Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 2, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-12390
QUANTUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2665054
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 McCarthy Blvd.
Milpitas, California 95035
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 894-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of January 31, 1994: 43,457,419.
QUANTUM CORPORATION
10-Q REPORT
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Statements of Operations 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION 10
SIGNATURE 11
QUANTUM CORPORATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(unaudited)
Three Months Ended Nine Months Ended
Jan. 2 Dec. 27 Jan. 2 Dec. 27
1994 1992 1994 1992
Sales $523,021 $459,315 $1,496,088 $1,190,670
Cost of sales 466,199 369,626 1,370,239 960,273
Gross profit 56,822 89,689 125,849 230,397
Operating expenses:
Research and development 19,632 14,976 61,205 45,208
Sales and marketing 17,453 20,406 53,775 55,180
General and administrative 9,576 9,356 32,376 22,938
Restructuring and
non-recurring charges 0 0 22,753 0
46,661 44,738 170,109 123,326
Income (loss) from operations 10,161 44,951 (44,260) 107,071
Other (income) expense:
Interest expense 3,385 3,576 10,426 10,941
Interest and other income (1,634) (2,825) (5,607) (9,406)
1,751 751 4,819 1,535
Income (loss) before income
taxes 8,410 44,200 (49,079) 105,536
Income tax provision (benefit) 2,271 16,189 (13,251) 37,993
Net income (loss) $ 6,139 $ 28,011 $(35,828) $ 67,543
Net income (loss) per share:
Primary $0.14 $0.62 $(0.83) $1.47
Fully diluted $0.14 $0.52 $(0.83) $1.28
Weighted average common and
common equivalent shares:
Primary 44,357 45,386 43,151 45,797
Fully diluted 44,357 57,343 43,151 57,588
See accompanying notes to consolidated financial statements.
QUANTUM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)
Jan. 2, Mar. 31,
1994 1993
Assets
Current assets:
Cash and cash equivalents $150,097 $121,838
Marketable securities 107,351 167,114
Accounts receivable, net of allowance for
doubtful accounts of $8,768 and $8,118 294,010 266,994
Inventories 186,879 223,162
Deferred taxes 37,630 37,479
Other current assets 18,985 13,094
Total current assets 794,952 829,681
Property and equipment, net of accumulated
depreciation of $66,516 and $57,442 81,300 74,698
Investments 3,220
Other assets 11,802 19,034
$888,054 $926,633
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $216,756 $215,445
Accrued warranty expense 58,932 42,410
Accrued compensation 12,333 17,189
Income taxes payable 19,026
Other accrued liabilities 33,783 21,825
Total current liabilities 321,804 315,895
Subordinated debentures and other 220,688 212,500
Shareholders' equity:
Common stock 97,171 100,049
Retained earnings 248,391 298,189
Total shareholders' equity 345,562 398,238
$888,054 $926,633
See accompanying notes to consolidated financial statements.
QUANTUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Third Quarter
Nine Months Ended
Jan. 2, Dec. 27,
1994 1992
Cash flows from operating activities:
Net income (loss) $(35,828) $ 67,543
Items not requiring the current use of cash:
Depreciation and amortization 22,088 18,983
Write off of goodwill 6,338
Changes in assets and liabilities:
Accounts receivable (27,016) (81,311)
Inventories 36,283 (70,234)
Accounts payable 1,311 51,565
Income taxes payable (19,026) (5,917)
Accrued warranty expense 16,522 12,873
Other assets and liabilities 3,218 11,922
Net cash provided by operating activities 3,890 5,424
Cash flows from investing activities:
Purchase of marketable securities (105,905) (292,640)
Proceeds from sale of marketable securities 165,668 213,082
Investment in property and equipment (26,734) (21,909)
Net cash provided by (used in) investing activities 33,029 (101,467)
Cash flows from financing activities:
Repurchase of common stock (17,479) (19,868)
Proceeds from issuance of common stock 8,819 6,768
Net proceeds from issuance of convertible
subordinated debentures 206,840
Net cash provided by (used in) financing activities (8,660) 193,740
Net increase in cash and cash equivalents 28,259 97,697
Cash and cash equivalents at beginning of period 121,838 74,486
Cash and cash equivalents at end of period $150,097 $172,183
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 13,671 $ 7,899
Income taxes $ 11,406 $ 41,009
See accompanying notes to consolidated financial statements.
QUANTUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of presentation
The accompanying unaudited consolidated financial statements reflect all
adjustments, consisting only of normal recurring adjustments which, in the
opinion of management, are necessary for a fair presentation of the results for
the periods shown. The results of operations for such periods are not
necessarily indicative of the results expected for the full fiscal year. The
accompanying financial statements should be read in conjunction with the
audited financial statements of Quantum Corporation for the fiscal year ended
March 31, 1993.
2. Inventories
Inventories consisted of the following:
(In thousands)
Jan. 2, Mar. 31,
1994 1993
Materials and purchased parts $ 27,149 $ 25,994
Work in process 13,318 14,517
Finished goods 146,412 182,651
$186,879 $223,162
3. Net income (loss) per share
Net income (loss) per share is computed using the weighted average number
of common and dilutive common equivalent shares outstanding. Net income (loss)
per share computed on a fully diluted basis assumes conversion of the Company's
outstanding 6 3/8% convertible subordinated debentures having a principal value
of $212,500,000. For the three and nine months ended January 2, 1994 the
primary net income (loss) per share is shown in the statements of operations as
both primary and fully diluted, as the convertible subordinated debentures are
anti-dilutive.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Consolidated sales for the three and nine months ended January 2, 1994
were $523 million and $1,496 million, respectively, compared to $459 million
and $1,191 million for the corresponding periods in fiscal 1993. Unit
shipments for the quarter ended January 2, 1994 were relatively flat from the
second quarter, with the increase in revenue for the period due to the change
in product mix and transition to new products. The increase in consolidated
sales on a year-to-year basis was attributable to increased unit shipments
which were offset by a decline in average unit sales prices. Unit shipments
for the nine months ended January 2, 1994 increased 64% compared to the
corresponding period in fiscal 1993. Despite the increase in unit shipments,
sales for the first nine months of fiscal 1994 increased only 26% over the
corresponding period of fiscal 1993 due to a significant decline in average
unit sales prices.
Sales to Apple Computer, Inc. for the third quarters of fiscal years 1994
and 1993 were 17% of consolidated sales. Sales to Apple Computer, Inc. and
Compaq Computer, Inc. represented 24% and 10%, respectively, of consolidated
sales for the nine months ended January 2, 1994. Sales to Apple Computer, Inc.
represented 18% of total consolidated sales, while sales to Compaq Computer,
Inc. represented less than 10% of consolidated sales for the corresponding nine
months of the prior fiscal year. The Company has no long-term supply
commitments with these customers. Any significant decrease in sales to these
customers, or the loss of one or both of these customers, could have a material
adverse effect on the Company's results of operations.
Gross margin for the quarter ended January 2, 1994 declined to 10.9% as
compared to 19.5% for the third quarter of fiscal 1993. The Company's gross
margin for the first nine months of fiscal 1994 was 8.4%, compared to 19.4% for
the corresponding period in fiscal 1993. This year-to-year decline was due to
intense pricing pressures in both the distribution and OEM channels resulting
primarily from an industry wide oversupply of disk drives. During the third
quarter Quantum began the key customer qualification and transition processes
from older technology products to the Company's more cost effective products.
These more cost effective products accounted for more than 25% of the Company's
units and revenue in the third quarter. These product transitions along with
stabilizing industry prices resulted in the increase in gross margin from 2.1%
in the second quarter to 10.9% in the third quarter of fiscal 1994. The
product transitions will continue through the March quarter. However, the
Company does not expect improvement of the gross margin to continue at the rate
experienced this quarter.
Over the past ten years, Quantum has established a strong business
relationship with Matsushita-Kotobuki Electronics Industries, Ltd. (MKE) of
Japan. This relationship has been built on Quantum's engineering and design
expertise and MKE's high-volume, high-quality manufacturing expertise. The
Company's master agreement with MKE, which covers the general terms of the
business relationship, was renegotiated during fiscal 1993 and was extended for
a period of five years. During the first nine months of fiscal 1994
approximately 90% of Quantum's sales were derived from products manufactured by
MKE. In the event MKE is unable to supply such products or increases its
prices for manufacturing services, the Company's results of operations would be
adversely affected. The Company's transactions with MKE are denominated in
U.S. dollars with prices for product purchases negotiated periodically, usually
on an annual basis. Thus, fluctuations in the exchange rate have no material
short-term impact on Quantum's results of operations. However, such
fluctuations may impact future negotiated prices.
Quantum operates in an extremely competitive industry and its rapid
growth has been the result of the Company's ability to identify customer needs
and develop quality products to meet those requirements. The Company expects
that sales from new products will account for a majority of sales in the fourth
quarter of fiscal 1994 and will replace sales of some current products. The
Company's ability to produce new products economically and manage the
transition of customers to these new products is essential for continued
success. The hard disk drive industry is characterized by increasingly shorter
product life cycles and is dependent on the strength of unit demand in the
personal computer market. As a result, the industry tends to experience
periods of excess product inventory and intense price competition. These and
other factors may affect the Company's results of operations, and past
financial performance should not be considered a reliable indicator of future
performance. Investors should not use historical trends to anticipate results
or trends in future periods.
Operating Expenses
Research and development expenses in the third quarter of fiscal 1994
were $19.6 million, compared to $15.0 million in the corresponding period in
fiscal 1993, with each quarter's expenses being 3.8% and 3.3% of sales,
respectively. Research and development expenses in the nine months ended
January 2, 1994 were $61.2 million, or 4.1% of sales, compared to $45.2
million, or 3.8% of sales in the corresponding period in fiscal 1993. The
increases are due to increased headcount and higher expenses related to
preproduction activity for a larger number of new products. Quantum intends to
continue its investment in research and development. The hard disk drive
industry is subject to rapid technological advances and the future success of
the Company is dependent upon continued successful and timely introductions of
new products and technologies.
Sales and marketing expenses for the three months ended January 2, 1994
were $17.5 million, or 3.3% of sales, compared to the corresponding period of
fiscal 1993 with expenses of $20.4 million, or 4.4% of sales. Sales and
marketing expenses in the nine months ended January 2, 1994 were $53.8 million,
or 3.6% of sales, compared to $55.2 million, or 4.6% of sales in the
corresponding period in fiscal 1993. The decreases in absolute dollars
resulted from lower co-op marketing expenses due to the significant decline in
sales to the distribution channel and lower associated distribution channel
development fund expenses. These decreases were partially offset by costs
associated with supporting the higher sales volume and expanding the Company's
international infrastructure.
General and administrative expenses for the third quarter of fiscal 1994
were $9.6 million, or 1.8% of sales, a slight dollar increase when compared to
expenses of $9.4 million, or 2.0% of sales in the corresponding period of
fiscal 1993. General and administrative expenses in the nine months ended
January 2, 1994 were $32.4 million, or 2.2% of sales, compared to $22.9
million, or 2.0% of sales in the corresponding period in fiscal 1993. The
increases in general and administrative expenses reflect the increased
investment made in the first two quarters of fiscal 1994 necessary to support
the Company's international growth, including the establishment of European
and Asia-Pacific headquarters operations in Switzerland and Singapore,
respectively.
Included in the Company's year-to-date results are restructuring and
non-recurring charges of $22.8 million. The charges were primarily associated
with the write-off of goodwill associated with its former subsidiary, Plus
Development, the Company's reduction in force, accelerated product
transitions, and the consolidation of sales offices and other facilities. In
addition, Quantum is in the process of consolidating repair facilities from
three facilities worldwide into a single location in Malaysia, the costs of
which are included in the second quarter restructuring charges.
Net interest and other expense for the third quarter was $1.8 million
and $.8 million for the fiscal years 1994 and 1993, respectively. Interest
and other expense in the nine months ended January 2, 1994 were $4.8 million,
compared to $1.5 million in the corresponding period in fiscal 1993. These
increases are due mainly to the lower interest income resulting from lower
cash balances and lower interest rates.
Income Taxes
The effective tax benefit rate for the nine months ended January 2, 1994
was 27%, compared to an effective tax rate of 36% for the corresponding period
in fiscal 1993. The reduction in the rate of benefit was attributable to
certain restructuring and non-recurring charges which are not deductible for
income tax purposes.
Liquidity and Capital Resources
At January 2, 1994, the Company had $257 million in cash and cash
equivalents and short-term marketable securities, a decrease from the $289
million at March 31, 1993. The Company was able to significantly reduce its
finished goods inventory level from March 31, 1993. Cash generated from the
reduction in inventory was primarily used to fund operations. In addition,
since July 1, 1993, the Company has repurchased 1.5 million shares of its
common stock in the open market for approximately $17.5 million.
The Company has an authorization outstanding from the Board of Directors
to repurchase an additional 1.5 million shares of its common stock in the open
market. The Company believes that its current cash position is sufficient to
meet all currently planned expenditures and sustain operations during the next
twelve months.
QUANTUM CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal proceedings
The litigation between Quantum and Rodime PLC of Glasgow, Scotland
disclosed in the Company's Annual Report on Form 10-K for the year
ended March 31, 1993 has progressed from the discovery stage to
the discovery and motion stage. Discovery completion is set for
the Summer of 1994 with the trial scheduled during or after the
Autumn of 1994.
Item 2. Changes in securities - Not Applicable.
Item 3. Defaults upon senior securities - Not Applicable.
Item 4. Submission of matters to a vote of security holders - Not Applicable.
Item 5. Other information - Not Applicable.
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits The exhibits listed on the accompanying index to
exhibits immediately following the signature page
are filed as part of this report.
(b) Reports on Form 8-K. None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
QUANTUM CORPORATION
(Registrant)
Date: By:
Joseph T. Rodgers
Executive Vice President, Finance
and Chief Financial Officer
QUANTUM CORPORATION
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Page
11.1 Statement of Computation of Net Income Per Share 13
Page 13
EXHIBIT 11.1
QUANTUM CORPORATION
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(In thousands except share and per share data)
Three Months Ended Nine Months Ended
Jan. 2 Dec. 27 Jan. 2 Dec. 27
1994 1992 1994 1992
PRIMARY
Weighted average number of
shares during the period 42,754,076 42,678,589 43,150,701 43,071,000
Incremental common shares
attributable to exercise
of outstanding options 1,602,566 2,707,451 0 2,725,712
Total shares 44,356,642 45,386,040 43,150,701 45,796,712
Net income (loss) $6,139 $28,011 $(35,828) $67,543
Net income (loss) per share $ .14 $ 0.62 $ (0.83) $ 1.47
FULLY DILUTED
Weighted average number of
common shares during the
period 42,754,076 42,678,589 43,150,701 43,071,000
Incremental common shares
attributable to exercise
of outstanding options and
conversion of 6 3/8%
convertible subordinated
debentures 13,823,488 14,664,686 13,190,505 14,516,783
Total shares 56,577,564 57,343,275 56,341,206 57,587,783
Net income (loss):
Net income (loss) $ 6,139 $28,011 $(35,828) $67,543
Add 6 3/8% convertible
subordinated debentures
interest, net of income
tax effect 2,229 2,060 6,785 5,999
Net income (loss),
as adjusted $ 8,368 $30,071 $(29,043) $73,542
Net income (loss)
per share $ 0.15* $ 0.52 $ (0.52)* $ 1.28
* The primary net income per share is shown in the statements of operations as
both primary and fully diluted, as the effect is anti-dilutive.
