SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 29, 1997.
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 0-14016
MAXTOR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of 77-0123732
incorporation or organization) (I.R.S. Employer)
(Identification No.)
510 Cottonwood Drive, Milpitas, CA 95035
(Address of principal executive offices) (Zip Code)
(408) 432-1700
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 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.
X Yes No
No shares of Common Stock and 58,208,955 shares of Series A
Preferred Stock were issued and outstanding as of May 3, 1997.
MAXTOR CORPORATION
FORM 10-Q
March 29,1997
INDEX
Part I. Financial
Information Page
Item 1.Consolidated Financial Statements
Consolidated Statements of Operations -
Three Months Ended March 29, 1997
and March 30, 1996 3
Consolidated Balance Sheets-
March 29, 1997 and December 28, 1996 4 - 5
Consolidated Statements of Cash Flows-
Three Months Ended March 29, 1997
and March 30, 1996 6 - 7
Notes to Consolidated Financial 8 - 9
Statements
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 10 - 14
Part II. Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 16
PART I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended
--------------------
March 29, March 30,
1997 1996
--------- ----------
Revenue $238,042 $ 310,587
Revenue from affiliates 8,966 4,371
-------- ---------
Total revenue 247,008 314,958
-------- ---------
Cost of revenue 245,862 299,011
Cost of revenue from affiliates 8,254 3,902
-------- ---------
Total cost of revenue 254,116 302,913
Gross margin (7,108) 12,045
-------- ---------
Operating expenses:
Research and development 26,394 25,301
Selling, general and
administrative 15,061 22,174
-------- ---------
Total operating expenses 41,455 47,475
-------- ---------
Loss from operations (48,563) (35,430)
Interest expense (7,927) (4,021)
Interest income 1,781 333
-------- ---------
Loss before income taxes (54,709) (39,118)
Provision for income taxes 277 699
-------- ---------
Net loss $(54,986) $(39,817)
======== =========
See accompanying notes.
MAXTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 29, December 28,
1997 1996
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents $19,363 $31,313
Accounts receivable, net of
allowance for doubtful
accounts of $4,184 at
March 29, 1997 and $5,255
at December 28, 1996 147,219 82,876
Accounts receivable from
affiliates 3,561 6,248
Inventories:
Raw materials 34,339 33,012
Work-in-process 19,792 15,674
Finished goods 32,005 32,192
------- -------
86,136 80,878
Prepaid expenses and other 4,289 5,239
------- -------
Total current assets 260,568 206,554
Property, plant and equipment,
at cost:
Buildings 29,958 29,512
Machinery and equipment 208,872 194,644
Furniture and fixtures 10,773 13,300
Leasehold improvements 11,570 12,695
------- -------
261,173 250,151
Less accumulated depreciation
and amortization (154,334) (158,078)
--------- ---------
Net property, plant and
equipment 106,839 92,073
Other assets 18,740 15,912
--------- --------
$386,147 $314,539
========= ========
See accompanying notes.
MAXTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
(Continued)
March 29, December 28,
1997 1996
---------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term borrowings $169,800 $149,800
Short-term borrowings
due to affiliates 100,000 -
Accounts payable 134,756 109,956
Accounts payable to
affiliates 16,427 13,459
Income taxes payable 5,133 5,088
Accrued payroll and
payroll-related expenses 18,410 17,159
Accrued warranty 16,878 20,194
Accrued expenses 78,050 97,166
Long-term debt and capital
lease obligations
due within one year 5,040 71
-------- --------
Total current liabilities 544,494 412,893
Long-term debt and capital lease
obligations due after one year 224,102 229,109
Commitments and contingencies - -
Stockholder's deficit:
Series A Preferred stock,
$0.01 par value, 95,000,000
shares authorized; 58,208,955
shares issued and outstanding
at March 29, 1997 and
December 28, 1996;aggregated
liquidation value of $390,000 582 582
Common stock, $0.01 par value,
110,000,000 shares authorized;
no shares issued and
outstanding at March 29, 1997
and December 28, 1996 - -
Additional paid-in capital 335,017 335,017
Accumulated deficit (718,048) (663,062)
--------- ---------
Total stockholder's deficit (382,449) (327,463)
--------- ---------
$ 386,147 $ 314,539
========== ==========
See accompanying notes.
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
----------------------
March 29, March 30,
1997 1996
---------- ----------
Increase (decrease) in cash
and cash equivalents
Cash flows from operating activities:
Net loss $(54,986) $(39,817)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and amortization 11,736 13,264
(Gain)/loss on disposal of
property, plant and
equipment (492) 611
Other (215) 300
Change in assets
and liabilities:
Accounts receivable (43,873) 4,102
Accounts receivable
from affiliates 2,687 (4,426)
Net collections of
accounts receivable sold
to financing company (37,804) -
Inventories (6,926) (24,796)
Prepaid expenses and other 950 1,505
Accounts payable 7,525 8,073
Accounts payable to affiliates 2,968 8,656
Income taxes payable 45 (184)
Accrued payroll and
payroll-related expenses 1,251 69
Accrued warranty (3,316) (1,944)
Accrued expenses 52 (7,008)
-------- --------
Total adjustments (65,412) (1,778)
-------- --------
Net cash used in operating
activities (120,398) (41,595)
--------- --------
Cash flows from investing
activities:
Purchase of property,
plant and equipment,
net of disposals (8,789) (22,128)
Other (2,729) (2,271)
-------- --------
Net cash used in
investing activities (11,518) (24,399)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of
short-term borrowings 120,000 76,595
Principal payments on debt,
including capital lease obligations (34) (665)
Proceeds from issuance of
common stock, net of notes
receivable, stock repurchases
and tax benefits - 1,492
-------- --------
Net cash provided by
financing activities 119,966 77,422
-------- --------
Net change in cash and
cash equivalents (11,950) 11,428
Cash and cash equivalents
at beginning of period 31,313 41,366
-------- --------
Cash and cash equivalents
at end of period $ 19,363 $ 52,794
========== ========
See accompanying notes.
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
- -------------------------------------------------------------------
March 29, March 30,
1997 1996
- -------------------------------------------------------------------
Supplemental disclosures of
cash flow information:
Cash paid for:
Interest $5,512 $7,470
Income taxes 153 587
Supplemental information on
non-cash investing and
financing activities:
Purchase of property, plant
and equipment financed by
accounts payable $17,275 $4,949
- --------------------------------------------------------------------
See accompanying notes.
MAXTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Consolidated financial statements
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and
are not intended to include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. The consolidated financial statements
include the accounts of Maxtor Corporation (Maxtor or the Company)
and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. Maxtor
Corporation operates as a wholly-owned subsidiary of Hyundai
Electronics America (HEA). All adjustments of a normal recurring
nature which, in the opinion of management, are necessary for a
fair statement of the results for the interim periods have been
made. It is recommended that the interim financial statements be
read in conjunction with the Company's consolidated financial
statements and notes thereto for the fiscal year ended December
28, 1996. Interim results are not necessarily indicative of the
operating results expected for later quarters or the full fiscal
year. Balance sheet amounts at December 28, 1996 were derived
from the audited financial statements for the year ended December
28, 1996.
2. Short-term borrowings
On March 30, 1996, the Company entered into an accounts receivable
securitization program with Citicorp Securities, Inc. Under this
program, the Company can sell its qualified trade accounts
receivable up to $100 million on a non-recourse basis. The face
amount of the eligible receivables are discounted based on the
Capital Receivables Corporation commercial paper rate (5.65% as of
March 29, 1997) plus commission and is subject to a 10% retention.
As of March 29, 1997, $58.5 million in sales of accounts
receivable, for which proceeds had not yet been received, were
included in accounts receivable and $37.1 million in collections
of accounts receivable not yet remitted were included in accrued
and other liabilities.
On January 31, 1996 the Company signed a one year credit facility
in the amount of $13.8 million to be used for capital equipment
requirements at the Singapore facility. This credit facility is
guaranteed by HEI and all outstanding amounts of principal and
accrued interest were payable on February 2, 1997. In January
1997, this facility was renewed under similar terms for an
additional year, due on January 30, 1998. As of March 29, 1997,
$13.8 million was outstanding.
On April 10, 1996, the Company obtained a $100 million
intercompany line of credit from HEA. This line of credit allows
for draw downs up to $100 million and interest is payable
quarterly. As of March 29, 1997, $100 million was outstanding.
On April 10, 1997, all outstanding amounts of principal and
accrued interest were paid as the Company obtained a $150 million
intercompany line of credit from HEA which replaces the previous
HEA line. This line of credit allows for draw downs up to $150
million and interest is payable quarterly. As of May 3, 1997,
$115 million was outstanding.
On August 29, 1996, the Company established two unsecured,
revolving lines of credit totaling $215 million (the Facilities)
through Citibank, N.A. and syndicated among fifteen banks. In
September 1996, the Facilities were increased by $10 million to
total $225 million. The Facilities are guaranteed by Hyundai
Electronics Industries Company, Limited (HEI). A total of $96
million of the Facility is a 364-day committed facility, renewable
annually at the option of the syndicate banks. Such facility is
used primarily for general operating purposes and bears interest
at a rate based on LIBOR plus 0.53 percent. As of March 29, 1997,
$96 million of borrowings under this line of credit were
outstanding. A total of $129 million of the Facilities is a three
year committed facility that is also used primarily for general
operating purposes and bears interest at a rate based on LIBOR
plus 0.53 percent. As of March 29, 1997, $129 million of
borrowings under this line of credit were outstanding.
From September 30, 1996 to March 29, 1997, the Company obtained
credit facilities amounting to $60 million in the aggregate from
four banks. The facilities, which are guaranteed by HEI, are used
primarily for general operating purposes and bear interest at
rates ranging from 5.97 percent to LIBOR plus 0.60 percent. As of
March 29, 1997, $60 million of borrowings under this line of
credit were outstanding.
Under the terms of the Company's line of credit facilities, the
Company may not declare or pay any dividends without the prior
consent of its lenders.
3. Contingencies
On December 20, 1996, the Company filed an action in Colorado
District Court, County of Boulder, against StorMedia, Inc., its
subsidiary, StorMedia International, Ltd. and its Chief Executive
Officer, William J. Almon. This action, which arose out of an
agreement for the purchase of media by the Company from StorMedia,
was stayed in March 1997.
The Company has been notified of certain other claims, including
claims of patent infringement. While the ultimate outcome of such
claims is not determinable, there can be no assurance that the
claims will be resolved favorably to the Company or will not have
a material adverse impact on the financial condition, results of
operations or cash flows of the Company.
This report includes a number of forward-looking statements which
reflect the Company's current views with respect to future events
and financial performance. These forward-looking statements are
subject to certain risks and uncertainties, including those
discussed in Item 2 "Management's Discussion and Analysis of
Financial Condition and Results of Operations, "-Results of
Operations", "-Liquidity and Capital Resources", and "Trends and
Uncertainties", and elsewhere in this report, that could cause
actual results to differ materially from historical results or
those anticipated. In this report, the words "anticipates",
"believes", "expects", "intends", "future" and similar expressions
identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which
speak only as of the date hereof.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 29, 1997 COMPARED TO QUARTER ENDED MARCH 30, 1996
- -------------------------------------------------------------------
(In millions) March 29, March 30,
Fiscal quarter ended 1997 1996 Change
- -------------------------------------------------------------------
Revenue $247.0 $315.0 $(68.0)
Gross margin $(7.1) $12.0 $(19.1)
As a percentage
of revenue (2.9%) 3.8%
Net loss $(55.0) $(39.8) $(15.2)
As a percentage
of revenue (22.3%) (12.6%)
- -------------------------------------------------------------------
Revenue
Revenue for the quarter ended March 29, 1997 decreased by $68
million compared with the corresponding quarter of the prior year.
The primary reason was the June 1996 sale of a majority interest
in a wholly-owned subsidiary. The subsidiary accounted for $25.7
million in revenues for the quarter ended March 30, 1996. In
addition, the Company experienced a 10% decrease in units sold and
a continuing decline of average unit sales prices of the Company's
established products as a result of competitive market conditions,
offsetting a shift in product mix to the Company's newer higher
capacity, higher priced products. Over 80% of the Company's unit
volume for the quarter ended March 29, 1997 comprised drives
with a capacity of 1.6 gigabytes (GB) or higher, whereas the
Company's unit volume for the same quarter in the prior year
primarily comprised drives with a capacity of less than 1.6GB.
During the quarter ended March 29, 1997, the Company had one
customer which accounted for approximately 24% of the Company's
revenue. During the quarter ended March 30, 1996, no customer
accounted for 10% or greater of the Company's revenue.
Gross margin
Gross margin as a percentage of revenue declined in the quarter
ended March 29, 1997 compared to the quarter ended March 30, 1996.
Despite the shift in product mix to higher capacity products as
discussed earlier, gross margin declined primarily as a result of
the continuing decline in average unit selling prices.
The Company will continue its efforts to reduce its manufacturing
costs by focusing on manufacturing expense reductions, yield
improvements, and asset utilization. However, gross margins may
continue to be affected by pricing and other competitive conditions,
as well as the Company's ability to maintain profit margins during
the phase out of older product lines and the introduction and ramp
of newer product lines that incorporate advances in technology.
Operating expenses
- ------------------------------------------------------------------
(In millions) March 29, March 30,
Fiscal quarter ended 1997 1996 Change
- ------------------------------------------------------------------
Research and development $ 26.4 $ 25.3 $ 1.1
As a percentage of revenue 10.7% 8.0%
Selling, general and
administrative $ 15.1 $ 22.2 $ (7.1)
As a percentage
of revenue 6.1% 7.0%
- ------------------------------------------------------------------
Research and development (R&D) expenses increased in absolute
dollars and as a percentage of revenue primarily as a result of
the Company's continued investment in its advance technology group
which was initiated during the second fiscal quarter of 1996. The
group's objective is to ensure product feasibility as a whole
prior to product development by the design team in order to
attempt to facilitate transition of more advanced products from
design to volume production with acceptable production yields.
The Company intends to continue making investments in
research and development since the timely introduction and
transition to volume production of new products is essential to
its future success.
Selling, general and administrative (SG&A) expenses decreased as a
percentage of revenue and in absolute dollars for the quarter
ended March 29, 1997 due to the Company's ongoing efforts to
control costs and expenditures. Reductions in overall headcount
and controlled marketing expenses contributed to lower expenses
for the quarter ended March 29, 1997.
Interest expense and interest income
- ------------------------------------------------------------------
(In millions) March 29, March 30,
Fiscal quarter ended 1997 1996 Change
- ------------------------------------------------------------------
Interest expense $ 7.9 $4.0 $3.9
Interest income $ 1.8 $ .3 $1.5
- ------------------------------------------------------------------
Interest expense increased due to a substantial increase in short-
term and long-term borrowings required in order to fund the
Company's operations. The Company had $269.8 million of short-
term and $129 million of long-term lines of credit borrowings
outstanding at March 29, 1997, compared with $175.6 million of
total borrowings outstanding at March 30, 1996. The Company
expects to maintain approximately the same or higher levels of
borrowings for the remainder of the year.
Interest income increased due to payment received on a note
receivable accounted for on a recovery basis. Cash availability
overall has and will continue to be tight in 1997 due to funding
required for the Company's operations.
Provision for income taxes
- ------------------------------------------------------------------
(In millions) March 29, March 30,
Fiscal quarter ended 1997 1996 Change
- ------------------------------------------------------------------
Provision for income taxes $0.3 $ 0.7 $ (0.4)
- ------------------------------------------------------------------
The provision for income taxes consists primarily of foreign
taxes. The decrease of $.4 million is due to the sale in 1996 of
a subsidiary which had operations in Hong Kong. The Company's
effective tax rate for fiscal years 1997 and 1996 differs from the
combined federal and state rates due to the repatriation of
foreign earnings absorbed by current year losses, and the
Company's U.S. operating losses not providing current tax
benefits, offset in part by the tax savings associated with the
Company's Singapore operations and valuation of temporary
differences. Income from the Singapore operations is not taxable
in Singapore as a result of the Company's pioneer tax status.
LIQUIDITY AND CAPITAL RESOURCES
- -----------------------------------------------------------------
As of and for
the quarter ended
(In millions) March 29, 1997
- -----------------------------------------------------------------
Cash and cash equivalents $19.4
Short-term borrowings $169.8
Short-term borrowings due to affiliate $100.0
Net cash used in operating activities $120.4
Net cash used in investing activities $11.5
Net cash provided by financing activities $120.0
- -----------------------------------------------------------------
As of March 29, 1997, the Company had cash and cash equivalents of
$19.4 million as compared to $31.3 million as of December 30,
1996, a decrease of $11.9 million. The decrease in the Company's
cash and cash equivalents was primarily the result of operating
losses and capital expenditures offset by credit borrowings to
fund those activities.
Net cash used in operating activities during quarter ending March
29, 1997 was primarily attributable to the net loss from
operations net of non-cash depreciation and amortization, an
increase in accounts receivable and inventories offset by cash
provided by increases in accounts payable and other current
liabilities. Other significant uses of cash during the quarter
ended March 29, 1997 were $8.8 million in capital expenditures
related primarily to the acquisition of manufacturing and
engineering equipment to develop new products and enhance
productivity of the Singapore manufacturing facility. In order to
fund these combined uses of cash, the Company drew down $120
million on its credit facilities. Credit lines are discussed at
length below.
On January 31, 1996 the Company signed a one year credit facility
in the amount of $13.8 million to be used for capital equipment
requirements at the Singapore facility. This credit facility is
guaranteed by HEI and all outstanding amounts of principal and
accrued interest were payable on February 2, 1997. In January
1997, this facility was renewed under similar terms for an
additional year, due on January 30, 1998. As of March 29, 1997,
$13.8 million was outstanding.
On April 10, 1996, the Company obtained a $100 million
intercompany line of credit from HEA. This line of credit allows
for draw downs up to $100 million and interest is payable
quarterly. As of March 29, 1997, $100 million was outstanding.
On April 10, 1997, all outstanding amounts of principal and
accrued interest were paid as the Company obtained a $150 million
intercompany line of credit from HEA which replaces the previous
HEA line. This line of credit allows for draw downs up to $150
million and interest is payable quarterly. As of May 3, 1997,
$115 million was outstanding.
On August 29, 1996, the Company established two unsecured,
revolving lines of credit totaling $215 million (the Facilities)
through Citibank, N.A. and syndicated among fifteen banks. In
September 1996, the Facilities were increased by $10 million to
total $225 million. The Facilities are guaranteed by HEI. A total
of $96 million of the Facility is a 364-day committed facility,
renewable annually at the option of the syndicate banks. Such
facility is used primarily for general operating purposes and
bears interest at a rate based on LIBOR plus 0.53 percent. As of
March 29, 1997, $96 million of borrowings under this line of
credit were outstanding. A total of $129 million of the
Facilities is a three year committed facility that is also used
primarily for general operating purposes and bears interest at a
rate based on LIBOR plus 0.53 percent. As of March 29, 1997, $129
million of borrowings under this line of credit were outstanding.
From September 30, 1996 to March 29, 1997, the Company obtained
credit facilities amounting to $60 million in the aggregate from
four banks. The facilities, which are guaranteed by HEI, are used
primarily for general operating purposes and bear interest at
rates ranging from 5.97 percent to LIBOR plus 0.60 percent. As of
March 29, 1997, $60 million of borrowings under this line of
credit were outstanding.
The liquidity of the Company continued to be adversely affected
during the quarter ended March 29, 1997 by losses from operations
and liquidity has been significantly reduced compared to the same
period last year. The Company is implementing ongoing measures
with the goal of decreasing losses from operations and thus
improving liquidity. In addition to attempting to improve
operating margins on product sales through the introduction of new
products and reduction of manufacturing costs, the Company remains
focused on controlling other operating expenses.
Subject to unforeseen changes in general business conditions, the
Company believes that the combination of the measures described
above and other available actions, together with its balances of
cash and cash equivalents, equipment financing and line of credit
borrowing capabilities (supported by HEI and HEA) and expected
equity infusion, should be sufficient to fund the Company's
working capital and capital expenditure requirements through
fiscal year 1997. There can be no assurance, however, that financing
will be available on terms which are favorable to the Company.
TRENDS AND UNCERTAINTIES
General
The Company competes in the highly cyclical disk drive industry
and is subject to a number of risks which have affected the
Company's operating results in the past and may affect its future
operating results. The industry is characterized by rapid
technological change, intense competition, short product life
cycles, and significant price erosion during a product life cycle.
At times, the industry is also subject to excess production
capacity and component cost pressures as a result of key component
shortages. In addition to being impacted by these industry
factors, the Company has been less successful in the past several
years than its competitors in managing product transitions and has
been unable to bring certain products to market in a timely and
cost effective manner. Further, many of the Company's competitors
have had broader product lines than the Company with which to
compete in this environment.
Industry Characteristics
As with all companies in the disk drive industry, the Company's
financial results continue to be heavily dependent on the success
of its products. Competitive areal densities are continuing to
increase dramatically. Several larger competitors have already
focused their desktop drive products on magneto-resistive (MR)
head technology. MR heads provide more signal than older
inductive head technologies at today's high densities. Currently,
the Company believes this more aggressive MR-based areal density
curve is dictating the capacities of choice at major OEM accounts.
Additionally, the Company believes alternative head technologies
are lagging behind the MR curve by four to six months. The
Company's reliance on alternative head technologies will not allow
it to capture key customer accounts which is critical to the
Company's success. Because of the factors discussed above, the
Company's strategy in 1997 forward is centered on introducing
desktop products which incorporate MR technology and which are
increasingly less expensive to manufacture.
Data storage manufacturers continually strive for larger storage
capacities, higher performance and lower cost. Short product life
cycles also increase the importance of the Company's ability to
successfully manage product transitions. During 1996, the Company
successfully managed certain product transitions. However,
certain new products introduced by competitors, as well as those
introduced by the Company, tend to displace older products. The
failure to adequately manage product transitions could result in
the loss of market opportunities, significantly lower gross
margins, decreased sales of existing products, cancellation of
products or product lines, the accumulation of obsolete and excess
inventory, and resulting charges related to obsolete capital
equipment. The Company's ability to anticipate market trends and
to successfully develop, manufacture in volume and sell new
products in a timely manner and at favorable gross margins will be
important factors affecting the Company's future results.
Manufacturing Characteristics
The Company's manufacturing processes require large volumes of
leading edge, high-quality components supplied by outside vendors.
Generally, the Company does not have long-term supply agreements
with its vendors. The Company has qualified multiple vendors
for components where practical. However, some leading edge
components for the Company's new generation of products may only
be available from a limited number of vendors. The Company has
periodically received notices from vendors that they are unable to
supply required volumes of certain key components. Vendor de-
commitments can adversely impact the Company's ability to ship
products as scheduled to its customers. While the Company has
qualified and continues to qualify multiple vendors for many
components, it is reliant on, and will continue to be reliant on,
the availability of supply from its vendors for many semi-custom
and custom integrated circuits, heads, media and other key
components. Because the Company is less vertically integrated
than its competitors, an extended shortage of required materials
and supplies could have a more severe effect on the Company's
revenues and earnings as compared to its competition. In light
of current industry conditions, the Company is focused on
developing excellent business relationships with its vendors and
utilizing strategic alliances for certain components where
practical.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On December 20, 1996, the Company filed an action in Colorado
District Court, County of Boulder, against StorMedia, Inc., its
subsidiary, StorMedia International, Ltd. and its Chief Executive
Officer, William J. Almon. This action, which arose out of an
agreement for the purchase of media by the Company from StorMedia,
was stayed in March 1997.
The Company has been notified of certain other claims, including
claims of patent infringement. While the ultimate outcome of such
claims is not determinable, there can be no assurance that the
claims will be resolved favorably to the Company or will not have
a material adverse impact on the financial condition, results of
operations or cash flows of the Company.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a)Exhibits:
The exhibits listed on the accompanying index to exhibits
immediately following the signature page are filed as part of
this report.
b)Reports on Form 8-K:
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
MAXTOR CORPORATION
Date: May 12, 1997 By: \s\ Paul J. Tufano
Paul J. Tufano
Vice President, Finance and
Chief Financial Officer
Maxtor Corporation
Index to Exhibits
Exhibit
Number
2.1 (31) Agreement and Plan of Merger dated November 2, 1995 between
Registrant, Hyundai Electronics America and Hyundai
Acquisition, Inc.
3.1 (6) Certificate of Incorporation
3.2 (8) Certificate of Amendment of Certificate of Incorporation of
Maxtor Corporation, dated December 23, 1987
3.3 (8) By-Laws as amended July 21, 1987
3.4 (21) Amended and Restated By-Laws of Maxtor Corporation, A
Delaware Company, effective February 3, 1994
3.5 (21) Restated Certificate of Incorporation of Maxtor Corporation
effective February 3, 1994
3.6 (36) Amended and Restated Certificate of Incorporation of Maxtor
Corporation, dated June 6, 1996
3.7 (36) Amended and Restated By-Laws, effective May 14, 1996
3.8 (37) Exchange Agreement effective June 18, 1996, between Maxtor
Corporation and Hyundai Electronics America
4.1 (3) Form of Certificate of Shares of Registrant's Common Stock
4.2 (7) Maxtor Corporation Rights Plan
4.3 (22) Amendment to Rights Agreement between Registrant and the
First National Bank of Boston, dated September 10, 1993
4.4 (32) Amendment No. 2 to Rights Agreement between Registrant and
the First National Bank of Boston, dated November 2, 1995.
10.163 Intercompany Loan Agreement, dated as of April 10, 1997,
between Maxtor Corporation and Hyundai Electronics America
27 Financial Data Schedule
- ------------------------------------------------------------------
(3) Incorporated by reference to exhibits to Registration
Statement No. 33-12123 effective February 26, 1987
(6) Incorporated by reference to exhibits to Registration
Statement No. 33-8607 effective September 10, 1986
(7) Incorporated by reference to exhibits of Form 8-K filed
February 8, 1988
(8) Incorporated by reference to exhibits to Annual Report on Form
10-K effective June 24, 1988
(21) Incorporated by reference to exhibits of Form 10-Q filed
February 7, 1994
(22) Incorporated by reference to exhibits of Form 10-K filed June
24, 1994
(31) Incorporated by reference to exhibit III of Schedule 14D-9 fi
led November 9, 1995
(32) Incorporated by reference to exhibit VI of schedule 14D-9
filed November 9, 1995
(36) Incorporated by reference to exhibits of Form 10-K filed July
1, 1996
(37) Incorporated by reference to exhibits of Form 10-Q filed Augu
st 13, 1996
Intercompany Loan Agreement
THIS INTERCOMPANY LOAN AGREEMENT (the "Agreement") is made
as of this 10th day of April, 1997, by and between Hyundai
Electronics America, a California corporation ("HEA"), and Maxtor
Corporation, a Delaware corporation ("Maxtor").
RECITALS
1. Maxtor desires to borrow from HEA from time to time
such amount or amounts, not to exceed an aggregate outstanding
principal amount of $150,000,000 at any one time, as it may
require to meet its day-to-day operational expenses and working
capital needs.
2. HEA is willing to lend to Maxtor from time to time such
amounts or amounts, subject to certain terms and conditions.
NOW, THEREFORE, HEA and Maxtor hereby agrees as
follows:
Section 1. The Loan.
1.1 Amount and Term of Loan. HEA agrees upon the terms and
conditions of this Agreement, to loan to Maxtor, and Maxtor
agrees to borrow from HEA, such amount or amounts as Maxtor may
from time to time require to meet its operational expenses and
working capital needs, which amount or amounts shall not exceed
at any one time an aggregate outstanding principal amount of
$150,000,000 (the "Loan"). Each disbursement made to Maxtor
under the Loan shall be in the minimum amount of $500,000 and
shall be in multiples of $10,000.
1.2 The Note. The Loan will be evidenced by a Promissory
Note, in substantially the form attached hereto as Exhibit A.
duly executed and delivered by Maxtor to HEA (the "Note"). Each
disbursement made to Maxtor under the Loan will be set forth on
Attachment 1 to the Note with appropriate insertions therein, for
the principal amount so loaned. The Note will be payable in
accordance with its terms, which are hereby incorporated by
reference in this Agreement, and shall bear interest on the
aggregate unpaid principal amount thereunder at a rate per annum
of ten (10) basis points above HEA's average monthly cost of
borrowing (as determined on the date of the applicable
disbursement). Any principal amount which is not paid when due
(whether as stated, by acceleration or otherwise) shall bear
additional interest from and including the date due until the
date of payment in full thereof at a rate per annum equal to 2%.
Interest shall be payable quarterly on the last day of the last
month of each calendar quarter and upon payment in full or any
prepayment of the unpaid principal amount thereof.
1.3 Interest and Repayment. Maxtor shall repay and shall
pay interest on the entire outstanding principal balance of the
Loan in accordance with the Note.
1.4 Prepayment. Maxtor may at any time and from time to
time prepay the Loan in whole or in part without penalty;
provided that any such prepayment shall be in the minimum amount
of $500,000.
Section 2. Disbursements.
2.1 General. HEA agrees to make disbursements of the Loan
at such times and in such amounts as Maxtor may from time to time
request, provided that the conditions set forth in Section 2.2
below have been satisfied.
2.2 Conditions to Disbursement. The obligation of HEA to
disburse any portion of the Loan shall be subject to the
following conditions:
(a) Maxtor shall have duly executed the Note and appropriate
insertions evidencing the amount of the disbursement shall have
been made on Attachment 1 to the Note.
(b) No Event of Default (defined in Section 5.1) shall have
occurred and be continuing and no event which with notice or
lapse of time or both would become an Event of Default, shall
have occurred and be continuing.
(c) The representations and warranties of Maxtor contained
in Section 4.1 shall be true on and as of the date of the
disbursement.
(d) No material adverse change shall have occurred and be
continuing with respect to the assets, operations, financial
condition or prospects of Maxtor.
(e) The Proposed disbursement would not cause the
outstanding principal balance of the Loan to exceed $150,000,000.
Section 3. Term of Agreement.
This Agreement shall be in full force and effect from the
date set forth above and shall terminate at the end of one (1)
year thereafter, unless extended for a longer period upon mutual
written agreement of the parties in accordance with Section 6.5
hereof.
Section 4. Representations and Warranties.
4.1 Representations and Warranties of Maxtor. Maxtor hereby
represents and warrants to HEA as follows:
(a) On and as of the date of this Agreement, Maxtor is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite
power and authority to own and operate its properties and assets
and to carry on its business as now conducted and as presently
proposed to be conducted and to execute and deliver, and to
perform its obligations under, this Agreement and the Note.
(b) This Agreement and the Note, and all actions
contemplated to be taken thereunder, have been duly authorized by
all necessary corporate and other actions required on the part of
Maxtor.
(c) The execution and delivery of this Agreement and the
Note, and the taking of any and all actions contemplated thereby,
will not constitute a breach or default under, or be in conflict
with, any contractual or other obligation by which Maxtor is
bound.
4.2 Representation and Warranties of HEA. HEA hereby
represents and warrants to Maxtor as follows:
(a) On and as of the date of this Agreement, HEA is a
corporation duly organized, validly existing and in good standing
under the laws of the State of California and has all requisite
power and authority to own and operate its properties and assets
and to carry on its business as now conducted and as presently
proposed to be conducted and to execute and deliver, and to
perform its obligations under, this Agreement.
(b) This Agreement and all actions contemplated to taken
thereunder, have been duly authorized by all necessary corporate
and other actions required on the part of HEA.
(c) The execution and delivery of this Agreement and the
taking of any and all actions contemplated thereby, will not
constitute breach or default under, or be in conflict with, any
contractual or other obligation by which HEA is bound.
Section 5. Defaults and Remedies
5.1 Events of Default. Any of the following events shall
constitute an "Event of Default".
(a) Failure of Maxtor to pay when due any principal,
interest or other amounts owing pursuant to this Agreement or the
Note;
(b) Failure of Maxtor to pay when due (beyond any period of
grace allowed with respect thereto) any principal, interest or
other amounts owing with respect to any other borrowed money
obligation, or if the holder of such other obligation declares,
or may declare, such obligation due prior to the stated maturity
thereof;
(c) If any representation or warranty made by Maxtor in any
agreement, document or instrument delivered in connection with
this Agreement or the indebtedness evidenced hereby proves to be
false in any material respect when made;
(d) If Maxtor violates any other covenant, agreement or
condition contained in any agreement, document or instrument
executed in connection with the Loan, including but not limited
to, the Note, and such violation shall continue for a period of
15 days after notice of such violation is given by HEA to Maxtor;
provided, however, that if any such violation by its nature
cannot reasonably be cured within such 15-day period, no Event of
Default shall be deemed to have occurred or exist if and so long
as Maxtor shall commence good faith efforts to effect such cure
within such 15-day period and shall diligently and continuously
prosecute the same to completion;
(e) If Maxtor admits in writing its inability to pay its
debts as they mature, applies to any tribunal for the appointment
of a trustee or receiver of any substantial part of its assets,
or commences any proceedings with respect to itself under any
bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt, dissolution, liquidation or other similar law of any
jurisdiction;
(f) If any such application or any such proceedings
described in (e) above are filed or commenced against Maxtor and
Maxtor indicates its approval, consent or acquiescence, or an
order is entered adjudicating Maxtor bankrupt or insolvent, or
approving the application or petition in any such proceedings,
and such order remains in effect for 30 days;
(g) If Maxtor executes and delivers a definitive agreement
with respect to the sale of all or substantially all of its
assets, the merger of Maxtor with another entity, whether or not
Maxtor is the surviving entity, or the reorganization of Maxtor
whereby over 50% of the equity ownership of Maxtor is exchanged
for cash, securities of another entity or other property;
(h) If HEA owns beneficially or of record less than 50% of
the voting power of Maxtor or
(I) If the Board of Director of Maxtor approves the
dissolution or winding up of Maxtor
5.2 Remedies. Upon the occurrence and during the
continuance of an Event of Default, HEA at its option and with
notice as provided in Section 6.1 below to Maxtor may do any one
or more of the following:
(a) Declare all indebtedness arising hereunder immediately
due and payable and credit any sums received thereafter in such
manner as it elects upon such indebtedness. Such application
shall not operate to waive or cure any default existing under
this Agreement or to invalidate any notice of default or any
action pursuant to such notice and shall not prejudice any rights
of HEA under the Note or any other agreement or document
contemplated in or by this Agreement. Upon such declaration HEA
shall be released from all obligations to Maxtor to advance
additional amounts under this Agreement.
(b) Withhold any one or more disbursements of the Loan
proceeds until the default is cured; and/or
(c) Exercise any or all rights and remedies granted
pursuant to this Agreement, the Note and/or any other agreement
or document contemplated in or by this Agreement or otherwise
permitted by law.
Section 6. Miscellaneous.
6.1 Notices. All notices and communications required or
permitted under this Agreement must be in writing and must be
either hand-delivered, telecopied, sent by registered or
certified first-class mail, postage pre-paid, or sent by
nationally recognized express courier service. Such notices and
communications will be deemed to have been given upon receipt, if
hand-delivered or sent by telecopy., five (5) days after mailing
if sent by mail, and one (1) day after dispatch if sent by
express courier, to the address of the receiving party set forth
at the signature page of this Agreement or at such other address
as may be specified by a notice given in accordance with Section
6.1.
6.2 Governing Law; Severability. This Agreement will be
governed by and construed in accordance with the laws of the
State of California excluding those laws pertaining to conflicts
of laws. If any provision of this Agreement is determined by a
court of competent jurisdiction to be unlawful or unenforceable
in any jurisdiction, then such provision will be enforced to the
maximum extent permissible under applicable law, and the
remaining provisions of this Agreement will remain in full force
and effect.
6.3 Successors and Assigns. This Agreement and the Note
shall be binding upon and shall inure to the benefit of Maxtor
and HEA and their respective successors and assigns, except that
neither party will have the right to assign its rights hereunder
or any interest herein without the prior written consent of the
other party.
6.4 Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so delivered will be
deemed an original, and all of which will constitute but one and
the same instrument.
6.5 Amendment; Waiver. This Agreement and the Note may
not be amended or modified except by a writing executed by Maxtor
and HEA. No right under this Agreement may be waived except by a
writing signed by the party waiving such right, and no waiver of
one breach of this Agreement will constitute a waiver of
subsequent breaches of the same or of a different nature.
6.6 Entire Agreement. This Agreement and the exhibits
hereto (each of which are incorporated herein) constitute the
entire agreement and understanding of the parties regarding the
subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, whether written or oral, with
respect thereto.
IN WITNESS WHEREOF, Maxtor and HEA have each caused this
Agreement to be executed and delivered on the date first set for
above.
HYUNDAI ELECTRONICS AMERICA
MAXTOR CORPORATION
By:/s/ David Eichler
Its: Sr. VP Finance
Address: 3101 N. First Street
San Jose, CA 95134
Telecopier No:(408) 232-8101
By:/s/ Sunil Mehta
Its: Treasurer
Address: 510 Cottonwood Drive
Milpitas, CA 95035
Telecopier No: (408) 432-4480
Exhibit A
PROMISSORY NOTE
$150,000,000 April 10, 1997
For value received, Maxtor Corporation , a Delaware
corporation (the "Company"), hereby promises to pay to the order
of Hyundai Electronics America, a California corporation (the
"Holder"), such aggregate amount as may be advanced hereunder (as
reflected on Attachment 1) up to the principal sum of One Hundred
Fifty Million United States Dollars (US $150,000,000), together
with interest as set forth in Section 2 below, in immediately
available funds at the address of the Holder, or at such other
office within the United States as the Holder may designate, from
time to time, for notices to be delivered to the Holder pursuant
to Section 6.1 below.
This Note shall be subject in all respects to the terms of
the Loan Agreement referred to below and to the following terms
and conditions:
1. Term. Subject to Section 3 below, the unpaid principal
amount outstanding, as reflected on Attachment 1, together with
accrued interest on this Note, shall be due and payable on April
10, 1998, or such later date as is the termination date of the
Loan Agreement (as defined below).
2. Interest. The Company promises to pay interest on the
unpaid principal amount outstanding from time to time hereunder
until such principal amount is paid in full, at a rate per annum
equal to ten (10) basis points above HEA's average monthly cost
of borrowing (as determined on the date of the applicable
disbursement). Interest under this Note shall be calculated on
the basis of the actual number of days elapsed over three hundred
and sixty (360) days. All interest accrued under this Note shall
be payable on a calendar quarter basis on the last day of the
last month of each calendar quarter and upon payment in full or
any prepayment of the principal amount outstanding hereunder.
3. Right to Prepay. Upon payment of accrued interest on
this Note, the Company may prepay this Note, in whole or in part,
from time to time, without penalty; provided that any such
prepayment shall be in the minimum amount of $500,000.
4. Loan Agreement. This Note is the Note referred to in,
and is entitled to the benefits of, that certain Intercompany
Loan Agreement dated April 10, 1997 between the Company and the
Holder (the "Loan Agreement"), the terms of which are hereby
incorporated by reference into this Note. If principal or
interest is not paid when due or should any other Events of
Default as specified in the Loan Agreement occur, and all
remedies available to the Holder under the Loan Agreement shall
come fully into force.
5. Waiver of Rights. The company hereby waives grace
(except as expressly provided herein), demand, presentment for
payment, notice of demand, notice of non-payment or dishonor,
protest and notice of protest, and shall pay all costs of
collection when incurred, including, without limitation,
reasonable attorney's costs and other expenses. The right to
plead any and all statutes of limitation as a defense to any
demands hereunder is hereby waived to the fullest extent
permitted by law.
6. Miscellaneous.
6.1 Notices. All notices and communications required or
permitted under this Note must be in writing and must be either
hand-delivered, telecopied , sent by registered or certified
first-class mail, postage pre-paid, or sent by nationally
recognized express courier service. Such notices and
communications will be deemed to be given upon receipt, if hand-
delivered or sent by telecopy, five (5) days after mailing if
sent by mail, and one (1) day after dispatch if sent by express
courier, to the address of the receiving party in accordance with
Section 6.1 of the Loan Agreement.
6.2 Attorney's Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Note, the
prevailing party shall be entitled to reasonable attorney's fees
and costs, in addition to any other relief to which such party
may be entitled.
6.3 Heading. The headings of the sections contained in
this Note are inserted for convenience only and do not form a
part, or affect the meaning, construction or scope, hereof.
6.4 Absolute Obligation. No provisions of this Note shall
alter or impair the obligation of the Company, which obligation
is absolute and unconditional, to pay the amount of this Note at
the time, place and in the manner herein described.
6.5 Maximum Rate of Interest. Notwithstanding any other
provision of this Note or any document or instrument executed or
delivered in connection with this Note, interest, fees and the
like shall not exceed the maximum rate permitted by law.
6.6 Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of
California, excluding these laws pertaining to conflicts of law.
Any action against the undersigned concerning this Note and the
indebtedness evidenced hereby may be brought in any court of
competent jurisdiction located in the State of California, and
the undersigned hereby accepts the non-exclusive jurisdiction of
any such court and waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to maintenance of such
action.
The Company has caused this Note to be signed in its name by
its duly authorized officers.
MAXTOR CORPORATION
By: /s/ Sunil Mehta
Title: Treasurer
Attachment 1
Date Amount of Repayment Outstanding Interest
Advance Principal Balance
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> MAR-29-1997
<EXCHANGE-RATE> 1
<CASH> 19,363
<SECURITIES> 0
<RECEIVABLES> 154,964
<ALLOWANCES> 4,184
<INVENTORY> 86,136
<CURRENT-ASSETS> 260,568
<PP&E> 261,173
<DEPRECIATION> 154,334
<TOTAL-ASSETS> 386,147
<CURRENT-LIABILITIES> 544,494
<BONDS> 95,000
0
582
<COMMON> 0
<OTHER-SE> (383,031)<F1>
<TOTAL-LIABILITY-AND-EQUITY> 386,147
<SALES> 247,008
<TOTAL-REVENUES> 247,008
<CGS> 254,116
<TOTAL-COSTS> 254,116
<OTHER-EXPENSES> 41,455<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,927
<INCOME-PRETAX> (54,709)
<INCOME-TAX> 277
<INCOME-CONTINUING> (54,986)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,986)
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Other SE includes Additional Paid in Capital of $335,017 and Accumulated
Deficit of $718,048.
<F3>Other Expenses include Research and Development of $26,394 and Selling,
General and Administrative costs of $15,061.
<F2>Earnings per share is not applicable.
</FN>
</TABLE>
