SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K / A-2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
October 3, 1994
QUANTUM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-12390 94-2665054
(Commission File No.) (IRS Employer Identification No.)
500 McCarthy Boulevard
Milpitas, CA 95035
(Address of principal executive offices and zip code)
Registrant's telephone number,
including area code: (408) 894-4000
<PAGE>
The undersigned registrant hereby amends the following items,
financial statements, exhibits or other portions of its Current
Report on Form 8-K dated October 3, 1994 which was filed
on October 17, 1994 and amended on January 30, 1995 as set forth
below.
ITEM 7. Financial Statements and Exhibits
Amended to correct previously filed pro forma financial information.
(a) Audited Statements of Assets Sold and Liabilities
Assumed of the Disks, Heads and Tapes Business of the
Storage Business Unit of Digital Equipment Corporation,
as of July 2, 1994 and July 3, 1993 and Statements of
Operations for fiscal years ended July 2, 1994, July 3, 1993,
and June 27, 1992.
Unaudited Statement of Assets Sold and Liabilities
Assumed of the Disks, Heads and Tapes Business of the
Storage Business Unit of Digital Equipment Corporation,
as of October 1, 1994 and Unaudited Statements of
Operations for the three months ended October 1, 1994
and October 2, 1993.
(b) Unaudited Pro Forma Condensed Consolidated Balance Sheet of
Registrant as of October 2, 1994 and Unaudited Pro Forma Condensed
Consolidated Statement of Operations of Registrant for the
year ended March 31, 1994 and for the period from April 1, 1994
to October 2, 1994.
(c) Exhibits (previously filed, not re-filed)
<PAGE>
SIGNATURES
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
Dated: March 28, 1995
By: /s/ JOSEPH T. RODGERS
Executive VP Finance,
Chief Financial Officer
and Secretary
<PAGE>
The Disks, Heads and Tapes Business
of the Storage Business Unit
of Digital Equipment Corporation
*****
Statements of Assets Sold and Liabilities Assumed as of
July 2, 1994 and July 3, 1993 and
Statements of Operations for Fiscal Years Ended
July 2, 1994, July 3, 1993 and June 27, 1992
<PAGE>
Page 1
THE "DISKS, HEADS AND TAPES BUSINESS"
OF THE STORAGE BUSINESS UNIT OF
DIGITAL EQUIPMENT CORPORATION
STATEMENTS OF ASSETS SOLD AND LIABILITIES ASSUMED
(Dollars in Thousands)
July 2, 1994 July 3, 1993
------------ ------------
ASSETS SOLD
Inventory (Note 3) $141,215 $111,783
Net Property, Plant and Equipment 123,336 121,855
(Note 5)
Investments in and Advances to Joint
Venture and Subsidiary 16,573 7,816
(Note 10)
Advance to Affiliate 5,296 -
-------- --------
Total $286,420 $241,454
======== ========
LIABILITIES ASSUMED
Other Assets and Liabilities (Note 4) (237) -
-------- --------
Total ($237) -
======= ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
Page 2
THE "DISKS, HEADS AND TAPES BUSINESS"
OF THE STORAGE BUSINESS UNIT OF
DIGITAL EQUIPMENT CORPORATION
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
-------------- Year Ended ---------------
July 2,1994 July 3,1993 June 27,1992
Revenue
External $334,887 $ 169,500 $ 62,700
Affiliates 419,253 979,500 948,700
--------- ---------- ---------
Total Revenue 754,140 1,149,000 1,011,400
--------- ---------- ---------
Costs and Expenses
Cost of External Sales 330,825 192,187 79,306
Cost of Affiliated Sales 368,682 509,504 575,542
Research & Development 90,494 111,798 120,700
Selling, General &
Administrative 46,798 342,437 535,211
Restructuring Costs (Note 9) - - 85,360
-------- --------- -------
Net Operating Loss (82,659) (6,926) (384,719)
Interest Expense (Note 7) 1,835 1,078 743
-------- ---------- -------
Loss before cumulative effect
of change in accounting
principle (84,494) (8,004) (385,462)
Cumulative effect of change
in accounting principle net
of tax (Note 6) - - 16,749
----------- --------- --------
Net Loss ($84,494) ($8,004) ($402,211)
========== ========= ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
Page 3
THE "DISKS, HEADS AND TAPES BUSINESS"
OF THE STORAGE BUSINESS UNIT OF
DIGITAL EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Background and Basis of Presentation
Pursuant to a Stock and Asset Purchase Agreement (the "Agreement") dated
July 18,1994, between Digital Equipment Corporation ("Digital") and
Quantum Corporation ("Quantum"), Digital agreed to sell to Quantum
effective October 3, 1994, tangible assets consisting principally of
inventory, property, plant and equipment, plus certain contract rights
and intellectual property (carried at zero value) of the Disks, Heads
and Tapes Business (the "Business") of the Storage Business Unit of
Digital in exchange for consideration totaling $360,000. Included in
the sale is Digital's interest in Digital Equipment Storage Products
(Malaysia) Sdn. Bhd. and its 81% interest in Rocky Mountain Magnetics,
Inc. (see Note 10). Digital and Quantum are also entering into certain
related service, leasing and supply agreements. The Business is
involved in the design, manufacture and marketing of computer disk
drive, tape drive, tape media, solid state memory device and magnetic
recording head products and optical storage devices and related
technology other than CD-ROM.
The Statements of Assets Sold and Liabilities Assumed and the Statements
of Operations ("the financial statements") are derived from the
historical books and records of the Storage Business Unit of Digital and
present assets sold and liabilities assumed and the results of
operations of the Business. Certain costs and expenses presented in
these financial statements have been allocated based on management's
estimates of the cost of services provided to the Business by Digital.
Management believes that these allocations are based on assumptions that
are reasonable under the circumstances. The historical operating
results may not be indicative of the results after the acquisition by
Quantum.
The Statements of Operations have different affiliated revenue
recognition and pricing policies and selling, general and administrative
("SG&A") expense allocation methodologies in fiscal year 1994 as
compared to fiscal years 1993 and 1992. Management believes these
different policies reflect the transition from a proprietary business
model in the earlier fiscal years presented to that of a stand-alone
component manufacturer in the most recent fiscal year. As a result, the
financial statements presented may not be indicative of the results of
operations that would have been achieved had the Business been operated
as a non-affiliated entity.
<PAGE>
Page 4
NOTES TO FINANCIAL STATEMENTS, Continued
(Dollars in Thousands)
1. Background and Basis of Presentation, continued
Fiscal Year 1994
Revenue from affiliates was recognized at the point of transfer to
affiliates at an amount determined by management to approximate an
external sales price for component parts. SG&A included allocated sales
and marketing costs that were directly related to external sales; no
allocation was made for sales and marketing costs for downstream revenue
recognized by affiliates.
Fiscal Years 1993 and 1992
Revenue from affiliates was recognized based on an allocation of the
complete system revenue recognized by Digital upon shipment to its
customers. In fiscal year 1993, SG&A expense included an allocation of
total Digital sales and marketing costs based on amounts negotiated
between the Storage Business Unit and Digital and in fiscal year 1992, a
percentage of Digital total sales and marketing costs were allocated to
the Business.
The following policies were followed in each year presented on the
Statements of Operations:
Revenue
External revenue was recognized at the time products were shipped.
Cost of Sales
Cost of Sales includes an allocation of corporate manufacturing costs.
Research and Development
Research and development expense includes an allocation of corporate
research and development expense.
SG&A
Different allocation methods apply to the various components of SG&A
expense. These allocation methods were primarily derived from
negotiated amounts between business units, relative revenue and relative
cost. The components of SG&A expense include the costs of selling,
marketing, administrative and corporate functions.
<PAGE>
Page 5
NOTES TO FINANCIAL STATEMENTS, Continued
(Dollars in Thousands)
1. Background and Basis of Presentation, continued
The amounts allocated to the Business in each of the fiscal years
presented for cost of sales, research and development and SG&A are as
follows:
1994 1993 1992
Cost of Sales $86,381 $229,891 $212,447
Research and Development 15,494 15,098 80,300
S G & A 20,098 329,537 483,411
Management believes these allocations reflect the change in the business
model as described above over the course of the three fiscal years
presented.
2. Summary of Significant Accounting Policies
Fiscal Year
The fiscal year of Digital is the fifty-two/fifty-three week period
ending the Saturday nearest the last day of June. The fiscal years
ended July 2, 1994 and June 27, 1992 included 52 weeks. The fiscal year
ended July 3, 1993 included 53 weeks.
Translation of Foreign Currencies
For non-U.S. operations, the U.S. dollar is the functional
currency. Monetary assets and liabilities are translated into U.S.
dollars at current exchange rates. Nonmonetary assets such as
inventories and property, plant and equipment are translated at
historical rates.
Income and expense items are translated at average exchange rates
prevailing during the year, except that inventories and depreciation
charged to operations are translated at historical rates. Exchange
gains and losses arising from translation are included in current
income.
Digital enters into foreign exchange option and forward contracts to
hedge the impact of exchange rate movements on operations and the asset
and liability positions of non-U.S. subsidiaries. The impact of
exchange rate movements on contracts used to hedge transactions is
included in income when the operating revenues and expenses are
recognized and, for contracts used to hedge assets and liabilities, in
the period in which the exchange rates change.
<PAGE>
Page 6
NOTES TO FINANCIAL STATEMENTS, Continued
(Dollars in Thousands)
2. Summary of Significant Accounting Policies, continued
Inventories
Inventories are stated at the lower of cost (first-in, first-out)
or market.
Advance to Affiliate
Advance to affiliate represents the net intercompany balance with
Digital's Indonesian affiliate that is being transferred to Quantum.
Research and Development Costs
Research and development costs are charged to expense when
incurred.
Property Plant and Equipment
Property, plant and equipment is recorded at cost. Expenditures
for maintenance and repairs are charged to expense while the costs of
significant improvements are capitalized.
Upon retirement or sale, the cost of assets disposed and the
related accumulated depreciation are eliminated and related gains or
losses are reflected in income. Depreciation expense is computed
principally on the following bases:
Classification Depreciation Lives and Methods
Buildings ............ 33 1/3 Years (straight line)
Leasehold Life of assets or term of lease,
Improvements ......... whichever is shorter (straight line)
Production and
Other Equipment ...... 3 to 10 years (accelerated methods)
Product Warranty Costs
Estimated warranty costs are provided for at the point of sale.
<PAGE>
Page 7
NOTES TO FINANCIAL STATEMENTS, Continued
(Dollars in Thousands)
3. Inventories
Inventories are comprised of:
July 2, 1994 July 3, 1993
Raw materials ................ $ 37,135 $ 18,074
Work in progress ............. 90,319 86,862
Finished goods ............... 13,761 6,847
-------- --------
Total $141,215 $111,783
======= =======
4. Other Assets and Liabilities
Other assets and liabilities are primarily comprised of:
July 2, 1994 July 3, 1993
Prepaid Expenses $314 -
Accounts Payable (610) -
Other 59 -
-------- --------
Total ($237) -
======= ========
5. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
July 2, 1994 July 3, 1993
Land..................... $783 $3,596
Leasehold improvements .. 1,907 699
Buildings and improvements .. 59,719 83,318
Production and other equipment 187,145 224,611
Construction in progress .... 26,143 7,409
-------- --------
275,697 319,633
Less: accumulated depreciation 152,361 197,778
-------- --------
$123,336 $121,855
======= =======
Depreciation expense was approximately $40,000, $41,000 and $53,000 for
the years ended July 2, 1994, July 3, 1993 and June 27, 1992,
respectively.
<PAGE>
Page 8
NOTES TO FINANCIAL STATEMENTS, Continued
(Dollars in Thousands)
6. Postretirement and Other Postemployment Benefits
Pension Plans - The Business participates in Digital's defined benefit
and defined contribution pension plans (the "Retirement Plan") covering
substantially all employees. Those Digital Employees who accept
employment with Quantum will terminate from Digital and will maintain
their vested rights in the Retirement Plan, with liability remaining
with Digital. The benefits are based on years of service and
compensation during the employee's career. Pension cost is based on
estimated benefit payment formulas. It is Digital's policy to make tax-
deductible contributions to the plans in accordance with local laws.
Contributions are intended to provide benefits for service to date and
benefits expected to be earned in the future. The projected benefit
obligation was determined using discount rates of 8.0%, 8.0% and 8.5%
for the fiscal years ending July 2, 1994, July 3, 1993 and June 27,
1992, respectively. For the U.S. pension plan, there were no
contributions in the fiscal years 1994, 1993 or 1992 due to the full
funding limit of the Omnibus Budget Reconciliation Act of 1987. The
assets of the plans include corporate equity and debt securities,
government securities and real estate.
The Statements of Operations include allocated costs as fringe benefits
based upon an average cost per employee for the Retirement Plan of
approximately $4,777, $5,121 and $5,026 for the years ended July 2,
1994, July 3, 1993 and June 27, 1992, respectively. These costs are
reported as Cost of Sales for direct labor and Selling, General and
Administrative for indirect labor. The measurement dates for all plans
were within 90 days of year end. Digital recognized a one time charge
in fiscal year 1992 for special early retirement pension benefits as a
component of restructuring costs.
Postretirement Benefits Other Than Pensions - The Business participates
in Digital's defined benefit postretirement plans that provide medical
and dental benefits for U.S. retirees and their eligible dependents.
Substantially all of Digital's U.S. employees may become eligible for
postretirement benefits if they reach retirement age while working for
Digital. The majority of Digital's non-U.S. subsidiaries do not offer
postretirement benefits other than pensions to retirees.
Digital's postretirement benefit plans other than pensions are funded as
costs are incurred. The postretirement benefit obligation was
determined using discount rates of 8.0%, 8.0% and 8.5% for the fiscal
years ending July 2, 1994, July 3, 1993 and June 27, 1992, respectively.
Fiscal year 1993 expense reflects a reduction from the prior year
resulting from cost sharing changes. Retiree contributions for the U.S.
medical plan are based on length of service for employees retiring after
fiscal year 1993.
<PAGE>
Page 9
NOTES TO FINANCIAL STATEMENTS, Continued
(Dollars in Thousands)
6. Postretirement and Other Postemployment Benefits, continued
The Statements of Operations include allocated costs as fringe benefits
based upon an average cost per employee for the postretirement benefit
costs of approximately $2,928, $2,639 and $2,251 for the years ended
July 2, 1994, July 3, 1993 and June 27, 1992, respectively.
Digital also recognized a one-time charge in fiscal year 1992 for
special early postretirement benefits other than pensions as a component
of restructuring costs.
Digital adopted Statement of Financial Accounting Standards No. 106 -
Employers' Accounting for Postretirement Benefits Other Than Pensions in
fiscal year 1992 and elected to recognize the cumulative effect
immediately for its U.S. and material non-U.S. plans in its fiscal year
1992 results. This cost was allocated to the Business based upon the
estimated number of employees impacted.
Postemployment Benefits - In the fourth quarter of fiscal year 1994,
Digital adopted Statement of Financial Accounting Standards No. 112 -
Employers' Accounting for Postemployment Benefits ("SFAS No. 112"),
effective as of the beginning of the fiscal year. This standard
requires the accrual of benefits provided to former or inactive
employees, after employment but before retirement. These benefits
include, but are not limited to, salary continuation, supplemental
unemployment benefits, severance benefits, disability-related benefits
and continuation of benefits such as health care benefits and life
insurance coverage. The cumulative impact of adoption of SFAS No. 112
was immaterial to the Business.
7. Interest Expense
There was no direct interest expense incurred by the Business. However,
the interest expense reflected in the Statements of Operations is an
allocation of Digital's worldwide interest expense based upon the ratio
of the Business' inventory and property, plant and equipment to total
Digital assets. Management believes that this method provides a
reasonable basis for allocation within the Business' historical
Statements of Operations.
<PAGE>
Page 10
NOTES TO FINANCIAL STATEMENTS, Continued
(Dollars in Thousands)
8. Income Taxes
The Business is not a separate taxable entity for federal, state or
local income tax purposes. The Business' operations are included in the
consolidated Digital tax returns. No income tax provision has been
calculated on a separate return basis because net losses were realized
in each of the years presented.
9. Business Restructuring
Digital provided for restructuring in fiscal year 1992 to cover costs
associated with reorganizing into market-focused business units,
reducing the size of its workforce and closing certain facilities. The
restructuring charge includes the cost of involuntary employee
termination benefits, facility closures and related costs associated
with restructuring actions. Employee termination benefits include
severance, wage continuation, notice pay, medical and other benefits.
Facility closures and related costs include gains and losses on disposal
of property, plant and equipment, lease payments and related costs.
10. Investments in and Advances to Joint Venture and Subsidiary
On August 19, 1992, Digital entered into a joint venture agreement with
Storage Technologies, Corp. to form a venture called Rocky Mountain
Magnetics, Inc. ("RMMI"). Pursuant to the agreement Digital holds an
81% equity interest in RMMI. Summarized financial information for RMMI
is as follows:
July 2, 1994 July 3, 1993
Assets $23,031 $17,777
Liabilities 8,202 3,890
Net Loss (26,058) (18,407)
Digital owns 100% of Digital Equipment Storage Products (Malaysia) Sdn
Bhd. The Statements of Operations include a loss of $1,322 for the year
ended July 2, 1994. The net liabilities were $(862) for the year ended
July 2, 1994.
The advances consist of net intercompany balances with Digital that are
being transferred to Quantum.
11. Purchase Commitments
The Business has approximately $122,000 of non-cancelable commitments to
purchase inventory and equipment as of July 2, 1994.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors of Digital Equipment Corporation:
We have audited the accompanying Statements of Assets Sold and
Liabilities Assumed of the Disks, Heads and Tapes Business of the
Storage Business Unit of Digital Equipment Corporation (the "Business")
as of July 2, 1994 and July 3, 1993, and the related Statements of
Operations, for each of the three fiscal years in the period ended July
2, 1994. These financial statements are the responsibility of Digital
Equipment Corporation's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit also 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.
The accompanying financial statements were prepared to present the
assets sold to and the liabilities assumed by Quantum Corporation of the
Business and the results of operations of the Business pursuant to the
acquisition agreement described in Note 1, and are not intended to be a
complete presentation of the Business' financial position or cash flows.
As discussed in Note 1, management's decision regarding revenue pricing
and recognition, and allocation of certain selling, general and
administrative expenses in fiscal 1994 reflect management's view of the
transition from a propriety business model in prior years to that of a
stand-alone component manufacturer in the most recent fiscal year. As a
result, the financial statements presented may not be indicative of the
results of operations that would have been achieved had the Business
operated as a non-affiliated entity.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the assets sold and liabilities
assumed of the Business as of July 2, 1994 and July 3, 1993, and the
results of its operations for each of the three fiscal years in the
period ended July 2, 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 6, the Business changed its method of accounting
for postretirement benefits other than pensions in the year ended
June 27, 1992.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
September 29, 1994
<PAGE>
THE "DISKS HEAD AND TAPES BUSINESS"
OF THE STORAGE BUSINESS UNIT OF
DIGITAL EQUIPMENT CORPORATION
UNAUDITED STATEMENT OF ASSETS SOLD AND LIABILITIES ASSUMED
AS OF OCTOBER 1, 1994
(DOLLARS IN THOUSANDS)
As Reported
By Digital Quantum
Equipment Reclass- Acquired
Corporation ifications Business
----------- ---------- --------
ASSETS SOLD
Cash and cash equivalents $ - $ 624 $ 624
Inventory 152,804 14,367 167,171
Other current assets - 37 37
Net Property, Plant and
and Equipment 120,673 33,502 154,175
Investments in and
Advances to Joint Venture 43,299 (43,299) -
and Subsidiary
Other Assets 1,239 - 1,239
----------- ---------- --------
Total $ 318,015 $ 5,231 $323,246
========== ========= ========
LIABILITIES ASSUMED
Liabilities 1,166 5,234 6,400
----------- ---------- --------
Total $ 1,166 $ 5,234 $ 6,400
========== ========= ========
Quantum reclassifications of the accounts as reported by Digital
Equipment Corporation consist of amounts to consolidate a 100% owned
subsidiary and 81% of Rocky Mountain Magnetics, Inc. accounted for
under the equity method.
<PAGE>
THE "DISKS HEAD AND TAPES BUSINESS"
OF THE STORAGE BUSINESS UNIT OF
DIGITAL EQUIPMENT CORPORATION
UNAUDITED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
As Reported by Digital Equipment Corporation
Quarter Ended Quarter Ended
October 1, 1994 October 2, 1993
--------------- ---------------
REVENUE
Revenue 161,000 135,526
COSTS AND EXPENSES
Cost of Sales 201,600 130,439
Research & Development 24,500 20,881
Selling, General & Administrative 13,700 12,674
--------- -------
Net Operating (Loss) (78,800) (28,468)
Interest Expense 600 367
--------- -------
Net Loss $(79,400) $(28,835)
========= ========
<PAGE>
THE "DISKS HEAD AND TAPES BUSINESS"
OF THE STORAGE BUSINESS UNIT OF
DIGITAL EQUIPMENT CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. Basis of presentation
The accompanying unaudited condensed 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 the "Disks, Head and Tapes Business" of the Storage
Business Unit of Digital Equipment Corporation for the fiscal year ended July 2,
1994.
Quantum reclassifications of the accounts as reported by Digital
Equipment Corporation consist of amounts to consolidate a 100% owned
subsidiary and 81% of Rocky Mountain Magnetics, Inc. accounted for
under the equity method.
2. Inventories
Inventories as of October 1, 1994 consisted of the following:
(In thousands)
As Reported
By Digital Quantum
Equipment Reclass- Acquired
Corporation ifications Business
----------- ---------- --------
Materials and purchased parts $ 57,276 $ 8,089 $ 65,365
Work in process 54,663 5,406 60,069
Finished goods 40,865 872 41,737
-------- ------- --------
$152,804 $14,367 $167,171
======== ======= ========
<PAGE>
Pro Forma Condensed Consolidated Financial Information
(Unaudited) of Quantum Corporation (the "Company")
On October 3, 1994, Quantum Corporation (Quantum or the
Company) acquired the Disks, Heads, and Tapes Business
of the Storage Business Unit of Digital Equipment
Corporation (the Acquired Business), in a transaction which
is being accounted for as a purchase. The accompanying unaudited
pro forma condensed balance sheet gives effect to the purchase
as if it had occurred on the balance sheet date. The annual
and interim period unaudited pro forma statements of operations
give effect to the transaction as if it had occurred on April 1,
1993, the beginning of Quantum's most recently completed fiscal
year. Quantum's fiscal year end is March 31; the fiscal year end
for the acquired Business is June 30. For the interim period, the
Acquired Business' fourth quarter ended July 2, 1994 and their
quarter ended October 1, 1994 has been combined with the Company's
six months ended October 2, 1994. For the annual period the Acquired
Business' fourth quarter ended July 3, 1993 and the first three quarters
ended April 2, 1994 have been combined with Quantum's fiscal year ended
March 31, 1994.
The pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results that
would have occurred had the transaction been completed at the
beginning of the period indicated, nor is it necessarily indicative
of future operating results. The Company retained independent valuation
professionals to assist it in the final determination of the value to be
assigned to the individual assets acquired, including intangibles and in-
process research and development. The results of this valuation are
included in the pro forma adjustments to the condensed balance sheet.
However, the final purchase price allocation is not yet complete as the
Company's management is still awaiting certain information related to
the purchase. While the pro forma information has been presented based on
the best information currently available to Company's management, the final
allocation could change, and the change could affect the pro forma
financial information. The types of information that the Company is
awaiting include:
* Determination of the final purchase price - The purchase
agreement contained several adjustment provisions related to the
level and value of inventory and property, plant and equipment, and such
adjustment provisions are still being negotiated.
* Management's plans regarding utilization and redeployment of
the Acquired Business' assets and operations - Management is
still evaluating the utility and deployment of the assets and
operations acquired in this transaction. The magnitude of costs to be
incurred or asset impairments related to "exiting" any of the acquired
operations are still being assessed.
Company management expects that the final purchase price will be known
by the time the Company's March 31, 1995 10K is filed. Finalization of
management's plans regarding utility and deployment of assets and
operations acquired is expected by March 31, 1995.
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
QUANTUM CORPORATION AND SUBSIDIARIES
(in thousands)
-----------------October 2, 1994-----------------
Quantum Acquired Pro Forma Pro Forma
Corporation Business Adjustments Consolidated
(as reported)
Assets
Current assets:
Cash and cash equivalents $316,851 $624 ($107,750)(a) $209,725
Short-term investments 19,208 - - 19,208
Accounts receivable 436,168 - - 436,168
Inventories 200,878 167,171 (20,519)(d) 347,530
Deferred taxes 37,835 - - 37,835
Other current assets 45,800 1,276 (25,000)(a) 22,076
--------- -------- --------- ----------
Total current assets 1,056,740 169,071 (153,269) 1,072,542
Property and equipment 108,611 154,175 (49,828)(d) 212,958
Other assets 15,905 - 5,250 (a) 21,155
Intangibles - - 106,164 (d) 106,164
--------- -------- --------- ----------
$1,181,256 $323,246 ($ 91,683) $1,412,819
========= ======== ========= ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $310,447 $2,854 $ - $313,301
Accrued liabilities 120,057 3,546 2,500 (a) 195,450
4,672 (b)
64,675 (c)
Income taxes payable 11,826 - - 11,826
Current portion of
long-term debt - - 95,000 (a) 95,000
--------- -------- --------- ----------
Total current liabilities 442,330 6,400 166,847 615,577
Long-term debt - - 125,500 (a) 125,500
Subordinated debentures 212,500 - 212,500
Minority interest
Divisional Equity - 316,846 (350,500)(a) -
(4,672)(b)
(64,675)(c)
103,001 (d)
Shareholders' equity:
Common stock 132,840 - 132,840
Retained earnings 393,586 - (67,184)(d) 326,402
--------- -------- --------- ----------
Total shareholders' equity 526,426 - (67,184) 459,242
--------- -------- --------- ----------
$1,181,256 $323,246 ($ 91,683) $1,412,819
========= ======== ========= ==========
<PAGE>
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
QUANTUM CORPORATION
(in thousands except share and per share data)
<CAPTION>
Year Ended Year Ended
3/31/94 4/2/94 -------Six Months Ended October 2, 1994-------
------------------------------------------------ ----------------------------------------------
Quantum Acquired Pro Forma Pro Forma Quantum Acquired Pro Forma Pro Forma
Corporation Business Adjustments Consolidated Corporation Business Adjustments Consolidated
------------------------------------------------ ----------------------------------------------
(as reported) (as reported)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $2,131,054 $ 861,806 ($36,553)(e) $2,956,307 $1,451,473 $426,334 ($3,549)(e) $1,874,258
Cost of sales 1,892,211 677,083 (36,553)(e) 2,532,741 1,172,666 443,548 (3,549)(e) 1,612,665
---------- ---------- ------------ ----------- ---------- --------- ----------- ----------
Gross profit 238,843 184,723 - 423,566 278,807 (17,214) - 261,593
Operating expenses:
Research and develop-
ment 89,837 94,358 - 184,195 57,153 48,635 - 105,788
Selling, general and
administrative 115,925 106,515 - 222,440 67,550 22,030 - 89,580
Restructuring and non-
recurring charges 22,753 - - 22,753 - - - -
Depreciation and
amortization - - 26,541 (g) 15,653 - - 13,271 (g) 7,827
(10,888)(h) (5,444)(h)
---------- ---------- ------------ ----------- ---------- --------- ----------- ----------
228,515 200,873 15,653 445,041 124,703 70,665 7,827 203,195
Income (loss) from
operations 10,328 (16,150) (15,653) (21,475) 154,104 (87,879) (7,827) 58,398
Other (income) expense,
net 6,665 1,607 25,995 (f) 34,267 1,469 1,151 12,997 (f) 15,617
---------- ---------- ------------ ----------- ---------- --------- ----------- ----------
Income (loss) before
income taxes 3,663 (17,757) (41,648) (55,742) 152,635 (89,030) (20,824) 42,781
Income tax provision
(benefit) 989 - (16,039)(i) (15,050) 45,790 - (32,956)(i) 12,834
---------- ---------- ------------ ----------- ---------- --------- ----------- ----------
Net income (loss) $2,674 ($17,757)($25,609) ($40,692) $106,845 ($ 89,030) $12,132 $29,947
========== ========== ======= ======== ========= ========= ======= =======
Net income (loss) per share:
Primary $0.06 ($0.94) $2.27 $0.64
Fully diluted $0.06 ($0.94) $1.87 $0.58
Weighted average common and common
equivalent shares:
Primary 44,967,000 (1,625,515)(j) 43,341,485 47,090,888 - 47,090,888
Fully diluted 44,967,000 (1,625,515)(j) 43,341,485 58,800,191 - 58,800,191
</TABLE>
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NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUANTUM CORPORATION
Note 1--Financial information of Acquired Business
The unaudited Statements of Assets Sold and Liabilities Assumed exclude
all assets and liabilities of the Acquired Business that were not acquired
or assumed by Quantum. Divisional equity represents the net effect of
those exclusions and does not represent the "equity" of the Acquired
Business while it was owned by Digital Equipment Corporation.
Note 2--Purchase price allocation
As indicated in the introduction to the unaudited pro forma financial
information, certain items affecting purchase price and the allocation
thereof remain unresolved at this time. For purposes of the accompanying
pro forma financial statements, the Company has assumed a purchase price of
$350.5 million, and direct costs of the transaction for investment banker
and professional fees and other direct incremental transaction costs of
$4.7 million for a total purchase price of $355.2 million. Additionally
the Company has estimated "exit" costs of $64.7 million.
Recap of purchase price allocation:
(in millions)
Inventories $146.7
Property and equipment 104.3
Intangible assets 106.1
"Exit" cost accrual (64.7)
Other assets/liabilities, net (4.4)
In-process research and development (expense) 67.2
------
$355.2
======
Intangible assets include completed technology, workforce in place, supply
agreement and customer list. The estimated useful lives are expected to
range from 3 to 10 years. For presentation purposes, purchased intangibles
have been amortized using a four year life.
The $67.2 million allocated to in-process research and development is
required to be immediately expensed under generally accepted accounting
principles. Such amount is a non-recurring charge related to the
acquisition and as such is not reflected in the pro forma Statement of
Operations pursuant to Regulation S-X.
The approximate effect of decreasing a combination of the purchase
price and "exit" costs by $15 million would be to reduce the depreciation
and amortization of property and equipment/intangibles for the pro forma
year ended March 31, 1994 by approximately $4 million.
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUANTUM CORPORATION
NOTE 3--PRO FORMA ADJUSTMENTS
Adjustments to the Pro Forma Condensed Consolidated Balance Sheet
were made to:
(a) to record cash paid for the acquisition, net of deposit
previously made, and to record debt incurred including loan
origination fees and balance due to Digital Equipment
Corporation for an adjustment for capital equipment purchases
(b) to accrue direct transaction costs (primarily investment banker,
legal, valuation and accounting services)
(c) to accrue for estimated "exit" costs
(d) to allocate purchase price based on appraised fair values,
including the retained earnings effect of the in-process research
and technology
Adjustments to the Pro Forma Condensed Consolidated Statements of
Operations were made to:
(e) eliminate intercompany sales and cost of sales (intercompany
profit in ending inventory was immaterial)
(f) record the amortization of loan origination fees on a straight
line basis over three years, the interest expense on the new
debt incurred, and reduce interest income earned on the cash
paid as part of the acquisition
(g) record the amortization of the purchased intangibles
(h) adjust depreciation on property and equipment arising from the
new basis and difference in lives and depreciation methods
utilized by Quantum
(i) to adjust the tax provision to reflect the effects of the
acquisition adjustments
(j) to adjust the earnings per share calculation for the effects of
the pro forma results being a loss as opposed to the gain
originally reported by Quantum
