PART I
ITEM 1. BUSINESS:
Iomega Corporation ("Iomega" or the "Company") designs, manufactures and
markets removable data storage devices, including magnetic disk drives based on
Bernoulli Technology (registered trademark) , tape backup drives based on the
industry standard QIC (quarter inch tape) format, and Zip (trademark)
removable cartridge drives. The Company also markets a removable hard disk
cartridge which is compatible with certain drives manufactured by SyQuest
Technology, Inc. ("SyQuest") and utilizes rigid media, and Floptical
(registered trademark) disk drives. The Company also designs, manufactures
and markets subsystems and removable disks and cartridges for use with drives
marketed by the Company. The Company was incorporated in Delaware in April
1980.
Products
Iomega's product lines include Bernoulli disk drives and related removable
media disks, Ditto (trademark) QIC tape drives and related tape media, Zip
removable cartridge disk drives and media cartridges, Floptical disk drives
and related media disks and SyQuest-compatible removable hard disk cartridges.
Following is a description of the Company's principal products:
Bernoulli Products: These 5.25-inch half-height drives are removable
storage devices based on the Company's Bernoulli Technology, which allows
spinning flexible media to be precisely stabilized next to a read/write
head with aerodynamic contours. The Company's Bernoulli drives are
designed to combine the high capacity and rapid access generally
associated with rigid "Winchester" disk drives with the media removability
and expandable storage capacity generally associated with floppy disk
drives and tape drives. The Company's Bernoulli drives and the associated
disks are sold both in the form of a complete storage subsystem for IBM
PC-compatible personal, laptop and notebook computers, Apple Macintosh
personal and notebook computers, and SUN and other leading workstation
products, and in the form of components for integration into larger
systems by original equipment manufacturers (OEMs) or value added
resellers (VARs). The Bernoulli drives use advanced Reed-Solomon error
correction and come in 230, 150, 90, 44, and 20 megabyte (MB) disk drive
capacities. They also come in external, internal and transportable
versions.
During 1994, the majority of the Company's Bernoulli sales came from the
Bernoulli 150 drive and media cartridges. The Bernoulli MultiDisk 150
drive began shipping in October 1992 and was Iomega's first drive to use
multiple capacity disks - 35, 65, 105 and 150MB. It is also capable of
reading and writing to 90MB disks and reading 44MB disks of previous
Bernoulli drives. The product has self-cleaning heads, which are designed
to improve user convenience during operation. The Company began shipping
the Bernoulli 230 drive in September 1994 and expects the Bernoulli 230 to
account for a significant portion of 1995 Bernoulli sales. The Bernoulli
230 drive is capable of reading and writing 150 and 90MB disks and reading
44MB disks of previous Bernoulli drives.
_________________________
Iomega, Bernoulli, and Bernoulli Technology are registered trademarks of,
and the Iomega logo, Ditto, Zip, MultiDisk and Tape 250 are trademarks of
Iomega Corporation. Floptical is a registered trademark of Insite
Peripherals, Inc. All other company and product names mentioned are
trademarks of their respective companies.
Tape Products: The Iomega Tape 250 (now known as Ditto 250) drives were
the industry's first commercially available QIC-standard, 1-inch high tape
drives. These drives have a capacity of 250MB with data compression and
are dual speed (500/1,000 kilobytes per second (Kbps)). Tape products are
attached to the standard floppy interface in IBM PC-compatible computers.
The parallel port Ditto 250 attaches to the printer parallel port on IBM
PC compatible computers. The drives are shipped with application software
for both Microsoft DOS and Microsoft Windows. The Company began shipping
these products in June 1992. A significant portion of the Company's sales
in 1994 were derived from tape products. In March 1995, the Company
renamed and expanded its tape family, which is now known as the Ditto
family of tape products. In late 1994, the Company began shipping Ditto
420. In March 1995, the Company announced and began to ship the Ditto 850
and 1700. The Company expects tape products to account for a significant
portion of sales in 1995.
Zip Products: Iomega started shipping 100MB Zip drives in March 1995.
Two versions of the drive are currently offered: a parallel port version
for use with IBM PC-compatible computers and a SCSI version for use with
Apple Macintosh computers or IBM PC-compatible computers which have a SCSI
adapter board. 100MB media cartridges are currently offered with a 25MB
version planned. Also offered is a line of accessories. Zip is an
external drive with a unique industrial design and color. It features a
window to allow visibility of the cartridge being used, rubber feet for
standing either flat or on its side, indicator lights and a finger slot
for easy cartridge insertion. The parallel port version features printer
pass through to allow normal operation of a printer which is often
attached to the parallel port of the computer. The SCSI version has two
connectors to allow it to be used in a daisy chained set-up with other
SCSI devices. The drive's performance is such that application programs
can be run directly from the Zip drive. The Zip drive comes with software
to help users organize and copy their data. Software read/write protect
is another feature for users to secure and protect their data.
Floptical Products: Iomega's Floptical 3.5-inch, 21MB drives are read
and write compatible with standard 720 kilobytes (KB) and 1.44MB floppy
disk drives. The Company began shipping this product in October 1992.
The Company has discontinued the development and manufacture of Floptical
disk drives. However, the Company will continue to sell its remaining
inventory and retains distribution rights to future generation Floptical
drives.
Subsystems: The Company provides an entire line of subsystems and
software drivers for its Bernoulli and tape products. The subsystems are
designed to work with multiple computer types, enabling users to move
their storage device from machine to machine as their needs change.
Models are available in single drive, dual drive, PC powered, and internal
configurations. Software drivers are supplied to simplify the integration
of the drive into the computer system. Drivers are supplied for leading
operating systems including DOS 6.x, Microsoft Windows 3.x, Apple's
Macintosh System 6.x and 7.x, and IBM's OS/2.
Media: The Company manufactures removable disks using purchased media and
sells them in multiple versions for use with its Bernoulli subsystems and
drives. The Company has a five-year limited warranty on the disks used in
its 230, 150, 90, 44, and 20MB Bernoulli drives. In addition, the Company
provides tape cartridges manufactured for the Company to be used with its
Ditto 250, 420, 720 and 1700 drives with a two-year limited warranty. The
Company assembles Zip cartridges to be used with its Zip drive with a one-
year limited warranty.
The Company has distribution rights for removable hard disk cartridges
manufactured by Nomai, S.A. in France. The cartridges are compatible with
certain SyQuest 5.25" drives and utilize rigid media manufactured by IBM.
The products come with a five-year limited warranty.
Product Technology and Features
Magnetic and optical storage drives such as rigid disk drives, tape drives,
and floppy disk drives, are used as mass memory devices in computer systems to
store and retrieve digital information. These devices are used to access data
while the computer is in operation, provide storage backup for other memory
devices, store data for archival purposes, and transport data between systems.
Bernoulli Products: Disk drives store data on media which has either a
rigid or flexible substrate coating with a thin layer of magnetic material
which permits the recording, erasing and re-recording of data. As the
media disk rotates in the disk drive, read/write heads record data on the
disk or retrieve stored data from the disk. Flexible disk drives use thin
plastic disks (flexible substrate) that are protected by a lightweight
envelope and are removable from the drive mechanism. Rigid disk drives,
known as fixed, hard or "Winchester" drives, use rigid aluminum disks that
are either fixed permanently in the drive mechanism or contained in a
removable sealed cartridge.
The Company's Bernoulli drives differ from both floppy and Winchester disk
drives in basic design and technology. The Company has applied Bernoulli
principles of fluid mechanics to provide an aerodynamic coupling between
the flexible media and recording head. The patented head contour creates
a vacuum between the head and media to create a stable and intimate
contact at the read/write gap, thus achieving very high linear densities.
Because the Bernoulli head/disk interface is aerodynamically "soft", a
particle of contamination can flow through the interface without permanent
damage to the media or head. Similarly, shock and vibration, which can
disable a rigid disk drive, may cause a recoverable error but little or no
damage to the media or head in the Company's disk drives.
Tape Products: Iomega's tape drives and subsystems are primarily designed
to back-up and protect against loss of data stored on hard disk drives in
IBM PC-compatible computers. The Iomega tape drives have a beltless
design which the Company believes improves reliability. Tape drives are
believed to be superior to floppy disk drives as backup devices due to the
much higher capacity of the minicartridge used in tape drives to
distribute, store and transfer software and data. The storage media used
by Iomega's tape products is the industry-standard QIC-compatible series
minicartridges.
Zip Products: Iomega's Zip drives are designed for multiple uses: data
transport, data back-up and hard drive expansion. The Zip drive utilizes
high capacity flexible media and removability technologies developed in
the Company's original Bernoulli products. It uses Winchester style
nanoslide heads with a special airbearing surface combined with a unique
linear voice coil motor. The drive reads and writes both the 3.5" 25MB
and 100MB Zip cartridges.
Floptical Products: Iomega's Floptical drives are based on technology
licensed by the Company on a non-exclusive basis from Insite Peripherals,
Inc. The Floptical drive utilizes the same read/write technology found in
standard 3.5-inch floppy drives and is able to read and write to
standard 3.5-inch floppy disks. Floptical disks are similar to standard
floppy disks with the addition of an optical pattern on one surface. This
pattern may be created either by stamping or by laser etching. The
Company has developed a laser etching production process.
SyQuest Compatible Disks: These removable hard disk cartridges are
designed to be compatible with certain 5.25" disk drives marketed by
SyQuest Technology, Inc. ("SyQuest"). The removable hard disk cartridges
are manufactured for the Company by Nomai, S.A. in France.
New Products and Product Development
The Company operates in an industry that is subject to rapid technological
change, and its ability to compete successfully depends upon, among other
factors, its ability to anticipate such change. Accordingly, the Company
continues to seek to improve its current lines of product offerings and to
pursue the development of new products. In particular, there are projects
underway to develop higher capacity tape products and to develop high
capacity, high performance removable storage devices. During 1994, 1993 and
1992, the Company's research and development expenses were $15,438,000,
$18,972,000, and $21,959,000, respectively (or 10.9%, 12.9%, and 15.8%,
respectively, of sales).
In October 1994, the Company announced its ZIP product, a 25MB and 100MB
removable cartridge disk drive. The product capitalizes on the Company's core
technical competencies: high capacity flexible media, heads with unique air
bearing surfaces, and removability. The Company has applied for and is in the
process of applying for a number of patents and copyrights in connection with
the Zip product.
The ZIP drive is intended for the consumer/mass market. Also, the Company
is continuing development of product(s) for the high performance market
currently served by its Bernoulli products. A 230MB version of the Bernoulli
product family was introduced to the market in September 1994.
In August 1991, the Company entered into a joint development agreement with
AIWA Company, Ltd., Japan (AIWA) to develop a very high capacity 4 millimeter
(MM) Helico-scanning device based on DAT technology. The Company sold its
rights to AIWA in July 1994.
In January 1992, the Company acquired certain assets, including
intellectual property, of Springer Technologies, Inc., of Fremont, California.
These assets were being used by the Company in the development of proprietary
thin film head technology for possible application in future mass storage
products. In February 1994, the Company sold this development operation to AIWA
Research and Development, Inc., a subsidiary of AIWA. The Company has retained
rights to purchase thin film heads from AIWA.
In April 1990, the Company established a division located in San
Diego, California, to develop magnetic tape drive products. The Company began
shipping its Tape 250 products in June 1992 and the Tape 420 in November 1994.
In March 1995, the Company renamed its tape product line Ditto and introduced
the Ditto 850 and Ditto 1700 which the Company began shipping in March 1995.
In January 1989, the Company entered into a technology licensing agreement
with Insite Peripherals, Inc. ("Insite") for rights to use Insite's Floptical
data recording technology. Under the licensing agreement, the Company has the
nonexclusive option to manufacture and sell Floptical products developed by
Insite and to participate in the development, manufacture, and sale of new
products based on Floptical technology. The Company began shipping a 21MB laser
Floptical drive in October 1992. In March 1994, the Company discontinued the
development and manufacturing of Floptical disk drives, but retains the rights
to manufacture and distribute in the future.
The Company expects to continue to invest in the development of new drives
and disks as well as the expansion of its family of products to include other
technologies. Such product expansion may be accomplished through internal
development, the acquisition of businesses or technologies, or the use of other
companies' products in subsystems. The Company also expects to invest in cost
reduction efforts for the manufacture of its existing products in 1995.
Marketing
The Company markets and sells storage subsystems, system components and
media through several distribution channels.
The Company sells its products primarily through distributors and OEMs
located throughout the United States, Canada, South America, the Far East and
Europe. Domestically, the Company's distributors sell storage subsystems to
dealers, national retail chains, superstores, mail order companies, value added
resellers (VARs), and franchisees for resale to end users, and sell the
Company's drives to OEMs. OEMs and VARs incorporate the Company's drives and
drive subsystems into systems and microcomputers designed for a wide range of
applications. In addition, the Company is increasing its sales presence in the
retail channels to sell its new Zip and Ditto product lines. These retail
channels include computer superstores, mail order catalogs, office supply
superstores, consumer electronics superstores, and specialty computer stores who
sell directly to end users.
The Company's Federal Systems Group addresses Federal government
requirements through sales to Federal systems integrators and Federal
resellers.
The Company sells its products outside of North America primarily through
international distributors, which accounted for approximately 37% of the total
Company's sales in 1994. The Company has increased its sales efforts in the
European market in the past several years. Sales are accomplished primarily
through sales offices located in Germany, Belgium, Spain, Norway, the United
Kingdom, Italy, and France. The Company began invoicing in foreign currencies
in January 1992.
The Company has contracts with certain of its customers which, in the event
of a price decrease, allow those customers, subject to certain limitations,
credit equal to the difference between the price originally paid and the new
decreased price on units in the customers' inventories on the date of the price
decrease. When a price decrease is anticipated, the Company establishes
reserves for amounts estimated to be reimbursed to qualifying customers.
As of December 31, 1994, the Company's sales, marketing and service
organization consisted of 147 salespersons, sales support and service personnel
worldwide.
Manufacturing
Bernoulli Products: The Company manufactures its Bernoulli drives by
assembling various components, subcomponents and prefabricated parts
manufactured by it or outside vendors. The Company manufactures its disk
drive mechanism and the media cartridge used with its products. In
manufacturing its disks, the Company processes flexible media obtained
from outside vendors by placing a magnetic pattern on the media for head
positioning and then inserting the media into a protective shell, which is
manufactured by a vendor to the Company's specifications. The Company's
Bernoulli drives and subsystems are currently manufactured as standard
products with standard configurations.
Tape Products: The Company manufactures its tape drives by assembling
various components, subcomponents and prefabricated parts manufactured by
the Company or outside suppliers. The Company tests these products to
meet applicable industry standards. The Company packages its tape drives
for sale to both end users and OEMs.
Zip Products: The drive has been designed to be easily manufactured. The
Company manufactures its Zip drives and cartridges by assembling various
components, subcomponents and prefabricated assemblies manufactured for it
by outside suppliers. The Company uses its servowriting technology to
place a magnetic pattern on the flexible media to allow the drive to
accurately find and follow the "tracks" which are used to magnetically
store the customer's data.
The Company depends on the continued and reliable supply of integrated
circuits, media and other components and certain manufacturing equipment from
several key vendors. The Company currently purchases media, read/write
positioning assemblies, read/write heads, certain custom integrated circuits,
actuator subassemblies, motors and certain other mechanical devices and
assemblies from single manufacturers. The read/write positioning assemblies
used in the Company's Bernoulli drives are purchased from SKF Textilmaschinen-
Komponenten GmbH pursuant to a supply agreement which expires on September 30,
1997. The Company purchases other material from single source suppliers on a
purchase order basis. Any failure or delay by its vendors to supply required
items could have an adverse material effect on the Company's business.
The Company has not experienced disruptions in its supply of critical
components, other than disruptions in the ordinary course of business that have
not had a material effect on the Company's business or operations.
Competition
The data storage industry is highly competitive. The Company competes with
a number of companies that have financial, manufacturing and marketing resources
greater than those of the Company and may also compete with licensees of the
Company's products.
Bernoulli Products: The Company's Bernoulli drives compete with other
data storage devices that are available to personal computer users,
primarily Winchester drives (including fixed, removable drive, removable
disk and card-mounted versions), and 3.5" and 5.25" Magneto-Optical (MO)
products. The Company's drives compete in the end user market with
internal and external storage subsystems, primarily with subsystems based
on removable Winchester drives and disks and 3.5" Magneto-Optical
products. The Company's Bernoulli products compete in the market with a
full range of storage products, including Winchester drives, removable
Winchester drives, and high performance tape drives.
Tape Products: The Company's Ditto tape drives compete with other QIC and
DC2000-type products (which includes QIC and Irwin) in the entry level
tape back-up market. The Company believes that this is a growing segment
of the market due to the greater need for backups resulting from increased
Winchester drive capacities. The data transfer rate for this class of
tape drives is relatively slow and since tapes do not provide random
access their usage is normally restricted to back-up applications. The
Company sees the tape and Bernoulli markets as complementary markets with
price and performance segmentation between these product families.
The Company competes in the end user market with several internal and
external tape products, including parallel port interface products.
DC2000-type products currently offer capacities up to 1.7GB with
compression. The tape market is considered a commodity market and,
therefore, is very price competitive.
ZIP Products: The Company's newly introduced ZIP products have many of
the same competitors as its Bernoulli products and tape products. In
addition, there are emerging technologies that are considered as
competitive with the ZIP products. These emerging technologies include
MD-Data, high capacity Floptical, and several recordable CD-ROM
technologies.
Floptical Products: The Company's Floptical drives compete with standard
and high density floppy disk drives. The Company's Floptical drives also
compete with floptical drives manufactured by Insite.
SyQuest Compatible Disks: The removable hard disk cartridges directly
compete with SyQuest's own removable cartridges and cartridges from other
companies. The product is dependent on the drive manufacturer's success
in developing an installed base in the market.
Because the market in which the Company competes may be defined in a
variety of different ways, both broadly (e.g., data storage) and narrowly (e.g.,
removable disk drive storage devices for personal computers), the Company
believes that any attempt to identify the companies that it considers to be
dominant in its industry would be both difficult and possibly misleading.
However, the Company does believe that it faced more direct competition from
removable storage devices for personal computers in 1994 than in any previous
year and the Company expects that direct competition to continue and possibly
increase in 1995. In the tape market, there are two major competitors -- Conner
Periphials, Inc. and Colorado Memory Systems, a division of Hewlett Packard
Company.
The Company believes that most purchasers of its products distinguish among
competitive products on the basis of some or all of the following criteria:
price (cost per unit and cost per megabyte of storage capacity), performance
(speed and capacity), functionality (reliability, product size and removability)
and security of data.
An additional competitive consideration, particularly in the OEM market,
is the size (form factor) of the drive. Winchester and floppy drives are
available in 8-inch, 5.25-inch, 3.5-inch, 2.5-inch and 1.8-inch form
factors. The most common form factor for Winchester drives is 3.5-inches. The
Company currently offers 5.25-inch Bernoulli drives, 3.5-inch Tape, 3.5-
inch Floptical drives, and external 3.5-inch ZIP drives.
The data storage industry is characterized by rapid technological
development. The introduction by a competitor of products with superior
performance or substantially lower prices would adversely affect the Company's
business.
Patents
The Company owns 38 United States and 17 foreign patents, and has filed 39
U.S. and 3 foreign patents pending. Although the Company believes that its
patents and patent applications have significant value, the Company also relies
on copyrights and trade secrets to protect its technology. In addition, rapidly
changing industry technology makes the Company's future success dependent
primarily upon the technical competence and creative skill of its personnel.
The Company has licensed from Insite certain rights relating to the Company's
Floptical drives and related media. The Company also believes that it will be
necessary or desirable for it to obtain licenses in connection with one or more
of its future products, and believes, based on industry practice, that such
licenses should be generally obtainable.
The Company does not believe that the manufacture or sale of its current
products infringes any patents or other intellectual property rights or requires
any license from others.
Principal Customers
During the year ended December 31, 1994, sales to Ingram Micro D, Inc., a
major distributor, accounted for 11% of sales.
Backlog
Purchasers of the Company's products do not generally provide the Company
with long-term delivery schedules. Accordingly, backlog is generally not
material to an understanding of the Company's business, and the Company's
backlog at any time is not generally indicative of future levels of sales.
Government Contracts
No material portion of the Company's business is subject to renegotiation
of profits or termination of contracts at the election of the United States
government.
Environmental Matters
Compliance with federal, state and local environmental protection laws had
no material effect on the Company in 1994 and is not expected to have a material
effect in 1995.
Employees
As of December 31, 1994, the Company employed 886 persons (749 full-time
and 137 part-time), including 94 in research and development, 560 in
manufacturing, 110 in sales, marketing and service, 70 in general management and
administration, and 52 in the European operations. During 1994, the Company
completed restructuring actions which resulted in the elimination of
approximately 200 positions from all levels of the organization.
Foreign Sales
Prior to July 1992, the Company's sales to foreign customers were primarily
export sales. In July 1992, the Company's German subsidiary began to ship and
invoice the majority of the Company's European sales. The Company still exports
to areas outside of Europe. Export sales (excluding European sales subsequent
to July 1992) for the years ended December 31, 1994, 1993 and 1992 were
$6,133,000, $7,534,000, and $21,041,000, respectively. Export sales represented
4% of total sales in 1994, 5% in 1993, and 15% in 1992. Foreign sales of the
German subsidiary represented another 33% of total sales in 1994, 23% in 1993,
and 10% in 1992. For the details of geographic regions, see "Note 10,
Operations By Geographic Region", to the Company's audited financial
statements for the year ended December 31, 1994. Sales to foreign customers
were primarily to customers located in Europe. The Company began billing in
foreign currencies in January 1992, therefore increasing its exposure to
changes in exchange rates. However, the Company is hedging its cash flows by
utilizing forward exchange contracts.
ITEM 2. PROPERTIES:
<TABLE>
The Company leases the facilities described in the following table:
<CAPTION>
Size Expiration
Location (sq. ft.) of Lease Principal Use
<S> <C> <C> <C>
Roy, UT 24,000 May 1996 Administrative/Training
Roy, UT 24,000 November 1995 Manufacturing
Roy, UT 76,000 November 1997 Manufacturing
Roy, UT 27,000 November 1995 Administrative/Marketing
Roy, UT 14,000 November 1995 Administrative/Infor. Systems
Roy, UT 36,000 May 1996 Research and Development
San Diego, CA 11,000 July 2002 Research and Development
</TABLE>
The Company also has rented a 20,000 square foot facility in Freiburg,
Germany for use as its European headquarters.
In addition, the Company leases a total of approximately 10,000 square feet
for small sales offices, typically on a short-term basis, in Pleasanton,
California; Dedham, Massachusetts; Dallas, Texas; Atlanta, Georgia; Vienna,
Virginia; Costa Mesa, California; Hoffman Estate, Illinois; Toronto, Canada;
Brussels, Belgium; Middlesex, Great Britain; Oslo, Norway; Milano, Italy;
Madrid, Spain; and Cretail, France.
ITEM 3. LEGAL PROCEEDINGS:
There are no legal proceedings, other than ordinary routine litigation
incidental to its business, to which the Company or its subsidiaries is a party
or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matters were submitted to a vote of the Company's security holders
during the quarter ended December 31, 1994.
EXECUTIVE OFFICERS OF THE COMPANY
Kim B. Edwards, 47, joined the Company as President and Chief Executive
Officer on January 1, 1994. Mr. Edwards served as President and Chief Executive
Officer of Gates Energy Products, Inc., a manufacturer of rechargeable batteries
and the successor of General Electric Battery Division, from March 1993 to
December 1993, and previously served in various other executive positions after
joining Gates Energy Products, Inc. in January 1987.
Leonard C. Purkis, 46, joined the Company as Senior Vice President and
Chief Financial Officer on March 1, 1995. Mr. Purkis joined Iomega following 12
years at General Electric Co., where his most recent assignment was as Senior
Vice President of Finance at GE Capital Fleet Services. He also held positions
in the Financial Services, Lighting and Plastics businesses, with assignments in
Europe and the U.S.
Srini Nageshwar, 53, was promoted to Senior Vice President - European
Operations in April 1991. Mr. Nageshwar joined the Company in January 1991 as
Vice President - European Operations. Prior to joining the Company, Mr.
Nageshwar was Executive Vice President for Marketing, Sales and Operations of
OAZ Communications, a network fax server company, from February 1990 to December
1990. Prior to that, he was President and Chief Operating Officer of Cumulus
Corporation, a memory peripherals manufacturing company, from January 1989 to
February 1990. Prior to that, Mr. Nageshwar spent 24 years in marketing and
general management positions with Hewlett-Packard Company, most recently as
Value-Added Business Manager.
Anton J. Radman, Jr., 42, is Senior Vice President - Sales and Marketing.
Previously, he served as Senior Vice President - Corporate Development and
Floptical Product Line Manager from January 1993 to June 1993. He also served
as Senior Vice President - Corporate Development from December 1989 to January
1993. Mr. Radman was also President of the Bernoulli Optical Systems Co.
(BOSCO) subsidiary of Iomega from April 1990 to January 1993. Mr. Radman
joined the Company in April 1980 and his previous positions with the Company
have included Vice President - Research and Development, Vice President - OEM
Products and Sales Manager, and Senior Vice President - Micro Bernoulli
Division from April 1988 until December 1989.
Leon J. Staciokas, 67, is Senior Vice President and Chief Internal
Operations Officer. Mr. Staciokas joined the Company in August 1987 as Senior
Vice President - Operations. He served as acting Chief Executive Officer of the
Company from October 1993 until January 1994.
John G. Thompson, 54, was promoted to Vice President - Corporate
Manufacturing in January 1993. Prior to that, Mr. Thompson was Vice President
-Materials, Procurement and Engineering Services from March 1988 to January
1992. Mr. Thompson was Vice President/Controller of the Company from January
1988 until March 1988.
Donald R. Sterling, 58, was promoted to Vice President, Corporate Counsel
and Secretary in April 1994. Prior to that, he was Vice President for Legal
Affairs and Secretary from August 1993 to March 1994. Mr. Sterling joined the
Company in September 1988.
Executive officers are elected on an annual basis and serve at the
discretion of the Board of Directors.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS:
The information required by this item is found in the section entitled
"Securities" of the Company's 1994 Annual Report, which section is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA:
The information required by this item is found in the tables entitled
"Trends in Operations" and "Financial Conditions and Trends" of the Company's
1994 Annual Report, which tables are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
The information required by this item is found in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Company's 1994 Annual Report, which section is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
The information required by this item is contained in the section entitled
"Financial and Operating Highlights" of the Company's 1994 Annual Report, which
section is incorporated herein by reference, and in the financial statements and
schedules referred to in the Index to Consolidated Financial Statements and
Consolidated Financial Statement Schedules, filed as a part of this Annual
Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
The information required by this item appears in the section entitled
"ELECTION OF DIRECTORS - Nominees" of the Company's Proxy Statement for its 1995
annual meeting of stockholders and the section of such Proxy Statement entitled
"ELECTION OF DIRECTORS - Board and Committee Meetings", which sections are
incorporated herein by reference. Information regarding executive officers of
the Company is furnished in Part I of this Annual Report on Form 10-K under the
heading "Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION:
The information required by this item appears in the sections entitled
"ELECTION OF DIRECTORS -- Director's Compensation", "ELECTION OF DIRECTORS --
Executive Compensation", "ELECTION OF DIRECTORS -- Employment and Severance
Agreements" and "ELECTION OF DIRECTORS -- Certain Business Relationships" of the
Company's Proxy Statement for its 1995 annual meeting of stockholders, which
sections are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The information required by this item is contained in the section entitled
"Beneficial Ownership of Common Stock" of the Company's Proxy Statement for its
1995 annual meeting of stockholders, which section is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The information required by this item is contained in the sections entitled
"ELECTION OF DIRECTORS -- Employment and Severance Agreements" and "ELECTION
OF DIRECTORS -- Certain Business Relationships" of the Company's Proxy
Statement for its 1995 annual meeting of stockholders, which sections are
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
(a) The following documents are filed as part of or are included in this
Annual Report on Form 10-K:
1. The financial statements listed in the Index to Consolidated
Financial Statements and Consolidated Financial Statement
Schedules, filed as a part of this Annual Report on Form 10-K.
2. The financial statement schedule listed in the Index to
Consolidated Financial Statements and Consolidated Financial
Statement Schedules, filed as a part of this Annual Report on
Form 10-K.
3. The exhibits listed in the Exhibit Index filed as a part of
this Annual Report on Form 10-K.
(b) Reports on Form 8-K: No reports on Form 8-K were filed by the
Company during the last quarter of the year ended December 31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
IOMEGA CORPORATION
By: Kim B. Edwards
Chief Executive Officer
Date: March 29, 1995
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.
Name Title Date
--------------- --------------------------- -----
Chief Executive Officer and
Kim B. Edwards Director (Principal executive
officer)
Senior Vice President-Finance,
Leonard C. Purkis Chief Financial Officer and
Treasurer (Principal financial
and accounting officer)
David J. Dunn Chairman of Board of Directors March 29, 1995
Willem H.J. Andersen Director
Robert P. Berkowitz Director
Anthony L. Craig Director
Michael J. Kucha Director
John R. Myers Director
John E. Nolan Director
The Honorable Director
John E. Sheehan
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED
FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements appear in the Company's
1994 Annual Report to Stockholders and are incorporated herein by reference:
Description
-------------
Report of Independent Public Accountants
Consolidated Balance Sheets at December 31, 1994 and 1993
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
The following schedules are included in this Annual Report on Form 10-K:
Description
------------
Report of Independent Public Accountants on Consolidated
Financial Statement Schedules
II - Valuation and Qualifying Accounts
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
To Iomega Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Iomega Corporation's annual
report to stockholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 25, 1995. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the index is the responsibility of the Company's management
and is presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 25, 1995
<PAGE>
<TABLE>
IOMEGA CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Additions
Balance at charged to Balance
beginning costs and at end
Description of period expenses Deductions of period
(In thousands)
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31, 1994 $1,547 $ 323 $ (243)* $ 1,627
Year ended December 31, 1993 $ 901 $ 792 $ (146)* $ 1,547
Year ended December 31, 1992 $ 933 $ 17 $ (49)* $ 901
PRICE PROTECTION AND PROMOTION RESERVE:
Year ended December 31, 1994 $ 67 $1,143 $(1,041)** $ 169
Year ended December 31, 1993 $ 73 $2,403 $(2,409)** $ 67
Year ended December 31, 1992 $ 58 $ 639 $ (624)** $ 73
ACCRUED RESTRUCTURING COSTS:
Year ended December 31, 1994 $6,818 $ 875 $(7,693) $ -
Year ended December 31, 1993 $ 0 $8,080 $(1,262) $ 6,818
OTHER RESTRUCTURING RESERVES:
Year ended December 31, 1994 $4,649 $2,063 $(6,712) $ -
Year ended December 31, 1993 $ 0 $4,649 $ - $ 4,649
* Represents write-offs of Accounts Receivable
** Credits granted against Accounts Receivable
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included or incorporated by reference in this
Form 10-K, into the Company's previously filed Registration Statements on
Form S-8, File Nos. 2-87671, 33-13083, 33-20432, 33-23822, 33-41083, and
33-54438.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
March 29, 1995
<PAGE>
<TABLE>
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report on
Form 10-K:
<CAPTION>
Exhibit
Number Description
------------- -----------------------
<S> <C>
3.1 (1) Restated Certificate of Incorporation of the Company, as
amended
3.2 (1) By-Laws of the Company, as amended
4.1 (1) Article Fourth of Restated Certificate of Incorporation of
the Company and Certificate of Designation of Series A and
Series B Convertible Preferred Stock (included in
Exhibit 3.1)
10.1 (11) Lease dated January 6, 1993 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited Partnership
relating to Iomega Park Building No. 1
10.2 (2) Lease dated June 21, 1991 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited Partnership
relating to Iomega Park Building No. 2
10.3 (3) Lease dated November 9, 1992 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited Partnership
relating to Iomega Park Building No. 3
10.4 (3) Lease dated November 9, 1992 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited Partnership
relating to Iomega Park Building No. 4
10.5 (4) Lease Agreement dated October 29, 1984 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited Partnership
(formerly with Western Mortgage Loan Corporation)
(including an Amendment thereto dated January 30, 1986)
relating to Iomega Park Building (Parking Lot) No. 5
10.6 (11) Lease dated January 6, 1993 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited Partnership
relating to Iomega Park Building No. 6
10.7 (2) Lease dated June 21, 1991 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited Partnership
relating to Iomega Park Building No. 7
10.7(a) Amendment to Lease dated May 20, 1994 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited Partnership
relating to Iomega Park Building No. 7
10.8 (3) Lease dated November 9, 1992 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited Partnership
relating to Iomega Park Building No. 8
10.9 (11) Aircraft Lease Agreement, dated April 8, 1993, between the
Company and Beehawk Aviation, Inc.
**10.10 (2) 1981 Stock Option Plan of the Company, as amended
**10.11 (2) 1987 Stock Option Plan of the Company, as amended
**10.12 (2) 1987 Director Option Plan of the Company, as amended
10.13 (12) 1994 Iomega Incentive Plan
10.13(a)(12) 1994 Iomega Incentive Plan for Tony Radman
10.13(b)(12) 1994 Iomega Incentive Plan for Leon Staciokas
10.13(c)(12) 1994 Iomega Incentive Plan for Don Sterling
10.13(d)(12) 1994 Iomega Incentive Plan for Srini Nageshwar
10.13(e)(12) 1994 Iomega Incentive Plan for John Thompson
**10.14 (2) Employment Letter dated March 23, 1990 between the Company
and Farouk Al-Nasser
**10.15 (2) Employment Letter dated January 11, 1991 between the
Company and Srini Nageshwar
**10.16 Employment Letter dated November 29, 1993 between the
Company and Kim Edwards
**10.17 (3) Expatriate Agreement dated January 1, 1992 between the
Company and Srini Nageshwar
10.18 (6) Agreement of Leasing dated as of December 26, 1984 between
the Company and Lease Financing Corporation
*10.19 (3) Agreement dated April 24, 1987 between the Company and SKF
Textilmaschinen-Komponenten GmbH
*10.19(a)(2) Third Modification dated October 17, 1991 to the Agreement
between the Company and SKF Textilmaschinen-Komponenten GmbH
*10.19(b)(11) Fourth Modification dated February 2, 1994 to the Agreement
between the Company and SKF Textilmaschinen-Komponenten GmbH
10.20 (3) Form of Indemnification Agreement between the Company and
each of its directors
10.21 (7) Rights Agreement dated as of July 28, 1989 between the
Company and The First National Bank of Boston, as Rights Agent
10.21(a)(8) Amendment No. 1 dated September 24, 1990 to Rights
Agreement dated as of July 28, 1989 between the Company
and The First National Bank of Boston
**10.22 Indemnity Agreement, dated April 21, 1994, between the
Company and Srini Nageshwar
**10.23 (10) Settlement Agreement, dated October 1, 1993, between the
Company and Phillip Krumb
**10.24 (11) Settlement Agreement, dated January 17, 1994, between the
Company and Farouk Al-Nasser
**10.25 (11) Secured Installment Promissory Note, dated September 17,
1993, between the Company and Fred Wenninger
**10.26 Secured Installment Promissory Note, dated January 6, 1995,
between the Company and Phillip P. Krumb
**10.27 (11) Letter Agreement, dated April 13, 1993, between the Company
and Farouk Al-Nasser
**10.28 (11) Letter Agreement, dated April 13, 1993, between the Company
and Anton J. Radman, Jr.
13.1 Portions of the Company's 1994 Annual Report (which is not
deemed to be "filed" except to the extent that portions
thereof are expressly incorporated by reference in this
Annual Report on Form 10-K)
21.1 (11) Subsidiaries of the Company
23.1 Consent of Independent Public Accountants (appears on page
17 of this Annual Report on Form 10-K)
27 Financial Data Schedule
* Confidential treatment previously granted as to certain
portions.
** Management contract or compensation plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c)
of Form 10-K.
(1) Incorporated herein by reference to the exhibits to the
Company's Quarterly Report on Form 10-Q for the period
ended July 4, 1993.
(2) Incorporated herein by reference to the exhibits to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991.
(3) Incorporated herein by reference to the exhibits to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
(4) Incorporated herein by reference to the exhibits to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1990.
(5) Incorporated herein by reference to the exhibits to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1989.
(6) Incorporated herein by reference to the exhibits to the
Company's Registration Statement on Form S-1
(File No. 2-96209).
(7) Incorporated herein by reference to the exhibits to the
Company's Current Report on Form 8-K filed on August 12, 1989.
(8) Incorporated herein by reference to the exhibits to the
Company's Amendment No. 1 to Current Report on Form 8-K
filed on September 25, 1990.
(9) Incorporated herein by reference to the exhibits to the
Company's Amendment No. 1 to Annual Report on Form 10-K for
the year ended December 31, 1992.
(10) Incorporated herein by reference to the exhibits to the
Company's Quarterly Report on Form 10-Q for the period
ended October 3, 1993.
(11) Incorporated herein by reference to the exhibits to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
(12) Incorporated herein by reference to the exhibits to the
Company's Quarterly Report on Form 10-Q for the period
ended October 2, 1994.
</TABLE>
EXHIBIT 10.7(a)
AGREEMENT TO EXTEND LEASE
This Agreement is made and entered into as of this 20th day of May, 1994, by and
between Damson/Birtcher Realty Income Fund-II, Limited Partnership (hereinafter
called "Landlord") and IOMEGA Corporation (hereinafter called "Tenant") with
respect to the following facts:
WITNESSETH:
A. Landlord and Tenant entered into a certain lease dated June 21, 1991, (the
"Lease") under which Landlord demised to Tenant the Property commonly
known as Building 7, consisting of approximately 70,000 square feet; and
B. Said Lease is scheduled to expire by lapse of time on May 31, 1994; and
C. Landlord and Tenant desire to amend said Lease so as to extend the Term
thereof and to establish the rents payable thereunder during such period;
and
D. It is intended by this Agreement to amend said Lease;
NOW, THEREFORE, in consideration of the Property, and of the covenants and
agreements herein set forth, it is agreed that the Lease be hereby amended from
and after the date hereof as follows:
1) Section 1.05 of the Lease, entitled Lease Term, is hereby extended for a
period of forty-two (42) months, commencing on the last day of the initial
Term of the Lease and expiring on the 30th day of November, 1997, unless
the Lease shall sooner terminate as provided therein.
2) For the period from the first day of June, 1994, through and including the
30th day of November, 1997, Tenant shall pay to Landlord as Base Rent over
and above the other and additional payments to be made by Tenant for the
Property, the sum of One Million Three Hundred Twenty-eight Thousand Four
Hundred Twenty and 82/100 Dollars ($1,328,420.82) payable monthly in
advance on the first day of each and every calendar month as follows:
Period Monthly Base Rent
June 1, 1994 through and
including November 30, 1995 $30,828.41
December 1, 1995 through and
including November 30, 1996 $31,753.26
December 1, 1996 through and
including November 30, 1997 $32,705.86
all at the place and in the manner in the Lease provided.
3) Except as herein specifically amended, all terms, provisions, covenants,
and conditions of the Lease shall remain unchanged and in full force and
effect, and the same are hereby ratified and confirmed.
TENANT LANDLORD
IOMEGA CORPORATION Damson/Birtcher Realty Income
Fund-II, Limited Partnership
By: /s/ C. David Correll By: Birtcher Investments
Its: Authorized Agent
Its: Dir. of Corporate Facilities
By: /s/ Michael S. Buzar
Date: May 27, 1994
Its: Senior Vice President
Date: June 2, 1994
EXHIBIT 10.16
IDANTA PARTNERS LTD.
4660 LaJolla Village Drive
Suite 775
San Diego, California 92122
(619) 452-9690
Fax (619) 452-2013
November 29, 1993
Mr. Kim Edwards
By Federal Express to:
Turkey Creek Subdivision
10603 N.W. 67th Way
Alachua, Florida 32615
And By Mail to:
Box 43
Turkey Creek
Alachua, Florida 32615
Dear Kim:
As we discussed on the telephone this morning, Tony Craig, while he still has
some calls outstanding, has essentially completed his reference checks and
our offer to you of the position of President/CEO at Iomega Corporation is
unqualified. This letter is to document the details of our offer:
Cash Compensation: $240,000 initial base salary plus a cash bonus which
could amount to $160,000. The details of how the bonus will be structured
are to be worked out between you and Tony Craig for approval by the Board.
I am hoping that you will work out a program which will be satisfactory for
a number of years. As we discussed, it may be that criteria change over the
years, but hopefully by a pre-arranged formula. We also agreed that
notwithstanding the company's performance against the established criteria,
the minimum bonus for 1994 would be $80,000.
Stock Options: You will receive, at the time of your employment, options on
200,000 shares of Iomega common stock at a price equal to the market price
at the close of business on the last day of trading before you join. 20% of
the options will vest as of your starting date and 20% will vest on each of
the four subsequent anniversary dates.
Benefits: All benefits, including medical insurance, dental insurance, life
insurance, 401k, four weeks' vacation, etc. will go into full effect
immediately upon employment.
Relocation Expenses: Coverage of all normal expenses associated with buying and
selling a home, temporary storage charges, house hunting, moving insurance, and
temporary living costs.
<PAGE>
Mr. Kim Edwards
Page Two
November 29, 1993
Transfer Allowance: A lump sum of one month's salary (grossed up for state and
federal taxes) to compensate for miscellaneous and settling-in expenses.
Home Sale Protection: Iomega will reimburse the difference between the
actual selling price of your home and the average of the highest two of
three appraisals if the actual selling price is less than the average of the
two highest appraisals. In the event that the home has not sold after six
months from the initial listing, Iomega will purchase the home at the average
of the two highest of three appraisals.
Tax Offset: Iomega will defray the total tax effects on all items of
reimbursable expense which is considered taxable income and for which no
corresponding tax deduction is available. The amount of tax defrayal will be
determined by using your anticipated income tax rate and will be added to
your gross income.
Employment Contract: Severance of up to twelve months' salary if discharged for
reasons other than fraud or other illegal acts. Severance pay will be paid
at the annual salary rate prevailing at the time of discharge on a monthly
basis until you are re-employed. If you are re-employed at less than your
ending salary rate at Iomega, payments for the differential will be made
until the expiration of the twelve-month period. You agree, if terminated,
to use reasonable efforts to find re-employment.
Employment Date: Employment to be effective January 1, 1994.
I hope the foregoing is satisfactory and covers the items we have discussed.
If you feel there are any discrepancies, please let me know.
I hope you and your wife have an enjoyable visit to Utah. It's too bad you
don't have time to do a little skiing. I understand it is very good.
Best regards,
Sincerely,
David J. Dunn
DJD:kc
cc: Board of Directors
EXHIBIT 10.22
AGREEMENT BETWEEN
IOMEGA CORPORATION AND SRINI NAGESHWAR
THIS AGREEMENT is entered into by and between Iomega Corporation,
a Delaware Corporation (the "Corporation") and Srini Nageshwar
("Mr. Nageshwar").
On August 28, 1986, the Corporation established a GmbH in Munich,
Germany under the name of Iomega GmbH. Iomega GmbH was registered
in Munich on September 15, 1986. Its name was changed to Iomega
Europe GmbH ("the GmbH") and on April 7, 1993, was registered in
the Commercial Register in Freiburg, Germany.
The Corporation is represented by Mr. Kim B. Edwards, President and
Chief Executive Officer and Board Member of said Corporation.
Mr. Nageshwar was nominated as Gaeschaeftsfuehrer of the GmbH by
its shareholders. As Gaeschaeftsfuehrer of the GmbH, Mr. Nageshwar
is subject to potential liabilities under German law. To prevent
hardship for Mr. Nageshwar, the parties hereto agree as follows:
1. The Corporation will indemnify and hold Mr. Nageshwar
harmless against each liability whatsoever arising out of
all business transactions carried on by Mr. Nageshwar in
the name of the GmbH; provided, however, that such right
of indemnity exists only to the extent that the
liabilities incurred by Mr. Nageshwar under the name of
the GmbH are in accordance with the delegated power given
by the Directors of Iomega Corporation as limited by
Section 145 of the Delaware General Corporation Law.
Section 145 provides, in part, that a corporation shall
have the power to indemnify an employee against
liabilities arising out of proceedings (other than a
derivative action) to which he is a party "by reason of
the fact that he is ... [an] employee or agent of the
corporation" provided that "he acted in good faith and in
a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful."
This section further provides that with respect to
derivative actions, a corporation shall have the power to
indemnify an employee or agent against certain expenses
arising out of such action provided that he "acted in
good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the
corporation" and provided further that "no
indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only
to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine
upon application that, despite the adjudication of
liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery
or such other court shall deem proper." Section 145
further provides that any such indemnification shall be
made only "upon a determination that the indemnification
of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable
standard of conduct set forth in [the preceding
sentences]."
2. Subject to the above, Mr. Nageshwar is hereby granted the
following authority, subject to the Corporation's
policies and guidelines, as amended from time to time,
the current policies and guidelines being those stated in
the Attachment hereto:
- To conclude lease contracts for the offices of the
established GmbH, to purchase office furniture and
equipment and to rent or acquire telephone and fax
facilities for this office.
- To hire employees and conclude labour contracts for
GmbH employees.
- To lease cars for executives of the GmbH in
accordance with the Corporation's car policy.
- To distribute, market and service computer
equipment and computer accessories according to the
subject matter of the GmbH.
- To conclude with third parties and the
administrations any agreements necessary or useful
for the operation of the GmbH and to sign contracts
and undertakings relating thereto.
3. This Agreement is subject to German law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the dates shown below.
/s/ Kim B. Edwards 4/21/94
Kim B. Edwards Date
President and Chief Executive Officer
Iomega Corporation
/s/ Srini Nageshwar 4/21/84
Srini Nageshwar Date
Managing Director
Iomega Europe GmbH
EXHIBIT 10.26
SECURED INSTALLMENT PROMISSORY NOTE
$283,425.00 Roy, Utah January 6, 1995
The undersigned promises to pay to the order of Iomega Corporation in Roy,
Utah or at such other place as the holder hereof may designate in writing, the
sum of Two Hundred Eighty Three Thousand Four Hundred Twenty-Five Dollars
($283,425.00) in one (1) installment with interest at prime rate which is 7 3/4
percent, payable on the unpaid balance. Stock certificates representing 165,625
shares of Iomega Corporation common stock will be held as collateral until the
note has been paid in full. The installment shall be paid on or before one (1)
year from the date of the Note, as shown above.
This Note may be prepaid from time to time in whole or in part without
permission or penalty.
Any balance unpaid on the maturity of this Note shall bear interest
thereafter, both before and after judgement, at the annual percentage rate
stated above.
Presentment, demand, protest, notice of dishonor and extension of time
without notice are hereby waived, and the undersigned consents to the release of
any security, or any part thereof, with or without substitution.
/s/ Phillip P. Krumb 8400 Datapoint Drive
Phillip P. Krumb Address
____________________________________
January 6, 1995 ____________________________________
Date
EXHIBIT 13.1
<TABLE>
FINANCIAL AND OPERATING HIGHLIGHTS
Iomega Corporation and Subsidiaries
Financial Highlights
For Years Ended December 31, 1994 1993
------- ------
(In thousands, except per share data)
<S> <C> <C>
Sales $141,380 $147,123
Cost of Sales 92,453 92,585
Operating Expenses 49,809 71,965
Net Loss (1,882) (14,525)
Net Loss per Common Share $ (0.10) $ (0.80)
Weighted Average Number of Shares Outstanding 18,473 18,106
Share Price : High $ 4.50 $ 6.60
Low 1.60 1.90
</TABLE>
<TABLE>
Quarterly Financial Information
<CAPTION>
For Year Ended December 31, 1994: Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total Year
------- ------- ------- ------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Sales $34,506 $32,867 $35,534 $38,473 $141,380
Gross Margin 10,600 12,016 12,495 13,816 48,927
Net Income (Loss) (5,391) (238) 2,468 1,279 (1,882)
Net Income(Loss) per Common Share $ (0.29) $ (0.01) $ 0.13 $ 0.07 $ (0.10)
<CAPTION>
For Year Ended December 31, 1993: Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total Year
(In thousands, except per share data)
Sales $36,995 $36,495 $36,086 $37,547 $147,123
Gross Margin 15,593 14,809 13,810 10,326 54,538
Net Income (Loss) Before Cumulative
Effect of Accounting Change (1,125) 942 329 (17,008) (16,862)
Net Income (Loss) 1,212 942 329 (17,008) (14,525)
Net Income (Loss) per Common Share
Before Cumulative Effect of
Accounting Change $(0.06) $ 0.05 $ 0.02 $(0.92) $ (0.93)
Net Income (Loss) per Common Share $ 0.06 $ 0.05 $ 0.02 $(0.92) $ (0.80)
</TABLE>
<TABLE>
Operating Highlights
<CAPTION>
As of Year End December 31, 1994 1993
------- --------
<S> <C> <C>
Employees 886 1,077
Facilities (square feet) 242,000 275,000
<FN>
Earnings per share, outstanding shares and share prices have
been retroactively adjusted to reflect the 5-for-4 stock split in
November 1994 (See Note 2 to financial statements).
</FN>
</TABLE>
FINANCIAL REVIEW
Iomega Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
<TABLE>
TRENDS IN OPERATIONS
The following table indicates the trends in certain components of the
consolidated statements of operations for each of the last five years.
<CAPTION>
For Years Ended December 31, 1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(In Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Sales $141,380 $147,123 $139,174 $136,566 $120,442
Cost of Sales 92,453 92,585 74,090 68,404 62,232
Gross Margin 48,927 54,538 65,084 68,162 58,210
Selling, General & Admin. 36,862 38,862 37,572 34,323 31,378
Research and Development 15,438 18,972 21,959 17,939 13,009
Restructuring Costs (Reversal) (2,491) 14,131 - - -
Operating Income (Loss) (882) (17,427) 5,553 15,900 13,823
Interest Income 871 620 1,102 1,844 2,287
Interest Expense 15 70 54 55 157
Other Income (Expense) 52 221 (456) (128) (411)
Income Taxes 1,908 206 1,474 5,236 1,584
Net Income (Loss) Before
Cumulative Effect of
Accounting Change (1,882) (16,862) 4,671 12,325 13,958
Net Income (Loss) (1,882) (14,525) 4,671 12,325 13,958
Net Income (Loss) per Common
Share Before Cumulative
Effect of Accounting Change $ (0.10) $ (0.93) $ 0.23 $ 0.60 $ 0.68
Net Income (Loss) per Common
Share $ (0.10) $ (0.80) $ 0.23 $ 0.60 $ 0.68
Total Personnel 886 1,077 1,270 1,153 1,006
Earnings per share have been retroactively adjusted to reflect the 5-for-4
stock split in November 1994 (See Note 2 to financial statements).
</TABLE>
<TABLE>
RESULTS OF OPERATIONS
The following table indicates the percentage relationships of income and
expense items included in the consolidated statements of operations for each
of the years ended December 31, 1994, 1993, and 1992, and the percentage
changes of absolute dollars in these items for 1994 and 1993 as compared to
the prior year.
<CAPTION>
As a Percentage of Percentage
Increase
Total Sales ( Decrease)
For Years Ended December 31, 1994 1993 1992 1994 vs 1993 1993 vs 1992
------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% (3.9)% 5.7%
Cost of Sales 65.4 62.9 53.2 (0.1) 25.0
Gross Margin 34.6 37.1 46.8 (10.3) (16.2)
Operating Expenses:
Selling, General
and Administrative 26.1 26.4 27.0 (5.2) 3.4
Research and Development 10.9 12.9 15.8 (18.6) (13.6)
Restructuring Costs
(Reversal) (1.8) 9.6 - N/A N/A
Total Operating Expenses 35.2 48.9 42.8 (30.8) 20.9
Operating Income (Loss) (0.6) (11.8) 4.0 94.9 (413.8)
Interest Income 0.6 0.4 0.8 40.5 (43.7)
Interest Expense - - - (78.6) -
Other Income (Expense) - 0.1 (0.4) (76.5) 148.5
Income (Loss) before Income
Taxes and Cumulative Effect
of Accounting Change 0.0 (11.3) 4.4 100.2 (371.0)
Income Taxes (1.3) (0.2) (1.0) 826.2 (86.0)
Net Income (Loss) before
Cumulative Effect of
Accounting Change (1.3) (11.5) 3.4 88.8 (461.0)
Cumulative Effect of
Accounting Change - 1.6 - N/A N/A
Net Income (Loss) (1.3)% (9.9)% 3.4% 87.0% (411.0)%
</TABLE>
1994 was a year of transition for the Company as operations were restructured
and redirected towards new development and marketing activities. As a result,
the Company recorded a net loss for the year of $1.9 million or $0.10 per
common share on sales of $141.4 million.
The Company's gross margin percentage in 1994 was 34.6% compared to 37.1% in
1993. This decline in gross margin percentage was offset by a reduction in
operating expenses (excluding restructuring items). Therefore, excluding the
restructuring items for both years, the Company's operating loss before taxes
was $3.4 million in 1994, as compared to a $3.3 million loss in 1993.
Cash and temporary investments increased slightly from $18.8 million at
December 31, 1993 to $19.8 million at December 31, 1994, and working capital
increased from $30.5 million to $34.8 million during 1994.
The Company expects revenues to increase in 1995 as a result of the new Zip
products that it announced in 1994 and expects to start shipping in the first
half of 1995. The Company also expects tape sales to increase, while sales of
the Bernoulli product line are expected to decrease. The Company expects to
experience losses in the first two quarters of 1995 due to the costs of
introducing the new Zip products and the newly redesigned tape products, as
well as the continuing cost of development efforts of other unannounced
products that the Company expects to start shipping in the second half of
1995. The Company further expects its cash and working capital positions to
decrease in 1995 based on budgeted capital expenditures and working capital
requirements to fund these new product activities. The Company expects to be
profitable in the second half of 1995. However, there can be no assurance
that revenues will increase, unannounced products will ship on time, or that
the Company will return to profitability in 1995.
<TABLE>
The following table depicts 1994 sales, gross margin percentage, pretax income
(loss) and net income (loss) on a quarterly basis.
<CAPTION>
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
-------- -------- ------- -------
(In millions)
<S> <C> <C> <C> <C>
Sales $ 34.5 $ 32.9 $35.5 $ 38.5
Gross Margin % 30.7% 36.6% 35.2% 35.9%
Income (Loss) Before Income Taxes (2.7) (0.2) 1.0 1.9
Net Income (Loss) $ (5.4) $ (0.2) $ 2.5 $ 1.3
</TABLE>
RESTRUCTURING ACTIONS
During 1993, the Company recorded $14.1 million in restructuring costs
relating to the write-offs of certain assets and the establishment of accruals
and reserves for future restructuring of the Company's business, including the
disposal of a portion of the Company's research and development operations,
workforce reductions and other consolidation of operations, and other
restructuring actions necessary to make the Company more customer driven, such
as product realignment. These restructuring reserves and accruals totaled
approximately $11.5 million at December 31, 1993.
During the first quarter of 1994, the Company sold its thin film head
development operations and discontinued its Floptical development operations.
During the third quarter of 1994, the Company sold certain assets of its
Floptical development operations and abandoned a product in the development
stage. The abandonment of the development product was based on customer
surveys which indicated there was not a demand for the product. During the
fourth quarter of 1994, the Company disposed of tooling and other
manufacturing equipment which had become obsolete due to product design
changes to make the Company's products more consumer friendly. The Company
also closed down or relocated several sales offices to streamline operations.
In addition, the Company has reduced its workforce and paid out severance and
outplacement costs in connection with two reductions in workforce, one of
which occurred in January 1994 and the other in June 1994. These actions were
included in the 1993 restructuring accruals and, therefore, had no impact on
1994 results of operations.
At December 31, 1994, the Company has completed the restructuring actions
related to the costs recorded in 1993. Accordingly, the Company reversed $2.5
million of restructuring reserves, representing the unused portion of the
reserves established in December 1993, which served as an offset of operating
expenses. The reversal of reserves related to workforce reductions and
consolidation of operations. Due to natural workforce attrition, the Company
did not have to lay off as many individuals as previously estimated. At the
end of 1993, management anticipated shutting down or consolidating some major
operations due to poor performance. Several of these changes were not made
due to major improvement in the operations' economic performances. However,
the reversal of these reserves was partially offset by the disposal of
research and development operations and product realignment which cost more
than originally anticipated.
<TABLE>
The following table summarizes the activity in these restructuring reserves
during the year ended December 31, 1994:
(In thousands)
<CAPTION>
Disposal of
Research & Consolidation
Development Product Workforce of
Operations Realignment Reductions Operations Total
---------- ----------- ---------- ------------ ------
<S> <C> <C> <C> <C> <C>
Reserves at
December 31, 1993 $ 2,469 $ 3,188 $ 3,540 $ 2,300 $11,497
Charges against
reserves (2,972) (3,728) (2,027) (279) (9,006)
Reversal to
income 503 540 (1,513) (2,021) (2,491)
---------- ----------- ---------- ----------- -------
Reserves at
December 31, 1994 $ - $ - $ - $ - $ -
========== =========== =========== =========== ========
</TABLE>
1994 AS COMPARED TO 1993
Sales decreased by 4% in 1994 when compared to 1993. Significant declines in
sales of 5.25 inch 44 and 90 megabyte Bernoulli drive products were partially
offset by increased sales of 5.25 inch 150 and 230 megabyte Bernoulli drive
products. Bernoulli drive sales dollars in total declined in 1994 as compared
to 1993. Unit sales of Bernoulli drives were relatively flat in 1994 versus
1993, but price reductions resulted in lower sales dollars. Bernoulli disk
sales also declined in 1994 as compared to 1993 in both dollars and units.
These declines in Bernoulli sales were partially offset by increased sales of
tape products. Tape drive unit sales doubled in 1994 as compared to 1993,
while sales dollars increased at a slightly lower rate due to a lower average
price on tape products in 1994. Sales of the Company's SyQuest compatible
removable hard disk cartridges increased in 1994, which offset a decline in
Floptical product sales.
Sales to the U.S. market declined in 1994 when compared to 1993 as a result of
decreasing sales of Bernoulli products, which were only partially offset by
increases in tape product sales. International sales, including export sales,
increased by approximately 25% and represented 37% of total consolidated sales
in 1994 compared to 28% in 1993. Substantial increases in sales of tape
products in Europe were the primary reason for the increased sales in the
international channels.
As previously mentioned, the Company expects to begin shipping its new Zip
product line in the first half of 1995. Although the Company has received
positive initial reaction to the Zip product line from the marketplace, the
Company is unable to predict actual sales levels. The Company expects
increased sales from its tape product line and from additional planned
removable drive product offerings. These increases will be partially offset
by a continuing decline in the Bernoulli product business. Sales are expected
to increase in all channels in 1995, including the retail channel. However,
there can be no assurance that the anticipated sales increases will be
realized.
Cost of sales increased as a percentage of sales from 62.9% in 1993 to 65.4%
in 1994. The decline in the gross margin percentage is partially due to a
higher mix of tape products which have lower gross margins than the Bernoulli
products. In addition, all product lines continue to experience competitive
price pressures which have resulted in lower selling prices in 1994 when
compared to 1993. Partially offsetting these factors, both the Bernoulli and
tape product lines benefitted from significant production cost reductions
which were realized throughout 1994. Management expects the gross margin
percentage to decline in 1995 when compared to the overall 1994 rate as a
result of continuing declines in sales of the higher margin Bernoulli products
and the increasing sales of the lower margin tape products. In addition, the
new Zip product line will have lower initial margins than the tape product
line due to start-up costs and lower volumes. The Zip margins are expected to
improve as volumes increase and manufacturing processes are improved. Also,
the Company plans to remain price competitive on all product lines and further
price decreases are likely. These lower sales prices are expected to be
partially offset by improvements in material cost and reductions in overhead
expenses planned for 1995.
Selling, general and administrative expenses decreased by $2.0 million and
decreased slightly as a percentage of sales from 26.4% to 26.1%. Decreases in
sales, general and administrative expenses resulted from restructuring actions
which occurred in January and June of 1994, including the closing down of the
Floptical product line, as well as streamlining operations in both the U.S.
and Europe. Sales and marketing expenses were increased in the latter part of
1994 to introduce the Zip product line and to reposition the Company's
marketing strategy worldwide. In addition, selling, general and
administrative expenses increased in 1994 due to the payment of management
bonuses. Management plans to decrease selling, general and administrative
expenses as a percent of sales in 1995 as compared to 1994. The actual levels
of expenses will be dependent on 1995 sales and the expenses required to
successfully launch the new Zip product line, as well as other new products
planned for 1995.
Research and development expenses decreased by $3.5 million and declined as a
percentage of sales from 12.9% in 1993 to 10.9% in 1994. The major decline in
research and development expenses resulted from the sale of the Company's thin
film head development operation located in Fremont, California in the first
quarter of 1994 and from closing its Floptical development laboratory located
in Boulder, Colorado in the first quarter of 1994. Offsetting these decreases
were increased development spending on the Company's tape product line and
development costs for the Company's new Zip product line. Management expects
research and development spending to be approximately the same in absolute
dollars in 1995 as compared to 1994. Spending on Bernoulli development
efforts will be decreased in 1995 as compared to 1994, with increased spending
being planned for tape products, Zip products and other future products.
As mentioned earlier, the Company's operating expenses were reduced in 1994
due to the reversal of restructuring reserves totaling $2.5 million. The
Company had previously recorded restructuring reserves totaling $11.5 million
at December 31, 1993. During 1993 and 1994, the Company effected most of the
restructuring actions that had been planned, but due to changing conditions,
it elected to change the scope and focus of other previously planned
activities. As a result, the Company no longer required $2.5 million of the
previously recorded reserves and reversed the unneeded reserves in the fourth
quarter of 1994. The Company has no remaining restructuring reserves on its
balance sheet at December 31, 1994.
Interest income increased by $.3 million in 1994 as compared to 1993 due to a
slight increase in cash and temporary investments, as well as higher interest
rates earned on available balances. Other income consists primarily of
royalties received, offset in part by losses incurred on the writedown of
computer systems and foreign currency losses.
In 1993, the Company increased its deferred tax assets as required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109). The deferred tax assets net value at December 31, 1993
was $5.0 million. The realizability of deferred tax assets were reevaluated
throughout 1994 in light of changing business conditions and uncertainties
regarding previously contemplated strategies. As a result, the Company
recorded a tax provision of $3.3 million to increase the valuation allowance
to cover the realizability of the deferred tax assets to its estimated
realizable value as of December 31, 1994. In addition to this tax provision
which was recorded in 1994, the Company recognized a tax benefit of $1.4
million in the third quarter of 1994 as a result of a change in an estimate on
the Company's 1993 tax return due to a change in the transfer price on
products between the Company and its German subsidiary. The change in
transfer price was a result of an independent economic study. The above items
resulted in a tax provision for 1994 totaling $1.9 million.
1993 AS COMPARED TO 1992
Sales increased by 5.7% in 1993 when compared to 1992. Significant declines
in sales of 5.25 inch 20, 44 and 90 megabyte Bernoulli drive products were
partially offset by increased sales of 5.25 inch 150 megabyte Bernoulli drive
products. Bernoulli drive sales dollars in total declined in 1993 as compared
to 1992. Unit sales of Bernoulli drives were relatively flat in 1993 versus
1992, but price reductions resulted in lower sales dollars. Bernoulli disk
sales also declined in 1993 as compared to 1992 in both dollars and units.
These declines in Bernoulli sales were more than offset by increased sales of
tape and Floptical products, resulting in a net increase in total sales.
On a sales channel basis, sales to the domestic distribution channel were
relatively flat when compared to 1992, sales to the domestic federal channel
were down, and sales to the domestic OEM channel increased over 1992.
International sales, primarily to Europe, increased by approximately 20% and
represented 28% of total sales in 1993 compared to 25% in 1992. Substantial
increases in sales of tape products in Europe were the primary reason for the
increased sales in the international channels.
Cost of sales increased as a percentage of sales from 53.2% in 1992 to 62.9%
in 1993. The decline in the gross margin percentage is partially due to a
higher mix of tape and Floptical products, which have lower gross margins than
the Bernoulli products. Also, within the Bernoulli products, a 25% price
reduction announced on September 1, 1993 and a slightly lower mix of higher
margin disk products resulted in a lower gross margin on Bernoulli products.
Selling, general and administrative expenses increased by $1.3 million but
decreased slightly as a percentage of sales from 27.0% to 26.4%. Increases in
sales and marketing and administrative expenses in Europe plus increases in
sales and marketing and administrative expenses associated with removable hard
disk cartridges and increased administrative expenses associated with tape
products were partially offset by decreases in domestic sales and marketing
expenses and decreases in other general and administrative expenses.
Research and development expenses declined by $3.0 million and declined as a
percentage of sales from 15.8% in 1992 to 12.9% in 1993. The decline in
research and development expenses was comprised of reductions in Bernoulli,
Floptical and tape development. These decreases were partially offset by
increased expenses related to thin film head development.
The Company recorded restructuring expenses of $14.1 million representing 9.6%
of sales in 1993.
Interest income declined by $.5 million in 1993 as compared to 1992 due to a
slight decline in cash and cash equivalents, as well as lower interest rates
earned on available balances. The Company recorded $.2 million of other
income in 1993 comprised of a $.5 million gain on the sale of an idle
facility, offset by recognition of losses on foreign currency transactions.
In 1993, the Company recorded an income tax provision of $.2 million. This
provision represented the net increase in the valuation allowance necessary to
cover the realizability of the deferred tax assets offset by the tax benefits
which were recognized as the result of operating losses and tax credits.
Effective January 1, 1993, the Company adopted SFAS No. 109. In accordance
with the provisions of SFAS No. 109, the Company recognized the cumulative
effect of this accounting change totaling $2.3 million in the consolidated
statement of operations for the year ended December 31, 1993.
LIQUIDITY AND FINANCIAL RESOURCES
The Company's liquidity and financial resources improved during 1994 as total
cash and temporary investments increased by $1.0 million and working capital
increased by $4.3 million. The Company generated $5.3 million of cash from
operations. Operating cash flow was partially offset by $4.3 million of cash
and temporary investments used in investing activities. The major components
of cash used in investing activities were $7.1 million for purchases of
equipment and leasehold improvements, which was partially offset by proceeds
from the sale of discontinued research and development operations. These
discontinued operations included the previously mentioned sale of the thin
film head development laboratory, and the sale of certain Floptical assets and
intellectual properties related to its Floptical product line.
Accounts receivable decreased by $2.8 million as a result of improved
collection efforts which resulted in a decrease in the days sales outstanding
in receivables at the end of 1994. Inventories increased by $3.7 million due
primarily to higher inventory levels required to support the increase in tape
product sales. In addition, the Bernoulli inventories increased as a result
of not meeting sales expectations in the fourth quarter of 1994. Accounts
payable and accrued liabilities decreased by $3.4 million due primarily to the
liquidation of $6.8 million of accruals associated with restructuring costs
which were recorded at the end of 1993. This reduction was partially offset
by increases related to management bonuses of which the majority was paid in
the first quarter of 1995.
During 1994, the Company added $7.1 million in equipment and leasehold
improvements. The additions were comprised primarily of manufacturing
production equipment, as well as development assets, personal computers and
related equipment and software required to support the increasing tape sales
volumes and to support the new Zip product line. Management expects 1995
capital expenditures to be higher than 1994 due primarily to manufacturing
production equipment needed for the Zip product line, new tape products and
other planned future products.
The Company expects net cash flows from operating and investing activities in
1995 to be negative. The Company believes its current cash and temporary
investments, together with funds expected to be generated from operations,
will be sufficient to satisfy its cash needs through 1995. However, this will
depend on the success of the new Zip product line, as well as on the actual
level of expenditures incurred by the Company for capital equipment and
working capital required to support unannounced new products that are planned
to start shipping in the last half of 1995. If demand for the Company's new
products exceed expectations, the Company may need to obtain working capital
from financial institutions or other funding sources.
Inflation has not had a significant impact on the Company's business or
results of operations in 1994.
<TABLE>
FINANCIAL CONDITIONS AND TRENDS
<CAPTION>
December 31, 1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Cash and Temporary Investments $19,793 $18,804 $19,691 $31,611 $29,107
Trade Receivables, Net 18,892 21,685 15,482 19,168 13,648
Inventories 17,318 13,572 18,546 12,019 9,955
Total Assets 75,833 81,089 86,955 87,046 72,780
Accounts Payable and Accrued
Liabilities 25,739 29,023 20,261 21,159 18,035
Current Portion of Capital Lease
Obligations - - 11 153 182
Working Capital 34,818 30,550 35,038 43,165 36,107
Long-Term Obligations and
Redeemable Preferred Stock 1,031 976 926 889 994
Equipment and Leasehold Improvement
Additions During Year 7,083 6,567 12,980 8,482 5,518
</TABLE>
<TABLE>
SECURITIES
Iomega Common Stock is traded on the Nasdaq National Market under the symbol
IOMG. As of December 31, 1994, there were 1,977 holders of record of Common
Stock. The Company has not paid dividends on its Common Stock in the past and
has no present intention to do so in the future. The following table reflects
the high and low sales prices for 1994 and 1993, retroactively adjusted for
the 5-for-4 stock split in November 1994.
<CAPTION>
1994 1993
-------------- --------------
Price Range of Common Stock: High Low High Low
----- ---- ----- ----
<S> <C> <C> <C> <C>
1st Quarter $2.50 $1.80 $6.60 $3.10
2nd Quarter 2.10 1.60 4.10 3.00
3rd Quarter 3.20 2.10 3.40 2.00
4th Quarter 4.50 2.30 3.50 1.90
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Iomega Corporation and Subsidiaries
<CAPTION>
For Years Ended December 31, 1994 1993 1992
------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C>
Sales $141,380 $147,123 $139,174
Cost of Sales 92,453 92,585 74,090
-------- -------- --------
Gross Margin 48,927 54,538 65,084
Operating Expenses:
Selling, general and admin. 36,862 38,862 37,572
Research and development 15,438 18,972 21,959
Restructuring costs (reversal) (2,491) 14,131 -
-------- -------- -------
Total operating expenses 49,809 71,965 59,531
Operating Income (Loss) (882) (17,427) 5,553
Interest income 871 620 1,102
Interest expense (15) (70) (54)
Other income (expense) 52 221 (456)
-------- -------- --------
Income (Loss) Before Income Taxes
and Cumulative Effect of
Accounting Change 26 (16,656) 6,145
Income Taxes (1,908) (206) (1,474)
--------- -------- -------
Net Income (Loss) Before
Cumulative Effect of
Accounting Change (1,882) (16,862) 4,671
Cumulative Effect of Accounting
Change - 2,337 -
-------- -------- -------
Net Income (Loss) $ (1,882) $(14,525) $ 4,671
======== ======== =======
Net Income (Loss) Per Common
Share:
Net income (loss) before
cumulative effect of
accounting change $ (0.10) $ (0.93) $ 0.23
Cumulative effect of accounting
change - 0.13 -
-------- -------- ------
Net income (loss) $ (0.10) $ (0.80) $ 0.23
======== ======== ======
Weighted Average Common Shares
Outstanding (Includes effects
of 5-for-4 stock split
(see Note 2)) 18,473 18,106 20,265
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<TABLE>
CONSOLIDATED BALANCE SHEETS
Iomega Corporation and Subsidiaries
<CAPTION>
Assets
December 31, 1994 1993
--------- -------
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 16,861 $ 18,804
Temporary investments 2,932 -
Trade receivables, less allowance for doubtful
accounts of $1,627,000 and $1,547,000,
respectively 18,892 21,685
Inventories 17,318 13,572
Deferred tax assets (net) 477 2,494
Other current assets 4,077 3,018
-------- --------
Total current assets 60,557 59,573
Equipment and Leasehold Improvements, at cost:
Machinery and equipment 45,585 53,311
Leasehold improvements 6,034 6,628
Furniture and fixtures 4,737 4,459
Equipment and construction in process 2,837 987
-------- --------
59,193 65,385
Less: Accumulated depreciation and amortization (43,917) (47,025)
-------- --------
15,276 18,360
Deferred Tax Assets (Net) - 2,491
Other Assets - 665
-------- --------
$ 75,833 $ 81,089
======== ========
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
</FN>
</TABLE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
Iomega Corporation and Subsidiaries
<CAPTION>
Liabilities and Shareholders' Equity
December 31, 1994 1993
-------- --------
(In thousands)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 7,228 $ 7,067
Accrued restructuring costs - 6,818
Accrued payroll and bonus 3,047 1,947
Deferred revenue 1,947 1,494
Accrued vacation 1,954 1,790
Accrued warranty 3,943 2,497
Other accrued liabilities 7,620 7,410
-------- --------
Total current liabilities 25,739 29,023
Commitments and Contingencies (Note 4)
Series A Convertible Preferred Stock, Authorized
1,200,000 shares; Outstanding 258,816 and
258,962 shares, respectively (Mandatory
Redemption Price $5.00 per share) 1,031 976
Shareholders' Equity:
Preferred Stock, $0.01 par value; Authorized
3,300,000 shares, none issued - -
Series C Junior Participating Preferred
Stock, Authorized 250,000 shares, none issued - -
Common Stock, $.0333 par value; Authorized
30,000,000 shares; issued 18,519,749 and
18,455,196 shares, respectively (includes
effects of 5-for-4 stock split (see Note
2)) 617 590
Note receivable from shareholder (597) (597)
Additional paid-in capital 48,258 60,082
Accumulated earnings 785 2,744
-------- -------
49,063 62,819
Less: 2,891,588 Common Stock treasury
shares, at cost - (11,729)
-------- --------
Total shareholders' equity 49,063 51,090
-------- --------
$ 75,833 $ 81,089
======== ========
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
</FN>
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Iomega Corporation and Subsidiaries
<CAPTION>
Note
Common Stock Receivable Additional
------------------ from Paid-in Accumulated Treasury
Shares Amount Shareholder Capital Earnings Stock Total
--------- ------- ----------- -------- ------------ --------- ------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1991 16,961,833 $ 565 $ 0 $ 58,125 $ 12,752 $ (6,597) $ 64,845
Sale of shares to employees at
an average price of $2.03
cash per share 235,131 9 - 471 - - 480
Purchase of 848,900 shares at
an average cost of $6.18
cash per share - - - - - (5,248) (5,248)
Accretion of Series A Convertible
Preferred Stock redemption
premium - - - (50) - - (50)
Dividends on Series A Convertible
Preferred Stock - - - - (76) - (76)
Tax benefit from early dispositions of
employee stock - - - 200 - - 200
Recognition of compensation from
Employee Stock Purchase Plan - - - 60 - - 60
Issuance of 19,812 treasury shares
under Employee Stock Purchase
Plan - - - 86 - 56 142
Net Income - - - - 4,671 - 4,671
---------- ------ -------- ------- ------ ------- -------
Balances at December 31, 1992 17,196,964 574 0 58,892 17,347 (11,789) 65,024
Sale of shares to employees at
an average price of $2.06
cash per share 190,296 6 - 386 - - 392
Sale of shares to officer at
an average price of $2.03 per
share for a note receivable 294,000 10 (597) 587 - - -
Accretion of Series A Convertible
Preferred Stock redemption
premium - - - (51) - - (51)
Dividends on Series A Convertible
Preferred Stock - - - - (78) - (78)
Tax benefit from early dispositions
of employee stock - - - 214 - - 214
Recognition of compensation from
Employee Stock Purchase Plan - - - 84 - - 84
Issuance of 11,551 treasury
shares under Employee Stock
Purchase Plan - - - (30) - 60 30
Net Loss - - - - (14,525) - (14,525)
---------- ------ ------ ------- -------- -------
Balances at December 31, 1993 17,681,260 590 (597) 60,082 2,744 (11,729) 51,090
Sale of shares to employees at
an average price of $1.68
cash per share 157,901 5 - 251 - - 256
Purchase of 130,000 shares at an
average cost of $2.35 cash per
share - - - - - (305) (305)
Accretion of Series A Convertible
Preferred Stock redemption premium - - - (55) - - (55)
Dividends on Series A Convertible
Preferred Stock - - - - (77) (77)
Tax benefit from early dispositions of
employee stock - - - 28 - - 28
Recognition of compensation from
Employee Stock Purchase Plan - - - 8 - - 8
Issuance of 5,057 treasury shares under
Employee Stock Purchase Plan - - - (17) - 17 -
Five-for-four Common Stock split
effected in the form of a 25%
stock dividend 680,588 22 - (12,039) - 12,017 -
Net Loss - - - - (1,882) - (1,882)
---------- -------- ------- --------- ------- ------ -------
Balances at December 31, 1994 18,519,749 $ 617 $ (597) $ 48,258 $ 785 $ - $49,063
========== ======== ======= =========== ======= ====== =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Iomega Corporation and Subsidiaries
<CAPTION>
For Years Ended December 31, 1994 1993 1992
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash
Equivalents Cash Flows from Operating
Activities:
Net Income (Loss) $ (1,882) $(14,525) $ 4,671
Non-Cash Revenue and Expense Adjustments:
Depreciation and amortization expense 6,853 8,472 6,447
Cumulative effect of accounting change - (2,337) -
Deferred income tax provision 4,508 - -
Gain on sale of property held for resale - (459) -
Change in restructuring reserves 1,590 5,554 -
Other (314) (292) 373
Changes in Assets and Liabilities:
Trade receivables (net) 2,793 (6,203) 3,686
Inventories (3,747) 3,786 (6,527)
Other current assets (1,135) (694) (645)
Accounts payable 161 1,696 (659)
Accrued liabilities (3,516) 6,333 524
--------- --------- ----------
Net cash provided from operating
activities 5,311 1,331 7,870
Cash Flows from Investing Activities:
Purchase of equipment and leasehold
improvements (7,083) (6,567) (12,980)
Purchase of temporary investments (8,825) - -
Sale of temporary investments 5,893 - -
Prepayment of royalties - (1,000) (2,000)
Proceeds from sale of property held for
resale - 4,461 -
Proceeds from sale of research and
development assets 2,792 - -
Net (increase) decrease in other assets (10) 343 (151)
--------- --------- ----------
Net cash used in investing activities (7,233) (2,763) (15,131)
Cash Flows from Financing Activities:
Proceeds from sales of Common Stock 256 402 566
Tax benefit from early dispositions of
employee stock 28 214 200
Principal payments on capitalized lease
obligations - (11) (153)
Redemption of Series A Convertible Stock - (2) (2)
Purchase of treasury stock (305) - (5,248)
Utilization of treasury stock for Stock
Purchase Plan - 20 56
Payment of dividends on Preferred Stock - (78) (78)
--------- --------- ----------
Net cash provided from (used in)
financing activities (21) 545 (4,659)
--------- --------- ----------
Net Change in Cash and Cash Equivalents (1,943) (887) (11,920)
Cash and Cash Equivalents at Beginning of Year 18,804 19,691 31,611
--------- --------- ----------
Cash and Cash Equivalents at End of Year $16,861 $18,804 $ 19,691
========= ========= ==========
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Net receivable (payable) associated with
revaluation of forward exchange
contracts $ (111) $ 49 $ (48)
Sale of Common Stock for a Note $ - $ 597 $ -
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</FN>
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Iomega Corporation and Subsidiaries
(1) SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries after
elimination of all material intercompany accounts and transactions.
Revenue Recognition - Revenue is recognized when units are shipped to
customers. However, revenue recognition is deferred on shipments to
distributors whose inventory is in excess of normal distributor inventory
requirements. The Company's general policy is not to accept returns of
product except for those products under warranty or for which the customer has
a right of return agreement. The deferral of sales in excess of normal
distributor inventory requirements totaled $1,947,000 and $1,494,000 at
December 31, 1994 and 1993, respectively, and is recorded in deferred revenue.
Price Protection - The Company has agreements with certain of its customers
which, in the event of a price decrease, allow those customers (subject to
certain limitations) credit equal to the difference between the price
originally paid and the reduced price on units in the customers' inventories
at the date of the price decrease. When a price decrease is anticipated, the
Company establishes reserves for amounts estimated to be reimbursed to the
qualifying customers.
Inventories - Inventories include direct materials, direct labor, and
manufacturing overhead costs and are recorded at the lower of cost (first-in,
first-out) or market and consist of the following:
December 31, 1994 1993
(In thousands)
Raw materials $ 7,524 $ 6,979
Work-in-process 4,839 2,030
Finished goods 4,955 4,563
------- -------
$ 17,318 $ 13,572
====== ======
Equipment and Leasehold Improvements - When property is retired or otherwise
disposed of, the book value of the property is removed from the asset and
related accumulated depreciation and amortization accounts, and the net gain
or loss is included in the determination of net income. Depreciation is
provided based on the straight-line method over the following estimated useful
lives of the property.
Machinery and equipment 2 - 5 years
Leasehold improvements 5 years
Furniture and fixtures 10 years
Product Development - Product research and development costs are expensed as
incurred.
Warranty Costs - A two-year limited warranty is generally provided on the
Company's disk drives and disk drive subsystems. A one-year limited warranty
is generally provided on the Company's Floptical drives, and magneto-optical
disks. A two or five-year limited warranty is generally provided on the tape
drives and tape media. A five-year limited warranty is generally provided on
the Company's Bernoulli 5.25 inch disks. The Floptical media carries a
lifetime warranty. A five-year limited warranty is generally provided on
certain brands of the removable hard disk cartridges and a lifetime warranty
is provided on a specific brand. Warranty costs of the removable hard disk
cartridges are shared with the manufacturer. The estimated warranty costs to
be incurred are accrued at the time of sale.
Net Income (Loss) Per Common Share - Net income (loss) per common share is
based on the weighted average number of shares of Common Stock and dilutive
common stock equivalent shares outstanding during the year. Common stock
equivalent shares consist primarily of stock options and convertible preferred
stock that have a dilutive effect when applying the treasury stock method. In
periods where losses are recorded, common stock equivalents would decrease the
loss per share and are therefore not added to weighted average shares
outstanding. The outstanding shares and earnings per share have been restated
for all periods presented to reflect the impact of the stock split described
in Note 2.
Foreign Currency Translation - For purposes of consolidating foreign
operations, the Company has determined the functional currency for its foreign
operations is the U.S. dollar. Therefore, translation gains and losses are
included in the determination of income as a component of other income and
expense.
Income Taxes - The Company recognizes a liability or asset for the deferred
tax consequences of temporary differences between the tax bases of assets or
liabilities and their reported amounts in the financial statements. These
temporary differences will result in taxable or deductible amounts in future
years when the reported amounts of the assets or liabilities are recovered or
settled.
General business tax credits are accounted for using the "liability" method,
which reduces Federal income tax expense in the year in which these credits
are generated.
Cash Equivalents and Temporary Investments - For purposes of cash flows, the
Company considers all highly liquid debt instruments purchased with maturities
of three or fewer months to be cash equivalents. Instruments with maturities
in excess of three months are classified as temporary investments. At
December 31, 1994, all temporary investments had maturities of less than six
months. Cash equivalents and temporary investments primarily consist of
certificates of deposit (CDs), investments in money market mutual funds,
commercial paper and banker's acceptances and are recorded at cost which
approximates market. Accordingly, the Company classifies all cash equivalents
and temporary investments as held to maturity.
The Company's policy is to invest in high quality commercial paper of
reputable companies rated at A2P2 or above. The diversification of risk is
consistent with Company policy to maintain liquidity and ensure safety of
deposit. The CDs collateralize the letters of credit described in Note 4.
Reclassifications - Certain reclassifications where made to the 1993 and 1992
consolidated financial statements to conform with the 1994 presentation.
(2) STOCK SPLIT
On October 27, 1994, the Company's Board of Directors declared a 5-for-4 stock
split which was effected in the form of a 25% Common Stock dividend paid on
November 23, 1994 to stockholders of record at the close of business on
November 9, 1994 ("Stock Split"). The Company paid cash in lieu of issuing
fractional shares. In connection with the Stock Split, the Board of Directors
approved the issuance of 5 stock options for every 4 stock options outstanding
and reduced the option price by 25%.
The transaction has been accounted for as a stock split. Of the shares of
Common Stock distributed by the Company in connection with the Stock Split,
approximately 3,017,000 were treasury shares and the remainder were authorized
but unissued shares. The cost of the treasury shares and authorized but
unissued shares was recorded as a reduction in additional paid-in capital.
All earnings per share and outstanding shares have been retroactively restated
in the financial statements for all periods presented.
(3) INCOME TAXES
Income before income taxes is comprised of $208,000 for domestic operations
and a loss of $182,000 for foreign operations in 1994. Loss before income
taxes and cumulative effect of accounting change was comprised of $7,338,000
for domestic operations and $9,318,000 for foreign operations in 1993.
Income tax (provision)/benefit consists of the following.
December 31, 1994 1993 1992
(In thousands)
Current Income Taxes:
Federal $ 1,217 $ (164) $ (980)
State 208 (22) (307)
Foreign - - -
-------- --------- ---------
1,425 (186) (1,287)
-------- --------- ---------
Prepaid (Deferred) Taxes:
Federal (6) 7,486 (187)
State - - -
Change in Valuation
Allowance (3,327) (7,506) -
-------- --------- ---------
(3,333) (20) (187)
-------- --------- ---------
Income Taxes $ (1,908) $ (206) $ (1,474)
======== ========= =========
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109).
In accordance with the provisions of SFAS No. 109, the Company recognized the
cumulative effect of this accounting change totaling $2.3 million in the
consolidated statement of operations for the year ended December 31, 1993.
The accounting change resulted in a $3.8 million increase in the deferred tax
asset. The increase was reduced by a $1.5 million valuation allowance
resulting in a current benefit of 2.3 million recorded in the first quarter of
1993. The Company established the $1.5 million valuation allowance for the
foreign net operating loss carryover and a portion of the other deferred
assets which may not be realized.
The valuation allowance for deferred tax assets was increased by $3.2 million
in the first quarter of 1994. This increase in the valuation allowance was
partially offset by a $.5 million increase in the deferred tax assets
resulting in a $2.7 million reduction of the net deferred tax asset. Included
in the results for the third quarter of 1994 was a current combined federal
and state tax benefit of $1.4 million. This benefit was due to a change in
the estimated 1993 transfer price of products sold by the Company to its
German subsidiary. The change in transfer price was the result of an
independent economic study.
At December 31, 1994, the Company had $12.9 million of deferred tax assets.
The deferred assets have been reduced by a $12.3 million valuation allowance.
This allowance (an increase for the year of $3.3 million) has been established
for the foreign net operating loss and research credit carryover assets and
temporary differences which will not be realized in 1995. The Company has not
assumed future profitability in determining the realizability of the net
deferred tax assets.
The components of and the changes in the net deferred tax assets and
liabilities for the year ended December 31, 1994 are as follows:
Deferred
December 31, (Expense) December 31,
1993 Benefit 1994
(In thousands)
Deferred tax assets:
Bad debt reserves $ 469 $ 13 $ 482
Inventory reserves 824 116 940
Fixed asset reserves 21 15 36
Accrued expense reserves 2,994 1,602 4,596
Inventory unicap adjustment 151 9 160
Foreign net operating loss
carryover 3,024 (1,531) 1,493
Research credit carryover 3,480 1,885 5,365
Intercompany profit in inventory 31 64 95
Restructuring charges 3,502 (3,502) -
Other (382) 166 (216)
-------- -------- --------
Total deferred tax assets 14,114 (1,163) 12,951
Valuation allowance (9,006) (3,327) (12,333)
-------- -------- --------
Deferred tax asset net of
valuation allowance 5,108 (4,490) 618
Deferred tax liabilities:
Accelerated depreciation (123) (18) (141)
-------- --------- --------
Net deferred tax assets $ 4,985 $ (4,508) $ 477
======== ========= ========
Cash paid for income taxes was $94,000 in 1994, $1,322,000 in 1993, and
$2,215,000 in 1992. The Company received cash refunds of $2,247,000 during
1994.
For financial reporting purposes, the tax effect of the Company's current and
cumulative foreign net operating losses are fully considered in the deferred
tax assets. The Company has a current domestic tax loss which will be carried
back against prior years' taxable income. The Company has a foreign tax
operating loss carryforward of $4,950,000.
As of December 31, 1994, the Company has tax credit carryforwards of
approximately $5.6 million for financial reporting purposes and $4.5 million
for regular income tax reporting purposes, expiring on various dates through
2008. The difference between financial and regular tax credit carryforwards
is attributable to the assumed carryback of 1994 temporary differences for
financial reporting purposes to prior years' taxable income.
The Company's 1994 and 1992 regular federal income tax provision has been
reduced to the "alternative minimum tax" by general business credit
carryforwards.
The difference between income taxes at the statutory tax rate and the actual
rate is shown in the following table (in thousands).
December 31, 1994 1993 1992
Federal Statutory Rate $ (9) $ 5,663 $(2,089)
Utilization of Tax Credits 4 947 981
Loss from Foreign Subsidiary - - (708)
Change in Transfer Price 1,400 - -
Deductible Items - 21 74
State Income Taxes (22) 669 (307)
Increase in deferred asset valuation
reserve (3,327) (7,506) -
Foreign Income Taxes - - -
Other 46 - 575
-------- -------- -------
Income Taxes $ (1,908) $ (206) $(1,474)
======== ======== ========
(4) COMMITMENTS AND CONTINGENCIES
Litigation - From time to time, the Company is involved in lawsuits and claims
generally incidental to its business. It is the opinion of management, after
discussions with legal counsel, that the ultimate dispositions of these suits
and claims will not have a material adverse effect on the Company's financial
statements.
Lease Commitments - The Company conducts its operations from leased
facilities. Aggregate lease commitments under non-cancelable operating leases
in effect at December 31, 1994 are as follows (in thousands):
Lease
Years Ending December 31, Commitments
1995 $1,559
1996 635
1997 442
1998 71
1999 71
------
$2,778
======
Total rent expense for the years ended December 31, 1994, 1993 and 1992 was
approximately $1,989,000, $2,336,000, and $2,128,000, respectively.
Letters of Credit - The Company has several letters of credit, of which
approximately $1,000,000 was outstanding at December 31, 1994. These letters
of credit expire on various dates through July 1995 and are secured by
Certificates of Deposit.
Bonus Plan - The Company's Board of Directors adopted a 1994 bonus plan that
provided for bonus payments to officers and key employees. The payment of the
1994 bonuses was contingent upon the Company and the employees achieving
certain objectives. At December 31, 1994, the Company has accrued $1,400,000
for management bonuses of which the majority will be paid in February 1995.
Profit Sharing Plan - In 1991, the Company's Board of Directors adopted a
profit sharing plan that provided for payments to all eligible employees of
their share of a pool that equaled 6.0% of the Company's annual income before
income taxes. In 1994, the plan was amended to 5.0% of the Company's annual
income before income taxes. Employees must complete one year of continuous
employment to be eligible. Employees receive a share of the profit sharing
pool based upon their annual salary as a ratio to total annual salaries of all
eligible employees. The Company paid $505,000 of profit sharing for the 1992
profit sharing plan. There were no profit sharing payments for fiscal 1993
and 1994.
Foreign Exchange Contracts - The Company has commitments to sell foreign
currencies relating to forward exchange contracts in order to hedge against
future currency fluctuations. The contracts mature at various dates through
May 1995. At December 31, 1994, the Company had 7,500,000 Deutsche Marks in
forward exchange sales contracts outstanding.
Gains and losses on foreign currency contracts intended to be used to hedge
operating requirements are reported currently in income. Gains and losses on
foreign currency contracts intended to meet firm commitments are deferred and
are recognized as part of the cost of the underlying transaction being hedged.
At December 31, 1994, all of the Company's forward exchange contracts were
speculative. The Company's theoretical risk in these transactions is the
cost of replacing, at current market rates, these contracts in the event of
default by the counterparty.
(5) PREFERRED STOCK
The Company has authorized the issuance of up to 5 million shares of Preferred
Stock, $.01 par value per share. The Company's Board of Directors has the
authority, without further shareholder approval, to issue Preferred Stock in
one or more series and to fix the rights and preferences thereof. During
1987, in connection with the settlement of litigation, the Company designated
1,200,000 shares of Preferred Stock as Series A Convertible Preferred Stock.
These shares were issued in 1989. In July 1989, the Company designated
250,000 shares of Preferred Stock as Series C Junior Participating Preferred
Stock in connection with its Shareholder Rights Plan (see Note 6).
Series A Convertible Preferred Stock - Each share of Series A Convertible
Preferred Stock (Series A Stock): (1) has a liquidation preference of $5; (2)
accrues dividends at a rate of 6% (which shall accrue but not be paid if the
Company's after-tax net income is insufficient to pay them); (3) is
convertible, provided the fair market value of the Common Stock is at least
$12 per share, by either the holders of the Series A Stock or the Company,
into the number of shares of Common Stock determined by dividing $7.50 by the
fair market value of the Common Stock at the time of conversion; (4) will be
redeemed by the Company on the tenth anniversary of its issuance at a price of
$5 plus accrued but unpaid dividends; and (5) has no voting rights, except as
required by law. At December 31, 1994, the accrued but unpaid dividends were
$155,000.
In March 1990, the Company offered to purchase all of the outstanding shares
of its Series A Stock at a price of $2.00 per share in cash in order to reduce
the administrative costs and dividend requirements and provide stockholders
with an opportunity to sell their shares. The Company believes there is
currently no established trading market for the Series A Stock. In 1990, the
Company acquired approximately 935,000 shares of Series A Stock for
approximately $2.0 million. In 1991, the Company acquired 5,388 shares for
approximately $11,000. In 1992, 1993 and 1994, the Company repurchased a
minimal number of shares. The Company may repurchase additional shares of
Series A Stock in the future.
Series C Junior Participating Preferred Stock - Each share of Series C Junior
Participating Preferred Stock (Series C Stock) will: (1) have a liquidation
preference of $125 per share; (2) have rights to dividends, subject to the
rights of any series of Preferred Stock ranking prior and superior to the
Series C Stock, when and if declared by the Board of Directors; (3) not be
redeemable; and (4) have voting rights which entitle the holder to 125 votes
per share.
(6) PREFERRED STOCK PURCHASE RIGHTS
In July 1989, the Company adopted a Shareholder Rights Plan and declared a
dividend of eight-tenths of one preferred stock purchase right for each
outstanding share of Common Stock. Under certain conditions, each right may
be exercised to purchase one one-hundredth of a share of Series C Stock at an
exercise price of $15. The rights will be exercisable only if a person or
group has acquired beneficial ownership of 20% or more of the Common Stock or
announced a tender or exchange offer that would result in such a person or
group owning 30% or more of the Common Stock. The Company generally will be
entitled to redeem the rights at $.01 per right at any time until the tenth
day following public announcement that a 20% stock position has been acquired
and in certain other circumstances.
If any person or group becomes a beneficial owner of 25% or more of the Common
Stock (except pursuant to a tender or exchange offer for all shares at a fair
price as determined by the outside members of the Board of Directors) or if a
20% stockholder consolidates or merges into or engages in certain self-dealing
transactions with the Company, each right not owned by a 20% stockholder will
enable its holder to purchase such number of shares of Common Stock as is
equal to the exercise price of the right divided by one-half of the current
market price of the Common Stock on the date of the occurrence of the event.
In addition, if the Company engages in a merger or other business combination
with another person or group in which it is not the surviving corporation or
in connection with which its Common Stock is changed or converted, or if the
Company sells or transfers 50% or more of its assets or earning power to
another person, each right that has not previously been exercised will entitle
its holder to purchase such number of shares of Common Stock of such other
person as is equal to the exercise price of the right divided by one-half of
the current market price of such Common Stock on the date of the occurrence of
the event.
(7) STOCK OPTIONS
Stock Option Plans - The Company has a 1981 Stock Option Plan (the "1981
Option Plan") and a 1987 Stock Option Plan (the "1987 Option Plan"). The 1981
Option Plan has expired and no further options may be granted under this plan;
however, outstanding options previously granted under this plan remain in
effect. Both plans permit the granting of incentive and nonstatutory stock
options. The plans cover an aggregate of 6,875,000 shares of Common Stock.
The exercise price of options granted under the 1987 Option Plan may not be
less than 100% of the fair market value of the Common Stock at the date of
grant in the case of incentive stock options, and may not be less than 25% of
the fair market value of the Common Stock at the date of grant in the case of
nonstatutory stock options.
Options under both plans must be exercised within ten years from the date of
grant in the case of incentive stock options and within ten years and one
month from the date of grant in the case of nonstatutory stock options, or
sooner if so specified within the option agreement. At December 31, 1994, the
Company had reserved an aggregate of 4,535,881 shares for issuance upon
exercise of options granted or to be granted under these plans.
The following table presents the aggregate options granted, forfeited, and
exercised under the 1981 and 1987 Option Plans during 1994, 1993, and 1992 at
their respective exercise price ranges. All options and option prices have
been restated for the stock split.
1994 1993 1992
--------- --------- ---------
Options outstanding at January 1, 2,349,723 2,978,051 3,077,150
Options granted (1994 at prices
from $1.80 to $3.18; 1993 at
prices from $2.10 to $5.70;
1992 at prices from $4.70
to $8.75 per share) 734,875 101,678 167,954
Options forfeited (1994 at prices
from $1.25 to $8.75; 1993 at
prices from $0.80 to $8.70;
1992 at prices from $3.00
to $7.70 per share) (472,797) (124,636) (17,219)
Options exercised (1994 at prices
from $0.80 to $2.40; 1993 at
prices from $0.32 to $3.00;
1992 at prices from $0.32
to $4.20 per share) (158,047) (605,370) (249,834)
---------- ---------- ---------
Options outstanding at December 31,
(1994 prices from $0.80 to $8.75;
1993 prices from $0.80 to $8.75;
1992 prices from $0.32 to $8.75
per share) 2,453,754 2,349,723 2,978,051
========= ========= =========
Exercisable at December 31, (prices
ranging from $0.80 to $8.75
per share) 1,628,687 1,886,950 1,993,749
========= ========= =========
Reserves for future grant at
December 31, 2,082,127 1,831,782 1,808,824
========= ========= =========
Director Stock Option Plans - The 1987 Director Stock Option Plan (the
"Director Plan") covered 250,000 shares of Common Stock. The Director Plan
provided for the grant to each non-employee director of the Company, on his
initial election as a director, an option to purchase 31,250 shares of Common
Stock. The exercise price per share of the option is equal to the fair market
value of the Company's Common Stock on the date of grant of the option.
Options become exercisable in five equal annual installments, commencing one
year from the date of grant, provided the holder continues to serve as a
director of the Company. Any option granted under the Director Plan must be
exercised no later than ten years from the date of grant. All options granted
under the Director Plan are nonstatutory options. Subsequent to year end, the
Board adopted the 1995 Director Stock Option Plan. This Plan covers 200,000
shares of Common Stock and provides for the grant to each non-employee
director of the Company, on his initial election as a director, an option to
purchase 25,000 shares of Common Stock.
The following table presents the aggregate options granted, forfeited and
exercised under the Director Plan during 1994, 1993 and 1992 at their
respective exercise price ranges. All options and option prices have been
restated for the stock split.
1994 1993 1992
Options outstanding at January 1, 168,750 137,500 156,250
Options granted at $1.60 per share
in 1994 and $3.50 per share in 1993 62,500 31,250 -
Options exercised at $1.70 per share
in 1994 and $2.20 per share in 1992 (31,250) - (18,750)
--------- ------- --------
Options outstanding at December 31, (1994
at prices from $1.60 to $3.50; 1993
at prices from $1.70 to $3.50; 1992
at prices from $1.70 to $2.75 per
share) 200,000 168,750 137,500
======= ======= =======
Exercisable at December 31, (prices
ranging from $1.60 to $3.50 per share) 100,000 93,750 93,750
======= ======= =======
Reserved for future grant at December 31, - 62,500 93,750
======= ======= =======
Other Stock Options - In December 1987, the Company granted to each of five of
the six members of the Board of Directors an option to purchase 31,250 shares
of Common Stock. The exercise price of these options was $1.20 per share in
the case of four options, and $1.40 per share in the case of the other option.
Each option is exercisable in increments of 6,250 shares per year beginning
one year from the date of grant and must be exercised no later than ten years
and one month from the date of grant. During 1992, options to purchase 25,000
shares were exercised at $1.20 per share. At December 31, 1994, options for
the purchase of 81,250 shares were outstanding and exercisable at prices
ranging from $1.20 to $1.40 per share.
(8) STOCK PURCHASE PLAN
1991 Stock Purchase Plan - On January 25, 1991, the Company's Board of
Directors approved an employee stock purchase plan for 1991, 1992, and 1993.
Eligible employees were allowed to purchase Common Stock at market value on
the date coincident with the distribution of the semiannual profit sharing
payments. The employee will earn a premium equal to 25% of their original
purchase on each of the first four anniversaries of purchase provided the
employee is still employed by the Company and the shares are still held by the
Company. A total of 1,500,000 shares were approved for the three-year plan
with 250,000 shares plus the premium of 250,000 shares approved for each year.
Employees participating in the profit sharing plan used up to 66 % of their
profit sharing payment to purchase stock. As of December 31, 1994, a total of
43,641 shares have been purchased pursuant to this plan and a total of 8,836
of premium shares have been issued under this plan.
(9) RETIREMENT PLAN
The Iomega Retirement and Investment Savings (IRIS) Plan permits eligible
employees to make tax deferred investments through payroll deductions. Each
year the Company may contribute to the IRIS Plan at the discretion of the
Board of Directors, based on the prior year's earnings of the Company. The
IRIS Plan is subject to compliance with Section 401(k) of the Internal Revenue
Code and the Employee Retirement Income Securities Act of 1974. Under the
terms of the IRIS Plan, all contributions are immediately vested in full. The
Company contributed approximately $319,000, $398,000, and $434,000 to the IRIS
Plan for the years ended December 31, 1994, 1993 and 1992, respectively.
(10) OPERATIONS BY GEOGRAPHIC REGION
Prior to July 1992, the Company's sales to foreign customers were primarily
export sales. In July 1992, the Company's German subsidiary began to ship and
invoice the majority of the Company's European sales. The Company still
exports to areas outside of Europe. Export sales (excluding European sales
subsequent to July 1992) for the years ended December 31, 1994, 1993 and 1992
were $6,133,000, $7,534,000, and $21,041,000, respectively.
The Company has two primary geographic regions: domestic and foreign.
Domestic operations include all U.S. and export operations. Foreign
operations are comprised of the subsidiary in Germany and sales offices
located in France, Belgium, the United Kingdom, Spain, Italy and Germany. The
sales offices in France, Belgium, the United Kingdom, Italy and Spain are
branches of U.S. subsidiaries. Inventory is transferred from domestic
operations to the German subsidiary at an arms-length price determined by an
independent economic study. Following is a summary of the Company's
operations by geographic location.
For the Year Ended December 31, 1994:
Domestic Foreign Intercompany
Operations Operations Transactions Consolidated
(In thousands)
Net Sales:
To Unaffiliated Customers $ 95,554 $ 45,826 $ - $ 141,380
To Affiliates 26,393 - (26,393) -
Cost of Sales 87,305 31,522 (26,374) 92,453
--------- -------- ----------- ---------
Gross Margin 34,642 14,304 (19) 48,927
========= ======== =========== =========
Operating Expenses 45,049 4,760 - 49,809
========= ======== =========== =========
Net Income (Loss) $ (9,729) $ 7,866 $ (19) $ (1,882)
========= ======== =========== =========
Identifiable Assets $ 61,696 $ 14,228 $ (91) $ 75,833
========= ======== =========== =========
Capital Expenditures $ 5,894 $ 1,189 $ - $ 7,083
========= ======== ========== =========
For the Year Ended December 31, 1993:
Domestic Foreign Intercompany
Operations Operations Transactions Consolidated
(In thousands)
Net Sales:
To Unaffiliated Customers $ 112,961 $ 34,162 $ - $ 147,123
To Affiliates 26,750 - (26,750) -
Cost of Sales 89,984 29,997 (27,396) 92,585
--------- ---------- --------- ---------
Gross Margin 49,727 4,165 646 54,538
========= ========== ========= =========
Operating Expenses 58,454 13,511 - 71,965
========= ========== ========= =========
Net Income (Loss) $ (4,147) $ (11,024) $ 646 $ (14,525)
========= ========== ========= =========
Identifiable Assets $ 68,004 $ 13,214 $ (129) $ 81,089
========= ========= ========= =========
Capital Expenditures $ 4,920 $ 1,647 $ - $ 6,567
========= ========= ========= =========
For the Year Ended December 31, 1992:
Domestic Foreign Intercompany
Operations Operations Transactions Consolidated
(In thousands)
Net Sales:
To Unaffiliated Customers $ 125,391 $ 13,783 $ - $ 139,174
To Affiliates 12,217 - (12,217) -
Cost of Sales 74,658 10,791 (11,359) 74,090
--------- --------- ---------- ---------
Gross Margin 62,950 2,992 (858) 65,084
========= ========= ========== =========
Operating Expenses 53,463 6,068 - 59,531
========= ========= ========== =========
Net Income (Loss) $ 8,699 $ (3,170) $ (858) $ 4,671
========= ========= ========= =========
Identifiable Assets $ 77,507 $ 10,398 $ (950) $ 86,955
========= ========= ========= =========
Capital Expenditures $ 11,830 $ 1,150 $ - $ 12,980
========= ========= ========= =========
(11) OTHER MATTERS
Significant Customers - During 1994, sales to Ingram Micro D, Inc. accounted
for 11% of the Company's sales. During 1993, sales to Ingram Micro D, Inc.
accounted for 14% of the Company's sales. During 1992, sales to Ingram Micro
D, Inc. and Merisel, Inc. accounted for 19% and 10%, respectively, of the
Company's sales. No other single customer accounted for more than 10% of the
Company's sales during the years indicated.
Concentration of Credit Risk - The Company markets its products primarily
through computer product distributors who in turn sell to dealers and their
franchises for resale to end users. Accordingly, as the Company grants credit
to its customers, a substantial portion of outstanding accounts receivable are
due from computer product distributors. At December 31, 1994, the customers
with the ten highest outstanding accounts receivable balances totaled $7.1
million or 34% of the gross accounts receivable. At December 31, 1994, the
outstanding accounts receivable balance from one customer was $3.1 million or
15% of gross accounts receivable. If any one or a group of these customers'
receivable balances should be deemed uncollectible it could have a material
adverse effect on the Company's operations.
Purchases From Related Parties - The Company purchased inventory items
totaling $398,000, $372,000, and $538,000 for the years ended December 31,
1994, 1993, and 1992, respectively, from a vendor having a common director
with the Company.
Notes Receivable From Related Parties - In September 1993, the Company loaned
an executive officer approximately $679,000 as part of the officer's severance
package; a portion of the loan was used by the executive to exercise stock
options. This amount of the loan is included in note receivable from
shareholder in the accompanying consolidated financial statements. The
Company received a note from the officer which bears interest at an annual
rate of 4.5% and is payable in two equal annual installments of $340,000 which
are due on or before January 1995 and January 1996. The note is with full
recourse and is collateralized by the stock purchased.
Subsequent to December 31, 1994, the Company loaned another executive officer
approximately $283,000 as part of the officer's severance package. A portion
of the loan was used by the executive to exercise stock options. The Company
received a note from the officer which bears interest at an annual rate of
7.75% and is payable in full on or before January 1996. The note is with full
recourse and is collateralized by the stock purchased.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Iomega Corporation and Subsidiaries
To Iomega Corporation:
We have audited the accompanying consolidated balance sheets of Iomega
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Iomega
Corporation and subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As explained in Note 3 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income
taxes.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 25, 1995
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