<PAGE>
FORM 10-K/A
AMENDMENT NO. 1 TO ANNUAL REPORT ON FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to _________
Commission file number 1-10639
CONNER PERIPHERALS, INC.
[Exact name of registrant as specified in its charter]
DELAWARE 94-2968210
(State of incorporation) (I.R.S. Employer
Identification No.)
3081 ZANKER ROAD
SAN JOSE, CALIFORNIA 95134
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 456-4500
Securities registered pursuant to Section 12(b) of the Act-
Title of class and name of each exchange on which registered:
Common Stock, $.001 par value- New York Stock Exchange
6-1/2% Convertible Subordinated Debentures due 2002- New York Stock Exchange
6-3/4% Convertible Subordinated Debentures due 2001- New York Stock Exchange
Rights to Purchase Series A Participating Preferred Stock-
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate value of voting stock held by nonaffiliates of the
Registrant was approximately $538,080,000 as of March 7, 1995 based upon the
closing sales price on the New York Stock Exchange reported for such date.
Shares of Common Stock held by each executive officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded in
that such persons may, under certain circumstances, be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes. As of March 7, 1995, 52,495,602 shares of
Common Stock were issued and outstanding.
<PAGE>
FORM 10-K/A
AMENDMENT NO. 1
TO
ANNUAL REPORT ON FORM 10-K
OF
CONNER PERIPHERALS, INC.
This Amendment No. 1 is being filed to amend the December 31, 1994 Annual
Report on Form 10-K ("1994 10-K") filed with the Securities and Exchange
Commission by Conner Peripherals, Inc. (the "Company") on March 30, 1995 as
follows:
Part II-Item 8. Financial Statements and Supplementary Data
Item 8 of the 1994 10-K is being amended hereby (i) by deleting the third
paragraph of "Note 15 Litigation" to the Company's Consolidated Financial
Statements for the fiscal year ended December 31, 1994 and inserting the
following two paragraphs in its place:
During the first quarter of 1995, the Company received a newly issued
patent concerning various aspects of the power management features
incorporated in the Company's disk drives. Promptly following the issuance
of the patent, the Company filed a complaint with the United States
International Trade Commission alleging that various disk drives produced
by IBM infringe the new power management patent, and seeking an exclusion
order concerning IBM products incorporating these infringing drives. The
Company filed a lawsuit in Federal Court, Southern District of New York,
seeking damages and injunctive relief related to the infringement of the
power management patent.
On July 25, 1995, the Company and IBM agreed to dismiss all of the
litigation against each other and entered into patent cross license
agreements. The Company and IBM also established a five year commercial
relationship, whereby, IBM may buy the Company's products. The litigation
settlement did not have an adverse effect on the Company's results of
operations or financial position.
(ii) by deleting the second paragraph of the Report of Independent Accountants
and adding the words, following the date thereof, "except as to Note 15 which is
as of July 25, 1995."
Part IV-Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.
Item 14(a)(2) of the 1994 10-K is being amended hereby to make conforming
changes to the Report of Independent Accountants on Financial Statement Schedule
with respect to the amendments to Item 8 just described.
Item 14(c) of the 1994 10-K is being amended hereby by substituting a new
Exhibit 23.1, Consent of Independent Accountants, filed herewith.
Except as described above, this Amendment makes no changes to Items 8 and
14 of the 1994 10-K or to any of the documents listed in Item 14 and filed as
part of the 1994 10-K. Exhibit 23.1 has been filed with this Amendment. All
other Exhibits to the 1994 10-K were filed with the 1994 10-K, are not amended
by this Amendment and are not included with this Amendment.
Pursuant to Rule 12b-15 of the Rules and Regulations under the Securities
and Exchange Act of 1934, as amended, the complete texts of Items 8 and 14, as
amended, are included in this Amendment.
2
<PAGE>
Part II - Item 8. Financial Statements and Supplementary Data
Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $2,365,152 $2,151,672 $2,238,423 $1,598,984 $1,337,593
Gross profit $ 468,649 $ 237,954 $ 458,464 $ 316,257 $ 328,211
Income/(loss) from operations/1/ $ 166,564 $ (446,430) $ 153,530 $ 130,211 $ 172,732
Net income/(loss) $ 109,687 $ (445,314) $ 121,072 $ 92,492 $ 130,052
Net income/(loss) per share:
Primary $ 2.10 $ (9.03) $ 2.19 $ 1.57 $ 2.51
Fully diluted $ 1.77 $ (9.03) $ 1.89 $ 1.54 $ 2.41
Total assets $1,461,429 $1,464,051 $1,904,707 $1,334,538 $ 880,468
Long-term debt, less current portion $ 627,059 $ 660,606 $ 704,845 $ 367,916 $ 36,731
</TABLE>
Summary Quarterly Data--Unaudited
<TABLE>
<CAPTION>
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
Quarter Ended 1994 1994 1994 1994 1993 1993 1993 1993
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands,
except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $591,611 $559,504 $650,079 $563,958 $574,449 $ 528,358 $490,575 $558,290
Gross profit $ 97,426 $101,181 $142,227 $127,815 $ 87,872 $ 20,981 $ 38,581 $ 90,520
Income/(loss) from operations/2/ $ 42,546 $ 21,735 $ 57,400 $ 44,883 $ 15,510 $(381,608) $(51,765) $(28,567)
Net income/(loss) $ 44,183 $ 10,230 $ 31,470 $ 23,804 $ 8,455 $(372,400) $(58,825) $(22,544)
Net income/(loss) per share:
Primary $ 0.84 $ 0.20 $ 0.60 $ 0.46 $ 0.17 $ (7.54) $ (1.19) $ (0.46)
Fully diluted $ 0.66 $ 0.20 $ 0.50 $ 0.40 $ 0.17 $ (7.54) $ (1.19) $ (0.46)
</TABLE>
/1/ Income/(loss) from operations includes unusual charges (credits) of
$(33,019,000), $378,702,000 and $57,611,000 in 1994, 1993 and 1992,
respectively (see Note 4 to consolidated financial statements).
/2/ Income/(loss) from operations includes unusual charges (credits) of
$(33,019,000), $330,019,000, $12,300,000 and $36,383,000 for the quarters
ended December 31, 1994, September 30, 1993, June 30, 1993 and March 31,
1993, respectively (see Note 4 to consolidated financial statements).
------
3
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1994 1993
- --------------------------------------------------------------------------------
(in thousands, except par value and share data)
<S> <C> <C>
Assets
Current assets:
Cash, cash equivalents and short-term investments $ 443,239 $ 517,547
Accounts receivable, net of reserves and allowances
of $31,492 in 1994 and $39,430 in 1993 307,454 333,416
Inventory 255,880 173,860
Deferred income taxes 51,950 54,944
Other 111,187 87,348
---------------------
Total current assets 1,169,710 1,167,115
Property, plant and equipment, net 237,066 231,337
Goodwill and other intangibles, net 39,255 42,944
Other 15,398 22,655
---------------------
$1,461,429 $1,464,051
=====================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 139,559 $ 229,721
Accrued expenses 190,372 217,060
Current portion of long-term debt 34,922 43,112
---------------------
Total current liabilities 364,853 489,893
Long-term debt, less current portion 627,059 660,606
Deferred income taxes 129,668 98,162
Other 1,525 4,009
Minority interest 1,648 2,530
Commitments and contingencies (Notes 9 and 15)
Stockholders' equity:
Preferred stock, $0.001 par value; 20,000,000 shares
authorized, none outstanding -- --
Common stock and paid-in capital in excess of
$0.001 par value; 100,000,000 shares authorized,
52,460,734 and 50,565,083 shares issued and
outstanding 260,592 242,454
Retained earnings/(accumulated deficit) 76,084 (33,603)
---------------------
Total stockholders' equity 336,676 208,851
---------------------
$1,461,429 $1,464,051
=====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
------
4
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net sales $2,365,152 $2,151,672 $2,238,423
Cost of sales 1,896,503 1,913,718 1,779,959
--------------------------------------
Gross profit 468,649 237,954 458,464
--------------------------------------
Selling, general and administrative 189,237 186,269 152,671
Research and development 130,771 137,465 94,652
Amortization of goodwill and other intangibles 15,096 22,248 --
Unusual items (33,019) 338,402 57,611
--------------------------------------
Total operating expenses 302,085 684,384 304,934
--------------------------------------
Income/(loss) from operations 166,564 (446,430) 153,530
Interest expense (47,237) (51,213) (46,866)
Other income, net 35,224 26,667 49,056
--------------------------------------
Income/(loss) before income taxes 154,551 (470,976) 155,720
Provision/(benefit) for income taxes 44,864 (25,662) 34,648
--------------------------------------
Net income/(loss) $ 109,687 $ (445,314) $ 121,072
======================================
Net income/(loss) per share:
Primary $ 2.10 $ (9.03) $ 2.19
======================================
Fully diluted $ 1.77 $ (9.03) $ 1.89
======================================
Weighted average shares:
Primary 52,253 49,339 55,242
======================================
Fully diluted 74,558 49,339 74,723
======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
------
5
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ 109,687 $ (445,314) $ 121,072
Adjustments to reconcile net income/(loss)
to net cash provided by operating activities:
Depreciation and amortization 91,681 104,747 77,463
Non-cash unusual items (33,019) 230,417 57,611
Deferred income taxes 29,728 (32,745) (13,067)
Gain on sale of Read-Rite Corporation common stock (22,294) -- (22,540)
Loss on asset dispositions 4,569 11,468 5,595
Minority interest and other (3,366) 720 9,330
Changes in assets and liabilities, net of effect of acquired businesses:
Accounts receivable, net 25,962 67,712 (132,401)
Inventory (82,020) 91,135 39,362
Other current assets (5,175) (19,006) (19,193)
Other non-current assets 7,486 (20,907) (18,108)
Accounts payable and accrued expenses (67,776) 31,994 164,654
---------------------------------------
Total cash provided by operating activities 55,463 20,221 269,778
Cash flows from investing activities:
Capital expenditures (95,011) (102,111) (69,744)
Purchases of short-term investments -- (1,429,492) (1,013,148)
Sales and maturities of short-term investments -- 1,464,986 795,839
Purchases of investments held to maturity (313,501) -- --
Purchases of investments available for sale (344,511) -- --
Maturity of investments held to maturity 394,675 -- --
Sale of investments available for sale 342,532 -- --
Purchase of minority interest (5,000) (16,000) --
Acquisition of acquired businesses, net of cash acquired (8,500) -- (181,537)
Acquisition of technology rights -- (2,078) (28,061)
Proceeds from sale of Read-Rite Corporation common stock 3,630 -- 39,189
--------------------------------------
Total cash used in investing activities (25,686) (84,695) (457,462)
Cash flows from financing activities:
Proceeds from other borrowings 500 2,782 345,672
Repayments of long-term debt (42,237) (10,990) (24,752)
Repayments of Archive Corporation long-term debt -- (13,713) (90,239)
Issuance of common stock 16,847 24,909 17,322
Repurchase of common stock -- -- (241,505)
Contribution by minority stockholder -- -- 8,000
--------------------------------------
Total cash provided by (used in) financing activities (24,890) 2,988 14,498
Net increase/(decrease) in cash and cash equivalents 4,887 (61,486) (173,186)
Cash and cash equivalents at beginning of the year 197,499 258,985 432,171
--------------------------------------
Cash and cash equivalents at end of the year 202,386 197,499 258,985
Short-term investments 240,853 320,048 355,542
--------------------------------------
Total cash, cash equivalents and short-term investments $ 443,239 $ 517,547 $ 614,527
======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
------
6
<PAGE>
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
--------------------------
Par Value Retained
and Paid-in Earnings Total
Capital in (Accumulated Stockholders'
Shares Excess of Par Deficit) Equity
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share data)
<S> <C> <C> <C> <C>
Balance at December 31, 1991 58,089,297 $ 422,186 $ 290,639 $ 712,825
Issuance of common stock under various
employee stock plans 1,866,677 31,008 -- 31,008
Repurchase of common stock, at cost (11,638,802) (241,505) -- (241,505)
Income tax benefit of disqualifying dispositions
of employee stock -- 2,636 -- 2,636
Net income -- -- 121,072 121,072
--------------------------------------------------------
Balance at December 31, 1992 48,317,172 214,325 411,711 626,036
Issuance of common stock under various
employee stock plans 2,247,911 24,909 -- 24,909
Income tax benefit of disqualifying dispositions
of employee stock -- 3,220 -- 3,220
Net loss -- -- (445,314) (445,314)
--------------------------------------------------------
Balance at December 31, 1993 50,565,083 242,454 (33,603) 208,851
Issuance of common stock under various
employee stock plans 1,895,651 16,847 -- 16,847
Income tax benefit of disqualifying dispositions
of employee stock -- 1,291 -- 1,291
Net income -- -- 109,687 109,687
--------------------------------------------------------
Balance at December 31, 1994 52,460,734 $ 260,592 $ 76,084 $ 336,676
========================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
------
7
<PAGE>
Notes to Consolidated Financial Statements
Note 1 The Company
- ------
Conner Peripherals, Inc. ("Company") was incorporated in California in June
1985, and reincorporated in Delaware in September 1992. The Company sells,
designs and builds a comprehensive line of information storage solutions
products, including disk drives, tape drives, storage management software and
storage systems for a wide range of computer applications.
During each of 1994 and 1993, sales to one customer accounted for
approximately 13% of net sales. During 1992, sales to two customers
accounted for approximately 15% and 12% of net sales.
The Company's fiscal year ends on the Saturday nearest to December 31.
Results of operations for the years ended in 1994 and 1993 include 52 weeks.
Results of operations for the year ended 1992 includes 53 weeks. The Company
reports quarterly results on thirteen-week quarterly periods, each ending on
the Saturday closest to month-end. For purposes of presentation, the Company
has indicated its accounting year as ending on December 31 or the month-end
for interim quarterly periods.
Summary of Significant Accounting Policies
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of Conner Peripherals, Inc. and its
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Revenue Recognition: Revenue from product sales to customers is recognized
upon shipment. Revenue from sales to certain distributors is subject to
agreements allowing certain rights of return and price protection on unsold
merchandise held by those distributors. Accordingly, reserves for estimated
future returns, exchanges and credits for marketing and other sales
incentives are also provided upon shipment.
Warranty Expense: The Company provides for the estimated cost which may be
incurred under its various product warranties upon product shipment.
Cash, Cash Equivalents and Short-Term Investments: The Company considers all
highly liquid debt instruments with an original maturity of three months or
less to be cash equivalents. Short-term investments consist primarily of
certificates of deposit, bankers acceptances, preferred stock, corporate
debt, municipal debt and U.S. Government agency debt securities. These
investments generally mature within 12 months and prior to 1994 were carried at
cost, which approximated market.
Effective at the beginning of 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (FAS 115), which requires the Company to
classify debt and equity securities into one of three categories; held to
maturity, trading or available for sale. The Company's investments are
classified as held to maturity and available for sale as of December 31,
1994. Investment securities classified as held to maturity are measured at
amortized cost based on the Company's positive intent to hold such securities
to maturity. Investment securities classified as available for sale are
measured at market value and net unrealized gains and losses are recorded as
a separate component of stockholders' equity until realized. Any gains or
losses on sales of investments are computed on specific identification. As of
December 31, 1994, net unrealized gains and losses on investments available
for sale were not material. The cumulative effect of adopting FAS 115 was not
material to the Company's financial position or results of operations.
Inventory: Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out basis.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Equipment and furniture are depreciated using the straight-line method
based upon the estimated useful lives of the related assets which range from
eighteen months to 5 years. Leasehold improvements are amortized using the
straight-line method based upon the shorter of the estimated useful lives or the
lease term of the respective assets. Buildings
------
8
<PAGE>
are depreciated using the straight-line method over the estimated useful life of
25 to 30 years.
Land and buildings held for sale, which are no longer used in the Company's
operations or held for future expansion, are stated at the lower of cost or
estimated fair value.
Goodwill and Other Intangibles: Goodwill and other intangibles, which include
patents and acquired technology, are being amortized over their estimated
useful lives ranging from 2 to 10 years. The Company evaluates the
recoverability of intangible assets based on future discounted cash flows.
Charges for impairment of intangible assets are recorded to the extent
unamortized book value of such assets exceed the related future discounted cash
flows.
Income Taxes: The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." See Note 7 for additional information regarding the Company's
accounting for income taxes.
Net Income (Loss) Per Share: Primary net income per share is computed using
the weighted average number of common and dilutive common equivalent shares
outstanding. Common equivalent shares consist of stock options (using the
treasury stock method). Fully diluted net income per share is computed using
the weighted average number of common and dilutive common equivalent shares
outstanding and assuming the conversion, if dilutive, of all outstanding
convertible subordinated debentures from the date of issuance for all periods
in which they remained outstanding. For purposes of the fully diluted
computation, net income is adjusted by the after-tax interest expense
applicable to the convertible subordinated debentures. Primary and fully
diluted net loss per share is computed using the weighted average number of
common shares outstanding.
Foreign Currency Translation: The Company currently uses the U.S. dollar as
the functional currency of its foreign operations. Gains or losses from
foreign currency translation are included in the determination of net income.
To date, such amounts have been immaterial.
Concentration of Credit Risk: Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally
of cash and cash equivalents, short-term investments and trade accounts
receivable. The Company places its cash and cash equivalents and short-term
investments in a variety of financial instruments such as certificates of
deposit, bankers acceptances, preferred stock, corporate debt, municipal debt
and U.S. Government agency debt securities. The Company, by policy, limits
the amount of credit exposure to any one financial institution or commercial
issuer.
The Company sells its products to original equipment manufacturers and
distributors throughout the world. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. The Company maintains an allowance for
uncollectible accounts receivable based upon the expected collectibility of
all accounts receivable.
Foreign Currency Financial Instruments: To hedge against certain balance
sheet and operating income currency exposures incurred in the ordinary course
of business, the Company enters into foreign currency forward contracts and
purchases foreign currency option contracts for periods and amounts
consistent with the amounts and timing of operating cash flow requirements
and vendor purchase commitments. Gains and losses are deferred and offset by
gains and losses on the underlying hedged exposures. The Company does not
hold or issue financial instruments for trading purposes. The counterparties
to these contracts consist of international financial institutions. The
Company monitors the credit ratings and capital and surplus of its
counterparties.
Presentation: Certain prior year financial statement balances have been
reclassified to conform to the 1994 presentations.
-------
9
<PAGE>
Note 2 Short-Term Investments
- ------
The amortized cost and estimated fair value of securities held to maturity
and available for sale as of December 31, 1994, are as follows:
<TABLE>
<CAPTION>
Gross Gross Gross Estimated
amortized unrealized unrealized fair
cost gains losses value
- -----------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Government
and agency bonds $ 27,235 $-- $(155) $ 27,080
State and political
subdivision bonds 66,077 -- (380) 65,697
Corporate debt
securities 64,085 80 (128) 64,037
Other 71,852 5 -- 71,857
--------------------------------------------
229,249 85 (663) 228,671
Available for sale-
Auction preferred stock 94,800 -- -- 94,800
--------------------------------------------
Total debt and
equity securities 324,049 $85 $(663) $323,471
====================================
Less cash
equivalents 83,196
--------
Short-term investments $240,853
========
</TABLE>
The contractual maturities of investments held to maturity and available for
sale are one year or less. The realized gains and losses as of December 31,
1994, had no material impact to the Company's financial position or results of
operations. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
Note 3 Balance Sheet and Statement of Operations Components
- ------
<TABLE>
<CAPTION>
December 31, 1994 1993
- -----------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Inventories:
Purchased components $ 86,970 $ 81,620
Work-in-process 72,692 37,939
Finished goods 96,218 54,301
-----------------------
$255,880 $173,860
=======================
Property plant and equipment:
Building $ 28,394 $ 47,335
Equipment and furniture 345,689 289,517
Leasehold improvements 63,404 60,762
Construction-in-progress 28,257 34,026
-----------------------
465,744 431,640
Less accumulated depreciation
and amortization 256,131 200,303
-----------------------
209,613 231,337
Buildings and improvements
held for sale, net 27,453 --
-----------------------
$237,066 $231,337
=======================
Goodwill and other intangibles:
Goodwill $ 5,073 $ --
Intangibles 70,337 64,003
-----------------------
75,410 64,003
Less accumulated amortization 36,155 21,059
-----------------------
$ 39,255 $ 42,944
=======================
Accrued expenses:
Accrued employee compensation $ 32,997 $ 33,041
Accrued income taxes 41,841 14,298
Accrued warranty costs 45,422 38,299
Accrued restructuring costs 7,549 66,380
Other liabilities 62,563 65,042
-----------------------
$190,372 $217,060
=======================
</TABLE>
------
10
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
- -------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Other income, net:
Interest income $16,193 $17,700 $35,050
Minority interest in joint ventures 2,120 649 (6,457)
Gain on sale of Read-Rite
Corporation common stock 22,294 -- 22,540
Other (5,383) 8,318 (2,077)
------------------------------
$35,224 $26,667 $49,056
==============================
</TABLE>
Note 4 Unusual Items
- ------
In the fourth quarter of 1994, the Company recorded $33,019,000 as a net
pretax credit to income for two unusual items. As discussed below, the
Company recorded an unusual credit of $38,019,000 for the reduction of
restructuring reserves established during 1993. This credit was partially
offset by a $5,000,000 unusual charge taken to write-off in-process research
and development associated with the acquisition of Quest Development
Corporation.
During 1993, the Company recorded special charges totaling $378,702,000, of
which $40,300,000 was charged to cost of sales and $338,402,000 was charged
to unusual items. The $40,300,000 charge to cost of sales reflected the cost
of the Company's actions to accelerate the end-of-life of certain disk drive
products. The $338,402,000 charge included a write-down of goodwill and other
intangibles of $212,945,000, restructuring charges of $106,457,000 for the
reduction of excess manufacturing capacity and the streamlining of operations
and a charge of $19,000,000 for certain contingencies.
The write-down of intangible assets totaling $212,945,000 consisted of
$180,000,000 for the remaining unamortized balance of goodwill related to the
Archive Corporation acquisition and $32,945,000 of identified intangibles.
The Company believes that the write-down of these assets was necessitated by
the emergence during 1993 of fundamental changes in the storage business,
primarily the increase in competition and the standardization of technologies
in the tape drive industry, which caused the value of these assets to be
permanently impaired.
The restructuring charges totaling $106,457,000 resulted from the Company's
decision to reduce excess manufacturing capacity to a level more consistent
with sustainable demand, to streamline operations as well as administrative
processes to reduce the Company's cost structure and to further integrate and
reduce selling, general and administrative and research and development
activities of both the disk and tape drive operations. As part of this
restructuring, the Company had decided to close certain of its manufacturing
operations.
In the fourth quarter of 1994, the Company lowered its estimate of the total
cost of restructuring and recorded an adjustment to its restructuring
reserves thereby increasing operating income by $38,019,000. This reduction
resulted from the modification of the Company's operating plans, primarily
the decision to cancel the closure of certain manufacturing operations due to
changing business conditions. These changing business conditions primarily
pertain to the improvement in local economies, the reduction in manufacturing
cost benefits achieved by shifting production to other locations and certain
other strategic benefits realized by maintaining a local presence.
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11
<PAGE>
As of December 31, 1994, the Company has executed all of its restructuring
actions. As a result, approximately 780 employees from manufacturing,
research and development, sales and marketing and administrative departments
have been terminated and facilities have been reduced by approximately
360,000 square feet. The Company's annual savings from operations resulting
from these actions was to reduce salaries and benefits by approximately
$32,000,000, depreciation expense by approximately $7,000,000 and rental
expense by approximately $2,000,000.
The following table sets forth the Company's restructuring reserves as of
December 31, 1993 and 1994:
<TABLE>
<CAPTION>
Restructuring Reserves
---------------------------------------------
Severances Excess Equipment
and benefits facilities and other Total
- -------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
1993 restructuring
charges $22,403 $ 28,511 $ 55,543 $106,457
Cash charges (7,077) (623) (1,723) (9,423)
Non-cash charges -- -- (30,654) (30,654)
---------------------------------------------
Reserve balances,
December 31, 1993 15,326 27,888 23,166 66,380
Cash charges (3,824) (2,126) (7,793) (13,743)
Non-cash charges -- (240) (6,829) (7,069)
Adjustments (9,482) (21,595) (6,942) (38,019)
---------------------------------------------
Reserve balances,
December 31, 1994 $ 2,020 $ 3,927 $ 1,602 $ 7,549
=============================================
</TABLE>
The Company expects that substantially all of the remaining employee termination
payments will be paid during 1995. Lease rental obligations included in excess
facilities are net of approximately $2,119,000 of estimated sublease income
expected to be derived from subleasing of the effected facilities. These
obligations will be paid through the year 2018 or sooner to the extent the
Company is able to negotiate a lease settlement or otherwise dispose of the
properties. Write-offs of assets and payments against other reserves at December
31, 1994, are expected to be substantially completed by the end of 1996.
In December 1992, in connection with the acquisition of Archive Corporation,
the Company recorded an unusual charge of $57,611,000 representing the fair
value of acquired research and development projects in-process at the date of
the acquisition.
Note 5 Acquisitions
- ------
During 1994, the Company's then wholly-owned subsidiary, Arcada Software,
Inc. ("Arcada") acquired Quest Development Corporation ("Quest") for
$8,500,000 in cash and issuance of shares representing approximately 22%
ownership interest in Arcada. Arcada is engaged in developing, producing and
marketing software products for data storage management. The effect of the
acquisition of Quest was not material to the Company's financial condition or
results of operations with the exception of the write-off of in-process
research and development of $5,000,000 included in "Unusual Items" (see Note
4).
During 1994, the Company increased its ownership interest in its joint
venture, Conner Shenzhen Peripherals Company Ltd., located in Shenzhen,
People's Republic of China, from 60% to 90% for $7,000,000 of which
$5,000,000 was paid during 1994. During 1993, the Company purchased for
$16,000,000 the remaining 49% minority interest owned by Olivetti S.p.A in
Conner Peripherals Europe, S.p.A. ("CPE"), the Company's majority-owned
subsidiary located in Italy. In connection with the acquisition, Olivetti
committed to purchase certain minimum quantities of the Company's products,
subject to certain conditions, for a period of three years. These acquisitions
had no material impact to the Company's financial condition or results of
operations.
------
12
<PAGE>
In December 1992, the Company acquired Archive Corporation ("Archive"), a
manufacturer and supplier of tape back-up and data storage products for
$185,000,000 paid in cash, assumption of debt for $104,000,000 (all of which was
repaid during 1993 and 1992) and $17,000,000 for exchange of Archive stock
options and transaction costs. The excess of the purchase price over the fair
market value of the net tangible assets acquired was $303,893,000, of which
$57,611,000 was allocated to in-process research and development, $55,000,000
was allocated to various intangibles and the remaining $191,282,000 was
allocated to goodwill. The in-process research and development of $57,611,000
purchased in connection with the acquisition was expensed in 1992. During the
third quarter of 1993, the Company wrote-off all the unamortized goodwill and
certain other intangibles due to impairment resulting from changes in the
storage business (see Note 4). Operations of Archive have been included in the
Company's consolidated results of operations since the beginning of 1993.
Had the acquisition of Archive occurred as of the beginning of 1992,
unaudited net sales, net income and earnings per share presented on a pro
forma basis for the year ended December 31, 1992 would have been
$2,590,635,000, $157,804,000 and $2.36, respectively. This information was
prepared as if the acquisition had been consummated as of the beginning of 1992
and after giving effect to certain pro forma adjustments. The pro forma
information excludes the effects of the nonrecurring charges of $57,611,000
for in-process research and development (see Note 4). This pro forma
information does not purport to be indicative of what would have occurred had
the acquisition been consummated at the beginning of 1992 or of the results
which may occur in the future.
Note 6 Supplemental Cash Flow Disclosure
- ------
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
- -------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash paid during the year for:
Interest $48,663 $49,896 $ 40,506
Income taxes $ 4,821 $20,187 $ 17,218
Non-cash investing and
financing activities:
Fair market value of
Archive assets acquired,
including goodwill $ -- $ -- $ 306,485
Debt assumed $ -- $ -- $(104,000)
</TABLE>
Note 7 Income Taxes
- ------
Income (loss) before income taxes includes $156,155,000, $(148,738,000), and
$185,708,000 of income (loss) relating to non-U.S. operations for 1994, 1993
and 1992, respectively.
The provision (benefit) for income taxes includes the following:
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
- ------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $10,669 $ 1,902 $ 24,607
State 1,000 142 5,657
Foreign 3,467 5,039 17,451
------------------------------
15,136 7,083 47,715
------------------------------
Deferred:
Federal 23,097 (27,848) (8,700)
State 6,631 (4,897) (4,367)
------------------------------
29,728 (32,745) (13,067)
------------------------------
Total $44,864 $(25,662) $ 34,648
==============================
</TABLE>
------
13
<PAGE>
Deferred taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. Deferred tax liabilities (assets) are comprised of the
following:
<TABLE>
<CAPTION>
December 31, 1994 1993
- -------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Inventory valuation $ (14,028) $ (13,552)
Depreciation and amortization (11,465) (9,781)
Accounts receivable reserves (11,435) (15,030)
Accrued expenses and other (33,591) (41,178)
Net operating loss and tax credit
carryforwards (41,764) (69,491)
-----------------------------
(112,283) (149,032)
-----------------------------
Unremitted earnings of foreign
subsidiaries 169,415 138,459
Technology and other intangibles 11,821 13,328
State income taxes 5,375 6,846
-----------------------------
186,611 158,633
-----------------------------
Valuation reserves 3,390 33,617
-----------------------------
Total $ 77,718 $ 43,218
=============================
</TABLE>
A reconciliation of the income tax provision (benefit) computed by applying
the domestic federal statutory rate to pretax income, to the recorded
provision (benefit) for income taxes follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
- ----------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Provision (benefit) at
statutory rate 35.0% (35.0)% 34.0%
Differences between United
States and foreign taxes
and limitations on the benefits
of foreign losses (9.9) 12.6 (13.0)
State taxes, net of federal
benefit 3.2 (0.7) 0.6
Goodwill -- 13.7 --
Change in federal valuation
reserve -- 1.9 --
Impact of rate change -- 0.3 --
Other 0.7 1.8 0.7
----------------------------
29.0% (5.4)% 22.3%
============================
</TABLE>
In connection with the Internal Revenue Service ("IRS") examination of the tax
returns of Archive and its subsidiaries, in 1994 the Company filed amended
federal tax returns reporting certain adjustments to income which reduced the
net operating loss carryforwards relating to pre-acquisition operations of
Archive and its subsidiaries by approximately $86,000,000. These adjustments
resulted in a reduction of the pre-acquisition unremitted foreign earnings of
Archive and its subsidiaries by the same amount. Consequently, the
------
14
<PAGE>
Company reduced its gross deferred tax assets by approximately $30,000,000 and
made a corresponding reduction to its valuation reserves of approximately
$30,000,000. These adjustments had no impact on the tax provision or the net
deferred tax liabilities of the Company. At December 31, 1994, the Company has
net operating loss carryforwards of approximately $72,000,000 expiring 1997
through 2007, relating to pre-acquisition operations of Archive and its
subsidiaries. These losses may be used to offset future taxable income, subject
to an annual maximum limitation of approximately $12,000,000.
At December 31, 1994, the Company had deferred tax assets of approximately
$9,000,000 relating to post-acquisition net operating loss carryforwards of
Archive and its subsidiaries and foreign tax credit carryforwards which,
subject to certain restrictions, are available to reduce taxes on future
taxable income and expire in 1995 through 2008. At December 31, 1994, the
Company had not provided U.S. federal and state income taxes of approximately
$78,300,000 on cumulative unremitted earnings of its consolidated foreign
subsidiaries which are intended to be indefinitely reinvested.
The Company enjoys a tax holiday in Singapore relating to the manufacture of
disk drives, which expires in 1997, subject to post-holiday benefits. The
Company currently enjoys no tax holiday in Singapore with respect to the
manufacture of tape drives. However, the Company has applied for a Singapore
tax holiday through June 1997, relating to the manufacture of its newly
developed tape drives. The Company's initial tax holiday in Malaysia expired
on December 31, 1994 with respect to the manufacture of disk drives and
related subassemblies. The Company has applied for a five-year extension of
the tax holiday with respect to the manufacture of disk drives in Malaysia.
The Company also enjoys a tax holiday in China through December 1995,
relating to the manufacture of disk drives. The net impact of these tax
holidays was to increase net taxable income by $16,000,000 ($0.21 per share
fully diluted) in 1994, reduce the net loss by approximately $3,000,000
($0.06 per share fully diluted) in 1993 and increase net income by approximately
$27,800,000 ($0.37 per share fully diluted) in 1992.
The IRS is currently reviewing Archive and its subsidiaries' federal income
tax returns for 1985 through 1989. In December 1994, the IRS completed its
review of the Company's federal tax returns for 1989 and 1990 and issued a
deficiency notice for $43,000,000 in additional taxes. This assessment
results primarily from adjustments proposed by the IRS to the allocation of
income between the Company and its foreign manufacturing subsidiaries. The
Company believes it has meritorious defenses to the proposed adjustments and
will contest this assessment. Upon final resolution, the deficiency payment,
if any, will include assessed interest. Management believes that the ultimate
resolution of the ongoing IRS audits and pending assessments will not have a
material adverse impact on the Company's financial position or results of
operations.
Note 8 Long-Term Debt and Lines of Credit
- ------
<TABLE>
<CAPTION>
December 31, 1994 1993
- ---------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Convertible subordinated debentures,
6.75%, due 2001, convertible into
7,931,035 shares of common stock $230,000 $230,000
Convertible subordinated debentures,
6.5%, due 2002, convertible into
14,375,000 shares of common stock 345,000 345,000
Senior unsecured notes, 8.84% and
9.08%, due through 1998 73,333 105,000
Senior unsecured note, 12% -- 9,000
Italian Lira debentures and notes,
7% to 7.38%, due through 2000 12,393 13,628
Other borrowings 1,255 1,090
----------------------
661,981 703,718
Less current portion 34,922 43,112
----------------------
$627,059 $660,606
======================
</TABLE>
------
15
<PAGE>
During 1993, the Company modified certain terms of the senior unsecured notes.
Under the modified terms, in exchange for revising certain financial covenants,
the Company agreed to increase the interest rates of the notes by half a percent
for periods commencing from October 1, 1993, and ending the earlier of March 31,
1995, or the due dates of the notes.
Based upon quoted market prices, the fair value of the convertible subordinated
debentures was approximately $402,500,000 at December 31, 1994. The estimated
fair value of the Company's remaining long-term debt was $88,573,000 at December
31, 1994. The fair values of debt for which quoted prices were not available has
been determined based upon interest rates available to the Company for the
issuance of debt with similar terms and remaining maturities.
At December 31, 1994, future minimum principal payments on long-term debt and
capitalized lease obligations were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands)
<S> <C>
1995 $ 34,922
1996 34,309
1997 6,993
1998 7,107
1999 2,255
Thereafter 576,395
--------
$661,981
========
</TABLE>
On December 23, 1993, the Company entered into a revolving credit facility
agreement ("Agreement") with a group of banks allowing borrowings of up to
$100,000,000 through December 23, 1995. Borrowings under the revolving credit
facility carry interest at the banks' prime rate or, at the option of the
Company, at an interbank offered rate (as defined in the Agreement). The
Agreement provides for a commitment fee. As of December 31, 1994, the Company
had no borrowings under the revolving credit facility. At December 31, 1994,
the Company had outstanding letters of credit and guarantees of $58,429,000.
The revolving credit facility and senior unsecured notes prohibit the payment
of cash dividends and require the maintenance of various financial covenants.
Without the prior consent of the lenders, the Company is also prohibited from
incurring debt and lease commitments in excess of specified amounts or
entering into acquisition, sale of business, merger or joint venture
agreements in excess of certain amounts. At December 31, 1994, the Company
was in full compliance with all covenants and conditions.
Note 9 Lease Commitments
- ------
The Company leases certain property, facilities and equipment under
non-cancelable operating leases. The terms of the leases for property,
facilities and equipment expire over the next 25 years with renewal options
in certain instances. In addition, the Company has leased certain equipment
under capitalized leases with outstanding lease obligations of less than one
million dollars as of December 31, 1994. These obligations mature sub-
stantially in 1995 and 1996.
Future minimum lease payments under non-cancelable operating leases as of
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands)
<S> <C>
1995 $17,372
1996 11,899
1997 9,445
1998 7,272
1999 6,603
Thereafter 36,895
-------
$89,486
=======
</TABLE>
------
16
<PAGE>
Rent expense for all operating leases was approximately $22,767,000 in 1994,
$24,446,000 in 1993 and $15,958,000 in 1992.
Note 10 Employee Benefit Plans
- -------
Incentive Stock Plans: In 1986, the Company adopted the 1986 Incentive Stock
Plan ("Plan"). The Plan provides for the issuance of non-transferable stock
options to employees of the Company and non-statutory stock options and stock
purchase rights to directors, employees and consultants of the Company. The
Company has never issued any stock purchase rights. A total of 18,500,000
shares of common stock have been reserved for issuance of options and stock
purchase rights under the Plan. At December 31, 1994, 4,086,125 shares were
available for future grants of options and stock purchase rights.
Stock options are granted at prices of not less than 100% of the fair market
value of the common stock at the time of grant, except that stock options
granted to any employee who owns stock representing more than 10% of total
voting power must have an exercise price of not less than 110% of fair market
value. Options granted under the Plan prior to July 1992 expire five years
after the date of grant and vest over a period of four years. In July 1992,
the Plan was amended to provide an expiration period for subsequent stock
grants to ten years from the date of grant.
On December 29, 1992, upon completion of the acquisition of Archive, the
Company assumed the obligations existing under Archive's Incentive Stock
Option and Restricted Stock Purchase Plans ("Archive Plans"). Effective on
that date, the Company converted existing options to purchase Archive common
stock under the Archive Plans into an equivalent number of options to
purchase the Company's common stock. A total of 1,125,000 shares of the
Company's common stock were reserved for issuance of options of which
1,059,258 were issued upon the conversion. These options expire at various
times through 2002.
The following table summarizes stock option activity under the Plan and
Archive Plans:
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at
beginning of the year 8,529,767 8,592,493 5,510,468
Granted 2,781,277 3,292,099 3,213,825
Conversion of the
Archive Plans -- -- 1,059,258
Exercised ($0.15 per share
to $23.50 per share) (746,332) (1,329,620) (868,619)
Canceled (1,646,116) (2,025,205) (322,439)
----------------------------------------
Options outstanding at
end of the year 8,918,596 8,529,767 8,592,493
========================================
Options exercisable at
end of the year 3,784,502 3,547,071 2,871,736
Range of exercise price
of outstanding options
at end of the year $ 5.19 $ 5.19 $ 5.00
$26.88 $26.88 $26.88
</TABLE>
Restricted Stock Plan: In 1992, the Company's stockholders approved the adoption
of the 1992 Restricted Stock Plan ("Restricted Plan"). A total of 1,000,000
shares of common stock are reserved for issuance under the Restricted Plan. The
aggregate fair value of the shares granted under the Restricted Plan is
considered unearned compensation at the time of grant and compensation is earned
ratably over the vesting period of seven years. Total compensation expense
recognized during 1994, 1993 and 1992 was not material. At December 31, 1994,
379,937 shares had been issued under the Restricted Plan.
Arcada Stock Plan: During 1994, the Board of Directors of the Company's
majority-owned subsidiary, Arcada Holdings, Inc. ("Arcada"), approved a stock
option plan for employees and consultants of Arcada. This plan provides for
the issuance of up to 7,667,186 shares of common stock of Arcada. During
1994, options were granted at prices of $0.08 and $0.09 per
------
17
<PAGE>
share which represents the fair market value of Arcada common stock at the
date of grant, as determined by Arcada's Board of Directors. Options granted
under this plan expire ten years after the date of grant and vest over a
period of four years. If all options were issued and exercised, they would
dilute the Company's ownership in Arcada from 78% to approximately 64%. As of
December 31, 1994, the number of options outstanding was 5,022,341.
Employee Stock Purchase Plan: In 1988, the Company adopted an Employee Stock
Purchase Plan ("Purchase Plan"). A total of 4,500,000 shares of common stock
are reserved for issuance under the Purchase Plan. Shares may be purchased by
participants at the lower of 85% of the fair market value of the common stock
at the beginning or end of each six-month offering period. Shares are to be
purchased from payroll deductions which are limited to 15% of an employee's
compensation. At December 31, 1994, 3,810,557 shares had been issued under
the Purchase Plan.
Profit Sharing Plan: The Company had a profit sharing plan which provided for
additional compensation to substantially all employees of the Company, with
the exception of certain marketing and sales personnel who were compensated
on a commission basis, Arcada employees and certain non-U.S. employees. Prior
to 1994, the additional compensation was determined on a quarterly basis,
based upon a percentage of the amount of operating profit in excess of a
stipulated return on equity. As a result of operating losses incurred in
1993, the Company did not distribute profit sharing or record charges to income
relating to profit sharing. Charges to income for the profit sharing plan
during 1992 were approximately $14,686,000 which is included in selling,
general and administrative costs.
During 1994, upon certain stockholder approval, the Company adopted new
profit sharing and incentive compensation bonus plans ("Plans") for eligible
employees, with the exception of certain sales-commissioned personnel and
Arcada employees. Additional compensation is earned and paid on a quarterly
or semi-annual basis on the achievement by the Company of revenue and operating
income targets as a percentage of the Company's financial plan established at
the beginning of the fiscal year. Individual performance for those employees
participating in the incentive compensation bonus plans are earned and paid
on a quarterly or semi-annual basis. In addition, certain eligible employees
participating in plans are entitled to receive additional year end bonus
awards based on the achievement by the Company of annual revenue and
operating income targets as a percentage of the Company's financial plan.
Charges to income for the Plans during 1994 were approximately $9,042,000
which is included in selling, general and administrative costs.
401(k) Savings Plan: In 1990, the Company adopted a 401(k) savings plan
("Savings Plan") covering substantially all of its U.S. employees. Under the
Savings Plan, eligible employees may contribute up to 15% of their
compensation to the Savings Plan with the Company matching participants'
contributions up to $250 per employee per year at the rate of 50% of the
employee contribution. Both the participants' and the Company's contributions
are fully vested. To date, the Company's contributions have not been material.
Note 11 Repurchase of Common Stock
- -------
As of December 31, 1991, Compaq Computer Corporation ("Compaq") owned
approximately 21% of the outstanding common stock of the Company. In August
1992, the Company repurchased and retired 11,638,802 shares of the Company's
common stock from Compaq, representing substantially all of Compaq's equity
interest in the Company.
------
18
<PAGE>
Note 12 Preferred Shares Rights Agreement
- -------
On November 29, 1994, the Board of Directors ("Board") adopted a Preferred
Shares Rights Agreement ("Agreement") and pursuant to the Agreement
authorized and declared a dividend of one preferred share purchase right
("Right") for each common share outstanding of the Company on January 10,
1995. The Rights are designed to protect and maximize the value of the
outstanding equity interests in the Company in the event of an unsolicited
attempt by an acquirer to take over the Company, in a manner or terms not
approved by the Board. Each Right becomes exercisable to purchase one-hundredth
of a share of Series A Participating Preferred Stock at an exercise price of
$70.00 and expire on November 29, 2004. The Company may redeem the Rights at a
price of $0.01 per Right.
Note 13 Foreign Currency Exposure and Risk Management
- -------
The Company enters into foreign currency forward contracts and purchases
foreign currency option contracts to hedge operating cash flow requirements
and vendor purchase commitments denominated in foreign currency (principally
British Pound Sterling, Singapore Dollars, Italian Lira and Japanese Yen). The
terms of such hedging instruments are not more than three months for all
currencies other than those for Yen which are up to eight months. The purpose of
the Company's foreign currency hedging activities is to protect the Company's
foreign currency assets and liabilities and foreign currency operating cash
flows from adverse changes in exchange rates. As of December 31, 1994, the
realized and deferred gains and losses on option and forward contracts were not
material. At December 31, 1994, the Company had outstanding foreign currency
forward contracts and foreign currency option contracts aggregating
approximately $60,890,000 and $22,870,000, respectively. The contract amounts
approximate the fair value of outstanding contracts and options at December 31,
1994. These contracts mature at various periods through April 1995 and are
consistent with the amounts and timing of the underlying anticipated cash flow
requirements and purchase commitments.
Note 14 Foreign Operations
- -------
The Company operates in one industry segment (see Note 1). The following is a
summary of the Company's operations:
<TABLE>
<CAPTION>
Year Ended December 31 1994 1993 1992
- -------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Sales to third-party
customers:
United States:
Customers in
United States $ 1,240,099 $ 997,764 $ 867,916
Customers in
Europe & Asia 902,896 859,447 892,506
-----------------------------------------
2,142,995 1,857,211 1,760,422
-----------------------------------------
Asia 142,562 193,257 326,502
Europe 79,595 101,204 151,499
-----------------------------------------
2,365,152 2,151,672 2,238,423
-----------------------------------------
Intercompany
sales between
geographic areas:
United States 239,341 285,250 74,579
Asia 1,787,390 1,426,370 1,388,617
Europe 2,929 98,007 106,037
-----------------------------------------
2,029,660 1,809,627 1,569,233
-----------------------------------------
Consolidation
eliminations (2,029,660) (1,809,627) (1,569,233)
-----------------------------------------
Net sales $ 2,365,152 $ 2,151,672 $ 2,238,423
-----------------------------------------
Operating income:
United States $ 14,000 $ (295,722) $ (3,287)
Asia 110,194 (88,303) 119,348
Europe 42,370 (62,405) 37,469
-----------------------------------------
$ 166,564 $ (446,430) $ 153,530
=========================================
Identifiable assets:
United States $ 666,106 $ 577,962 $ 815,382
Asia 295,359 313,319 404,506
Europe 56,725 55,223 70,292
-----------------------------------------
1,018,190 946,504 1,290,180
General corporate assets 443,239 517,547 614,527
-----------------------------------------
Total assets $ 1,461,429 $ 1,464,051 $ 1,904,707
=========================================
</TABLE>
------
19
<PAGE>
Intercompany sales are accounted for at prices intended to approximate those
that would be charged to unaffiliated customers. At December 31, 1994, 1993
and 1992, foreign liabilities (excluding intercompany balances) were
$143,038,000, $273,288,000 and $280,053,000, respectively.
Note 15 Litigation
- -------
The Company and certain of its officers and directors are defendants in a
securities class action lawsuit which purports to represent a class of
investors who purchased or otherwise acquired the Company's common stock
between January 1992 and May 1993. Certain officers and directors are also
defendants in a related stockholders derivative suit. The complaints seek
unspecified damages and other relief. The Company intends to defend the
actions vigorously.
In August 1993, the Company was served with a patent infringement complaint,
filed by IBM, alleging that products manufactured by the Company have infringed
certain patents owned by IBM. In addition, the complaint seeks declaratory
relief to the effect that disk drives produced by IBM do not infringe certain
patents held by the Company and seeks to have such patents declared invalid. The
Company answered the complaint, denying all material allegations and
counterclaiming that IBM disk drives infringe certain patents owned by Conner,
including those patents contained in the IBM complaint.
During the first quarter of 1995, the Company received a newly issued patent
concerning various aspects of the power management features incorporated in the
Company's disk drives. Promptly following the issuance of the patent, the
Company filed a complaint with the United States International Trade Commission
alleging that various disk drives produced by IBM infringe the new power
management patent, and seeking an exclusion order concerning IBM products
incorporating these infringing drives. The Company filed a lawsuit in Federal
Court, Southern District of New York, seeking damages and injunctive relief
related to the fringement of the power management patent.
On July 25, 1995, the Company and IBM agreed to dismiss all of the litigation
against each other and entered into patent cross license agreements. The Company
and IBM also established a five year commercial relationship, whereby, IBM may
buy the Company's products. The litigation settlement did not have an adverse
effect on the Company's results of operations or financial position.
In 1992, the Company filed a patent infringement lawsuit against Western
Digital Corporation ("Western Digital") alleging the infringement of five of
the Company's patents by Western Digital. Western Digital has filed a
counterclaim alleging infringement of certain of its patents by the Company.
The Company believes it has valid claims against Western Digital and
meritorious defenses to the claims asserted by Western Digital.
In 1994, the Company was served with a patent litigation claim alleging that
the Company's DC2000 tape drives infringe a patent held by Iomega Corporation
("Iomega"). This claim was settled by the Company and Iomega during 1994 and
had no material effect on the results of operations.
20
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of Conner Peripherals, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Conner Peripherals, Inc. and its subsidiaries at 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. These consolidated 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 of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Jose, California
January 11, 1995, except
as to Note 15 which
is as of July 25, 1995
------
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
-------------------------------------------------------
FORM 8-K
--------
(a) The financial statements listed in the following index to consolidated
financial statements are filed as part of this Amendment No. 1 to Annual
Report on Form 10-K.
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Financial Statements
Consolidated Balance Sheets at December 31, 1994
and December 31, 1993 4
Consolidated Statements of Operations for the
three years ended December 31, 1994 5
Consolidated Statements of Cash Flows for the
three years ended December 31, 1994 6
Consolidated Statement of Stockholders' Equity
for the three years ended December 31, 1994 7
Notes to Consolidated Financial Statements 8
Report of Independent Accountants 21
2. Financial Statement Schedule
</TABLE>
<TABLE>
<CAPTION>
Schedule Description Page
-------- ----------- ----
<S> <C> <C>
II Valuation and Qualifying Accounts S-1
(formerly
Schedule VIII)
Report of Independent Accountants on
Financial Statement Schedule S-2
</TABLE>
Schedules not listed above have been omitted because they are
inapplicable.
3. Exhibits
Refer to (c) below.
(b) Reports on Form 8-K
No reports on Form 8-K were filed on behalf of Registrant during the
quarter ended December 31, 1994.
22
<PAGE>
(c) Exhibits
2.1(5) Agreement and Plan of Merger between Conner
Peripherals, Inc., a Delaware corporation, and
Conner Peripherals, Inc., a California corporation,
dated July 13, 1992.
2.2(6) Agreement and Plan of Merger between Archive
Corporation, Conner Acquisition Corp. and Conner
Peripherals, Inc. dated November 18, 1992, as
amended.
3.1(5) Certificate of Incorporation of Registrant, as
amended to date.
3.2 Bylaws of Registrant, as amended to date.
3.3(10) Certificate of Designation of Rights Preferences and
Privileges of Series A Participating Preferred Stock
of Registrant.
4.1(2) Form of Indenture relating to Registrant's
6-3/4% Convertible Subordinated Debentures due 2001.
4.2(3) Form of Indenture relating to Registrant's
6-1/2% Convertible Subordinated Debentures due 2002.
4.3(10) Preferred Shares Rights Agreement dated November 29,
1994 between Registrant and The First National Bank
of Boston, Rights Agent.
10.1* Summary of Registrant's Profit Sharing Plan.
10.2(8)* Registrant's 1986 Incentive Stock Plan, together
with forms of agreements thereunder, as amended.
10.3* Registrant's Employee Stock Purchase Plan, as
amended.
10.4(4)* Registrant's 1992 Restricted Stock Plan.
10.5(7)* Stock Option and Restricted Stock Purchase Plan -
1981 and form of option agreement with respect
thereto.
10.6(7)* Incentive Stock Option Plan - 1981 and form of
option agreement with respect thereto.
23
<PAGE>
<TABLE>
<C> <S>
10.7* Registrant's 1995 Director Stock Plan.
10.8(5)* Form of Officer and Director Amended and Restated
Indemnification Agreement.
10.9* Summaries of Registrant's Executive Incentive Plans.
10.10* Form of Change of Control Agreement entered into by
Registrant and Mr. Finis F. Conner.
10.11* Form of Change of Control Agreement entered into by
Registrant and Mr. David T. Mitchell and Mr. P.
Jackson Bell.
10.12* Form of Change of Control and Severence Agreement
entered into by Registrant and Mr. Donald Massaro,
Mr. Kenneth Potashner and Dr. Michael Workman.
10.13* Employment Contract/Termination Agreement between
Registrant and David T. Mitchell and form of
Employment Contract/Termination Agreement between
Registrant and P. Jackson Bell.
10.14(1) Lease Agreement dated August 19, 1988 between
Registrant and Corporate Plaza, Phase I, a
California general partnership, for certain land and
improvements commonly known as Corporate Plaza,
located in San Jose, California.
10.15 Amendments One, Two and Three to Lease Agreement
dated August 19, 1988 between Registrant and
Corporate Plaza, Phase I referenced above.
10.16(1) Lease Agreement dated June 16, 1988 between Conner
Peripherals, Singapore, Ltd. and Newton Investment
Ltd. for the sixth story of 151 Lorong Chuan,
Singapore.
10.17(1) Lease Agreement dated December 8, 1988 between
Conner Peripherals Singapore, Ltd. for the fifth
story of 151 Lorong Chuan, Singapore.
</TABLE>
24
<PAGE>
<TABLE>
<C> <S>
10.18(3) Amendment to Lease Agreements dated June 16, 1988
and December 8, 1988 between Conner Peripherals,
Singapore, Ltd. and Newton Investment Ltd. for the
sixth and fifth stories, respectively, of 151 Lorong
Chuan, Singapore, dated October 23, 1991. See
Exhibits 10.16 and 10.17 listed above.
10.19(9) Sixth Amendment dated December 22, 1993 ("Sixth
Amendment") to Note Purchase Agreement among
Registrant and Principal Mutual Life Insurance
Company, Northwestern National Life Insurance
Company, Northern Life Insurance Company, The North
Atlantic Life Insurance Company of America and
Ministers Life - a Mutual Life Insurance Company
dated June 1, 1989 ("Note Purchase Agreement").
Exhibit A to the Sixth Amendment is a copy of the
Amended and Restated Note Purchase Agreement which
includes all amendments and agreements entered into
to date with respect to the Note Purchase Agreement.
10.20(9) Fifth Amendment dated December 22, 1993 ("Fifth
Amendment") to the Note Agreement dated as of March
29, 1991 ("Note Agreement") among Registrant and the
Purchasers listed in such agreement relating to the
Registrant's Series A and Series B Senior Notes.
Exhibit A to the Fifth Amendment is a copy of the
Amended and Restated Note Agreement which includes
all amendments and agreements entered into to date
with respect to the Note Agreement.
10.21 Sixth Amendment dated October 31, 1994 to the Note
Agreement dated as of March 29, 1991 among
Registrant and the Purchasers listed in such
agreement relating to the Registrant's Series A and
Series B Senior Notes.
10.22(5) Lease Agreement to supersede the Lease Agreement
that is dated August 1, 1989, on August 1, 1992 for
Building 1 at 2400 Trade Centre Drive, Longmont, CO.
10.23(5) Stock Purchase Agreement between Compaq Computer
Corporation and Registrant dated July 28, 1992.
10.24(8) Lease Agreement dated March 21, 1992 between Newton
Investment Ltd. and Conner Peripherals Pte. Ltd. for
the third story of 151 Lorong Chuan, Singapore.
</TABLE>
25
<PAGE>
<TABLE>
<C> <S>
10.25(9) Sublease Agreement between the Registrant and
General Signal Corporation for the property located
at 195 South Milpitas Boulevard, Milpitas,
California, dated February 20, 1993.
10.26(9) Credit Agreement dated December 23, 1993 among
Registrant and Bank of America National Trust and
Savings Association, as Agent, and the other
financial institutions which are parties thereto.
10.27 First Amendment dated October 19, 1994 to Credit
Agreement dated December 23, 1993 among Registrant
Bank of America National Trust and Savings
Association, as Agent, and the other financial
institutions which are parties thereto.
10.28 Second Amendment dated November 16, 1994 to Credit
Agreement dated December 23, 1993 among Registrant
Bank of America National Trust and Savings
Association, as Agent, and the other financial
institutions which are parties thereto.
11.1 Statement regarding computation of Registrant's
earnings per share.
13.1 1994 Annual Report to Stockholders.
21.1 Subsidiaries of Registrant.
23.1+ Consent of Independent Accountants.
24.1 Power of Attorney (incorporated by reference from
the Company's Report on Form 10-K for the fiscal
year ended December 31, 1994 filed on March 30,
1995).
27.0 Article 5 of Regulation S-X - Financial Data
Schedule.
</TABLE>
______________________
+ Filed with this Amendment No. 1 on Form 10-K/A to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994.
26
<PAGE>
(1) Incorporated by reference to exhibit filed with Registration Statement No.
33-26831.
(2) Incorporated by reference to exhibit filed with Registrant's Report on Form
10-K for the fiscal year ended December 31, 1990.
(3) Incorporated by reference to exhibit filed with Registrant's Report on Form
10-K for the fiscal year ended December 31, 1991.
(4) Incorporated by reference to exhibit filed with Registrant's Registration
Statement No. 33-46886.
(5) Incorporated by reference to exhibit filed with Registrant's Form 8-B filed
with the Securities and Exchange Commission on September 9, 1992.
(6) Incorporated by reference to exhibit filed with the Tender Offer Statement
on Schedule 14D-1, as amended, of Conner Acquisition Corporation and Conner
Peripherals, Inc., filed with the Securities and Exchange Commission on
November 24, 1992.
(7) Incorporated by reference to exhibit filed with Registrant's Registration
Statement No. 33-56878.
(8) Incorporated by reference to exhibit filed with Registrant's Report on Form
10-K for the fiscal year ended December 31, 1992.
(9) Incorporated by reference to exhibit filed with Registrant's Report on Form
10-K for the fiscal year ended December 31, 1993.
(10) Incorporated by reference to exhibit filed with Registrant's Registration
Statement on Form 8-A filed with the Securities and Exchange Commission on
November 30, 1994.
___________________________
* Denotes a management contract or compensatory plan or arrangement.
Unless otherwise noted, all exhibits were filed with the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amended report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CONNER PERIPHERALS, INC.
By:/s/ P. Jackson Bell
--------------------------------------
P. Jackson Bell, Executive Vice President
and Chief Financial Officer
(Duly Authorized Signatory)
Dated: November 15, 1995
28
<PAGE>
AMENDMENT NO. 1 TO
ANNUAL REPORT ON FORM 10-K
OF
CONNER PERIPHERALS, INC.
Index to Financial Statement Schedule
<TABLE>
<CAPTION>
Schedule Description Page
----------- ----------- -----
<S> <C> <C>
II Valuation and Qualifying Accounts S-1
Report of Independent Accountants on
Financial Statement Schedule S-2
</TABLE>
29
<PAGE>
CONNER PERIPHERALS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged Charged to Balance
Beginning of to Costs Other at End
Description Period and Expenses Accounts /1/ Deductions /2/ of Period
- -------------- ------ ------------ ------------ -------------- ---------
<S> <C> <C> <C> <C> <C>
1992:
Allowance for accounts
receivable $10,054,000 $19,339,000 $4,299,000 $ -- $33,692,000
1993:
Allowance for accounts
receivable $33,692,000 $ 9,749,000 $ -- $ (4,011,000) $39,430,000
1994:
Allowance for accounts $39,430,000 $ 2,273,000 $ -- $ (10,211,000) $31,492,000
receivable
</TABLE>
____________________________________
/1/ Charged to Other Accounts in 1992 includes reserves relating to Archive
Corporation.
/2/ Accounts written off, net of recoveries.
S - 1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
-------------------------------------
FINANCIAL STATEMENT SCHEDULE
----------------------------
To the Board of Directors
of Conner Peripherals, Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 11, 1995, except as to Note 15 which is dated as of July 25, 1995,
appearing in this Form 10-K/A also included an audit of the Financial Statement
Schedule listed in item 14(a) of this Form 10-K/A. In our opinion, this
Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
San Jose, CA
January 11, 1995
S - 2
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-46886 and 33-56878) of Conner Peripherals, Inc.
of our report dated January 11, 1995, except as to Note 15 which is dated as of
July 25, 1995, appearing in this Form 10-K/A. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule,
which appears in this Form 10-K/A.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
San Jose, CA
November 10, 1995
