<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JULY 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER: 0-14016
MAXTOR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 77-0123732
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
510 COTTONWOOD DRIVE, MILPITAS, CA 95035
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 432-1700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON STOCK, PAR
VALUE $.01 PER SHARE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
5.75% 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 [ ]
The aggregate market value of the registrant's common stock, $.01 par value
per share, held by nonaffiliates of the registrant was $681,317,766 on August 7,
2000 (based on the closing sales price of the registrant's common stock on that
date). Shares of the registrant's common stock held by each officer and director
and each person who owns more than 5% or more of the outstanding common stock of
the registrant have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily conclusive
determination for other purposes.
As of August 7, 2000, 113,552,961 shares of the registrant's Common Stock,
$.01 par value, were issued and outstanding.
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<PAGE> 2
MAXTOR CORPORATION
FORM 10-Q
APRIL 1, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements................. 1
Condensed Consolidated Balance Sheets --
July 1, 2000, and January 1, 2000......................... 1
Condensed Consolidated Statements of Operations --
Three months and six months ended July 1, 2000, and July
3, 1999................................................... 2
Condensed Consolidated Statements of Cash Flows --
Six months ended July 1, 2000, and July 3, 1999........... 3
Notes to Condensed Consolidated Financial Statements........ 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 23
Item 2. Changes in Securities and Use of Proceeds................... 24
Item 4. Submission of Matters to a Vote of Security Holders......... 24
Item 6. Exhibits and Reports on Form 8-K............................ 25
Signature Page....................................................... 26
</TABLE>
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MAXTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JULY 1, JANUARY 1,
2000 2000
----------- ----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 221,064 $ 240,357
Marketable securities..................................... 172,280 113,565
Accounts receivable, net of allowance for doubtful
accounts of $20,937 at July 1, 2000 and $15,459 at
January 1, 2000........................................ 248,247 231,616
Inventories, net.......................................... 98,683 103,854
Prepaid expenses and other................................ 20,499 12,338
---------- ----------
Total current assets.............................. 760,773 701,730
Property, plant and equipment, net.......................... 135,827 132,089
Goodwill and other intangible assets, net................... 50,075 55,107
Other assets................................................ 15,844 17,409
---------- ----------
Total assets...................................... $ 962,519 $ 906,335
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings, including current portion of
long-term debt......................................... $ 10,767 $ 5,000
Accounts payable.......................................... 388,558 404,874
Accrued and other liabilities............................. 149,344 127,321
---------- ----------
Total current liabilities......................... 548,669 537,195
Long-term debt.............................................. 101,920 113,770
---------- ----------
Total Liabilities................................. 650,589 650,965
Common Stock, $0.01 par value, 250,000,000 shares
authorized; 115,142,620 shares issued and outstanding at
July 1, 2000 and 113,428,924 shares issued and outstanding
at January 1, 2000........................................ 1,135 1,119
Additional paid-in capital.................................. 1,054,849 1,043,964
Accumulated deficit......................................... (751,138) (791,928)
Cummulative other comprehensive income -- unrealized gain on
investments in equity securities.......................... 7,084 2,215
---------- ----------
Total stockholders' equity........................ 311,930 255,370
---------- ----------
Total liabilities and stockholders' equity........ $ 962,519 $ 906,335
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE> 4
MAXTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
JULY 1, 2000 JULY 3, 1999 JULY 1, 2000 JULY 3, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenue...................... $ 667,074 $ 524,588 $ 1,358,360 $ 1,206,178
Total cost of revenue.............. 567,757 508,251 1,150,213 1,103,428
------------ ------------ ------------ ------------
Gross profit..................... 99,317 16,337 208,147 102,750
Operating expenses:
Research and development......... 61,198 48,901 116,560 96,174
Selling, general and
administrative................ 26,677 22,515 51,995 42,867
Amortization of goodwill and
other intangible assets....... 2,520 -- 5,040 --
------------ ------------ ------------ ------------
Total operating
expenses............... 90,395 71,416 173,595 139,041
------------ ------------ ------------ ------------
Income (loss) from operations...... 8,922 (55,079) 34,552 (36,291)
Interest expense................... (3,107) (2,941) (6,970) (6,621)
Interest and other income.......... 8,068 3,523 15,355 8,420
Gain on sale of investments........ -- 22,125 -- 22,125
------------ ------------ ------------ ------------
Income (loss) before provision for
income taxes..................... 13,883 (32,372) 42,937 (12,367)
Provision for (benefit from) income
taxes............................ 694 (1,500) 2,147 1,500
------------ ------------ ------------ ------------
Net income (loss).................. 13,189 (30,872) 40,790 (13,867)
Other comprehensive income (loss):
Unrealized gain on investments in
equity securities............. 18 -- 4,869 --
Unrealized gain on investments
arising during period......... -- 8,028 -- 16,644
Less: reclassification adjustment
for gain included in net
loss.......................... -- (22,125) -- (22,125)
------------ ------------ ------------ ------------
Comprehensive income (loss)........ $ 13,207 $ (44,969) $ 45,659 $ (19,348)
============ ============ ============ ============
Net income (loss) per share
-- basic...................... $ 0.11 $ (0.30) $ 0.36 $ (0.14)
-- diluted.................... $ 0.11 $ (0.30) $ 0.34 $ (0.14)
Shares used in per share
calculation
-- basic...................... 114,981,276 103,046,181 114,505,628 100,979,476
-- diluted.................... 120,820,584 103,046,181 119,428,895 100,979,476
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 5
MAXTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JULY 1, 2000 JULY 3, 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 40,790 $(13,867)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 39,441 37,665
Amortization of goodwill and other intangible assets...... 5,040 --
Stock compensation expense................................ 2,769 1,697
Loss (gain) on sale of investment......................... -- (22,125)
Loss (gain) on disposal of property, plant and
equipment.............................................. 348 (1,565)
Change in assets and liabilities:
Accounts receivable.................................... (16,631) 104,802
Inventories............................................ 5,171 (24,671)
Other assets........................................... (3,124) 1,466
Accounts payable....................................... (16,324) 17,291
Accrued and other liabilities.......................... 21,724 (17,180)
--------- --------
Net cash provided by operating activities......... 79,204 83,513
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment................ 106 --
Purchase of property, plant and equipment................... (43,633) (79,693)
Purchase of marketable securities........................... (58,715) (87,022)
Proceeds from sale of investments, net...................... -- 22,090
Other....................................................... -- (192)
--------- --------
Net cash used in investing activities............. (102,242) (144,817)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt, including short-term
borrowings................................................ (4,387) (55,280)
Proceeds from issuance of common stock from public offering,
employee stock purchase plan and stock options
exercised................................................. 8,132 100,743
--------- --------
Net cash provided by financing activities......... 3,745 45,463
--------- --------
Net change in cash and cash equivalents..................... (19,293) (15,841)
Cash and cash equivalents at beginning of period............ 240,357 214,126
--------- --------
Cash and cash equivalents at end of period.................. $ 221,064 $198,285
========= ========
Schedule of Non-Cash Investing and Financing Activities:
Decrease in receivable from affiliates.................... $ -- $ (1,675)
Retirement of debt in exchange for bond redemption........ $ 5,000 $ 5,000
Increase (decrease) in unrealized gain on investments in
equity securities...................................... $ 4,869 $ (5,481)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 6
MAXTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The consolidated
financial statements include the accounts of Maxtor Corporation ("Maxtor" or the
"Company") and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. All adjustments of a normal
recurring nature which, in the opinion of management, are necessary for a fair
statement of the results for the interim periods have been made. It is
recommended that the interim financial statements be read in conjunction with
the Company's audited consolidated financial statements and notes thereto for
the fiscal year ended January 1, 2000 incorporated in the Company's annual
report on Form 10-K. Interim results are not necessarily indicative of the
operating results expected for later quarters or the full fiscal year.
2. INVENTORIES
<TABLE>
<CAPTION>
JULY 1, 2000 JANUARY 1, 2000
------------ ---------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Inventories, net comprised:
Raw materials................................... $29,537 $ 29,027
Work-in-process................................. 3,694 2,302
Finished goods.................................. 65,452 72,525
------- --------
$98,683 $103,854
======= ========
</TABLE>
3. STOCKHOLDERS' EQUITY
In May 2000, the Company's stockholders approved an increase in the maximum
number of shares issuable under the Company's Amended and Restated 1996 Stock
Option Plan (the "Option Plan"), from 17,475,685 to an aggregate total of
22,975,685 shares.
In May 2000, the Company's stockholders approved an increase in the maximum
number of shares issuable under the Company's 1998 Stock Purchase Plan (the
"Purchase Plan"), from 2,400,000 to an aggregate total of 4,500,000 shares.
4. ACQUISITION OF CREATIVE DESIGN SOLUTIONS, INC.
In September 1999, the Company acquired all the outstanding stock of
Creative Design Solutions, Inc. ("CDS"), in exchange for a total of 8,130,682
shares of our common stock and assumption of outstanding CDS stock options for
an aggregate purchase price of approximately $57.6 million, including
acquisition expenses.
The acquisition was accounted for using the purchase method of accounting,
and accordingly, the recognized purchase price has been allocated to the
tangible and identifiable intangible assets acquired and liabilities assumed on
the basis of their fair values on the acquisition date of September 10, 1999.
Approximately $2.7 million of the aggregate recognized purchase price was
allocated to net tangible assets consisting primarily of cash, accounts
receivable, inventory, prepaids, and property, plant and equipment, and $10.42
million to short-term borrowings, accounts payable, accrued liabilities and
deferred revenue. The historical carrying amounts of such net assets
approximated their fair values. Approximately $7 million was allocated to
acquired in-process technology and was immediately charged to operations at the
acquisition date because it had no alternative future use. Approximately $10.3
million was allocated to current products and
4
<PAGE> 7
MAXTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
technology, workforce and customer list, which are being amortized over their
estimated useful lives ranging from 1 to 7 years. The purchase price in excess
of the fair value of identified tangible and intangible assets and liabilities
assumed in the amount of $48.1 million was allocated to goodwill and is being
amortized over its estimated useful life of 7 years. The Company will evaluate
the periods of amortization continually to determine whether later events and
circumstances warrant revised estimates of useful lives.
The following unaudited pro forma consolidated amounts give effect to the
acquisition of CDS as if it had occurred on December 27, 1998 by consolidating
the results of operations of CDS with the results of the Company for the three
and six months ended July 1, 2000 and July 3, 1999, respectively (in thousands,
except share and per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue................... $ 667,074 $ 524,694 $ 1,358,360 $ 1,206,365
Net income (loss)......... $ 13,189 $ (38,603) $ 33,790 $ (35,748)
Net income per share:
Basic................... $ 0.11 $ (0.34) $ 0.30 $ (0.33)
Diluted................. $ 0.11 $ (0.34) $ 0.28 $ (0.33)
Shares used in per share
calculation:
Basic................... 114,981,276 112,697,101 114,505,628 109,870,277
Diluted................. 120,820,584 112,697,101 119,428,895 109,870,277
</TABLE>
The above unaudited pro forma consolidated amounts are not necessarily
indicative of the actual results of operations that would have been reported if
the event described above had occurred as of the beginning of the periods
described above, nor does such information purport to indicate the results of
the Company's future operations. In the opinion of management, all adjustments
necessary to present fairly such pro forma amounts have been made.
5
<PAGE> 8
MAXTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. NET INCOME (LOSS) PER SHARE
In accordance with the disclosure requirements of Statements of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share" a reconciliation of
the numerator and denominator of the basic and diluted net income per share
calculations is provided as follows (in thousands, except share and per share
amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NUMERATOR -- BASIC AND
DILUTED
Net income (loss).......... $ 13,189 $ (30,872) $ 40,790 $ (13,867)
============ ============ ============ ============
Net income available to
common stockholders...... $ 13,189 $ (30,872) $ 40,790 $ (13,867)
============ ============ ============ ============
DENOMINATOR
Basic weighted average
common shares
outstanding.............. 114,981,276 103,046,181 114,505,628 100,979,476
Effect of dilutive
securities:
Common stock options..... 5,839,308 -- 4,923,268 --
------------ ------------ ------------ ------------
Diluted weighted average
common shares............ 120,820,584 103,046,181 119,428,895 100,979,476
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE
Basic.................... $ 0.11 $ (0.30) $ 0.36 $ (0.14)
============ ============ ============ ============
Diluted.................. $ 0.11 $ (0.30) $ 0.34 $ (0.14)
============ ============ ============ ============
</TABLE>
6. SEGMENT REPORTING
The Company has determined that it has a single reportable segment
consisting of the design, manufacture and sale of data storage products for
desktop computer and network storage systems used in heterogeneous computing
environments. The Company uses one measurement of profitability and does not
disaggregate its business for internal reporting. The Company has a worldwide
sales, service and distribution network. Products are marketed and sold through
a direct sales force to OEMs, distributors and retailers in the United States,
Europe and Asia Pacific.
6
<PAGE> 9
MAXTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Operations outside the United States primarily consist of the manufacturing
plants in Singapore that produce subassemblies and final assemblies for the
Company's disk drive products. Revenue by ship-to destination and long-lived
asset information by geographic area for the three and six months ended July 1,
2000 and July 3, 1999 is presented in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- ------------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
(in thousands)
Revenue:
United States................ $291,893 $282,833 $ 600,225 $ 645,272
Asia Pacific................. 208,559 111,391 398,836 233,164
Europe....................... 143,782 129,177 305,092 326,468
Latin America and other...... 22,840 1,187 54,207 1,274
-------- -------- ---------- ----------
Total.............. $667,074 $524,588 $1,358,360 $1,206,178
======== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JULY 1, JANUARY 1,
2000 2000
-------- ----------
<S> <C> <C> <C> <C>
(in thousands)
Long-lived assets:
United States................. $ 57,211 $ 53,700
Asia Pacific.................. 77,663 77,833
Europe........................ 952 557
Latin America and other....... 0 0
-------- --------
Total............... $135,826 $132,090
======== ========
</TABLE>
7. CONTINGENCIES
The Company currently is involved in a dispute with StorMedia Incorporated
("StorMedia"), which arises out of an agreement among the Company, StorMedia and
Hyundai Electronics Industries Co. Ltd. (HEI) which became effective on November
17, 1995. In that agreement, StorMedia agreed to supply disk media to the
Company. StorMedia's disk media did not meet the Company's specifications and
functional requirements as required by the agreement and the Company ultimately
terminated the agreement.
On September 18, 1996 a class action securities lawsuit was filed against
StorMedia and certain of its officers in Superior Court of the State of
California, County of Santa Clara. Among the allegations against StorMedia was
the assertion that it failed to perform under a November 17, 1995 Purchase
Agreement ("Agreement") with the Company and that StorMedia's failure to sue the
Company for breach of the Agreement was evidence that StorMedia had breached the
Agreement. (A concurrent class action was later filed in the U.S. District Court
for the Northern District of California by the same parties.)
On September 25, 1996, StorMedia commenced an action in the U.S. District
Court for the Northern District of California entitled, StorMedia Incorporated
v. Hyundai Electronics Industries Co., Ltd., et al., U.S. District Court,
Northern District, No. C-96 20805 RMW (EAI) (the "Federal Action"), against
Hyundai Electronics Industries Co., Ltd. ("HEI") -- a shareholder of one of the
Company's shareholders -- which also signed the Agreement. StorMedia also sued
M.H. Chung, then HEI's chairman; K.S. Yoo, the individual who signed the
Agreement on behalf of HEI; and Dr. C.S. Park, the individual who signed the
Agreement on behalf of the Company. StorMedia, however, did not sue the Company.
StorMedia filed an Amended Complaint on February 14, 1997 in the Federal
Action. The Amended Complaint alleged Fraud and Deceit (against all Defendants);
Negligent Misrepresentation (against all
7
<PAGE> 10
MAXTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Defendants); Breach of Contract (against HEI); Breach of Contract -- Covenant
Not to Compete (against HEI); Breach of the Implied Covenant of Good Faith and
Fair Dealing (against HEI); and Unlawful, Unfair or Fraudulent Business
Practices (Against HEI). StorMedia alleged that HEI entered into a volume
purchase agreement with StorMedia pursuant to which HEI and the Company
committed to purchase rigid discs for use in the Company's drives. StorMedia
contends that at the time HEI entered the Agreement, HEI knew that it could not
and would not purchase the volume of products that it committed to purchase.
StorMedia further contends that HEI entered into the contract in order to secure
a source of components for the Company only long enough for HEI to develop its
own internal disc manufacturing capacity and that it and the other defendants
never intended to fully perform the Agreement. StorMedia sought damages in
excess of $206 million dollars, punitive damages, injunctive relief, attorneys'
fees, pre-judgment and post-judgment interest, and costs.
On December 20, 1996, the Company filed a complaint in Colorado state court
(the "Colorado Court") entitled Maxtor Corporation v. StorMedia Inc. et al.,
District Court, County of Boulder, Colorado, No. 96 CV 161 ("Colorado Action"),
against StorMedia Incorporated, StorMedia International Ltd., and William J.
Almon, StorMedia's CEO. The complaint alleges Breach of Contract (against all
Defendants except Almon), Breach of the Implied Warranty of Fitness (against all
Defendants except Almon), Breach of the Implied Warranty of Merchantability
(against all Defendants except Almon), Fraud (against all Defendants), and
Negligent Misrepresentation (against all Defendants). The Company seeks damages
in excess of $100 million dollars, punitive damages, reasonable attorneys' fees,
and costs. In March, 1997, the Colorado Action was stayed.
On October 24, 1997, the Company filed a Motion to Intervene in the Federal
Action. HEI moved to dismiss the action for failure to join the Company as a
party. On February 18, 1998, the U.S. District dismissed the Federal Action in
its entirety. Accordingly, on February 20, 1998, the Company filed a Motion for
Relief from Stay in the Colorado Action. On February 24, 1998, the Company was
served with a new complaint by StorMedia entitled StorMedia, Inc. and StorMedia
International Ltd. v. Hyundai Electronics Industries Co., Ltd., et al., in the
Superior Court of California, County of Santa Clara, Case No. CV 772103
("California Action"). This new complaint alleges Fraud and Deceit (against all
Defendants), Negligent Misrepresentation (against all Defendants), Breach of
Contract (against HEI and the Company), Breach of Contract -- Covenant not to
Compete (against HEI), Unlawful, Unfair, or Fraudulent Business Practices
(against HEI and the Company). StorMedia seeks damages in excess of $206 million
dollars, punitive damages, injunctive relief, attorneys' fees, pre-judgment and
post-judgment interest, and costs. On March 26, 1998, the Company moved to stay
the California Action in light of the substantially identical action pending in
Colorado. On May 14, 1998, the hearing on this motion had been continued,
subject to any parties' right to seek an expedited hearing, to July 14, 1998.
Pursuant to the parties' stipulation and subsequent Order, this hearing was
continued to August 18, 1998. In the interim, pursuant to the Company's
application, discovery was stayed.
On May 15, 1998, following a motion brought by the Company, the stay of the
Colorado Action was lifted. Defendants StorMedia and StorMedia International
Limited answered the Complaint and asserted a counterclaim. In addition,
Defendants StorMedia, StorMedia International Limited and William Almon brought
a motion to dismiss portions of Maxtor's Complaint. On July 31, 1998, the
Company filed an Amended Complaint, and Dr. C.S. Park, HEI, and K.S. Yoo filed
Third-Party Answers. Defendants StorMedia, StorMedia International Limited and
William Almon moved to dismiss three causes of action in Maxtor's Amended
Complaint. No hearing date was set. On September 9, 1998, the California Action
was stayed pending resolution of the Colorado Action.
During October, 1998, StorMedia and four of its direct and indirect
subsidiaries filed voluntary petitions for relief under chapter 11 of title 11
of the United States code (the "Bankruptcy Code"). The five chapter 11
8
<PAGE> 11
MAXTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
cases were consolidated for administrative purposes only under Case No.
98-58275-ASW (the "Bankruptcy Cases"). The bankruptcy filings caused an
automatic stay of proceedings against StorMedia, including the Colorado Action.
On or about February 17, 1999, the Company filed proofs of claim in the
Bankruptcy Cases against StorMedia and StorMedia International, Ltd. In both
proofs of claim, the Company asserted claims based upon the claims and
allegations set forth in the Colorado Action. On or about November 2, 1999,
StorMedia filed an "Objection To Proof Of Claim And Counterclaims And
Crossclaims For Breach Of Contract, Breach Of The Implied Covenant Of Good
Faith, And Fair Dealing, Promissory Fraud, And Fraud And Deceit," titled
StorMedia, Inc and StorMedia Int'l Ltd. v. Maxtor Corp. and Hyundai Electronics
Indus., Inc. (In re StorMedia, Inc.), commencing Adversary Proceeding Number
99-5409 (the "Bankruptcy Action"). In the Bankruptcy Action, StorMedia seeks to
disallow the Company's proof of claim on the grounds that under Bankruptcy Code
section 502(b) and applicable state law, the Company's claims against StorMedia
are unenforceable and not allowable because the Company rejected StorMedia's
products for reasons other than quality. StorMedia further seeks a determination
pursuant to Bankruptcy Code section 502(b) and applicable state law that the
Company's claims are unenforceable and not allowable because StorMedia is
entitled to a setoff in an amount exceeding the Company's claims. StorMedia
further seeks a determination that under Bankruptcy Code section 510(c) and
applicable state law that any allowable claim of the Company is equitably
subordinated to all allowed claims of StorMedia's other creditors. In addition,
StorMedia also asserts in the Bankruptcy Action counterclaims against the
Company and cross-claims against HEI asserting: Breach of Volume Purchase
Agreement, Breach of the Implied Covenant of Good Faith and Fair Dealing,
Promissory Fraud and Fraud and Deceit.
On February 16, 2000, the Bankruptcy Court approved a stipulation entered
into among the Company, HEI and StorMedia, which provided, in part, that the
Bankruptcy Court will abstain from the Bankruptcy Action pursuant to 28 U.S.C.
sec. 1334(c). The stipulation also provided that the automatic stay imposed by
the Bankruptcy Court will be modified, pursuant to 11 U.S.C. sec. 362(d), to
allow all parties to the Colorado Action to proceed to final, non-appealable
judgment or settlement.
In addition, the parties agreed that any award of damages pursuant to
final, non-appealable judgment entered by the Colorado Court in favor of the
Company or any final, non-appealable stipulated judgment or other form of
settlement entered into in the Colorado Action in favor of the Company will be
deemed to be a valid claim under applicable non-bankruptcy law for the purposes
of allowance in StorMedia's bankruptcy cases, subject, however, in all respects
to the determination by the Bankruptcy Court of all issues within the Bankruptcy
Court's exclusive jurisdiction (the "Bankruptcy Court Matters") including, but
not limited to: (i) the extent to which StorMedia holds defenses that arise
exclusively under the Bankruptcy Code to the allowance of such claim in
StorMedias' bankruptcy cases; (ii) the classification of such claim under the
Plan; (iii) the extent to which such claim may be equitably subordinated
pursuant to 11 U.S.C. sec. 510; and (iv) the extent to which such claim may
reduce the Company's liability to StorMedia, if any (as determined by a final
non-appealable judgment of the Colorado Court), pursuant to 11 U.S.C. sec. 553.
The Bankruptcy Court Matters will remain subject to Bankruptcy Court
jurisdiction and will be stayed and held in abeyance until such time as the
Colorado Court has fully resolved the Colorado Action by entry of a final,
non-appealable judgment or settlement.
Trial has been scheduled to begin September 10, 2001.
The Company believes that it has valid defenses against the claims alleged
by StorMedia and intends to defend itself vigorously. However, due to the nature
of litigation and because the pending lawsuits remain in the early pre-trial
stages, the Company cannot determine the possible loss, if any, that may
ultimately be incurred either in the context of a trial or as a result of a
negotiated settlement. The litigation could result in significant diversion of
time by the Company's technical personnel, as well as substantial expenditures
for
9
<PAGE> 12
MAXTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
future legal fees. After considering the nature of the claims and facts relating
to the litigation, including the results of preliminary discovery, the Company's
management believes that the resolution of this matter will not have a material
adverse effect on the Company's business, financial condition or results of
operations. However, the results of these proceedings, including any potential
settlement, are uncertain and there can be no assurance that they will not have
a material adverse effect on the Company's business, financial position and
results of operations.
No amounts have been reserved in the accompanying condensed consolidated
financial statements for any legal claims or actions.
8. RECLASSIFICATIONS
Certain reclassifications have been made to prior quarter balances to
conform to current quarter classifications.
9. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
Statement will require us to recognize all derivatives on the balance sheet at
fair value. SFAS No. 133 requires that derivative instruments used to hedge be
identified specifically as to assets, liabilities, firm commitments or
anticipated transactions and measured as to effectiveness and ineffectiveness
when hedging changes in fair value or cash flows. Derivative instruments that do
not qualify as either a fair value or cash flow hedge will be valued at fair
value with the resultant gain or loss recognized in current earnings. Changes in
the effective portion of fair value hedges will be recognized in current
earnings along with the change in fair value of the hedged item. Changes in the
effective portion of the fair value of cash flow hedges will be recognized in
other comprehensive income until realization of the cash flows of the hedged
item through current earnings. Any ineffective portion of hedges will be
recognized in current earnings. In June 1999, the FASB issued SFAS No. 137,
"Deferral of the Effective Date of FASB Statement No. 133," to defer for one
year the effective date of implementation of SFAS No. 133. SFAS No. 133, as
amended by SFAS No. 137, is effective for fiscal years beginning after June 15,
2000, with earlier application encouraged. The company is in the process of
evaluating the requirements of SFAS No. 133, but does not expect this
pronouncement to materially impact its financial position or results of
operation.
In December 1999, the SEC issued Staff Accounting Bulleting No. 101
("SAB101"), "Revenue Recognition in Financial Statements." SAB No. 101
summarizes certain of the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. In March 2000, the
SEC issued SAB No. 101A to defer for one quarter the effective date of
implementation of SAB 101 with earlier application encouraged. Subsequently, in
June 2000, the SEC issued SAB 101B to defer the implementation of SAB 101 until
the fourth fiscal quarter of 2000. The company is required to adopt SAB 101 in
the fourth quarter of fiscal 2000. The Company does not expect the adoption of
SAB 101 to have a material effect on its financial position or results of
operations.
10. RELATED PARTY TRANSACTION
The Company had cost of revenue that included certain component parts
purchased from MMC Technology, Inc., a wholly owned subsidiary of HEA, amounting
to $40 million for the quarter ended July 1, 2000 and $81 million for the six
months ended July 1, 2000. The cost of revenue also includes certain component
parts purchased from HEI which to date have not been significant.
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and the accompanying notes included in Part I.
Financial Information, Item 1. Condensed Consolidated Financial Statements of
this report.
This report contains forward-looking statements within the meaning of the
U.S. federal securities laws that involve risks and uncertainties. The
statements contained in this report that are not purely historical, including,
without limitation, statements regarding our expectations, beliefs, intentions
or strategies regarding the future, are forward-looking statements including
those discussed in Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations: "Results of Operations"; "Liquidity and
Capital Resources"; "Certain Factors Affecting Future Performance"; and
elsewhere in this report. In this report, the words "anticipate," "believe,"
"expect," "intend," "future" and similar expressions also identify forward-
looking statements. We make these forward-looking statements based upon
information available on the date hereof, and we have no obligation to update
any such forward-looking statements. Our actual results could differ materially
from those anticipated in this report as a result of certain factors including,
but not limited to, those set forth in the following risk factors and elsewhere
in this report.
Maxtor(R) and No Quibble(R) are registered trademarks of Maxtor. The Maxtor
logo, DiamondMax(TM) and Formula 4(TM) are trademarks of Maxtor. All other brand
names and trademarks appearing in this report are the property of their
respective holders.
Acquisition of Creative Design Solutions, Inc.
In September 1999, we acquired privately held Creative Design Solutions,
Inc. ("CDS"), a leading participant in the emerging network attached storage
market. We transitioned from being a supplier of hard disk drives for the
desktop personal computer market to a company well positioned to provide storage
solutions that will deliver outstanding price and performance values in
networked environments. See Note 4 to the Condensed Consolidated Financial
Statements.
We formed Maxtor Network Systems Group ("MNSG") subsequent to the
acquisition of CDS. MSNG concentrates on products and offerings in or related to
the Network Attached Storage market.
Revenue and Gross Profit
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ --------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 CHANGE 2000 1999 CHANGE
------- ------- ------ -------- -------- ------
(UNAUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Total revenue............. $667.1 $524.6 $142.5 $1,358.3 $1,206.2 $152.1
Gross profit.............. $ 99.3 $ 16.3 $ 83.0 $ 208.1 $ 102.8 $105.3
Net income................ $ 13.2 $(30.9) $ 44.1 $ 40.8 $ (13.9) $ 54.7
As a percentage of
revenue:
Total revenue............. 100.0% 100.0% 100.0% 100.0%
Gross profit.............. 14.9% 3.1% 15.3% 8.5%
Net income................ 2.0% -5.9% 3.0% -1.2%
</TABLE>
Revenue
Total revenue for the second quarter of fiscal year 2000 increased 27.2%
compared to the same quarter in fiscal year 1999 primarily due to the increase
in volume shipments coupled with better product mix. Total shipments for the
second fiscal quarter 2000 were 6.5 million units, which was 1.5 million units
or 31.1% higher compared to the second fiscal quarter a year ago. Revenue from
the Original Equipment Manufacturer (OEM) channel for the quarter ended July 1,
2000 represented 71.9% of total revenue compared to 83.9% for the corresponding
quarter in 1999. Revenue from the distribution and retail channels represented
28.1% of total revenue for the second quarter in 2000 compared to 16.1% for the
same quarter in fiscal year 1999.
11
<PAGE> 14
Revenue and unit volume growth in 2000 were favorably impacted by better
time to market performance, increased penetration of the distribution channel,
and a continued trend to shipping higher capacity drives.
Gross Profit
Gross profit as a percentage of revenue increased to 14.9% in the second
quarter of 2000 from 3.1% in the same quarter of 1999. The increase in gross
profit is due overall to manufacturing efficiencies including improved product
designs, lower component cost and improved manufacturing yields. We expect to
continue volume growth for the remainder of the fiscal year 2000.
Operating expenses
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 CHANGE 2000 1999 CHANGE
------- ------- ------ ------- ------- ------
(UNAUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Research and development........ $61.2 $48.9 $12.3 $116.6 $96.2 $20.4
Selling, general and
administrative................ $26.7 $22.5 $ 4.2 $ 52.0 $42.9 $ 9.1
Amortization of goodwill and
other intangible assets....... $ 2.5 $ -- $ 2.5 $ 5.0 $ -- $ 5.0
As a percentage of revenue:
Research and development........ 9.2% 9.3% 8.6% 8.0%
Selling, general and
administrative................ 4.0% 4.3% 3.8% 3.6%
Amortization of goodwill and
other intangible assets....... 0.4% 0.0% 0.4% 0.0%
</TABLE>
Research and Development (R&D)
R&D expense as a percentage of revenue decreased to 9.2% in the second
quarter of 2000 compared to 9.3% for the same quarter in 1999. R&D expense for
the six months ended July 1, 2000 as a percentage of revenue increased to 8.6%
compared to 8.0% for the same period a year ago. The absolute dollar level of
R&D expenditures during fiscal 2000 increased due to our continued efforts to
maintain leadership products, addressing the requirements of the desktop PC
market as well as investments in the Network Attached Storage market.
Selling, General and Administrative (SG&A)
SG&A expense as a percentage of revenue decreased to 4.0% in the second
quarter of 2000 compared to 4.3% for the same quarter in 1999. SG&A expense for
the six months ended July 1, 2000 as a percentage of revenue increased to 3.8%
compared to 3.60% for the same period a year ago. The increase in absolute
dollars is primarily due to our costs associated with supporting Maxtor's higher
sales volume and increased emphasis in the distribution and retail markets.
Stock Compensation
In 1996 we adopted the 1996 Stock Option Plan (the "Plan"), pursuant to
which substantially all of our domestic employees and certain international
employees received options that were required to be accounted for as variable
options. These options, which were granted between May 1996 and October 1997,
required remeasurement of any intrinsic compensation element at each reporting
date determined by the difference between the estimated current fair value of
our stock and the exercise price of the options. In the first quarter of 1998,
we amended and restated the Plan to remove the variable features and all grants
subsequent to October 1997 have been subject to fixed terms. In the second
quarter of 1998, we offered and re-issued new fixed-award options in exchange
for options previously issued under variable terms, thereby eliminating the
requirement to remeasure these options in subsequent periods. In connection
therewith, we recorded compensation expense related to the difference between
the estimated fair market value of our stock as of March 28, 1998 and the stated
value of our options. Compensation cost was reflected in accordance with
12
<PAGE> 15
Financial Accounting Standards Board Interpretation No. 28, "Accounting for
Stock Appreciation Rights and Other Variable Stock Option or Award Plans."
Accordingly, we recorded non-cash compensation expense of $0.6 million in the
second quarter of 1999 and $0.2 million in the second quarter of 2000. Non-cash
compensation expense for the six months ended July 1, 1999 was $1.5 million and
$.6 in the first six months of 2000. The remaining unrecognized compensation
element will be reflected in quarterly charges, decreasing sequentially through
the second quarter of 2001.
Amortization of goodwill and other intangible assets
Amortization of goodwill and other intangible assets represents the
amortization of workforce, customer list and other current products and
technology in the amount of $2.5 million in the second quarter of 2000 arising
from our acquisition of CDS in September 1999. There were no such expenses in
the second quarter of 1999 as the Company did not acquire CDS until the second
quarter of 1999.
Interest Expense and Interest Income
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 CHANGE 2000 1999 CHANGE
------- ------- ------ ------- ------- ------
(UNAUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Interest expense................ $3.1 $ 2.9 $ 0.2 $ 7.0 $ 6.6 $ 0.4
Interest and other income....... $8.0 $ 3.5 $ 4.5 $15.3 $ 8.4 $ 6.9
Gain on sale of investment...... $ -- $22.1 $(22.1) $ -- $22.1 $(22.1)
As a percentage of revenue:
Interest expense................ 0.5% 0.6% 0.5% 0.5%
Interest and other income....... 1.2% 0.7% 1.1% 0.7%
Gain on sale of investment...... 0.0% 4.2% 0.0% 1.8%
</TABLE>
Interest Expense
Interest expense as a percentage of revenue declined from 0.6% in the
second quarter of 1999 to 0.5% in the second quarter of fiscal year 2000. In
absolute dollar terms, interest expense increased by $0.2 million in the second
quarter of 2000 and increased by $0.4 million for the first six months of 2000.
Our total short-term and long-term outstanding borrowings were $90.0 million as
of July 3, 1999 and $112.7 million as of July 1, 2000.
Interest and Other Income
Interest and other income in the second quarter of 2000 increased in both
absolute dollar amount and as a percentage of revenue when compared to the
second quarter of 1999. Additionally, interest and other income for the first
six months of 2000 also improved over the same period a year ago. Our total cash
and cash equivalents and marketable securities were $298.6 million as of July 3,
1999 compared to $393.3 million as of July 1, 2000.
Provision for income taxes
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 CHANGE 2000 1999 CHANGE
------- ------- ------ ------- ------- ------
(UNAUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Income before provision for income
taxes.............................. $13.9 $(32.4) $46.3 $42.9 $(12.4) $55.3
Provision for income taxes........... $ 0.7 $ (1.5) $ 2.2 $ 2.1 $ 1.5 $ 0.6
</TABLE>
The provision for income taxes consists primarily of federal alternative
minimum tax and foreign taxes. Due to our net operating losses (NOL), NOL
carryforwards and favorable tax status in Singapore, we have
13
<PAGE> 16
not incurred any significant foreign, U.S. federal, state or local income taxes
for the current or prior fiscal periods.
YEAR 2000 READINESS
We have not experienced any known material adverse impacts on our current
products, internal information systems, and non-information technology systems
(equipment and systems) as a result of the year 2000 issue. Based on the work
done, we have not incurred material costs to address the year 2000 readiness of
our systems (as a result of relatively new information systems) and products.
There can be no assurance that the cost estimates associated with Year 2000 or
leap year date issues will not have a material adverse effect on our results of
operations and financial condition.
LIQUIDITY AND CAPITAL RESOURCES
As of July 1, 2000, we had $393.3 million in cash, and cash equivalents and
marketable securities as compared to $353.9 million at January 1, 2000.
Operating activities provided net cash of $79.2 million for the six-month
period ended July 1, 2000. The cash provided from operating activities was
principally generated from net income after adjustment for depreciation and
amortization, which was partially offset by the increase of accounts receivable
and a reduction in accounts payable. Investing activities used cash of $102.2
million during the first six months of 2000, principally for the purchase of
marketable securities and for the purchase of property, plant and equipment.
As of July 1, 2000, our outstanding debt comprised $85.0 million of
publicly-traded subordinated debentures, due March 1, 2012 and a Singapore
dollar denominated loan equivalent to $28.0 million from the Economic Board of
Development of Singapore which is guaranteed by a bank. Our outstanding
subordinated debentures are entitled to annual sinking fund payments of $5.0
million, which commenced March 1, 1998. These debentures are no longer
convertible into our common stock or any other security of Maxtor. The Singapore
dollar denominated loan has seven consecutive semi-annual installment payments,
commencing on March 1, 2001.
We also have a $200.0 million asset securitization program with Fleet
National Bank under which we sell our eligible trade accounts receivable on a
non-recourse basis through a special purpose entity. At July 1, 2000, $75.0
million of accounts receivable was securitized under the program and excluded
from our accounts receivable balance.
We believe the existing capital resources, together with cash generated
from operations and borrowing capacity, will be sufficient to fund our
operations through at least the next twelve months. We require substantial
working capital to fund our business, particularly to finance accounts
receivable and inventory, and to invest in property, plant and equipment. During
2000, capital expenditures are expected to be between approximately $170.0
million and $190.0 million, to be used principally for updating and adding
manufacturing capacity, and research and development activities. We intend to
seek financing arrangements to fund our future capacity expansion and working
capital, as necessary. However, our ability to generate cash will depend on,
among other things, demand in the desktop hard disk drive market and pricing
conditions. If we need additional capital, there can be no assurance that such
additional financing can be obtained, or, if obtained, that it will be available
on satisfactory terms. See discussion below under the heading "Certain Factors
Affecting Future Performance".
14
<PAGE> 17
CERTAIN FACTORS AFFECTING FUTURE PERFORMANCE
WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT OF $751.1 MILLION
We have a history of significant losses. With the exception of the fiscal
year ended December 26, 1998, we incurred losses in each of the recent years.
These losses were primarily a result of:
- delayed product introductions;
- product performance and quality problems;
- low manufacturing yields and under-utilization of manufacturing capacity;
- high operating and interest expenses; and
- overall market conditions in the hard disk drive industry, including
fluctuations in demand and declining average selling prices.
During the quarter ended July 3, 2000 the Company had net income of $13.2
million as compared to a net loss of $30.9 during the same quarter of fiscal
1999.
UNLESS WE CONSISTENTLY EXECUTE, WE WILL HAVE SIGNIFICANT LOSSES
Most of our products are sold to desktop computer manufacturers. Such
manufacturers use the quality, storage capacity, performance and price
characteristics of hard disk drives to select, or qualify, their hard disk drive
suppliers. Such manufacturers typically seek to qualify three or four suppliers
for each hard disk drive product generation. To qualify consistently with these
manufacturers, and thus succeed in the desktop hard disk drive industry, we must
execute consistently on our product development and manufacturing processes to
be among the first-to-market introduction and first-to-volume production at
leading storage capacity per disk with competitive prices and high quality. Once
a manufacturer has chosen its hard disk drive suppliers for a given desktop
computer product, it generally will purchase hard disk drives from those
suppliers for the commercial life of that product line. If we miss a
qualification opportunity, we may not have another opportunity to do business
with that manufacturer until we introduce our next generation of products. The
effect of missing a product qualification opportunity is magnified by the
limited number of high volume manufacturers of personal computers. If we do not
reach the market or deliver volume production in a timely manner, we may lose
opportunities to qualify our products, our gross margins probably will decline
due to rapidly declining average selling prices, and we probably will lose
market share.
SUBSTANTIAL DEPENDENCE ON THE DESKTOP COMPUTER MARKET
While there has been significant growth in the demand for desktop computers
over the past several years, according to International Data Corporation, the
growth rate in the desktop computer market has slowed in recent quarters.
Because of our reliance on the desktop segment of the personal computer market,
we will be affected more by changes in market conditions for desktop computers
than would a company with a broader range of products. Any decrease in the
demand for desktop computers could cause a decrease in the demand for our
products.
Although our current products are designed for the largest segment of the
hard disk drive market, the desktop computer market, demand may shift to other
market segments over time. We also believe that to remain a significant supplier
of hard disk drives to major manufacturers of personal computers, we will need
to offer a broader range of hard disk drive products to our customers.
Therefore, we will need to develop and manufacture new products that address
additional hard disk drive market segments and emerging technologies to remain
competitive in the hard disk drive industry. Examples of potentially important
market segments that our current products are not designed to address include:
- the client-server market;
- laptop personal computers.
15
<PAGE> 18
To specifically address these or additional market segments, we would have
to reengineer some of our existing technology and develop new technology.
Certain of our competitors have significant advantages over us in one or more of
these and other potentially significant new or growing market segments. Any
failure by us to successfully develop and introduce new products to address
specifically these additional market segments could have a material adverse
effect on our business, financial condition and results of operations.
A SIGNIFICANT AMOUNT OF OUR REVENUE COMES FROM A FEW CUSTOMERS
We sell most of our products to a limited number of customers. During the
six months ended July 1, 2000, one customer, Dell, accounted for approximately
13% of our revenue, and our top ten customers accounted for approximately 51% of
our revenue. During the six months ended July 3, 1999, two customers, Dell and
IBM, accounted for approximately 26% and 10%, respectively, of our revenue, and
our top ten customers accounted for approximately 69% of our revenue.
We believe that a relatively small number of customers will continue to
account for a significant portion of our revenue for the foreseeable future, and
that the proportion of our revenue from such customers could continue to
increase in the future. These customers have a wide variety of suppliers to
choose from and therefore can make substantial demands on us. Even if we
successfully qualify a product for a given customer, such customer generally is
not obligated to purchase any minimum volume of products from us and generally
is able to terminate its relationship with us at any time. Our ability to
maintain strong relationships with our principal customers is essential to our
future performance. If we lose a key customer or if any of our key customers
reduce their orders of our products or require us to reduce our prices before we
are able to reduce costs, our business, financial condition and results of
operations could be materially and adversely affected.
OUR QUARTERLY RESULTS FLUCTUATE SIGNIFICANTLY
Our quarterly results may not be indicative of our future performance. Our
quarterly operating results have fluctuated significantly in the past and may
fluctuate significantly in the future. Our future performance will depend on
many factors, including the following:
- our ability to be consistently among the first to volume-production with
competitive products;
- the average unit selling price of our products;
- fluctuations in the demand for hard disk drives as a result of the
cyclical and seasonal nature of the desktop computer industry;
- the availability of and efficient use of manufacturing capacity;
- changes in product or customer mix;
- our existing competitors introducing better products at competitive
prices before we do;
- new competitors entering our market;
- our ability to manage successfully the complex and difficult process of
qualifying our products with our customers;
- our customers canceling, rescheduling or deferring significant orders for
our products, particularly in anticipation of new products or
enhancements from us or our competitors;
- the ability of certain of our distribution and retail customers to return
unsold products for credit;
- the ability of certain of our distribution and retail customers to
receive lower prices retroactively on their inventory of our products
when we lower prices on our products;
- our ability to purchase enough components and raw materials at
competitive prices which allows us to make a profit;
- the availability of adequate capital resources;
16
<PAGE> 19
- increases in research and development expenditures, particularly as a
percentage of revenue, required to maintain our competitive position;
- changes in our strategy;
- personnel changes; and
- other general economic and competitive factors.
Many of our operating expenses are relatively fixed and difficult to reduce
or modify. As a result, the fixed nature of our operating expenses will magnify
any adverse effect of a decrease in revenue on our results of operations.
As a result of these and other factors, we believe that period to period
comparisons of our historical results of operations are not a good predictor of
our future performance. If our future operating results are below the
expectations of stock market analysts, our stock price may decline.
OUR CUSTOMERS ARE PLACING NEW AND COSTLY DEMANDS ON US
Our customers are adopting more sophisticated business models that place
additional strains on our business. For example, many personal computer
manufacturers, including some of our largest personal computer manufacturing
customers, are starting to adopt build-to-order manufacturing models that reduce
their component inventories and related costs and enable them to tailor their
products more specifically to the needs of their customers.
Some of our personal computer manufacturing customers also are considering
or have implemented a "channel assembly" model in which the manufacturer ships a
minimal computer system to the dealer or other assembler, and component
suppliers (including hard disk drive manufacturers such as us) ship parts
directly to the dealer or other assembler for installation at its location.
Finally, certain of our manufacturing customers have adopted just-in-time
inventory management processes that require component suppliers to maintain
inventory at or near the customer's production facility. These new business
models require us to hold our products in inventory longer, which increases our
risk of inventory obsolescence and average selling price decline. These changing
models also increase our capital requirements and costs, complicate our
inventory management strategies, and make it difficult for us to match our
manufacturing plans with projected customer demand.
THE HARD DISK DRIVE MARKET IS HIGHLY COMPETITIVE
Although our share of the desktop hard disk drive market has increased
steadily since the first quarter of 1997, this market segment and the hard disk
drive market in general are intensely competitive even during periods when
demand is stable. We compete primarily with manufacturers of 3.5-inch hard disk
drives for the personal computer industry, including:
- Fujitsu Limited;
- IBM;
- Quantum Corporation;
- Samsung Electronic Company Limited;
- Seagate Technology, Inc.; and
- Western Digital Corporation.
Many of our competitors have a number of significant advantages over us,
including:
- a larger market share;
- a broader array of product lines;
- preferred vendor status with some of our customers;
17
<PAGE> 20
- extensive name recognition and marketing power; and
- significantly greater financial, technical and manufacturing resources.
Unlike us, some of our competitors make many of their own components which
may provide them with certain benefits including lower costs. Our competitors
also may:
- consolidate or establish strategic relationships among themselves to
lower their product costs or to otherwise compete more effectively
against us;
- lower their product prices to gain market share; or
- bundle their products with other products to increase demand for their
products.
In addition, new competitors could emerge and rapidly capture market share.
If we fail to compete successfully against current or future competitors,
our business, operating results and financial condition may be materially and
adversely affected.
DEMAND FOR OUR PRODUCTS FLUCTUATES
We currently offer products that are designed for desktop computers and
network storage systems. As a result, the demand for our products depends on the
overall demand for desktop computers and the NAS market. The desktop computer
market tends to go through periods of rapid growth followed by periods of
oversupply and rapid price and gross margin erosion. This environment makes it
difficult for us and our customers to reliably forecast demand for our products.
We do not have long-term supply contracts with our customers, and our customers
often can defer or cancel orders with limited notice and without significant
penalty.
TO DEVELOP NEW PRODUCTS, WE MUST EFFECTIVELY INTEGRATE PARTS FROM THIRD PARTIES
Unlike some of our competitors, we do not manufacture any of the parts used
in our products. Instead, our products incorporate parts designed by and
purchased from third parties. Consequently, the success of our products depends
on our ability to gain access to and integrate parts that use leading-edge
technology. To successfully manage these integration projects we must:
- obtain high quality parts;
- hire skilled personnel;
- effectively integrate different products from a variety of vendors; and
- manage difficult scheduling and delivery problems.
Our success will depend on our ability to develop and maintain
relationships with key suppliers.
WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS
A number of the parts used in our products are available from only one or a
limited number of outside suppliers. Currently, we purchase digital signal
processor/controller and spin/servo integrated circuits only from Texas
Instruments, Inc. and purchase channel integrated circuits only from Lucent
Technologies Inc. As we have experienced in the past, some of the parts we
require may periodically be in short supply. As a result, we must allow for
significant ordering lead times for certain parts. In addition, we may have to
pay significant cancellation charges to suppliers if we cancel orders for parts
because we reduce production due to production cut-backs caused by market
oversupply, reduced demand, transition to new products or technologies or for
other reasons. We order the majority of our parts on a purchase order basis and
only have limited long-term volume purchase agreements with certain existing
suppliers. If we cannot obtain sufficient quantities of high quality parts when
we need them, our business, financial condition and results of operations could
be materially and adversely affected.
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<PAGE> 21
SUPPLIER CONSOLIDATIONS
Recently, two consolidations have been announced by Maxtor media suppliers.
HMT Technology Corp. and Komag, Inc. on the one hand and MMC Technology, Inc.
and Trace Storage Technology, Inc. on the other hand have announced intentions
to enter into business combinations. While the business consolidations are not
complete, the period of negotiation may lead to operational disruptions,
including supply interruptions or quality issues. If the business combinations
are completed, our risks include increased costs and reduced quality, from
causes ranging from reduced competition to internal disruption, as well as the
possibility of reduced or interrupted supply. While there are other media
sources, there is no assurance that they would choose to do business with us, or
that they could be successfully qualified or that they could provide an adequate
supply. If we cannot obtain sufficient quantities of high quality media when we
need them, our business, financial condition and results of operations could be
materially and adversely affected.
WE DEPEND ON OUR KEY PERSONNEL
Our success depends upon the continued contributions of our key employees,
many of whom would be extremely difficult to replace. We also do not have key
person life insurance on any of our personnel. Most of our senior management and
a significant number of our other employees have been with us for less than four
years. Worldwide competition for skilled employees in the hard disk drive
industry is extremely intense. We believe that some of our competitors recently
have made targeted efforts to recruit employees from us. There is no guarantee
that we will be successful in retaining our key employees. If we are unable to
retain our existing employees or to hire and integrate new employees, our
business, financial condition and results of operations could be materially and
adversely affected.
WE WILL NEED ADDITIONAL MANUFACTURING CAPACITY IN THE FUTURE
Our volume manufacturing operations currently are based in Singapore. A
flood, earthquake or other disaster or condition affecting our facility could
have a material adverse effect on our business, financial condition and results
of operations. Although we believe that we will be able to add capacity at our
current facilities or another facility to provide sufficient capacity through at
least the end of 2000, our inability to add capacity to allow us to meet our
customers' demands in a timely manner may limit our future growth and could have
a material adverse effect on our business, financial condition and results of
operations.
WE MAY NEED MORE CAPITAL IN THE FUTURE BECAUSE THE HARD DISK DRIVE BUSINESS IS
CAPITAL INTENSIVE
Our business is capital intensive, and we may need more capital in the
future. Our future capital requirements will depend on many factors, including:
- the rate of our sales growth;
- the level of our profits or losses;
- the timing and extent of our spending to support facilities upgrades and
product development efforts;
- the timing and size of business or technology acquisitions; and
- the timing of introductions of new products and enhancements to our
existing products.
We may issue additional equity to raise capital. Any future equity
financing will decrease existing stockholders' percentage equity ownership and
may, depending on the price at which the equity is sold, result in significant
economic dilution to such stockholders. Furthermore, our board of directors is
authorized under our charter documents to issue preferred stock with rights,
preferences or privileges senior to those of our common stock without
stockholder approval.
While we currently do not have a revolving credit facility, it is our goal
to obtain one in the near future. However, we believe that current market
conditions for such facilities are not as favorable as they have been at certain
times in the past, that for various reasons the number of potential lenders
actively providing credit facilities to companies in the data storage industry
has decreased recently, and that the terms on which the
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<PAGE> 22
remaining potential lenders are willing to offer such facilities, in many cases,
are restrictive and/or costly. Consequently, the terms and conditions under
which we might obtain such a facility are uncertain. Any failure to obtain
adequate credit facilities on acceptable terms could have a material and adverse
effect on our business, financial condition and results of operations.
PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED; WE FACE RISK OF THIRD PARTY
CLAIMS OF INFRINGEMENT
We have patent protection on some of our technology. We may not receive
patents for our current or future patent applications, and any patents that we
have or that are issued to us may be invalidated, circumvented or challenged.
Moreover, the rights granted under any such patents may not provide us with any
competitive advantages. Finally, our competitors may develop or otherwise
acquire equivalent or superior technology.
We also rely on trade secret, copyright and trademark laws, as well as the
terms of our contracts to protect our proprietary rights. We may have to
litigate to enforce patents issued or licensed to us, to protect trade secrets
or know-how owned by us or to determine the enforceability, scope and validity
of our proprietary rights and the proprietary rights of others. Enforcing or
defending our proprietary rights could be expensive and might not bring us
timely and effective relief.
We may have to obtain licenses of other parties' intellectual property and
pay royalties. If we are unable to obtain such licenses, we may have to stop
production of our products or alter our products. In addition, the laws of
certain countries in which we sell and manufacture our products, including
various countries in Asia, may not protect our products and intellectual
property rights to the same extent as the laws of the United States. Our
protective measures in these countries may be inadequate to protect our
proprietary rights. Any failure to enforce and protect our intellectual property
rights could have a material adverse effect on our business, financial condition
and results of operations.
When we were a majority-owned subsidiary of Hyundai Electronics America, we
had the benefit of certain third party intellectual property rights on terms
that may have been more favorable than would have been available to us if we had
not been a majority-owned subsidiary of Hyundai Electronics America. We may not
be able to obtain similar rights in the future on terms as favorable.
We have been sued by Papst-Motoren GmbH and Papst Licensing (collectively
"Papst") claiming infringement of a number of hard disk drive motor patents. The
lawsuit, which was filed in the United States District Court for the Northern
District of California, has been transferred to the United States District Court
for the Eastern District of Louisiana for coordination or consolidation with
pre-trial proceedings with three other actions involving Papst patents. The
alleged infringement claimed by Papst involves 15 of the hard disk drive motor
patents referenced above and relates to motors that we purchase from motor
vendors and the use of such motors in hard disk drives. While we believe that we
have valid defenses to the Papst claim, the results of any litigation are
inherently uncertain and there is no assurance that Papst will not assert other
infringement claims relating to current patents, pending patent applications and
future patents or patent applications. Additionally, there is no assurance that
we will be able to successfully defend ourselves against any such lawsuit. A
favorable outcome for Papst in the lawsuit could result in the issuance of an
injunction against us or our products and/or the payment of monetary damages
equal to a reasonable royalty or recovered lost profits or, in the case of a
finding of a willful infringement, treble damages and could have a material
adverse effect on our business, financial condition and results of operations.
WE ARE DEPENDENT ON OUR INTERNATIONAL OPERATIONS; WE FACE RISKS FROM OUR
INTERNATIONAL SALES
We conduct most of our manufacturing and testing operations and purchase a
substantial portion of our key parts outside the U.S. We also sell a significant
portion of products to foreign distributors and retailers.
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<PAGE> 23
Our dependence on revenue from international sales and our need to manage
international operations each involves a number of inherent risks, including:
- economic slowdown and/or downturn in the computer industry in such
foreign markets;
- international currency fluctuations;
- general strikes or other disruptions in working conditions;
- political instability;
- trade restrictions;
- changes in tariffs;
- the difficulties associated with staffing and managing international
operations;
- generally longer periods to collect receivables;
- unexpected changes in or impositions of legislative or regulatory
requirements;
- reduced protection for intellectual property rights in some countries;
- potentially adverse taxes; and
- delays resulting from difficulty in obtaining export licenses for certain
technology and other trade barriers.
The specific economic conditions in each country will impact our
international sales. For example, our international contracts are denominated
primarily in U.S. dollars. Significant downward fluctuations in currency
exchange rates against the U.S. dollar could cause our products to become
relatively more expensive to distributors and retailers in those countries. In
addition, we attempt to manage the impact of foreign currency exchange rate
changes by entering into short-term, foreign exchange contracts. If we do not
effectively manage the risks associated with international operations and sales,
our business, financial condition and results of operations could be materially
and adversely affected.
WE HAVE EXPOSURE FROM OUR WARRANTIES
Our products may contain defects. We generally warrant our products for
three years. Our standard warranty contains a limit on damages and an exclusion
of liability for consequential damages and for negligent or improper use of the
product. We establish a reserve, at the time of product shipment, in an amount
equal to our estimated warranty expenses. We had warranty reserves of $60.0
million as of July 1, 2000 and $51.2 million as of January 1,2000. While we
believe that our warranty reserves will be sufficient, the failure to maintain
sufficient warranty reserves or the unenforceability of our liability
limitations could have a material adverse effect on our business, financial
condition and results of operations.
OUR STOCK PRICE HAS BEEN HIGHLY VOLATILE
Our stock price and the number of shares traded each day has varied
greatly. We expect these fluctuations to continue due to factors including:
- quarterly fluctuations in operating results;
- announcements of new products by us or our competitors;
- gains or losses of significant customers;
- changes in stock market analysts' estimates;
- the presence or absence of short-selling of our common stock; and
- events affecting other companies that the market deems comparable to us.
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<PAGE> 24
Our stock price also may be affected by events relating to Hyundai
Electronics America and Hyundai Electronics Industries, including sales of our
common stock by Hyundai Electronics America or the perception that such sales
may occur (due to the financial condition of Hyundai Electronics America or
otherwise). There have been reports that Hyundai Electronics Industries is
planning to sell some operations that do not directly relate to its core
semiconductor business. Hyundai Electronics America and Hyundai Electronics
Industries have informed Maxtor that following the closing of its February 1999
public offering and the expiration of the 90-day period during which Hyundai
Electronics America has agreed not to offer or sell additional shares without
the consent of Salomon Smith Barney Inc., they may consider selling additional
Maxtor shares at a time they deem appropriate. Finally, our stock price may be
subject to extreme fluctuations in response to general economic conditions in
the U.S., Korea, Southeast Asia and elsewhere, such as interest rates, inflation
rates, exchange rates, unemployment rates, and trade surpluses and deficits. It
is likely that in some future quarter or quarters our operating results will be
below the expectations of stock market analysts or investors. In such event, our
stock price probably will decline.
In February 1999, DECS Trust IV, a newly formed trust, sold 12,500,000
DECS. The terms of the DECS provide that DECS Trust IV may distribute shares of
our common stock owned by Hyundai Electronics America on or about February 15,
2002, or upon earlier liquidation of DECS Trust IV under certain circumstances.
We do not know how or whether investors in the DECS offering will resell the
DECS. Any market that develops for the DECS could reduce the demand for our
common stock or otherwise negatively affect the market for our common stock.
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<PAGE> 25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company currently is involved in a dispute with StorMedia Incorporated
("StorMedia"), which arises out of an agreement among the Company, StorMedia and
Hyundai Electronics Industries Co. Ltd. (HEI) which became effective on November
17, 1995. In that agreement, StorMedia agreed to supply disk media to the
Company. StorMedia's disk media did not meet the Company's specifications and
functional requirements as required by the agreement and the Company ultimately
terminated the agreement.
After a class action securities lawsuit was filed against StorMedia by
certain of its shareholders in September 1996 which alleged, in part, that
StorMedia failed to perform under the agreement, StorMedia sued HEI, Mong Hun
Chung (then HEI's chairman), Dr. Chong Sup Park (then Hyundai Electronics
America (HEA)'s President and the individual who signed the agreement on behalf
of the Company) and K.S. Yoo (the individual who signed the agreement on behalf
of HEI) (collectively the "Original Defendants") in federal court (the "Federal
Suit"). In the Federal Suit, StorMedia alleged that at the time HEI entered into
the StorMedia Agreement, it knew that it would not and could not purchase the
volume of products it committed to purchase, and that failure to do so caused
damages to StorMedia in excess of $206 million.
In December 1996, the Company filed a complaint against StorMedia and
William Almon (StorMedia's Chairman and Chief Executive Officer) in a Colorado
state court seeking approximately $100 million in damages and alleging, among
other claims, breach of contract, breach of implied warranty of fitness and
fraud under the agreement (the "Colorado Suit"). This proceeding was stayed
pending resolution of the Federal Suit. The Federal Suit was permanently
dismissed early in February 1998. On February 24, 1998, StorMedia filed a new
complaint in a California state court for $206 million, alleging fraud and
deceit against the Original Defendants and negligent misrepresentation against
HEI and the Company (the "California Suit"). On May 18, 1998, the stay on the
Colorado Suit was lifted by the Colorado state court. The Company filed an
Amended Complaint in July, 1998. Defendants filed a motion to dismiss in August,
1998, which is still pending. On September 9, 1998, the California Suit was
stayed pending resolution of the Colorado Suit. On October 11, 1998, StorMedia
filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Act.
This bankruptcy filing caused an automatic stay of proceedings against
StorMedia, including the Colorado Suit.
Maxtor filed a proof of claim in the bankruptcy cases of both StorMedia
Inc. and StorMedia International. In response, on November 2, 1999, StorMedia
filed its Objections to Proof of Claim and Counterclaims and Crossclaims thereby
commencing an adversary proceeding in its bankruptcy proceeding against Maxtor
and HEI.
On February 16, 2000, StorMedia, Maxtor and HEI stipulated and the
Bankruptcy Court ordered that the stay of the Bankruptcy Court be modified to
allow the Colorado suit to proceed to final, non-appealable judgment or
settlement in the Colorado court.
On April 11, 2000, Defendants filed an Answer to the Company's Amended
Complaint and an Amended Counterclaim against the Company, HEI, Dr. Park, and
Mr. Yoo.
On May 2, 2000, the Company filed: (i) a Reply to Defendants' Amended
Counterclaim; (ii) a Motion to Dismiss the Third Counterclaim; and (iii) a
Motion to Strike Defendants' Seventh, Twelfth, Fourteenth, Fifteenth, and
Sixteenth Affirmative Defenses. The Company's Motion to Dismiss and Motion to
Strike still are pending.
The Company believes that it has valid defenses against the claims alleged
by StorMedia and intends to defend itself vigorously. However, due to the nature
of litigation and because the pending lawsuits are in the very early pre-trial
stages, the Company cannot determine the possible loss, if any, that may
ultimately be incurred either in the context of a trial or as a result of a
negotiated settlement. The litigation could result in significant diversion of
time by the Company's technical personnel, as well as substantial expenditures
for future legal fees. After considering the nature of the claims and facts
relating to the litigation, including the results of preliminary discovery, the
Company's management believes that the resolution of this matter will
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<PAGE> 26
not have a material adverse effect on the Company's business, financial
condition or results of operations. However, the results of these proceedings,
including any potential settlement, are uncertain and there can be no assurance
that they will not have a material adverse effect on the Company's business,
financial position and results of operations.
On March 18, 1999, we were sued in the United States District Court for the
Northern District of California by Papst Licensing GmbH ("Papst"). The lawsuit
alleges infringement of 15 patents covering various features of hard disk drive
technology. We filed an Answer and Counterclaim on May 19, 1999, asserting
defenses of implied license, patent exhaustion, misuse, invalidity,
unenforceability and noninfringement, among others. By Order dated October 12,
1999, this case and three other actions involving Papst patents were transferred
for coordinated or consolidated pre-trial proceedings by the Judicial Panel on
Multidistrict Litigation to the Eastern District of Louisiana. On April 10,
2000, Papst filed a motion challenging aspects of our unfair competition
counterclaim. We filed an opposition brief on May 1, 2000, and Papst filed a
reply brief on May 22, 2000. The Court has not yet ruled on this motion. We will
participate in various discovery proceedings that are expected to commence
within the next few months, and otherwise intend to vigorously defend this
action. Although the final outcome of these claims cannot be determined at this
time, we do not believe that resolution of these claims will have a material
adverse effect on Maxtor's business, financial condition or results of
operations. This statement should be read in conjunction with our Registration
Statement on form S-3 as well as our periodic reports filed with the SEC.
No amounts have been reserved in the accompanying consolidated financial
statements for any legal claims or actions.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During September 1999, Creative Design Solutions, Inc. ("CDS"), a
California corporation merged with and into a wholly owned subsidiary of Maxtor,
which subsidiary then merged with and into Maxtor. We issued approximately
8,130,700 shares of our common stock in return for all of the outstanding
capital stock of CDS as of the date of the acquisition. The issuance was deemed
to be exempt from registration with the SEC in reliance upon Regulation D
promulgated under the Securities Act of 1933, as amended, based upon the limited
number of persons receiving shares and the knowledge and experience of such
persons or their representative in evaluating the proposed investment. In
addition, we have reserved approximately 825,000 shares of our common stock for
issuance upon exercise of outstanding stock options of CDS, which we assumed in
the acquisition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the company's annual meeting of stockholders held on May 11, 2000, the
stockholders elected each of the nominees for Class II director the Board of
Directors. The votes were as follows:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD AUTHORITY
------- --- ------------------
<S> <C> <C>
Thomas Lyman Chun............................... 100,787,271 1,990,505
Roger W. Johnson................................ 100,789,281 1,988,495
Y. H. Kim....................................... 100,074,083 2,703,693
</TABLE>
The following directors' terms of office continue until the annual meeting
indicated: C. S. Park, Michael R. Cannon and Charles F. Christ (Class III term
expires at the 2001 annual meeting); and C. S. Chung and Charles Hill (Class I
term expires at the 2002 annual meeting).
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<PAGE> 27
The following matters were also submitted to and approved by a vote of the
stockholders with the results of the voting being as shown:
<TABLE>
<CAPTION>
BROKER
PROPOSAL FOR AGAINST ABSTAIN NON-VOTES
-------- --- ------- ------- ---------
<S> <C> <C> <C> <C>
Approval of amendment of the
Company's 1996 Stock Option Plan
to increase by 5,500,000 the
aggregate number of shares of
Common Stock authorized for
issuance under the plan.......... 54,107,197 21,010,750 967,543 --
Approval of amendment of the
Company's 1998 Employee Stock
Purchase Plan to increase by
2,100,000 the aggregate number of
shares of Common Stock authorized
for issuance under such plan..... 73,889,053 1,231,104 965,333 --
Approval and ratification of the
selection of
PricewaterhouseCoopers LLP as
independent accountants of the
Company for the fiscal year
ending December 30, 2000......... 102,624,590 83,093 70,093 --
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. See Index to Exhibits on pages 26 to 27 hereof.
b. On September 24, 1999, we filed a current report on Form 8-K to report
the completion of a merger pursuant to which CDS became a wholly owned
subsidiary of Maxtor and issuance of Maxtor common stock in exchange for all
outstanding shares of CDS capital stock.
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<PAGE> 28
SIGNATURES
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.
MAXTOR CORPORATION
By /s/ PAUL J. TUFANO
--------------------------------------
Senior Vice President, Finance,
Chief Financial Officer and
Principal Accounting Officer
Date: August 14, 2000
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<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO DESCRIPTION NUMBERED PAGES
---------- ----------- --------------
<S> <C> <C>
27.1 Financial Data Schedule (EDGAR filed version only)..........
</TABLE>
