UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT 

Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

October 23, 2003
Date of Report (Date of earliest event reported)

QUANTUM CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation)

 

 

408-944-4000
(Registrant’s telephone number, including area code)

 

ITEM 5. OTHER EVENTS

On October 23, 2003, Quantum Corporation issued a press release, a copy of which is attached as Exhibit 99.1 hereto and incorporated herein by reference.

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

Dated:    October 23, 2003

EXHIBIT INDEX

Exhibit 99.1   Press release, dated October 23, 2003.

Exhibit 99.1   Press release, dated October 23, 2003.

QUANTUM CORPORATION REPORTS FISCAL SECOND QUARTER RESULTS

SAN JOSE, Calif., Oct. 23, 2003 - Quantum Corp. (NYSE:DSS), a global leader in storage, today announced that revenue for its fiscal second quarter (FQ2), ended Sept. 28, 2003, was $195 million.  The company reported a GAAP net loss of $38 million, or 22 cents per share, which included approximately $27 million in previously announced accounting charges.  The non-GAAP loss for FQ2 was $6 million, or 4 cents per share.  As Quantum announced when it revised its September quarter expectations earlier in the month, the company’s results were impacted by continued pressure on media cartridge pricing.  On a GAAP basis, the gross margin rate was approximately 30%, and the non-GAAP gross margin rate was 31.4%.  Quantum continued to reduce costs during FQ2, with operating expenses totaling $68 million on a GAAP basis and $62 million on a non-GAAP basis.   (For a reconciliation of GAAP to non-GAAP figures, please see the accompanying table entitled “Second Quarter Fiscal Year 2004 GAAP to Non-GAAP Reconciliation.”) 

“We have pursued a number of aggressive changes over the past year that have resulted in some significant improvements in our business, including increased market share, higher product gross margins, lower operating expenses, and a range of exciting new products,” said Rick Belluzzo, chairman and chief executive officer of Quantum.  “However, we have also been confronted with new challenges over the last two quarters, primarily related to a steeper-than-expected decline in media prices.  We have undertaken efforts to mitigate the impact of the media pricing pressure and accelerate our return to the positive trajectory we achieved in the second half of our fiscal year 2003 that ended in March.”

Even in the face of a challenging quarter, Quantum’s accomplishments over the past year were evident in several year-over-year comparisons for FQ2.  For example, excluding media, overall product revenue increased 26% year-over-year, reflecting the company’s focus on improving and broadening its product offerings.  Compared to the same quarter last year, Storage Solutions Group revenue was also up significantly in FQ2 and operating expenses were down, with a significant decline in general and administrative expenses.

Fiscal 2004 second quarter revenue in the DLTtape^TM Group was $135 million, comprised of $49 million in total tape media revenue and $86 million in tape drive revenue.  The decline in media revenue reflected the impact of continued pricing pressure, affecting both Quantum-branded media and media sold by licensees on which Quantum receives a royalty.  The company said its market data indicated that the media pricing issue was not specific to Quantum but was instead an industry-wide problem.

Tape drive unit shipments for the September quarter were roughly flat sequentially but still up more than 50% compared to the same quarter last year, and tape drive gross margins increased for the fourth consecutive quarter.  Both the increased shipments and higher margins are due to the efforts Quantum made over the past year to improve its tape drive business and broaden its product offerings, including through the Benchmark acquisition.  As a further reflection of this progress, the DLT VS160 tape drive has begun shipping through Quantum’s channel partners and one major system OEM, with two other major system OEMs having committed to the product.

Quantum also recently announced that its new SDLT 600 tape drive would be generally available in the current quarter.  This third-generation super drive is the fastest-performing drive in its class, is ideal for automation environments, and will ship with Quantum’s award-winning DLTSage suite of predictive and preventive diagnostic tools that enables customers to more simply manage their tape storage resources.

Fiscal 2004 second quarter revenue in Quantum’s Storage Solutions Group, which includes tape automation, services and enhanced backup solutions, was $65 million.  Although down slightly on a sequential basis, this represented an increase of more than 25% over the comparable quarter last year.  Reflecting the company’s continuing efforts to refine its enterprise sales model and offer a more solutions-oriented approach to customers, both OEM and channel sales of enterprise libraries were also up sequentially.  Quantum’s enterprise offerings have been further bolstered with the recent launch of its newest high-end tape library, the “MAKO” PX720.  MAKO provides customers with unmatched reliability and flexibility and the ability to scale as their data protection needs increase by adding modular tape drive clusters “on-demand.”

September quarter shipments of the Quantum DX30 enhanced backup system increased over the prior quarter, with 50% of customers deciding to purchase multiple units.  The company expects to expand its enhanced backup customer base further when it releases the Quantum DX100 later this quarter.

“Looking forward, we have a clear set of priorities that will build off the many initiatives that we began during the past year,” said Belluzzo.  “These include continuing to introduce innovative new products, enhance our sales programs, and reduce costs.  We will also pursue a set of structural changes that will enable more synergy across the company, further reductions in operating expenses, and general improvement in our ability to execute.”

Because Quantum is still evaluating what structural changes it will make, the company provided partial guidance for the third quarter of fiscal year 2004 (FQ3).  Quantum said it expects total revenues to be roughly flat sequentially, reflecting its caution in light of continued uncertainty around media pricing and the fact that it will not yet see the full contribution of new products being introduced during the quarter.  Non-GAAP gross margins and operating expenses are expected to be roughly flat.  As a result, Quantum said it also expects the non-GAAP loss per share for the December quarter to be roughly flat sequentially.

With the exception of an expected $4 million to $5 million in amortization of intangibles, the company said that it could not quantify its GAAP-based expectations for FQ3 at this time because the details of the structural changes it would be making had not yet been finalized.  However, Quantum said it expected to incur restructuring charges for the quarter that could be material, depending on the final decisions reached.  Quantum said it would provide an estimate of those charges and GAAP-based expectations once those decisions are finalized.

 

Use of Non-GAAP Financial Measures

The non-GAAP financial measures used in this press release exclude the impact of acquisition-related intangible asset amortization, special charges, valuation charges related to Quantum’s former manufacturing facility in Malaysia and net deferred tax assets, goodwill write-down and adjustment, discontinued activities and operations, write down of equity investments, non-operating expenses related to the redemption of the company’s 7 percent convertible debt,and related adjustments to provision for income taxes on Quantum’s operating results.  These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies.  Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.  Quantum’s management refers to these non-GAAP financial measures in making operating decisions because they provide meaningful supplemental information regarding the company’s operational performance.  For instance, management believes these non-GAAP financial measures are helpful in assessing Quantum’s core operating results.  In addition, these non-GAAP financial measures facilitate management's internal comparisons to Quantum’s historical operating results and comparisons to competitors' operating results.  Quantum includes these non-GAAP financial measures in this press release because the company believes they are useful to investors in allowing for greater transparency related to supplemental information used by management in its financial and operational decision-making.  In addition, Quantum has historically reported similar non-GAAP financial measures to its investors and believes that the inclusion of comparative numbers provides consistency in the company’s financial reporting at this time.  Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this press release to their most directly comparable GAAP financial measures as provided in the table accompanying this press release.

QUANTUM CORPORATION
SECOND QUARTER FISCAL YEAR 2004 GAAP TO NON-GAAP RECONCILIATION

Conference Call and Audio Webcast Notification

Quantum will hold a conference call today, October 23, 2003, at 2:00 p.m. PDT. Press and industry analysts are invited to attend in listen-only mode. Dial-in number: 212-329-1451 (US & International). Quantum will provide a live audio webcast of the conference call beginning today, October 23, 2003, at 2:00 p.m. PDT. Webcast site: http://investors.quantum.com/.

About Quantum

Quantum Corp. (NYSE:DSS), founded in 1980, is a global leader in storage, delivering highly reliable backup, archive and recovery solutions that meet demanding requirements for data integrity and availability with superior price performance.  Quantum is the world's largest supplier of half-inch cartridge tape drives, and its DLTtape technology is the standard for tape backup and archiving of business-critical data for the mid-range enterprise.  Quantum is also a leader in the design, sale and service of autoloaders and automated tape libraries used to manage, store and transfer data.  Over the past year, Quantum has been one of the pioneers in the emerging market of disk-based backup, offering a solution that emulates a tape library and is optimized for data protection.  Quantum sales for the fiscal year ended March 31, 2003, were $871 million.  Quantum Corp., 1650 Technology Drive, Suite 800, San Jose, CA 95110, (408) 944-4000, www.quantum.com.

###

Quantum and the Quantum logo are trademarks of Quantum Corporation registered in the United States and other countries.  DLT, DLTtape, SDLT, Super DLTtape, DLTSage, DX and MAKO are trademarks of Quantum Corporation. All other trademarks are the property of their respective owners.

"Safe Harbor" Statement under the U.S. Private Securities Litigation Reform Act of 1995: This press release contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Specifically, without limitation, statements relating to our expectation that our SDLT 600 tape drive would be generally available in the current quarter, that we will release our DX100 later this quarter, that we will enhance our sales program and reduce our costs, that we will take advantage of additional synergies across the company, that our total revenues, non-GAAP gross margins, operating expenses and Non-GAAP loss per share for the third quarter will all be roughly flat sequentially, that we expect amortization of intangibles to be $4.5 million in the third quarter, that we will incur additional restructuring charges in the third quarter that could be financially material and that we will provide our GAAP financial estimates for the third quarter in November are forward-looking statements within the meaning of the Safe Harbor.  These statements are based on management's current expectations and are subject to certain risks and uncertainties.  As a result, actual results may differ materially from the forward-looking statements contained herein.  Factors that could cause actual results to differ materially from those described herein include, but are not limited to, the amount of orders received in future periods, our ability to timely ship our products, our ability to achieve anticipated pricing, cost and gross margin levels given lower volumes and continuing price and cost pressures, our receipt of media royalties from media manufacturers at or above historical levels, our ability to successfully introduce new products, and acceptance of, and demand for, our products.

More detailed information about these risk factors, and additional risk factors, are set forth in Quantum’s periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Trends and Uncertainties,” pages 45 to 57, in Quantum’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 13, 2003.  In particular, you should review the risk factors on pages 45, 46, 47, 48, 49 and 56 of our August 13, 2003 Form 10-Q under the headings “We are exposed to general economic conditions that have continued to result in significantly reduced sales levels and significant operating losses . . . ”, “SSG currently operates at a loss and may continue to operate at a loss.  If we are unable to make our Storage Solutions business profitable, the losses from this group could materially and adversely affect our business, financial condition and results of operations”, “A majority of our sales come from a few customers, and these customers have no minimum or long-term purchase commitments”, “We do not control licensee pricing or licensee sales of tape media cartridges and, as a result, our royalty revenue may decline, which could materially and adversely affect our business, financial condition and operating results”, “Our operating results depend on new product introductions, which may not be successful, in which case our business, financial condition and operating results may be materially and adversely affected,” and “Our quarterly operating results could fluctuate significantly, and past quarterly operating results should not be used to predict future performance.”  Quantum expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

QUANTUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

QUANTUM CORPORATION
NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

GAAP TO NON-GAAP RECONCILIATION OF CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

Notes
(A)	Amortization of intangible assets
(B)	Valuation charge against net deferred tax assets
(C)	Tax benefit on certain non-GAAP adjustments

QUANTUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

		September 28, 2003					March 31, 2003
Assets
Current assets:
Cash and cash equivalents		$	156,433				$	221,734
Short-term investments			116,358					97,055
Accounts receivable, net of allowance for doubtful accounts         of $10,285 and $8,927			113,490					133,760
Deferred income taxes			35,378					46,370
Inventories			63,378					66,305
Service inventories			48,186					49,104
Assets held for sale			4,803					--
Other current assets			22,239					26,080
Total current assets			560,265					640,408
Long-term assets:
Property and equipment, net			41,092					54,522
Goodwill			44,179					40,916
Intangible assets, net			69,773					79,444
Other assets			12,640					10,606
Receivable from Maxtor Corporation			--					95,833
Total long-term assets			167,684					281,321
		$	727,949				$	921,729
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	77,458				$	104,495
Accrued warranty			44,518					49,582
Short-term debt			976					--
Other accrued liabilities			94,314					99,899
Total current liabilities			217,266					253,976
Long-term liabilities:
Deferred income taxes			35,378					25,091
Convertible subordinated debt			160,000					287,500
Stockholders’ equity			315,305					355,162
		$	727,949				$	921,729