UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
| (Mark One) | ||
|
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) | |
| OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the period ended June 28, 2003 | ||
| or | ||
|
o
|
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: 1-16447
Maxtor Corporation
|
Delaware
|
77-0123732 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
500 McCarthy Boulevard, Milpitas, CA (Address of principal executive offices) |
95035 (Zip Code) |
|
Registrant’s telephone number, including area code:
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 þ No o
Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act. Yes þ No o
As of, August 1, 2003, 239,490,780 shares of the registrant’s Common Stock, $.01 par value, were issued and outstanding.
MAXTOR CORPORATION
FORM 10-Q
INDEX
| Page | ||||||
| PART I. FINANCIAL INFORMATION | ||||||
|
Item 1.
|
Condensed Consolidated Financial Statements | 2 | ||||
| Condensed Consolidated Balance Sheets — June 28, 2003, and December 28, 2002 | 2 | |||||
| Condensed Consolidated Statements of Operations — Three and six months ended June 28, 2003, and June 29, 2002 | 3 | |||||
| Condensed Consolidated Statements of Cash Flows — Six months ended June 28, 2003, and June 29, 2002 | 4 | |||||
| Notes to Condensed Consolidated Financial Statements | 5 | |||||
|
Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | ||||
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Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk | 41 | ||||
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Item 4.
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Controls and Procedures | 42 | ||||
| PART II. OTHER INFORMATION | ||||||
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Item 1.
|
Legal Proceedings | 43 | ||||
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Item 2.
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Changes in Securities | 44 | ||||
|
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk | 44 | ||||
|
Item 4.
|
Submission of Matters to a Vote of Security Holders | 44 | ||||
|
Item 6.
|
Exhibits and Reports on Form 8-K | 44 | ||||
| Signature Page | ||||||
| Certifications | ||||||
1
PART I. FINANCIAL INFORMATION
| Item 1. | Condensed Consolidated Financial Statements |
MAXTOR CORPORATION
| June 28, | December 28, | |||||||||
| 2003 | 2002 | |||||||||
| (Unaudited) | ||||||||||
| (In thousands, except share and | ||||||||||
| per share amounts) | ||||||||||
| ASSETS | ||||||||||
|
Current assets:
|
||||||||||
|
Cash and cash equivalents
|
$ | 483,984 | $ | 306,444 | ||||||
|
Restricted cash
|
55,020 | 56,747 | ||||||||
|
Marketable securities
|
87,614 | 87,507 | ||||||||
|
Accounts receivable, net of allowance for
doubtful accounts of $16,846 at June 28, 2003 and $18,320
at December 28, 2002
|
436,800 | 363,664 | ||||||||
|
Inventories
|
232,630 | 175,545 | ||||||||
|
Prepaid expenses and other
|
60,788 | 33,438 | ||||||||
|
Total current assets
|
1,356,836 | 1,023,345 | ||||||||
|
Property, plant and equipment, net
|
322,892 | 364,842 | ||||||||
|
Goodwill
|
813,951 | 813,951 | ||||||||
|
Other intangible assets, net
|
105,780 | 146,898 | ||||||||
|
Other assets
|
14,973 | 11,798 | ||||||||
|
Total assets
|
$ | 2,614,432 | $ | 2,360,834 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
|
Current liabilities:
|
||||||||||
|
Short-term borrowings, including current portion
of long-term debt
|
$ | 184,587 | $ | 41,042 | ||||||
|
Accounts payable
|
641,721 | 642,206 | ||||||||
|
Accrued and other liabilities
|
456,438 | 471,750 | ||||||||
|
Liabilities of discontinued operations
|
5,506 | 11,646 | ||||||||
|
Total current liabilities
|
1,288,252 | 1,166,644 | ||||||||
|
Deferred taxes
|
196,455 | 196,455 | ||||||||
|
Long-term debt, net of current portion
|
330,134 | 206,343 | ||||||||
|
Other liabilities
|
192,200 | 199,071 | ||||||||
|
Total liabilities
|
2,007,041 | 1,768,513 | ||||||||
|
Stockholders’ equity:
|
||||||||||
|
Preferred stock, $0.01 par value,
95,000,000 shares authorized; no shares issued or
outstanding
|
— | — | ||||||||
|
Common stock, $0.01 par value,
525,000,000 shares authorized; 250,804,397 shares
issued and 237,558,659 shares outstanding at June 28,
2003 and 247,507,244 shares issued and 242,507,244 shares
outstanding at December 28, 2002
|
2,508 | 2,475 | ||||||||
|
Additional paid-in capital
|
2,362,090 | 2,349,253 | ||||||||
|
Deferred stock-based compensation
|
(457 | ) | (1,193 | ) | ||||||
|
Accumulated deficit
|
(1,706,989 | ) | (1,740,591 | ) | ||||||
|
Cumulative other comprehensive income
|
15,178 | 2,377 | ||||||||
|
Treasury stock of 13,245,738 shares at
June 28, 2003 and 5,000,000 shares at
December 28, 2002 at cost
|
(64,939 | ) | (20,000 | ) | ||||||
|
Total stockholders’ equity
|
607,391 | 592,321 | ||||||||
|
Total liabilities and stockholders’ equity
|
$ | 2,614,432 | $ | 2,360,834 | ||||||
See accompanying notes to condensed consolidated financial statements.
2
MAXTOR CORPORATION
| Three Months Ended | Six Months Ended | |||||||||||||||||
| June 28, 2003 | June 29, 2002 | June 28, 2003 | June 29, 2002 | |||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||
| (In thousands, except share and per share amounts) | ||||||||||||||||||
|
Net revenues
|
$ | 910,903 | $ | 885,350 | $ | 1,849,792 | $ | 1,921,450 | ||||||||||
|
Cost of revenues
|
761,657 | 825,960 | 1,528,699 | 1,748,294 | ||||||||||||||
|
Gross profit
|
149,246 | 59,390 | 321,093 | 173,156 | ||||||||||||||
|
Operating expenses:
|
||||||||||||||||||
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Research and development
|
84,218 | 104,052 | 170,879 | 207,110 | ||||||||||||||
|
Selling, general and administrative
|
30,967 | 35,318 | 62,899 | 76,670 | ||||||||||||||
|
Amortization of intangible assets
|
20,562 | 20,562 | 41,124 | 41,124 | ||||||||||||||
|
Total operating expenses
|
135,747 | 159,932 | 274,902 | 324,904 | ||||||||||||||
|
Income (loss) from operations
|
13,499 | (100,542 | ) | 46,191 | (151,748 | ) | ||||||||||||
|
Interest expense
|
(8,325 | ) | (6,562 | ) | (13,747 | ) | (13,108 | ) | ||||||||||
|
Interest and other income
|
1,459 | 2,376 | 2,786 | 5,405 | ||||||||||||||
|
Other gain
|
— | 1,577 | 88 | 1,577 | ||||||||||||||
|
Income (loss) from continuing operations before
income taxes
|
6,633 | (103,151 | ) | 35,318 | (157,874 | ) | ||||||||||||
|
Provision for income taxes
|
437 | 152 | 1,714 | 806 | ||||||||||||||
|
Income (loss) from continuing operations
|
6,196 | (103,303 | ) | 33,604 | (158,680 | ) | ||||||||||||
|
Loss from discontinued operations
|
— | (5,699 | ) | — | (15,360 | ) | ||||||||||||
|
Net income (loss)
|
$ | 6,196 | $ | (109,002 | ) | $ | 33,604 | $ | (174,040 | ) | ||||||||
|
Net income (loss) per share — basic
|
||||||||||||||||||
|
Continuing operations
|
$ | 0.03 | $ | (0.43 | ) | $ | 0.14 | $ | (0.67 | ) | ||||||||
|
Discontinued operations
|
$ | — | $ | (0.03 | ) | $ | — | $ | (0.06 | ) | ||||||||
|
Total
|
$ | 0.03 | $ | (0.46 | ) | $ | 0.14 | $ | (0.73 | ) | ||||||||
|
Net income (loss) per share — diluted
|
||||||||||||||||||
|
Continuing operations
|
$ | 0.03 | $ | (0.43 | ) | $ | 0.14 | $ | (0.67 | ) | ||||||||
|
Discontinued operations
|
$ | — | $ | (0.03 | ) | $ | — | $ | (0.06 | ) | ||||||||
|
Total
|
$ | 0.03 | $ | (0.46 | ) | $ | 0.14 | $ | (0.73 | ) | ||||||||
|
Shares used in per share calculation
|
||||||||||||||||||
|
— basic
|
241,120,075 | 238,803,423 | 242,382,530 | 237,892,949 | ||||||||||||||
|
— diluted
|
245,259,831 | 238,803,423 | 245,999,915 | 237,892,949 | ||||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
MAXTOR CORPORATION
| Six Months Ended | |||||||||||
| June 28, | June 29, | ||||||||||
| 2003 | 2002 | ||||||||||
| (Unaudited) | |||||||||||
| (In thousands) | |||||||||||
|
Cash Flows from Operating
Activities:
|
|||||||||||
|
Net income (loss) from continuing operations
|
$ | 33,604 | $ | (158,680 | ) | ||||||
|
Adjustments to reconcile net income (loss) from
continuing operations to net cash provided by (used in)
operating activities:
|
|||||||||||
|
Depreciation and amortization
|
83,130 | 73,000 | |||||||||
|
Amortization of intangible assets
|
41,124 | 41,124 | |||||||||
|
Amortization of deferred compensation related to
Quantum
|
— | 4,103 | |||||||||
|
Stock-based compensation expense
|
496 | 2,850 | |||||||||
|
Loss on sale of property, plant and equipment and
other assets
|
2,555 | 3,104 | |||||||||
|
Gain on retirement of bond
|
(111 | ) | (1,162 | ) | |||||||
|
Realized gain on investment
|
— | (1,079 | ) | ||||||||
|
Change in assets and liabilities:
|
|||||||||||
|
Accounts receivable
|
(73,136 | ) | 33,726 | ||||||||
|
Inventories
|
(57,085 | ) | (35,129 | ) | |||||||
|
Prepaid expenses and other assets
|
(8,866 | ) | 4,527 | ||||||||
|
Accounts payable
|
1,574 | 68,413 | |||||||||
|
Accrued and other liabilities
|
(22,188 | ) | (84,752 | ) | |||||||
|
Net cash provided by (used in) operating
activities from continuing operations
|
1,097 | (49,955 | ) | ||||||||
|
Net cash flow used in discontinued operations
|
(6,140 | ) | (12,498 | ) | |||||||
|
Net cash provided by (used in) operating
activities
|
(5,043 | ) | (62,453 | ) | |||||||
|
Cash Flows from Investing
Activities:
|
|||||||||||
|
Proceeds from sale of property, plant and
equipment
|
274 | 65 | |||||||||
|
Purchase of property, plant and equipment
|
(39,290 | ) | (77,082 | ) | |||||||
|
Decrease (Increase) in restricted cash
|
1,727 | (18 | ) | ||||||||
|
Proceeds from sale of marketable securities
|
28,761 | 102,158 | |||||||||
|
Purchase of marketable securities
|
(29,493 | ) | (34,192 | ) | |||||||
|
Net cash used in investing activities
|
(38,021 | ) | (9,069 | ) | |||||||
|
Cash Flows from Financing
Activities:
|
|||||||||||
|
Proceeds from issuance of debt including
short-term borrowings
|
223,858 | — | |||||||||
|
Principal payments of debt including short-term
borrowings
|
(5,327 | ) | (18,400 | ) | |||||||
|
Principal payments under capital lease obligations
|
(14,004 | ) | (11,741 | ) | |||||||
|
Purchase of treasury shares at cost
|
(44,939 | ) | — | ||||||||
|
Net proceeds from receivable-backed borrowing
|
47,908 | — | |||||||||
|
Proceeds from issuance of common stock from
employee stock purchase plan and stock options exercised
|
13,108 | 13,988 | |||||||||
|
Net cash provided by (used in) financing
activities
|
220,604 | (16,153 | ) | ||||||||
|
Net change in cash and cash equivalents
|
177,540 | (87,675 | ) | ||||||||
|
Cash and cash equivalents at beginning of period
|
306,444 | 379,927 | |||||||||
|
Cash and cash equivalents at end of year
|
$ | 483,984 | $ | 292,252 | |||||||
|
Supplemental Disclosures of Cash Flow
Information:
|
|||||||||||
|
Cash paid during the period for:
|
|||||||||||
|
Interest
|
$ | 2,049 | $ | 11,583 | |||||||
|
Income taxes
|
$ | 687 | $ | 5,369 | |||||||
|
Schedule of Non-Cash Investing and Financing
Activities:
|
|||||||||||
|
Purchase of property, plant and equipment
financed by accounts payable
|
$ | 4,999 | $ | 13,728 | |||||||
|
Retirement of debt in exchange for bond redemption
|
$ | — | $ | 5,000 | |||||||
|
Change in unrealized gain (loss) on
investments
|
$ | 12,801 | $ | (603 | ) | ||||||
|
Purchase of property, plant and equipment
financed by capital lease obligations
|
$ | 5,526 | $ | — | |||||||
The accompanying notes are an integral part of these financial statements.
4
MAXTOR CORPORATION
| 1. | Summary of Significant Accounting Policies |
| Basis of Presentation |
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. The unaudited interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended December 28, 2002 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.
| Use of Estimates |
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Material differences may result in the amount and timing of the Company’s revenue for any period, if the Company’s management made different judgments or utilized diffe