<PAGE>
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 quarterly period ended March 31, 1994
[ ] 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 1-10639
CONNER PERIPHERALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2968210
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3081 ZANKER ROAD, SAN JOSE, CALIFORNIA 95134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408)456-4500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares outstanding of the Registrant's Common Stock, $0.001 par
value, as of April 29, 1994 was 51,382,218.
<PAGE>
CONNER PERIPHERALS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Cover Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets,
March 31, 1994 and December 31, 1993 3
Condensed Consolidated Statements of Operations
for the Three Months Ended
March 31, 1994 and 1993 4
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended
March 31, 1994 and 1993 5
Notes to Unaudited Condensed Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
2
<PAGE>
PART I- FINANCIAL INFORMATION
Item 1. Financial Statements
CONNER PERIPHERALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Data)
(Unaudited)
ASSETS
------
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
---------- ------------
<S> <C> <C>
Current assets
Cash and short-term investments $ 411,235 $ 517,547
Accounts receivable, net 357,274 333,416
Inventory 203,437 173,860
Deferred income taxes 54,944 54,944
Vendor receivables and other 142,147 87,348
---------- ----------
Total current assets 1,169,037 1,167,115
Property, plant and equipment, net 237,105 231,337
Goodwill and other intangibles, net 57,800 42,944
Other 22,013 22,655
---------- ----------
$1,485,955 $1,464,051
========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities:
Accounts payable and accrued
expenses $ 470,947 $ 446,781
Current portion of long-term debt 42,972 43,112
---------- ----------
Total current liabilities 513,919 489,893
Long-term debt, less current portion 629,517 660,606
Deferred income taxes and other 105,054 102,171
Minority interest 1,220 2,530
Stockholders' equity:
Preferred stock, $0.001 par value; -- --
20,000,000 shares authorized,
none outstanding
Common stock and paid-in-capital, 246,044 242,454
$0.001 par value; 100,000,000
shares authorized, 50,828,552
and 50,565,083 shares issued
and outstanding
Accumulated deficit (9,799) (33,603)
---------- ----------
Total stockholders' equity 236,245 208,851
---------- ----------
$1,485,955 $1,464,051
========== ==========
</TABLE>
See accompanying notes
3
<PAGE>
CONNER PERIPHERALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1994 1993
-------- --------
<S> <C> <C>
Net sales $563,958 $558,290
Cost of sales 436,143 467,770
-------- --------
Gross profit 127,815 90,520
-------- --------
Operating expenses:
Selling, general and
administrative 48,216 50,315
Research and development 30,944 34,020
Amortization of goodwill and
other intangibles 3,772 6,369
Unusual items -- 28,383
-------- --------
Total operating expenses 82,932 119,087
-------- --------
Income/(loss) from operations 44,883 (28,567)
Interest expense (12,651) (12,809)
Other income/(expense), net 4,389 9,170
-------- --------
Income/(loss) before income taxes 36,621 (32,206)
Benefit/(provision) for income taxes (12,817) 9,662
-------- --------
Net income/(loss) $ 23,804 $(22,544)
======== ========
Net income/(loss) per share:
Primary $ 0.46 $ (0.46)
======== ========
Fully diluted $ 0.40 $ (0.46)
======== ========
Weighted average shares:
Primary 52,019 48,554
======== =======
Fully diluted 74,331 48,554
======== =======
</TABLE>
See accompanying notes
4
<PAGE>
CONNER PERIPHERALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------
1994 1993
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ 23,804 $ (22,544)
Adjustments to reconcile net
income/(loss) to net cash used in
operating activities:
Depreciation and amortization 18,133 27,713
Non-cash unusual items -- 28,383
Minority interest and other 2,048 1,193
Changes in assets and liabilities:
Accounts receivable, net (23,858) 61,777
Inventory (29,577) (74,616)
Accounts payable and accrued expenses 24,166 (14,660)
Vendor receivables and other (60,513) (18,772)
--------- ---------
Cash used in operating activities (45,797) (11,526)
--------- ---------
Cash flows from investing activities:
Capital expenditures (24,376) (25,080)
Purchases of short-term investments (126,521) (725,194)
Sale and maturities of
short-term investments 185,870 782,256
Merger with Quest Development Corp. (8,500) --
Acquisition of technology rights -- (2,078)
--------- ---------
Cash provided by investing
activities 26,473 29,904
--------- ---------
Cash flows from financing activities:
Repayments of long-term debt (31,229) (17,342)
Issuance of common stock 3,590 13,042
--------- ---------
Cash used in financing activities (27,639) (4,300)
--------- ---------
Net increase/(decrease) in
cash and cash equivalents (46,963) 14,078
Cash and cash equivalents at beginning of
the period 197,499 258,985
--------- ---------
Cash and cash equivalents at end of
the period 150,536 273,063
Short-term investments 260,699 298,480
--------- ---------
Total cash and short-term investments $ 411,235 $ 571,543
========= =========
</TABLE>
(continued)
See accompanying notes
5
<PAGE>
CONNER PERIPHERALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1994 1993
-------- --------
<S> <C> <C>
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $24,471 $24,244
Income taxes -- $ 2,559
</TABLE>
See accompanying notes
6
<PAGE>
CONNER PERIPHERALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of Presentation
- ------------------------------
The accompanying unaudited condensed consolidated financial statements for the
three-month periods ended March 31, 1994 and 1993, have been prepared on
substantially the same basis as the annual consolidated financial statements.
In the opinion of management, the financial statements reflect all material
adjustments necessary for a fair presentation of the financial position,
operating results and cash flows for the periods presented. These condensed
consolidated financial statements should be read in conjunction with the
financial statements, and notes thereto, for the year ended December 31, 1993,
included in the Company's 1993 annual report on Form 10-K.
Note 2 - Cash Equivalents and Short-Term Investments
- ----------------------------------------------------
Effective at the beginning of 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (FAS 115), which requires investment securities to be
classified as either held to maturity, trading or available for sale.
Securities that the Company has both the positive intent and ability to hold to
maturity are classified as Investment Securities Held to Maturity and are
carried at historical cost, adjusted for amortization of premiums and accretion
of discounts, which approximates market value. As of March 31, 1994, the
Company had cash equivalents and short-term investments of $313,650,000 all of
which had been classified as Investment Securities Held to Maturity. The
adoption of FAS 115 did not have a material impact on the Company's financial
condition or results of operations.
NOTE 3 - Inventories
- --------------------
Inventories consisted of the following components:
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
--------- ------------
(In Thousands)
<S> <C> <C>
Purchased components $ 99,817 $ 81,620
Work-in-process 53,752 37,939
Finished goods 49,868 54,301
-------- --------
$203,437 $173,860
========= ========
</TABLE>
7
<PAGE>
NOTE 4 - Other Income/Expense, Net
- ----------------------------------
Other income/(expense), net consists of the following components:
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1994 1993
-------- -------
(In Thousands)
<S> <C> <C>
Interest income $ 4,273 $5,391
Minority interest 2,548 (736)
Royalty income -- 1,329
Other (2,635) 3,186
------- ------
$ 4,389 $9,170
======= ======
</TABLE>
NOTE 5 - Income/(Loss) Per Share
- --------------------------------
Net income/(loss) per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding. Net income per share
computed on a fully diluted basis assumes conversion of the Company's
subordinated debentures during each period in which they were issued and
outstanding and dilutive.
NOTE 6 - Merger Of Subsidiary With Quest Development Corp.
- ----------------------------------------------------------
In January 1994, the Company merged the operations of its wholly-owned
subsidiary, Arcada Software, Inc. ("Arcada") with those of Quest Development
Corp. Upon completion of the merger, the Company holds a 79% interest in Arcada
for which the Company contributed cash, technology, employees and certain on-
going support. Arcada was formed to develop, produce and market software
products for data storage management. The effect of the merger was not material
to the Company's financial condition or results of operations.
NOTE 7 - Investment in Joint Venture
- ------------------------------------
In January 1994, the Company increased its ownership interest from 60% to 90% in
its joint venture with Shenzhen CPC, a subsidiary of China Electronics
Corporation. The joint venture, located in Shenzhen, People's Republic of
China, manufactures disk drives. The effect of the additional investment in the
joint venture was not material to the Company's financial condition or results
of operations.
NOTE 8 - Litigation
- -------------------
The Company and certain officers and directors are defendants in several
securities class action lawsuits which purport to represent a class of investors
who purchased or otherwise acquired the Company's common stock between January
1992 and May 1993. Certain officers and directors are also defendants in a
related shareholders derivative suit. The complaints seek unspecified damages
and other relief. The Company intends to defend the actions vigorously.
8
<PAGE>
In August 1993, the Company was served with a patent infringement complaint
filed by IBM in the United States District Court for the Northern District of
California. The complaint alleges that products manufactured by the Company
infringe nine patents owned by IBM. In addition, the complaint seeks
declaratory relief to the effect that drives produced by IBM do not infringe
five patents held by the Company and seeks to have such patents declared
invalid. The Company answered the complaint, denying all material allegations
and counter claiming that IBM disk drives infringe six patents owned by Conner,
including the five contained in the IBM complaint. The Company believes that it
has meritorious defenses against these allegations, that it had valid claims
against IBM and will defend this action vigorously. However, the Company is
unable to predict the outcome of the litigation or ultimate effect, if any, on
its operations or financial condition. Regardless of the merits of the
respective patent claims, the Company believes that the existence of the IBM
litigation could have an adverse effect on its business and expects that this
litigation will require the Company to incur significant costs, including
substantial legal expenses. Although the Company has engaged in continuous
discussions with IBM toward an appropriate cross-licensing arrangement, no
assurance can be given as to the outcome of the litigation or settlement
negotiations.
In February 1992, the Company filed a patent infringement lawsuit against
Western Digital Corporation ("Western Digital") alleging the infringement of
five of the Company's patents by Western Digital. The suit is currently pending
in the Northern District of California. Shortly after the commencement of this
action, Western Digital filed a claim in the Central District of California
alleging infringement of one patent by the Company. Subsequently, Western
Digital amended its claim to assert infringement by the Company of two
additional disk drive patents. The Western Digital complaint has been
transferred to the Northern District of California. The Company believes it has
valid claims against Western Digital and meritorious defenses to the claims
asserted by Western Digital.
NOTE 8 - Reclassifications
- --------------------------
Certain prior year balances have been reclassified to conform with the 1994
presentations.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth certain income statement data for the quarters
ended March 31, 1994 and 1993 and December 31, 1993, as a percentage of net
sales in these periods. This data has been derived from the unaudited
consolidated financial statements.
<TABLE>
<CAPTION>
Three months ended
-----------------------------
March 31, December 31,
1994 1993 1993
------ ------ ------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 77.3 83.8 84.7
Gross profit 22.7 16.2 15.3
Selling, general and
administrative 8.5 9.0 7.0
Research & development 5.5 6.1 5.0
Amortization of goodwill
and other intangibles 0.7 1.1 0.6
Unusual items -- 5.1 --
Income/(loss) from operations 8.0 (5.1) 2.7
Net income/(loss) 4.2 (4.0) 1.5
</TABLE>
NET SALES
- ---------
Net sales for the first quarter of 1994 were $564 million, an increase of 1%
from the first quarter of 1993 and a decrease of 2% from the fourth quarter of
1993. The slight increase in net sales over the first quarter of 1993 resulted
primarily from higher shipment volumes of tape drives, particularly DAT
products, and higher software revenue due in part to the merger of Quest
Development Corporation ("Quest"), into Arcada Software, a controlled subsidiary
of the Company. Unit shipment volumes of disk drives were flat as compared to
the first quarter of 1993 while revenues were slightly lower due to lower
average unit selling prices.
Net sales for the first quarter of 1994 decreased by 2% from the fourth quarter
of 1993. This decrease resulted from lower unit shipment volumes of disk drives
despite strong demand for the Company's newer disk products. Lower shipment
volumes resulted from a shortage of certain disk drive components during the
first half of the quarter which negatively impacted shipments of disk drives
early in the quarter. This problem was resolved during the second half of the
quarter.
10
<PAGE>
Sales to Compaq Computer ("Compaq") represented approximately 13% of net sales
during the quarter compared to 17% for the same quarter a year ago and 10% for
the fourth quarter of 1993. No other customer represented more than 10% of net
sales during these periods. Compaq was the top customer for both disk and tape
products. Distributor sales represented approximately 23% of net sales during
the quarter compared to 29% for the same quarter a year ago and 27% for the
fourth quarter of 1993. International sales were 47% of net sales compared to
53% for the same quarter a year ago and 54% for the fourth quarter of 1993. The
decline in international and distributor sales as a percentage of net sales is
due to a higher percentage of disk and tape drive shipments to domestic OEM
customers.
The demand for the Company's disk drives depends principally on demand for high
performance microcomputers manufactured by its customers. A slowdown in demand
for such computers may have an exaggerated effect on the demand for the
Company's products in any given period.
As is common in the microcomputer industry, the Company's shipment patterns
during a quarter are frequently characterized by a significantly higher volume
of shipments in the third month of the quarter than that experienced in the
first two months of the quarter. The Company believes that this pattern may
continue in future quarters. This pattern often causes quarterly results to be
difficult to predict. In addition, order lead-times have been reduced by many
of the Company's customers which has negatively impacted the visibility of
future orders, and accordingly, the predictability of financial results.
During the first quarter of 1994, demand for certain of the Company's disk
drives exceeded the Company's product availability. As such, these products
were available to customers on an allocation basis. This trend appears to be
continuing into the second quarter of 1994 but there can be no assurance that
this trend will continue into future periods.
GROSS PROFIT
- ------------
The Company's gross profit as a percentage of net sales for the first quarter of
1994 was 22.7% compared to 16.2% for the same quarter of 1993 and 15.3% for the
fourth quarter of 1993. The higher gross profit percentage compared to the
first and fourth quarters of 1993 was primarily due to lower average unit costs
and an increase in unit shipment volumes of the Company's newer products, in
particular, the Company's Filepro 210 and 420 megabyte disk drives. The decrease
in average unit costs far exceeded decreases in average unit selling prices
which returned to historical levels of 6% to 7% per quarter. This reversed the
trend of severe price erosion experienced in 1993. An increase in shipments of
tape and software products, which generally carry higher gross margins than disk
drives, also contributed to the higher gross margin percentage. Additionally,
gross margin in the first quarter of 1993 included an $8 million unusual charge
resulting from the Company's actions to accelerate the end-of-life of certain
older disk products.
11
<PAGE>
The disk drive industry has been characterized by ongoing price erosion and the
attendant pressure on gross margins. Although the severe price erosion
experienced in 1993 appears to have eased, there can be no assurance that this
trend will continue and that severe price competition will not recur. In
addition, competition in the tape drive industry has become particularly
aggressive, most notably in the DC2000 minicartidge product-line, placing more
pressure on pricing and gross margins on tape products.
The Company anticipates the introduction of numerous new products during 1994.
The failure of the Company to successfully launch or achieve required production
volumes at anticipated costs for one or more of these new products could have a
material adverse effect on the Company's revenues and profitability. New
products generally have lower initial manufacturing yields and higher component
costs than more mature products which may place additional pressure on gross
margins.
SELLING, GENERAL AND ADMINISTRATIVE
- -----------------------------------
The Company's selling, general and administrative expenses ("SG&A") for the
quarter was $48.2 million, or 8.5% of sales, compared to $50.3 million or 9.0%
of sales for the same quarter in 1993 and $40.4 million, or 7.0% of sales for
the fourth quarter of 1993. The decrease in SG&A expense in the first quarter
of 1994 as compared to the same quarter in 1993 is primarily due to lower
employee headcount resulting from restructuring actions taken during 1993. This
decrease was offset to some extent by higher SG&A expenses resulting from profit
sharing and to a lesser extent the merger of Quest, which has been consolidated
in the Company's results of operations. The increase in SG&A in the first
quarter of 1994 as compared to the fourth quarter of 1993 is also substantially
due to the merger of Quest and profit sharing.
The percentage of SG&A expenses to net sales may vary from quarter-to-quarter
because expenditures, and the benefits derived therefrom, often occur in
different periods.
RESEARCH AND DEVELOPMENT
- ------------------------
The Company's spending in research and development ("R&D") for the quarter was
$30.9 million, or 5.5% of sales compared to $34.0 million, or 6.1% of sales for
the same quarter in 1993 and $28.8 million, or 5.0% of sales for the fourth
quarter of 1993. The decrease in R&D spending as compared to the first quarter
of 1993 is primarily due to restructuring actions taken during 1993 and the
implementation of a more efficient product launch process. This decrease was
offset to some extent by higher R&D expenses resulting from the merger of Quest.
The increase in R&D spending as compared to the fourth quarter of 1993 is
primarily due to the merger of Quest and an increase in tape product
development.
Due to the timing involved with new R&D programs and the release of new products
to production, the level of R&D may vary from quarter to quarter in both
absolute dollars and as a percentage
12
<PAGE>
of sales. The Company's continued spending in this area reflects management's
belief that substantial investment in R&D is necessary to maintain a competitive
product offering.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
- ----------------------------------------------
The Company's amortization of goodwill and other intangibles was $3.8 million in
the first quarter of 1994 compared to $6.4 million in the same quarter in 1993
and $3.2 million in the fourth quarter of 1993. This amortization decreased as
compared to the first quarter of 1993 as a result of the write-off of goodwill
and certain intangibles associated with the acquisition or Archive Corporation
during the third quarter of 1993. As compared to the fourth quarter of 1994,
amortization of goodwill and other intangibles increased due to goodwill and
intangible assets acquired from Quest and an increase in ownership interest in
the Company's joint venture in China.
UNUSUAL ITEMS
- -------------
No material unusual items were recorded in the first quarter of 1994. In the
first quarter of 1993, the Company recorded charges of $36.4 million of which
$8 million was included in cost of sales and $28.4 million was recorded as
unusual items. These charges reflected the cost of the Company's actions to
accelerate the phase-out of certain older disk drive products, consolidate
headcount and facilities and to further integrate the tape drive operations.
INTEREST EXPENSE, OTHER INCOME/(EXPENSE) AND INCOME TAXES
- ---------------------------------------------------------
Interest expense was $12.6 million for the first quarter of 1994 as compared to
$12.8 million for the first quarter of 1993 and $12.5 million for the fourth
quarter of 1993. Interest expense has remained relatively flat quarter to
quarter as the Company's average outstanding debt balances have remained stable.
Other income/(expense) was a net gain of $4.4 million in the first quarter of
1994 compared to net gains of $9.2 million in the first quarter of 1993 and $5.5
million in the fourth quarter of 1993. The decrease in the net gain in the
quarter as compared to the same quarter a year ago is due to lower interest
income in the current quarter and certain non-recurring patent licensing fees
and royalties received in the first quarter of 1993. The decrease in the net
gain in the first quarter of 1994 as compared to the fourth quarter of 1993 is
due to tape related royalties received in the fourth quarter.
13
<PAGE>
INCOME TAXES
- ------------
The Company's effective tax rate for the first quarter of 1994 was 35.0%. This
tax rate is higher than the tax rate used in previous profitable periods
primarily as a result of a change in the projected mix of income between the
various taxable jurisdictions in which the Company has operations.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1994, the principal sources of liquidity consisted of cash and
short-term investments of $411 million and a combined $100 million revolving
credit facility with several financial institutions which is subject to the
continued maintenance of certain financial covenants. The Company has no
borrowings outstanding under this credit facility as of March 31, 1994. As of
this date, the Company had outstanding letters of credit of approximately $45
million.
Cash and short-term investments of $411 million decreased by $106 million from
December 31, 1993. This decrease is primarily due to long-term debt repayments,
higher inventory balances and vendor receivables for components and lower
accounts receivable collections which resulted from lower shipments in the first
half of the quarter.
Capital expenditures for the quarter amounted to $24 million primarily related
to the expansion of the Company's disk media manufacturing operation and
manufacturing equipment for the Company's operations in the Far East. The
Company plans to spend approximately $50 million on capital items during the
remainder of 1994.
The Company believes that current capital resources and cash generated from
operations will be sufficient to meet its liquidity and capital expenditure
requirements for the foreseeable future.
LITIGATION
- ----------
The Company and certain officers and directors are defendants in several
securities class action lawsuits which purport to represent a class of investors
who purchased or otherwise acquired the Company's common stock between January
1992 and May 1993. Certain officers and directors are also defendants in a
related shareholders derivative suit. The complaints seek unspecified damages
and other relief. The Company intends to defend the actions vigorously.
In August 1993, the Company was served with a patent infringement complaint
filed by IBM in the United States District Court for the Northern District of
California. The complaint alleges that products manufactured by the Company
infringe nine patents owned by IBM. In addition, the complaint seeks
declaratory relief to the effect that drives produced by IBM do not infringe
five patents held by the Company and seeks to have such patents declared
invalid. The Company answered the complaint, denying
14
<PAGE>
all material allegations and counter claiming that IBM disk drives infringe six
patents owned by Conner, including the five contained in the IBM complaint. The
Company believes that it has meritorious defenses against these allegations,
that it had valid claims against IBM and will defend this action vigorously.
However, the Company is unable to predict the outcome of the litigation or
ultimate effect, if any, on its operations or financial condition. Regardless of
the merits of the respective patent claims, the Company believes that the
existence of the IBM litigation could have an adverse effect on its business and
expects that this litigation will require the Company to incur significant
costs, including substantial legal expenses. Although the Company has engaged in
continuous discussions with IBM toward an appropriate cross-licensing
arrangement, no assurance can be given as to the outcome of the litigation or
settlement negotiations.
In February 1992, the Company filed a patent infringement lawsuit against
Western Digital Corporation ("Western Digital") alleging the infringement of
five of the Company's patents by Western Digital. The suit is currently pending
in the Northern District of California. Shortly after the commencement of this
action, Western Digital filed a claim in the Central District of California
alleging infringement of one patent by the Company. Subsequently, Western
Digital amended its claim to assert infringement by the Company of two
additional disk drive patents. The Western Digital complaint has been
transferred to the Northern District of California. The Company believes it has
valid claims against Western Digital and meritorious defenses to the claims
asserted by Western Digital.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 8 of notes to condensed consolidated financial
statements.
Item 6. Exhibits and Reports on Form 8-K
A) EXHIBITS
11.0 Statement of Computation of Earnings/(Loss) Per
Share
B) REPORTS ON FORM 8-K
No reports on form 8-K were filed during the quarter ended March 31,
1994.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONNER PERIPHERALS, INC.
(Registrant)
Date: May 16, 1994 /s/ P. JACKSON BELL
------------ --------------------------
P. Jackson Bell,
Executive Vice President - Finance
and Chief Financial Officer
17
<PAGE>
CONNER PERIPHERALS, INC.
EXHIBITS TO REPORT ON FORM 10-Q
FOR THE QUARTER ENDED March 31, 1994
18
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- ----------------------------------------------
11.0 Statement of Computation of Earnings/(Loss) Per Share
19
<PAGE>
Exhibit 11.0
CONNER PERIPHERALS, INC.
(11) - STATEMENT RE: COMPUTATION OF EARNINGS/(LOSS) PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1994 1993
------- -------
<S> <C> <C>
Primary:
Weighted average shares outstanding 50,720 48,554
Net effect of dilutive stock options 1,299 N/A
------- --------
Total 52,019 48,554
======= ========
Net income/(loss) $23,804 $(22,544)
======= ========
Earnings/(loss) per share $ 0.46 $ (0.46)
======= ========
Fully diluted:
Weighted average shares outstanding 50,720 48,554
Net effect of dilutive stock options 1,305 N/A
Assumed conversion of:
6.75% Subordinated Convertible Debentures 7,931 N/A
6.5% Subordinated Convertible Debentures 14,375 N/A
------- --------
Total 74,331 48,554
======= ========
Net income/(loss) $23,804 $(22,544)
Add:
6.75% Subordinated Convertible Debenture interest,
net of income taxes 2,290 N/A
6.5% Subordinated Convertible Debenture interest,
net of income taxes 3,308 N/A
------- --------
Total $29,402 $(22,544)
======= ========
Earnings/(loss) per share $ 0.40 $ (0.46)
======= ========
- --------------------
N/A - not applicable, item is anti-dilutive and therefore excluded from the
calculation of earnings/(loss) per share
</TABLE>
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