Financial: Quantum Corporation Reports Earnings for Third Fiscal 1999 Quarter; Hard Disk Drive Business Improves; Tape and Tape Automation Businesses Set Records - Company Financial Information

Edge: Work-Group Computing Report, Jan 25, 1999

Quantum Corporation (Nasdaq/NMS:QNTM) Wednesday announced sales of $1.3 billion for its third fiscal quarter ended December 27, 1998. Net income, excluding special charges totaling $190 million, was $50.8 million on a fully taxed basis, or $.29 per share, diluted. These charges include $101 million associated with the dissolution of the company's recording heads joint venture, which represents the full extent of the charge the company will take for its portion of the closure.

In addition, the special charges include $89 million related to the write off of in-process research and development following the company's acquisition of ATL Products, Inc., which was previously disclosed at the time the company announced the acquisition. Including those charges, the company had a net loss of $106.6 million, or $.64 per share, diluted. Revenue for the December quarter grew 14 percent compared to the September quarter. Earnings per share, excluding special charges, more than doubled on a sequential basis. "These results were driven by a significant improvement in our desktop hard disk drive business and the record-breaking performance in our DLTtape and ATL tape automation businesses," said Michael Brown, Quantum's Chairman and Chief Executive Officer. "We continued to benefit from the strength of our diversified storage business model, as non-hard drive revenue grew to a record 28 percent of total company revenue for our fiscal third quarter." Revenues from Quantum's industry leading desktop hard disk drive (HDD) business grew 11 percent sequentially and the company shipped 6.5 million desktop units in the quarter, a 12 percent increase from the September quarter. "After emerging from one of the industry's worst down-turns, this was the second consecutive quarter of growth for both units and revenues in our desktop HDD business," Brown said. "We continued to see healthy demand and improving business conditions in the desktop market throughout the quarter." The company's high-end HDD business also had strong sequential unit growth of 13 percent for the quarter. However, the continuing aggressive pricing environment for this business resulted in losses equivalent to the prior quarter. Quantum's DLTtape business had a record quarter for revenue, units and royalty income. "As the installed base of DLTtape drives approaches one million units, we continue to be enthused about the strength and acceptance of the DLT platform and our competitive position in the growing tape back-up market," Brown said. The company also achieved record revenue for its ATL tape automation business, which included the combination of ATL's products and Quantum's autoloader products. Brown also commented on the strength of the company's balance sheet in the December quarter. "In what was our ninth consecutive quarter of positive cash flow from operations, we generated $189 million in cash from operations, increasing our cash balance to $707 million." Brown said. Asset management performance also improved during the quarter, as the company reduced inventory levels by $37 million and increased inventory turns to 17, compared to 13 in the previous quarter. Founded in 1980, Quantum Corporation (www.quantum.com) is a diversified mass storage company with leadership positions in both fixed and removable storage markets. Quantum is the highest volume global supplier of hard disk drives for personal computers, a leading supplier of high capacity hard drives and the worldwide revenue leader among all classes of tape drives. The company sells a broad range of storage products to OEM and distribution customers worldwide. Quantum's sales for the fiscal year ending March 1998 were $5.8 billion.

                      QUANTUM CORPORATION
               CONSOLIDATED STATEMENTS OF INCOME
             (In thousands except per share amounts)

               THREE MONTHS ENDED            NINE MONTHS ENDED
              Dec. 27,     Dec. 28,          Dec. 27,   Dec. 28,
                1998         1997              1998        1997

Sales        $ 1,325,581  $ 1,519,881   $ 3,593,315   $ 4,519,516
Cost of sales  1,086,492    1,384,208     2,995,964     3,809,826

Gross profit     239,089      135,673       597,351       709,690

Expenses:
 Research and
  development     87,921       88,275       254,859       236,797
 Sales and
  marketing       51,142       45,203       134,866       128,907
 General and
  administrative  22,380       23,375        61,275        75,114
 Purchased
  in-process
  research and
  development     89,000            -        89,000             -

Total operating
 expenses        250,443      156,853       540,000       440,818

Income (loss)
 from operations (11,354)     (21,180)       57,351       268,872
Interest and other
 expense, net      1,783         (340)          174          (523)
Loss from
 investee        100,700       22,651       142,050        42,222

Income (loss)
 before income
 taxes          (113,837)     (43,491)      (84,873)      227,173
Income tax
 provision
 (benefit)        (7,286)     (11,308)        1,403        59,065

Net income
 (loss)       $ (106,551)   $ (32,183)    $ (86,276)    $ 168,108

  Net income (loss)
   per share:
  Basic         $  (0.64)    $  (0.24)     $  (0.54)     $   1.26
  Diluted       $  (0.64)    $  (0.24)     $  (0.54)     $   1.05

Weighted average
 common and common
 equivalent shares:
  Basic          165,820      135,842       158,687       133,669
  Diluted        165,820      135,842       158,687       165,642

                      QUANTUM CORPORATION
                  CONSOLIDATED BALANCE SHEETS
                        (In thousands)

                                December 27,         March 31,
                                  1998                 1998
Assets
     Current Assets:
       Cash and investments       $707,436             $713,723
       Accounts receivable,
        net of allowance for
        doubtful accounts of
        $11,823 and $12,928        664,238              737,928
       Inventories                 259,042              315,035
       Deferred income taxes       136,020              133,981
       Other current assets         88,710              124,670

         Total current assets    1,855,446            2,025,337

     Property and equipment, net   266,785              285,159
     Intangibles, net              231,750               24,490
     Other assets                   39,587              103,425
                                ----------           ----------
                                $2,393,568           $2,438,411

Liabilities and Shareholders' Equity
     Current Liabilities:
       Accounts payable           $405,737             $446,243
       Accrued warranty             73,611               74,017
       Other accrued
        liabilities                183,362              179,041
       Current portion of
        long-term debt               1,001                  935

           Total current
            liabilities            663,711              700,236

     Deferred income taxes          73,945               38,668
     Convertible subordinated debt 287,500              287,500
     Long-term debt                 64,225               39,985
     Shareholders' equity        1,304,187            1,372,022
                                 ---------            ---------
                                $2,393,568           $2,438,411