to exhibits of Form 10-Q filed August 5, 1994
(24) Incorporated by reference to exhibits of Form 10-Q filed November 8, 1994
(25) Incorporated by reference to exhibits to Registration Statement No. 33-
56405 effective November 10, 1994
(26) Incorporated by reference to exhibits to Registration Statement No. 33-
56407 effective November 10, 1994
(27) Incorporated by reference to exhibits of Form 10-Q filed February 7, 1995