88
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
{ }Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended
or
{X}Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____March 31, 1996____________
to December 28, 1996_____________
Commission file Number: 0-14016
Maxtor Corporation
(Exact name of registrant as specified in its charter)
Delaware 77-0123732
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer
Identification No.)
510 Cottonwood Drive, Milpitas, CA 95035
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(408) 432-1700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
5-3/4% Convertible Subordinated Debentures, due March 1, 2012
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
Indicate by checkmark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _____
As of March 1, 1997, 58,208,955 shares of the registrant's Series
A Preferred Stock, $.01 par value, and no shares of the
registrant's Common Stock, $.01 par value, were issued and
outstanding, respectively. As of such date, none of the
outstanding shares of Series A Preferred Stock or Common Stock
were held by persons other than the parent of the registrant, and
there was no public market for the Company's equity securities.
This Annual Report on Form 10-K contains 78 pages of which this
is number 1. The Index to Exhibits begins on page 53.
PART I
Item 1. BUSINESS
This report includes 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 1. Business, "Products", "Marketing and
Customers", "Manufacturing and Suppliers", "Research and
Development", and Competition"; Item 7. Management's Discussions
and Analysis of Financial Condition and Results of Operations,
"Results of Operations" and "Liquidity and Capital Resources";
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.
GENERAL
Maxtor Corporation (Maxtor or the Company) was organized in 1982
and is incorporated in the state of Delaware. Maxtor develops,
manufactures and markets hard disk drive storage products for
personal computer systems. Products range from 3.5-inch ATA-3
desktop storage products in capacities up to 5.1 gigabytes (GB)
to 2.5-inch ATA-3 mobile storage products in capacities of 1.0
and 1.3 GB.
The Company operates in one industry segment developing,
manufacturing and marketing hard disk drive products to customers
who sell their products in the personal computer industry.
Products are designed for desktop and notebook applications to
meet both value and high-performance needs of customers.
Customers include original equipment manufacturers (OEMs),
distributors, and national retailers. Additionally, several
smaller retailers and value-added resellers (VARs) carry Maxtor
products purchased through Maxtor's distribution network. The
Company relies on suppliers for components including heads, media
(disks) and custom integrated circuits. Although printed circuit
board assemblies and head stack assemblies are outsourced, head
disk assemblies are completed by the Company. All the Company's
products are manufactured by Maxtor at its manufacturing facility
in Singapore and sold world-wide in North America, Europe and
Asia.
RECENT DEVELOPMENTS
In January 1996, the Company became a wholly owned subsidiary of
Hyundai Electronics America (HEA). As of the acquisition,
trading of Maxtor common stock on the NASDAQ National Market was
suspended. Currently, there is no public market for the Company's
equity securities. The Company's 5-3/4% Convertible Subordinated
Debentures, due March 1, 2012, remain publicly traded.
In May 1996, the Company entered into an agreement to sell a
majority interest in International Manufacturing Services, Inc.
(IMS) to certain IMS management and other investors (Buyer). At
completion of the transaction in June 1996, the Company received
$25 million in cash and $20 million in notes from IMS, and
retained a 23.5% ownership interest in IMS. IMS supplies the
Company with printed circuit board assemblies (PCBA), sub-
assemblies and fully integrated box-build products under a
manufacturing services agreement.
In May 1995, the Company entered into a definitive manufacturing
agreement with Hyundai Electronics Industries Company, Limited
(HEI). Under the terms of the agreement, HEI manufactured Maxtor-
designed hard disk drives for the Company at a site in Korea. In
October 1996, the manufacturing agreement was canceled and
production at the Korean manufacturing site was transferred to
Maxtor's manufacturing facilities in Singapore. As part of the
transfer, Maxtor purchased $4.3 million in inventories. In
addition, Maxtor purchased approximately $14 million of HEI's
manufacturing equipment, with the purchase price payable one year
from invoice date. The equipment was invoiced over the period
from November 1996 through February 1997. HEI will bear all
other costs associated with the shut down of production in Korea.
PRODUCTS
Hard Disk Drive (HDD) Technology
A HDD is a magnetic data storage device that reads, writes and
stores digital data. The main components are the head disk
assembly (HDA) and PCBA. The HDA includes the head, media
(disks), head positioning mechanism (actuator) and spin motor.
The PCBA includes custom integrated circuits, an interface
connector to the main computer and a power connector. The
components are contained in a hard base plate protective package
in a contamination-free environment. HDDs are more cost
effective than a computer's random access memory because HDDs can
hold a substantially higher volume of data at a lower cost per
megabyte. Additionally, HDDs continue to store and retrieve data
faster than other storage devices such as optical, floppy or
magnetic tape.
The basic operation of a HDD has not changed since its
introduction in the 1950's. One or more disks (one to four for
Maxtor products) are positioned around a spindle hub that rotates
the disks by the spin motor. Disks are made of a smooth aluminum
or glass substrate to which a thin coating of magnetic material
(thin film) has been applied. Each disk has a slider suspended
directly above it, holding an electromagnetic device (head) that
can read or write data to the disk while the disk spins. The
head flies over the disk on a thin layer of air. A key measure
in the HDD industry is areal density. Areal density is a measure
of stored bits per square inch on the recording surface of the
disk. An increase in areal density provides for greater storage
capacity from the drive without increasing the number of heads
and disks, allowing companies to deliver higher capacity devices
at lower costs. To achieve ever higher areal densities, every
successive generation of drives uses a combination of smaller
heads, improved head positioning (servo mechanisms), lower
"flying heights" and other new technologies.
The HDD's integrated circuits include a controller and a drive
interface. The drive interface "talks" to the user's computer,
receiving instructions, while the controller directs the flow of
data to and from the disks, and controls the movement of the
heads. The location of data is logically maintained in tracks,
divided into sectors, on each disk. The user's computer sends
instructions to read or write data on the disks based on track
and sector locations. In order to "speak" the same language
between the HDD and the main computer, industry standard
interfaces are utilized. Maxtor utilizes ANSI ATA (AT
Attachment) series of standards for all its products.
Maxtor has continually designed and implemented new HDD
technologies, especially related to heads and disks, in order to
optimize performance, reliability, durability and areal density.
Performance is generally measured by average seek time in
milliseconds (ms) to position the head over a selected track, the
data transfer rate in megabytes per second, and the spindle speed
in rotations per minute (rpm). Reliability measures expected
life of the HDD. Durability relates to the HDDs ability to
withstand changing temperatures, humidity, altitudes, vibration
and shock. Physical size is measured by standard form factors
(or package size) in inches, which is important to OEMs who
require compact components for their personal computer products.
The optimization of these metrics have resulted in higher
capacity products at lower costs.
The industry has been consistently driven by increased storage
needs caused by the increasing size and complexity of software
applications. The result has been short product life cycles,
ranging from six to 12 months, which is reflected in Maxtor's
products as described below.
Desktop Computer Products
The 7000 Series of 3.5-inch HDDs have addressed the demand for
desktop disk drives for over seven years. Built on proven
technology platforms, more than 27 million units have been
shipped to date. In the third quarter of fiscal year ended March
30, 1996, the Company began volume shipments of the last
extension to its 7000 Series. Products include the 1.3 GB
71336AP/A, 1.6 GB 71670AP/A and the 2.0 GB 72004AP/A. The drives
incorporate ATA/IDE interfaces and the same technological
advances developed in the Company's previous generation of 7000
Series drives. With the 72004AP/A, Maxtor became the first disk
drive manufacturer to announce volume shipments of a 2.0 GB,
three platter, 3.5 inch drive. With the introduction of its new
products, the Company began to phase out the 7000 Series of
products with expected completion by the end of the first quarter
of 1997.
In September 1996, the Company introduced its 3.5-inch
CrystalMax family of HDDs, a follow-on to Maxtor's successful
7000 Series. Capacities range from 875 MB on one disk to 3.5 GB
on four disks, meeting the increasing demand for data storage.
Volume shipments commenced in the fourth calendar quarter of 1996
for the 1.7 GB 81750A, 2.6 GB 82625A, and 3.5 GB 83500A products.
The CrystalMax family has thin film media with inductive heads,
Enhanced IDE interface and host transfer rates of 16.67 MB per
second. The CrystalMax family also has fast ATA-3 interfaces, a
sub-12 ms seek time, 4,480 rpm spindle speed and contains 128K
cache. The CrystalMax family features a custom on-the-fly Error
Correction Code logic capable of correcting multiple error bursts
without performance loss. All products are compliant with the
Self-Monitoring, Analysis and Reporting Technology (S.M.A.R.T.)
specification. DiamondMax products have low power consumption
and ATA power saving commands that support EPA Energy Star "Green
PC" standards. CrystalMax products offer end users reliability,
advanced technology performance and affordability.
In October 1996, the Company announced its 3.5-inch, high
performance DiamondMax family of HDDs for the desktop. Product
offerings will be 2.5 GB 82560A, 3.8 GB 83840A and 5.1 GB 85120A,
providing 1.28 GB of storage space per disk. Volume shipments
commenced on the 5.1 GB in the fourth calendar quarter of 1996.
Maxtor incorporated a new high-reliability four-disk HDA, Formula
4, and digital signal processor (DSP) technology in the HDD's
design. The DSP technology combines the processor and drive
interface circuits onto one chip. Both technologies have
increased the inherent reliability of the drive. Mean time
between failure is greater than 500,000 hours compared to greater
than 300,000 hours for Maxtor's previous product families.
The DiamondMax family is Maxtor's first to use MR (magneto-
resistive) heads and PRML (Partial Response Maximum Likelihood)
read channels. MR heads provide more signal than older inductive
head technologies at today's high densities. PRML read channels
further improve the usability of small data signals and
contribute to the product's fast internal data transfer rate of 8
to 13 MB per second. The DiamondMax family has ANSI ATA-3
Enhanced IDE interface, host transfer rates of 16.67 MB per
second, less than 10 ms seek time, 5,400 rpm spindle speed and
contains 256K cache. Like the CrystalMax family, these drives
also feature the custom on-the-fly Error Correction Code logic,
are compliant with the S.M.A.R.T. specification, have low power
consumption and ATA power saving commands supporting Green PC
standards.The DiamondMax family of products are designed for
power users who require high capacity and maximum performance
from a HDD.
In February 1997, Maxtor announced its CrystalMax 1080 series of
hard drives, in capacities of 2.1 GB 82100A, 3.2 GB 83201A and
4.3 GB 84320A. Crystal Max 1080 products utilize thin film media
with inductive heads and the DSP-based architecture from the
DiamondMax series, resulting in increased areal density of 1,080
MB per disk. Seek time also improved at sub-11 ms and buffer
size is increased to 256K cache. This family offers users all
the benefits of the initial CrystalMax series with additional
performance. Volume shipments commenced in the first calendar
quarter 1997.
The DiamondMax and CrystalMax series of drives share the common
Formula 4 HDA. This not only allows for improved performance and
reliability, it affords the Company improved production economies
by building on a common, advanced platform.
Portable Computer Products
In June 1996, the Company announced its MobileMax family of high-
capacity 2.5-inch disk drives for the portable computer market.
These drives meet the increasing storage requirements of the
notebook and sub-notebook computer market. The Company commenced
shipment of this family of products in the second calendar
quarter of 1996. Due to current market conditions and the
Company's financial resources, the Company plans to focus on its
desktop products.
Impact of Industry Characteristics on the Company's Products
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 MR technology.
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 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 calendar year
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, decreased sales of existing products, cancellation
of products or product lines, the accumulation of obsolete and
excess inventory, and unanticipated charges related to obsolete
capital equipment. The Company's ability to anticipate market
trends and to successfully develop, manufacture in volume and
sell new products in a timely manner and at favorable gross
margins will be important factors affecting the Company's future
results.
MARKETING AND CUSTOMERS
The Company markets its products through a direct sales force to
OEMs , distributors and certain key retailers in the personal
computer (PC) industry. Sales offices are located throughout the
U.S., and in Germany, Hong Kong, Great Britain, France,
Singapore, Taiwan, South Korea, Australia and Japan. Market
demand for the Company's products generally follows the annual
demand cycles experienced in the PC industry, which typically
rise during the late summer and fall months, peak during the
winter months and drop off in the spring and early summer months.
However, market demand is highly volatile and there can be no
assurances that future demand cycles will follow historical
trends.
OEMs
Sales to the OEM channel are critical to the success of disk
drive industry participants because a majority of industry's HDDs
are sold to the OEM channel. OEM customers select HDD vendors
seasonally based on the price, capacity and operational
specifications required for their PC product lines. Once the
vendor's HDD is qualified, the OEM will generally purchase
quantities in large blocks for the life of that PC product. An
OEM will usually qualify several HDD vendors to ensure adequate
supply. In order to be chosen as a qualified vendor, the Company
must be able to provide high quality, low cost products within
the OEM's requested timeframes. Time-to-market and product
quality are essential to securing and maintaining the OEM
relationship. If a qualification opportunity is missed, the HDD
manufacturer may not have another opportunity to do business with
the OEM until the next generation of HDD products are available.
The Company generally negotiates pricing, volume discounts, order
lead times, product support requirements and other terms and
conditions prior to receiving the OEM's first purchase order.
Terms generally range from six months to two years. Shipments
are not scheduled until purchase orders are received and
cancellation of purchase orders may occur without significant
penalty. Historically, the Company has experienced de-
commitments for orders, which had a material adverse impact on
the financial results of the Company.
The PC industry exhibits volatile business conditions, generally
related to market share and price competition. In addition, the
industry has had a trend toward consolidation among PC
manufacturers, Accordingly, maintaining long-term vendor
relationships with OEMs can be difficult. The Company believes
that its success depends on its ability to develop excellent OEM
customer relationships and provide products that fit the needs of
the OEM channel. OEMs accounted for 52% of the Company's revenue
for the nine months ended December 28, 1996, and 61% and 50% of
revenue for the fiscal years ended March 30, 1996 and March 25,
1995, respectively.
Distributors
The Company is also dependent upon sales to the commercial
distribution channel. Its distributors are located worldwide,
and generally market the Company's products to VARs (value-added
resellers), dealers, smaller retailers and small OEMs.
Distributors generally enter into non-exclusive agreements with
the Company for purchase and redistribution of product on a quick
turnover basis. Purchase orders are placed and revised on a
weekly basis. Distributors have limited rights to return product
on a rotation basis. Distributors (including retailers)
accounted for 48% of revenue for the nine months ended December
28, 1996, and 39% and 50% of revenue for the fiscal years ended
March 30, 1996 and March 25, 1995, respectively.
Because distributors are constrained by low overhead
requirements, providing competitive pricing and sales incentives
are key to selling product through distribution. Price
protection and sales incentive programs are the industry's method
of quickly effecting price corrections in the channel. The
industry has and continues to experience volatile price erosion
in the distribution channel. The Company believes price erosion
is inherent with each product capacity point introduced to the
market. Therefore, the Company also believes it must introduce
its new products before or at the same time as its competitors in
order to minimize the negative impact of price erosion on its
financial results. In 1997, the Company will focus on time-to-
market product introductions and linearity of product flow into
its sales channels to reduce the negative impact of price
erosion.
Retailers
The Company sells its retail-packaged products (typically 3.5-
inch hard disk drives used for upgrading existing computer
systems) directly to major retail sectors such as computer
superstores, warehouse clubs and computer electronic stores. Its
retail customer base is in the United States and Canada. It
appears that the demand for end-users to have more PC storage
space will continue due to a number of factors, including larger
and more powerful software applications, new capabilities (such
as desktop video editing) and the wealth of information available
from the Internet and on-line services. As a result, the Company
believes the retail channel complements its other sales channels.
Retailers supply to the aftermarket "upgrade" sector where end-
users purchase and install products to upgrade their computers.
The Company has experienced a positive and consistent trend for
its higher capacity products sold through the retail channel.
Additionally, the Company provides 24-hour customer service and
technical support for end-users, as well as access to important
information and software via the World Wide Web. The Company
also believes that sales through the retail channel increases
brand awareness. In 1997, the Company will continue to support
the growth of the retail channel.
During the nine months ended 1996 and 1995, one customer,
Southern Electronics Distribution and Packard Bell, respectively,
accounted for more than 10% of the Company's revenue.
For financial data relating to major customers, export sales and
geographic information (foreign and domestic operations) refer to
Part II, Item 8, Footnote 6, on page 30.
Warranty and Service
The Company currently warrants its products against defects in
parts or labor from the date of shipment. Products currently in
production are warranted for a period of 36 months after
shipment. Products are generally repaired or refurbished by the
Company's Singapore facility. The Company operates a European
drive exchange center in Ireland, a domestic drive exchange
center in San Jose, California, and an Asian drive exchange
center in Singapore.
Backlog
The Company's sales are primarily for delivery of standard
products according to standard purchase order terms. Delivery
dates are specified by purchase orders. Such orders may be
subject to change or cancellation by the customer without
significant penalties. The quantity actually purchased and
shipment schedules are frequently revised to reflect changes in
the customer's needs. At times, when price competition is
intense and price moves are frequent, the Company believes most
customers may place purchase orders below their projected needs,
delay placing orders or even cancel purchase orders with the
expectation that future price reductions may occur. Conversely,
at times when industry-wide production is believed to be
insufficient to meet demand, the Company believes that certain
customers may place purchase orders beyond their projected needs
in order to maintain a greater portion of product allocation.
In addition, orders for the Company's products are filled for
several large customers from JIT ("just in time") inventory
stocked warehouses, whereby orders are not placed ahead of time
on the Company's order entry backlog system. Instead, the
Company receives a periodic forecast of requirements from the
customer. Upon shipment from the JIT warehouse, the customer is
invoiced. In light of these factors, backlog reporting as of any
particular date may not be indicative of the Company's actual
revenues for any succeeding period, and, therefore, is not
material to an evaluation of the Company's future revenue.
MANUFACTURING AND SUPPLIERS
The Company's disk drive manufacturing operations consist
primarily of the final assembly of high-level subassemblies and
testing of completed products. The Company manufactures disk
drive products in volume production at its manufacturing facility
located in Singapore. The majority of all PCB assembly is
outsourced to IMS under the terms of a manufacturing services
agreement (see discussion on page 2). In addition to risks
typically associated with the concentration of vital operations,
foreign manufacturing is subject to additional risks, including
changes in governmental policies, transportation delays and
interruptions, and the imposition of tariffs and export controls.
A disruption of the Company's manufacturing operations could have
an adverse effect on its results of operations and customer
relations.
In May 1995, the Company entered into a definitive manufacturing
agreement with Hyundai Electronics Industries Company, Limited
(HEI). Under the terms of the agreement, HEI manufactured Maxtor-
designed hard disk drives for the Company at a site in Korea. In
October 1996, the manufacturing agreement was canceled and
production at the Korean manufacturing site was transferred to
Maxtor's manufacturing facilities in Singapore. As part of the
transfer, Maxtor purchased $4.3 million in inventories. In
addition, Maxtor purchased approximately $14 million of HEI's
manufacturing equipment, with the purchase price payable one year
from invoice date. The equipment was invoiced over the period
from November 1996 through February 1997. HEI will bear all
other costs associated with the shut down of production in Korea.
Pilot production of the Company's products, as well as cost
reduction, quality and product improvement engineering on current
products are conducted in the Company's Longmont, Colorado
facilities. When a new product or a design change to a current
product is ready for volume production, it is transferred from
the Longmont pilot line to the Company's Singapore manufacturing
facilities.
The Company seeks to maintain the flexibility necessary to
accommodate the continuous changes in product mix and volume
requirements that result from the characteristically short
product life cycles of the disk drive industry. The Company
accomplishes this by closely managing its vendor relationships
for raw materials and utilizes its capital equipment for the
manufacture of multiple product lines.
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, some of which have limited financial
and operational resources. 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. In light of current industry conditions,
including consolidation of competitors, the Company is focused on
developing excellent business relationships with its vendors and
utilizing strategic alliances for certain components where
practical (see further discussion under Research and Development
on page 8). There can be no assurance, however, that the
Company will be successful in such efforts or that in the future
the Company's vendors will meet the Company's needs for required
volumes of high-quality components in a timely and cost effective
manner.
RESEARCH AND DEVELOPMENT
As previously mentioned, the Company participates in an industry
that is characterized by rapid technological change and short
product life cycles. The Company's ability to compete
effectively will depend on, among other things, its ability to
anticipate such change. To compete effectively, the Company has
and will continue to devote substantial personnel and capital
resources to develop high-quality products which can be produced
in volume on a cost effective basis. The Company believes that
common architectures, vertical integration, technical resources
and new technologies are among the key areas in which to direct
its focus.
In order to develop cost effective products, the Company has
focused on implementing common architectures. Common
architectures utilized in the Company's current products include
the HDA, custom electronics and firmware. The HDA is the four-
disk HDA, Formula 4 which represents a marked improvement in the
shock resistance and reliability of Maxtor products. First in
the industry, DSP-based drive electronics and common PCBAs reduce
product costs. Further utilization of a common firmware
architecture allows for faster product development. Because the
Company believes that sharing common mechanics and electronics
between product families will decrease the product development
period, thus enable it to compete more effectively, the Company
will continue to focus its efforts on implementing common
architectures where technologically feasible.
As previously discussed, the Company is highly dependent upon its
vendors for components. The Company believes that vertical
integration for certain components is necessary in order to
effectively compete in the market. Vertical integration allows
for joint development of technology, provides a more robust
component supply and allows the Company an advance view of new
components. The Company intends to utilize strategic
partnerships with its affiliates in order to provide vertical
integration technology to its operations. Research and
development teams are focused on joint development transactions
with affiliates to improve supply for key future product
components such as media, certain integrated circuits and heads.
The Company believes that increasing storage capacities,
increasing performance and lowering cost depends on developing
and incorporating new data storage technologies into the
Company's products. New technologies are difficult to implement
due to short product life cycles, without sufficient research and
development resources. In the past, the Company has experienced
difficulty moving product from design to production with
satisfactory yields. During 1996, the Company launched a new
advanced technology group to focus on design feasibility and
prototyping. This group will ensure product feasibility as a
whole, prior to product development by the design team. This
should facilitate transition of more advanced products from
design to volume production with acceptable production yields.
In addition, the Company will focus on developing new
technologies to address areal density targets, media tribology
limitations and shock resistance issues, among others, in order
to provide high performance products.
For the nine months ended December 28, 1996, and fiscal years
ended March 30, 1996 and March 25, 1995, the Company's research
and development expenses were $87.8 million, $94.7 million and
$60.8 million, respectively. In order to effectively implement
its product strategy, the Company intends to continue to make
significant investments in research and development.
COMPETITION
The Company presently competes primarily with manufacturers of
3.5-inch disk drives, including IBM, Quantum, Seagate Technology,
and Western Digital, each having larger market shares than the
Company. Seagate Technology is the dominant competitor in the
3.5-inch market. Should other major OEMs successfully develop
disk drive manufacturing capabilities, the Company's market share
could be reduced.
The principal methods of competition are timing of product
introductions, price, product capacity and performance. When
competitors introduce products which offer lower prices, greater
capacity and better performance, or any combination of these
factors, and when the Company's new products are not brought to
market on a timely basis, the selling price of its older products
generally must be reduced in order to compete effectively with
competitors' new products. As previously discussed, the Company
believes price erosion is an inherent factor for each product
capacity point introduced to the market. Therefore, the Company
believes it must introduce its new products before or at the same
time as its competitors in order to reduce the negative impact of
price erosion on its financial results. In 1997, the Company
will focus on time-to-market product introductions and linearity
of product flow into its sales channels in order to reduce the
negative impact of price erosion. There can be no assurance that
the Company will be successful in its efforts.
The disk drive industry has experienced a number of changes
affecting the competitive position of companies now and in the
future. A number of companies, including Maxtor, have either
merged or been acquired, thereby reducing the number of
competitors in the market. Subsequent to the industry
consolidation, the dominant competitors are better positioned
than Maxtor from a market share and financial resources
availability perspective. However, the Company believes its
smaller size relative to its competitors provides several key
advantages. These include flexibility and customer support as
evidenced by customer response and satisfaction surveys. The
Company continues to receive customer comments that its No
Quibble return policy and customer service are among the most
highly regarded in the industry. The Company also has the
ability to meet customer and market conditions quickly. Recently,
for example, several OEMs reported high quality ratings for the
Company's new product introductions. Under new management in
1996, the Company substantially reduced its operating costs
quarter to quarter, consolidated manufacturing to its facility in
Singapore and completed end-of-life on non-profitable product
offerings.
The Company believes that in order to successfully increase its
market share and improve its financial position, the Company must
continue to lower its product costs and introduce its products
before or at the same time as its competitors. During 1997, the
Company will focus on these efforts. However, there can be no
assurance that the Company's efforts will be successful in the
new competitive environment.
PATENTS AND LICENSES
The Company has been granted approximately 160 U.S. and foreign
patents related to disk drive products and technologies, and has
additional patent applications pending in the United States and
foreign countries. The Company has entered into cross-license
agreements with certain of its competitors and conducted
discussions with others concerning cross-license relationships.
Although the Company believes that its patents and applications
have significant value, the Company also believes that, due to
the rapidly changing nature of disk drive and related
technologies, its future success is primarily dependent on the
technical expertise and creativity of its employees.
Several patent holders have asserted rights under one or more
patents and that the Company requires a license under such
patents. The Company conducts ongoing investigations into such
assertions and presently believes that it is likely that any
license determined to be necessary could be obtained on
commercially reasonable terms. However, there is no assurance
that such licenses are presently obtainable, or if determined to
be required in the future, could be obtained at that time.
Further, a resolution adverse to the Company in any litigation
based upon patent infringement claims could subject the Company
to substantial liability and require that it cease manufacture
and sale of related products in one or more countries.
EMPLOYEES
As of March 1, 1997, the Company had approximately 4,600
employees worldwide. The Company believes that its future
success will depend on its ability to continue to attract and
retain a team of highly motivated and skilled individuals. None
of the Company's employees are represented by a labor
organization. The Company believes that its employee relations
are positive.
Item 2. PROPERTIES
In July 1996, the Company's administrative offices and new
advanced technology operations relocated to facilities in
Milpitas, California from San Jose, California. The relocation
was necessary to provide adequate space for its advanced
technology group. The Milpitas location currently is not fully
utilized. The Company plans to use the additional floor space
for expansion of the advanced technology operation. The Company
also maintains engineering and pilot production facilities in
Longmont, Colorado. All the Company's domestic facilities are
leased.
The Company's automated manufacturing facilities are located in
Singapore. The Company owns and occupies a 384,000 square-foot
building in Singapore, situated on land leased through the year
2016 (subject to an option to renew for an additional 30 years).
The manufacturing facility is capable of providing approximately
100% or more productive capacity than it provided for the nine
months ended December 28, 1996. All the Company's sales offices,
located in the United States, Europe and Asia Pacific, are
leased.
All of the Company's facilities are well maintained and the
Company believes such facilities will meet its operational and
administrative needs during 1997.
Item 3. 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. The Company's complaint arises out of
an agreement for the purchase of media by the Company from
StorMedia, and alleges breach of contract, breach of the implied
warranty of fitness, breach of the implied warranty of
merchantability, fraud and negligent misrepresentation, and seeks
compensatory money damages, including, but not limited to actual
damages, incidental damages, and consequential damages. The
action was stayed in early March 1997.
In November 1995, three separate actions (Wacholder v. Gallo, et
al., Silver v. Maxtor, et al., and Barrington v. Gallo, et al.)
were filed in the Court of Chancery of the State of Delaware, in
and for New Castle County which generally alleged a breach of
fiduciary duty by the Company's directors in connection with
HEA's offer to purchase the Company. These actions, which sought
class certification, and preliminary and permanent injunctive
relief to prevent the acquisition, as well as damages and
attorneys' fees, were consolidated with a similar California
action (Campanella v. Maxtor, et al.). In December 1996, in a
settlement approved by the Delaware Court, the matters were
settled in exchange for certain additional disclosures by the
Company to its shareholders regarding the circumstances of the
tender offer, and payment by the Company of plaintiffs' counsel
fees and costs totaling $315,000.
The Company has been notified of certain other claims, including
claims of patent infringement. While the ultimate outcome of
these claims and the claims described above is not determinable,
it is reasonably possible that resolution of these matters could
have a material impact on the financial condition, results of
operations or cash flows of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting was held August 13, 1996, at which
its sole stockholder reelected M. H. Chung and Charles Hill as
Class II directors to hold office for a three-year term, and
ratified the appointment of Coopers & Lybrand L.L.P. as the
Company's independent accounting firm for the nine months ended
December 28, 1996.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
In January 1996, the Company became a wholly owned subsidiary of
HEA. As of the acquisition, trading of Maxtor common stock on
the NASDAQ National Market was suspended. Currently, there is no
public market for the Company's equity securities. The Company's
5-3/4% convertible subordinated Debentures, due March 1, 2012,
remain publicly traded.
In June 1996, the Company entered into an exchange agreement with
HEA whereby HEA exchanged 600 shares of Common Stock for
58,208,955 shares of Series A Preferred Stock, $.01 par value.
As of December 28, 1996, 58,208,955 shares of Series A Preferred
Stock and no shares of Common Stock, $.01 par value, were issued
and outstanding. At March 1, 1997, none of the outstanding
shares of Series A Preferred Stock or Common Stock were held by
persons other than the parent of the registrant.
Dividend policy
The holders of shares of Series A Preferred Stock are entitled to
non-cumulative dividends of $0.40 per share, when and as declared
by the Board of Directors, in preference of the holders of shares
of the Common Stock. The Company has never paid cash dividends
on its capital stock. The Company does not anticipate paying
cash dividends in the near future. 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.
Item 6. SELECTED FINANCIAL INFORMATION
(In thousands)
December 28, December 30, March 30,
Fiscal year ended 1996 1995 1996
(nine
months) (nine
months)
(unaudited)(1)
Revenue $798,884 $954,040 $1,268,998
Gross margin (89,974) 60,648 72,693
Operating expenses:
Research and development 87,752 69,416 94,717
Selling, general and
administrative 60,701 60,532 82,775
Other - 4,529 4,460
Income (loss) from operations(238,427) (73,829) (109,259)
Interest expense 18,075 7,828 11,849
Interest income 1,000 836 1,169
Minority interest in loss of
joint venture - - -
Provision for income taxes 824 2,127 2,826
Net income (loss) (256,326) (82,948) (122,765)
Total assets 314,539 397,252 442,487
Long-term debt and capital
lease obligations due after
one year 229,109 100,219 100,181
Cash dividends declared - - -
March 25, March 26, March 27,
Fiscal year ended 1995 1994 1993
Revenue $ 906,799 $1,152,615 $1,442,546
Gross margin 56,130 (52,399) 265,086
Operating expenses:
Research and development 60,769 97,168 112,621
Selling, general and
administrative 81,600 78,854 98,497
Other (10,213) 19,500 -
Income (loss) from operations (76,026) (247,921) 53,968
Interest expense 8,379 10,087 10,140
Interest income 4,216 2,283 2,557
Minority interest in loss of
joint venture - - 1,014
Provision for income taxes 2,033 1,864 1,287
Net income (loss) (82,222) (257,589) 46,112
Total assets 381,847 492,375 579,113
Long-term debt and capital
lease obligations due after
one year 101,967 107,393 119,868
Cash dividends declared - - -
(1) Pro forma for the nine months ended December 30, 1995 is
provided to compare with the nine months ended December 28, 1996
in Item 7: Management's Discussion and Analysis.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Item
1: Business, Item 6: Selected Financial Information and Item 8:
Consolidated Financial Statements and Supplementary Data.
CHANGE IN FISCAL YEAR END
During 1996, the Company changed its fiscal year end to be
consistent with the year end of its parent, Hyundai Electronics
America ("HEA"). The fiscal year end changed from the last
Saturday of March, the date used in the Company's prior filing of
its Form 10-K with the Securities and Exchange Commission, to the
last Saturday of December conforming to its 52/53-week year
methodology.
The current fiscal period ended on December 28, 1996 comprises
nine months or 39 weeks. For discussion and analysis purposes,
the nine months ended December 28, 1996 are compared to the
unaudited nine months ended December 30, 1995. Fiscal years
ended March 30, 1996 and March 25, 1995 comprised 53 weeks and 52
weeks, respectively, ending on the last Saturday of March.
RESULTS OF OPERATIONS
Nine months ended December 28, 1996 compared to nine months ended
December 30, 1995
Revenue and Gross Margin
(In millions) December 28, December 30,
Nine months ended 1996 1995 Change
(unaudited)
Revenue $ 798.9 $ 954.0 $(155.1)
Gross margin $ (90.0) $ 60.6 $(150.6)
As a percentage
of revenue (11.3%) 6.4%
Net loss $(256.3) $ (82.9) $(173.4)
Revenue decreased primarily due to a decrease in unit shipments
of approximately 22%, while average unit prices for the nine
months were comparable. The decrease in shipments was a result
of a 32% decrease in revenue from the OEM channel, partially
offset by an increase in distribution revenue of 17%. Shipments
to the OEM channel in the third quarter of 1996 were lower than
expected due to a shortage of qualified components from vendors.
The Company is working vigorously with its vendors to remedy the
current allocation problems. See further discussion under
Manufacturing and Suppliers, page 7. The Company may experience
continued shortages of key components which management believes
could adversely impact revenue and operating results during 1997.
The Company's ability to obtain higher allocation of key
components is essential to its success in increasing market
share.
As expected in the disk drive industry, products sold during the
1996 period were higher in capacity than in the 1995 period.
However, prices for the higher capacity products (1.3 to 2.0 GB)
remained relatively flat with the prior period products (which
ranged from 540 MB to 1.6 GB).
Part of the revenue decrease is also attributed to the sale of
IMS in June 1996, as discussed on page 2. IMS revenue decreased
by $25 million from the prior period. Revenue for 1995 also
reflects a 40-week period as compared to a 39-week period for
1996. The first quarter of 1995 was extended to realign the
fiscal year ended March 30, 1996.
Gross margin decreased primarily due to the decrease in unit
shipments discussed above and a substantial drop in average unit
selling prices for lower capacity products during the quarter
ended June 29, 1996. In June 1996, the Company incurred a $42.3
million charge for products in inventory and scheduled to be
built over the following six months which had market prices lower
than cost. Although the shift in sales of the Company's products
was toward higher capacity products, which generally had higher
average selling prices per unit, the increase in margins which
resulted from this shift was more than offset by intense pricing
pressures on certain lower capacity products without
corresponding decreases in manufacturing costs. Furthermore, the
Company incurred one-time charges of $6.5 million to consolidate
certain manufacturing activities in 1996, including the closure
of a head stack assembly plant in Thailand and a reduction in
production shifts in Singapore.
The Company will continue its efforts to reduce its average unit
manufacturing costs. However, there can be no assurance that
average unit selling prices will not decline at a more rapid rate
or that the Company will be successful in its efforts to improve
gross margin.
Operating expenses
(In millions) December 28, December 30,
Nine months ended 1996 1995 Change
(unaudited)
Research and development $ 87.8 $ 69.4 $ 18.4
As a percentage of
revenue 11.0% 7.3%
Selling, general and
administrative $ 60.7 $ 60.5 $ 0.2
As a percentage of
revenue 7.6% 6.3%
Other $ - $ 4.5 $ (4.5)
As a percentage of
revenue 0.0% (0.5%)
Research and development (R&D) expenses increased primarily due
to the Company's continued commitment to make substantial
investments in new technology for its products. As discussed
under Desktop Computer Products, page 4, the Company introduced
several new families of products in 1996 which had substantial
technological advantages compared to the older 7000 series of
products. Additionally, the Company established the new advanced
technology group in Milpitas and a new production engineering
group in Singapore during 1996. In the third quarter of the 1996
period, the Company incurred charges of approximately $4.5
million related to obsolete equipment and internally built
equipment not utilized due to rapid changes in product volumes
and mix during the latter half of 1996. During 1997, the Company
is focused on controlled spending while continuing R&D activities
that support timely product introduction and transition to volume
production. There can be no assurances that the Company will be
successful in its efforts.
Selling, general and administrative (SG&A) expenses increased as
a percentage of revenue primarily due to the decrease in the
revenue base. SG&A spending in absolute dollars was relatively
unchanged due to the Company's ongoing effort to control costs
and expenditures. SG&A expenses decreased during the 1996 period
due to an overall reduction in force and controlled spending in
marketing. However, the decrease was offset by a substantial
change in executive staff and related severance costs incurred
throughout the nine month period. The Company expects lower SG&A
costs in 1997 due to its cost cutting measures implemented in
1996. During 1997, the Company is focused on controlling
spending, however, there can be no assurance that the Company
will be successful in such efforts.
Other expenses decreased due to $4.5 million of professional fees
incurred in 1995 related to the acquisition of the Company by
HEA. Effective January 1996, HEA acquired by a cash tender offer
of $6.70 per share all of the outstanding shares of the Company's
common stock which were not previously owned by HEA or its
affiliates and the Company became a wholly owned subsidiary of
HEA.
Interest expense and interest income
(In millions) December 28, December 30,
Nine months ended 1996 1995 Change
(unaudited)
Interest expense $ 18.1 $ 7.8 $ 10.3
Interest income $ 1.0 $ 0.8 $ 0.2
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 $149.8 million of short-
term and $129 million of long-term lines of credit borrowings
outstanding at December 28, 1996, whereas $99 million of short-
term borrowings were outstanding at December 30, 1995. The
Company expects to maintain approximately the same or higher
levels of borrowings during the next fiscal year.
Interest income increased slightly due to the availability of
cash for investing purposes. However, cash availability overall
has and will continue to be constrained in 1997 due to funding
required for the Company's operations.
Provision for income taxes
(In millions) December 28, December 30,
Nine months ended 1996 1995 Change
(unaudited)
Provision for income taxes $ 0.8 $ 2.1 $ (1.3)
The provision for income taxes consists primarily of foreign
taxes. The decrease of $1.3 million is due to elimination of
taxes in Hong Kong via the sale of IMS's Hong Kong operations in
June 1996. For further discussion of the sale of IMS, see page
2.
The Company's effective tax rate for the periods 1996 and 1995
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 operation is not taxable
as a result of the Company's pioneer tax status in Singapore.
Fiscal year ended March 30, 1996 compared to fiscal year ended
March 25, 1995
Revenue and Gross Margin
(In millions) March 30, March 25,
Fiscal year ended 1996 1995 Change
Revenue $1,269.0 $ 906.8 $ 362.2
Gross margin $ 72.7 $ 56.1 $ 16.6
As a percentage of
revenue 5.7% 6.2%
Net loss $(122.8) $ (82.2) $ (40.6)
Revenue for fiscal year 1996 increased by 39.9% from the prior
fiscal year primarily due to an increase in unit shipments of
approximately 30% and a shift in product mix to higher-capacity
product offerings which had higher average unit selling prices.
During fiscal years 1996 and 1995, the Company did not have any
customer which accounted for 10% or greater of the Company's
revenue.
Gross margin as a percentage of revenue decreased to 5.7% for
fiscal year 1996 from 6.2% for fiscal year 1995. Although the
shift of the Company's products sold was toward the higher
capacity products which generally have higher average selling
prices per unit, the increase in margins which resulted from this
shift was more than offset by intense pricing pressures on
certain lower capacity products without corresponding decreases
in manufacturing costs. In addition, the Company had lower than
expected volumes during fiscal 1996 due to shortages of certain
key components, contributing to higher than expected
manufacturing costs.
Operating expenses
(In millions) March 30, March 25,
Fiscal year ended 1996 1995 Change
Research and development $ 94.7 $ 60.8 $ 33.9
As a percentage of revenue 7.5% 6.7%
Selling, general and
administrative $ 82.8 $ 81.6 $ 1.2
As a percentage of revenue 6.5% 9.0%
Other $ 4.5 $ (10.2) $ 14.7
As a percentage of revenue 0.4% (1.1%)
Research and development (R&D) expenses increased in fiscal 1996
from the prior fiscal year primarily due to the Company's
continued commitment to make substantial investments in R&D since
the timely introduction and transition to volume production of
new products is essential to its future success. Spending
increased primarily in areas related to staffing and engineering
tooling needed for the development of new products.
Selling, general and administrative (SG&A) expenses decreased as
a percentage of revenue in fiscal year 1996 as compared to 1995
primarily due to the increase in the revenue base and the
Company's ongoing effort to control costs and expenditures. SG&A
spending in absolute dollars increased slightly primarily as a
result of increased marketing costs. The Company's ongoing
efforts to control costs and expenditures will continue into
future periods, however, there can be no assurance that the
Company will be successful in such efforts.
Other expenses increased during fiscal year 1996 compared to the
previous fiscal year due to two events. First, during the third
quarter of fiscal 1996, the Company incurred other expenses of
$4.5 million for professional fees incurred related to the
acquisition of the Company by HEA. Effective January 1996, HEA
acquired by a cash tender offer of $6.70 per share all of the
outstanding shares of the Company's common stock which were not
owned by HEA or its affiliates and the Company became a wholly
owned subsidiary of HEA. Second, the Company recorded a gain of
approximately $10.0 million, offsetting other expenses during the
third quarter of fiscal year 1995, when the Company entered into
an agreement for the sale of the Company's interest in Maxoptix
to Kubota Electronics America Corporation, a Delaware company,
whose ultimate parent is Kubota Corporation (Kubota). Prior to
the sale, Maxtor and Kubota owned 67% and 33% interests in
Maxoptix, respectively. The transaction was completed during the
fourth quarter of fiscal year 1995.
At March 30, 1996, the Company had no significant accrued
restructuring charges remaining relating to the restructuring
activities which commenced in the third quarter of fiscal year
1994. On March 25, 1995, the Company had $502,000 of accrued
restructuring charges remaining related to recurring payments
under certain non-cancelable operating leases which were
substantially paid during fiscal year ended March 30, 1996.
Interest expense and interest income
(In millions) March 30, March 25,
Fiscal year ended 1996 1995 Change
Interest expense $ 11.8 $ 8.4 $ 3.4
Interest income $ 1.2 $ 4.2 $ (3.0)
Interest expense increased by 41.4% in fiscal year 1996 as
compared to fiscal year 1995, even though the average interest
rate incurred on total borrowings decreased, due to a substantial
increase in short-term borrowings required in order to fund the
Company's operations. The Company had $96 million of borrowings
on the $100 million unsecured, revolving line of credit arranged
by Citicorp Securities Inc. outstanding as of March 30, 1996.
In December 1995, the Company also entered into a $100 million
secured bridge financing facility with HEA. As of March 30,
1996, $65 million of borrowings were outstanding under this
facility. Interest income decreased in fiscal year ended March
30, 1996 due to the lack of available cash for investing
purposes.
Provision for income taxes
(In millions) March 30, March 25,
Fiscal year ended 1996 1995 Change
Provision for income taxes $ 2.8 $ 2.0 $ 0.8
The provision for income taxes consists primarily of foreign
taxes. The Company's effective tax rate for fiscal years ended
March 30, 1996 and March 25, 1995 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 operation is not taxable as a result of the
Company's pioneer tax status in Singapore.
LIQUIDITY AND CAPITAL RESOURCES
As of and for
the nine months ended
December 28,
(In millions) 1996
Cash and cash equivalents $ 31.3
Net cash used in operating activities $(88.7)
Net cash used in investing activities $(36.0)
Net cash provided by financing activities $103.3
Short-term credit borrowings $ 149.8
Long-term credit borrowings $129.0
As of December 28, 1996, the Company had cash and cash
equivalents of $31.3 million as compared to $41.4 million as of
December 30, 1995, a decrease of $10.1 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 was primarily attributable
to the net loss less non-cash depreciation and amortization
totaling approximately $209.3 million and a decrease in accounts
payable of $37.3 million, offset by a decrease in accounts
receivable of $62.8 million, a decrease in inventories of $46.0
million, an increase in collections payable net of receivables
sold under the asset securitization program of $16.3 million and
an increase in accrued and other liabilities of $13.0 million.
Additionally, the Company incurred a $15 million charge over the
nine month period for inventories on hand and inventories
committed to be built at costs which are lower than market.
The decreases in accounts payable, accounts receivable and
inventories resulted from a decrease in raw materials purchased,
units produced and sold. Factors for this decline included a
discontinuation of products that no longer had profitable margins
while ramping new products for which component allocation issues
curbed production levels.
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 is discounted based
on the Capital Receivables Corporation commercial paper rate
(5.68% as of December 28, 1996) plus commission and is subject to
a 10% retention. As of December 28, 1996, $38.1 million in sales
of accounts receivable, for which proceeds had not yet been
received, were included in accounts receivable and $54.4 million
in collections of accounts receivable not yet remitted were
included in accrued and other liabilities.
Net cash used in investing activities was primarily attributable
to $53.8 million of capital expenditures and $9.0 million
advanced under note receivable with a vendor, offset by $25.0
million in proceeds from the sale of IMS in June 1996. A
majority of the capital expenditures activity related to the
acquisition of manufacturing and engineering equipment to develop
new products and enhance the productivity of the Singapore
manufacturing facility.
The Company entered into an agreement in June 1996, subsequently
amended in August 1996, with a vendor to build certain key
components. As of March 1, 1997, $9.5 million was advanced under
the agreement. Currently, the Company believes no additional
funding will be required.
Net cash provided by financing activities primarily reflects
$25.7 million in net payments under short-term lines of credit
facilities and $129 million in proceeds from a long-term line of
credit facility. 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.
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. All outstanding amounts of principal and accrued
interest are due and payable on April 10, 1997. As of December
28, 1996, no amount 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 $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. The facility is used primarily for general operating
purposes and bears interest at a rate based on LIBOR plus 0.53
percent. As of December 28, 1996, $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
December 28, 1996, $129 million of borrowings under this line of
credit were outstanding.
From September 30, 1996 to December 28, 1996, the Company
obtained credit facilities amounting to $40 million in the
aggregate from three banks. The facilities, which are guaranteed
by HEI, will be used primarily for general operating purposes and
bear interest at a rate ranging from 5.97 to LIBOR plus 0.53
percent. As of December 28, 1996, $40 million of borrowings
under this line of credit were outstanding.
Subsequent to December 28, 1996, the Company obtained a $20
million three month line of credit. This facility, which is
guaranteed by HEI, will be used primarily for general operating
purposes and bears interest at a rate based on LIBOR plus 0.60
percent. As of March 1, 1997, $20 million was outstanding.
As of March 1, 1997, the Company had $219.8 million in short-term
borrowings and $129 million in long-term borrowings drawn on
existing credit facilities.
The liquidity of the Company continued to be adversely affected
during the nine months ended December 28, 1996 by significant
losses from operations and liquidity has been significantly
reduced compared to the same period last year. The Company is
implementing ongoing measures with the goal of 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. However, the Company believes that it must continue to
make substantial investments in R&D since the timely introduction
and transition to volume production of new products is essential
to its future success.
The Company expects that it will require alternative sources of
liquidity, including additional sources of financing in fiscal
1997. The Company is engaged in ongoing discussions with various
parties, including HEI, HEA and certain financial institutions
regarding additional sources of financing, including an
additional infusion of equity from HEA. While the Company
believes that additional sources of financing will be available,
there can be no assurance that financing will be available on
terms which are favorable to the Company.
Subject to unforeseen changes in general business conditions, the
Company believes that the combination of the measures described
above and other available actions, together with its balances of
cash and cash equivalents, equipment financing and line of credit
borrowing capabilities (supported by HEI and HEA) and expected
equity infusion, will be sufficient to fund the Company's working
capital and capital expenditure requirements through fiscal year
1997.
Dividend policy
The holders of shares of Series A Preferred Stock are entitled to
non-cumulative dividends of $0.40 per share, when and as declared
by the Board of Directors, in preference of the holders of shares
of the Common Stock. The Company has never paid cash dividends
on its capital stock. The Company does not anticipate paying
cash dividends in the near future. 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.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Index to Consolidated Financial Statements Page
Financial Statements:
Consolidated Balance Sheets -
December 28, 1996 and March 30, 1996 21
Consolidated Statements of Operations -
Nine months ended December 28, 1996 and
fiscal years ended March 30, 1996
and March 25, 1995 22
Consolidated Statements of Stockholder's
Equity(Deficit) -Nine months ended
December 28, 1996 and fiscal years ended
March 30, 1996 and March 25, 1995 23
Consolidated Statements of Cash Flows -
Nine months ended December 28, 1996 and
fiscal years ended March 30, 1996 and
March 25, 1995 24 - 25
Notes to Consolidated Financial Statements 26 - 38
Report of Coopers & Lybrand L.L.P.,
Independent Accountants 39
Report of Ernst & Young LLP,
Independent Auditors 40
Financial Statement Schedules:
The following consolidated financial statement schedule of
Maxtor Corporation is filed as part of this Report and
should be read in conjunction with the Consolidated
Financial Statements of Maxtor Corporation.
Schedule II
Valuation and qualifying accounts S-1
Schedules not listed above have been omitted since they are
not applicable or are not required or the information
required to be set therein is included in the Consolidated
Financial Statements or notes thereto.
MAXTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
December 28, March 30,
ASSETS 1996 1996
Current assets:
Cash and cash equivalents $31,313 $52,794
Accounts receivable, net of
allowance for doubtful accounts
of $5,255 at December 28, 1996
and $5,196 at March 30, 1996 82,876 121,818
Accounts receivable from affiliates 6,248 4,426
Inventories 80,878 155,935
Prepaid expenses and other 5,239 11,642
Total current assets 206,554 346,615
Net property, plant and equipment 92,073 88,162
Other assets 15,912 7,710
$314,539 $442,487
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Short-term borrowings $149,800 $110,595
Short-term borrowings due to affiliates - 65,000
Accounts payable 109,956 160,102
Accounts payable to affiliates 13,459 8,656
Accrued and other liabilities 139,678 68,790
Total current liabilities 412,893 413,143
Long-term debt and capital
lease obligations due after one year 229,109 100,181
Deferred tax liabilities - 300
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 December 28, 1996;
(no shares authorized, issued, or
outstanding at March 30, 1996);
aggregated liquidation
value of $390,000 582 -
Common Stock, $0.01 par value,
110,000,000 shares authorized;
no shares issued and outstanding
at December 28, 1996;
(200,000,000 shares authorized;
600 shares issued and
outstanding at March 30, 1996) - -
Additional paid-in capital 335,017 335,599
Accumulated deficit (663,062) (406,736)
Total stockholder's deficit (327,463) (71,137)
$314,539 $442,487
See accompanying notes.
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Nine months
ended - Fiscal year ended-
December 28, March 30, March 25,
1996 1996 1995
Revenue $771,655 $1,264,627 $889,288
Revenue from affiliates 27,229 4,371 17,511
Total revenue 798,884 1,268,998 906,799
Cost of revenue 861,551 1,192,403 835,037
Cost of revenue from affiliates 27,307 3,902 15,632
Total cost of revenue 888,858 1,196,305 850,669
Gross margin (89,974) 72,693 56,130
Operating expenses:
Research and development 87,752 94,717 60,769
Selling, general and
administrative 60,701 82,775 81,600
Other - 4,460 (10,213)
Total operating expenses 148,453 181,952 132,156
Loss from operations (238,427) (109,259) (76,026)
Interest expense (18,075) (11,849) (8,379)
Interest income 1,000 1,169 4,216
Loss before income taxes (255,502) (119,939) (80,189)
Provision for income taxes 824 2,826 2,033
Net loss $(256,326) $(122,765) $(82,222)
See accompanying notes.
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(In thousands, except share amounts)
Preferred stock Common stock
Shares Amount Shares Amount
Balance, March 26, 1994 - - 49,905,242 $499
Issuance of common stock
under stock option plans - - 1,112,825 11
Payments on and
forgiveness of notes
receivable from
stockholders - - - -
Issuance of common
stock under stock
purchase plan - - 679,220 7
Net loss - - - -
Balance, March 25, 1995 - - 51,697,287 517
Issuance of common stock
under stock
option plans - - 1,134,805 11
Issuance of common
stock under stock
purchase plan - - 800,426 8
Shares canceled
resulting from
acquisition by HEA - - (53,631,918) (536)
Net loss - - - -
Balance, March 30, 1996 - - 600 -
Exchange of common
shares for Series A
Preferred 58,208,955 $582 (600) -
Net loss - - - -
Balance,
December 28,
1996 58,208,955 $582 - $ -
See accompanying notes.
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(In thousands, except share amounts)
Notes Total
Additional receiv-
able stock-
holder's
paid-in Accu-
mulated from equity
capital deficit stock-
holders
(deficit)
Balance, March 26, 1994
$320,564 $(201,749) $(127) $119,187
Issuance of common
stock under stock
option plans 4,133 - - 4,144
Payments on and
forgiveness of notes
receivable from
stockholders - - 127 127
Issuance of common
stock under stock
purchase plan 2,660 - - 2,667
Net loss - (82,222) - (82,222)
Balance,
March 25, 1995 327,357 283,971) - 43,903
Issuance of common
stock under stock
option plans 4,734 - - 4,745
Issuance of common
stock under stock
purchase plan 2,972 - - 2,980
Shares canceled
resulting from
acquisition by HEA 536 - - -
Net loss - (122,765) - (122,765)
Balance,
March 30, 1996 335,599 (406,736) - (71,137)
Exchange of common
shares for Series
A Preferred (582) - - -
Net loss - (256,326) - (256,326)
Balance,
December 28, 1996 $335,017 $(663,062) $ - $(327,463)
See accompanying notes.
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine
months Fiscal
year ended
ended
Decem-
ber 28, Mar 30, Mar 25,
1996 1996 1995
Increase (decrease) in cash
and cash equivalents
Cash flows from operating activities:
Net loss $(256,326) $(122,765) $(82,222)
Adjustments to reconcile
net loss to net cash
used in operating activities:
Depreciation and amortization 47,064 45,200 34,865
Reserves for lower of cost or
market 15,194 - -
Forgiveness of notes
receivable from stockholders - - 41
Change in non-current deferred
tax liabilities - 300 (66)
Gain on sale of interest in
joint venture - - (10,005)
Loss on disposal of property,
plant and equipment 700 669 2,233
Gain on sale of subsidiary (2,385) - -
Other (589) - -
Changes in assets and liabilities:
Accounts receivable 62,786 (12,485)(16,366)
Accounts receivable from
affiliates (1,822) (2,229) (2,197)
Net collections of accounts
receivable sold to financing
company 16,327 - -
Inventories 45,955 (66,255) (150)
Prepaid expenses and other 3,839 (2,947) (925)
Accounts payable (37,297) 18,407 14,813
Accounts payable to affiliates 4,803 8,656 -
Accrued and other liabilities 13,015 637 (20,212)
Total adjustments 167,590 (10,047) 2,031
Net cash used in operating
activities (88,736) (132,812)(80,191)
Cash flows from investing activities:
Proceeds from sale of subsidiary 25,000 - -
Proceeds from sale of interest
in joint venture, net - - (1,463)
Purchase of available-for-sale
investments - - (30,091)
Proceeds from maturities of
available-for-sale investments - 11,998 93,004
Purchase of property, plant and
equipment, net of disposals (53,417) (72,302)(31,535)
Other assets (7,599) (928) (417)
Net cash provided by (used in)
investing activities (36,016) (61,232) 29,498
Cash flows from financing activities:
Proceeds from issuance of debt,
including short-term borrowings 410,715 145,595 238
Principal payments on debt, including
capital lease obligations (307,444) (3,000) (4,444)
Proceeds from issuance of common
stock, net of issuance of notes
receivable and stock repurchase - 7,725 6,810
Payments on notes receivable from
stockholders - - 87
Net cash provided by financing
activities 103,271 150,320 2,691
Net decrease in cash and cash
equivalents (21,481) (43,724)(48,002)
Cash and cash equivalents at
beginning of period 52,794 96,518 144,520
Cash and cash equivalents at
end of period $31,313 $ 52,794 $ 96,518
See accompanying notes.
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(In thousands)
Nine
months Fiscal year
ended
ended
Decem-
ber 28, March 30, March 25,
1996 1996 1995
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest $13,444 $ 9,362 $ 6,657
Income taxes 2,009 1,801 2,822
Income tax refunds - (3,173) (65)
Supplemental information on noncash investing and financing
activities:
Purchase of property, plant and
equipment financed by accounts
payable 8,171 4,949 -
Exchange of Common Stock for
Series A Preferred Stock 582 - -
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements include the accounts of
Maxtor Corporation (Maxtor or the Company) and its wholly-owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Maxtor Corporation operates
as a wholly-owned subsidiary of Hyundai Electronics America
(HEA).
Fiscal year
During 1996, the Company changed its fiscal year end to be
consistent with the year end of its parent, HEA. The fiscal year
end changed from the last Saturday of March, the date used in the
Company's prior filing of its Form 10-K with the Securities and
Exchange Commission, to the last Saturday of December conforming
to its 52/53-week year methodology. The current fiscal period
ended on December 28, 1996 comprises nine months or 39 weeks.
Fiscal years ended March 30, 1996 and March 25, 1995 comprised 53
weeks and 52 weeks, respectively.
Nature of business
The Company develops, manufactures and markets hard disk drive
products to customers who sell their products in the personal
computer industry. Products are designed for desktop and
notebook applications to meet both value and high-performance
needs of customers. Customers include original equipment
manufacturers (OEMs), distributors, and national retailers.
Additionally, several smaller retailers and value-added resellers
(VARs) carry Maxtor products purchased through Maxtor's
distribution network. The Company relies on suppliers for
components including heads, disks and custom integrated circuits.
Although printed circuit board assemblies and head stack
assemblies are outsourced, head disk assemblies are completed by
the Company. All the Company's products are manufactured by
Maxtor at its manufacturing facility in Singapore and sold world-
wide in North America, Europe and Asia.
Accounting estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
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 had used in estimating the warranty expense
accrual.
Given the volatility of the market, the Company makes adjustments
to the value of inventories based on estimates of potentially
excess and obsolete inventories and negative margin products
after considering forecasted demand and forecast average selling
prices. However, forecasts are always subject to revisions,
cancellations, and rescheduling. Actual demand will inevitably
differ from such anticipated demand and such differences may have
a material impact on the financial statements.
Risks and uncertainties
The Company's business entails a number of risks. As is typical
in the disk drive industry, the Company must utilize leading edge
components for its new generation of products which may only be
available from a limited number of suppliers. While the Company
has qualified and continues to qualify multiple sources for many
components, it is reliant on, and will continue to be reliant on,
the availability of supply from its vendors for many semi-custom
and custom integrated circuits, heads, media and other key
components. Any de-commitments or delays from vendors can have
an adverse impact on the Company's ability to ship products as
scheduled to its customers.
Interim financial information
The unaudited interim financial information for the nine month
period ended December 30, 1995 has been prepared on the same
basis as the audited financial statements and, in the opinion of
management, includes all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the
financial information in accordance with generally accepted
accounting principles.
Cash and cash equivalents
The Company considers all highly liquid investments, which are
purchased with an original maturity of three months or less, to
be cash equivalents.
Inventories
Inventories are stated at the lower of cost (computed on a first-
in, first-out basis) or market.
Depreciation and amortization
Depreciation and amortization are provided on the straight-line
basis over the estimated useful lives of the assets, which are
generally from three to five years, except for buildings which
are depreciated over thirty years. Assets under capital leases
and leasehold improvements are amortized over the shorter of the
asset life or the remaining lease term. Capital lease
amortization is included with depreciation expense.
Revenue recognition and product warranty
Revenue is recognized upon product shipment. Revenue from sales
to certain distributors is subject to agreements providing
limited rights of return, as well as price protection on unsold
merchandise. Accordingly, the Company records reserves upon
shipment for estimated returns, exchanges and credits for price
protection. The Company also provides for the estimated cost to
repair or replace products under warranty at the time of sale.
The Company currently warrants its products against defects in
parts and labor from the date of shipment with an additional
three months allowed for distributors to account for "shelf
life". All products currently in production are warranted for a
period of 36 months after shipment.
Advertising expense
Cooperative advertising costs are charged as the related revenue
is earned and other advertising costs are expensed as incurred.
Advertising costs were not significant for the nine months ended
December 28, 1996 and the fiscal years ended March 30, 1996 and
March 25, 1995, respectively.
Accounting for income taxes
The Company accounts for income taxes under the liability method.
Under the liability method, deferred tax assets and liabilities
are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company is required to
adjust its deferred tax liabilities in the period when tax rates
or the provisions of the income tax laws change. Valuation
allowances are established to reduce deferred tax assets to the
amounts expected to be realized.
Foreign currency translation
The functional currency for all foreign operations is the U.S.
dollar. As such, all material foreign exchange gains or losses
are included in the determination of net loss. Net foreign
exchange losses included in net loss for the nine months ended
December 28, 1996 and the fiscal years ended March 30, 1996 and
March 25, 1995 respectively, were immaterial.
Concentrations of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts
receivable and cash equivalents. The Company's products are sold
worldwide to original equipment manufacturers, distributors, and
retailers. Concentration of credit risk with respect to the
Company's trade receivables is limited by the Company's ongoing
credit evaluation process and the geographical dispersion of
sales transactions. Therefore, the Company generally requires no
collateral from its customers. The allowance for doubtful
accounts is based upon the expected collectibility of all
accounts receivable. The Company has cash equivalent and short-
term investment policies that limit the amount of credit exposure
to any one financial institution and restrict placement of these
funds to financial institutions evaluated as highly credit-
worthy. As of December 28, 1996, the Company had one customer
who accounted for more than 10% of the outstanding trade
receivables. No customers accounted for more than 10% of
outstanding trade receivables at March 30, 1996. If the customer
fails to perform its obligations to the Company, such failure
would have adverse effects upon the Company's financial position,
results of operations, cash flows, and liquidity.
Long-lived assets
Effective March 31, 1996, the Company adopted Financial
Accounting Standards Board issued Statement No. 121 (SFAS 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," which requires the Company to
review for impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an
asset might not be recoverable. In certain situations, an
impairment loss would be recognized. The adoption of SFAS 121
did not impact the Company's financial position or results of
operations.
Stock-based compensation
As of March 31, 1996, the Company has adopted the provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." In
accordance with SFAS No. 123, the Company intends to continue to
apply Accounting Principles Board Opinion (APB) No. 25 for
purposes of determining net income and to adopt the pro forma
disclosure requirements of SFAS No. 123. Accordingly, no
compensation cost has been recognized for the 1996 Stock Option
Plan.
Recent accounting pronouncements
The Company plans to adopt SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," effective fiscal 1997. The adoption of SFAS No.
125 is not expected to have a material effect on the financial
statements of the Company.
In February 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings Per Share" (SFAS 128), which specifies
the computation, presentation and disclosure requirements for
earnings per share. SFAS 128 supersedes APB No. 15 and is
effective for financial statements issued for periods ending
after December 15, 1997. SFAS 128 requires restatement of all
prior-period earnings per share data presented after the
effective date. SFAS 128 is not expected to have a material
impact on the Company's financial position, results of operations
or cash flows.
2. SUPPLEMENTAL FINANCIAL STATEMENT DATA (in thousands)
December 28, March 30,
1996 1996
Inventories:
Raw materials $33,012 $76,505
Work-in-process 15,674 37,614
Finished goods 32,192 41,816
$80,878 $155,935
Property, plant and equipment, at cost:
Buildings $29,512 $24,984
Machinery and equipment 194,644 192,115
Furniture and fixtures 13,300 14,118
Leasehold improvements 12,695 13,870
250,151 245,087
Less accumulated depreciation
and amortization (158,078) (156,925)
Net property, plant and equipment $92,073 $88,162
Accrued and other liabilities:
Income taxes payable $5,088 $7,499
Accrued payroll and
payroll-related expenses 17,159 16,727
Accrued warranty 20,194 23,751
Accrued expenses 42,780 18,934
Collections payable for
receivables sold 54,386 -
Long-term debt and capital
lease obligations due within one year 71 1,879
$139,678 $68,790
3. INTERIM FINANCIAL INFORMATION (in thousands)
December 28, December 30,
Nine months ended 1996 1995
(unaudited)
Revenue $798,884 $954,040
Gross margin (89,974) 60,648
Provision for income taxes 824 2,127
Net loss (256,326) (82,948)
4. FINANCIAL INSTRUMENTS
Fair value disclosures
The fair values of cash and cash equivalents approximate carrying
values due to the short period of time to maturity. The carrying
values of notes receivable, which are classified in other assets,
approximate fair values. The fair values of the Company's fixed
rate debt are estimated based on the current rates offered to the
Company for similar debt instruments of the same remaining
maturities. The fair values of the Company's variable rate debt
approximate carrying values as these instruments are adjusted
periodically during the course of the year at market prices. The
fair values of the Company's convertible subordinated debentures
are based on the bid price of the last trade for the period ended
December 28, 1996.
The carrying values and fair values of the Company's financial
instruments are as follows:
(In thousands) December 28, 1996 March 30, 1996
Carrying Estimated Carrying Estimated
amount fair value amount fair value
Cash and cash
equivalents $31,313 $31,313 $52,794 $52,794
Notes receivable 11,492 11,492 4,000 4,000
Short and long-term debt
fixed rates 13,800 13,800 15,576 15,539
variable rates 265,000 265,000 96,000 96,000
debt from parent -
fixed rates - - 65,000 65,000
Convertible subordinated
debentures 100,000 68,000 100,000 77,000
Derivative financial instruments
The Company enters into currency forward contracts to manage
foreign currency exchange risk associated with the Company's
manufacturing operations in Singapore. The Company's policy is
to hedge all material transaction exposures on a quarterly basis.
Contracts are generally entered into at the end of each fiscal
quarter to reduce foreign currency exposures for the following
fiscal quarter. Contracts generally have maturities of three
months or less. Any gains or losses on these instruments are
accounted for in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation," and
are generally included in cost of revenue. Unrealized gains or
losses on foreign currency forward contracts that are designated
and effective as hedges of firm commitments, are deferred and
recorded in the same period as the underlying transaction.
Notional amounts of outstanding currency forward contracts were
$17,286,000 and $2,659,000, as of December 28, 1996 and March 30,
1996, respectively.
5. DISPOSALS OF OPERATIONS
In May 1996, the Company entered into an agreement to sell a
majority interest in International Manufacturing Services, Inc.
(IMS) to certain IMS management and other investors (Buyer). At
completion of the transaction in June 1996, the Company received
$25 million in cash and $20 million in notes from IMS, and
retained a 23.5% ownership interest in IMS. With the stockholder
deficit of IMS and the subordination of the Company's notes
receivable from IMS to bank debt of IMS, combined with certain
specified conditions which must be achieved before any payment of
principal will occur, the Company has fully reserved its notes
from IMS. Pursuant to the terms of the agreements, the Company
made various representations and warranties as to itself and IMS
and has agreed to indemnify Buyer for any breaches thereof.
Generally, in the event that losses from such breaches when
aggregated exceed $500,000, Buyer shall be entitled to
indemnification for all losses, including the first $500,000 up
to a maximum total of $17,500,000, provided that tax and
environmental representations are not subject to the liability
limit. IMS supplies the Company with printed circuit board
assemblies (PCBA), sub-assemblies and fully integrated box-build
products under a manufacturing services agreement.
During fiscal year ended March 25, 1995, the Company sold its
interest in Maxoptix to Kubota Electronics America Corporation
(KEA), a Delaware company. Prior to the sale, Maxtor and Kubota
Corporation (the ultimate parent of KEA) owned 67% and 33%
interests in Maxoptix, respectively. As a result of the sale,
the Company recorded a gain of approximately $10.0 million. The
operations of Maxoptix for fiscal year 1995 were immaterial to
the Company's statements of operations, balance sheets and
statements of cash flows.
6. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company operates in a single industry segment: the design,
manufacture and sale of data storage products for desktop and
notebook computer systems. It has a world-wide sales, service
and distribution network. The Company markets and sells its
products through a direct sales force to OEMs, distributors and
other emerging sales channels such as computer specialty
retailers and computer superstores.
During the fiscal period ending December 28, 1996, one customer
accounted for more than 10% of the Company's revenue. No
customers accounted for more than 10% of the Company's revenue in
fiscal years 1996 and 1995.
The Company's export sales represented 48%, 41% and 48% of total
revenue for the nine months ended December 28, 1996, and fiscal
years ended March 30, 1996 and March 25, 1995, respectively.
Approximately 38%, 60%, and 53% of export sales were to Europe,
while 55%, 35% and 38% of export sales were to Asia Pacific for
the nine months ended December 28, 1996 and fiscal years ended
March 30, 1996 and March 25, 1995, respectively.
Operations outside the United States primarily consist of the
manufacturing plant in Singapore that produces subassemblies and
final assemblies for the Company's disk drive products. The
geographic breakdown of the Company's activities for each of the
three fiscal periods is presented in the following table:
(In thousands) U.S. Asia
Pacific Elim-
inations Con-
solidated
Nine months ended December 28, 1996
Revenue from unaffiliated
customers $751,597 $20,058 $ - $771,655
Revenue from affiliated
customers 25,712 1,517 - 27,229
Transfers between geographic
locations 14,150 918,488 (932,638) -
Revenue 791,459 940,063 (932,638) 798,884
Income (loss) from
operations (323,061) 79,926 4,708 (238,427)
Identifiable assets 286,084 369,631 (341,176) 314,539
Fiscal year ended March 30, 1996
Revenue from unaffiliated
customers $1,196,105 $ 68,522 $ - $1,264,627
Revenue from affiliated
customers 3,417 954 - 4,371
Transfers between
geographic locations 14,600 1,585,545 (1,600,145) -
Revenue 1,214,122 1,655,021 (1,600,145) 1,268,998
Income (loss) from
operations (204,376) 95,035 82 (109,259)
Identifiable assets 326,106 397,837 (281,456) 442,487
Fiscal year ended March 25, 1995
Revenue from unaffiliated
customers $884,301 $ 4,987 $ - $889,288
Revenue from affiliated
customers 17,511 - - 17,511
Transfers between geographic
locations 35,268 874,746 (910,014) -
Revenue 937,080 879,733 (910,014) 906,799
Income (loss) from
operations (135,848) 59,558 264 (76,026)
Identifiable assets 338,139 293,096 (249,388) 381,847
Revenue from unaffiliated and affiliated customers is based on
the origin of the sale. Transfers between geographic locations
are accounted for at amounts that are above cost. Such transfers
are eliminated in the consolidated financial statements.
Identifiable assets are those assets that can be directly
associated with a particular geographic location through
acquisition and/or utilization. In determining each of the
geographic locations' income (loss) from operations and
identifiable assets, the expenses and assets relating to general
corporate or headquarter activities are included in the amounts
for the geographic locations where they were incurred, acquired
or utilized.
7. LINES OF CREDIT, DEBT AND CAPITAL LEASE OBLIGATIONS
Lines of credit, debt and capital lease obligations consist of
the following:
December 28,March 30,
(In thousands) 1996 1996
5.75% Convertible Subordinated
Debentures due March 1, 2012 $100,000 $100,000
Short-term borrowings; interest
payable at variable rates ranging from
5.74% to 6.2% per annum 136,000 96,000
Short-term borrowings from parent;
interest payable at rates
ranging from 5.9% to 6.24% - 65,000
Short-term borrowing; interest
payable at a rate of 6.12%;
collateralized by equipment 13,800 13,800
Long-term borrowing, interest payable
at variable rates ranging from
5.74% to 6.2% per annum 129,000 -
Term loans, principal payable in
varying monthly, quarterly and
semi-annual installments through
October 1996; interest payable at a
rate of 8.46% per annum; collateralized
by equipment - 708
Term loans, principal payable in varying
monthly, bi-monthly and quarterly
installments through December 1996;
interest payable at rates ranging from
7.53% to 8.03% per annum; collateralized
by equipment - 1,068
Other obligations 180 1,079
378,980 277,655
Less amounts due within one year 149,871 177,474
Due after one year $229,109 $100,181
Future aggregate maturities exclusive of other
obligations are as follows:
Fiscal year ending (In thousands)
1997 $149,800
1998 5,000
1999 134,000
2000 5,000
2001 5,000
Later years 80,000
Total $378,800
The 5-3/4% Convertible Subordinated Debentures (Debentures)
originally were convertible at any time prior to maturity, unless
previously redeemed, into shares of common stock of the Company
at a conversion rate of 25 shares per each $1,000 principal
amount of debentures (equivalent to a conversion price of $40 per
common share), subject to adjustment in certain events. Pursuant
to the terms of the Indenture governing the Debentures, dated
March 1, 1987, upon the closing of the acquisition by HEA under
the Agreement and Plan of Merger, dated November 2, 1995, between
HEA and the Company, Debenture holders were entitled to receive
in lieu of shares of common stock of the Company the same
consideration per share received by holders of common stock at
the closing of the Merger. A First Supplemental Indenture, dated
January 11, 1996, provides that each $1,000 principal amount of
Debentures may be convertible to 25 shares of common stock of the
Company (equivalent to a conversion price of $40 per share),
which is immediately converted into a cash payment of $167.50.
Interest on the Debentures is payable on March 1 and September 1
of each year. The Debentures, at the option of the Company, are
redeemable at 100.575% of principal amount as of March 30, 1996
and thereafter at prices adjusting to the principal amount on or
after March 1, 1997, plus accrued interest. The Debentures are
entitled to a sinking fund of $5,000,000 principal amount of
Debentures, payable annually beginning March 1, 1998, which is
calculated to retire at least 70% of the Debentures prior to
maturity. The Debentures are subordinated in right to payment to
all senior indebtedness.
On March 30, 1996, the Company entered into a 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 (5.68% as
of December 28, 1996) plus commission and is subject to a 10%
retention. As of December 28, 1996, $38.1 million in sales of
accounts receivable, for which proceeds had not yet been
received, were included in accounts receivable and $54.4 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.
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. All outstanding amounts of principal and accrued
interest are due and payable on April 10, 1997. As of December
28, 1996, no amount 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, the Facilities were increased $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. The
facility is used primarily for general operating purposes and
bears interest at a rate based on LIBOR plus 0.53 percent. As of
December 28, 1996, $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 December 28, 1996,
$129 million of borrowings under this line of credit were
outstanding.
From September 30, 1996 to December 28, 1996, the Company
obtained credit facilities amounting to $40 million in the
aggregate from three banks. The facilities, which are guaranteed
by HEI, will be used primarily for general operating purposes and
bear interest at a rate ranging from 5.97 to LIBOR plus 0.53
percent. As of December 28, 1996, $40 million of borrowings
under this line of credit were outstanding.
Subsequent to December 28, 1996, the Company obtained a $20
million three month line of credit. This facility, which is
guaranteed by HEI, will be used primarily for general operating
purposes and bears interest at a rate based on LIBOR plus 0.60
percent. As of March 1, 1997, $20 million was 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.
8. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its principal facilities and
certain machinery and equipment under operating lease
arrangements. The future minimum annual rental commitments as of
December 28, 1996 are as follows:
Fiscal year ending (In thousands)
1997 $ 9,851
1998 7,594
1999 4,100
2000 1,452
2001 891
Later years 10,416
Total $34,304
The above commitments extend through fiscal year 2016. Rental
expense was approximately $8,905,000 for the nine months ended
December 28, 1996, and $11,960,000 and $16,998,000 for fiscal
years ended March 30, 1996 and March 25, 1995, respectively.
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. The Company's complaint arises out of
an agreement for the purchase of media by the Company from
StorMedia, and alleges breach of contract, breach of the implied
warranty of fitness, breach of the implied warranty of
merchantability, fraud and negligent misrepresentation, and seeks
compensatory money damages, including, but not limited to actual
damages, incidental damages, and consequential damages. The
action was stayed in early March 1997.
In November 1995, three separate actions (Wacholder v. Gallo, et
al., Silver v. Maxtor, et al., and Barrington v. Gallo, et al.)
were filed in the Court of Chancery of the State of Delaware, in
and for New Castle County which generally alleged a breach of
fiduciary duty by the Company's directors in connection with
HEA's offer to purchase the Company. These actions, which sought
class certification, and preliminary and permanent injunctive
relief to prevent the acquisition, as well as damages and
attorneys' fees, were consolidated with a similar California
action (Campanella v. Maxtor, et al.). In December 1996, in a
settlement approved by the Delaware Court, the matters were
settled in exchange for certain additional disclosures by the
Company to its shareholders regarding the circumstances of the
tender offer, and payment by the Company of plaintiffs' counsel
fees and costs totaling $315,000.
The Company has been notified of certain other claims, including
claims of patent infringement. While the ultimate outcome of
these claims and the claims described above is not determinable,
it is reasonably possible that resolution of these matters could
have a material impact on the financial condition, results of
operations or cash flows of the Company.
9. RELATED PARTY TRANSACTIONS
HEI has committed to provide financial support necessary for the
Company to continue operations on an ongoing basis.
In January 1996, the Company became a wholly owned subsidiary of
HEA. Subsequently, trading of Maxtor common stock on the NASDAQ
National Market was suspended. Currently, there is no public
market for the Company's equity securities. The Company's 5-3/4%
convertible subordinated Debentures, due March 1, 2012, remain
publicly traded.
In May 1995, the Company entered into a definitive manufacturing
agreement with HEI. Under the terms of the agreement, HEI
manufactured Maxtor-designed hard disk drives for the Company at
a site in Korea. In October 1996, the manufacturing agreement
was canceled and production at the Korean manufacturing site was
transferred to Maxtor's manufacturing facilities in Singapore.
As part of the transfer, Maxtor purchased $4.3 million in
inventories. In addition, Maxtor purchased approximately $14
million of HEI's manufacturing equipment from November 1996
through February 1997, payable one year from invoice date. HEI
will bear all other costs associated with the shut down of
production in Korea.
10. STOCKHOLDER'S DEFICIT
Preferred stock
The Company has one class of $0.01 par value preferred stock with
95,000,000 shares authorized, designated as Series A Preferred
Stock. Each share of preferred stock is convertible, at the
option of the holder, to shares of the Company's common stock on
a one for one basis, subject to adjustment under certain
circumstances pursuant to anti-dilution provisions. The
preferred stock automatically converts to common stock upon the
earlier of the time the consent of at least a majority of the
outstanding Series A preferred stock subject to such conversion
is obtained, or the closing of the sale of the Corporation's
securities pursuant to a firm commitment, underwritten public
offering. The holders of preferred shares are entitled to one
vote for each share of common stock into which the preferred
stock is convertible.
Holders of Series A preferred stock are entitled to dividends,
when and as declared by the Board of Directors, at an annual rate
of $0.40 per share. Dividends are noncumulative, and to date, no
dividends have been declared or paid by the Company.
The Series A preferred stock has a liquidation preference of
$6.70 per share, plus any declared but unpaid dividends on such
shares.
In June 1996, the Company entered into an exchange agreement with
HEA whereby HEA exchanged 600 shares of Common Stock for
58,208,955 shares of Series A Preferred Stock, $.01 par value.
As of December 28, 1996, 58,208,955 shares of Series A Preferred
Stock and no shares of Common Stock, $.01 par value, were issued
and outstanding and none of the outstanding shares of Series A
Preferred Stock or Common Stock were held by persons other than
the parent of the registrant.
At the time of the acquisition by HEA, the Company canceled its
employee stock purchase plan and stockholder rights plan.
Stock options
Effective as of the acquisition by HEA, the Company's Fiscal
1988, 1992, 1995 Stock Option Plans and the 1986 and 1996 Outside
Directors Stock Option Plans terminated and were subsequently
replaced by the Company's 1996 Stock Option Plan (the Plan). The
Plan was approved by the Board of Directors in May 1996 and
provides for a maximum of 10,272,168 shares to be reserved for
grant. Options under the Plan expire ten years from the date of
grant.
The Plan generally provides for non-qualified stock options and
incentive stock options to be granted to eligible employees,
consultants, affiliates and directors of the Company at a price
not less than 85% of the fair market value at the date of grant,
as determined by the Board of Directors. The Board of Directors
or an executive committee appointed by the Board also approves
other terms such as number of shares granted and exercisability
thereof. Any person who is not an employee may be granted only a
non-qualified stock option. Options granted under the Plan vest
over a four-year period with 25% vesting at the first anniversary
date of the vest date and 6.25% each quarter thereafter. The
vesting schedule for new participants begins February 1, 1996 or
hiring date, whichever is later.
The Company has the right to repurchase any vested shares at the
greater of the exercise price or fair market value upon
termination of service by the holder. The Company has a 90 day
right of first refusal whereby the Company may repurchase all
shares held by the holder on the same terms and at the same price
as offered by a third party. The holder must give the Company
written notice prior to any proposed transfer.
The following table summarizes option activity through December
28, 1996:
Options outstanding
Shares Average
(In thousands, except shareavailable price per Aggregate
and per share amounts)for grant Shares share value
Balance at
March 26, 1994 2,806,496 5,851,877 $6.38 $ 37,332
Shares reserved 2,015,000 - - -
Options granted (2,752,075) 2,752,075 4.51 12,400
Options exercised - (1,112,825) 3.78 (4,209)
Options canceled 1,338,162 (1,338,162) 6.49 (8,690)
Cancellation of 1985
Stock Option Plan (227,071) - - -
Balance at
March 25, 1995 3,180,512 6,152,965 5.99 36,833
Options granted (1,940,547) 1,940,547 4.75 9,226
Options exercised - (1,134,805) 4.18 (4,745)
Options canceled 992,862 (992,862) 5.56 (5,519)
Plan shares expired (151,886) - - -
Options canceled
due to acquisition (2,080,941)(5,965,845) 6.00 (35,795)
Balance at
March 30, 1996 - - - -
Shares reserved 10,272,168 - - -
Options granted (9,322,198) 9,322,198 3.00 27,966
Options canceled 2,216,698 (2,216,698) 3.00 (6,650)
Balance at
December 28, 1996 3,166,668 7,105,500 $3.00 $21,316
No shares were vested as of December 28, 1996. There were no
shares outstanding subject to repurchase as of December 28, 1996,
March 30, 1996 and March 25, 1995.
Under SFAS No. 123, the Company is required to calculate the pro-
forma fair market value of options granted and report the impact
that would result from recording the compensation expense. Pro-
forma net loss for the nine months ended December 28, 1996 is as
follows. Comparable information for the fiscal years ended March
30, 1996 and March 25, 1996 are not presented due to the
termination of all formally existing options pursuant to the
January 1996 acquisition by HEA.
Nine months ended December 28, 1996
(In thousands) As reported Pro forma
Net loss $256,326 $257,488
The pro forma net loss disclosures made above are not necessarily
representative of the effects on pro forma net income (loss) for
future years as options granted typically vest over several years
and additional option grants are expected to be made in future
years.
Pro-forma compensation expense resulting from stock options is to
be based upon fair value at the date of grant. To calculate this
fair value, the Company has elected to apply the Black-Scholes
pricing model which is one of the currently accepted models
recognized by SFAS 123. However, pricing models such as Black-
Scholes were developed to estimate the fair value of freely
tradable, fully transferable options without vesting
restrictions. Terms of the Company's employee stock options
awards differ significantly from those for which Black-Scholes,
and other models, were developed. Additionally, these models
also require highly subjective assumptions including expected
time until exercise and future risk free interest rates that
greatly affect the calculated fair value.
To compute the estimated grant date fair market value of the
Company's stock option grants for 1996, the following weighted-
average assumptions were used:
Group A Group B
Risk-free interest rate 6.14% 6.21%
Weighted average expected life 4 years 6 years
No dividend yield and no price volatility are assumed because all
equity is held solely by HEA.
The weighted average expected life was calculated based on the
vesting period and the exercise behavior of each subgroup. Group
A represents higher paid participants who tend to exercise prior
to the vesting period to take advantage of tax laws, and Group B
represents all other participants. The risk-free interest rate
was calculated in accordance with the grant date and expected
life calculated for each subgroup.
The following table summarizes information for stock options
outstanding at December 28, 1996:
Options Outstanding Options Exercisable
- -------------------------------------- ---------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- --------------------------------------------------------------
$3.00 -
$3.00 7,105,500 9.45 $3.00 - $3.00
11. INCOME TAXES
The provision for income taxes consists of the following:
Fiscal period ended December 28, March 30, March 25,
(In thousands) 1996 1996 1995
Current:
Foreign $1,124 $2,526 $2,099
1,124 2,526 2,099
Deferred:
Foreign (300) 300 (66)
Total $ 824 $2,826 $2,033
The provision for income taxes differs from the amount computed
by applying the U.S. statutory rate of 35% for the nine months
ended December 28, 1996 and fiscal years ended March 30, 1996 and
March 25, 1995 loss before income taxes. The principal reasons
for this difference are as follows:
Fiscal period ended December 28, March 30, March 25,
(In thousands) 1996 1996 1995
Tax at U.S. statutory rate $(89,442) $(41,982) $(28,066)
Tax savings from foreign
operations (27,104) (30,757) (19,732)
Repatriated foreign earnings
absorbed by current year
losses - 11,624 33,045
U.S. loss not providing
current tax benefit 52,722 27,325 32,663
Valuation of temporary
differences 64,492 36,550 (17,142)
Other 156 66 1,265
Total $ 824 $2,826 $2,033
Deferred income taxes reflect the tax effect of temporary
differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income
taxes purposes. The significant components of the Company's
deferred tax assets and liabilities are as follows:
December 28, March 30,
(In thousands) 1996 1996
Deferred tax assets:
Inventory reserves and
accruals $16,211 $6,956
Depreciation 5,423 4,102
Sales related reserves 10,836 12,532
Net operating loss
carryforwards 152,519 99,040
Tax credit carryforwards 18,252 18,252
Capitalized research and
development 77,466 51,219
Notes receivable reserve 7,561 -
Other 2,496 2,496
Total deferred tax assets 290,764 194,597
Valuation allowance for deferred
tax assets (251,464) (160,312)
Net deferred tax assets $39,300 $34,285
Deferred tax liabilities:
Unremitted earnings of certain
foreign entities $39,300 $34,585
Total deferred tax liabilities $39,300 $34,585
Pre-tax income from foreign operations was approximately
$79,000,000, $95,900,000 and $62,200,000 for the nine months
ended December 28, 1996 and fiscal years ended March 30, 1996
and March 25, 1995, respectively. The Company currently enjoys a
tax holiday for its operations in Singapore that has been
extended until June 30, 1997.
At December 28, 1996, for federal income tax purposes, the
Company had net operating loss carryforwards of $426,500,000
which will expire beginning in fiscal year 2006 and tax credit
carryforwards of approximately $18,300,000 which will expire
beginning in fiscal year 1999. Certain changes in stock
ownership can result in a limitation on the amount of net
operating loss and tax credit carryovers that can be utilized
each year. The Company determined it has undergone such an
ownership change. Consequently, utilization of approximately
$271,000,000 of net operating loss carryforwards and the
deduction equivalent of approximately $18,300,000 of tax credit
carryforwards will be limited to approximately $22,400,000 per
year.
The acquisition by HEA of the Company by Hyundai, more fully
described in the related party transaction footnote, resulted in
the Company becoming part of the HEA consolidated group for
federal income tax purposes during January 1996. As a result,
the Company's tax loss for the post-acquisition period has been
computed on a separate tax return basis pending completion of a
tax sharing agreement which will be entered into between the
Company and HEA. The Company has not recorded any tax benefit in
its financial statements for the amount of the post-change net
operating loss to be included in the HEA consolidated income tax
return.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
of Maxtor Corporation:
We have audited the consolidated financial statements and the
financial statement schedule of Maxtor Corporation (a wholly-
owned subsidiary of Hyundai Electronics America) listed in the
index on page 53 of this Form 10-K as of and for the nine month
period ended December 28, 1996. These financial statements and
financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedule based on our audit.
We conducted our audit 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 audit provides 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 Maxtor Corporation as of December 28, 1996,
and the consolidated results of its operations and its cash flows
for the nine month period then ended, in conformity with
generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
San Jose, California
February 21, 1997
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheets of
Maxtor Corporation (a wholly-owned subsidiary of Hyundai
Electronics America) as of March 30, 1996 and the related
consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the two fiscal years in the
period ended March 30, 1996. Our audits also include the
financial statement schedule for each of the two fiscal years in
the period ended March 30, 1996, listed in the Index at Item 14a.
These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Maxtor Corporation at March 30, 1996, and
the consolidated results of its operations and its cash flows for
each of the two years in the period ended March 30, 1996, in
conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule for each
of the two fiscal years in the period ended March 30, 1996, when
considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respect, the
information set forth therein.
ERNST & YOUNG LLP
San Jose, California
April 25, 1996
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Incorporated by reference to Form 8-K filed on July 26, 1996.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the directors and executive officers of
the Company and their ages as of December 28, 1996. There are no
family relationships between any director or executive officer of
the Company. Executive officers serve at the discretion of the
Board of Directors.
Name Age Position with the Company
Mong Hun Chung 48 Chairman of the Board
Dr. Chong
Sup Park 49 Vice Chairman and Director
Michael R. Cannon 44
President, Chief Executive
Officer and Director
Paul J. Tufano 43 Vice
President, Finance, and Chief
Financial Officer
Glenn H. Stevens 46 Vice President, General Counsel and
Secretary
Charles F. Christ 58 Director
Charles Hill 60 Director
Y.H. Kim 54 Director
Mong Hun Chung was elected Chairman of the Board in February
1994. Mr. Chung has been Chairman of the Board of Directors of
Hyundai Electronics Industries Co., Ltd. in Korea since January
1992. He was President and Representative Director of Hyundai
Electronics Industries Co., Ltd. in Korea from February 1984 to
December 1991. Currently, Mr. Chung is also Vice Chairman of
Hyundai Merchant Marine Co., Ltd. and holds directorship
positions on the boards of other Hyundai Business Group
companies.
C.S. Park was appointed Vice Chairman of the Company's Board of
Directors in June 1996, and in September 1996 assumed the
position of President and Chief Executive Officer of HEA. Dr.
Park had previously served as the Company's President and Chief
Executive Officer from February 1995 until his appointment as
Vice Chairman. From 1993 until joining Maxtor, he was President
and Chief Executive Officer and a director of Axil Computer,
Inc., a workstation computer manufacturer and a Hyundai Business
Group company, in Santa Clara, California. Dr. Park remains a
member of Axil's Board, and also holds directorship positions on
the boards of other Hyundai Business Group companies. He was
formerly in various management positions with Hyundai Electronics
Industries Co., Ltd., including the position of Senior Vice
President, Semiconductor Sales and Marketing, which he held from
1990 to 1992. From 1985 to 1989, Dr. Park was President and
Chief Executive Officer of Hyundai Electronics America. He is
currently a director of Storage Dimensions, Inc., an independent
vendor of high-availability disk and tape storage systems.
Michael R. Cannon was appointed President, Chief Executive
Officer and Director of the Company in July 1996. From January
1993 until he joined Maxtor, Mr. Cannon held several senior
management positions with IBM's Storage Systems division,
including vice president, mobile and desktop business unit; vice
president, product design; and vice president, worldwide
operations. From May 1991 to January 1993, he served as senior
vice president of Syquest Technology Inc., and earlier held the
position of vice president, Southeast Asia operations, with
Imprimis Technology.
Glenn H. Stevens joined the Company as Vice President, General
Counsel and Secretary in June 1994. From August 1992 to May
1994, Mr. Stevens had a private law practice. From 1979 to
August 1992, he held various positions within the legal
department at U S West, Inc., a telecommunications products and
services provider, including chief counsel and secretary for its
research and development organization and chief intellectual
property counsel for the family of U S West companies.
Paul J. Tufano became the Company's Vice President, Finance and
Chief Financial Officer in August 1996. Prior to joining Maxtor,
Mr. Tufano held a variety of management positions at IBM over a
17 year period from March 1979 to July 1996. Just prior to his
Maxtor appointment, Mr. Tufano was manager of worldwide logistics
for IBM's storage systems division from October 1995 to July
1996. Other management positions included manager of plants and
controls for its desktop and mobile storage products business
unit, and controller for IBM's San Jose, California facility.
Charles F. Christ has been Vice President and General Manager of
the Components Division of Digital Equipment Corporation since
July 1994. Prior to joining Digital Equipment Corporation in
1990, Mr. Christ was a senior partner with the management
consulting group of Coopers & Lybrand from 1989 to 1990.
Previously, he was President and Chief Executive Officer of
Digital Sound Corporation, a telecommunications voice processing
company, from 1986 to 1988.
Charles Hill has been a Senior Research Fellow at the Hoover
Institution since 1989. From 1982 to 1989, he served as Chief of
Staff of the U.S. State Department and Executive Assistant to
former U.S. Secretary of State George P. Shultz. From 1990 to
1996, Mr. Hill was Special Consultant to the Secretary General of
the United Nations. Presently, he is Diplomat-in-Residence at
Yale University.
Y. H. Kim was appointed president and resident director of
Hyundai Electronics Industries Co., Ltd. in October, 1996.
Previously, Mr. Kim had been chief executive officer, president,
and a director of HEA since 1990. He continues to be a member of
HEA's board of directors, and also holds directorship positions
on the boards of Symbios Logic Inc., TV/COM International, Inc.,
and Hyundai Semiconductors America (Hyundai Group Cos.).
Item 11. DIRECTORS AND EXECUTIVE COMPENSATION
DIRECTORS
Effective in August 1996, non-employee members of the Company's
Board of Directors receive the following compensation: (i)
$22,000 per year; (ii) $1,000 per year for service as a committee
chairperson; (iii) $1,500 per full-day quarterly Board meeting;
and (iv) a one-time initial grant of a nonqualified stock option
to purchase 40,000 shares of the Corporation's Common Stock
pursuant to the Corporation's 1996 Stock Option Plan. Prior to
August 1996, non-employee directors were paid $2,000 per year for
service as a committee chairperson and also received $1,000 per
committee meeting.
EXECUTIVE COMPENSATION
The following table sets forth compensation paid to the Company's
Chief Executive Officer, the Company's other two executive
officers whose total salary and bonus exceeded $100,000 during
the nine months ended December 28, 1996, and two other persons
who served as executive officers of Maxtor during a portion of
the nine months ended December 28, 1996, whose total salary and
bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
--------------------------------
Compensation
Awards __
-------------
Other
Annual All
Other
Name and Fiscal Yr. Salary Bonus Compensa- Options Compen
sation
Principal
Position Ended (15) $ __$__ tion($) (Shares)_ ($)(14)
- ---------- ---------- ----- ------ ----- ------ -------
Michael R.
Cannon (1) Dec. 28,1996 240,387 250,000(2) - 900,000 -
President,
and Chief Mar. 30, 1996 - - - - -
Executive
Officer Mar. 25, 1995 - - - - -
Glenn H.
Stevens Dec. 28, 1996 149,078 - - 70,000 3,219
VP, General
Counsel Mar. 30, 1996 185,771 - - 40,000 195
and
Secretary Mar. 25, 1995 138,753 - - 60,000 190
Paul J. Tufano (3)
Dec. 28, 1996 92,879 50,000(4) - 100,000 2,322
VP, Finance
and Mar. 30, 1996 - - - - -
Chief Financial
Officer Mar. 25, 1995 - - - - -
Non-Continuing
Executive Officers
C. S. Park (5)
Dec. 28, 1996 200,002 - - 40,000 (6) 4,000
President
and Chief
Mar. 30, 1996 400,005 - - - 2,046
Executive
Officer Mar. 25, 1995 73,289 (7) - - 505,000(8) -
Richard D.
Balanson (9)
Dec. 28, 1996 299,728 - - - -
Executive VP,
and Mar. 30, 1996 351,596 - 207,475(10) 60,000 2,080
Chief Technical
Officer Mar. 25, 1995 202,795 176,292(11) - 300,000 50
Rick R.
Brantmeyer (12)
Dec. 28, 1996 185,814 25,000 - - 1,520
Senior Vice
President,
Mar. 30, 1996 144,228 50,000(13) - 100,000 1,595
Marketing
and Mar. 25, 1995 - - - - -
Worldwide Sales
____________________
(1) Mr.Cannon joined the Company as President and Chief
Executive Officer in July 1996.
(2) Represents bonus paid in accordance with the Company's offer
letter to Mr. Cannon.
(3) Mr. Tufano joined the Company as Vice President, Finance and
Chief Financial Officer in August 1996.
(4) Represents bonus paid in accordance with the Company's offer
letter to Mr. Tufano.
(5) Dr. Park was appointed Vice Chairman in June 1996.
Previously, he had been President and Chief Executive
Officer since February 1995. Dr. Park has been a member of
Company's Board of Directors since February 1994.
(6) Represents a one-time grant of a nonqualified stock option
to purchase 40,000 shares of the Corporation's Common Stock
pursuant to the Corporation's 1996 Stock Option Plan related
to Dr. Park's appointment as Vice Chairman.
(7) Includes $31,750 which represents payment for director fees
for Dr. Park's service as an outside director prior to his
election as President and Chief Executive Officer in
February 1995.
(8) Includes options for 5,000 shares granted under the 1986
Outside Directors Plan and an option for 500,000 shares
granted under the 1995 Stock Option Plan upon Dr. Park's
appointment as Chief Executive Officer in February 1995.
(9) Dr. Balanson's employment with the Company terminated in
June 1996.
(10) Includes $207,475 in relocation reimbursements paid in
fiscal year ended March 30, 1996.
(11) Represents bonus in the amount of $176,292 paid in
accordance with the Company's offer letter to Dr. Balanson.
(12) Mr. Brantmeyer's employment with the Company terminated in
June 1996.
(13) Represents bonus in the amount of $50,000 paid in accordance
with the Company's offer letter to Mr. Brantmeyer.
(14) The amounts shown in this column, unless otherwise
indicated, represent the Company's annual contributions to
the Maxtor Savings Retirement Plan, a 401(k) plan. All U.S.
employees are eligible to participate in this Plan.
(15) As a result of the Company's change in fiscal year end, the
fiscal period ended December 28, 1996 comprises nine months.
AGREEMENTS WITH EXECUTIVE OFFICERS
On June 7, 1996, Maxtor entered into a Confidential Resignation
Agreement and General Release of Claims with Richard D. Balanson
(the "Balanson Agreement"). Pursuant to the Balanson Agreement,
Mr. Balanson resigned from his position as Executive Vice
President and Chief Technical Officer and from his employment
with Maxtor effective June 7, 1996. In exchange for his release
of all claims against Maxtor, the Company provided the following
benefits to Mr. Balanson: (i) payment of $275,000.00 over a six-
month period; (ii) continuation of health benefits for a three-
month period following his resignation; and (iii) outplacement
services.
On June 7, 1996, Maxtor entered into a Confidential Resignation
Agreement and General Release of Claims with Rick R. Brantmeyer
(the "Brantmeyer Agreement"). Pursuant to the Brantmeyer
Agreement, Mr. Brantmeyer resigned from his position as Senior
Vice President, Marketing and Sales, and from his employment with
Maxtor effective June 7, 1996. In exchange for his release of
all claims against Maxtor, the Company provided the following
benefits to Mr. Brantmeyer: (i) payment of $125,000.00 over a
six-month period; (ii) continuation of health benefits for a
three-month period following his resignation; and (iii)
outplacement services.
In August 1996, the Company entered into a letter agreement with
Mr. Paul J. Tufano, its current Vice President, Finance and Chief
Financial Officer, relating to terms of his employment, his
initial level of compensation and payment of certain compensation
in the event of his termination from the Company under certain
circumstances. The agreement provides for base compensation of
$230,000 per year; payment of a sign-on bonus of $100,000,
payable in two equal installments in July 1996 and January 1997;
an annual bonus opportunity of approximately $115,000; and the
grant of options to purchase 100,000 shares of the Company's
Common Stock vesting over a four (4) year period. The letter
agreement further provides that in the event Mr. Tufano is
terminated by the Company without cause, the Company shall pay
Mr. Tufano the equivalent of nine months' base salary plus any
portion of the sign-on bonus remaining unpaid as of the date of
such termination.
In July 1996, the Company entered into a letter agreement with
Mr. Michael R. Cannon, its current President and Chief Executive
Officer, relating to terms of his employment, his initial level
of compensation and payment of certain compensation in the event
of his termination from the Company under certain circumstances.
The agreement provides for base compensation of $500,000 per
year; payment of a sign-on bonus of $1,000,000, payable in four
equal quarterly installments beginning on the last day of
December, 1996; an annual bonus opportunity of approximately
$250,000; and the grant of options to purchase 900,000 shares of
the Company's Common Stock vesting over a four (4) year period.
The letter agreement further provides that in the event Mr.
Cannon is terminated by the Company without cause, the Company
shall pay Mr. Cannon the equivalent of one year's base salary
plus any portion of the sign-on bonus remaining unpaid as of the
date of such termination.
In January 1997, the Company entered into a letter agreement with
Mr. William Roach, its current Senior Vice President, Worldwide
Sales, relating to terms of his employment, his initial level of
compensation, and a loan and associated repayment terms. The
agreement provides for base compensation of $350,000 per year; a
$350,000 loan, forgivable on a prorated basis over a three-year
term; a one-time annual bonus between approximately $175,000 and
$350,000; and the grant of options to purchase 250,000 shares of
the Company's Common Stock vesting over a four (4) year period.
In accordance with the foregoing agreement, on January 10, 1997,
Mr. Roach delivered to the Company a promissory note in the
principal amount of $350,000 in exchange for payment to him by
the Company of the loan amount. The note provides for
forgiveness of one-third of the outstanding principal balance on
each of the first three anniversary dates of his employment,
provided that Mr. Roach is an employee of Maxtor on each such
date. In addition, the promissory note shall be forgiven in full
in the event of his termination by the Company for any reason
other than willful misconduct of a culpable nature. In the event
Mr. Roach voluntarily terminates his employment with the Company,
the balance then due shall become immediately due and payable.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to stock
options granted during the nine months ended December 28, 1996
(5) to each of the executive officers named in the Summary
Compensation Table:
Individual Grants
----------------------------------
Potential
Realizable
Value at
Assumed
% of
Total Annual
Rates of
Stock
Options Price
Appreciation
for
Number
of Granted
to Option Term(2)
Options Employees ------------------
in Exer-
cise
Price Ex-
pira-
tion
Name Granted
(1) Fiscal
Year Per
Share Date 5% 10%
- --------- --------- ------ ------ ------ --------- ----------
Michael R.
Cannon 900,000 9.82% $3.000 7/01/06 $1,698,015 $4,303,105
Glenn H.
Stevens 70,000 0.76% $3.000 5/14/06 $132,068 $334,686
Paul J.
Tufano 100,000 1.09% $3.000 7/29/06 $188,668 $478,123
Non-Continuing
Executive Officers
C. S. Park 40,000(3) 0.43% $3.000 5/14/06 $75,467 $ 191,249
Richard D.
Balanson 300,000(4) 3.22% $3.000 6/07/96 $- $-
Rick R.
Brantmeyer 100,000(4) 1.07% $3.000 6/07/96 $- $-
(1) All options were granted under the Company's 1996 Stock
Option Plan ("Plan"). Options granted under the Plan vest
over a four-year period with 25% vesting at the first
anniversary date of the vest date and 6.25% each quarter
thereafter. The vesting schedule for new participants
begins February 1, 1996 or hiring date, whichever is later.
Vested options are subject to repurchase by the Company.
The Board retains discretion to modify the terms, including
the price of outstanding options.
(2) In January 1996, the Company became a wholly owned
subsidiary of HEA. As of the acquisition and merger,
trading of Maxtor common stock on the NASDAQ National Market
was suspended. Currently, there is no public market for the
Company's equity securities. The potential realizable value
was determined by the Compensation Committee to the Board of
Directors based on their good faith estimate of fair market
value as of December 28, 1996.
(3) Represents a one-time grant of a nonqualified stock option
to purchase 40,000 shares of the Corporation's Common Stock
pursuant to the Corporation's 1996 Plan related to Dr.
Park's appointment as Vice Chairman.
(4) Options were canceled upon termination of employment
effective June 7, 1996.
(5) As a result of the Company's change in fiscal year end, the
fiscal period ended December 28, 1996 comprises nine months.
AGGREGATED FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding year-
end stock option values for each of the executive officers named
in the Summary Compensation Table for the nine months ended
December 28, 1996 (3):
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Fiscal Year End (1) Fiscal Year End (2)
Name Unexercisable Exercisable Unexercisable Exercisable
- ------- ------------ ------------ -------------- -----------
Michael R.
Cannon 900,000 - - -
Glenn H.
Stevens 70,000 - - -
Paul J.
Tufano 100,000 - - -
Non-Continuing
Executive Officers
C. S. Park 40,000 - - -
Richard D.
Balanson - - - -
Rick R.
Brantmeyer - - - -
There were no option exercises during the nine months ended
December 28, 1996.
(1) All options were granted under the Company's 1996 Stock
Option Plan ("Plan"). Options granted under the Plan vest
over a four-year period with 25% vesting at the first
anniversary date of the vest date and 6.25% each quarter
thereafter. The vesting schedule for new participants
begins February 1, 1996 or hiring date, whichever is later.
No shares were exercisable as of December 28, 1996.
(2) As of December 28, 1996, the exercise price per share was
equal to the fair market value per share, as determined by
the Board of Directors. Therefore, there was no value for
unexercised in-the-money options.
(3) As a result of the Company's change in fiscal year end, the
fiscal period ended December 28, 1996 comprises nine months.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In June 1996, the Company entered into an exchange agreement with
HEA whereby HEA exchanged 600 shares of Common Stock for
58,208,955 shares of Series A Preferred Stock, $.01 par value.
As of March 1, 1997, 58,208,955 shares of Series A Preferred
Stock and no shares of Common Stock, $.01 par value, were issued
and outstanding. As of March 1, 1997, no outstanding shares of
Series A Preferred Stock or Common Stock were held by persons
other than HEA.
In January 1996, the Company became a wholly owned subsidiary of
HEA. As of the acquisition, trading of Maxtor common stock on
the NASDAQ National Market was suspended. Currently, there is no
public market for the Company's equity securities. The Company's
5-3/4% convertible subordinated Debentures, due March 1, 2012,
remain publicly traded.
STOCK OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of March 1,
1997, with respect to the beneficial ownership of Series A
Preferred Stock and Common Stock of Maxtor by (i) all persons
known to Maxtor to be the beneficial owners of five percent or
more of the outstanding shares of Series A Preferred Stock or
Common Stock of Maxtor, (ii) each of Maxtor's directors and
nominees, (iii) each of the executive officers named in the
Summary Compensation Table and (iv) all executive officers and
directors of Maxtor as a group.
Number of Shares Percent of
Beneficially Owned Stock Outstanding
----------------- -----------------
Name or Identity of Series A
Beneficial Owner(1) Preferred Common Preferred Common(2)
- ------------------- -------- ------ -------- ---------
Hyundai
Electronics 58,208,955 58,208,955 100.0% 100%
America,
3101 N. First
Street, San Jose,
CA 95134
Mong Hun Chung (3) - 12,500 - *
Dr. Chong Sup Park (3) - 12,500 - *
Charles Hill (3) - 12,500 - *
Y. H. Kim (3) - 12,500 - *
Charles F. Christ (3) - 12,500 - *
Michael R. Cannon (4) - - - -
Glenn H. Stevens (5) - 21,875 - *
Paul J. Tufano (4) - - - -
Richard D. Balanson (6) - - - -
Rick R. Brantmeyer (6) - - - -
All executive officers
and directors as a
group (13 persons) (7) - 171,875 - *
* Less than one percent (1%)
________________________________________
(1) The persons named in the table have sole voting and
investment power with respect to all shares of Series A Preferred
Stock and Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and the
information contained in the footnotes to this table.
(2) Calculated based on the total number of shares of Common
Stock outstanding, Series A Preferred Stock outstanding which are
convertible into shares of Common Stock, and shares subject to
options granted under the Company's 1996 Stock Option Plan which
are exercisable through May 1, 1997.
(3) Includes 10,000 shares subject to an option granted under
the Company's 1996 Plan which became exercisable February 1, 1997
and are subject to a right of repurchase by the Company.
(4) No shares subject to options granted under the Company's
1996 Plan are exercisable within 60 days of March 1, 1997.
(5) Includes 17,500 shares subject to an option granted under
the Company's 1996 Plan which became exercisable February 1, 1997
and are subject to a right of repurchase by the Company.
(6) Mr. Balanson's and Mr. Brantmeyer's employment with the
Company terminated on June 7, 1996; their options were canceled
upon termination.
(7) 44,375 shares are subject to options which are exercisable
within 60 days of March 1, 1997. Includes shares subject to
options described in footnotes 3, 4 and 5.
For stock options issued to Directors and Officers under the 1996
Stock Option Plan, see Item 11: Directors and Executive
Compensation on page 43.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning related party financing arrangements
with HEA, refer to Part II, Item 8, Footnotes to Consolidated
Financial Statements, Footnote 7, pages 32 - 33.
In June 1996, the Company entered into an exchange agreement with
HEA whereby HEA exchanged 600 shares of Common Stock for
58,208,955 shares of Series A Preferred Stock, $.01 par value.
As of March 1, 1997, 58,208,955 shares of Series A Preferred
Stock and no shares of Common Stock, $.01 par value, were issued
and outstanding. As of March 1, 1997, no outstanding shares of
Series A Preferred Stock or Common Stock were held by persons
other than HEA.
In May 1996, the Company entered into an agreement to sell a
majority interest in International Manufacturing Services, Inc.
(IMS) to certain IMS management and other investors (Buyer). At
completion of the transaction in June 1996, the Company received
$25 million in cash and $20 million in notes from IMS, and
retained a 23.5% ownership interest in IMS. IMS supplies the
Company with printed circuit board assemblies (PCBA), sub-
assemblies and fully integrated box-build products under a
manufacturing services agreement. Former officers of the
Company, Bob Behlman (President and CEO of IMS) and Nathan Kawaye
(formerly Vice President and Chief Financial Officer of the
Company), have left the Company and hold executive positions at
IMS.
In May 1995, the Company entered into a definitive manufacturing
agreement with Hyundai Electronics Industries Company, Limited
(HEI). Under the terms of the agreement, HEI manufactured Maxtor-
designed hard disk drives for the Company at a site in Korea. In
October 1996, the manufacturing agreement was canceled and
production at the Korean manufacturing site was transferred to
Maxtor's manufacturing facilities in Singapore. As part of the
transfer, Maxtor purchased $4.3 million in inventories. In
addition, Maxtor purchased approximately $14 million of HEI's
manufacturing equipment, with the purchase price payable one year
from invoice date. The equipment was invoiced over the period
from November 1996 through February 1997. HEI would bear all
other costs associated with the shut down of production in Korea.
It is the Company's policy to enter into indemnification
agreements with its officers and directors, (the "Agreements").
Pursuant to the Agreements, the Company has agreed to indemnify
its officers and directors to the maximum extent permitted under
Delaware law.
For information concerning severance and indebtedness
arrangements with officers of the Company, refer to Part III,
Item 11, Director and Executive Compensation, pages 44 - 45.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements and Financial Statement Schedules
- See Index to Consolidated Financial Statements under
Item 8 on page 20 of this report.
(2) Exhibits
See Index to Exhibits on pages 53 to 64 hereof.
(b) Reports on Form 8-K
Item 4. Change in the Registrant's Certifying Accountant,
and Item 8. Change in Fiscal Year, filed July 26, 1996.
Item 5. Other Events reporting the establishment of two
unsecured, revolving lines of credit totaling
$215 million through Citibank, N. A. and syndicated
among fifteen banks, filed September 13, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Jose, State of
California, on the 26th day of March, 1997.
MAXTOR CORPORATION
(Registrant)
By /s/Michael R. Cannon
--------------------
Michael R. Cannon
President, Chief Executive
Officer, and Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ Michael R. Cannon
- -------------------- President,
Chief Executive
March 26,1997
Michael R. Cannon Officer, and Director
/s/Paul J. Tufano Vice President,
- ----------------- Finance,
March 26, 1997
Paul J. Tufano Chief Financial
Officer
/s/ Mong Hun Chung Chairman of the Board
- ------------------- March 26, 1997
Mong Hun Chung
/s/ Chong Sup Park Vice Chairman of the
- ------------------ March 26, 1997
Dr. Chong Sup Park Board
/s/ Charles Hill Director March 26, 1997
- ----------------
Charles Hill
/s/ Charles F. Christ Director March 26, 1997
- ---------------------
Charles F. Christ
/s/ Y. H. Kim Director March 26, 1997
- --------------
Y. H. Kim
MAXTOR CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Allowance for Doubtful Accounts
_________________________________________________________________
Additions
Balance at Charged to Balance at
Beginning Cost and Deductions/ End of
Fiscal Year
Ended of Period Expenses (Recoveries) Period
[1]
_________________________________________________________________
December 28,
1996 $5,196 $1,355 $1,296 $5,255
March 30, 1996 $3,850 $1,232 $(114) $5,196
March 25, 1995 $3,653 $1,092 $ 895 $3,850
[1] Uncollectible accounts written off, net of recoveries
S-1
Index to Exhibits
=================
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.
10.1 (1) Omnilease Corporation Master Lease Agreement No. 300362,
dated as of January 14, 1983 and addenda thereof
10.2 (1) Lease Agreement between Orchard Investment Company No. 801,
formerly Nelo, a California general partnership and
Registrant, dated March 23, 1984
10.3 (1) Lease Commitment between Walter E. Heller & Company and
Registrant, dated as of March 11, 1985
10.4 (1) Stock Purchase Agreement between Steven P. Kitrosser and
Registrant, dated May 21, 1985
10.5 (1) Stock Purchase Agreement between James McCoy and Registrant,
dated May 21, 1985
10.6 (1) Equipment Lease Agreement between Pacific Western (formerly
Pacific Valley) Bank and Registrant, dated June 26,
1985
10.7 (1) Continuing Guaranty between Maxtor Singapore Limited
and Bank of America N.T. & S.A., dated July 27, 1985
10.8 (9) Lease Agreement between John Arrillaga, Separate Property
Trust, Richard T. Perry, Separate Property Trust and
Registrant, dated August 27, 1986
10.9 (3) Marketing and Distribution Agreement between Ricoh Company, Ltd.
and Registrant, dated October 14, 1986
10.10(3) Land Lease Agreement between Housing and Development
Board, Singapore and Maxtor Singapore Limited, dated
December 22, 1986
10.11(3) Indenture dated February 16, 1987
10.12(8) Stock Bonus Plan and Cash Bonus Plan between Storage
Dimensions, Inc. and Registrant dated June 15, 1987
10.13(8) Merger Agreement between MAXSUB II, Inc., and Storage
Dimensions, Inc. dated October 26, 1987
10.14(3) 1986 Outside Directors' Stock Option Plan
10.15(3) Commitment from Union Bank to Registrant regarding
letters of credit for the benefit of the officers and
directors of the Registrant
10.16(4) Agreement and Plan of Reorganization
10.17(9) Revised Equipment Lease Agreement between Capital
Associates International, Inc. and Registrant, dated
September 28, 1988
10.18(9) Credit Agreement between Bank of America National Trust
and Savings Association and Registrant, dated October
18, 1988
10.19(9) Equipment Lease Agreement between Pitney Bowes Credit
Corporation and Registrant, dated November 2, 1988
10.20(9) Equipment Lease Agreement between Concord Leasing
(Asia) Pte Ltd. and Maxtor Singapore, Limited, dated
November 16, 1988
10.21(9) Lease Agreement between Maxtor Singapore, Limited and
Jurong Town Corporation, dated November 16, 1988
10.22(9) Lease Agreement between Greylands Business Park Phase
II and Storage Dimensions, Inc., dated December 14,
1988
10.23(8) Stock Purchase Agreement among Registrant, Storage
Dimensions, Inc., David A. Eeg, Gene E. Bowles, Jr.,
David P. Williams and David Lance Robinson
10.24(8) Fiscal 1988 Stock Option Plan
10.25(8) Employee Stock Purchase Plan
10.26(8) Dual Currency Loan Agreement between Maxtor Singapore
Limited, Maxtor Delaware, Maxtor California and
American Express Bank Limited
10.27(8) Amended and Restated Fiscal 1985 Stock Option Plan,
including the Immediately Exercisable Incentive Stock
Option Agreement and the Immediately Exercisable
Nonqualified Stock Option Agreement
10.28(9) Loan Agreement between Probo Pacific Pte Ltd. and
Maxtor Singapore Limited, dated March 20, 1989
10.29(9) Loan Agreement between Concord Leasing (Asia) Pte, Ltd.
and Maxtor Singapore Limited, dated April 14, 1989
10.30(10) Product Discontinuance Agreement between Matsushita
Communication Industrial Co., Ltd. (MCI) and
Registrant, dated August 23, 1989
10.31(10) Equipment Lease Agreement between Capital Associates
International, Inc. and Registrant, dated October 17,
1989
10.32(10) Maxoptix Corporation 1989 Stock Option Plan
10.33(9) Forms for Promissory Note and Amended and Restated
Promissory Note
10.34(10) Amended and Restated Credit Agreement between Bank of
America National Trust and Savings Association and
Registrant, dated
January 31, 1990
10.35(10) Amendment to Lease Agreement between Orchard Investment
Company No. 801, formerly Nelo, a California general
partnership, and Registrant, dated February 15, 1990
10.36(10) Sublease Agreement between RACAL-VADIC, a Division of
Racal Data Communications, Inc. ("Sublessor"), and
Storage Dimensions, Inc. ("Sublessee"), dated February
16, 1990
10.37(10) Collateral Sharing and Subordination Agreement between
Registrant and Standard Chartered Bank, dated April 5,
1990
10.38(10) Loan and Security Agreement between Registrant and
MiniScribe Corporation, dated April 5, 1990
10.39(11) Agreement for the Sale and Purchase of Shares in
Tratford Pte. Ltd. between the Registrant, MiniScribe
Peripherals (Pte) Ltd. and certain Individuals, dated
May 8, 1990
10.40(11) Agreement for the Sale and Purchase of Shares in
Silkmount Limited between MaxSub Corporation, Silkmount
Limited and certain Individuals, dated May 18, 1990
10.41(11) Assignment of Debt between Registrant, MiniScribe (Hong
Kong) Limited and certain Individuals, dated May 18,
1990
10.42(10) Asset Purchase Agreement between Registrant, MiniScribe
Corporation and Standard Chartered Bank, dated May 30,
1990
10.43(14) License Agreement with Rodime PLC, dated December 8,
1987 assigned to Registrant on June 29, 1990
10.44(14) Patent Cross License Agreement with IBM dated October
1, 1984 assigned to Registrant effective June 30, 1990
10.45(14) Lease Agreement between MiniScribe Corporation and 345
Partnership dated June 6, 1990, assigned to the
Registrant effective June 30, 1990
10.46(14) Lease Agreement between Maxtor Colorado and Pratt
Partnership (Lot 1A), dated July 5, 1990
10.47(14) Lease Agreement between Maxtor Colorado and Pratt
Partnership (Lot 1C), dated July 5, 1990
10.48(14) Lease Agreement between Maxtor Colorado and Pratt
Partnership (Lot 4), dated July 5, 1990
10.49(14) Agreement for the Purchase of Land and Improvements
between Registrant and Nixdorf, dated August 16, 1990
10.50(15) Grant Agreement dated 25 October 1990 between the
Industrial Development Authority, Maxtor Ireland
Limited and Registrant
10.51(12) Amendment of Agreement between Registrant, Maxtor
Colorado, Maxtor California and Standard Chartered
Bank, dated November 6, 1990
10.52(14) Guarantee for Dastek between Registrant, Dastek and
Silicon Valley Bank, dated November 30, 1990
10.53(10) Judgment, William Lubliner vs. Maxtor Corporation,
James M. McCoy, William J. Dobbin, B.J. Cassin, W.
Charles Hazel and George M. Scalise
10.54(10) Settlement Agreement, William Lubliner vs. Maxtor
Corporation, et al
10.55(10) Fiscal 1991 Profit Sharing Plan Document
10.56(10) Board of Director Compensation Approved for Fiscal 1991
10.57(14) Resignation Agreement and General Release of Claims
between Alexander E. Malaccorto and the Registrant,
dated January 11, 1991
10.58(14) Employment Agreement between James M. McCoy and
Registrant, dated January 17, 1991
10.59(14) Resignation Agreement and General Release of Claims
between James N. Miler and the Registrant, dated
January 20, 1991
10.60(14) Letter Agreement between George Scalise and the
Registrant, dated February 22, 1991
10.61(14) Resignation Agreement and General Release of Claims
between Steven Strain and the Registrant, dated
February 22, 1991
10.62(14) Foothill Capital Credit Facility between Registrant,
Certain of its Subsidiaries and Foothill Capital
Corporation, dated April 22, 1991
10.63(14) Employment Agreement between Laurence Hootnick and
Registrant, dated May 3, 1991
10.64(14) Employment Agreement between Roger Nordby and
Registrant, dated May 7, 1991
10.65(14) Employment Agreement between Thomas F. Burniece and the
Registrant, dated May 12, 1991
10.66(15) Amendment of the Registrant's Continuing Guarantee in
favor of Foothill Capital Corporation, dated July 10,
1991
10.67(15) Settlement, Resignation and General Release of Claims
between Registrant and Taroon C. Kamdar, dated August
2, 1991
10.68(15) Amendment of Registrant's Continuing Guarantee in favor
of Foothill Capital Corporation, dated August 9, 1991
10.69(15) Amendment No. 1 to Lease by and between John Arrillaga,
Trustee, and Richard T. Peery, Trustee, and Registrant,
dated August 23, 1991
10.70(15) Amendment of Registrant's Continuing Guarantee in favor
of Foothill Capital Corporation, dated September 20,
1991
10.71(13) Amendment of Agreement between Registrant, Maxtor
Colorado, Maxtor California and Standard Chartered
Bank, dated December 27, 1990, and further amended July
26, 1991 and October 4, 1991
10.72(15) Lease Agreement between Registrant and Devcon
Associates 31, dated December 6, 1991
10.73(15) Deed of Partial Discharge and Release between Barclays
Bank PLC and Maxtor Singapore Limited, dated December
19, 1991
10.74(15) Agreement for Purchase and Sale of Assets among
Registrant, Read-Rite International, Read-Rite
Corporation and Maxtor Singapore Limited, dated
November 14, 1991, and amended December 20, 1991
10.75(15) Asset Purchase Agreement among Registrant, Storage
Dimensions, Inc. and USD Acquisition, Inc., dated
December 27, 1991
10.76(15) Resignation Agreement and General Release of Claims
between Registrant and David S. Dury, dated January 31,
1992
10.77(15) Sublease between Registrant and Hauser Chemical
Research, Inc., dated March 23, 1992
10.78(15) First Amendment to Lease Agreement between PCA San Jose
Associates and Registrant, dated March 25, 1992
10.79(15) Asset Purchase Agreement among Registrant, Maxtor
Singapore LTD., and Sequel, Inc., dated March 12, 1992,
and amended March 25, 1992
10.80(5) Fiscal 1992 Stock Option Plan
10.81(15) Form of Indemnity Agreement between the Registrant and
each of its Directors and Executive Officers
10.82(15) Maxtor/Sequel 8K/Panther Subcontract Manufacturing and
Warranty Services Agreement, dated March 23, 1992
10.83(15) Maxtor Corporation 1992 Employee Stock Purchase Plan
10.84(15) Maxtor Corporation 1991 Employee Stock Purchase Plan
10.85(15) Maxtor Corporation FY'93 Incentive Plan Summary
10.86(15) Fiscal 1992 Profit Sharing Plan Document
10.87(17) Security Agreement between Registrant and Chrysler
Capital Corporation, dated April 14, 1992
10.88(17) Subordination, Non-Disturbance, Estoppel and Attornment
Agreement between Loma Mortgage USA, Inc. and
Registrant, dated June 4, 1992
10.89(17) Office Lease between Cabot Associates and Registrant,
dated July 23, 1992
10.90(17) Revolving Credit Agreement among Registrant, Barclays
Bank PLC and The First National Bank of Boston, dated
as of September 9, 1992
10.91(17) Security Agreement between Registrant and the CIT
Group/Equipment Financing, Inc., dated September 18,
1992
10.92(17) Deed of Priorities among Maxtor (Hong Kong) Limited,
Registrant and General Electric Capital Corporation,
dated September 25, 1992
10.93(17) Lease among Dares Developments (Woking) Limited, Maxtor
Europe Limited and Registrant, dated October 1992
10.94(16) Stock Purchase and Asset Acquisition Agreement among
David A. Eeg, Gene E. Bowles, Jr., CP Acquisition, L.P.
No. 4A, CP Acquisition, L.P. No. 4B, Capital Partners,
Inc., FGS, Inc., Registrant, Storage Dimensions, Inc.
and SDI Acquisition Corporation, dated December 4, 1992
10.95(17) Loan and Security Agreement between Registrant and
Household Bank, f.s.b., dated December 11, 1992
10.96(17) Global Master Rental Agreement between Comdisco, Inc.
and Registrant, dated December 16, 1992
10.97(17) Amendment No. 1 to Lease between Devcon Associates 31
and Registrant, dated December 21, 1992
10.98(17) Continuing Guaranty among Maxtor Peripherals (S) Pte.,
Ltd., Barclays Bank PLC and Registrant, dated January
26, 1993
10.99(17) Amendment No. 2 to Lease between Devcon Associates 31
and Registrant, dated February 1, 1993
10.100(17)Instrument of Resignation, Appointment and Acceptance
among Registrant, The First National Bank of Boston and
Bank of America National Trust and Savings, dated as of
March 22, 1993
10.101(17)Waiver and First Amendment to Credit Agreement among
Registrant, Barclays Bank PLC and the First National
Bank of Boston, dated as of April 16, 1993
10.102(17)Waiver and First Amendment to Continuing Guaranty Among
Registrant, Barclays Bank PLC and the Lenders dated as
of April 19, 1993
10.103(17)Security Agreement between Registrant and Barclays Bank
PLC, dated April 16, 1993
10.104(17)Lease Agreement between Registrant and Pratt
Partnership, dated April 30, 1993
10.105(17)Agreement for Stock Transfer Services between
Registrant and The First National Bank of Boston, dated
May 6, 1993
10.106(17)Maxtor Corporation CY93 Profit Sharing Plan
10.107(17)Maxtor Corporation Management Incentive Plan for CY93
10.108(18)Production Agreement between International Business
Machines Corporation and Registrant, dated July 27,
1993 (with certain information deleted and indicated by
blackout text)
10.109(19)Letter of Intent between Registrant and Hyundai
Electronics Co., Ltd., dated August 18, 1993
10.110(20)Financing Agreement between Registrant and The CIT
Group/Business Credit, Inc., dated September 16, 1993
10.111(21)Form Letter Agreement between Registrant and All of Its
Named Executive Officers, except Laurence Hootnick,
dated November 17, 1993
10.112(21)Waiver to Financing Agreement among Registrant and The
CIT Group/Business Credit, Inc., dated January 12, 1994
10.113(21)Stock Purchase Agreement between Registrant and Hyundai
Electronics Industries Co., Ltd., Hyundai Heavy
Industries Co., Ltd., Hyundai Corporation, and Hyundai
Merchant Marine Co., Ltd., dated September 10, 1993
10.114(22)Confidential Resignation Agreement and General Release
of Claims between Registrant and Thomas F. Burniece
III, dated February 4, 1994
10.115(22)License Agreement between Registrant and MiniStor
Peripherals Corporation, dated February 23, 1994
10.116(22)Confidential Resignation Agreement and General Release
of Claims between Registrant and John P. Livingston,
dated April 8, 1994
10.117(22)Tenancy Agreement between Barinet Company Limited and
Maxtor (Hong Kong) Limited, dated April 26, 1994
10.118(23)Confidential Resignation Agreement and General Release
of Claims
between Registrant and Laurence R. Hootnick, dated June
14, 1994
10.119(23)Confidential Resignation Agreement and General Release
of Claims between Registrant and Mark Chandler, dated
June 28, 1994
10.120(24)Amendment No.2 to Lease between John Arrillaga &
Richard T. Peery and Registrant, dated June 28, 1994
10.121(24)Amendment No. 3 to Lease between Devcon Associates 31
and Registrant, dated June 28, 1994
10.122(24)Confidential Resignation Agreement and General Release
of Claims between Registrant and Skip Kilsdonk, dated
September 7, 1994
10.123(24)Confidential Resignation Agreement and General Release
of Claims between Registrant and Sallee Peterson, dated
September 23, 1994
10.124(24)Waiver to Financing Agreement among Registrant and The
CIT Group/Business Credit, Inc., dated October 11, 1994
10.125(24)Amendment No. 1 to Financing Agreement between
Registrant and The CIT Group/Business Credit, Inc.,
dated October 31, 1994
10.126(27)License agreement between Registrant and NEC
Corporation,dated October 18, 1994
10.127(27)Lease Agreement for Premises Located at 1821 Lefthand
Circle,Suite D, between Registrant and Pratt Land
Limited Liability Company, dated October 19, 1994
10.128(27)Lease Agreement for Premises Located at 1841 Lefthand
Circlebetween Registrant and Pratt Land Limited
Liability Company,dated October 19, 1994
10.129(27)Lease Agreement for Premises Located at 1851 Lefthand
Circle between Registrant and Pratt Land Limited
Liability Company, dated October 19, 1994
10.130(27)Lease Agreement for Premises Located at 2121 Miller
Drive between Registrant and Pratt Land Limited
Liability Company, dated October 19, 1994
10.131(27)Lease Agreement for Premises Located at 2190 Miller
Drive between Registrant and Pratt Land Limited
Liability Company, dated October 19, 1994
10.132(27)Confidential Resignation Agreement and General Release
of Claims between Registrant and Patricia M.
Roboostoff, dated November 30, 1994
10.133(27)Stock Purchase Agreement between Registrant, Maxoptix
Corporation and Kubota Electronics America Corporation,
dated December 26, 1994
10.134(28)Confidential Resignation Agreement and General Release
of Claims between Registrant and Larry J. Smart, dated
February 7, 1995
10.135(28)Lease Agreement by and between 345 Partnership and
Registrant,dated February 24, 1995
10.136(28)Lease Agreement for Premises Located at 1900 Pike Road,
Suite A Longmont, CO, between Registrant as Tenant and
Pratt Land Limited Liability Company as Landlord, dated
February 24, 1995
10.137(28)Lease Agreement for Premises Located at 2040 Miller
Drive Suite A, B, & C between Registrant as Tenant and
Pratt Land Limited Liability Company as Landlord, dated
February 24, 1995
10.138(28)Manufacturing and Purchase Agreement by and Between
Registrant and Hyundai Electronics Industries Co.,
Ltd., dated April 27, 1995(with certain information
deleted and indicated by blank spaces)
10.139(28)Lease Agreement for Premises Located at 2040 Miller
Drive, Suites D, E, & F, Longmont, CO, between
Registrant as Tenant and Pratt Management Company, LLC
as Landlord
10.140(29)Memorandum of Understanding concerning Guarantee by
Hyundai Electronics Co., Ltd. of Credit Facility for
Registrant, dated July 17, 1995
10.141(29)Waiver to Financing Agreement among Registrant and The
CIT Group/Business Credit, Inc., dated August 2, 1995
10.142(33)Credit Agreement among Registrant and The Initial
Lenders and the Issuing Bank and Citibank, N.A., dated
August 31, 1995
10.143(33)The Guaranty and Recourse Agreement among Registrant
and Hyundai Electronics Industries Co., Ltd., dated
August 31, 1995
10.144(33)Waiver to Financing Agreement among Registrant and the
CIT Group/Business Credit, Inc., and Assignment
Agreement among Registrant, the CIT Group/Business
Credit, Inc., and Finova Capital Corporation, dated
October 11, 1995.
10.145(33)Amendment to the Financing Agreement among Registrant
and the CIT Group/Business Credit, Inc., dated October
17, 1995
10.146(34)First Supplemental Indenture, dated as of January 11,
1996, between Maxtor and State Street Bank and Trust
Company
10.147(34)Credit Agreement, dated as of December 29, 1995 between
Maxtor Corporation and Hyundai Electronics
America
10.148(25)Maxtor Corporation 1995 Stock Option Plan
10.149(26)Maxtor Corporation Individual Stock Option Agreement,
dated November 8, 1994
10.150(30)Maxtor Corporation 1992 Employee Stock Purchase Plan
and 1996 Outside Directors Stock Option Plan, dated
October 9, 1995
10.151(36)Maxtor Corporation 1996 Stock Option Plan**
10.152(36)Intercompany Loan Agreement, dated as of April 10,
1996, between Maxtor Corporation and Hyundai
Electronics America
10.153(36)Excerpts from the Execution Copy of Receivables
Purchase and Sale Agreement, dated as of March 30,
1996, between Maxtor Corporation and Corporate
Receivables Corporation and Citicorp North America,
Incorporated
10.154(35)Recapitalization Agreement among the Company,
International Manufacturing Services, Incorporated and
certain investors, dated as of May 21, 1996
10.155(35)Redemption Agreement between Maxtor Corporation and
International Manufacturing Services, Incorporated,
dated as of May 21, 1996
10.156(35)Manufacturing Services Agreement between Maxtor
Corporation and International Manufacturing Services,
Incorporated, dated June 13, 1996*
10.157(37)Credit Facility, dated as of July 31, 1996, between
Maxtor Corporation and Hyundai Electronics America
10.158(38)364-Day Credit Agreement, dated August 29, 1996, among
Maxtor Corporation, Citibank, N.A., and Syndicate Banks
10.159(38)Credit Agreement, dated August 29, 1996, among Maxtor
Corporation, Citibank, N.A., and Syndicate Banks
10.160 Employment Agreement between Michael R. Cannon and
Registrant, dated June 17, 1996**
65 - 66
10.161 Employment Agreement between Paul J. Tufano and
Registrant, dated July 12, 1996**
67 - 68
10.162 Employment Agreement between William Roach and
Registrant, dated December 13, 1996**
69 - 73
23.1 Consent of Independent Accountants 74 - 76
27 Financial Data Schedule 77 - 78
*
Confidential treatment has been requested for portions
of this document
**
Management contract or compensatory plan or arrangement
- -----------------------------------------------------------------
(1) Incorporated by reference to exhibits to Registration
Statement No. 2-98568 effective August 7, 1985
(2) Incorporated by reference to exhibits to Registration
Statement No. 33-4092 effective April 2, 1986
(3) Incorporated by reference to exhibits to Registration
Statement No. 33-12123 effective February 26, 1987
(4) Incorporated by reference to exhibits to Registration
Statement No. 33-12768 effective April 23, 1987
(5) Incorporated by reference to exhibits to Registration
Statement No. 33-43172 effective October 7, 1992
(6) Incorporated by reference to exhibits to Registration
Statement No. 33-8607 effective September 10, 1986
(7) Incorporated by reference to exhibits of Form 8-K filed
February 8, 1988
(8) Incorporated by reference to exhibits to Annual Report on
Form 10-K effective June 24, 1988
(9) Incorporated by reference to exhibits to Annual Report on
Form 10-K effective June 24, 1989
(10)Incorporated by reference to exhibits to Annual Report on
Form 10-K effective June 1, 1990
(11)Incorporated by reference to exhibits of Form 8-K filed July
13, 1990
(12)Incorporated by reference to exhibits of Form 8 filed
November 13, 1990
(13)Incorporated by reference to exhibits of Form 8 filed
January 8, 1991
(14)Incorporated by reference to exhibits to Annual Report on
Form 10-K effective July 15, 1991
(15)Incorporated by reference to exhibits to Annual Report on
Form 10-K effective June 25, 1992
(16)Incorporated by reference to exhibits of Form 8-K filed
January 8, 1993
(17)Incorporated by reference to exhibits to Annual Report on
Form 10-K effective May 27, 1993
(18)Incorporated by reference to exhibits of Form 10-Q filed
August 10, 1993
(19)Incorporated by reference to exhibits of Form 8-K filed
August 19, 1993
(20)Incorporated by reference to exhibits of Form 10-Q filed
November 8, 1993
(21)Incorporated by reference to exhibits of Form 10-Q filed
February 7, 1994
(22)Incorporated by reference to exhibits of Form 10-K filed
June 24, 1994
(23)Incorporated by reference to exhibits of Form 10-Q filed
August 5, 1994
(24)Incorporated by reference to exhibits of Form 10-Q filed
November 8, 1994
(25) Incorporated by reference to exhibits to Registration
Statement No. 33-56405 effective November 10, 1994
(26) Incorporated by reference to exhibits to Registration
Statement No. 33-56407 effective November 10, 1994
(27)Incorporated by reference to exhibits of Form 10-Q filed
February 7, 1995
(28)Incorporated by reference to exhibits to Annual Report on
Form 10-K effective June 23, 1995
(29)Incorporated by reference to exhibits of Form 10-Q filed
August 14, 1995
(30)Incorporated by reference to exhibits to Registration
Statement No. 33-63295 effective October 10, 1995
(31)Incorporated by reference to exhibit III of Schedule 14D-9
filed November 9, 1995
(32) Incorporated by reference to exhibit VI of schedule 14D-9
filed November 9, 1995
(33)Incorporated by reference to exhibits of Form 10-Q filed
November 14, 1996
(34)Incorporated by reference to exhibits of Form 10-Q filed
February 14, 1996
(35)Incorporated by reference to exhibits of Form 8-K filed June
28, 1996
(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
August 13, 1996
(38)Incorporated by reference to exhibits of Form 8-K filed
September 13, 1996
June 17, 1996
Mr. Michael Cannon
Dear Michael,
Maxtor Corporation is pleased to offer you the position of
President and Chief Executive Officer, reporting to Dr. C.S.
Park, Vice Chairman, and the Board of Directors. Your salary
will be $500,000 per annum. In addition Maxtor Corporation will
give you a $1,000,000 sign-on bonus to be paid over time:
$250,000 to be paid on the last day of June, 1996; $250,000 to be
paid on the last day of December, 1996; $250,000 to be paid on
the last day of June, 1997; and $250,000 to be paid on the last
day of December, 1997. These bonuses are subject to applicable
taxes at the time of payment.
Maxtor provides its employees with generous health and other
benefits, including medical, dental, life and long-term
disability insurances, four weeks personal time off, ten paid
holidays and a 401(k) program and quarterly profit sharing based
on financial performance.
You will be eligible for a management incentive bonus which will
be 50% of your base salary and which will be paid out quarterly
based on predetermined performance goals for both corporate
measures and individual measures. In addition, contingent upon
the approval of the Board of Directors of Maxtor, you will be
eligible to receive 900,000 options in our new stock option
program. Details of the program will be provided to you at the
time of the approval of your stock option award.
By signing and accepting this offer, you agree to forfeit the
unpaid portion of the sign-on bonus if you voluntarily resign
from your employment at Maxtor prior to the last day of December,
1997. If your employment is involuntarily terminated without
cause, you will receive a severance package equivalent to one
year's base salary in addition to the remaining unpaid portion of
the above mentioned sign-on bonus.
Moreover, in compliance with federal immigration law, you will be
required to provide documentary evidence of your identity and
eligibility for employment in the United States. Such
documentation must be provided within three (3) business days of
your date of hire. In addition, as a condition of your employment
with Maxtor, it will be necessary for you to complete, sign and
return with this offer of employment, the attached Maxtor
Employee Agreement Regarding Confidentiality and Inventions.
This offer of employment is contingent upon your agreeing to, and
passing, a drug screening analysis. You may contact Doctors on
Duty at (408) 942-0333 to make arrangements.
Also, it is customary with Maxtor employees that you will not
have an employment contract, and either you or Maxtor can
terminate the employment relationship with or without cause at
any time.
Michael, we at Maxtor look forward to having you as a team member
and are confident that you will make significant contributions to
the company's future. Please sign below signifying your
acceptance of this position and return this letter to the Human
Resources Department by June 24, 1996.
Please plan on attending new employee orientation at 211 River
Oaks Parkway in the HR conference room, at 9:00 a.m. on the
Monday you begin employment.
Sincerely,
/s/ C.S. Park
Dr. C.S. Park
Vice Chairman
Accepted:/s/ Michael R. Cannon
Date:June 18, 1996
Expected Start Date: July 1, 1996
July 12, 1996
Mr. Paul J. Tufano
2895 Cottle Avenue
San Jose, CA 95125
Dear Paul,
Maxtor Corporation is pleased to offer you the position of Vice
President, Finance and Chief Financial Officer, reporting to
Michael R. Cannon, President and Chief Executive Officer. Your
salary will be $230,000 per annum. In addition Maxtor
Corporation will give you a $100,000 sign-on bonus to be paid
over time: $50,000 to be paid out the first week of employment;
$50,000 to be paid out six months from your date of hire. These
bonuses are subject to applicable taxes at the time of payment.
Maxtor provides its employees with generous health and other
benefits, including medical, dental, life and long-term
disability insurances, four weeks personal time off, ten paid
holidays and a 401(k) program and quarterly profit sharing based
on financial performance.
You will be eligible for a management incentive bonus which will
be 50% of your base salary and which will be paid out quarterly
based on predetermined performance goals for both corporate
measures and individual measures. In addition, contingent upon
the approval of the Board of Directors of Maxtor, you will be
eligible to receive 100,000 options in our new stock option
program. Details of the program will be provided to you at the
time of the approval of your stock option award.
By signing and accepting this offer, you agree to repay your sign-
on bonus on a daily prorated basis if you voluntarily resign from
your employment at Maxtor within one year of your date of hire.
If your employment is involuntarily terminated without cause, you
will receive a severance package equivalent to nine month's base
salary in addition to the remaining unpaid portion of the above
mentioned sign-on bonus.
Moreover, in compliance with federal immigration law, you will be
required to provide documentary evidence of your identity and
eligibility for employment in the United States. Such
documentation must be provided within three (3) business days of
your date of hire. In addition, as a condition of your employment
with Maxtor, it will be necessary for you to complete, sign and
return with this offer of employment, the attached Maxtor
Employee Agreement Regarding Confidentiality and Inventions.
This offer of employment is contingent upon your agreeing to, and
passing, a drug screening analysis. You may contact Doctors on
Duty at (408) 942-0333 to make arrangements.
Also, it is customary with Maxtor employees that you will not
have an employment contract, and either you or Maxtor can
terminate the employment relationship with or without cause at
any time.
Paul, we at Maxtor look forward to having you as a team member
and are confident that you will make significant contributions to
the company's future. Please sign below signifying your
acceptance of this position and return this letter to the Human
Resources Department by July 19, 1996. Please plan on attending
new employee orientation at 510 Cottonwood Drive in the HR
conference room, at 9:00 a.m. on the Monday you begin employment.
Sincerely,
\s\ Michael R. Cannon
Michael R. Cannon
President and Chief Executive Officer
Accepted:\s\ Paul J. Tufano
Date: July 15, 1996
Expected Start Date: July 29, 1996
December 13, 1996
Mr. William Roach
650 Manresa Lane
Los Altos, CA 94022
Dear Bill,
Maxtor Corporation is pleased to offer you the position of Senior
Vice President, Worldwide Sales and Marketing reporting to Mike
Cannon. Your salary will be $29,166.66 per month, equivalent to
$350,000.00 on an annual basis. In addition, Maxtor Corporation
will give you a $350,000.00 forgivable loan which will be paid
out in your first month of employment. By signing and accepting
this offer, you agree to repay the forgivable loan on a daily
prorated basis if you voluntarily resign from your employment at
Maxtor within three years of your hire date.
Maxtor provides its employees with generous health and other
benefits, including medical, dental, life and long-term
disability insurance, four weeks personal time off, ten paid
holidays and a 401(k) program. Maxtor will also provide
supplemental payments or conversion to Maxtor's insurance
provider for your additional medical coverage requirements.
Your target bonus opportunity will be 50% of your base salary
with an opportunity to earn up to 100% based on the achievement
of Maxtor's corporate financial objectives. Your 50% target bonus
will be guaranteed for the first year of your employment.
Conditions and provisions of the plan will be communicated to you
early next year.
In addition, contingent upon the approval of the Board of
Directors of Maxtor, you will be eligible to receive 250,000
shares in our new stock option program. Details of the program
will be provided to you at the time of the approval of your stock
option award.
Moreover, in compliance with federal immigration law, you will be
required to provide documentary evidence of your identity and
eligibility for employment in the United States. Such
documentation must be provided within three (3) business days of
your date of hire. In addition, as a condition of your employment
with Maxtor, it will be necessary for you to complete, sign and
return with this offer of employment, the attached Maxtor
Employee Agreement Regarding Confidentiality and Inventions.
This offer of employment is contingent upon your agreeing to, and
passing, a drug screening analysis. Please contact Doctors on
Duty at (408) 942-0333 to make arrangements within three days of
this offer.
Also, it is customary with Maxtor employees that you will not
have an employment contract, and either you or Maxtor can
terminate the employment relationship with or without cause at
any time. Job responsibilities, compensation, and other
conditions of employment may be subject to change based on
company operating conditions.
Bill, we at Maxtor look forward to having you as a team member
and are confident that you will make significant contributions to
the company's future. Please sign below signifying your
acceptance of this position and return this letter to the Human
Resources Department by December 18, 1996.
Please plan on attending new employee orientation at 510
Cottonwood Drive in the HR conference room, at 9:00 a.m. on the
Monday you begin employment.
Sincerely,
/s/ Michael R. Cannon
Michael R. Cannon
President and CEO
Accepted:/s/ William Roach
Date: December 13, 1996
Expected Start Date: January 2, 1997
Loan Agreement
THIS LOAN AGREEMENT (the "Agreement"), dated as of January
10, 1997, is made by and between Maxtor Corporation, a Delaware
corporation ("Maxtor") and William Roach ("Roach").
1. General. Maxtor is willing to loan to Roach $350,000
(Three Hundred Fifty Thousand Dollars) (the "Loan Amount") as set
forth in Maxtor's offer of employment to Roach dated December 13,
1996 and on terms provided herein.
2. Note. The Loan shall be evidenced by a promissory note
(the "Note") in the form attached hereto as Exhibit A.
3. Repayment. The Note shall be due and payable as
follows:
(a) Provided that Roach remains an employee of Maxtor,
the Loan Amount shall be due and payable in three equal annual
installments, each due on the second day of January, commencing
January 2, 1998, with the third and final payment due January 2,
2000 (the "Due Date") in accordance with the following schedule:
No. Installment Installment Due
Amount Date
1. $166,667.00 January 2, 1998
2. 166,667.00 January 2, 1999
3. 166,666.00 January 2, 2000
(b) In the event that Roach's employment terminates as
a result of his voluntary resignation prior to the Due Date, the
Note shall be immediately due and payable. The balance due upon
such voluntary termination shall be the Loan Amount less an
amount, calculated on a daily prorated basis, equivalent to the
ratio of the term of Roach's employment to the term of the Note.
(c) In the event that Maxtor terminates Roach's
employment for any reason other than willful misconduct of a
culpable nature, the balance then due shall be forgiven.
4. Loan Forgiveness. Provided that Roach remains an
employee of Maxtor on the Installment Due Dates set forth in
Paragraph 2(a), above, Maxtor shall forgive the Installment
Amount due on each such Installment Due Date.
5. Taxes. Roach shall be solely responsible for payment
of all state and federal tax obligations which he may incur as a
result of income reported by Maxtor in connection with this
Agreement.
6. Approval. The execution and delivery of this Agreement
was approved by the Compensation Committee of Maxtor's Board of
Directors as of December 13, 1996.
7. Employment at Will. This Agreement shall not be
construed as an employment agreement or a guarantee of continuing
employment. Subject to the other provisions of this Agreement,
each party shall remain free to terminate their employment
relationship at any time for any reason or for no reason.
8. Authorization to Withhold Amounts Due. Roach hereby
irrevocably authorizes Maxtor or its assignee to withhold and
deduct from any amounts payable by Maxtor to Roach (including
without limitation, salary, incentive payments or other funds)
any and all amounts which Roach may be obligated to pay under
this Agreement.
9. Miscellaneous. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter
hereof and supersedes all prior negotiations and agreements,
whether written or oral. This Agreement may not be altered or
limited except by a signed instrument expressly referring to this
Agreement and to the provision to be altered. No failure by
Maxtor to insist on strict compliance with any terms hereof shall
prevent its insistence on compliance thereafter. If any term of
this Agreement is determined to be invalid, unlawful or
unenforceable, the validity of the other terms shall be
unaffected and the Agreement construed to the maximum extent
possible consistent with its original intent.
This Agreement has been executed in and shall be construed
in accordance with the laws of the State of California.
MAXTOR CORPORATION ROACH
By /s/ Phillip C. Duncan /s/ William Roach
Name Phillip C. Duncan William Roach
Title Vice President, Human Resources
EXHIBIT A
PROMISSORY NOTE
$350,000.00 January 10, 1997
San Jose, California
FOR VALUE RECEIVED, William Roach, an individual ("Maker"),
promises to pay to the order of Maxtor Corporation, a Delaware
corporation ("Holder" or "Maxtor"), at such place as the Holder
of this Note may from time to time designate in writing, the
principal sum of Three Hundred Fifty Thousand Dollars
($350,000.00).
This Note shall be due and payable in accordance the terms
of the Loan Agreement between Maker and Maxtor, dated as of
January 10, 1997 (the "Loan Agreement").
The principal hereunder shall bear no interest provided that
such principal is reduced in accordance with the terms of the
Loan Agreement, after which time any unpaid principal amount due
shall bear interest at the minimum federal interest rate then in
effect.
If this Note is not paid when due, Holder shall have the
right to offset its obligation to make any payment to Maker
against any amounts due and owing by Maker hereunder. The
principal amount of the Note shall be reduced by the amount of
such offset and interest shall cease accruing on such amount.
Maker agrees to pay the costs and expenses incurred by
Holder, including reasonable attorneys' fees, which may be
incurred in connection with the collection of this Note.
This Note shall be governed by and construed under the laws
of the State of California.
/s/ William Roach
William Roach
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Maxtor Corporation on Form S-8 (File No. 33-08181)
of our report dated February 21, 1997 on our audit of the
consolidated financial statements and financial statement
schedule of Maxtor Corporation as of December 28, 1996 and for
the nine month period then ended, which report is included in
this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
San Jose, California
March 24, 1997
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-08181) pertaining to the Maxtor
Corporation 1996 Stock Option Plan of Maxtor Corporation (a
wholly-owned subsidiary of Hyundai Electronics America) of our
report dated April 25, 1996 with respect to the consolidated
financial statements and schedule of Maxtor Corporation (a wholly-
owned subsidiary of Hyundai Electronics America) for each of the
two fiscal years in the period ended March 30, 1996 included in
the Annual Report (Form 10-K) for the year ended
December 28, 1996.
ERNST & YOUNG LLP
San Jose, California
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 31,313
<SECURITIES> 0
<RECEIVABLES> 94,379
<ALLOWANCES> 5,255
<INVENTORY> 80,878
<CURRENT-ASSETS> 206,554
<PP&E> 250,151
<DEPRECIATION> 158,078
<TOTAL-ASSETS> 314,539
<CURRENT-LIABILITIES> 412,893
<BONDS> 100,000
0
582
<COMMON> 0
<OTHER-SE> (328,045)<F1>
<TOTAL-LIABILITY-AND-EQUITY> 314,539
<SALES> 798,884
<TOTAL-REVENUES> 798,884
<CGS> 888,858
<TOTAL-COSTS> 888,858
<OTHER-EXPENSES> 148,453<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,075
<INCOME-PRETAX> (255,502)
<INCOME-TAX> 824
<INCOME-CONTINUING> (256,326)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (256,326)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Other SE includes Additional Paid in Capital of $335,017 and Accumulated
Deficit of $663,062
<F2>Other expenses include Research & Development expenses of $87,752 and
Selling, General and Administrative expenses of $60,701
</FN>
</TABLE>
