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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
PREFERRED STOCK PURCHASE RIGHTS
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of May 1, 1997: $1,984,887,203 based upon the closing price
reported for such date on the NASDAQ National Market System. For purposes of
this disclosure, shares of Common Stock held by persons who hold more than 5% of
the outstanding shares of Common Stock and shares held by officers and directors
of the Registrant have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily
conclusive. The number of shares outstanding of the Registrant's Common Stock as
of May 1, 1997, was 131,018,098.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 1997 Annual Meeting of
Shareholders (the "Proxy Statement") are incorporated by reference into Part III
of this Form 10-K Report.
<PAGE>
PART I
ITEM 1. Business
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements usually contain the
words "estimate," "anticipate," "expect" or similar expressions. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events, and they are subject to
numerous known and unknown risks and uncertainties. These uncertainties could
cause actual results to differ materially from those expected. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof.
Business Description
Quantum Corporation ("Quantum" or the "Company"), operating in a single business
segment, designs, develops, and markets information storage products, including
high-performance, high-quality hard disk drives, half-inch cartridge tape
drives, tape drive related products, and solid state disk drives. The half-inch
cartridge tape drives and solid state disk drives are manufactured by the
Company. The Company combines its engineering and design expertise with the
high-volume manufacturing capabilities of its exclusive manufacturing partner,
Matsushita-Kotobuki Electronics Industries, Ltd. ("MKE") of Japan, a subsidiary
of Matsushita Electric Industrial Co., Ltd., to produce high-quality hard disk
drives. Quantum is also involved in the manufacture of magnetoresistive ("MR")
recording heads that are used in hard disk drives produced for the Company.
The Company's strategy is to offer a diversified product portfolio that features
leading-edge technology and high-quality manufacturing for a broad range of
market applications. Inherent in this strategy is a focus on meeting and
anticipating customers' information storage needs and on the research and
development of storage product technology.
The Company markets its products worldwide to major original equipment
manufacturers ("OEMs"), a broad range of distributors, resellers, and systems
integrators.
The Company's information storage business currently includes the following four
components:
Desktop and Portable Storage Products. Quantum designs, develops, and
markets hard disk drives designed to meet the storage needs of desktop
systems. These products are designed for entry-level to high-end
desktop personal computers ("PCs") for use in both home and business
environments.
Workstation and Systems Storage Products. Quantum designs, develops,
and markets technologically advanced hard disk drives for the demanding
storage needs of network servers, work-stations, storage subsystems,
high-end desktop systems, and minicomputers. These products are
designed for storage-intensive applications, such as graphics, disk
arrays, desktop publishing systems, multimedia computing systems, and
networked data bases and file servers.
Specialty Storage Products. Quantum designs, develops, manufactures,
and markets half-inch cartridge tape drives and solid state disk
drives. The tape drives use advanced linear recording technology and a
highly accurate tape guide system to perform data backup for mid-range
and high-end computer systems. The solid state disk drives have the
high execution speeds required for applications such as imaging,
multimedia, video-on-demand, on-line transaction processing, material
requirements planning, and scientific modeling.
Recording Heads. Quantum is involved in the design, development, and
manufacture of MR recording heads used in the Company's products. The
Company believes that MR technology, which provides higher capacity per
disk than conventional thin-film heads, will replace thin-film heads as
the leading recording head technology. The Company does not currently
market thin-film or MR heads to other companies. For
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most of fiscal 1998, the Company's involvement in the design,
development, and manufacture of recording heads will be through a 49%
ownership interest in a joint venture with MKE as discussed in the
Strategic Developments section.
Quantum operates in an industry characterized by rapid technological change. The
Company is currently concentrating its product development efforts on broadening
its existing disk and tape drive product lines through the introduction of new
products, including new high-capacity hard disk drive products to be
manufactured by MKE, as well as new products targeted specifically for the
increasing storage needs of the desktop market. The Company is also focusing its
efforts on applying its MR technology to new generations of disk drives.
Strategic Developments
Transition in High-Capacity Disk Drive Manufacturing. During fiscal 1997,
Quantum substantially completed the manufacturing transition, committed to in
January 1996, of its high-capacity disk drive products to its strategic partner,
MKE. As part of the transition, the Company discontinued its manufacture of
these products in fiscal 1997 and completed the shut-down of the related
facilities. The related manufacturing work force was terminated in fiscal 1997.
The Company closed, sold, or disposed of certain high-capacity manufacturing
facilities and equipment located in Penang, Malaysia; and Milpitas, California.
Facilities sold included the manufacturing building in Malaysia, which was sold
in the second quarter of fiscal 1997. Expenditures associated with the
transition have substantially been completed. As a result of this transition,
the Company anticipates that it will achieve significant benefits by leveraging
on the high-volume, high-quality manufacturing expertise of MKE.
Purchase of Minority Interest. In February 1997, Quantum acquired the 19%
minority ownership interest in Quantum Peripherals Colorado, Inc. ("QPC"), a
consolidated subsidiary involved in the development and manufacture of recording
heads. The minority ownership interest was acquired in exchange for $3.4 million
and the issuance of 90,000 shares of Redeemable Convertible Participating Series
B Preferred Stock, which were valued at $3.9 million as of the issuance date.
MKE/Quantum Recording Heads Joint Venture. On May 1, 1997, MKE and Quantum
announced the formation of a recording heads joint venture company. Pursuant to
the terms of the transaction, Quantum contributed certain recording heads assets
and operations, will transfer employees of the Company's recording heads
operations and leased certain premises to the joint venture in exchange for a
49% ownership interest in the joint venture; the joint venture assumed $51
million of debt payable to Quantum; and MKE paid Quantum $94 million and
contributed $110 million to the joint venture in exchange for a 51% controlling
ownership interest in the joint venture. The Company anticipates that the joint
venture will leverage Quantum's engineering and design expertise and MKE's
manufacturing expertise in order to fully realize the potential of the MR heads
operations to the benefit of both MKE and Quantum.
Renegotiated MKE Master Agreement. In May 1997, Quantum completed renegotiation
of its master agreement with MKE, which covers the general terms of the business
relationship. The agreement was extended for a period of 10 years. MKE currently
manufactures all of the hard disk drives developed and marketed by Quantum.
Quantum's relationship with MKE, which dates from 1984, is built on Quantum's
engineering and design expertise and MKE's high-volume, high-quality
manufacturing expertise. This agreement with MKE underscores the strong
commitment and working relationship developed with MKE.
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Executive Officers
<TABLE>
The executive officers of the Company and their respective ages and positions
with the Company as of March 31, 1997, follows:
<CAPTION>
Name Age Position with the Company
<S> <C> <C>
Stephen M. Berkley 53 Chairman of the Board
Michael A. Brown 38 President and Chief Executive Officer
Claude Barathon 56 Executive Vice President, Worldwide Sales
Deborah E. Barber 57 Vice President, Human Resources
Richard L. Clemmer 45 Executive Vice President, Finance, and Chief
Financial Officer
Mark Jackson* 46 President and General Manager, Recording Heads
Group ("RHG")
Kenneth Lee 59 President and General Manager, Workstation Systems Storage
Group ("WSSG"), and Chief Technical Officer
Debora C. Shoquist 42 Executive Vice President, Hard Disk Drive
Operations
Young K. Sohn 41 President and General Manager, Desktop and Portable Storage
Group ("DPSG")
Peter van Cuylenburg 49 President and General Manager, Specialty Storage Products
Group ("SSPG")
<FN>
* Mark Jackson has resigned as an officer of Quantum in May 1997 in order to
become an officer of the MKE/Quantum recording heads joint venture.
</FN>
</TABLE>
Mr. Berkley has been Chairman of the Board since 1995 and had earlier served as
Chairman of the Board from 1987 to 1993. He also served as the Company's Chief
Executive Officer from 1987 until 1992. In 1983, as a pioneer in the development
of Hardcard, the first hard disk expansion board for personal computers, Mr.
Berkley became the founding President and Chief Executive Officer of Plus
Development Corporation, a Quantum subsidiary. Prior to joining the Company in
1981 as Vice President of Marketing, Mr. Berkley was with Qume Corporation since
1977 where he initially served as Vice President of Business Development and
later as General Manager of the Memory Products Division.
Mr. Brown has been President and Chief Executive Officer since 1995. Earlier, he
served as President of DPSG from 1993 to 1995, as Executive Vice President from
1992 to 1993, and as Vice President of Marketing from 1990 to 1992. Previously,
Mr. Brown held positions in product and marketing management since joining the
Company's marketing organization in August 1984. Before joining Quantum, Mr.
Brown served in the marketing organization at Hewlett-Packard and provided
management consulting services at Braxton Associates.
Mr. Barathon has been Executive Vice President of Worldwide Sales since 1996. He
joined the Company in 1992 as Corporate Vice President, and President and
Managing Director of Quantum Europe, where he was responsible for the Company's
European sales, marketing, financial, and service operations. Prior to joining
the Company, Mr. Barathon held a variety of management positions at Control Data
Corporation and Imprimis. He was also Vice President of European Operations at
Seagate Technology, following the acquisition of Imprimis by Seagate in 1989.
Ms. Barber has been Vice President of Human Resources since joining the Company
in 1992. Prior to joining the Company, she served as Vice President of Human
Resources at Cray Research for five years. From 1978 to 1988, Ms Barber was
employed by Honeywell, Inc., last serving as Director of Human Resources for the
Military Avionics Division.
Mr. Clemmer has been Executive Vice President of Finance and Chief Financial
Officer since joining the Company in August 1996. Prior to joining the Company,
Mr. Clemmer was Chief Financial Officer of Texas Instruments'
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Semiconductor Group from 1989 to 1996. Previously, he held a variety of senior
finance positions with Texas Instruments.
Mr. Jackson has been President and General Manager of RHG since November 1996.
Earlier in 1996, he was Executive Vice President of Hard Disk Drive Operations,
where he was responsible for production planning, logistics, quality and
reliability, customer service, and material support for both DPSG and WSSG. In
addition, Mr. Jackson served as President of DPSG from October 1995 to February
1996, and as Vice President of Worldwide Logistics from 1993 to 1995.
Previously, Mr. Jackson held a number of positions in the logistics and
operations since joining the Company in 1985.
Mr. Lee has been President of WSSG since 1995 and Chief Technical Officer since
1993. Earlier, he managed RHG from 1994 to 1996, served as Executive Vice
President of Technology and Engineering from 1993 to 1994, and as Vice President
of Engineering from 1990 to 1993. Mr. Lee joined the Company in 1989 as Director
of Advanced Recording Technologies. Prior to joining the Company, Mr. Lee was
Vice President of Product Development for Domain Technology for five years, and
previously worked on advanced magnetic storage devices during the 15 years he
spent with the IBM Research Laboratory in San Jose, California.
Ms. Shoquist is currently the Executive Vice President of Hard Disk Drive
Operations and responsible for production planning, logistics, and customer
service support for Quantum's two hard drive groups, DPSG and WSSG. She has
served in a variety of manufacturing management positions, most recently as Vice
President of Product and Test Engineering for WSSG. Prior to that, Ms. Shoquist
was Vice President of Worldwide Operations for WSSG. Prior to joining the
Company in 1991, Ms. Shoquist held a variety of operations management positions
at Hewlett-Packard.
Mr. Sohn has been President and General Manager of DPSG since February 1996.
Earlier, he served as Vice President of Marketing for DPSG since 1994. Prior to
joining the Company in 1992 as President and Managing Director of Quantum
Asia-Pacific, Mr. Sohn spent nine years with Intel Corporation where, most
recently, he managed that company's AT chip set business.
Mr. van Cuylenburg has been President and General Manager of SSPG since joining
the Company in September 1996. Prior to joining Quantum, he served as Executive
Vice President at Xerox Corporation, responsible for the systems sector from
1993 to 1995. Mr. van Cuylenburg was also President and Chief Operating Officer
at Next Computer Inc. in Redwood City, California.
Products
Desktop and Portable Storage Products:
Quantum Fireball TM Series and Quantum Fireball ST Series 3.5-inch
Desktop Products:
Quantum's desktop 3.5-inch hard drives consist of the Quantum Fireball
TM Series and Quantum Fireball ST Series products. These products are
designed to meet the information storage needs of desktop PCs.
Quantum Fireball 1.0/1.2/1.7/2.1/2.5/3.2/3.8 TM Series. Introduced in
February 1996, Quantum Fireball TM Series drives are the industry's
first hard disk drives to offer 1 gigabyte ("GB") per platter storage
capacity and to combine MR and Partial Response Maximum Likelihood
("PRML") technologies to provide the storage capacities and performance
required by commercial PCs. As of May 1997, Quantum had shipped over 13
million Fireball TM Series drives.
Quantum Fireball 1.6/2.1/3.2/6.4 ST Series. The Quantum Fireball ST
Series disk drive began mass production in March 1997. The Quantum
Fireball ST Series is a leading performance areal density product that
is suited for high-end desktop and entry level workstation / server
systems. With a capacity of 1.6 GBs per platter, the Quantum Fireball
ST Series includes a broad range of models from 1.6 GBs to 6.4 GBs.
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The ST Series is the first product with the Quantum developed Ultra ATA
feature, a high performance interface supporting data transfer rates of
up to 33 megabytes ("MBs") per second.
Quantum BigfootTM, Quantum Bigfoot CY 5.25-inch Desktop Products:
Quantum Bigfoot 1.2/2.5. Mass production of Quantum Bigfoot hard drives
began in March 1996. These products combine value with high-capacity
for consumer-oriented PCs. Quantum 5.25-inch hard drives fit into most
modular PCs without any customization to system enclosures.
Quantum Bigfoot CY 2.1/4.5/6.5. Mass production of the Quantum Bigfoot
CY hard drive began in January 1997. The Quantum Bigfoot CY is the
Company's latest generation 5.25-inch hard drive. This line of product
provides the consumer PC market with a high-capacity disk drive in
conjunction with value per MB. The Quantum Bigfoot CY features high
capacity per disk data track for fewer head switches and seeks, and
fast sequential data transfers. Like its predecessor, the Quantum
Bigfoot, the Quantum Bigfoot CY 5.25-inch drive will fit most modular
PCs without any customization to system enclosures.
Workstation and Systems Storage Products:
Quantum AtlasTM II and Quantum VikingTM 3.5-inch High-Capacity
Products:
Quantum's high-capacity 3.5-inch hard drives include the Quantum Atlas
II and Quantum Viking products. These disk drives are Quantum's most
technologically advanced hard disk drive products and meet the
demanding needs of high-end desktop systems, workstations, RAID
subsystems, servers, video and multimedia applications, and
minicomputers.
Quantum Atlas II 2.1/4.5/9.1. The Quantum Atlas II began mass
production in September 1996. Quantum Atlas II hard drives are intended
to provide the capacity, performance and fault-tolerance required by
high-end systems such as video and database servers, RAID subsystems,
mid-range workstations and mini-computers. Atlas II drives feature
7,200 rotations-per-minute spin speed and leading-edge technologies
such as MR heads and Ultra SCSI-3 to meet the needs of the high-end
marketplace.
Quantum Viking 2.2/4.5. Mass production of the Quantum Viking began in
December 1996. Quantum Viking hard drives combine workstation-class
performance with PC-class prices, meeting the needs of one of the
fastest-growing segments of the high-end marketplace: workstations and
PC-based servers. The drives feature capacities of 2.2 and 4.5 GBs with
MR heads and PRML read channels and a high internal data rate of 83 to
139 megabits per second. A wide selection of Ultra SCSI-3 interfaces
provide burst data transfer rates as fast as 40 MB per second.
Specialty Storage Products:
Quantum DLTTM Half-inch Cartridge Tape Drives:
Quantum DLT 2000XT . Mass production of the Quantum DLT 2000 began in
September 1995. This device is a half-inch cartridge tape drive
designed to perform data back-up for mid-range computer systems and
high-end workstations. With advanced DLTTM linear recording technology,
a highly accurate tape guide system, and an adaptive control mechanism,
the drive is suited for mid-range systems, network servers, and
high-end workstations and systems. Using data compression techniques,
the DLT 2000 XT features a native storage capacity of 15 GB per
cartridge and a sustained native data transfer rate of 1.25 MB per
second.
Quantum DLT 4000. Mass production of the Quantum DLT 4000 began in
February 1995. This half-inch cartridge tape drive is designed for
heavy duty cycle computer applications in the mid-range to high-end of
the tape drive market. Assuming data compression, the DLT 4000 features
a combination of 40 GB per cartridge capacity and a sustained data
transfer rate of 3 MB per second.
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Quantum DLT 7000. Mass production of the DLT 7000 began in December
1996. The Quantum DLT 7000 provides data storage and retrieval for
demanding data back-up, archive, and on-line storage applications.
Assuming data compression, this tape drive achieves a transfer rate of
over 10 MB per second and a formatted capacity of 70 GB. This tape
drive provides significant performance and capacity advantages over
other drives in its class.
Quantum DLTTM Autoloaders:
Quantum DLT 2500XT/2700XT/4500/4700. Quantum DLT half-inch tape
autoloaders are five- and seven-cartridge subsystems designed for
high-capacity data backup applications in the computer systems market.
Ranging in capacity from 150 to 280 GBs, each autoloader consists of an
elevator mechanism that provides random or sequential cartridge access
between a tape drive and cartridge magazines. All are appropriate
table-top solutions or can be configured into standard 19-inch
equipment racks.
Quantum DLTstorTM Tape Library:
High-Performance Cartridge Tape Mini-Libraries, the Quantum DLTstor
tape library subsystem is designed for use with Quantum's family of DLT
7000, 4000 and 2000XT tape drives. Equipped with two seven-cartridge
magazines and up to three drives, the DLTstor product family is
available in native capacities of 490, 280 and 210 GBs.
Quantum DLTtapeTM III, IIIXT,IV:
The Quantum DLTtapeTM family of half-inch cartridge tapes are designed
and formulated specifically for Quantum DLTTM tape drives and
libraries. The capacity of the half-inch cartridge tapes is up to 35
GBs, or 70 GBs in compressed mode. By combining both solid and liquid
lubricants in the tape binder system, tape and head wear are reduced
while repelling airborne particles that could affect read/write head
performance. In addition, by using a uniform particle shape, a dense
binding system, a smooth coating surface, and a specially selected base
film, Quantum's half-inch cartridge tapes take advantage of shorter
wavelength recording schemes to ensure read compatibility with future
generations of DLT brand tape drives.
Quantum ESP5000 Series, ESP3000 Series and ESP3000/ESP5000 Table Top
Series Solid State Disks:
Quantum's solid state disks (SSDs) significantly improve the execution
speed of applications such as imaging, multimedia, video-on-demand,
on-line transaction processing, material requirements planning and
scientific modeling. In product development environments, the products
can substantially shorten time-to-market. Quantum's SSDs are used like
magnetic disks, however, they achieve near instantaneous access times
by eliminating the latency associated with disk rotation and head seek.
SSD drives include a unique and fully integrated data retention system
with continuous back-up to ensure that data is safely stored in the
event of a power interruption. The Company currently offers the Quantum
ESP5000 Series 5.25-inch form factor SSDs and the Quantum ESP3000
Series 3.5-inch form factor SSDs. Quantum's SSD drives did not
represent a significant amount of the Company's revenues in the fiscal
years ended March 31, 1997 and 1996.
For information regarding the percentage of total revenue contributed by any
class of similar products, refer to Part II, Item 8, Note 15 of the Notes to
Consolidated Financial Statements.
Product Development
For a discussion of product development, refer to Part II, Item 7, Results of
Operations - Research and Development Expenses; and Trends and Uncertainties -
Rapid Technological Change, New Product Development, and Qualification.
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Manufacturing
The Company believes that its manufacturing strategies for hard disk drives,
half-inch cartridge disk drives, and solid state disk drives; and its
involvement in the manufacture of MR recording heads are key to its success.
For production of its hard disk drives, the Company depends exclusively on MKE.
MKE produces hard disk drives for Quantum in Japan, Singapore, and Ireland.
MKE's state-of-the-art manufacturing process is highly automated, employing
integrated computer networks and advanced control systems. For additional
discussion of the Company's dependence on MKE, refer to Part II, Item 7, Trends
and Uncertainties - Dependence on MKE Relationship. The Company's relationship
with MKE, which has been continuous since 1984, is currently governed by a
master agreement. The current agreement between the Company and MKE gives MKE
the exclusive worldwide right to manufacture, and the Company the exclusive
worldwide right to design and market, hard disk drives. The Company provides MKE
with forecasts of its requirements and places purchase orders approximately
three months prior to delivery. The Company has only a limited right to modify
these purchase orders. The Company's transactions with MKE are denominated in
U.S. dollars with prices for product purchases negotiated periodically,
generally on a quarterly 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. For additional discussion of
the MKE master agreement, refer to Part I, Item 1, Strategic Developments -
Renegotiated MKE Master Agreement.
For production of its half-inch cartridge disk drives and solid state disk
drives, the Company operates a manufacturing facility in Colorado Springs,
Colorado; and a related research and development and preproduction facility in
Shrewsbury, Massachusetts.
The Company and its manufacturing partner, MKE, are dependent on suppliers for
components and sub-assemblies, which are essential to the manufacture of the
Company's products. For additional discussion of this dependence, refer to Part
II, Item 7, Trends and Uncertainties - Dependence on Suppliers of Components and
Sub-Assemblies; Component Shortages.
The Company's current hard disk drive product manufacturing relies on MR
recording head technology. The Company is involved in the manufacture of MR
recording heads through a joint venture with MKE. For additional discussion of
the MR recording heads and the joint venture, refer to Part I, Item 1, Strategic
Developments - MKE/Quantum Recording Heads Joint Venture, and Trends and
Uncertainties - MR Recording Heads Development and Manufacturing; and Part II,
Item 8, Note 18 of the Notes to Consolidated Financial Statements.
Sales and Marketing
The Company markets its products directly to desktop personal computer, notebook
and workstation manufacturers and to distributors, resellers and systems
integrators through its worldwide sales force. For additional discussion of
sales and customers, refer to Part II, Item 7, Results of Operations - Sales,
and Trends and Uncertainties - Customer Concentration.
Supporting international sales and operations, Quantum maintains a European
regional headquarters in Neuchatel, Switzerland; an Asia-Pacific regional
headquarters in Singapore; a Japanese headquarters in Tokyo and sales offices
throughout the world. International sales, which include sales to foreign
subsidiaries of United States companies, were 53%, 52% and 53% in fiscal 1997,
1996 and 1995, respectively. For additional information on foreign operations
refer to Part II, Item 8, Note 15 of the Notes to Consolidated Financial
Statements.
Warranty and Service
The Company generally warrants its products against defects for a period of one
to five years from the date of sale. Supporting warranty obligations, the
Company maintains in-house service facilities for refurbishment or repair of its
products in Milpitas, California; Dundalk, Ireland; and Penang, Malaysia. For
additional discussion of warranty, refer to Part II, Item 7, Trends and
Uncertainties - Warranty.
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Backlog
The Company's six-month order backlog at May 30, 1997, was approximately $1.350
billion compared to approximately $870 million at June 13, 1996. The backlog
increased approximately 55% year-over-year, reflecting recent introductions of
high-end disk drives in the fourth quarter of fiscal 1997 and the first quarter
of fiscal 1998, stronger demand for half-inch cartridge tape products, and an
overall increase in sales levels.
Backlog includes only firm orders for which the customers have released a
specific purchase order and specified a delivery schedule. Lead time for the
release of purchase orders depends upon the scheduling practices of the
individual customer, and the rate of new order bookings varies from month to
month. For this reason, and the possibility of customer changes in delivery
schedules or cancellations of orders, Quantum's backlog as of any particular
date may not be representative of actual sales for any succeeding period. In
addition, it has been the Company's practice to permit customers to increase or
decrease (including canceling) orders for products with relatively short notice
to the Company. The Company believes that this practice enables customers to
improve the management of their inventory, minimizes the Company's exposure to
disputed accounts receivable and strengthens the Company's relationships with
customers.
Competition
For a discussion of competition, refer to Part II, Item 7, Trends and
Uncertainties - Intensely Competitive Industry.
Patents and Licenses
Quantum has been granted and/or owns by assignment 398 United States patents,
including patents originally issued to its former subsidiary Plus Development
Corporation, and patents originally issued to Digital Equipment Corporation. As
a general rule, these patents have 17-year terms from the date of issuance.
Quantum also has certain foreign patents and applications relative to certain of
the products and technologies. Although Quantum believes that its patents and
applications have significant value, the rapidly changing technology of the
computer industry makes Quantum's future success dependent primarily upon the
technical competence and creative skills of its personnel rather than on patent
protection. See also "Legal Proceedings."
Several companies and individuals have approached Quantum concerning the need
for a license under patented technology that Quantum has assertedly used, or is
assertedly using, in the manufacture and sale of one or more of Quantum's
products. Quantum conducts ongoing investigations into these assertions and
presently believes that any licenses ultimately determined to be required could
be obtained on commercially reasonable terms. However, there is no assurance
that such licenses are presently obtainable, or if later determined to be
required, could be obtained. See also "Legal Proceedings."
Quantum has signed several cross-licensing agreements with Hewlett-Packard, IBM,
Seagate Technology, and Terastor. These agreements enable Quantum to use certain
patents owned by these companies, and certain of these agreements enable these
companies to use certain patents owned by Quantum.
Plant and Equipment
The Company anticipates that it will acquire additional facilities in fiscal
1998 to support expansion of half-inch cartridge tape drive manufacturing,
research and development and other corporate activities.
Employees
At March 31, 1997, the Company had approximately 6,380 regular employees. In
connection with the MKE/Quantum recording heads joint venture, approximately
1,470 Quantum employees will become employees of the joint venture and will
cease to be employees of Quantum (refer to Part I, Item 1, Strategic
Developments -
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MKE/Quantum Recording Heads Joint Venture; and Part II, Item 7, Trends and
Uncertainties - MR Recording Heads Development and Manufacturing; and Item 8,
Note 18 of the Notes to Consolidated Financial Statements).
In the advanced electronics industry, competition for highly skilled employees
is intense. Quantum believes that a great part of its future success will depend
on its continued ability to attract and retain qualified employees. None of the
Company's employees are represented by a trade union, and the Company has
experienced no work stoppages. Quantum believes that its employee relations are
favorable.
ITEM 2. Properties
The Company has its Corporate headquarters in a leased 37-acre, five-building
campus complex in Milpitas, California. The Company owns a 72-acre, two-building
complex in Shrewsbury, Massachusetts, used for research and development and
production of recording heads; a recording heads research and development
facility in Louisville, Colorado; a repair facility in Penang, Malaysia; and a
distribution and hard disk drive configuration facility in Dundalk, Ireland. The
Company leases a facility in Batam, Indonesia, for manufacturing recording
heads. The Company also leases manufacturing facilities in Colorado Springs,
Colorado. In conjunction with the transition of its high-capacity products
manufacturing to MKE, the Company completed the shut-down of the related
facilities in fiscal 1997. The Company closed the high-capacity manufacturing
operations in Milpitas, California, and in the second quarter of fiscal 1997,
sold the manufacturing plant in Malaysia. Additional warehouse and office space
is leased throughout the world, typically on a short-term basis. The Company
will supplement existing facilities during fiscal 1998 to support customer
requirements. Rent expense was approximately $26 million in fiscal 1997.
Properties associated with recording heads operations were leased to the
MKE/Quantum recording heads joint venture in May 1997. For additional
information regarding the joint venture, refer to Part I, Item 1, Strategic
Developments - MKE/Quantum Recording Heads Joint Venture; and Part II, Item 8,
Note 18 of the Notes to Consolidated Financial Statements.
ITEM 3. Legal Proceedings
For information regarding legal proceedings, refer to Part II, Item 8, Note 13
of the Notes to Consolidated Financial Statements.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
10
<PAGE>
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Quantum Corporation's common stock has been traded in the over-the-counter
market under the Nasdaq symbol QNTM since the Company's initial public offering
on December 10, 1982.
The prices per share reflected in the table represent the range of high and low
closing prices in the Nasdaq National Market System (adjusted to reflect a
two-for-one stock split) for the quarter indicated.
Fiscal 1997 High Low
- ---------------------------------------------- ---- ---
Fourth quarter ended March 31, 1997 $22 17/32 $13 3/4
Third quarter ended December 29, 1996 $14 7/8 $ 8 21/32
Second quarter ended September 29, 1996 $ 9 3/16 $ 5 1/2
First quarter ended June 30, 1996 $13 $ 7 1/32
Fiscal 1996 High Low
- ---------------------------------------------- ---- ---
Fourth quarter ended March 31, 1996 $ 9 15/16 $ 8 5/16
Third quarter ended December 31, 1995 $10 7/16 $ 8 1/16
Second quarter ended October 1, 1995 $13 25/32 $10 7/16
First quarter ended July 2, 1995 $13 5/32 $ 7 1/2
Historically, the Company has not paid cash dividends on its common stock and
the Company's debt agreement currently prohibits the Company from paying
dividends while the debt is outstanding.
As of May 1, 1997, there were approximately 1,890 shareholders of record of the
Company.
11
<PAGE>
ITEM 6. Selected Consolidated Financial Data
<TABLE>
(In thousands except per
share amounts, and ratios)
<CAPTION>
Year ended March 31 (iv)
-------------------------------------------------------------------------------------
1997 1996(i) 1995(iii) 1994 1993
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 5,319,457 $ 4,422,726 $ 3,367,984 $ 2,131,054 $ 1,697,240
Research and development 291,332 239,116 169,282 89,837 63,019
Net income (loss) 148,515 (90,456) 81,591 2,674 93,811
Net Income (Loss) Per
Share (v):
Primary 1.21 (0.87) 0.86 .03 1.03
Fully diluted 1.03 (0.87) 0.76 .03 0.89
Property, Plant and
Equipment, Net 407,206 364,111 280,099 85,874 74,698
Total assets 2,158,263 1,975,355 1,481,028 997,438 926,633
Total Long-Term Debt and
Redeemable Preferred
Stock 422,906 598,158 327,500 212,500 212,500
Return on Average
Shareholders' Equity 20.8% (17.2)% 17.7% 0.7% 26.6%
Ratios of Earnings to
Fixed Charges 4.5 (ii) 6.0 1.2 9.6
<FN>
(i) The results of operations for fiscal 1996 include the effect of a $209
million charge related to the transition of manufacturing of the
Company's high-capacity products to MKE. Refer to Note 10 of the Notes
to Consolidated Financial Statements.
(ii) Earnings (as defined) for fiscal 1996 were insufficient to cover fixed
charges by $141.3 million.
(iii) On October 3, 1994, Quantum acquired portions of Digital Equipment's
business. The acquisition is not reflected in the financial statements
prior to fiscal 1995, thus the results for fiscal 1995 are not
comparable to the results prior to fiscal 1995. Refer to Note 16 in
Notes to Consolidated Financial Statements.
(iv) No cash dividends were paid for the years presented.
(v) Per share amounts reflect the retroactive recognition of the
two-for-one stock split effected June 1997. Refer to Note 9 of the
Notes to Consolidated Financial Statements.
</FN>
</TABLE>
12
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Fiscal 1997 Compared with Fiscal 1996
Sales. Sales in fiscal 1997 increased 20%, to $5.3 billion, compared with sales
of $4.4 billion in fiscal 1996. The increase reflected an increase in shipments
of disk drives, tape drives, and tape drive-related products, as well as an
increase in the average drive price. The increase in the average drive price
reflected a change in sales mix to more advanced, larger-capacity drives; market
demand; and the limited market availability of higher-capacity drives. Partially
offsetting the increase in sales was a decline (particularly in the first
through third quarters of fiscal 1997) in high-end disk drive sales. This
decline resulted from the transition of the manufacture of high-end disk drives
to MKE during fiscal 1997, with older products ceasing production in July 1996,
and new high-end drives not ramping until the third and fourth quarters of
fiscal 1997.
Sales to the Company's top five customers were 38% of sales in fiscal 1997,
compared with 44% in fiscal 1996. Sales to Compaq Computer, Inc. were $562
million, or 11% of sales, in fiscal 1997, compared with $522 million, or 12% of
sales, in fiscal 1996. Sales to Hewlett Packard were $562 million, or 11% of
sales, in fiscal 1997, and were less than 10% of sales in fiscal 1996. Sales to
Apple Computer, Inc. were less than 10% of sales in fiscal 1997, compared with
$473 million, or 11% of sales, in fiscal 1996.
The split of fiscal 1997 sales between OEMs and distribution channels was $3.3
billion and $2.0 billion, or 63% and 37% of sales, respectively, compared with
$3.1 billion and $1.3 billion, or 71% and 29% of sales, respectively, in fiscal
1996. Sales to the OEMs and the distribution channels were based on product
availability and demand.
Gross Margin Rate. The gross margin rate increased 2.2 percentage points to
14.5% in fiscal 1997, from 12.3% in fiscal 1996. The increase reflected a higher
proportion of tape drive and tape drive related product sales in fiscal 1997,
compared to fiscal 1996, as these products achieved a higher gross margin rate
than sales of other products of the Company. The 2.2 percentage point gross
margin rate increase in fiscal 1997 also reflected the impact of a resizing
charge in fiscal 1996 of $38 million, of which $36 million impacted the gross
margin. The fiscal 1996 gross margin rate would have been 13.1% without the
resizing charge.
Research and Development Expenses. In fiscal 1997, the Company's investment in
research and development was $291 million, or 5.5% of sales, compared with $239
million, or 5.4% of sales, in fiscal 1996. The $52 million increase in research
and development spending reflected higher expenses related to preproduction
activity for a number of new products for both the desktop and high-capacity
drive markets. Research and development spending also reflected management's
continuing focus on the development and timely introduction of new information
storage products and technologies. As a percentage of sales, research and
development expenses in fiscal 1998 are expected to be consistent with those of
fiscal 1997.
Sales and Marketing Expenses. Sales and marketing expenses in fiscal 1997 were
$149 million, or 2.8% of sales, compared with $142 million, or 3.2% of sales in
fiscal 1996. The fiscal 1997 decline in sales and marketing expenses as a
percentage of sales reflected the increase in sales and management imposed
spending constraints early in the year. As a percentage of sales, sales and
marketing expenses in fiscal 1998 are expected to be consistent with those of
fiscal 1997.
General and Administrative Expenses. General and administrative expenses in
fiscal 1997 were $87 million, or 1.6% of sales, compared with $65 million, or
1.5% of sales, in fiscal 1996. The increase in expenses in fiscal 1997 reflected
expansion of the Company's infrastructure. As a percentage of sales, general and
administrative expenses in fiscal 1998 are expected to be slightly above those
of fiscal 1997 to support business activities.
Interest and Other Income/Expense. Net interest and other income and expense in
fiscal 1997 was $41 million net expense, compared with $28 million net expense
in fiscal 1996, reflecting an increase in interest expense as a result
13
<PAGE>
of an approximately $153 million increase in the average amount of debt
outstanding in fiscal 1997, compared with fiscal 1996. The debt was utilized to
finance operations.
Income Taxes. The effective tax rate in fiscal 1997 was 26%, compared with 36%
in fiscal 1996. The decrease in the effective tax rate was attributable
primarily to the benefit of foreign earnings taxed at less than the U.S. rate
and a reversal of the federal valuation allowance previously provided for
certain state-deferred tax assets. The federal valuation allowance was reversed
in fiscal 1997 as a result of the realization of the federal deferred tax assets
through tax planning. For financial reporting purposes, the Company has provided
a valuation allowance for certain deferred tax assets that are expected to
reverse over a 15 year period. The Company believes that the valuation allowance
is needed to reduce the deferred tax asset to an amount that is more likely than
not to be realized. The Company has concluded that taxable income expected to be
generated over future years, combined with the reversal of existing taxable
temporary differences, will be sufficient to realize the benefits of the
remaining deferred tax assets.
Net Income. After tax earnings increased to a net income of $148.5 million in
fiscal 1997, from a net loss of $90.5 million in fiscal 1996. The change to a
net income in fiscal 1997 from a net loss in fiscal 1996 reflects the impact of
the $209 million fiscal 1996 charge related to the transition of high-capacity
product manufacturing to MKE.
Fiscal 1996 Compared with Fiscal 1995
Sales. Sales in fiscal 1996 increased 31%, to $4.4 billion, compared with sales
of $3.4 billion in fiscal 1995. The increase reflected an increase in drive
shipments and a change in sales mix to more advanced, larger-capacity products.
The increase was partially offset by a decline in average drive prices for older
products. The increase in sales also reflected a full year's sale of products
acquired in the October 3, 1994, purchase of the Disks, Heads and Tapes
Businesses of the Storage Business Unit of Digital Equipment Corporation (the
"Acquired Businesses"). On a pro forma basis, the Company's sales in fiscal 1995
would have been $3.8 billion had the acquisition of the Acquired Businesses
occurred at the beginning of fiscal 1995.
Sales to the Company's top five customers were 44% of sales in fiscal 1996,
compared to 46% in fiscal 1995. Sales to Compaq Computer, Inc. were $522
million, or 12% of sales, in fiscal 1996, compared to $536 million, or 16% of
sales, in fiscal 1995. Sales to Apple Computer, Inc. were $473 million, or 11%
of sales, in fiscal 1996, compared with $404 million, or 12% of sales, in fiscal
1995.
The split of fiscal 1996 sales between OEMs and distribution channels was $3.1
billion and $1.3 billion, or 71% and 29% of sales, respectively, compared with
$2.5 billion and $0.9 billion, or 75% and 25% of sales, respectively, in fiscal
1995. Sales to distribution channels increased during fiscal 1996 as the Company
widened its customer base.
Gross Margin Rate. The gross margin rate decreased to 12.3% in fiscal 1996,
compared with 16.7% in fiscal 1995. The decrease in gross margin rate was
attributable to product qualification issues that contributed to higher costs
and lower-than-expected unit volumes in the high-capacity product line. In
addition, a $38 million resizing charge recorded in fiscal 1996 impacted the
gross margin by $36 million. Without this resizing charge, the gross margin rate
for fiscal 1996 would have been 13.1%.
Research and Development Expenses. In fiscal 1996, the Company invested $239
million, or 5.4% of sales, in research and development, compared with $169
million, or 5.0% of sales, in fiscal 1995. The increase in fiscal 1996 reflected
the impact of a full year of expenses for the Acquired Businesses, along with
higher expenses related to preproduction activity for a larger number of new
products.
Sales and Marketing Expenses. Sales and marketing expenses in fiscal 1996 were
$142 million, or 3.2% of sales, compared with $108 million, or 3.2% of sales, in
fiscal 1995. The increase in expenses in fiscal 1996 was due primarily to the
costs associated with supporting the Company's higher sales volume.
14
<PAGE>
General and Administrative Expenses. General and administrative expenses in
fiscal 1996 were $65 million, or 1.5% of sales, compared with $52 million, or
1.5% of sales, in fiscal 1995. The increase in expenses in fiscal 1996 reflected
expansion of the Company's infrastructure.
Other Operating Charges. In fiscal 1996, the Company included in results of
operations a charge of $209 million related to the transition of manufacturing
for the high-capacity products to MKE. The charge was comprised of reduction in
work force of approximately $10 million; write-down of capital assets of
approximately $45 million; incremental inventory write-downs and excess purchase
commitment accruals of approximately $144 million; and other charges of
approximately $10 million. These amounts reflect the provision for closing the
manufacturing facilities in Penang, Malaysia, and Milpitas, California.
As a result of the acquisition of the Acquired Businesses in fiscal 1995, the
Company incurred a charge of $73 million, which included $68 million of
purchased in-process research and development and $5 million in related merger
costs. Merger costs comprised of incremental integration costs incurred through
the end of the quarter in which the acquisition was consummated.
Interest and Other Income/Expense. Net interest and other income and expense in
fiscal 1996 was $28 million net expense, compared with $16 million net expense
in fiscal 1995. The increase in net expense in fiscal 1996 resulted from
interest expense on higher levels of debt used to finance operations.
Income Taxes. The effective tax rate in fiscal 1996 was 36%, compared with 44%
in fiscal 1995. The decrease in the effective tax rate was attributable
primarily to the realization of deferred tax assets previously reserved and
lower overall state taxes, offset by a reduction in the benefit of foreign
earnings taxed at less than the U.S. rate.
Net Income/Loss. After tax earnings decreased to a net loss of $90.5 million in
fiscal 1996 from a net income of $81.6 million in fiscal 1995. The change to a
net loss in fiscal 1996 from a net income in fiscal 1995 reflected the impact of
the $209 million fiscal 1996 charge related to the transition of high-capacity
product manufacturing to MKE.
Liquidity and Capital Resources
The Company generated improved cash flow from operations, aggregating $313
million in fiscal 1997. At March 31, 1997, the Company had $345 million in cash
and cash equivalents, compared to $165 million at March 31, 1996. Cash was
provided by operating activities, primarily from net income and a decrease in
inventory, and was partially offset by an increase in accounts receivable. Cash
used in investing activities reflected investment in property and equipment.
Cash was also provided by financing activities as a result of proceeds from the
issuance of common stock (primarily from the Employee Stock Purchase Plan) and
from the mortgage arrangement, described below, partially offset by net pay-down
on the senior credit facility.
The Company has a senior credit facility that includes a $56.3 million term loan
and a $325 million revolving credit line with a $110 million outstanding balance
at March 31, 1997. The term loan, which began to amortize on December 31, 1996,
will amortize over six remaining quarterly payments.
The Company expects to spend approximately $200 million for capital equipment,
expansion of the Company's facilities, and leasehold improvements in fiscal
1998. These capital expenditures will support the tapes business, research and
development, general corporate operations, and the Company's involvement in the
recording heads operations. The Company believes that it will be able to fund
these capital requirements at least through fiscal 1998. Refer to the Future
Capital Needs section of the Trends and Uncertainties section for additional
discussion of capital.
The Company extended until September 1997 an $85 million unsecured Letter of
Credit facility with certain banks to issue standby letters of credit to MKE and
its affiliates.
15
<PAGE>
In September 1996, the Company entered into a $42 million mortgage financing
related to certain domestic facilities at an effective interest rate of
approximately 10.1%. The term of the mortgage is 10 years, with monthly payments
based on a 20-year amortization period, and a balloon payment at the end of the
10-year term.
The Company believes that its existing capital resources, including credit
facilities and any cash generated from operations, will be sufficient to meet
all currently planned expenditures and sustain operations for the next fiscal
year. However, this belief assumes that operating results and cash flow from
operations will meet the Company's expectations, and actual results could vary
due to the factors described in the Trends and Uncertainties section which
follows.
Refer to Note 6 of the Notes to Consolidated Financial Statements for additional
information regarding debt.
Trends and Uncertainties
Operating in the information storage industry, Quantum is affected by numerous
trends and uncertainties, some of which are specific to the industry while
others relate more specifically to Quantum. These are discussed below.
Trends and Uncertainties - Information Storage Industry
The numerous trends and uncertainties inherent in the information storage
industry are summarized below. Following the summary is a discussion of how
these trends and uncertainties specifically impact the Company.
o Intense competition - The information storage products industry in
general, and the disk drive industry in particular, is characterized by
intense competition that results in rapid price erosion; short product
life cycles; and continuous introduction of new, more cost-effective
products offering increased levels of capacity and performance.
o Rapid technological change - Technology advancement in the information
storage industry is increasingly rapid.
o Customer concentration - High-purchase-volume customers for information
storage products are concentrated within a small number of computer
system manufacturers, distribution channels, and system integrators.
o Fluctuating product demand - The demand for hard disk drive products
depends on the demand for the computer systems in which hard disk
drives are used, which in turn is affected by computer system product
cycles and by prevailing economic conditions.
o Intellectual property conflicts - The hard disk drive industry has been
characterized by significant litigation relating to patent and other
intellectual property rights.
Intensely Competitive Industry. To compete within the information storage
industry, Quantum frequently introduces new products and transitions to newer
versions of existing products. Product introductions and transitions are
significant to the operating results of Quantum, and if they are not successful,
the Company would be materially and adversely affected. The hard disk drive
industry also tends to experience periods of excess product inventory and
intense price competition. If price competition intensifies, the Company may be
forced to lower prices more than expected, which could materially adversely
affect the Company. In addition, the Company's customers could commence the
manufacture of disk and tape drives for their own use or for sale to others. Any
such loss of customers could have a material adverse effect on the Company.
Quantum faces direct competition from a number of companies, including Seagate,
Western Digital, IBM (which recently increased its investment in its storage
business), Maxtor and Exabyte. In the event that the Company is unable to
compete effectively with these or any other company, the Company would be
materially adversely affected. The Company's information storage product
competition can be further broken down as follows:
16
<PAGE>
Desktop Storage Products. In the market for desktop products, Quantum
competes primarily with Seagate, Western Digital, and Maxtor. Quantum and
its competitors have developed and are developing a number of products
targeted at particular segments of this market, such as business users and
home PC buyers, and factors such as time to market can have a significant
effect on the success of any particular product. The desktop market is
characterized by more competitors and shorter product life cycles than the
hard disk drive market in general.
Workstation and System Storage Products. The Company faces competition in
the high-capacity disk drive market primarily from Seagate and IBM.
Seagate has the largest share of the market for high-capacity disk drives.
Although the same competitive factors identified above as being generally
applicable to the overall disk drive industry apply to high-capacity disk
drives, the Company believes that the performance and quality of its
products are more important to the users in this market than to users in
the desktop market. The Company's success in the high-capacity market
during the foreseeable future is dependent on the successful development,
timely introduction, and market acceptance of key new products, as to
which there can be no assurance.
Specialty Storage Products. In the market for tape drives, the Company
competes with other companies that have tape drive product offerings. The
Company targets a market segment that requires a mission critical backup
system and competes in this segment based on the reliability and
durability of its tape drives. Although the Company has experienced
excellent market acceptance of its tape drive products, the market could
become significantly more competitive at any time during fiscal 1998 or
beyond. As a result, the Company could experience increased price
competition. If price competition occurs, the Company may be forced to
lower prices, in which case the Company could be materially adversely
affected.
Rapid Technological Change, New Product Development, and Qualification. The
combination of an environment of rapid technological changes, short product life
cycles and competitive pressures results in gross margins on specific products
decreasing rapidly. Accordingly, any delay in introduction of more advanced and
more cost-effective products can result in significantly lower sales and gross
margins. The Company's future is therefore dependent on its ability to
anticipate what customers will demand and to develop the new products to meet
this demand. The Company must also qualify new products with its customers,
successfully introduce these products to the market on a timely basis, and
commence volume production to meet customer demands. For example, during the
first quarter of fiscal 1998 the Company expects to introduce a new desktop
product that will account for a significant portion of the Company's sales.
There can be no assurance that the Company will successfully qualify this new
desktop product with its customers on a timely basis or that such product will
be produced in sufficient quantities to meet customer demand. Due to these
factors, the Company expects that sales of new products will continue to account
for a significant portion of its future sales and that sales of older products
will decline accordingly.
The Company is frequently in the process of qualifying new products with its
customers. The customer qualification process for disk drive products,
particularly high-capacity products, can be lengthy, complex, and difficult. In
addition, the Company transitioned the manufacturing of its high capacity
products to MKE during the first half of fiscal 1997, and MKE has only recently
begun volume production of such high-capacity products. In the event that the
Company is unable to obtain additional customer qualifications for new products
in a timely manner, or at all, or in the event that MKE is unable to continue to
manufacture such products in volume and with consistent high quality, the
Company would be materially adversely affected.
There can be no assurance that the Company will be successful in the development
and marketing of any new products and components in response to technological
change or evolving industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these products and components; or that the
Company's new products and components will adequately meet the requirements of
the marketplace and achieve market acceptance. In addition, technological
advances in magnetic, optical or other technologies, or the development of new
technologies, could result in the introduction of competitive products with
superior performance to and substantially lower prices than the Company's
products.
17
<PAGE>
Further, the Company's new products and components are subject to significant
technological risks. If the Company experiences delays in the commencement of
commercial shipments of new products or components, the Company could experience
delays or loss of product sales. If the Company is unable, for technological or
other reasons, to develop and introduce new products in a timely manner in
response to changing market conditions or customer requirements, the Company
would be materially adversely affected.
Customer Concentration. In addition to the information storage industry and the
Company's customer base being concentrated, the customers generally are not
obligated to purchase any minimum volume of the Company's products, and the
Company's relationships with its customers are generally terminable at will by
its customers.
Sales of the Company's desktop products, which comprise a majority of its
overall sales, were concentrated with several key customers in fiscal 1997 and
1996. Sales to the top five customers of the Company represented 38% and 44% of
total sales in fiscal 1997 and 1996, respectively. In addition, the Company is
unable to predict whether or not there will be any significant change in demand
for any of its customers' products in the future. In the event that any such
changes result in decreased demand for the Company's products, whether by loss
of or delays in orders, the Company could be materially adversely affected.
Fluctuation in Product Demand. Fluctuation in demand for the Company's products
generally results in fluctuations in the Company's operating results. Demand for
computer systems-especially in the PC market segment, where the Company derives
a significant amount of its disk drive sales-has historically been subject to
significant fluctuations. Such fluctuations in end-user demand have in the past,
and may in the future, result in the deferral or cancellation of orders for the
Company's products, each of which could have a material adverse effect on the
Company. During the past several years, there has been significant growth in the
demand for PCs, a portion of which represented sales of PCs for use in the home.
However, many analysts predict that future growth may be at a moderately slower
rate than the rate experienced in recent years.
Sales of tape drives and tape drive-related products, although a less
significant component of sales for the Company than sales of disk drive
products, have tended to be more stable. The Company has experienced longer
product cycles for its tape drives and tape drive-related products, compared
with the short product cycles of disk drive products. However, there is no
assurance that this trend will continue.
The Company could experience decreases in demand for its products in the future,
which could have a material adverse effect on the Company.
The hard disk drive industry has also been subject, from time to time, to
seasonal fluctuations in demand. The Company has typically experienced
relatively flat demand in the quarter ending September 30 compared with the
quarter ending June 30, and increasing demand throughout the quarters ending
December 31 and March 31. The Company's shipments tend to be highest in the
third month of each quarter, and failure by the Company to complete shipments in
the final month could adversely affect the Company's operating results for that
quarter.
Intellectual Property Matters. From time to time, the Company is approached by
companies and individuals alleging Quantum's need for a license under patented
technology that Quantum assertedly uses. If required, there can be no assurance
that licenses to any such technology could be obtained or obtained on
commercially reasonable terms. Adverse resolution of any intellectual property
litigation could subject the Company to substantial liabilities and require it
to refrain from manufacturing certain products. In addition, the costs of
engaging in such litigation may be substantial, regardless of the outcome.
Trends and Uncertainties More Specific to Quantum
There are certain trends and uncertainties that relate more specifically to
Quantum and are not necessarily indicative of the information storage industry
as a whole. These trends and uncertainties include dependence on MKE for the
manufacture of the disk drives that Quantum develops and markets, costs
associated with the MR recording head development and manufacture, the recently
announced recording heads joint venture with MKE, dependence on suppliers,
component shortages, future capital needs, warranty costs, foreign
manufacturing, and price volatility of
18
<PAGE>
Quantum common stock. For information regarding litigation refer to Note 13 of
the Notes to Consolidated Financial Statements.
Dependence on MKE Relationship. Quantum is dependent on MKE for the manufacture
of its disk drive products. Approximately 81% of the Company's fiscal 1997 sales
were derived from products manufactured by MKE. The transition of the
manufacturing of the Company's high-capacity products to MKE in fiscal 1997 has
resulted in an increased dependence on MKE. The Company's relationship with MKE
is therefore critical to the Company's business and financial performance.
The Company's dependence on MKE entails, among others, the following principal
risks:
Quality and Delivery. The Company relies on MKE's ability to bring new
products rapidly to volume production at low cost, to meet the Company's
stringent quality requirements, and to respond quickly to changing product
delivery schedules from the Company. This requires, among other things,
close and continuous collaboration between the Company and MKE in all
phases of design, engineering, and production. The Company's business and
financial results would be adversely affected if products manufactured by
MKE fail to satisfy the Company's quality requirements or if MKE is unable
to meet the Company's delivery commitments. In the event MKE is unable to
satisfy Quantum's production requirements, the Company would not have an
alternative manufacturing source to meet the demand without substantial
delay and disruption of the Company's operations. As a result, the Company
would be materially adversely affected.
Volume and Pricing. MKE's production schedule is based on the Company's
forecasts of its product purchase requirements, and the Company has only
limited rights to modify short-term purchase orders issued to MKE.
Further, the demand in the desktop business is inherently volatile, and
there is no assurance that the Company's forecasts are accurate. In
addition, the Company periodically negotiates pricing arrangements with
MKE. The failure of the Company to accurately forecast its requirements,
which could lead to inventory shortages or surpluses, or the failure to
reach pricing agreements reasonable to the Company would have a material
adverse effect on the Company.
Manufacturing Capacity and Capital Commitment. The Company believes that
MKE's current and committed manufacturing capacity should be adequate to
meet the Company's requirements at least through the end of fiscal 1998.
The Company's future growth will require, however, that MKE continue to
devote substantial financial resources to property, plant and equipment
and working capital to support manufacture of the Company's products, as
to which there can be no assurance. In the event that MKE is unable or
unwilling to meet the Company's manufacturing requirements, there can be
no assurance that the Company would be able to obtain an alternate source
of supply. Any such failure to obtain an alternative source would have a
material adverse effect on the Company.
MR Recording Heads Development and Manufacturing. Since the fiscal 1995
acquisition of MR recording heads technology as part of the acquisition of
certain businesses of the Storage Business Unit of Digital Equipment
Corporation, Quantum has made significant efforts to advance the development of
its MR recording heads capability. The Company believes that MR head technology,
which enables higher capacity per disk than conventional thin-film inductive
heads, will replace inductive heads as the leading recording head technology.
Although the Company currently obtains the majority of its MR heads from outside
sources, the Company believes that by manufacturing MR heads it has developed
in-depth knowledge of MR head technology. This knowledge is leveraged in the
research, development, and production of disk drive products that utilize MR
head technology. In addition, the Company believes that having a captive supply
of MR heads lowers the risk of MR head supply shortages that may occur in the
future as a result of increased requirements for disk drive products that
utilize MR recording heads. However, MR technology is relatively complex and, to
date, the Company's manufacturing yields for its MR heads have been lower than
would be necessary for cost effective production of MR recording heads.
As discussed in the Strategic Development section, MKE and Quantum agreed to
form a joint venture to partner in the research, development, and production of
MR heads and technology. Quantum believes that through MKE's manufacturing
expertise, the potential of the MR heads operations will be realized to the
benefit of both MKE and
19
<PAGE>
Quantum. However, cost-effective production of MR recording heads is not
expected to be realized until late fiscal 1998 at the earliest. Until that time,
the Company will incur losses based on its pro rata ownership interest in the
new joint venture. However, there can be no assurance that the benefits of the
joint venture will be realized on a timely basis or at all. There is an
additional uncertainty associated with maintaining or increasing the supply of
MR recording heads used in the manufacture of disk drives. There are limited
alternative sources of supply for MR recording heads. In the event that current
sources of MR recording heads, which include Quantum's MR heads operations that
will become part of the joint venture, do not meet disk drive production
requirements, there can be no assurance that the Company will be able to locate
and obtain adequate supplies from alternative sources. A shortage of MR
recording heads would materially adversely affect the Company.
Dependence on Suppliers of Components and Sub-Assemblies; Component Shortages.
The Company and its manufacturing partner, MKE, are dependent on qualified
suppliers for components and sub-assemblies, including recording heads, media,
and integrated circuits, which are essential to the manufacture of the Company's
products. In connection with certain products, the Company and MKE qualify only
a single source for certain components and sub-assemblies, which can magnify the
risk of shortages. Component shortages have constrained the Company's sales
growth in the past, and the Company believes that the industry will periodically
experience component shortages. If such shortages occur, or if the Company
experiences quality problems with component suppliers, shipments of products
could be significantly delayed or costs significantly increased, which would
have a material adverse effect on the Company.
Future Capital Needs. The information storage business is capital-intensive.
Although the Company expects long-term capital requirements related to its
involvement in the development and manufacture of MR recording heads to decline
as a result of the announced joint venture with MKE, the Company believes that
it will need significant additional financial resources over the next several
years for capital expenditures, working capital, and research and development,
in order to remain competitive in the information storage business. The Company
believes that it will be able to fund these capital requirements at least
through fiscal 1998. However, if the Company decides to increase its capital
expenditures further or sooner than presently contemplated, or if results of
operations do not meet the Company's expectations, the Company will require
additional debt or equity financing. There can be no assurance that such
additional funds will be available to the Company or will be available on
favorable terms. The Company may also require additional capital for other
purposes not presently contemplated. If the Company is unable to obtain
sufficient capital, it could be required to curtail its capital equipment and
research and development expenditures, which could adversely affect the Company.
Warranty. Quantum generally warrants its products against defects for a period
of one to five years. A provision for estimated future costs relating to
warranty expense is recorded when products are shipped. The actual warranty
expenditures could have a material unfavorable impact on the Company if the
actual rate of unit failure or the cost to repair a unit is greater than what
the Company has used in estimating the warranty expense accrual.
Risks Associated with Foreign Manufacturing. Many of the Company's products are
currently manufactured outside the United States. As a result, the Company is
subject to certain risks associated with contracting with foreign manufacturers,
including obtaining requisite United States and foreign governmental permits and
approvals, currency exchange fluctuations, currency restrictions, political
instability, labor problems, trade restrictions, and changes in tariff and
freight rates.
Foreign Exchange Contracts. The Company manages the impact of foreign currency
exchange rate changes on certain foreign currency receivables and payables using
foreign currency forward exchange contracts. With this approach the Company
expects to minimize the impact of changing foreign exchange rates on the
Company's net income. However, there can be no assurance that all foreign
currency exposures will be adequately managed, and the Company could incur
material charges as a result of changing foreign exchange rates. Refer to Note 2
of the Notes to Consolidated Financial Statements for additional information
regarding foreign currency forward exchange contracts.
Volatility of Stock Price. The market price of the Company's common stock has
been, and may continue to be, extremely volatile. Factors such as new product
announcements by the Company or its competitors; quarterly
20
<PAGE>
fluctuations in the operating results of the Company, its competitors, and other
technology companies; and general conditions in the computer market may have a
significant impact on the market price of the common stock. In particular, if
the Company were to report operating results that did not meet the expectations
of the analysts, the market price of the common stock could be materially
adversely affected.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative information about market risk, refer to Part
II, Item 7, Trends and Uncertainties - Foreign Exchange Contracts, and Item 8,
Notes 1 and 2 of the Notes to Consolidated Financial Statements.
ITEM 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Page
----
Financial Statements:
Report of Ernst & Young LLP, Independent Auditors 22
Consolidated Statements of Operations for each of the 23
three years in the period ended March 31, 1997
Consolidated Balance Sheets at March 31, 1997 and 1996 24
Consolidated Statements of Cash Flows for each of the 25
three years in the period ended March 31, 1997
Consolidated Statements of Shareholders' Equity for 26
each of the three years in the period ended
March 31, 1997
Notes to Consolidated Financial Statements 27
Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts 52
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
ITEM 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
21
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Shareholders Of
Quantum Corporation
We have audited the accompanying consolidated balance sheets of Quantum
Corporation as of March 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended March 31, 1997. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Quantum
Corporation at March 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1997, 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.
Ernst & Young LLP
Palo Alto, California
April 28, 1997
22
<PAGE>
QUANTUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data) Year ended March 31,
------------------------------------------
1997 1996 1995
------------------------------------------
Sales $ 5,319,457 $ 4,422,726 $ 3,367,984
Cost of sales 4,550,716 3,880,309 2,804,271
----------- ----------- -----------
768,741 542,417 563,713
Operating expenses:
Research and development 291,332 239,116 169,282
Sales and marketing 149,371 142,413 108,290
General and administrative 86,507 65,145 52,134
Restructuring and other charges -- 209,122 --
Purchased research and development
and in merger costs -- -- 72,945
----------- ----------- -----------
527,210 655,796 402,651
----------- ----------- -----------
Income (loss) from operations 241,531 (113,379) 161,062
Interest and other income, net 7,047 8,462 7,258
Interest expense (47,882) (36,421) (23,015)
----------- ----------- -----------
Income (loss) before income taxes 200,696 (141,338) 145,305
Income tax provision (benefit) 52,181 (50,882) 63,714
----------- ----------- -----------
Net income (loss) $ 148,515 $ (90,456) $ 81,591
=========== =========== ===========
Net income (loss) per share:
Primary $ 1.21 $ (0.87) $ 0.86
=========== =========== ===========
Fully diluted $ 1.03 $ (0.87) $ 0.76
=========== =========== ===========
Common and common equivalent shares:
Primary 123,144 103,682 94,638
=========== =========== ===========
Fully diluted 154,693 103,682 118,076
=========== =========== ===========
See accompanying notes to consolidated financial statements.
23
<PAGE>
<TABLE>
QUANTUM CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(In thousands except share and per share data) March 31,
---------------------------
1997 1996
---------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 345,125 $ 164,752
Accounts receivable, net of allowance for doubtful
accounts of $10,610 in 1997 and $10,497 in 1996 887,477 711,107
Inventories 252,802 459,538
Deferred taxes 122,899 109,625
Other current assets 80,116 81,472
------------ ------------
Total current assets 1,688,419 1,526,494
Property, plant, and equipment, less accumulated
depreciation 407,206 364,111
Purchased intangibles, less accumulated amortization 42,131 66,313
Other assets 20,507 18,437
------------ ------------
$ 2,158,263 $ 1,975,355
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 502,069 $ 498,829
Accrued warranty expense 94,989 62,289
Accrued compensation 63,093 45,439
Income taxes payable 31,153 40,994
Accrued restructuring and exit costs 5,983 115,537
Current portion of long-term debt 44,229 4,125
Other accrued liabilities 74,062 53,929
------------ ------------
Total current liabilities 815,578 821,142
Deferred taxes 33,587 11,232
Convertible subordinated debt 241,350 374,283
Long-term debt 177,668 223,875
Commitments and contingencies (Notes 13 and 14)
Redeemable Preferred Stock, Series B, $.01 par value; 90,000 shares
issued; $10,000 aggregate involuntary liquidation value 3,888 --
Shareholders' equity:
Preferred stock, $.01 par value; authorized:
4,000,000 shares; 90,000 redeemable shares issued -- --
Common stock, $.01 par value; authorized:
500,000,000 shares (including a 350,000,000 increase to the authorized
amount effective April 1997); issued and outstanding:
130,864,454 in 1997 and 108,391,344 in 1996 (including the effect of
a two-for-one stock split effective June 1997) 1,308 1,082
Capital in excess of par value 458,492 265,864
Retained earnings 426,392 277,877
------------ ------------
Total shareholders' equity 886,192 544,823
------------ ------------
$ 2,158,263 $ 1,975,355
============ ============
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
24
<PAGE>
<TABLE>
QUANTUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(In thousands) Year ended March 31,
------------------------------------
1997 1996 1995
------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 148,515 $ (90,456) $ 81,591
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operations:
Restructuring and other charges -- 208,571 67,184
Gain on sale of equity investment -- (3,844) --
Depreciation 96,477 68,381 38,627
Amortization 27,959 28,727 14,685
Deferred taxes 9,081 (54,339) --
Compensation related to stock incentive plans 2,391 1,414 --
Changes in assets and liabilities:
Accounts receivable (176,370) (216,499) (173,511)
Inventories 206,736 (188,444) 16,085
Accounts payable 3,240 144,547 87,928
Income taxes payable (9,841) (26,430) 17,566
Accrued warranty expense 32,700 5,463 1,384
Other assets and liabilities (28,189) (41,198) 9,517
--------- --------- ---------
Net cash provided by (used in) operating activities 312,699 (164,107) 161,056
--------- --------- ---------
Cash flows from investing activities:
Purchases of marketable securities -- -- (105,474)
Purchase of equity securities/minority interest (6,132) -- --
Proceeds from sales and maturity of
marketable securities -- -- 217,982
Investment in property and equipment (174,977) (211,602) (128,170)
Proceeds from disposition of property and equipment 9,665
Proceeds from sale of equity investment -- 5,875 --
Proceeds from sale of distribution subsidiary -- 5,276 --
Purchase of Digital Equipment's Data Storage -- -- (285,171)
--------- --------- ---------
Business
Net cash provided by (used in) investing activities (171,444) (200,451) (300,833)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term credit facilities 330,091 393,000 220,500
Proceeds from mortgage loan 42,105 -- --
Principal payments on short-term note -- -- (70,000)
Principal payments on long-term credit facilities (378,339) (330,000) (55,500)
Proceeds from issuance of common stock 45,261 37,207 14,999
Proceeds from issuance of convertible
subordinated notes -- 241,350 --
--------- --------- ---------
Net cash provided by financing activities 39,118 341,557 109,999
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 180,373 (23,001) (29,778)
Cash and cash equivalents at beginning of year 164,752 187,753 217,531
--------- --------- ---------
Cash and cash equivalents at end of year $ 345,125 $ 164,752 $ 187,753
========= ========= =========
Supplemental disclosure of cash flow information:
Conversion of debentures $ 132,893 $ 79,567 --
========= ========= =========
Note received on disposition of property and
equipment $ 18,000
=========
Issuance of redeemable preferred stock as part of $ 3,888 -- --
========= ========= =========
minority interest acquisition
Issuance of note for acquisition of
Digital Equipment's Data Storage Business -- -- $ 70,000
========= ========= =========
Cash paid during the year for:
Interest $ 48,500 $ 32,768 $ 21,113
========= ========= =========
Income taxes $ 5,663 $ 29,789 $ 47,310
========= ========= =========
<FN>
See accompanying notes to consolidated financial statements.
25
</FN>
</TABLE>
<PAGE>
<TABLE>
QUANTUM CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Common Stock Capital
------------------- in excess Retained
(In thousands) Shares Amount of Par Value Earnings Total
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at March 31, 1994 89,208 $ 892 $ 123,638 $ 286,742 $ 411,272
Shares issued under employee
stock purchase plan 1,738 18 8,266 -- 8,284
Shares issued under employee
stock option plans, net 1,382 12 6,703 -- 6,715
Tax benefits related to stock
option plans -- -- 1,625 -- 1,625
Net income
-- -- -- 81,591 81,591
----------------------------------------------------------
Balances at March 31, 1995 92,328 932 140,232 368,333 509,487
Conversion of subordinated debentures 8,768 88 77,732 -- 77,820
Shares issued under employee
stock purchase plan 2,676 26 15,952 -- 15,978
Shares issued under employee
stock option plans, net 4,620 46 21,988 -- 22,034
Compensation expense -- -- 1,414 -- 1,414
Tax benefits related to stock
option plans -- -- 8,546 -- 8,546
Net loss
-- -- -- (90,456) (90,456)
----------------------------------------------------------
Balances at March 31, 1996 108,392 1,082 265,864 277,877 544,823
Conversion of subordinated debentures 14,644 146 131,118 -- 131,264
Shares issued under employee
stock purchase plan 3,216 32 17,370 -- 17,402
Shares issued under employee
stock option plans, net 4,612 48 27,811 -- 27,859
Compensation expense and other -- -- 5,299 -- 5,299
Tax benefits related to stock
option plans -- -- 11,030 -- 11,030
Net income
-- -- -- 148,515 148,515
=========================================================
Balances at March 31, 1997 130,868 $ 1,308 $ 458,492 $ 426,392 $ 886,192
=========================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
26
<PAGE>
QUANTUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
Nature of Business: Quantum Corporation ("Quantum" or the "Company"), operating
in a single business segment, designs, develops, and markets information storage
products, including high-performance, high-quality hard disk drives, half-inch
cartridge tape drives, tape drive-related products, and solid state disk drives.
The half-inch cartridge tape drives and solid state disk drives are manufactured
by the Company. Quantum is also involved in the design, development, and
manufacture of magnetoresistive ("MR") recording heads that are used in the
Company's hard disk drives, which are manufactured by the Company's exclusive
manufacturing partner, Matsushita-Kotobuki Electronics Industries, Ltd. ("MKE")
of Japan (refer to Note 18 of the Notes to Consolidated Financial Statements).
Quantum's products meet the storage requirements of workstations, network
servers, disk arrays, high-end to entry-level desktop personal computers, and
minicomputers. The Company markets its products directly to major original
equipment manufactures (OEMs) and through a broad range of distributors,
resellers, and systems integrators worldwide.
Accounting Policies: The summary of significant accounting policies is presented
to assist the reader in understanding and evaluating the consolidated financial
statements. These policies are in conformity with generally accepted accounting
principles.
Financial Statement Presentation: The accompanying consolidated financial
statements include the accounts of the Company and its majority-owned
subsidiaries. All material intercompany accounts and transactions have been
eliminated. Certain amounts in prior periods have been reclassified to conform
to current presentation.
The preparation of the consolidated financial statements of the Company in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the period. These estimates are based on
information available as of the date of the financial statements. Actual results
may differ from the estimates and assumptions used in preparing the consolidated
financial statements.
Revenue Recognition: Revenue from sales of products is recognized on shipment to
customers, with provision made for estimated returns.
Foreign Currency Translation and Transactions: Assets, liabilities, and
operations of foreign offices and subsidiaries are recorded based on the
functional currency of the entity. For a majority of the Company's material
foreign operations, the functional currency is the U.S. Dollar. Although over
half of the Company's sales are made to customers in non-U.S. locations and all
of the Company's hard disk drive products are manufactured in Japan, Singapore
and Ireland by MKE, a majority of the Company's material transactions are
denominated in U.S. dollars. Accordingly, the application of Statement of
Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation,"
to the Company's historical financial statements has resulted in transaction or
translation gains or losses that are immaterial to the Company's consolidated
financial statements for any year presented. The effect of foreign currency
exchange rate fluctuations on cash flows was also immaterial for the years
presented. Assets and liabilities denominated in other than the functional
currency are remeasured each month with the remeasurement gain or loss recorded
in other income.
Foreign Exchange Contracts: The effect of foreign currency rate changes on the
remeasurement of certain assets and liabilities denominated in a foreign
currency are managed using foreign currency forward exchange contracts. Foreign
currency forward exchange contracts represent agreements to exchange the
currency of one country for the currency of another country at an agreed-upon
price, on an agreed-upon settlement date. Foreign currency forward exchange
contracts are accounted for by the fair value method. Foreign currency forward
exchange contracts are carried on the balance sheet at fair value, with changes
in that value recognized in other income.
27
<PAGE>
Net Income (Loss) Per Share: Net income (loss) per share amounts are computed by
dividing income or loss amounts by the weighted average of common and common
equivalent shares (when dilutive) outstanding during the period. Primary net
income per share computations for fiscal 1997 and 1995 were computed based on
weighted average shares outstanding, including the dilutive impact of common
stock equivalents, which consist of outstanding stock options. Net income per
share computed on a fully diluted basis for fiscal 1997 and 1995 assumes
conversion of the Company's outstanding convertible subordinated debentures. The
primary and fully diluted net loss per share in fiscal 1996 was computed based
on the Company's simple weighted average shares outstanding for the fiscal year,
as the impact of stock options and convertible subordinated debt was
anti-dilutive.
During fiscal 1997, convertible subordinated debentures were converted into
14,644,000 shares of Common Stock. Had the debentures converted as of April 1,
1996, primary earnings per share for fiscal 1997 would have been $1.12.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share," which is required to be adopted in the Company's
fiscal quarter ending December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements, primary earnings per
share is replaced by basic earnings per share, for which the dilutive effect of
stock options will be excluded. Under Statement 128, basic earnings per share
will exceed previously computed primary earnings per share in periods with net
income. The impact of Statement 128 on the calculation of fully diluted earnings
per share is not expected to be material.
Cash Equivalents and Marketable Securities: The Company considers all highly
liquid debt instruments with a maturity of three months or less from the date of
purchase to be cash equivalents.
The Company has classified its entire investment portfolio as
available-for-sale. Available-for-sale securities are carried at fair value,
with material unrealized gains and losses reported in shareholders' equity. The
amortized cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
income along with interest earned. Realized gains or losses and declines in
value judged to be other-than-temporary on available-for-sale securities are
reported as investment income or investment expense. The cost of securities sold
is based on the specific identification method.
Concentration of Credit Risk: The Company performs ongoing credit evaluations of
its customers' financial condition and generally requires no collateral from its
customers. The Company maintains reserves for potential credit losses, and such
losses have historically been within management's expectations.
The Company invests its excess cash in deposits with major banks and in money
market and short-term debt securities of companies with strong credit ratings
from a variety of industries. These securities generally mature within 365 days
and, therefore, bear minimal risk. The Company has not experienced any material
losses on its investments. The Company, by Corporate policy, limits the amount
of credit exposure to any one issuer and to any one type of investment.
Inventories: Inventories are carried at the lower of cost or market. Cost is
determined on a first-in, first-out basis.
Property, Plant, and Equipment: Property, plant, and equipment are carried at
cost, less accumulated depreciation and amortization computed on a straight-line
basis over the lesser of the estimated useful lives of the assets (generally
three to ten years for machinery, equipment, furniture, and leasehold
improvements; and twenty-five years for buildings) or the lease term.
Purchased Intangibles: Purchased intangible assets were acquired as a result of
acquisitions recorded using the purchase method of accounting. Under this method
of accounting, the purchase price is allocated to assets acquired and
liabilities assumed based on their estimated fair values at consummation. The
Company's purchased intangible assets include completed technology, work force
in place, a supply agreement, and customer lists. The assets are being amortized
over their estimated useful lives, which range from three to ten years. The
accumulated
28
<PAGE>
amortization at March 31, 1997 and 1996, was $60.9 million and $39.8 million,
respectively. Intangible assets are reviewed for impairment whenever events or
circumstances indicate an impairment might exist, or at least annually.
Warranty Expense: The Company generally warrants its products against defects
for a period of one to five years. A provision for estimated future costs
relating to warranty expense is recorded when products are shipped and revenue
recognized.
Advertising Expense: The Company accrues for co-operative advertising as the
related revenue is earned, and other advertising expense is recorded as
incurred. Advertising expense for the years ended March 31, 1997, 1996 and 1995,
was $35.2 million, $25.1 million, and $19.8 million, respectively.
Stock-Based Compensation: Effective April 1, 1996, the Company adopted Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), which was effective for fiscal years beginning
after December 15, 1995. SFAS No. 123 establishes the financial accounting and
reporting standards for stock-based compensation plans. The Company elected to
continue accounting for stock-based employee compensation plans in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations (APB Opinion No. 25), as SFAS No. 123
permits, and to follow the pro forma net income, pro forma earnings per share,
and stock-based compensation plan disclosure requirements set forth in SFAS No.
123.
Risks and Uncertainties: The Company's business entails a number of risks. As is
typical in the disk drive industry, a significant portion of the Company's
customer base is concentrated with a small number of OEMs, and the Company is
not able to predict whether there will be any significant change in the demand
for its customers' products. The loss of any one of the Company's more
significant customers could have a material adverse effect on the Company's
results of operations. A limited number of disk and tape drive storage products
make up a significant majority of the Company's sales, and due to rapid
technological change in the industry, the Company's future depends on its
ability to develop and successfully introduce new products. Quantum utilizes a
third party, MKE, to manufacture a substantial majority of the products it
sells. The Company relies on MKE's ability to bring new products rapidly to
volume production and to meet stringent quality standards. MKE manufactures
Quantum's drives in Japan, Singapore, and Ireland. If MKE were unable to satisfy
Quantum's production requirements, the Company would not have an alternative
source to meet the demand for its products without substantial delay and
disruption to its operations. The actual results with regard to warranty
expenditures could have a material unfavorable impact on the Company if the
actual rate of unit failure or the cost to repair a unit is greater than what
the Company has used in estimating the warranty expense accrual. In addition,
the Company is also subject to legal proceedings and claims that arise in the
ordinary course of its business (refer to Note 13 of the Notes to Consolidated
Financial Statements).
Note 2: Financial Instruments
Available-for-sale securities
<TABLE>
The following is a summary of available-for-sale securities, all of which are
classified as cash equivalents:
<CAPTION>
March 31, 1997 March 31, 1996
-------------------------------- ----------------------------
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
- --------------------------------------------------- ---------------- --------------- ---------------- -----------
<S> <C> <C> <C> <C>
Corporate commercial paper and bank notes $ 25,338 $ 25,338 $ 48,766 $ 48,766
U.S. Treasury securities and obligations of
U.S. government agencies 25,455 25,455 2,499 2,499
Other 83 83 175 175
-------- -------- -------- --------
$ 50,876 $ 50,876 $ 51,440 $ 51,440
-------- -------- -------- --------
</TABLE>
29
<PAGE>
The difference between the amortized cost of available-for-sale securities and
fair value was immaterial at March 31, 1997 and 1996, and therefore no gross
unrealized gains or losses were recorded in shareholders' equity. The estimated
fair value of available-for-sale securities is based on market quotations. There
were no sales of available-for-sale securities in fiscal 1997 or 1996. At March
31, 1997, the average available-for-sale portfolio duration was approximately 15
days and the securities had maturities of 90 days or less.
Derivative financial instruments
Trading
During the periods covered by the financial statements, the Company has not used
any derivative financial instrument for trading purposes.
Interest Rate Management
During the periods covered by the financial statements, the Company has not used
derivative financial instruments to manage interest rate fluctuations related to
interest-bearing investments or borrowings.
Foreign Exchange - Firm Commitments & Anticipated Transactions
During the periods covered by the financial statements, the Company has not
utilized derivative financial instruments to manage either foreign currency firm
commitments or anticipated foreign currency transactions.
Foreign Exchange - Asset and Liability Management
During the periods covered by the financial statements, the Company utilized
foreign currency forward exchange contracts to manage the effects of foreign
currency remeasurement arising from certain assets and liabilities denominated
in a foreign currency. The gains and losses from market rate changes on these
contracts, which are intended to offset the gains and losses on certain foreign
currency denominated assets and liabilities, are recorded monthly in other
income.
The following is a summary of foreign currency forward contracts held for asset
and liability management purposes:
March 31,
------------------------------------
(In millions except for forward rates) 1997 1996
------------------------------------
Currency to be sold Yen Yen
Maturity dates April-May 1997 April-May 1996
Foreign currency notional amount 3,300 yen 3,700 yen
Weighted average forward rate 122.22 102.21
U.S. dollar notional amount $27.0 $36.2
U.S. dollar equivalent $26.5 $34.5
Fair value $ 0.5 $ 1.7
The fair values for foreign currency forward contracts represent the difference
between the contracted forward rate and the quoted fair value of the underlying
yen at the balance sheet dates. The Company generally does not require
collateral from the counterparties to foreign currency forward contracts.
30
<PAGE>
Carrying amount and fair values of financial instruments
The carrying values of cash and cash equivalents and accounts receivable are
deemed to be reasonable estimates of their fair values.
<TABLE>
The estimated fair value of the Company's borrowings are summarized as follows:
<CAPTION>
March 31,
--------------------------------------------------------------------------
(In millions) 1997 1996
--------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Convertible subordinated debt $ 241.4 $ 433.8 $ 374.3 $ 387.7
Revolving credit line 110.0 110.0 210.0 210.0
Term loan 56.3 56.3 - -
Mortgage loan 41.8 41.3 - -
Equipment loan 13.9 15.2 18.0 18.0
</TABLE>
The fair values for the convertible subordinated debt are based on the quoted
market price at the balance sheet dates. Fair values for the revolving credit
agreement and term loan approximate their carrying amounts, since interest rates
on these borrowings are adjusted periodically to reflect market interest rates.
The fair value of the mortgage and equipment loans were based on the estimated
present value of the remaining payments, utilizing risk-adjusted market interest
rates of similar instruments at the balance sheet date.
Note 3: Inventories
Inventories consisted of:
(In thousands) March 31,
---------------------------------------
1997 1996
---------------------------------------
Materials and purchased parts $ 39,898 $ 119,984
Work in process 48,005 98,591
Finished goods 164,899 240,963
---------- ----------
$ 252,802 $ 459,538
========= =========
31
<PAGE>
Note 4: Property, Plant and Equipment
Property, plant and equipment consisted of:
(In thousands) March 31,
-------------------------------
1997 1996
-------------------------------
Machinery and equipment $ 446,677 $ 343,109
Furniture and fixtures 27,453 22,113
Buildings and leasehold improvements 151,418 152,749
Land 8,349 7,474
----------- -----------
633,897 525,445
Less accumulated depreciation and amortization (226,691) (161,334)
----------- -----------
$ 407,206 $ 364,111
========== =========
Note 5: Credit Agreements
The Company has a one-year $85 million unsecured Letter of Credit facility with
certain banks to issue standby letters of credit to MKE and its affiliates,
which expires in September 1997. As of March 31, 1997, there was no outstanding
balance under this letter of credit facility.
Note 6: Long-Term Debt
The Company has a senior credit facility that includes a $325 million revolving
credit line that expires in September 1998, and in August 1996, the Company
obtained a $75 million term loan under this credit facility. The revolving
credit line is governed by a borrowing base of eligible accounts receivable and
inventory. The senior credit facility is secured by all the Company's domestic
assets and 66% of the Company's ownership of certain of its subsidiaries.
Borrowings under the senior credit facility, at the option of the Company, bear
interest at either LIBOR plus a margin or a base rate with option periods of one
to six months.
The term loan began to amortize on December 31, 1996, and the outstanding $56.3
million balance as of March 31, 1997, continues to amortize over six remaining
quarterly payments. As of March 31, 1997, outstanding borrowings under the
revolving credit line were $110 million with a weighted average interest rate of
7.8%. The maximum amount outstanding during the year under the senior credit
facility was $385 million and the average amount outstanding for the year was
approximately $281 million. The total weighted average interest rates on the
bank debt for the years ended March 31, 1997 and 1996, were 7.7% and 8.3%,
respectively. Financial covenants related to the senior credit facility include
but are not limited to an operating profitability ratio, quick ratio, and
leverage ratio. The Company's debt agreement currently prohibits the Company
from paying dividends while the debt is outstanding.
In February 1996, the Company issued approximately $241 million of 5%
convertible subordinated notes (the "Notes") in a privately placed offering. The
Notes are due March 1, 2003, and are subordinated to all existing and future
senior indebtedness of the Company. Each Note is convertible at the option of
the holder into the Company's common stock at a conversion price of $11.16 per
share. The Notes are redeemable at the Company's option on or after March 3,
1998, and prior to March 3, 2000, under certain conditions related to the price
of the Company's common stock. Subsequent to March 3, 2000, the Notes are
redeemable at the Company's option at any time. Redemption prices range from
103.571% of the principal to 100% at maturity.
In March 1996, the Company entered into an $18 million term loan facility to
finance certain capital equipment. The facility amortizes over three years at a
fixed interest rate of 7.63% and payments are made on a quarterly basis.
The facility is secured by specified capital equipment.
32
<PAGE>
In September 1996, the Company entered into a $42 million mortgage financing
related to certain domestic facilities at an effective interest rate of
approximately 10.1%. The term of the mortgage is 10 years, with monthly payments
based on a 20-year amortization period, and a balloon payment at the end of the
10-year term. The debt is secured by specified real estate.
In December 1996, the Company called for redemption of all of the Company's
outstanding 6 3/8% convertible subordinated debentures due April 1, 2002, at a
redemption price of $1,057.38 per $1,000 principal amount of debenture. At the
time of the call for redemption, approximately $93 million of these debentures
were outstanding. Holders of the debentures exercised their option to convert
debentures held into 10,216,964 shares of the Company's common stock at a
conversion price of approximately $9.08 per share. The Company redeemed $40,000
of principal amount of debentures for $42,295 which includes redemption premium
and accrued interest.
Payments required on long-term debt outstanding at March 31, 1997, are $44.2
million in fiscal 1998, $136 million in fiscal 1999, $2.7 million in fiscal
2000, $1.1 million in fiscal 2001, $1.3 million in fiscal 2002 and $36.6 million
thereafter.
Note 7: Redeemable Preferred Stock and Acquisition of Minority Interest In
Quantum Peripherals Colorado, Inc.
In February 1997, the company issued 90,000 shares of Redeemable Convertible
Participating Series B Preferred Stock in conjunction with the acquisition of
the 19% minority ownership interest in Quantum Peripherals Colorado, Inc.
("QPC"), a consolidated subsidiary involved in the development and manufacture
of recording heads. The Series B preferred shares are manditorily redeemable for
$111.11 per share, plus declared but unpaid dividends, in the event of voluntary
or involuntary liquidation, dissolution, change in control, or sale of all or
substantially all the assets of the Company. Holders of the Series B preferred
shares have liquidation preference senior to that of holders of the Company's
common stock. Each Series B preferred share will convert to two shares of the
Company's common stock, adjusted for certain common stock actions, upon the
earlier to occur of 1) the Company's common stock closing at $35.00 per share,
adjusted for certain common stock actions, 2) April 1, 1999, or 3) written
notice of the holders of a majority of outstanding Series B preferred shares.
The holders of Series B preferred shares ratably participate on an
as-if-converted basis with holders of common stock, in declared cash and in-kind
dividends. The Series B preferred shares are nonvoting.
The QPC minority ownership interest was acquired in exchange for $3.4 million
and the issuance of the 90,000 shares of Series B preferred shares, which were
valued at $3.9 million as of the issuance date. The acquisition was recorded
using the purchase method of accounting. Under this method of accounting, the
purchase price is allocated to assets acquired and liabilities assumed based on
their estimated fair values at consummation. The entire purchase price was
assigned to purchased intangibles that were assigned a four-year life.
Note 8: Stock Incentive Plans
Long-Term Incentive Plan: The Company has a Long-Term Incentive Plan (the
"Plan") that provides for the issuance of stock options, stock appreciation
rights, stock purchase rights, and long-term performance awards (collectively
referred to as "options"). The Plan has available and reserved for issuance 11.8
million shares and allows for an annual increase in the number of shares
available for issuance, subject to a limitation. Available for grant as of March
31, 1997, were 1,240,000 shares. Options under the Plan expire no later than ten
years from the grant date and generally vest over four years. Restricted stock
granted under the Plan generally vests over two to three years. In fiscal 1997
and 1996, the Company recorded compensation expense of $1,916,000 and $899,000,
respectively, related to restricted stock granted pursuant to stock purchase
rights under the Plan. The number of shares of restricted stock granted under
the Plan were 354,290 and 596,000, in fiscal 1997 and 1996, respectively, at a
weighted average exercise price of $.01.
33
<PAGE>
Stock Option Plans: The Company has Stock Option Plans (the "Plans") under which
an aggregate of 6.4 million shares of common stock have been reserved for future
issuance. Options under the Plans are granted at prices determined by the Board
of Directors, but at not less than the fair market value, and accordingly no
compensation accounting has been required at the original date of grant. Options
currently expire no later than ten years from the grant date and generally vest
ratably over one to four years. At March 31, 1997, options with respect to
600,000 shares were available for grant.
<TABLE>
Stock Option Summary Information: A summary of activity relating to the Long-Term Incentive Plan and the Stock
Option Plans follows:
<CAPTION>
Year ended March 31,
--------------------------------------------------------------------------------
1997 1996
--------------------------------------------------------------------------------
Options Weighted-Avg. Options Weighted-Avg.
(000's) Exercise Price (000's) Exercise Price
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding beginning of period 16,746 $ 6.75 16,104 $ 5.71
Granted 5,850 $ 8.59 6,528 $ 7.90
Canceled (1,564) $ 7.94 (1,252) $ 6.85
Exercised (4,678) $ 5.97 (4,634) $ 4.76
------- -------
Outstanding end of period 16,354 $ 7.52 16,746 $ 6.75
====== ======
Exercisable end of period 8,514 $ 6.53 8,214 $ 5.92
===== =====
</TABLE>
The range of exercise prices for options outstanding at March 31, 1997 was $0.01
to $20.19. Compensation expense of $475,000 and $525,000 was recorded in fiscal
1997 and 1996, respectively, on accelerated stock options under the Plans.
<TABLE>
The following tables summarize information about options outstanding at March
31, 1997:
<CAPTION>
Outstanding Options
----------------------------------------------------------------------------
Shares Outstanding Weighted-Average
at March 31, 1997 Remaining Weighted-Average
Range of Exercise Prices (000's) Contractual Life Exercise Price
- ------------------------------- ------------------------- ------------------------ -------------------------
<S> <C> <C> <C>
$0.01 - $6.44 6,152 5.44 $5.35
$6.88 - $7.82 5,794 8.48 $7.43
$7.85 - $20.19 4,408 8.98 $10.67
------------------------- ------------------------ -------------------------
16,354 7.47 $7.52
======
</TABLE>
Options Exercisable
------------------------------------------------
Shares Exercisable
at March 31, 1997 Weighted-Average
Range of Exercise Prices (000's) Exercise Price
- ------------------------------- ------------------------ -----------------------
$0.01 - $6.44 5,396 $5.35
$6.88 - $7.82 2,004 $7.49
$7.85 - $20.19 1,114 $10.07
------------------------ -----------------------
8,514 $6.53
=====
Expiration dates ranged from May 30, 1997 to March 19, 2007 for options
outstanding at March 31, 1997. Prices for options exercised during the two-year
period ended March 31, 1997, ranged from $0.01 to $13.94. Proceeds received by
the Company from exercises are credited to Common Stock and capital in excess of
par value.
34
<PAGE>
Stock Purchase Plan: The Company has an employee stock purchase plan (the
"Purchase Plan") that allows for the purchase of stock at 85% of fair market
value at the date of grant or the exercise date, whichever value is less. The
Purchase Plan is qualified under Section 423 of the Internal Revenue Code. Of
the 17 million shares authorized to be issued under the plan, 1,574,000 shares
were available for issuance at March 31, 1997. Employees purchased 3,216,000 and
2,676,000 shares under the Purchase Plan in fiscal 1997 and 1996, respectively.
The weighted average exercise price of stock purchased under the Purchase Plan
was $5.41 and $5.98 in fiscal 1997 and 1996, respectively.
Pro forma information: Pro forma information regarding net income and earnings
per share is required by SFAS No. 123. This information is required to be
determined as if the Company had accounted for its employee stock options
(including shares issued under the Long-Term Incentive Plan, Stock Option Plans,
and the Stock Purchase Plan, collectively called "options") granted subsequent
to March 31, 1995, under the fair value method of that statement.
<TABLE>
The fair value of options granted in fiscal 1997 and 1996 reported below has
been estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted average assumptions:
<CAPTION>
Long-Term Incentive Plan and
Stock Option Plans Stock Purchase Plan
--------------------------------------- ---------------------------------------
Fiscal 1997 Fiscal 1996 Fiscal 1997 Fiscal 1996
- ---------------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Option life (in years) 2.9 2.8 0.8 1.1
Risk-free interest rate 6.0% 6.7% 6.0% 6.7%
Stock price volatility .50 .50 .50 .50
Dividend yield - - - -
</TABLE>
The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in the opinion of management, the
existing models do not necessarily provide a reliable single measure of the fair
value of the options.
<TABLE>
The following is a summary of weighted average grant date fair values:
<CAPTION>
Weighted Average Grant Date Fair Value
-----------------------------------------------
Fiscal 1997 Fiscal 1996
-------------------------- --------------------
<S> <C> <C>
Options granted under the Long-Term Incentive
Plan and Stock Option Plans $ 3.67 $ 3.30
Restricted stock granted under the Long-Term
Incentive Plan $14.28 $10.70
Shares granted under the Stock Purchase Plan $ 2.46 $ 2.66
</TABLE>
35
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option's vesting period. The Company's pro
forma net income and earnings per share follows:
Year Ended March 31
------------------------------------
1997 1996
------------------ -----------------
Net income (In thousands) $ 132,678 $ (101,600)
========= ===========
Net income (loss) per share:
Primary $ 1.08 $ (0.98)
========= ===========
Fully diluted $ 0.91 $ (0.98)
========= ===========
Since pro forma compensation cost relates to all periods over which the options
vest, the initial impact on pro forma net income may not be representative of
option expense in subsequent years, when the effect of the amortization of
multiple awards would be reflected.
Note 9: Common Stock and Shareholder Rights Plan
Effective April 28, 1997, the number of authorized shares of Common Stock
increased to 500,000,000 from 150,000,000.
On May 13, 1997, Quantum declared a two-for-one stock split to be effected as a
stock dividend of one share of Common Stock for every one share of Common Stock
outstanding. New stock was issued in June 1997, to shareholders of record on May
27, 1997. The share and per share amounts reported in the fiscal 1997
Consolidated Financial Statements reflect retroactive recognition of the
two-for-one stock split.
The Company has a shareholder rights plan (the "Rights Plan") that provides
existing shareholders with the right to purchase 1/200 preferred share for each
common share held in the event of certain changes in the Company's ownership.
The Rights Plan may serve as a deterrent to takeover tactics that are not in the
best interests of shareholders.
Note 10: Restructuring and Other Expenses
In the fourth quarter of fiscal 1996, the Company recorded a restructuring
charge of $209 million, pre-tax, associated with the transition of its
high-capacity products manufacturing to MKE. As part of the transition, the
Company discontinued its manufacture of these products and completed the
shut-down of the related facilities in fiscal 1997. The related manufacturing
work force was terminated in fiscal 1997. The Company closed, sold, or disposed
of certain high-capacity manufacturing facilities and equipment located in
Penang, Malaysia; and Milpitas, California, which as of March 31, 1996, were
carried at a fair value of approximately $30 million, net of estimated cost to
dispose. Facilities sold included the manufacturing building in Malaysia, which
was sold in the second quarter of fiscal 1997.
The restructuring charge provided for costs associated with employee termination
benefits for over 2,200 employees that were associated with the high-capacity
product manufacturing process; the difference between the carrying value and
estimated fair value on disposal of high-capacity manufacturing property and
equipment; and incremental impairments in the carrying value of certain
high-capacity product inventories and losses on supplier commitments arising
directly from the decision to stop manufacturing, as follows:
36
<PAGE>
(In millions)
Employee termination benefits $ 10
Write-down of capital assets to fair value 45
Write-down of inventories to net realizable value and
losses on supplier commitments 144
Other exit costs 10
----
$209
====
The activities contemplated in the transition and related restructuring reserve
have been substantially completed at March 31, 1997, without a material change
in the estimated cost of such activities. There remains $5,983,000 of accrued
exit costs at March 31, 1997.
Note 11: Savings and Investment Plan
Substantially all of the regular domestic employees are eligible to make
contributions to the Company's 401(k) savings and investment plan. The Company
matches a percentage of the employee's contributions and may also make
additional discretionary contributions to the plan. Prior to October 1, 1994,
all of the Company's matching contributions were discretionary. Company
contributions were $5.2 million in fiscal 1997, $4.0 million in fiscal 1996, and
$1.1 million in fiscal 1995.
Note 12: Income Taxes
The income tax provision consists of the following:
(In thousands) Year ended March 31,
--------------------------------
1997 1996 1995
--------------------------------
Federal: Current $ 13,344 $(31,160) $ 31,896
Deferred (10,289) (44,686) (751)
-------- -------- --------
3,055 (75,846) 31,145
-------- -------- --------
State: Current 9,669 9,691 19,386
Deferred 1,441 (9,691) (5,571)
-------- -------- --------
11,110 -- 13,815
-------- -------- --------
Foreign: Current 20,088 24,926 23,528
Deferred 17,928 38 (4,774)
-------- -------- --------
38,016 24,964 18,754
-------- -------- --------
Income tax provision (benefit) $ 52,181 $(50,882) $ 63,714
======== ======== ========
The tax benefits associated with nonqualified stock options, disqualifying
dispositions of stock options, and employee stock purchase plan shares reduce
taxes currently payable as shown above by $11.1 million, $8.5 million, and $1.6
million in fiscal 1997, 1996, and 1995, respectively. Such benefits are credited
to capital in excess of par value when realized.
37
<PAGE>
<TABLE>
The Company's income tax provision differs from the amount computed by applying
the federal statutory rates of 35% to income before income taxes as follows:
<CAPTION>
(In thousands) Year ended March 31,
------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C>
Tax at federal statutory rate $70,243 $(49,468) $50,857
State income tax, net of federal benefit 7,222 - 8,980
Foreign earnings taxed at less than U.S. rates (17,169) (3,545) (9,447)
Federal valuation allowance (8,431) (4,855) 13,286
Other items 316 6,986 38
-------- ---------- ----------
$52,181 $(50,882) $63,714
======= ========= =======
Effective tax rate 26% 36% 44%
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
<TABLE>
Significant components of deferred tax assets and liabilities are as follows:
<CAPTION>
(In thousands) Year ended March 31,
------------------------------------
1997 1996
------------------------------------
<S> <C> <C>
Deferred tax assets:
Inventory valuation methods $ 42,236 $ 56,728
Accrued warranty expense 53,995 8,768
Allowance for doubtful accounts 29,597 3,610
Distribution reserves 6,821 6,283
Restructuring reserve 258 35,776
Other accruals and reserves not currently deductible for tax purposes 16,873 11,470
Depreciation methods 17,079 21,819
Amortization methods 29,275 20,597
Federal and state valuation allowance (6,375) (15,224)
--------- ---------
189,759 149,827
--------- ---------
Deferred tax liabilities:
Foreign inventory valuation methods (17,912) --
Tax on unremitted foreign earnings net of foreign tax credits and
foreign deferred taxes (68,435) (36,619)
Other (14,100) (14,815)
--------- ---------
(100,447) (51,434)
Net deferred tax asset $ 89,312 $ 98,393
========= =========
</TABLE>
For financial reporting purposes, the Company has provided a valuation allowance
for certain deferred tax assets that are expected to reverse over a 15-year
period. The Company believes that the valuation allowance is needed to reduce
the deferred tax asset to an amount that is more likely than not to be realized.
The valuation allowance decreased approximately $1.1 million from fiscal 1995 to
fiscal 1996.
Pretax income from foreign operations was $241.2 million, $124.3 million, and
$113.6 million for the years ended March 31, 1997, 1996, and 1995, respectively.
U.S. taxes have not been provided for unremitted foreign earnings of $248.4
million. The residual U.S. tax liability if such amounts were remitted would be
approximately $61 million.
38
<PAGE>
Note 13: Litigation
The Company and certain of its current and former officers and directors have
been named as defendants in two class-action lawsuits, one filed on August 28,
1996, in the Superior Court of Santa Clara County, California, and one filed on
August 30, 1996, in the U.S. District Court for the Northern District of
California. The plaintiffs in both class actions purport to represent a class of
all persons who purchased the Company's common stock between February 26, 1996,
and June 13, 1996. The complaints allege that the defendants violated various
federal securities laws and California statutes by concealing and/or
misrepresenting material adverse information about the Company and that
individual defendants sold shares of the Company's stock based on material
nonpublic information.
In the state court action, on October 23, 1996, the Company filed a demurrer
requesting dismissal of the state action, and on November 21, 1996, the Company
moved for a determination that the action not be permitted to proceed as a class
action. The court sustained the demurrer in large part, and deferred ruling on
the motion for determination that the action not proceed as a class action.
Plaintiffs recently amended their complaint. Defendants' demurrer to the amended
complaint, defendants' motion that the action not proceed as a class action, and
plaintiffs' motion for class certification are all set for hearing on June 5,
1997.
In the federal action, plaintiffs' motion for appointment of lead plaintiff was
granted on April 4, 1997. Defendants recently filed a motion to dismiss the
complaint. The motion to dismiss is currently set for hearing on July 8, 1997.
Certain of the Company's current and former officers and directors have also
been named as defendants in a derivative lawsuit, which was filed on November 8,
1996, in the Superior Court of Santa Clara County, California. The derivative
complaint is based on factual allegations substantially similar to those alleged
in the class-action lawsuits. On April 14, 1997, the court granted defendants'
demurrer, and dismissed the complaint in its entirety, with leave to amend.
Plaintiffs have not yet filed an amended complaint.
The Company believes that the pending actions are without merit and intends to
defend against them vigorously. Nevertheless, litigation is subject to inherent
uncertainties and thus there can be no assurance that these suits will be
resolved favorably to the Company or will not have a material adverse effect on
the Company's financial position, results of operations, or liquidity.
The Company is also subject to other legal proceedings and claims that arise in
the ordinary course of its business. While management currently believes the
amount of ultimate liability, if any, with respect to these actions will not
materially affect the financial position, results of operations, or liquidity of
the Company, the ultimate outcome of any litigation is uncertain. Were an
unfavorable outcome to occur, the impact could be material to the Company.
39
<PAGE>
Note 14: Commitments
The Company leases its present facilities under non-cancelable operating lease
agreements for periods of up to 15 years. Some of the leases have renewal
options ranging from one to ten years and contain provisions for maintenance,
taxes, or insurance.
Rent expense was $26.4 million, $29.7 million, and $18.8 million for the years
ended March 31, 1997, 1996, and 1995, respectively.
Future minimum lease payments under operating leases are as follows:
(In thousands)
Year ended March 31,
1998 $ 23,570
1999 23,071
2000 20,056
2001 15,257
2002 13,098
Thereafter 56,314
----------
Total future minimum lease payments $ 151,366
==========
The Company licenses certain data storage technology that is used in its
products. As of March 31, 1997, future payments for the licensing of certain
data storage technology are as follows: $8.0 million, $5.7 million, $5.7
million, and $5.7 million to be paid in the fiscal years ending March 31, 1998,
1999, 2000, and 2001, respectively.
40
<PAGE>
<TABLE>
Note 15: Business Segment and Foreign Operations
<CAPTION>
Fiscal 1997 Geographic Area
----------------------------------------
Rest of
(In millions) U.S. Europe World Corp. Eliminations Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers $2,557 $2,579 $ 183 - - $5,319
Transfers between geographic
locations 301 82 46 - $ (429) -
-------- --------- ---------- --------- -------- ----------
Total net sales $2,858 $2,661 $ 229 - $ (429) $5,319
Operating income (loss) $ 51 $ 416 $ (13) $(212) - $ 242
Identifiable assets $1,162 $ 809 $ 150 $ 37 - $2,158
Fiscal 1996 Geographic Area
----------------------------------------
Rest of
(In millions) U.S. Europe World Corp. Eliminations Total
-------------------------------------------------------------------------------
Revenue from unaffiliated
customers $2,141 $2,121 $ 161 - - $4,423
Transfers between geographic
locations 461 66 - - $ (527) -
-------- --------- --------- --------- ------- ----------
Total net sales $2,602 $2,187 $ 161 - $ (527) $4,423
Operating income (loss) $ (167) $ 337 $(117) $(166) - $ (113)
Identifiable assets $1,163 $ 578 $ 189 $ 45 - $1,975
Fiscal 1995 Geographic Area
----------------------------------------
Rest of
(In millions) U.S. Europe World Corp. Eliminations Total
-------------------------------------------------------------------------------
Revenue from unaffiliated
customers $1,596 $1,663 $109 - - $3,368
Transfers between geographic
locations 312 75 - - $ (387) -
-------- --------- -------- --------- -------- ----------
Total net sales $1,908 $1,738 $109 - $ (387) $3,368
Operating income (loss) $ 56 $ 294 $ (3) $(186) - $ 161
Identifiable assets $ 917 $ 429 $100 $ 35 - $1,481
</TABLE>
Quantum, operating in a single business segment, designs, develops, and markets
information storage products, including high-performance, high-quality 3.5-inch
hard disk drives; economical high-capacity 5.25-inch hard disk drives; half-inch
cartridge tape drives and libraries; tape drive-related products; and solid
state disk drives. The half-inch cartridge tape drives and libraries and solid
state disk drives are manufactured by the Company. Quantum is also involved in
the design, development, and manufacture of MR recording heads that are used in
the Company's hard disk drives, which are manufactured by the Company's
exclusive manufacturing partner, MKE (refer to Note 18 of the Notes to
Consolidated Financial Statements).
41
<PAGE>
As a percentage of total sales in fiscal year 1997, 1996, and 1995, half-inch
cartridge tape drives and related product sales were 13%, 7% and 3%,
respectively. The rest of the sales resulted primarily from shipments of hard
disk drives.
One major customer accounted for 11%, 12%, and 16% of consolidated sales in
fiscal 1997, 1996, and 1995, respectively. In addition, another customer
accounted for 11% of consolidated sales in fiscal 1997, and another accounted
for 11% and 12% of consolidated sales in fiscal 1996 and 1995, respectively.
A significant percentage of the Company's sales is made to customers in non-U.S.
locations and a majority of the Company's products is manufactured by MKE in
Japan, Singapore, and Ireland. Quantum also operates a repair facility in
Malaysia, a repair and distribution center in Ireland, and a manufacturing plant
in Indonesia. As a result, the Company is subject to risks associated with
foreign operations, such as obtaining governmental permits and approvals,
currency exchange fluctuations, currency restrictions, political instability,
labor problems, trade restrictions, and changes in tariff and freight rates.
Export sales for fiscal 1997, 1996, and 1995 were less than 10% of consolidated
sales.
Information on operations by geographic area is presented in the preceding
tables. Transfers between geographic areas are accounted for at amounts that are
generally above cost and are eliminated in the consolidated financial
statements. Identifiable assets are those assets that can be directly associated
with a particular geographic location. Operating income (loss) by geographic
area does not include an allocation of general corporate expenses.
Note 16: Acquisition of Businesses from Digital Equipment Corporation
In fiscal 1995, Quantum acquired the Hard Disk Drive, Heads, and Tape Drives
Businesses of the Storage Business Unit of Digital Equipment Corporation ("the
Acquired Businesses"), in a transaction accounted for as a purchase. The
operating results of the Acquired Businesses have been included in the
consolidated statement of operations from the date of acquisition.
The purchase price which was finalized in the second quarter of fiscal 1996, was
$349.5 million.
A recap of finalized purchase price allocation follows (in millions):
Inventories $142.1
Property and equipment 103.2
Intangible assets 106.1
Accrual for exit costs (34.9)
Other assets/liabilities, net (34.2)
Purchased research and development 67.2
------
$349.5
======
Intangible assets include $79.5 million of completed technology and an aggregate
of $26.6 million for work force in place, a supply agreement, and customer
lists. Completed technology and work force in place were assigned four- year
lives, while the customer base was assigned a ten-year life. The supply
agreement was assigned a life equal to the terms of the contractual agreement.
Intangible asset amortization totaled $24.0 million, $26.5 million, and $13.4
million in fiscal 1997, 1996, and 1995, respectively. The decline in the
intangible asset amortization from fiscal year 1996 to 1997 reflected the fiscal
1997 write-off of high-capacity product manufacturing work force intangible
assets against the high-capacity product manufacturing transition restructuring
reserve recorded in fiscal 1996 (refer to Note 10 of the Notes to Consolidated
Financial Statements).
The accrual for exit costs included only those direct costs related to exiting
facilities and operations in Colorado acquired from Digital and did not include
any costs related to modifications of the previous Quantum business.
42
<PAGE>
The components of the exit activities were as follows:
(In millions)
Non-cancelable lease commitments after closure
and costs to "make new" as required by the lease $11.4
Reduction in force 7.7
Retention bonuses 4.5
Write-off of capital assets resulting from closures 9.3
Other 2.0
-----
$34.9
=====
The activities contemplated in the $34.9 million accrual for exit costs have
been completed at March 31, 1997, without a material change in the estimated
cost of such activities.
The $67.2 million allocated to purchased research and development was expensed
in fiscal 1995 as required under generally accepted accounting principles.
The unaudited pro forma combined condensed results of operations of the Company
for the 12 months ended March 31, 1995, had the acquisition occurred at the
beginning of the period and that eliminate the non-recurring charges, are as
follows:
(In thousands except per share data)
Year Ended
Pro Forma March 31, 1995
- ------------------------------------------------- ------------------
Net sales $3,790,769
Net income (loss) $ 75,877
Net income (loss) per share:
Primary $ 0.80
Fully diluted $ 0.65
The unaudited pro forma results for the 12 months ended March 31, 1995, exclude
the effects of the charge for purchased research and development and other in
merger costs of $73 million, as such amounts are non-recurring. The pro forma
results for the twelve months ended March 31, 1995, reflect intangible asset
amortization, depreciation of acquired fixed assets, amortization of loan fees,
and interest expense on the new debt related to the acquisition.
The unaudited 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.
43
<PAGE>
<TABLE>
Note 17: Unaudited Quarterly Consolidated Financial Data
<CAPTION>
Fiscal 1997
-------------------------------------------------------------------------------
(In thousands except per share data) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $1,153,502 $1,124,144 $1,477,951 $1,563,860
Gross margin 141,279 135,478 215,457 276,527
Net income (loss) 3,843 4,573 52,435 87,664
Net income (loss) per share:
Primary 0.03 0.04 0.43 0.64
Fully diluted 0.03 0.04 0.35 0.56
Fiscal 1996
-------------------------------------------------------------------------------
(In thousands except per share data) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter(i)
-------------------------------------------------------------------------------
Sales $941,316 $1,033,048 $1,215,872 $1,232,490
Gross margin 124,489 142,426 113,955 161,547
Net income (loss) 12,942 22,025 (2,481) (122,942)
Net income (loss) per share
Primary 0.13 0.20 (0.02) (1.14)
Fully diluted 0.12 0.19 (0.02) (1.14)
<FN>
(i) The results of operations for the fourth quarter in fiscal 1996 included
the effect of a $209 million charge related to the transition of
manufacturing for the Company's high-capacity products to MKE (refer to
Note 10 of the Notes to Consolidated Financial Statements).
</FN>
</TABLE>
Note 18. Subsequent Events - Unaudited
MKE/Quantum Joint Venture
On May 1, 1997, the Company agreed to sell a controlling interest in its
recording heads operations (RHO) to MKE. RHO designs, develops, and manufactures
MR recording heads used in the Company's disk drive products. The sale will be
achieved through MKE acquiring a 51% interest in a new joint venture (JV) entity
that will hold the operations, assets, and certain liabilities of RHO. The RHO
assets to be transferred to the JV are primarily comprised of inventory,
equipment, and intangibles. These assets had an approximately $206 million
aggregate carrying value at March 31,1997, and the liabilities totaled
approximately $24 million. In addition, the JV will lease certain premises from
Quantum, and RHO employees will become employees of the joint venture.
MKE and the Company will share pro rata in the capital requirements, if any, of
the JV. The Company plans to continue to utilize all of the recording heads
manufactured by the JV in its disk drive products.
Unaudited Pro Forma Information
Giving effect to the above-noted sale transaction as if it had occurred on April
1, 1996, the pro forma effect on the Company's consolidated balance sheet at
March 31, 1997, would not have been significant, and net income for fiscal 1997
would have been approximately $180 million or $1.23 per share, fully diluted.
This unaudited pro forma information is intended for information purposes only
and is not necessarily indicative of the future results of operations of the JV
or the results of the Company that would have occurred had the JV arrangement
been in effect for the full fiscal year presented.
44
<PAGE>
Part III
ITEM 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated by reference to Part I,
Item 1 of this document and to the Company's Proxy Statement.
ITEM 11. Executive Compensation
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
With the exception of the information incorporated in Items 10, 11, 12 and 13 of
this Form 10-K Annual Report, the Company's definitive Proxy Statement for its
1997 Annual Meeting of Shareholders is not deemed "filed" as part of this Form
10-K Annual Report.
PART IV
ITEM 14.
Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements and Financial Statement Schedules - See Index
to Consolidated Financial Statements at Item 8 on page 24 of this
report.
2. Exhibits
Exhibit
Number
------
2.1(a)(1) Stock and Asset Purchase Agreement by and among Quantum
Corporation, Quantum Peripherals (Europe) S.A. and
Digital Equipment Corporation, dated as of July 18, 1994
2.1(b)(1) Amendment No. 1 dated as of October 3, 1994, to the Stock
and Asset Purchase Agreement by and among Quantum
Corporation, Quantum Peripherals (Europe) S.A. and
Digital Equipment Corporation, dated as of July 18, 1994
45
<PAGE>
2.1(c)(1) Supplemental agreement to the Stock and Asset Purchase
Agreement by and among Quantum Corporation, Quantum
Peripherals (Europe) S.A. and Digital Equipment
Corporation, dated as of July 18, 1994
2.2(1) RMMI Stock Purchase Agreement, dated as of July 18, 1994,
among Quantum Corporation, Digital Equipment Corporation
and Rocky Mountain Magnetics, Inc
3.1(a)(2) Certificate of Incorporation of Registrant
3.1(b)(3) Certificate of Amendment of Certificate of Incorporation
of Registrant
3.2(3) By-laws of Registrant, as amended
4.2(5) Shareholder Rights Plan
4.3 Certificate of Designation of Series B Preferred Stock of
Registrant
10.7(2) Registrant's 1984 Incentive Stock Option Plan and
Agreement
10.8(6) Registrant's 1986 Stock Option Plan and Agreement, as
amended
10.9(7) Registrant's Employee Stock Purchase Plan and form of
Subscription Agreement, as amended
10.10(8) Form of Indemnification Agreement between Registrant and
Certain Officers and Directors
10.11(9) Agreement between Registrant and MKE
10.12(10)(11) Purchase Agreement between Registrant and MKE
10.13(12) Lease (dated October 13, 1989) between Registrant and
John Arrillaga and Richard T. Perry, Separate Property
Trusts
10.14(13) Lease (dated September 17, 1990) between Registrant and
John Arrillaga and Richard T. Perry, Separate Property
Trusts
10.15(3) Lease (dated April 10, 1992) between Registrant and John
Arrillaga and Richard T. Perry, Separate Property Trusts
10.17(14) Form of Statement of Employment Terms executed by Stephen
M. Berkley, David A. Brown and William J. Miller,
directors of Registrant, and Joseph T. Rodgers, William
F. Roach and Michael A. Brown, executive officers of
Registrant
10.18(9) Lease (dated November 13, 1992) and First Amendment to
Lease (dated November 17, 1992) between Registrant and
Milpitas Realty Delaware, Inc.
10.20(15) Third Amendment to the Purchase Agreement between
Registrant and MKE dated December 31, 1992
46
<PAGE>
10.21(16) 1993 Long-Term Incentive Plan
10.23(17) Second Amendment (dated April 15, 1993) to Lease (dated
November 13, 1992) between Registrant and Milpitas Realty
Delaware, Inc.
10.24(17) Lease (dated April 14, 1993) between Registrant and
Milpitas Realty Delaware, Inc.
10.25(1) Patent Assignment and License Agreement, dated as of
October 3, 1994, by and between Digital Equipment
Corporation and Quantum Corporation
10.27(10)(18) Supply Agreement between Digital Equipment Corporation
(Buyer) and Quantum Corporation (Seller) for Storage
Devices, as dated as of October 3, 1994
10.28(18) Credit Agreement among Quantum Corporation and The Banks
named herein and ABN AMRO BANK N.V., San Francisco
International Branch, BARCLAYS BANK PLC and CIBC INC. as
Managing Agents for the Banks, and CANADIAN IMPERIAL BANK
OF COMMERCE as Administrative Agent and Collateral Agent
for the Banks dated as of October 3, 1994
10.29(19) First Amendment dated February 15, 1995, to Credit
Agreement (dated October 3, 1994), among Quantum
Corporation and The Banks named herein and ABN AMRO BANK
N.V., San Francisco International Branch, BARCLAYS BANK
PLC and CIBC INC. as Managing Agents for the Banks, and
CANADIAN IMPERIAL BANK OF COMMERCE as Administrative
Agent and Collateral Agent for the Banks
10.30(20) Second Amendment dated June 26, 1995 to Credit Agreement
(dated October 3, 1994), among Quantum Corporation and
The Banks named herein and ABN AMRO BANK N.V., San
Francisco International Branch, BARCLAYS BANK PLC and
CIBC INC. as Managing Agents for the Banks, and CANADIAN
IMPERIAL BANK OF COMMERCE as Administrative Agent and
Collateral Agent for the Banks
10.31(21) Third Amendment, dated September 29, 1995, to Credit
Agreement (dated October 3, 1994) among Quantum
Corporation and The Banks named herein and ABN AMRO BANK
N.V., San Francisco International Branch, BARCLAYS BANK
PLC and CIBC INC. as Managing Agents for the Banks, and
CANADIAN IMPERIAL BANK OF COMMERCE as Administrative
Agent and Collateral Agent for the Banks
10.32(21) Credit Agreement dated September 22, 1995, among Quantum
Corporation and the Banks named therein and THE SUMITOMO
BANK, LIMITED, acting through its San Francisco branch,
as Agent for the Banks and as Issuer
10.35(22) Fourth Amendment, dated January 29, 1996, to Credit
Agreement (dated October 3, 1994) among Quantum
Corporation and The Banks named herein and ABN AMRO BANK
N.V., San Francisco International Branch, BARCLAYS BANK
PLC and CIBC INC. as Managing Agents
47
<PAGE>
for the Banks, and CANADIAN IMPERIAL BANK OF COMMERCE as
Administrative Agent and Collateral Agent for the Banks
10.36(22) Indenture dated as of February 15, 1996, between Quantum
Corporation and LaSalle National Bank, as trustee,
covering 5% Convertible Subordinated Notes due 2003
10.37(22) Fifth Amendment, dated May 29, 1996, to Credit Agreement
(dated October 3, 1994) among Quantum Corporation and The
Banks named herein and ABN AMRO BANK N.V., San Francisco
International Branch, BARCLAYS BANK PLC and CIBC INC. as
Managing Agents for the Banks, and CANADIAN IMPERIAL BANK
OF COMMERCE as Administrative Agent and Collateral Agent
for the Banks
10.38(22) Consulting and Release Agreement dated as of November 1,
1995, between William J. Miller and Quantum Corporation
10.39(23) Sixth Amendment, dated as of August 13, 1996, to Credit
Agreement (dated October 3, 1994) among Quantum
Corporation and the Banks named therein and ABN AMRO BANK
N.V., San Francisco International Branch, BARCLAYS BANK
PLC and CIBC INC. as Managing Agents for the Banks, and
CANADIAN IMPERIAL BANK OF COMMERCE as Administrative
Agent and Collateral Agent for the Banks, and BANQUE
PARIBAS; THE CIT GROUP/BUSINESS CREDIT INC.; THE
MITSUBISHI TRUST AND BANKING, Los Angeles Agency; THE
SUMITOMO TRUST AND BANKING CO., LTD., Los Angeles Agency;
and BANQUE NATIONAL DE PARIS (collectively, the "New
Banks")
10.40(23) Mortgage and Security Agreement made as of the 10th day
of September 1996, by Quantum Peripherals Realty
Corporation, as Mortgagor, to CS First Boston Mortgage
Capital Corporation, as Mortgagee
10.41(23) Deed of Trust and Security Agreement dated: As of
September 10, 1996, by Quantum Peripherals Realty
Corporation (Grantor) to Public Trustee of Boulder
County, Colorado, as Trustee for the benefit of CS First
Boston Mortgage Capital Corp. (Beneficiary)
10.42(23) Master Lease between Quantum Peripherals Realty
Corporation, Lessor, and Quantum Corporation, Lessee,
dated as of September 10, 1996
10.43(23) 1996 Board of Directors Stock Option Plan and Form of
Option Agreement, as amended
10.44 Stock Purchase Agreement dated as of February 13, 1997
among Registrant, Quantum Peripherals Colorado, Inc. and
Storage Technology Corporation
11 Statement of Computation of Earnings Per Share
12 Statement of Computation of Ratios of Earnings to Fixed
Charges
21 Subsidiaries of Registrant
23 Consent of Ernst & Young LLP, Independent Auditors
24 Power of Attorney
48
<PAGE>
27 Financial Data Schedule
- -------------------
(1) Incorporated by reference from Form 8-K filed with the
Securities and Exchange Commission on October 17, 1994.
(2) Incorporated by reference from Annual Report on Form 10-K for
Registrant's fiscal year ended March 31, 1987.
(3) Incorporated by reference from exhibits filed with Registrant's
Annual Report on Form 10-K for fiscal year ended March 31, 1992.
(4) Incorporated by reference from Registration Statement No.
33-46387 on Form S-3.
(5) Incorporated by reference from Form 8-A filed with the
Securities and Exchange Commission on August 5, 1988.
(6) Incorporated by reference from exhibits filed with Registrant's
Form S-8, No. 33-52190 filed with the Securities and Exchange
Commission on September 21, 1992.
(7) Incorporated by reference from exhibits filed with Registrant's
Form S-8, No. 33-52192 filed with the Securities and Exchange
Commission on September 21, 1992.
(8) Incorporated by reference to the Registrant's Definitive Special
Meeting Proxy Statement filed with the Securities and Exchange
Commission on March 24, 1987.
(9) Incorporated by reference from exhibits filed with Registrant's
Form 10-Q for the quarterly period ended December 27, 1989,
filed with the Securities and Exchange Commission on February
10, 1993.
(10) Confidential Treatment Requested. Granted by the Securities and
Exchange Commission.
(11) Incorporated by reference from Annual Report on Form 10-K for
Registrant's fiscal year ended March 31, 1988.
(12) Incorporated by reference from exhibits filed with Registrant's
Form 10-Q for the quarterly period ended December 31, 1989,
filed with the Securities and Exchange Commission on February
14, 1990.
(13) Incorporated by reference from exhibits filed with Registrant's
Form 10-Q for the quarterly period ended December 30, 1990,
filed with the Securities and Exchange Commission on February
13, 1991.
(14) Incorporated by reference to the Registrant's Amendment No. 1 to
Form 10-Q for the quarter ended June 30, 1991.
(15) Incorporated by reference from Annual Report on Form 10-K for
Registrant's fiscal year ended March 31, 1993.
(16) Incorporated by reference from Registration Statement No.
33-72222 on Form S-8 filed with the Securities and Exchange
Commission on November 30, 1993.
49
<PAGE>
(17) Incorporated by reference from exhibits filed with Registrant's
Annual Report on Form 10-K for fiscal year ended March 31, 1994.
(18) Incorporated by reference from Form 8-K/A-1 filed with the
Securities and Exchange Commission on January 31, 1995.
(19) Incorporated by reference from exhibits filed with Registrant's
Annual Report on Form 10-K for fiscal year ended March 31, 1995.
(20) Incorporated by reference from exhibits filed with Registrant's
Form 10-Q for the quarterly period ended July 2, 1995, filed
with the Securities and Exchange Commission on August 17, 1995.
(21) Incorporated by reference from exhibits filed with Registrant's
Form 10-Q for the quarterly period ended October 1, 1995, filed
with the Securities and Exchange Commission on November 20,
1995.
(22) Incorporated by reference from exhibits filed with Registrant's
Annual Report on Form 10-K for fiscal year ended March 31, 1996.
(23) Incorporated by reference from exhibits filed with Registrant's
Form 10-Q for the quarterly period ended September 29,1996 filed
with the Securities and Exchange Commission on November 13,
1996.
(b) Reports on Form 8-K
None.
(c) Exhibits
See Item 14(a) above.
(d) Financial Statement Schedules
See Item 14(a) above.
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
QUANTUM CORPORATION
Dated: June 16, 1997 \s\ Richard L. Clemmer
----------------------------------
Richard L. Clemmer
Executive Vice President, Finance
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard L. Clemmer and Andrew Kryder, jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this Report on Form 10-K,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons in the capacities and on June 16,
1997.
Signature Title
- --------- -----
\s\ MICHAEL A. BROWN President, Chief Executive Officer and
- ---------------------------- Director (Principal Executive Officer)
(Michael A. Brown)
\s\ RICHARD L. CLEMMER Executive Vice President, Finance, Chief
- ---------------------------- Financial Officer (Principal Financial and
(Richard L. Clemmer) Accounting Officer)
\s\ STEPHEN M. BERKLEY Chairman of the Board
- ----------------------------
(Stephen M. Berkley)
\s\ DAVID A. BROWN Director
- ----------------------------
(David A. Brown)
\s\ ROBERT J. CASALE Director
- ----------------------------
(Robert J. Casale)
\s\ EDWARD M. ESBER, JR. Director
- ----------------------------
(Edward M. Esber, Jr.)
\s\ STEVEN C. WHEELWRIGHT Director
- ----------------------------
(Steven C. Wheelwright)
51
<PAGE>
<TABLE>
QUANTUM CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Additions
Balance at (reductions) Balance at
Classification beginning of charged to end of
(In thousands) period expense Deductions (i) period
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts year ended:
March 31, 1997 $ 10,497 $ 7,165 $ (7,052) $ 10,610
March 31, 1996 $ 11,962 $ (813) $ (652) $ 10,497
March 31, 1995 $ 9,391 $ 4,142 $ (1,571) $ 11,962
Accrued restructuring and exit costs
year ended: (ii)
March 31, 1997 $ 115,537 -- $(109,554) $ 5,983
March 31, 1996 $ 32,213 $ 116,187 $ (32,863) $ 115,537
March 31, 1995 $ 34,937 -- $ (2,724) $ 32,213
<FN>
(i) For the allowance for doubtful accounts, deductions represent write-offs;
and for the accrued restructuring and exit costs, deductions represent usage of
the accrual.
(ii) Established October 3, 1994, when recording the Digital acquisition.
Additions in fiscal 1996 were related to the restructuring charge resulting from
the transition of the high-capacity product manufacturing to MKE.
</FN>
</TABLE>
52
CERTIFICATE OF DESIGNATION
OF
SERIES B PREFERRED STOCK
OF
QUANTUM CORPORATION
(Pursuant to Section 151 of the
Delaware General Corporation Law)
QUANTUM CORPORATION, a corporation existing under the laws of the State
of Delaware (the "Corporation"), by Michael A. Brown, President of the
Corporation, and Richard L. Clemmer, Secretary of the Corporation, DOES HEREBY
CERTIFY as follows:
1. That pursuant to Section 4 of the Certificate of Incorporation of
the Corporation, the Corporation is authorized to issue 4,000,000 shares of
Preferred Stock, par value $.01 per share, and the Board of Directors of the
Corporation is expressly authorized to fix, to the extent permitted by law and
said Section 4, the distinctive terms and characteristics of any and all series
of Preferred Stock.
2. That the Board of Directors of the Corporation, at a meeting thereof
held on January 31, 1997, duly adopted the following resolutions authorizing the
issuance of a series of the Corporation's Preferred Stock, and fixing the
designations, preferences and other rights and qualifications, limitations and
restrictions thereof as follows:
"WHEREAS, the Board of Directors of Quantum Corporation (the
"Corporation") is authorized, within the limitations and restrictions stated in
the Certificate of Incorporation of the Corporation, to provide by resolution or
resolutions for the issuance of shares of its preferred stock par value $.01 per
share (the "Preferred Stock"), and by filing a certificate of designations in
the manner prescribed under the laws of the State of Delaware, to fix or alter
the dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), redemption price or
prices, and liquidation preferences of any wholly unissued class or series of
Preferred Stock, and the number of shares of any such series, and the
designation thereof, or any of them; and
WHEREAS, the Board of Directors of the Corporation desires to authorize
and fix the terms of a series of Preferred Stock and the number of shares
constituting such series;
NOW, THEREFORE, BE IT RESOLVED that a series of Preferred Stock on the
terms and with the provisions set forth below is hereby authorized:
1. Designation. The Preferred Stock created and authorized
hereby shall be designated as the "Series B Preferred Stock, par value
$.01 per share" (the "Series B Preferred Stock"). The number of shares
constituting the Series B Preferred Stock shall be ninety thousand
(90,000) and no more.
1.
<PAGE>
2. Rank. The Series B Preferred Stock shall, with respect to
rights on liquidation, dissolution or winding up of the affairs of the
Corporation, rank prior to the common stock, par value $.01 per share
(the "Common Stock"), of the Corporation and all other series of
Preferred Stock of the Corporation (the Common Stock and all such other
series of Preferred Stock are herein referred to as "Junior
Securities"). The Series B Preferred Stock shall be subordinate to any
bank debt.
3. Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution, change in control (as defined
below) or sale of all or substantially all the assets of the
Corporation, the holders of shares of Series B Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders an amount
per share equal to the sum of one hundred eleven dollars and eleven
cents ($111.11), plus an amount equal to declared but unpaid dividends
on each such share of Series B Preferred Stock, before any payment
shall be made or any assets distributed to the holders of any of the
Junior Securities. Except as provided in the preceding sentence,
holders of Series B Preferred Stock shall not be entitled to any
distribution in the event of liquidation, dissolution or winding up of
the affairs of the Corporation. If the assets of the Corporation are
not sufficient to pay in full the liquidation payments payable to the
holders of the outstanding shares of the Series B Preferred Stock, then
the holders of all such shares shall share ratably in such payment or
distribution of assets. A "change of control" shall mean any
consolidation or merger of the Corporation with or into any other
Corporation or other entity or person, or any other corporate
reorganization, in which the stockholders of the Corporation
immediately prior to such consolidation, merger or reorganization, own
less than fifty percent (50%) of the Corporation's voting power
immediately after such consolidation, merger or reorganization.
4. Conversion. Each share of Series B Preferred Stock shall
convert into such number of fully paid, non-assessable shares of Common
Stock as shall equal the then current Conversion Rate (as defined
below) upon the earlier to occur of (i) the close of business on the
date the Current Fair Market Value (as defined below) per share of
Common Stock equals or exceeds the Conversion Price (as defined below),
(ii) April 1, 1999 or (iii) such date as specified by written consent
or agreement of the holders of a majority of the then outstanding
shares of Series B Preferred Stock after the date such written consent
or agreement is received by the Corporation. The "Conversion Rate"
shall initially be one (1) and the "Conversion Price" shall initially
be seventy dollars ($70.00), and each shall be adjusted in accordance
with Section 5. For the purpose of any computation hereunder, the
"Current Fair Market Value" of a share of Common Stock on any date
shall be deemed to be the closing price per share of Common Stock on
the Trading Day (as defined below) immediately prior to such date. The
closing price for each day shall be the last sale price, regular way,
or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported
in the principal consolidated
2.
<PAGE>
transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Common
Stock is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal
national securities exchange on which the Common Stock is listed or
admitted to trading or as reported on the Nasdaq National Market or, if
the Common Stock is not listed or admitted to trading on any national
securities exchange or reported on the Nasdaq National Market, the last
quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations
System ("Nasdaq") or such other system then in use, or, if on any such
date the Common Stock is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock selected
by the Board of Directors of the Corporation. The term "Trading Day"
shall mean a day on which the principal national securities exchange on
which the Common Stock is listed or admitted to trading is open for the
transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, a day upon
which trading occurred on the Nasdaq National Market or, if the Common
Stock is not listed on the Nasdaq National Market, any day other than a
Saturday, a Sunday, or a day on which banking institutions in the State
of California are authorized or obligated by law or executive order to
close.
Shares of Series B Preferred Stock shall be convertible at the
principal office of the Corporation or the office of any transfer agent
or at such other office or offices, if any, as the Board of Directors
may designate. In order to convert shares of Series B Preferred Stock
into shares of Common Stock, the holder thereof shall surrender at any
office hereinabove mentioned the certificate or certificates therefor
duly endorsed or assigned to the Corporation or in blank and free and
clear of all liens, charges and encumbrances, and give written notice
to the Corporation at said office designating the number of such shares
to be so converted and, if any of the shares are to be registered in a
name or names other than that in which the shares of Series B Preferred
Stock surrendered are registered, specifying the name or names in which
such shares are to be registered. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder
of Series B Preferred Stock, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the share of Series
B Preferred Stock to be converted, and the person or persons entitled
to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date.
5. Adjustments to Conversion Price and Conversion Rate;
Subdivisions and Combinations of Shares; Fractional Shares, Etc.
3.
<PAGE>
(a) Stock Splits, Subdivisions, etc. In the event the
Corporation should at any time or from time to time after the
date of the first issuance of Series B Preferred Stock fix a
record date for the effectuation of a split or subdivision of
the outstanding shares of Common Stock, or the determination
of holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common
Stock, or other securities or rights convertible into or
entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date
of such dividend distribution, split or subdivision if no
record date is fixed), (i) the Conversion Price shall be
appropriately decreased so that (A) the product of the
Conversion Price immediately preceding such record date (or
the date of such dividend distribution, split or subdivision
if no record date is fixed) multiplied by the number of shares
of Common Stock and Common Stock Equivalents outstanding
immediately preceding such record date (or the date of such
dividend distribution, split or subdivision if no record date
is fixed) equals (B) product of the Conversion Price as so
decreased multiplied by the number of shares of Common Stock
and Common Stock Equivalents outstanding immediately following
such record date (or the date of such dividend distribution,
split or subdivision if no record date is fixed), and (ii) the
Conversion Rate shall be appropriately increased so that (A)
the product of the Conversion Rate as so increased multiplied
by the number of shares of Series B Preferred Stock then
outstanding equals (B) such number of shares of Common Stock
as would have been obtained following such record date (or the
date of such dividend distribution, split or subdivision if no
record date is fixed) had the shares of Series B Preferred
Stock then outstanding converted to shares of Common Stock
immediately preceding such record date (or the date of such
dividend distribution, split or subdivision if no record date
is fixed) at the then current Conversion Rate.
(b) Stock Combinations. If the number of shares of
Common Stock outstanding at any time after the date of the
first issuance of Series B Preferred Stock is decreased by a
combination of the outstanding shares of Common Stock, then,
following the record date of such combination, (i) the
Conversion Price shall be appropriately increased by
multiplying the then Conversion Price by the fraction obtained
by dividing (A) the number of shares of Common Stock
outstanding immediately preceding such record date by (B) the
number of shares of Common Stock outstanding immediately
following such record date, and (ii) the Conversion Rate shall
be appropriately decreased by multiplying the then Conversion
Rate by the fraction obtained by dividing (A) the number of
shares of Common Stock outstanding immediately
4.
<PAGE>
following such record date by (B) the number of shares of
Common Stock outstanding immediately preceding such record
date.
(c) Recapitalizations. If at any time or from time to
time there shall be a recapitalization of the Common Stock
(other than a subdivision, combination or merger or sale of
assets transaction provided for elsewhere in this Section 5 or
Section 3), provisions shall be made so that the holders of
the Series B Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series B Preferred Stock the
number of shares of stock or other securities or property of
the Corporation or otherwise to which a holder of Common Stock
deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this
Section 5 with respect to the rights of the holders of the
Series B Preferred Stock after the recapitalization to the end
that the provisions of this Section 5 (including adjustment of
the Conversion Price and Conversion Rate then in effect) shall
be applicable after that event as nearly equivalent as may be
practicable.
(d) No Fractional Shares and Certificate as to
Adjustments.
(i) No fractional shares shall be issued
upon the conversion of any share or shares of Series
B Preferred Stock and the number of shares of Common
Stock to be issued shall be rounded to the nearest
whole share. Whether or not fractional shares are
issuable upon such conversion shall be determined on
the basis of the total number of shares of Series B
Preferred Stock the holder is at the time converting
into Common Stock and the number of shares of Common
Stock issuable upon such aggregate conversion. The
Corporation shall, in lieu of issuing fractional
shares, pay to each Series B Preferred Stockholder,
in cash, the amount equal to the Current Fair Market
Value of a share of Common Stock on the day of
conversion multiplied by the fraction of a share of
Common Stock to which such Series B Preferred
Stockholder would have been entitled but for the
provisions of this Section 5(d)(i).
(ii) Upon the occurrence of each adjustment
or readjustment of the Conversion Price and
Conversion Rate of Series B Preferred Stock pursuant
to this Section 5, the Corporation, at its expense,
shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series B
Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is
based.
5.
<PAGE>
(e) Minimal Adjustments; Rounding. No adjustment in
the Conversion Rate or Conversion Price shall be required
unless such adjustment would require an increase or decrease
of at least 1% in the Conversion Rate or Conversion Price, as
the case may be; provided, however, that any adjustments which
by reason of this Section 5(e) are not required to be made
shall be carried forward and taken into account in the next
subsequent adjustment. All calculations under this Section 5
shall be made to the nearest one one-thousandth of a share of
Series B Preferred Stock (rounded up in the event of a five
ten-thousandth of a share), in the case of the Conversion
Rate, or to the nearest cent (rounded up in the event of a
half-cent), in the case of the Conversion Price.
(f) Reservation of Stock Issuable Upon Conversion.
The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of the
shares of the Series B Preferred Stock, such number of its
shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares
of the Series B Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding
shares of the Series B Preferred Stock, in addition to such
other remedies as shall be available to the holder of such
Series B Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient
for such purposes, including, without limitation, engaging in
best efforts to obtain the requisite stockholder approval of
any necessary amendment to these articles.
(g) Status of Common Stock Upon Conversion. All
shares of Common Stock which may be issued in connection with
the conversion provisions set forth herein will, upon issuance
by the Corporation, be validly issued, fully paid and
nonassessable, not subject to any preemptive or similar rights
and free from all taxes, liens or charges with respect thereto
created or imposed by the Corporation.
(h) Transfer Taxes. The Corporation shall pay all
documentary, stamp or other transactional taxes attributable
to the issuance or delivery of shares of capital stock of the
Corporation upon conversion of any shares of Series B
Preferred Stock; provided, however, that the Corporation shall
not be required to pay any taxes which may be payable in
respect to any transfer involved in the issuance or delivery
of any certificate for such shares in a name other than that
of the Series B Preferred Stockholder in respect of which such
shares of Series B Preferred Stock are being issued.
6.
<PAGE>
(i) Notices. Any notice required by the
provisions of this Section 5 to be given to the
holders of shares of Series B Preferred Stock shall
be deemed given if deposited in the United States
mail, postage prepaid and addressed to each holder of
record at his address appearing on the books of the
Corporation.
6. Voting Rights. Holders of shares of Series B Preferred
Stock will not be entitled to vote, except as otherwise required by
law, with respect to any matters submitted to a vote of the
stockholders.
7. Dividends. The holders of record of Series B Preferred
Stock shall be entitled to receive ratably with the holders of record
of shares of Common Stock on an as-if-converted basis, such dividends,
payable in cash or otherwise (other than dividends payable in shares of
Common Stock or Common Stock Equivalents, to which the holders of
record of shares of Series B Preferred Stock shall not be entitled), as
may be declared thereon by the Board of Directors from time to time out
of assets or funds of the Corporation legally available therefor.
8. Reacquired Shares. Any shares of Series B Preferred Stock
purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued
as part of a new series of Preferred Stock subject to the conditions
and restrictions on issuance set forth herein, in the Certificate of
Incorporation, or in any other Certificate of Designation creating a
series of Preferred Stock or any similar stock or as otherwise required
by law."
7.
<PAGE>
IN WITNESS WHEREOF, the undersigned do hereby execute this Certificate,
and do hereby declare and certify that this is our act and deed and the facts
herein stated are true, and accordingly have executed this Certificate as of
February __, 1997.
QUANTUM CORPORATION
By: /s/ MICHAEL A. BROWN
---------------------------
Name: Michael A. Brown
Title: President
ATTEST:
By: /s/ RICHARD L. CLEMMER
------------------------------
Name: Richard L. Clemmer
Title: Secretary
8.
STOCK PURCHASE AGREEMENT
dated as of February 13, 1997
among
QUANTUM CORPORATION,
QUANTUM PERIPHERALS COLORADO, INC.
and
STORAGE TECHNOLOGY CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. AGREEMENT TO SELL AND PURCHASE............................. 1.
1.1 Sale and Purchase of Shares. .............................. 1.
1.2 Purchase Price............................................. 1.
1.3 Terms of Quantum Preferred Shares.......................... 1.
1.4 Amendment of Lease......................................... 2.
SECTION 2. CLOSING, DELIVERY AND PAYMENT.............................. 2.
2.1 Closing.................................................... 2.
2.2 Delivery and Payment....................................... 2.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF STORAGETEK............... 2.
3.1 Organization and Standing.................................. 2.
3.2 Power and Authorization.................................... 3.
3.3 No Violation or Conflict................................... 3.
3.4 Governmental Authorization................................. 3.
3.5 Information................................................ 3.
3.6 Litigation................................................. 3.
3.7 Title to Shares; No Encumbrance............................ 4.
3.8 Investment Representations................................. 4.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF QUANTUM.................. 5.
4.1 Organization and Standing.................................. 5.
4.2 Power and Authorization.................................... 6.
4.3 Issuance of Quantum Preferred Shares....................... 6.
4.4 No Violation or Conflict................................... 6.
4.5 Governmental Authorization................................. 6.
4.6 Litigation................................................. 6.
4.7 Investment Representations................................. 7.
4.8 Legends.................................................... 7.
SECTION 5. COVENANTS OF QUANTUM....................................... 7.
5.1 Reservation of Shares...................................... 7.
SECTION 6. CONDITIONS TO CLOSING...................................... 7.
6.1 Conditions to Obligations of StorageTek. .................. 7.
6.2 Conditions to Obligations of Quantum....................... 8.
SECTION 7. MISCELLANEOUS. ........................................... 9.
7.1 Notices.................................................... 9.
7.2 Amendments and Waivers.....................................10.
i.
<PAGE>
TABLE OF CONTENTS
(continued)
Page
7.3 Expenses...................................................10.
7.4 Attorney's Fees............................................10.
7.5 Successors and Assigns.....................................10.
7.6 Governing Law..............................................10.
7.7 Counterparts...............................................11.
7.8 Entire Agreement...........................................11.
7.9 Severability...............................................11.
7.10 Captions...................................................11.
7.11 Broker's Fees..............................................11.
EXHIBITS
Certificate of Designation Exhibit A
Letter Agreement between Quantum and StorageTek Exhibit B
ii.
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of
February 13, 1997 by and among QUANTUM PERIPHERALS COLORADO, INC., a Delaware
corporation ("QPC"), STORAGE TECHNOLOGY CORPORATION, a Delaware corporation
("StorageTek") and QUANTUM CORPORATION, a Delaware corporation ("Quantum").
RECITALS
WHEREAS, Quantum owns eight hundred ten (810) shares of common stock,
par value $.01 per share, of QPC (the "QPC Common Stock"), which constitutes
eighty-one percent (81%) of the issued and outstanding shares of capital stock
of QPC;
WHEREAS, StorageTek owns one hundred ninety (190) shares of QPC Common
Stock (the "Shares"), which constitutes nineteen percent (19%) of the issued and
outstanding shares of capital stock of QPC; and
WHEREAS, pursuant to a Stockholders' Agreement, dated August 19, 1992,
by and among the parties to this Agreement (the "Stockholders' Agreement"),
Quantum has an option to purchase the Shares from StorageTek; and
WHEREAS, Quantum has exercised such option and the parties have agreed
upon the price and terms set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE.
1.1 Sale and Purchase of Shares. Subject to the terms and conditions
hereof, at the Closing, StorageTek hereby agrees to sell, assign, transfer and
deliver the Shares to Quantum, and Quantum agrees to purchase the Shares from
StorageTek.
1.2 Purchase Price. The purchase price for the Shares shall consist of
ninety thousand (90,000) shares of preferred stock, $0.01 par value, of Quantum
(the "Quantum Preferred Shares") and three million four hundred thousand dollars
($3,400,000) in cash (the "Cash Purchase Price" and together with the Quantum
Preferred Shares, the "Purchase Price").
1.3 Terms of Quantum Preferred Shares. The Quantum Preferred Shares
shall have the rights, preferences, privileges and restrictions substantially as
set forth in the Certificate of Designation attached hereto as Exhibit A (the
"Certificate of Designation").
1.
<PAGE>
1.4 Amendment of Lease. At or prior to the Closing, subject to the
terms hereof, StorageTek and Quantum shall enter into the letter agreement
amending the Facility Lease between StorageTek and QPC in substantially the form
attached hereto as Exhibit B (the "Letter Agreement") and Quantum shall pay to
StorageTek $1,000,000 in cash in accordance with Section 2.2(b).
SECTION 2. CLOSING, DELIVERY AND PAYMENT.
2.1 Closing. The closing of the sale and purchase of the Shares under
this Agreement (the "Closing") shall take place at the offices of Quantum at
9:00 a.m. (California time) upon the day all of the conditions to Closing have
been satisfied, or as soon thereafter as practicable, at a time and place fixed
by mutual written consent of the parties (such date is hereinafter referred to
as the "Closing Date").
2.2 Delivery and Payment.
(a) At the Closing, subject to the terms and conditions hereof,
StorageTek will deliver to Quantum the stock certificates in the name of
StorageTek representing the Shares, duly endorsed (or accompanied by duly
executed stock powers) and Quantum will: (i) pay the Cash Purchase Price to
StorageTek by federal funds wire transfer made payable to an account designated
by StorageTek; and (ii) shall deliver to StorageTek certificates representing
the Quantum Preferred Shares.
(b) At the Closing, subject to the terms and conditions hereof, QPC and
StorageTek shall each execute and deliver the Letter Agreement and Quantum shall
cause QPC to pay one million dollars ($1,000,000) in cash to StorageTek in
accordance with Section 5 of the Letter Agreement by federal funds wire transfer
made payable to an account designated by StorageTek at least one day in advance
of the Closing.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF STORAGETEK.
StorageTek hereby represents and warrants to Quantum that as of the
date hereof:
3.1 Organization and Standing. StorageTek is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. StorageTek has all requisite corporate power and authority to execute
and deliver this Agreement and the Letter Agreement, to sell the Shares, and to
carry out the provisions of this Agreement and the Letter Agreement. StorageTek
is duly qualified and is authorized to do business and is in good standing as a
foreign corporation in all jurisdictions in which the nature of its activities
and of its properties (both owned and leased) makes such qualification
necessary, except for those jurisdictions in which failure to do so would not
have a Material Adverse Effect on StorageTek. For purposes of this Agreement,
"Material Adverse Effect" means a material adverse effect on the assets,
business, operations or financial condition of the business entity.
2.
<PAGE>
3.2 Power and Authorization. All corporate action on the part of
StorageTek, its directors, officers and stockholders necessary for the
authorization of this Agreement and the Letter Agreement, the performance of all
obligations of StorageTek hereunder and thereunder and the sale and delivery of
the Shares pursuant hereto has been taken or will be taken prior to the Closing.
The Agreement and the Letter Agreement, when executed and delivered, will be
valid and binding obligations of StorageTek enforceable in accordance with their
respective terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights. The sale of the Shares to Quantum is not and
will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
3.3 No Violation or Conflict. The execution, delivery and performance
of this Agreement and the Letter Agreement and the consummation of the
transaction contemplated hereby and thereby by StorageTek do not and will not
violate, conflict with, result in a breach of, or constitute a default or result
in or permit any acceleration of any obligation under, (a) any law, ordinance or
governmental rule or regulation to which StorageTek is subject, (b) any
judgment, order, writ, injunction, decree or award of any court, arbitrator or
governmental or regulatory official, body or authority which is applicable to
StorageTek, (c) its certificate of incorporation or by-laws, or (d) any
mortgage, indenture, agreement, contract, commitment, lease, license or other
instrument or document, oral or written, to which StorageTek is a party, or by
which any of the Shares may be bound, except where a waiver with respect thereto
has been obtained.
3.4 Governmental Authorization. The execution, delivery and performance
by StorageTek of this Agreement and the Letter Agreement does not require any
action by or in respect of, or filing with, any governmental body, agency,
official or authority other than: (a) such filings as have been made prior to
the Closing; and (b) such post-closing filings as may be required under
applicable state securities laws, which will be timely filed within the
applicable periods therefor.
3.5 Information. StorageTek confirms that it has had the full
opportunity to make all inquiries and receive all information it desires with
respect to the business, operations and financial affairs of QPC (in regard to
StorageTek's sales of the Shares) and the business, operations and financial
affairs of Quantum (in regards to StorageTek's purchase of the Quantum Preferred
Shares). StorageTek has had the opportunity to ask questions of and receive
answers from Quantum and its management. StorageTek has all information it
considers necessary or appropriate for deciding whether to execute and perform
this Agreement. StorageTek has been represented by its own counsel in connection
with the transactions set forth herein.
3.6 Litigation. There is no action, suit, proceeding or investigation
pending or, to StorageTek's knowledge, currently threatened against StorageTek,
that questions the validity of this Agreement or the Letter Agreement or the
right of StorageTek to enter into this Agreement or the Letter Agreement, or to
consummate the transaction contemplated hereby, nor is StorageTek aware that
there is any basis for the foregoing.
3.
<PAGE>
3.7 Title to Shares; No Encumbrance. Immediately prior to the purchase
and sale contemplated in Section 1 hereof, StorageTek owns and will own, of
record and beneficially, good, valid and marketable title to the Shares, free
and clear of any and all liens, security interests, mortgage, pledge, charge,
claim or other encumbrance of any nature whatsoever ("Liens"). Upon delivery of
the Shares by StorageTek to Quantum at the Closing, and upon payment of the
Purchase Price therefor, good and valid title to such Shares will pass to
Quantum, free and clear of all Liens, other than those arising from acts of
Quantum or its affiliates. Other than this Agreement and the Stockholders'
Agreement by and among Digital Equipment Corporation (as predecessor to
Quantum), StorageTek, and Rock Mountain Magnetics, Inc. (the prior name of QPC),
dated August 19, 1992 (the "Stockholders' Agreement"), the Shares are not
subject to any voting trust agreement or other contract, arrangement, commitment
or understanding, including but not limited to those restricting or otherwise
relating to the voting, dividend rights or disposition of the Shares. Except for
the Shares, StorageTek does not own, directly or indirectly, of record or
beneficially, any securities of QPC, and StorageTek has no right of first
refusal, right of co-sale, contractual preemptive right, or other right to
acquire any unissued securities or other property of QPC or Quantum or any
issued and outstanding securities of QPC held by Quantum.
3.8 Investment Representations. StorageTek understands that the Quantum
Preferred Shares have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"). StorageTek also understands that the Quantum
Preferred Shares are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon StorageTek's
representations contained in this Agreement. StorageTek hereby represents and
warrants as follows:
(a) StorageTek Bears Economic Risk. StorageTek has substantial
experience in evaluating and investing in transactions of securities in
companies similar to Quantum so that it is capable of evaluating the merits and
risks of its investment in Quantum and has the capacity to protect its own
interests. StorageTek must bear the economic risk of this investment
indefinitely unless the Quantum Preferred Shares are registered pursuant to the
Securities Act, or an exemption from registration is available. StorageTek
understands that Quantum has no present intention of registering the Quantum
Preferred Shares or the shares of common stock, $0.01 par value, issuable upon
conversion of the Quantum Preferred Shares the ("Quantum Conversion Shares").
StorageTek also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow StorageTek to transfer all or any
portion of the Quantum Preferred Shares or Quantum Conversion Shares or under
the circumstances, in the amounts or at the times StorageTek might propose.
(b) Acquisition for Own Account. StorageTek is acquiring the
Quantum Preferred Shares and the Quantum Conversion Shares for StorageTek's own
account for investment only, and not with a view towards their distribution.
4.
<PAGE>
(c) Investment Experience. StorageTek represents that by
reason of its, or of its management's, business or financial experience,
StorageTek has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement.
(d) Restricted Securities. StorageTek acknowledges and agrees
that the Quantum Preferred Shares and Quantum Conversion Shares must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available.
(g) Legends. Each certificate representing the Quantum
Preferred Shares and Quantum Conversion Shares shall be stamped or otherwise
imprinted with a legend substantially similar to the following (in addition to
any legend required under applicable state securities laws or as provided
elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER THE ACT OR UNLESS QUANTUM
HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO
QUANTUM AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED.
Quantum shall be obligated to reissue promptly unlegended certificates at the
request of any holder thereof if the holder shall have obtained an opinion of
counsel (which counsel may be counsel to Quantum) reasonably acceptable to
Quantum to the effect that the securities proposed to be disposed of may
lawfully be so disposed of without registration, qualification or legend. Any
legend endorsed on an instrument pursuant to applicable state securities laws
and the stop-transfer instructions with respect to such securities shall be
removed upon receipt by Quantum of an order of the appropriate blue sky
authority authorizing such removal.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF QUANTUM.
Quantum hereby represents and warrants to StorageTek that as of the
date hereof:
4.1 Organization and Standing. Quantum is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Quantum has all requisite corporate power and authority to own and operate its
properties and assets, to execute and deliver this Agreement and the Letter
Agreement, to sell the Quantum Preferred Shares and the Quantum Conversion
Shares and to carry out the provisions of this Agreement and the Letter
Agreement. Quantum is duly qualified and authorized to do business and is in
good standing as a foreign corporation in all jurisdictions in which the nature
of its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those
5.
<PAGE>
jurisdictions in which failure to do so would not have a Material Adverse Effect
on Quantum or its business.
4.2 Power and Authorization. All corporate action on the part of
Quantum, its directors, officers and stockholders necessary for the
authorization of this Agreement and the Letter Agreement, the performance of all
obligations of Quantum hereunder and thereunder and the sale and delivery of the
Quantum Preferred Shares and the Quantum Conversion Shares pursuant hereto has
been taken or will be taken prior to the Closing. The Agreement and the Letter
Agreement, when executed and delivered, will be valid and binding obligations of
Quantum enforceable in accordance with their respective terms, except as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting enforcement of creditors' rights. The sale of
the Quantum Preferred Shares and the Quantum Conversion Shares is not and will
not be subject to any preemptive rights or rights of first refusal that have not
been properly waived or complied with.
4.3 Issuance of Quantum Preferred Shares. The rights preferences and
privileges of the Quantum Preferred Shares are substantially as set forth in the
Certificate of Designation attached hereto as Exhibit A. The Quantum Conversion
Shares have been duly and validly reserved for issuance. When issued in
compliance with the provisions of the Agreement and Quantum's certificate of
incorporation, the Quantum Preferred Shares and the Quantum Conversion Shares
will be duly and validly issued, fully paid and nonassessable, and will be free
of any liens, encumbrances, security interests or restrictions on transfer other
than those provided in this Agreement and under applicable state and federal
securities laws as set forth herein or as otherwise required by such laws at the
time the transfer is proposed.
4.4 No Violation or Conflict. The execution, delivery and performance
of this Agreement and the Letter Agreement and the consummation of the
transaction contemplated hereby and thereby by Quantum do not and will not
violate, conflict with, result in a breach of, or constitute a default or result
in or permit any acceleration of any obligation under, (a) any law, ordinance or
governmental rule or regulation to which Quantum is subject, (b) any judgment,
order, writ, injunction, decree or award of any court, arbitrator or
governmental or regulatory official, body or authority which is applicable to
Quantum, (c) its certificate of incorporation or by-laws, or (d) any mortgage,
indenture, agreement, contract, commitment, lease, license or other instrument
or document, oral or written, to which Quantum is a party, or by which the
Quantum Preferred Shares or the Quantum Conversion Shares may be bound, except
where a waiver with respect thereto has been obtained.
4.5 Governmental Authorization. The execution, delivery and performance
by Quantum of this Agreement does not require any action by or in respect of, or
filing with, any governmental body, agency, official or authority other than:
(a) such filings as have been made prior to the Closing; and (b) such
post-closing filings as may be required under applicable state securities laws,
which will be timely filed within the applicable periods therefor.
4.6 Litigation. There is no action, suit, proceeding or investigation
pending or, to Quantum's knowledge, currently threatened against Quantum that
questions the validity of this
6.
<PAGE>
Agreement or the Letter Agreement or the right of Quantum to enter into this
Agreement or the Letter Agreement, or to consummate the transaction contemplated
hereby or thereby, nor is Quantum aware that there is any basis for the
foregoing.
4.7 Investment Representations. Quantum confirms that as the 81%
stockholder of QPC, it has all of the information it requires with respect to
the business, management and financial affairs of QPC. Quantum understands that
the Shares have not been registered under the Securities Act. Quantum also
understands that the Shares are being offered and sold in a private transaction
pursuant to an exemption from registration contained in the Securities Act.
Quantum agrees not to resell the Shares except in accordance with applicable
federal and state securities laws. Quantum acknowledges that StorageTek makes no
representation or warranty with respect to the accuracy or completeness of the
books and records of QPC.
4.8 Legends. Quantum understands and acknowledges that each certificate
representing the Shares shall be stamped or otherwise imprinted with a legend
substantially similar to the following (in addition to any legend required under
applicable state securities laws or as provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER THE ACT OR UNLESS QPC HAS
RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO QPC
AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED.
SECTION 5. COVENANTS OF QUANTUM.
5.1 Reservation of Shares. Quantum shall at all times reserve and keep
available out of its authorized but unissued shares of common stock, such number
of its authorized shares of common stock as shall be sufficient for the purpose
of issuing the Quantum Conversion Shares in accordance with the Certificate of
Designation. If at any time the number of authorized but unissued shares of
common stock shall not be sufficient to issue the Quantum Conversion Shares,
Quantum will take such corporate action as may be necessary to increase its
authorized but unissued shares of common stock to such number of shares as shall
be sufficient for such purpose.
SECTION 6. CONDITIONS TO CLOSING.
6.1 Conditions to Obligations of StorageTek. StorageTek's obligations
to sell the Shares to Quantum at the Closing are subject to the satisfaction, at
or prior to the Closing, of the following conditions:
7.
<PAGE>
(a) Representations and Warranties True. The representations
and warranties made by Quantum in Section 4 hereof shall be true and correct as
of the Closing Date with the same force and effect as if they had been made as
of the Closing Date.
(b) Performance of Covenants. Quantum shall have performed all
of its covenants and agreements contained herein which are required to be
performed by it on or prior to the Closing Date.
(c) Filing of Certificate of Designation. Quantum shall have
filed the Certificate of Designation with the Secretary of State of the State of
Delaware.
(d) Officer's Certificate. Quantum shall have delivered to
StorageTek a Compliance Certificate, executed by the President of Quantum, dated
the date of the Closing, to the effect that the conditions specified in
subsections (a) and (b) of this Section 6.1 have been satisfied.
(e) Execution of Letter Agreement. Quantum and StorageTek
shall have each executed and delivered the Letter Agreement.
(f) Injunctions. There shall not be in effect any injunction
that shall have been entered by a court of competent jurisdiction since the date
of this Agreement and that would enjoin the transaction contemplated hereby.
6.2 Conditions to Obligations of Quantum. Quantum's obligation to
purchase the Shares is subject to the satisfaction, on or prior to the Closing,
of the following conditions:
(a) Representations and Warranties True. The representations
and warranties made by StorageTek in Section 3 hereof shall be true and correct
as of the Closing Date with the same force and effect as if they had been made
as of the Closing Date.
(b) Performance of Covenants. StorageTek shall have performed
all of its covenants and agreements contained herein which are required to be
performed by it on or prior to the Closing Date.
(c) Filing of Certificate of Designation. Quantum shall have
filed the Certificate of Designation with the Secretary of State of the State of
Delaware.
(d) Officer's Certificate. StorageTek shall have delivered to
Quantum a Compliance Certificate, executed by the President of StorageTek, dated
the date of the Closing, to the effect that the conditions specified in
subsections (a) and (b) of this Section 6.2 have been satisfied.
(e) Execution of Letter Agreement. Quantum and StorageTek
shall have each executed and delivered the Letter Agreement.
8.
<PAGE>
(f) Injunctions. There shall not be in effect any injunction
that shall have been entered by a court of competent jurisdiction since the date
of this Agreement and that would enjoin the transaction contemplated hereby.
(g) Resignation. Gary Anderson shall have resigned has a
director of QPC effective on the Closing Date.
SECTION 7. MISCELLANEOUS.
7.1 Notices. All notices, requests and other communications to either
party hereunder shall be in writing (including telecopy or similar writing) and
shall be given,
if to StorageTek to:
Storage Technology Corporation
2270 South 88th Street
Louisville, CO 80028
Attention: Chief Financial Officer
Telecopy: (303) 673-4151
with a copy to:
Storage Technology Corporation
2270 South 88th Street
Louisville, CO 80028
Attention: General Counsel
Telecopy: (303) 673-4151
if to QPC, to:
Quantum Peripherals Colorado, Inc.
2270 South 88th Street
Louisville, CO 80028
Attention: Chief Financial Officer
Telecopy: (303) 604-5055
with a copy to:
Cooley Godward LLP
1 Maritime Plaza, 20th Floor
San Francisco, CA 94111
Attention: James C. Gaither, Esq.
Telecopy: (415) 951-3699
9.
<PAGE>
if to Quantum, to:
Quantum Corporation
500 McCarthy Blvd.
Milpitas, CA 95035
Attention: Chief Financial Officer
Telecopy: (408) 894-3223
with a copy to:
Cooley Godward LLP
1 Maritime Plaza, 20th Floor
San Francisco, CA 94111
Attention: James C. Gaither, Esq.
Telecopy: (415) 951-3699
7.2 Amendments and Waivers.
(a) Any provisions of this Agreement may be amended or waived
prior to the Closing Date if, and only if, such amendment or waiver is in
writing and signed, in the case of an amendment, by StorageTek, Quantum and QPC,
or in the case of a waiver, by the party against whom the waiver is to be
effective.
(b) No failure or delay by either party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
7.3 Expenses. Except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement shall be paid by the party
incurring such cost or expense.
7.4 Attorney's Fees. If any legal action or other legal proceeding
relating to this Agreement or the enforcement of any provision of this Agreement
is brought against any party hereto, the prevailing party shall be entitled to
recover reasonable attorneys' fees, costs and disbursements (in addition to any
other relief to which the prevailing party may be entitled).
7.5 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, provided that neither party may assign, delegate or
otherwise transfer any of its rights or obligations under this Agreement without
the consent of the other parties hereto.
7.6 Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of Delaware without regard to the
conflicts of law rules of such State.
10.
<PAGE>
7.7 Counterparts; Effectiveness. This Agreement may be signed in two
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received a counterpart
hereof signed by the other party hereto.
7.8 Entire Agreement. This Agreement and the Letter Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and thereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between the paries with respect to the
subject matter thereof. This Agreement supersedes and replaces in its entirety
the Stockholders' Agreement. No representation, inducement, promise,
understanding, condition or warranty not set forth herein or therein has been
made or relied upon by either party hereto. None of this Agreement or the Letter
Agreement between StorageTek, Quantum and QPC, nor any provision hereof or
thereof, is intended to confer upon any person other than the parties hereto any
rights or remedies hereunder or thereunder.
7.9 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
7.10 Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
7.11 Broker's Fees. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein.
11.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this STOCK
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
STORAGE TECHNOLOGY CORPORATION
By: /s/ ON FILE
------------------------------
(Signature)
Title: VICE PRESIDENT
---------------------------
QUANTUM CORPORATION
By: /s/ MICHAEL A. BROWN
------------------------------
(Signature)
Title: PRESIDENT AND CEO
---------------------------
QUANTUM PERIPHERALS COLORADO, INC.
By: /s/ TIM C. STUCCHI
------------------------------
(Signature)
Title: PRESIDENT
---------------------------
12.
QUANTUM CORPORATION
EXHIBIT 11
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(In thousands except per share data) Year ended March 31,
-----------------------------------
1997 1996 1995
-----------------------------------
Primary
Weighted average number of common
shares outstanding 117,776 103,682 90,802
Incremental common shares attributable
to outstanding options 5,368 -* 3,836
--------- --------- ---------
Total shares 123,144 103,682 94,638
========= ========= =========
Net income (loss) $ 148,515 $ (90,456) $ 81,591
========= ========= =========
Net income (loss) per share $ 1.21 $ (0.87) $ 0.86
========= ========= =========
Fully Diluted
Weighted average number of common
shares outstanding 117,776 103,682 90,802
Incremental common shares attributable to:
Outstanding options 6,259 6,022 3,858
6 3/8% convertible subordinated
debentures 9,032 16,258 23,416
5% convertible subordinated notes 21,626 2,604 --
--------- --------- ---------
Total shares 154,693 128,566 118,076
========= ========= =========
Net income (loss):
Net income (loss) $ 148,515 $ (90,456) $ 81,591
Add interest on convertible debt,
net of tax 10,375 6,957 8,128
--------- --------- ---------
Adjusted net income (loss) $ 158,890 $ (83,499) $ 89,719
========= ========= =========
Net income (loss) per share $ 1.03 $ (0.65)* $ 0.76
========= ========= =========
* The primary net income (loss) per share is shown in the statements of
operations for both primary and fully diluted, as the effect of the assumed
conversion of the subordinated debentures is anti-dilutive. For fiscal 1996,
the effect of common stock equivalents is also anti-dilutive for the primary
loss per share.
QUANTUM CORPORATION
EXHIBIT 12
<TABLE>
STATEMENT OF COMPUTATION OF RATIOS
OF EARNINGS TO FIXED CHARGES
<CAPTION>
Years Ended March 31,
----------------------------------------------------------
(In thousands) 1997 1996 1995 1994 1993
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income (loss) before income
taxes $ 200,696 $(141,338) $ 145,305 $ 3,663 $ 146,579
Add fixed charges 56,669 48,226 29,277 18,906 17,125
--------- --------- --------- --------- ---------
Earnings (as defined) $ 257,365 $ (93,112) $ 174,582 $ 22,569 $ 163,704
========= ========= ========= ========= =========
Fixed charges
Interest expense $ 47,882 $ 35,904 $ 21,557 $ 14,305 $ 13,777
Amortization of debt
issuance costs (ii) 2,427 1,458 577 586
Estimated interest component
of rent expenses 8,787 9,895 6,262 4,024 2,762
--------- --------- --------- --------- ---------
Total fixed charges $ 56,669 $ 48,226 $ 29,277 $ 18,906 $ 17,125
========= ========= ========= ========= =========
Ratio of earnings to fixed
charges 4.5 (i) 6.0 1.2 9.6
========= ========= ========= =========
<FN>
(i) Earnings (as defined) for fiscal 1996 were insufficient to cover fixed
charges by $141.3 million.
(ii) In 1997 the amortization of debt issuance costs is included in interest
expense.
</FN>
</TABLE>
QUANTUM CORPORATION
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
1. Quantum International Inc., a California corporation
2. Quantum International DISC Inc., a California corporation
3. Quantum Foreign Sales Corporation, a Barbados corporation
4. Quantum GmbH, a German corporation
5. Quantum Peripheral Products Ltd., a United Kingdom corporation
6. Quantum France SARL, a French corporation
7. Quantum Asia Pacific Pte. Ltd., a Singapore corporation
8. Quantum Peripherals Japan Corporation, a Japanese corporation
9. Quantum Data Storage B.V., a Netherlands corporation
10. Quantum Peripheral Products (Ireland) Ltd., an Ireland corporation
11. Quantum Peripherals (Europe) S.A., a Swiss corporation
12. Quantum Singapore Pte. Ltd., a Singapore corporation
13. Quantum Korea Corporation, a Korean corporation
14. Quantum Hong Kong Ltd., a Hong Kong corporation
15. Quantum Peripherals (Malaysia) Sdn. Bhd., a Malaysian corporation
16. P.T. Quantum Peripherals Indonesia, an Indonesian corporation
17. Quantum Japan Procurement Center, Inc., a Japanese corporation
18. Quantum Storage (Malaysia) Sdn. Bhd., a Malaysian corporation
19. Quantum Peripherals Colorado, Inc., a Delaware corporation
20. Quantum Peripherals Realty Corporation, a Delaware corporation
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-94170, 33-37388, 33-52190, 33-54343, 33-55503, 33-19412,
33-52192, 33-72222, 33-61059, 33-64625, 333-09983) pertaining to the 1984 Stock
Option Plan, the 1986 Stock Option Plan, the Plus Development 1987 Stock Option
Plan of Quantum Corporation, the Employee Stock Purchase Plan and the 1993
Long-Term Incentive Plan of Quantum Corporation, of our report dated April 28,
1997, with respect to the consolidated financial statements and schedule of
Quantum Corporation included in the Annual Report (Form 10-K) for the year ended
March 31, 1997.
Ernst & Young LLP
Palo Alto, California
June 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM
THE FINANCIAL STATEMENTS OF QUANTUM CORPORATION FOR THE TWELVE
MONTHS ENDED MARCH 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 345,125
<SECURITIES> 0
<RECEIVABLES> 898,087
<ALLOWANCES> 10,610
<INVENTORY> 252,802
<CURRENT-ASSETS> 1,688,419
<PP&E> 633,897
<DEPRECIATION> 226,691
<TOTAL-ASSETS> 2,158,263
<CURRENT-LIABILITIES> 815,578
<BONDS> 419,018
0
3,888
<COMMON> 459,800
<OTHER-SE> 426,392
<TOTAL-LIABILITY-AND-EQUITY> 2,158,263
<SALES> 5,319,457
<TOTAL-REVENUES> 5,319,457
<CGS> 4,550,716
<TOTAL-COSTS> 4,550,716
<OTHER-EXPENSES> 527,210
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,882
<INCOME-PRETAX> 200,696
<INCOME-TAX> 52,181
<INCOME-CONTINUING> 148,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148,515
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.03
</TABLE>
