FORM 10-K/A
AMENDMENT No. 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[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, 1993
As Amended January 6, 1995
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 1-7534
STORAGE TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-0593263
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2270 South 88th Street, Louisville, 80028-4309
Colorado
(Address of principal executive (Zip Code)
offices)
Registrant's Telephone Number, including area code: (303) 673-5151
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PART I
ITEM 1. BUSINESS
General
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Storage Technology Corporation and its subsidiaries (StorageTek or the Company)
design, manufacture, market and service information storage and retrieval
subsystems for high-performance and midrange computer systems, as well as
computer networks. The Company's three principal product lines are serial
access storage subsystems, random access storage subsystems and midrange
computer products. Serial access storage subsystems include tape devices and
automated library systems. Random access storage subsystem products currently
include rotating magnetic disk and solid-state direct access storage devices
(DASD). Midrange computer products include serial access, random access and
other products for IBM AS/400 and other midrange systems. The Company also
offers software and network communication products that expand applications for
its library and random access products for efficient storage management and
access.
StorageTek operates in one principal industry segment and sells its products to
end-user customers, value-added resellers and original equipment manufacturers
(OEMs) of computer systems. The Company markets its products worldwide through
sales and service offices located in major metropolitan areas of the United
States, Canada, Europe, Japan and Australia, as well as through distributors in
Africa, Asia, Europe, Mexico and South America. In 1993, international revenue
accounted for 37% of the Company's total revenue.
The Company's strategy is to continue to: Make significant investments in
research and development; expand its product offerings permitting interface to
and between IBM and non-IBM mainframes and midrange computers; develop software
products and services, as well as distribution channels, to address the non-IBM
mainframe market; and, invest in new technologies and businesses which
complement its business and product strategy. To this end, the Company has
established alliances with other manufacturers, distributors and suppliers. As
a result of these alliances, it is possible for companies to be at various times
collaborators, competitors and customers in different markets.
Storage Technology Corporation was incorporated in Delaware in 1969. Its
principal executive offices are located at 2270 South 88th Street, Louisville,
Colorado 80028-0001, telephone (303) 673-5151.
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Principal Products
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StorageTek has three principal information storage and retrieval product lines:
serial access subsystems (tape devices and automated library systems); random
access subsystems (rotating and solid-state DASD); and midrange computer
products.
Product sales, including software revenue, accounted for approximately 64% of
total revenue in 1993, while service and rental income accounted for the
balance. Sales, service and rental revenue from the Company's product lines for
1993, 1992 and 1991 were as follows:
REVENUE BY PRODUCT LINE
Fiscal Year Ended December
--------------------------
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
$ million % $ million % $ million %
--------- -- --------- -- --------- --
<S> <C> <C> <C> <C> <C> <C>
Serial Access 875.5 62.3 936.6 60.4 907.4 56.0
Subsystems
Random Access 126.0 9.0 193.3 12.5 218.8 13.5
Subsystems
Midrange 306.8 21.8 324.7 20.9 393.5 24.3
Systems
Other Products 96.5 6.9 96.3 6.2 99.8 6.2
-------- ----- -------- ----- -------- -----
Total 1,404.8 100.0 1,550.9 100.0 1,619.5 100.0
======== ===== ======== ===== ======== =====
</TABLE>
Additional information concerning revenue from each of the Company's product
lines is found in Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations", and geographic information is
found in Part III, Item 14, under Note 15, of this Form 10-K.
Serial Access Subsystems
StorageTek is a principal producer and seller of high-performance serial access,
or tape, subsystems for the end-user and OEM markets. StorageTek's current line
of serial access subsystems is based on its automated cartridge system (ACS)
library and magnetic tape products. In 1993, the Company introduced several key
products in its serial access subsystems product lines, including the PowderHorn
9310 (PowderHorn(TM)),
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the Company's second-generation ACS library, WolfCreek 9360 (WolfCreek(TM)), a
smaller, high-performance lower-cost library, and Silverton 4490
(Silverton(TM)), a 36-track cartridge subsystem. Also, the Company and Mobius
Management Systems, Inc. introduced new software, View Direct(TM), which is
designed to expand the range of applications for ACS libraries. The serial
access subsystems product line has generated substantially more revenue than any
other product line of the Company and continues to be a major element of the
Company's plans for the foreseeable future.
Currently, the Company is developing a number of new products for the serial
access subsystem market, including the TimberLine(TM) and Redwood(TM)
subsystems. TimberLine, designed as a next-generation, high-performance
cartridge subsystem that is IBM 3490E compatible, is based on a new architecture
and is expected to provide performance and capacity improvements associated with
tape subsystems. TimberLine is currently scheduled for availability in the
second half of 1994. RedWood is designed as a high-capacity, high-performance
mass storage cartridge subsystem which is expected to employ helical-scan
technology. RedWood is expected to be compatible with StorageTek libraries and
is currently scheduled for availability in the first half of 1995.
Random Access Subsystems
StorageTek's current Online Plus product line consists of a number of online
random access DASD products, including solid-state disk subsystems (SSD) and
rotating magnetic disk subsystems. The characteristics of these products differ
principally in information storage capacity, transfer rate and access time. The
Company discontinued sales of add-on memory products in the third quarter of
1993 but continues to service its installed base of memory products.
The Company announced a multi-faceted Online Plus strategy in the second quarter
of 1993. The Online Plus strategy includes a number of new DASD products which
are expected to serve as the cornerstone for future DASD product offerings and
as a significant source of revenue for the Company commencing in 1994. As part
of its strategy, the Company effected a merger with Amperif Corporation
(Amperif) in October 1993. See Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations", of this Form 10-K
for a discussion of operating results and certain risks that may affect future
results.
The new DASD products being developed by the Company include: Iceberg 9200 Disk
Array Subsystem (Iceberg(TM)), software products for Iceberg, Nordique 9100
(Nordique(TM)), Arctic Fox and Kodiak.
Iceberg is an advanced, fault-tolerant disk array (RAID) subsystem for the IBM
and IBM-compatible mainframe environment. Beta testing at customer sites
commenced in the fourth quarter of 1993 and revenue contribution from Iceberg is
expected to begin in
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the first half of 1994. Iceberg Extended Facilities Product and Iceberg
Extended Operator Facility are software products designed for use with Iceberg
subsystems and will be generally available in the first half of 1994. The
Company also plans to introduce additional features to expand the capabilities
of Iceberg's Extended Storage Architecture.
Nordique is a RAID storage subsystem for the intermediate, IBM-compatible
mainframe environment. The Company expects to begin shipment of Nordique in the
first half of 1994. Arctic Fox and Kodiak are new DASD products based on disk
technology developed by Amperif. Arctic Fox, a solid-state disk subsystem, and
Kodiak, a high-capacity RAID device, are expected to become available in the
second half of 1994.
Midrange Systems
StorageTek's midrange products include serial access, random access and other
products for IBM AS/400 and other midrange markets. The Company markets its
midrange products directly through its subsidiary, XL/Datacomp, Inc., and
indirectly through OEM and distributor channels. In the third quarter of 1993,
the Company introduced several new products, including the Alpine 9600 Storage
Manager (Alpine(TM)), a fault-tolerant disk array subsystem, and a series of
smaller, low-cost libraries. The Company restructured its midrange business in
the third quarter of 1993 in response to disappointing customer acceptance for
Alpine and significant price erosion within the midrange market. The Company is
changing its midrange product line, organization, distribution network and
service operations to improve operating performance. See "Restructuring and
Other Charges" within Management's Discussion and Analysis and Note 14 to the
consolidated financial statements for additional information with respect to the
Company's restructuring of its midrange business, including quantifications of
the significant components of the restructuring charge and the operational and
competitive implications of the restructuring.
New products being developed by the Company for the midrange market include the
Highlands, Northfield and Twin Peaks subsystems. Highlands and Northfield are
DASD products designed for the IBM AS/400 market and are each currently
scheduled for availability in the first half of 1994. The Twin Peaks subsystem
(Twin Peaks) is designed as a small form factor cartridge tape drive and is
currently scheduled for availability in the first half of 1995.
Other Products
StorageTek has increased its software development expenditures during the last
several years and plans to continue to invest in the development of new software
products. In the fourth quarter of 1993, the Company introduced NearNet 7900
(NearNet(TM)), a combination of hardware and software that automates storage
management over a workstation network. StorageTek expects NearNet to serve as
the first building block in
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a series of network solutions. In connection with its introduction of new
hardware products, the Company also plans to introduce new software applications
which are expected to enhance storage subsystem performance, capability, and
storage allocation for better data management and access.
In 1991, the Company and Siemens Nixdorf Information Systems, Inc. merged their
U.S. high-performance, non-impact printer operations into a joint venture. The
Company began winding-down production of its impact printer in 1993 and expects
to sell its interest in the joint venture back to Siemens Nixdorf in the first
quarter of 1994. The Company currently plans to support the installed service
base of printers within the United States and in certain areas outside the
United States.
Marketing, Distribution and Services
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StorageTek markets its products through a network of sales and service offices
located in major metropolitan areas in the United States, Canada, Europe, Japan
and Australia. The Company also sells its products through international
distributors in Africa, Mexico, South America and parts of Asia and Europe not
covered by the Company's sales and service offices or subsidiaries. In 1993,
international revenue accounted for 37% of total revenue, compared to 41% in
1992, and 39% in 1991.
As of December 31, 1993, the order backlog was approximately $71 million,
compared to approximately $109 million as of December 25, 1992. Approximately
17% in 1993 and 26% in 1992 of the backlog amount is attributable to the
Company's library products. Backlog amounts are calculated on an "if sold"
basis and include orders from end-users, OEM customers and distributors for
products that StorageTek expects to deliver during the following 12 months.
Backlog amounts do not, however, include orders for Iceberg subsystems or other
new DASD products. Units being evaluated or covered by letters of intent are
not included in backlog amounts. Unfilled orders can generally be canceled at
will by the customer. The Company does not believe that its backlog is
necessarily indicative of future shipments, nor can it give any assurance that
customers will purchase products in accordance with orders included in the
backlog.
StorageTek has a worldwide customer support network to install, maintain and
service its own equipment as well as the equipment of others. The Company
warrants the performance of products marketed into the end-user market for a
specified period of time, after which it services those products under
maintenance agreements. The installed service base of data storage products and
the expertise of the Company's service engineers is considered to be a valuable
asset of the Company and is expected to continue to be an important element of
the Company's business.
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Manufacturing and Materials
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Products currently are manufactured by the Company at its facilities located in
Colorado, Puerto Rico, California, Florida and England. In 1993, the Company
announced plans to manufacture and develop products in France. In late 1994,
the Company expects to begin manufacturing and engineering operations in
Toulouse, France, in facilities currently under construction.
The Company also currently manufactures several significant subassemblies,
including thin-film heads for tape as well as printed circuit assemblies for
many products. Across the Company's product lines, a substantial majority of
its production costs are subassemblies, parts and components purchased from
outside vendors. For a discussion of factors that may affect the Company's
ability to obtain materials, see Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Other Factors that
May Affect Future Results", of this Form 10-K. The balance of the Company's
production costs relate to in-house assembly and testing.
Competition
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The Company competes with several large multinational companies having
substantially greater resources, principally, IBM, Fujitsu Limited and Hitachi
Ltd., as well as other midsized companies.
Because of the significance of the IBM mainframe and midrange operating
environments, many of the Company's products are designed to be compatible with
certain IBM operating systems and many of its products function like IBM
equipment. As a result, the Company's business has been and in the future may
be adversely affected by modification in the design or configuration of IBM
computer systems, the announcement and introduction of new products by IBM and
other competitors, and reductions in the pricing of comparable systems,
equipment or service. For further discussion of competitive conditions, see
Part II, Item 7, - "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Other Factors that May Affect Future Results", of
this Form 10-K.
New Product Development
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In 1993, the Company devoted approximately 12% of its revenue to develop new
products and improve the performance of existing ones. In an attempt to
mitigate the substantial investment required to develop its products for the
market place, and to expand the Company's access to new technologies, the
Company develops relationships with other companies.
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The Company spent approximately $163 million for research and product
development activities in 1993, as compared to approximately $153 million in
1992 and approximately $123 million in 1991. Current development projects
include: New products in the Online Plus family of DASD products, data
management software, new library and tape drive products, and enhancements to
the Company's existing information storage and retrieval products. The Company
expects to continue to invest significant amounts on research and development.
As of December 31, 1993, approximately 1,500 employees were engaged on a full-
time basis in engineering and product development activities. For further
discussion of factors concerning product development, See Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Other Factors that May Affect Future Results", of this Form 10-K.
Intellectual Property
- - - -----------------------
StorageTek's policy is to apply for patents, or other appropriate proprietary or
statutory protection, when it develops valuable new or improved technology. It
presently owns a number of U.S. and foreign patents relating to its products
which are considered valuable assets of the Company. The Company also owns, has
license rights to, and/or has applied to register, trademarks, mask works,
copyrights and proprietary information, which are also considered to be valuable
assets of the Company.
Certain areas of the computer industry have been the subject of extensive patent
coverage, and from time to time it has been necessary to obtain rights or
licenses under existing patents held by others. Currently, StorageTek and IBM
are operating under a long-term cross-license agreement.
From time to time, the Company has commenced actions against other companies to
protect or enforce its intellectual property rights. Similarly, the Company
from time to time has been notified that it may be infringing certain patent or
other intellectual property rights of others. Although licenses are generally
offered in such situations, there can be no assurance that litigation will not
be commenced in the future regarding patents, mask works, copyrights, trademarks
or trade secrets, or that any licenses or other rights can be obtained on
acceptable terms. The Company is currently engaged in certain proceedings
relating to its intellectual property and patent infringement. See Part I, Item
3, "Legal Proceedings", and Part III, Item 14, Note 12 to the consolidated
financial statements, of this Form 10-K.
Environment
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Compliance by StorageTek with provisions of federal, state and local laws
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, has not had a material adverse
effect on the Company. However, liability
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under environmental legislation is on-going, regardless of whether or not the
Company has disposed of such waste in accordance with existing governmental
guidelines. Moreover, government regulation of the environment and related
compliance costs have increased in recent years. Therefore, the Company is
unable to anticipate whether future compliance will have any material effect on
the Company. For further discussion of specific environmental proceedings
involving the Company and/or its properties, see Part I, Item 3, "Legal
Proceedings", of this Form 10-K.
Other Matters
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The Company employed approximately 10,100 persons on a full-time basis worldwide
as of December 31, 1993.
The Company does not consider its business to be highly seasonal, although it
historically has experienced increased sales revenue in the fourth quarter
compared to other quarters due to customers' tendencies to make purchase
decisions near the end of the calendar year. The Company expects this trend to
continue in 1994, and to be further affected by the growing revenue expected
from new DASD products introduced in 1994.
For the year ended December 31, 1993, no single customer accounted for 10% or
more of the Company's consolidated sales revenue.
No material portion of the Company's business is subject to contract termination
at the election of the U.S. government.
Reference is made to the following notes to the consolidated financial
statements set forth in Part III, Item 14, of this Form 10-K for certain
additional information:
Note 2 Description of the Company's business combinations with Amperif
Corporation, Edata Scandinavia AB and XL/Datacomp, Inc.
Note 15 Information on the geographic operations of the Company's single
business segment.
Reference is made to Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations", of this Form 10-K, for
information regarding liquidity, including working capital, and other factors
that may affect future results.
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ITEM 2. PROPERTIES
StorageTek occupies facilities in 15 separate buildings in Boulder County,
Colorado, comprising approximately 2.3 million square feet. Of these,
approximately 2.2 million square feet are owned by StorageTek and the remaining
space is leased. These facilities include StorageTek's executive offices, as
well as manufacturing, research and development, and parts storage facilities.
In the Palm Bay - Melbourne, Florida area, StorageTek owns and occupies
approximately 199,000 square feet of manufacturing facilities. StorageTek also
occupies 126,000 square feet of manufacturing facilities in Puerto Rico, of
which approximately 72,000 square feet are leased, and leases approximately
37,000 square feet of manufacturing facilities in England. The Company occupies
approximately 63,000 square feet of leased development and manufacturing
facilities in Chatsworth, California. In addition, StorageTek occupies leased
facilities at approximately 295 other locations throughout the world, primarily
for sales, customer service and parts storage, as well as for limited research
and product development purposes. At the present time, such facilities are
adequate for the Company's purposes. The Company has entered into an agreement
with the French government to begin leasing in early 1995 approximately 180,000
square feet of manufacturing and engineering facilities currently under
construction in Toulouse, France.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
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The Company reported a net loss for the year ended December 31, 1993, of $77.8
million on revenue of $1.40 billion, compared to net income for the year ended
December 25, 1992, of $9.3 million on revenue of $1.55 billion and net income
for the year ended December 27, 1991, of $89.8 million on revenue of $1.62
billion.
As further discussed in Note 2 to the consolidated financial statements, the
Company completed a merger with Amperif Corporation (Amperif) in October 1993
which was accounted for as a pooling of interests. Accordingly, the Company's
consolidated financial statements have been restated for all periods to
include the operations of Amperif with adjustments to conform with
StorageTek's accounting policies and presentation.
The decrease in the Company's revenue in 1993 compared to 1992 was due
primarily to the continuation of a weak European economy, a strengthening U.S.
dollar, intense price competition within the midrange marketplace, the lack of
new DASD product offerings, and the lack of a 36-track tape product offering
for the first three quarters of 1993. These factors, coupled with
restructuring and other charges of $74.8 million and losses associated with
Amperif's operations, resulted in a net loss for 1993. The net loss was
partially offset by a $40.0 million benefit from the cumulative effect of a
change in the method of accounting for income taxes.
The decrease in the Company's revenue in 1992 compared to 1991 was primarily a
result of worldwide recessionary pressures, the introduction of automated tape
products by its competitors, the lack of a 36-track tape offering, and intense
price competition within the midrange marketplace. The Company's earnings in
1992 compared to 1991 were unfavorably affected by a decline in overall sales
margin due primarily to a product mix shift in customer orders to the
Company's smaller configuration (Junior) 4400 ACS library; increased
marketing, general and administrative expenses; and increased tax expense.
The Company expects to report a loss in the first quarter of 1994. This loss
will be partially attributable to a one-time charge of between $5 million and
$10 million associated with the required adoption of a new accounting standard
for postemployment benefits. The Company also expects to report a loss from
operations due to the continuation of the weak economic conditions in Europe;
the strong U.S. dollar; and the requirement for significant investments
associated with the manufacturing, marketing and servicing of new products.
The Company anticipates increasing its worldwide workforce by as much as 10% in
1994 to support its new products. The Company anticipates a return to
profitability for the remainder of 1994; however, this plan is dependent upon
the timely completion and successful market introduction of a number of new
DASD products, including Iceberg and Nordique. While the library product
family has generated substantially more revenue for the Company than its other
product lines in the last several years, the Company's profitability in 1994 is
dependent upon revenue growth from these new DASD programs. Accordingly, there
can be no assurance that the Company will be profitable in 1994.
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The following table, stated as a percentage of total revenue, presents
consolidated statement of operations information and revenue by product line
which includes product sales, service and rental, and software revenue.
Year Ended December
----------------------------------
1993 1992 1991
----------------------------------
[S] [C] [C] [C]
Revenue:
Serial Access Subsystems 62.3% 60.4% 56.0%
Random Access Subsystems 9.0 12.5 13.5
Midrange Systems 21.8 20.9 24.3
Other 6.9 6.2 6.2
----- ----- -----
Total revenue 100.0 100.0 100.0
Cost of revenue 68.8 69.3 68.2
----- ----- -----
Gross profit 31.2 30.7 31.8
Research and product development costs 11.6 9.8 7.6
Marketing, general, administrative
and other income and expense, net 23.1 20.3 18.6
Restructuring and other charges 5.3 0.3
----- ----- -----
Operating profit (loss) (8.8) 0.6 5.3
Interest (income) expense, net (0.8) (1.1) (1.0)
----- ----- -----
Income (loss) before income
taxes and cumulative effect of
accounting change (8.0) 1.7 6.3
Provision for income taxes 0.4 1.1 0.8
----- ----- -----
Income (loss) before cumulative
effect of accounting change (8.4) 0.6 5.5
Cumulative effect on prior years of
change in method of accounting for
income taxes 2.9
----- ----- -----
Net income (loss) (5.5)% 0.6% 5.5%
===== ===== =====
REVENUE
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Total revenue decreased 9% in 1993 compared to 1992, as a result of a decrease
in product sales of 16% which was partially offset by an increase in service
and rental revenue of 6%. Total revenue decreased 4% in 1992 compared to
1991, as a result of a decrease in product sales of 10% which was partially
offset by an increase in service and rental revenue of 13%.
Serial Access Subsystems
Revenue from serial access subsystem products decreased 7% in 1993 compared to
1992, due primarily to the weak economic conditions in Europe, a strengthening
U.S. dollar and the lack of a 36-track tape product offering for the first
three quarters of 1993. While the weak economic conditions in Europe and the
strength of the U.S. dollar continued into the fourth quarter, these pressures
were offset partially by incremental sales revenue in the fourth quarter from
PowderHorn, the next generation of the Company's 4400 ACS library, and
Silverton, the Company's new 36-track tape offering.
Revenue from serial access subsystem products increased 3% in 1992 compared to
1991, due primarily to incremental revenue from the Company's acquisition of
Edata Scandinavia AB in the second quarter of 1992 and additional tape service
revenue reflecting growth in the Company's installed base of tape products.
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The Company anticipates its serial access product revenue will decrease
slightly in 1994 as a result of the strength of the U.S. dollar, and declining
revenue from the Company's first generation 4400 ACS library and 4480 18-track
cartridge subsystem. These decreases are expected to be partially offset by
incremental revenue associated with PowderHorn, Silverton and the Company's
new WolfCreek 9360 ACS, a high-performance library with a lower cartridge
capacity than the 4400 ACS library. The library product family generates
substantially more revenue than any other product line of the Company and
continues to be a major element of the Company's plans for the foreseeable
future.
Random Access Subsystems
Revenue from random access subsystem products decreased 35% in 1993 compared
to 1992, due primarily to decreased sales of the Company's rotating DASD
products and decreased sales of Amperif's disk subsystems in the Unisys
marketplace. Revenue from the Company's rotating DASD decreased 44% in 1993,
reflecting the discontinuance of production of the Company's 8380 disk
subsystem, which was completed during the second quarter in anticipation of
new DASD product offerings. DASD revenue from Amperif decreased 50% due to
competition from new products offered by Unisys. Sales of add-on memory
products also decreased 23% in 1993 as the Company discontinued sales of these
products in the third quarter due to declining business prospects. Revenue
from solid-state DASD products was largely unchanged in 1993 compared to 1992.
Revenue from random access subsystem products decreased 12% in 1992 compared
to 1991. This reflects a 44% decrease in revenue from solid-state DASD, due
to volume and pricing declines, and a 15% decrease in Amperif's DASD revenue.
These decreases were partially offset by a 27% increase in add-on memory
sales. Rotating DASD revenue was largely unchanged in 1992 compared to 1991.
The Company anticipates that its random access subsystem revenue will continue
to decline until it begins volume shipments of its new high-end random access
subsystems. The Company anticipates it will commit substantial resources to
the development, product ramp-up and support of these new products in 1994.
The Company began limited production of Iceberg in late 1993 and expects
revenue contribution from Iceberg in the first half of 1994. Nordique, an
IBM-compatible disk array product positioned below Iceberg, is expected to
begin shipment and revenue contribution during the first half of 1994. Other
new DASD products, based on technology developed by Amperif, are under
development and are targeted for availability in the second half of 1994.
The Company anticipates significant revenue growth from Iceberg, Nordique and
its other new DASD products in 1994. Delays in the timely completion and
successful marketing of these DASD products could adversely affect the
Company's financial performance.
Midrange Systems
Revenue from midrange system products decreased 6% in 1993 and 17% in 1992.
These decreases primarily reflect delays in the availability of the Company's
Alpine 9600 Storage Manager and, subsequently, disappointing customer
acceptance of this product. The decreases in revenue from midrange system
products were also a result of the significant price erosion within the
midrange DASD marketplace, and the limited acceptance of the Company's
midrange tape product offerings. In response to these factors, the Company
restructured its midrange business in the third quarter of 1993. The Company
is changing its midrange product
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line, organization, distribution network and service operations to improve
operating performance.
The Company anticipates the operating performance of its midrange product line
will improve in 1994; however, this improvement is dependent upon the
Company's ability to successfully introduce cost-competitive DASD and tape
products in this rapidly evolving marketplace. Two new DASD products for the
midrange marketplace, Highlands and Northfield, are currently scheduled for
availability in the first half of 1994.
Other
Revenue from other products was largely unchanged in 1993 and decreased 3% in
1992, due primarily to decreased printer product revenue. Revenue from
printer products is expected to continue to decline as the Company is winding
down its production of impact printers and the installed service base of
printers maintained by the Company continues to decline.
The decrease in revenue from printer products in 1994 is expected to be offset
by incremental revenue from software and network storage management products
introduced in late 1993 which expand the applications for library and random
access products. The NearNet network storage manager, which became generally
available in the fourth quarter of 1993, simplifies management of data for
networks of UNIX servers and workstations.
GROSS PROFIT
- - - --------------
Overall gross profit was 31% for 1993 and 1992, compared to 32% in 1991, as
decreased product sales margins were largely offset by improved service and
rental margins.
Gross profit on product sales decreased to 29% in 1993, compared to 30% in
1992 and 33% in 1991. The decrease in 1993 was due largely to lower
production volumes, start-up costs associated with new product offerings, and
price erosion within the midrange DASD market. Additionally, the Company's
profit margins from its international operations were affected by the weak
economic conditions in Europe and a strengthening U.S. dollar. These factors
were offset partially by benefits resulting from the Company's cost-cutting
measures. The decrease in 1992 was due largely to a shift in customer orders
towards 4400 ACS Junior libraries, which have lower margins; decreased sales
of full-configuration libraries; higher costs associated with longer warranty
periods offered for the 4480 18-track cartridge subsystem; underabsorbed
overhead due to lower than expected manufacturing volumes; and start-up costs
associated with new product offerings.
Gross profit on service and rental increased to 35% in 1993, compared to 33%
in 1992 and 27% in 1991, reflecting increased product reliability and
economies created by an increased installed service base, coupled with
effective operating expense controls.
The Company expects continued pressure on its product sales margins into 1994
due to the weak economic conditions in Europe, a strong U.S. dollar, and the
heavy investment in product support for new DASD, tape and library products.
The Company's product sales margins are expected to improve in 1994 as the
Company begins volume shipments of these new products. The Company's service
and rental margins in 1994 are expected to be adversely affected by
incremental costs associated with the installation of new products, coupled
with longer warranty periods for new DASD products.
<PAGE>
<PAGE>
Page 15
RESEARCH AND PRODUCT DEVELOPMENT
- - - ----------------------------------
Research and product development expenditures increased 7% in 1993 and 24% in
1992 due to the continuing investment in a significant number of new products.
The increase in 1993 was offset partially by ongoing cost containment efforts.
Research and product development expenses for 1992 and 1991 were reduced by
development funding received by Amperif from third parties of $5.0 million and
$2.5 million, respectively. The Company continues to invest in the
development of new random access subsystem, tape and library products,
software and network communication products that expand applications for its
library and random access products.
MARKETING, GENERAL, ADMINISTRATIVE AND OTHER
- - - ----------------------------------------------
Marketing, general, administrative and other income and expense (MG&A) was
largely unchanged in 1993 compared to 1992. The Company realized a $4.1
million gain on the sale of an equity investment in 1993. Foreign currency
translation adjustments, net of associated hedging results, and foreign
currency transaction losses were $8.8 million in 1993, compared to $8.4
million in 1992.
MG&A increased 5% in 1992 compared to 1991 reflecting increased advertising
and promotional expenses and incremental expenses following the acquisition of
Edata. These increases were offset partially by a decrease of $5.3 million in
losses associated with discontinued software operations and a decrease of $3.9
million in foreign exchange losses. Foreign currency translation adjustments,
net of associated hedging results, and foreign currency transaction losses
were $8.4 million in 1992, compared to $12.3 million in 1991.
See "INTERNATIONAL OPERATIONS AND HEDGING ACTIVITIES" for further discussion
-----------------------------------------------
of the foreign exchange risks associated with the Company's international
operations and the related foreign currency hedging activities.
RESTRUCTURING AND OTHER CHARGES
- - - ---------------------------------
As further discussed in Note 14 to the Company's consolidated financial
statements, the Company recognized restructuring and other charges of $74.8
million during 1993. Restructuring charges of $69.3 million principally
relate to the reorganization of the Company's midrange business. Merger and
consolidation expenses of $5.5 million in 1993 and $5.1 million in 1991 were
also recognized in connection with the mergers with Amperif and XL/Datacomp,
Inc. (Datacomp) respectively.
<PAGE>
<PAGE>
Page 16
The restructuring yielded expense reductions of $10 million in the fourth
quarter of 1993 and is expected to yield expense reductions of approximately $39
million during 1994. The cost savings during 1994 are expected to result from
the following components (in millions of dollars):
<TABLE>
<CAPTION>
<S> <C>
Exit of non-profitable midrange product lines and
and services $15
Consolidation of marketing and service organizations 11
Employee reductions 8
Reduced goodwill amortization 5
--
Total $39
==
</TABLE>
Following is a rollforward by quarter of the $12.0 million of restructuring
accruals established at the time of the restructuring (in millions of dollars):
<TABLE>
<CAPTION>
Reclassifications
to Other
Beginning Cash Restructuring Ending
Balance Payments Charges Balance
--------- -------- ----------------- -------
<S> <C> <C> <C> <C>
Third quarter, 1993 $12.0 $(0.7) $11.3
Fourth quarter, 1993 11.3 (4.5) $(1.2) 5.6
First quarter, 1994 5.6 (2.4) 3.2
Second quarter, 1994 3.2 (0.9) 2.3
Third quarter, 1994 2.3 (0.4) 1.9
---- ----
Total $(8.9) $(1.2)
==== ====
</TABLE>
As of the end of the third quarter of 1994, no material future cash outflows are
anticipated to result from this restructuring.
INTEREST INCOME AND EXPENSE
- - - -----------------------------
Interest income decreased 18% in 1993 and 2% in 1992, due primarily to a
reduction in net investment in sales-type lease balances and lower interest
rates. The decrease in 1993, compared to 1992, was partially offset by an
increase in the invested cash balances.
Interest expense decreased 10% in 1993 primarily as a result of lower interest
rates and a reduction in the Company's nonrecourse borrowings. Interest
expense decreased 7% in 1992 primarily as a result of reduced nonrecourse
borrowings.
INCOME TAXES
- - - --------------
As further discussed in Note 8 to the Company's consolidated financial
statements, effective as of the beginning of the fiscal year 1993, the Company
was required to change its method of accounting for income taxes from
Statement of Financial Accounting Standards (SFAS) No. 96 to SFAS No. 109. A
one-time benefit of $40 million was recognized in the first quarter of 1993 as
a result of the adoption of the new income tax accounting standard on a
prospective basis. The adoption of SFAS No. 109 had no cash flow impact.
<PAGE>
<PAGE>
Page 17
The most significant difference for the Company between SFAS No. 96 and SFAS
No. 109 is the criteria for recognition of deferred income tax assets
associated with net operating loss and tax credit carryforwards. While
recognition of deferred income tax assets was limited to very specific
situations under SFAS No. 96, the new standard requires that deferred income
tax assets be recognized to the extent realization of such assets is more
likely than not.
The Company evaluated a variety of factors in determining the amount of the
deferred income tax assets to be recognized pursuant to SFAS No. 109,
including the number of years the Company's operating loss and tax credits can
be carried forward, the existence of taxable temporary differences, the
Company's earnings history, the Company's near-term earnings expectations and
possible reductions in the Company's net operating loss carryforwards as a
result of proposed adjustments by the Internal Revenue Service to the
Company's previously filed federal income tax returns. Based on the currently
available information, management has determined that the Company will more
likely than not realize $52 million of its deferred income tax assets as of
December 31, 1993. Future changes in facts and circumstances which result in
changes in the assessment of realizability of the Company's deferred income
tax assets are required to be reflected within the Company's provision for
income taxes on the Consolidated Statement of Operations.
See Note 8 to the consolidated financial statements for information with
respect to the current status of the Internal Revenue Service examinations.
The Company's provision for income taxes relates primarily to taxable earnings
associated with its international operations. The Company's effective tax rate
can be subject to significant fluctuations due to dynamics associated with the
mix of its U.S. and international taxable earnings.
LIQUIDITY AND CAPITAL RESOURCES
- - - ---------------------------------
Financings
In March 1993, the Company completed a public offering of 3.45 million shares
of $3.50 Convertible Exchangeable Preferred Stock, $.01 par value (the
Preferred Stock), at a price of $50.00 per share. The net proceeds of the
Preferred Stock offering, after deducting all associated costs, were
approximately $166.5 million. The net proceeds are being used by the Company
for working capital and capital expenditures associated with the development
and introduction of new products and for other general corporate purposes.
In May 1991, the Company completed an offering of 3.45 million shares of
common stock which yielded net proceeds of $135.4 million. In September 1991,
the Company completed a $55 million private placement of 9.53% Senior Secured
Notes due August 31, 1996 (the Notes), collateralized by U.S. lease and
installment purchase receivables. The proceeds from the common stock
offering, as well as the net proceeds from the Notes, were used for
acquisitions, working capital, financing customer lease commitments, capital
expenditures and other general corporate purposes. Under the terms of the
Notes, the Company is required to comply with certain financial and other
covenants, including restrictions on the payment of cash dividends on its
common and preferred stock.
<PAGE>
<PAGE>
Page 18
Working Capital
The Company's cash balances increased $137.1 million and short-term
investments increased $16.0 million from December 25, 1992, to December 31,
1993. Net cash from operating activities was $87.5 million for 1993 compared
to $107.1 million for 1992 and $183.1 million for 1991. The increase in cash
and short-term investments in 1993 reflects the net proceeds from the
Preferred Stock offering, coupled with the net cash generated by operating
activities, partially offset by investments in property, plant and equipment,
and the partial paydown of nonrecourse borrowings.
The current ratio increased to 2.2 at December 31, 1993, from 1.8 at December
25, 1992. Accounts receivable decreased from $313.4 million at December 25,
1992, to $218.7 million at December 31, 1993, due primarily to lower
comparable revenue. Inventories increased from $156.1 million at December 25,
1992, to $203.3 million at December 31, 1993, principally as a result of a
build-up of inventories associated with new DASD products to be introduced in
1994, and an increase in midrange disk and tape inventories.
Available Financing Lines
In March 1993, the Company entered into a $150 million two-year secured
multicurrency credit agreement with a group of U.S. and international banks
(the Revolver). The interest rates available under the Revolver depend on the
type of advance selected; however, the primary advance rate is the agent
bank's prime lending rate (6% at December 31, 1993). The total amount
available under the Revolver is limited to a percentage of the Company's
eligible U.S. accounts receivable and lease assets (primarily net investments
in sales-type leases not previously utilized for secured borrowings). To
obtain funds under the Revolver, the Company is required to comply with
certain financial and other covenants, including restrictions on the payment
of cash dividends on its common stock. There were no advances under the
Revolver during 1993. Based on the amount of eligible accounts receivable and
lease assets assigned to the Revolver, the Company had approximately $50
million of available credit under the Revolver as of December 31, 1993.
As of December 31, 1993, the Company had unused committed lease discounting
lines of approximately $41 million available in the United States for recourse
and nonrecourse borrowings. The Company also had unused committed lease
discounting lines of approximately $38 million available through its foreign
subsidiaries for nonrecourse borrowings. Furthermore, the Company believes it
has the ability to increase its committed lease discounting lines in the
future, if needed. The ability to use these committed lease discounting lines
is limited by the availability of lease assets which meet the credit standards
of the lenders. The Company had, subject to lender credit approval,
approximately $58 million of lease assets available for discounting under
these lines as of December 31, 1993. At the Company's option, a portion of
these lease assets can be utilized for borrowings under the Revolver.
The Company believes it has adequate working capital and financing
capabilities to meet its anticipated 1994 operating and capital requirements,
including new product offerings.
Long-Term Debt-to-Equity
The Company's long-term debt-to-equity ratio decreased to 36% as of December
31, 1993, from 40% as of December 25, 1992, principally as a result of the
completion of the Preferred
<PAGE>
<PAGE>
Page 19
Stock offering. These debt-to-equity ratios include $97.0 million and $143.1
million, respectively, of long-term nonrecourse borrowings secured by customer
lease commitments included within total assets (primarily net investment in
sales-type leases). Excluding long- term nonrecourse borrowings, the Company's
long-term debt-to-equity ratio increased to 26% as of December 31, 1993, from
24% as of December 25, 1992.
Repayment Obligations
Pursuant to the indenture related to the Company's 8% Convertible Subordinated
Debentures due 2015 (Convertible Debentures), the Company is required to make
semiannual interest payments on the $145.6 million principal amount of
Convertible Debentures outstanding. The Convertible Debentures became
redeemable at the option of StorageTek beginning May 31, 1993, at a premium of
5.6%, and are redeemable at decreasing premiums through May 30, 2000.
Convertible Debentures in the principal amount of $8 million per annum, plus
accrued interest, must be redeemed beginning May 31, 2000, through a sinking
fund which provides for the retirement of 75% of the Convertible Debentures
prior to their maturity on May 31, 2015. Convertible Debentures purchased by
the Company in the open market and Convertible Debentures converted to common
stock may be applied to the sinking fund requirements. As of December 31,
1993, the Company held Convertible Debentures in the principal amount of $14.3
million available for sinking fund payments.
In connection with the Company's 9.53% Senior Secured Notes due August 31,
1996 (the Notes), the Company is required to make semiannual interest payments
on the $55 million principal amount outstanding. The Notes are redeemable at
the option of the Company, in whole or in part, from time to time, at a
premium which is determined based on current interest rates and the time
remaining until maturity. Any principal amounts not previously redeemed are
due and payable on August 31, 1996.
The Company's Preferred Stock provides for cumulative dividends payable
quarterly in arrears at an annual rate of $3.50 per share, when and as declared
by the Company's board of directors. Based on the 3.45 million shares
outstanding as of December 31, 1993, annual dividends will aggregate $12.1
million. The Notes contain restrictions which limit the payment of dividends;
however, these restrictions are not expected to limit the ability of the Company
to pay dividends on its Preferred Stock.
INTERNATIONAL OPERATIONS AND HEDGING ACTIVITIES
- - - -------------------------------------------------
A significant portion of the Company's revenue is generated by its
international operations. The majority of the Company's international
operations involve transactions denominated in the local currencies of countries
within Western Europe, principally Germany, France and the United Kingdom;
Scandinavia; Japan; Canada and Australia. As a result, the Company's operations
and financial results can be materially affected by changes in foreign currency
exchange rates. An increase in the exchange value of the U.S. dollar reduces the
U.S. dollar value of revenue and profits generated by the Company's
international operations because the functional currency for the Company's
foreign subsidiaries is the U.S. dollar and a significant portion of the costs
associated with this revenue are incurred in the United States.
In an attempt to mitigate the impact of foreign currency fluctuations, the
Company employs a hedging program which utilizes foreign currency options and
forward exchange contracts. The Company utilizes foreign currency options,
generally with maturities of less than one year, to hedge its exposure to
exchange-rate fluctuations in connection with anticipated sales revenue
<PAGE>
<PAGE>
Page 20
from its international operations. Gains and losses on the options are deferred
and subsequently recognized as an adjustment to the associated sales revenue.
The Company also utilizes forward exchange contracts, generally with maturities
of less than two months, to hedge its exposure to exchange-rate fluctuations in
connection with monetary assets and liabilities held in foreign currencies.
Gains and losses on forward contracts are recognized currently within MG&A as
adjustments to the foreign exchange gains and losses on the translation of net
monetary assets. See Note 13 to the consolidated financial statements for
additional information with respect to the Company's foreign currency hedging
activities, including an assessment of the market and credit risks associated
with these activities.
OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS
- - - ----------------------------------------------
The Company believes that successful and timely development and shipment of
its new products will play a key role in determining its competitive strength
during the next several years. During 1994, the Company plans to introduce a
number of new products. There can be no assurance that the Company will
successfully develop, manufacture or market these products.
The Company's strategic plans assume that its new Online Plus DASD product
family will serve as a significant source of revenue beginning in 1994. One
of these new DASD products, Iceberg, is expected to begin revenue contribution
in the first half of 1994. While the Company believes this schedule is
achievable, there is no assurance that it can be met. This schedule is two
years later than that originally anticipated and announced in early 1992.
Iceberg is currently in beta testing in various operating environments and the
Company is continuing to integrate additional highly sophisticated software on
the subsystem. If, as a result of the testing, significant problems arise
which result in material delays in the availability of Iceberg, expected
revenue from Iceberg would be further delayed or may be lost, and such delays
would continue to adversely affect the Company's financial results. Delays in
the introduction of the other new DASD products under development could also
adversely affect the Company's future financial performance.
The Company competes with several large, multinational companies having
substantially greater resources than the Company's, principally, IBM, Fujitsu
Limited and Hitachi Ltd., as well as other midsized companies. Because of the
significance of the IBM mainframe and midrange operating environments, many of
the Company's products are designed to be compatible with certain IBM
operating systems and many of its products function like IBM equipment. As a
result, the Company's business has been and in the future may be adversely
affected by a number of factors including, among others, modifications in the
design or configuration of IBM computer systems; the announcement and
introduction of new products by competitors; continuing changes in customer
requirements such as migration toward networked computing and reductions in
the pricing of comparable systems, equipment or services. The Company's
ability to sustain or increase sales levels depends to a significant extent
upon acceptance of the many new and enhanced products it has introduced in
1993 and products planned for introduction in 1994. There can be no assurance
that the Company's current products, products in development, or products in
the early stages of market introduction will achieve or sustain market
acceptance.
The market for the Company's products is characterized by rapid technological
advances which can result in frequent product introductions and enhancements,
unpredictable product transitions and shortened product life cycles. To be
successful in this market, the Company must make significant investments in
research and product development and introduce
<PAGE>
<PAGE>
Page 21
competitive new products and enhancements to existing products on a timely
basis. These factors can reduce the effective life of product-line-specific
assets. There can be no assurance that new products developed by the Company
will be accepted in the marketplace. Moreover, certain components of the
Company's products operate near the present limits of electronic and physical
capabilities of performance and are designed and manufactured with relatively
small tolerances. If flaws in design or production occur, the Company may
experience a rate of failure in its products that results in substantial costs
for the repair or replacement of defective products and potential damage to
the Company's reputation.
The Company's manufacturing process has increased in complexity as it has
increased the number and diversity of products offered to customers. The
Company generally uses standard parts and components for its products and
believes that, in most cases, there are a number of alternative, competent
vendors for most of those parts and components. The Company purchases certain
important components and products from single suppliers that the Company
believes are currently the only manufacturers of the particular components
that meet the Company's specification. In addition, the Company manufactures
some key components or its products include components for which alternative
sources of supply are not readily available. In the past, certain suppliers
have experienced occasional technical, financial or other problems that have
delayed deliveries to the Company, without significant effect on it. An
unanticipated failure of any sole-source supplier to meet the Company's
requirements for an extended period, or an interruption of the Company's
ability to secure comparable components, could have a material adverse effect
on its revenue and profitability. In addition, the Company markets a number
of products acquired from other manufacturers on an OEM basis. These products
are often available only from a single manufacturer. Some of these OEM
suppliers are, or may in the future be, competitors of the Company. In the
event that an OEM product is no longer available, second sourcing is not
always feasible and there could be a material adverse effect on the Company's
profitability.
The Company's earnings can fluctuate significantly from quarter to quarter due
to the effects of (i) customers' tendencies to make purchase decisions near
the end of the calendar year, (ii) the timing of the announcement and
availability of products and product enhancements by the Company and its
competitors, and (iii) fluctuating foreign currency exchange rates.
As further discussed in Note 1 to the Company's consolidated financial
statements, the Company is required to adopt SFAS No. 112, "Employers'
Accounting for Postemployment Benefits" not later than fiscal 1994. The
Company plans to adopt the standard in the first quarter of 1994. The Company
has not finally determined the impact of adopting SFAS No. 112; however, it
expects to recognize a one-time charge of between $5 million and $10 million
as a result of the adoption of the new standard. The adoption of SFAS No. 112
will have no cash flow impact.
<PAGE>
<PAGE>
Page 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
PAGE
1. Financial Statements:
---------------------
Consolidated Balance Sheet at December 31, 1993, and
December 25, 1992 F-1
Consolidated Statement of Operations for the Years Ended
December 31, 1993, December 25, 1992, and
December 27, 1991 F-2
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1993, December 25, 1992, and
December 27, 1991 F-3
Consolidated Statement of Changes in Stockholders' Equity
for the Years Ended December 31, 1993, December 25, 1992,
and December 27, 1991 F-4
Notes to Consolidated Financial Statements F-5
Report of Independent Accountants for Storage Technology
Corporation F-28
Report of Independent Accountants for XL/Datacomp, Inc. F-29
2. Financial Statement Schedules:
------------------------------
VIII - Valuation and Qualifying Accounts and Reserves F-30
IX - Short-Term Borrowings F-31
All other schedules are omitted because they are not applicable or the required
information is included in the consolidated financial statements or notes
thereto.
<PAGE>
<PAGE>
Page 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Storage Technology Corporation has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: January 6, 1995 STORAGE TECHNOLOGY CORPORATION
By: /s/ GREGORY A. TYMN
---------------------------
Gregory A. Tymn
Senior Vice President and
Chief Financial Officer
By: /s/ DAVID E. LACEY
---------------------------
David E. Lacey
Corporate Vice President
and Controller
<PAGE>
<PAGE>
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
<TABLE>
<CAPTION>
December 31, December 25,
1993 1992
---------------------------
ASSETS
<S> <C> <C>
Cash, including cash equivalents of
$181,583 in 1993 and $70,128 in 1992,
and restricted cash of $3,857 in
1993 and $4,187 in 1992 $ 255,062 $ 117,954
Short-term investments 16,042
Accounts receivable, net of allowance
for doubtful accounts of $12,452 in
1993 and $11,949 in 1992 218,701 313,350
Notes and installment receivables 9,973 9,625
Net investment in sales-type leases (Note 3) 171,165 193,078
Inventories, at lower of cost
(first-in, first-out) or market (Note 4) 203,257 156,136
--------- ---------
Total current assets 874,200 790,143
Notes and installment receivables 13,968 21,228
Net investment in sales-type leases (Note 3) 252,678 309,160
Computer equipment, at cost net of
accumulated depreciation of $96,454 in
1993 and $78,743 in 1992 (Note 5) 97,324 103,281
Spare parts for field service, at cost
net of accumulated amortization of $55,317
in 1993 and $48,268 in 1992 50,150 51,389
Property, plant and equipment, at cost net
of accumulated depreciation (Note 6) 306,034 305,097
Deferred income tax assets, net of valuation
allowance (Note 8) 52,260
Other assets 146,395 158,745
--------- ---------
$1,793,009 $1,739,043
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Nonrecourse borrowings secured by lease
commitments (Note 7) $ 74,191 $ 88,548
Current portion of other long-term debt
(Note 7) 32,581 18,211
Accounts payable 91,890 129,978
Accrued liabilities 192,874 183,939
Income taxes payable (Note 8) 14,167 11,525
--------- ---------
Total current liabilities 405,703 432,201
Nonrecourse borrowings secured by lease
commitments (Note 7) 96,975 143,148
Other long-term debt (Note 7) 264,743 226,840
Deferred income tax liabilities (Note 8) 8,285 8,941
--------- ---------
Total liabilities 775,706 811,130
--------- ---------
Commitments and contingencies (Notes 7 and 12)
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 40,000,000
shares authorized; 3,450,000 shares of $3.50
Convertible Exchangeable Preferred Stock issued
in 1993, and none issued in 1992, $172,500,000
aggregate liquidation preference (Note 9) 35
Common stock, $.10 par value, 150,000,000
shares authorized; 43,097,788 shares issued
in 1993, and 42,613,422 shares issued in 1992 4,310 4,261
Capital in excess of par value 1,421,860 1,244,471
Accumulated deficit (401,623) (314,368)
Treasury stock of 34,349 shares in 1993
and 33,936 shares in 1992 (735) (729)
Cumulative translation adjustment 2,872
Unearned compensation (6,544) (8,594)
--------- ---------
Total stockholders' equity 1,017,303 927,913
--------- ---------
$1,793,009 $1,739,043
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-1
<PAGE>
<PAGE>
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
December 31, December 25, December 27,
1993 1992 1991
---------------------------------------
<S> <C> <C> <C>
Sales $ 902,482 $1,079,130 $1,201,114
Service and rental revenue 502,270 471,815 418,406
--------- --------- ---------
Total revenue 1,404,752 1,550,945 1,619,520
--------- --------- ---------
Cost of sales 641,411 757,369 801,138
Cost of service and rental revenue 324,502 316,830 303,939
--------- --------- ---------
Total cost of revenue 965,913 1,074,199 1,105,077
--------- --------- ---------
Gross profit 438,839 476,746 514,443
Research and product development costs 163,286 152,702 123,269
Marketing, general, administrative
and other income and expense, net 324,823 315,475 300,253
Restructuring and other charges
(Note 14) 74,772 5,104
--------- --------- ---------
Operating profit (loss) (124,042) 8,569 85,817
Interest expense 43,670 48,706 52,157
Interest income (54,916) (67,171) (68,552)
--------- --------- ---------
Income (loss) before income taxes
and cumulative effect of
accounting change (112,796) 27,034 102,212
Provision for income taxes (Note 8) 5,000 17,700 12,400
--------- --------- ---------
Income (loss) before cumulative
effect of accounting change (117,796) 9,334 89,812
Cumulative effect on prior years of
change in method of accounting for
income taxes (Note 8) 40,000
--------- --------- ---------
Net income (loss) (77,796) 9,334 89,812
Preferred dividend requirement (Note 9) 9,805
--------- --------- ---------
Income (loss) applicable to common
shares $ (87,601) $ 9,334 $ 89 812
========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE
Income (loss) before cumulative effect
of accounting change $ (2.98) $ 0.22 $ 2.17
Cumulative effect on prior years of
change in method of accounting for
income taxes 0.93
--------- --------- ---------
$ (2.05) $ 0.22 $ 2.17
========= ========= =========
Weighted average common shares and
equivalents 42,800 43,347 41,298
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
<PAGE>
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
December 31, December 25, December 27,
1993 1992 1991
---------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Cash received from customers $ 1,532,183 $ 1,572,892 $ 1,589,841
Cash paid to suppliers and employees (1,446,321) (1,456,835) (1,415,976)
Interest received 54,251 67,136 66,765
Interest paid (40,519) (47,751) (52,603)
Income taxes paid (12,048) (28,327) (2,089)
Net cash adjustment to conform year
end of Datacomp (Note 2) (2,816)
---------- ---------- ----------
Net cash from operating activities 87,546 107,115 183,122
---------- ---------- ----------
INVESTING ACTIVITIES
Short-term investments, net (15,377) 40,227 (39,778)
Purchase of property, plant and
equipment (67,720) (106,119) (111,094)
Business acquisitions, net of cash
acquired (51,761)
Other assets, net (6,945) (4,136) (25,484)
---------- ---------- ----------
Net cash used in investing activities (90,042) (121,789) (176,356)
---------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from preferred stock offering,
net (Note 9) 166,479
Proceeds from common stock offering,
net (Note 9) 135,362
Borrowings (repayments) under revolving
credit agreements, net (19,000) (72,293)
Proceeds from nonrecourse borrowings 87,508 114,935 145,985
Repayments of nonrecourse borrowings (147,647) (150,005) (200,519)
Proceeds from other debt 79,740 21,320 79,331
Repayments of other debt (44,144) (27,538) (39,099)
Proceeds from employee stock plans
and warrants 11,468 16,126 15,509
Preferred stock dividend payments
(Note 9) (9,459)
Proceeds from sale of lease receivables
(Note 13) 50,022
Purchases of treasury stock (5,098)
---------- ---------- ----------
Net cash from financing activities 143,945 762 64,276
---------- ---------- ----------
Effect of exchange rate changes
on cash (4,341) (4,884) (6,675)
---------- ---------- ----------
Increase (decrease) in cash and cash
equivalents 137,108 (18,796) 64,367
Cash and cash equivalents -
beginning of the year 117,954 136,750 72,383
---------- ---------- ----------
Cash and cash equivalents - end of
the year $ 255,062 $ 117,954 $ 136,750
========== ========== ==========
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH FROM OPERATING ACTIVITIES
Net income (loss) $ (77,796) $ 9,334 $ 89,812
Cumulative effect of accounting
change (Note 8) (40,000)
Restructuring and other charges
(Note 14) 74,772 5,104
Depreciation and amortization expense 149,891 143,605 113,899
Loss on disposal of property, plant
and equipment 5,113 4,675 1,804
(Increase) decrease in accounts
receivable 81,197 19,873 (14,680)
(Increase) decrease in notes
receivable and sales-type leases 54,605 18,524 (16,499)
(Increase) decrease in inventories (62,997) 4,354 24,416
Increase in computer equipment, net (48,730) (57,532) (43,943)
Increase in spare parts, net (19,599) (30,849) (17,239)
(Increase) decrease in net deferred
income tax asset (12,535) 578 (1,571)
Increase (decrease) in accounts
payable (37,113) 14,937 16,193
Increase (decrease) in accrued
liabilities (5,360) (24,241) 21,635
Increase (decrease) in income taxes
payable 5,487 (11,205) 11,882
Translation loss 8,069 12,062 1,025
Net cash adjustment to conform year
end of Datacomp (Note 2) (2,816)
Other 12,542 3,000 (5,900)
---------- ---------- ----------
Net cash from operating activities $ 87,546 $ 107,115 $ 183,122
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
<PAGE>
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Capital in Cumulative
Preferred Common Excess of Accumulated Treasury Translation Unearned
Stock Stock Par Value Deficit Stock Adjustment Compensation
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 28, 1990,
as previously reported $3,600 $1,063,396 $(422,119) $ (630) $ (70) $(3,817)
Pooling of interests with
Amperif Corp. (Note 2) 128 11,456 7,054
----- --------- -------- ------ ------ ------
Balances, December 28, 1990,
as restated 3,728 1,074,852 (415,065) (630) (70) (3,817)
Adjustment to reflect change
in year end of XL/Datacomp
(Note 2) 1,560
Common stock issuance
(3,450,000 shares) (Note 9) 345 135,017
Shares issued under stock
purchase plan, and for
exercises of options and
warrants (1,025,240 shares) 103 15,360
Restricted stock awards
(95,338 shares) 10 3,828 (3,828)
Restricted stock amortization 316
Net income 89,812
Other 2 218 (9) (99) (2,076) 14
----- --------- -------- ------ ------ ------
Balances, December 27, 1991 4,188 1,229,275 (323,702) (729) (2,146) (7,315)
Purchases of treasury stock
(149,600 shares) (5,098)
Shares issued under stock
purchase plan, and for
exercises of options
(621,411 shares) 62 11,204 5,098
Restricted stock awards
(139,144 shares) 14 4,551 (2,372)
Restricted stock amortization 615
Net income 9,334
Other (3) (559) 5,018 478
----- --------- -------- ------ ------ ------
Balances, December 25, 1992 4,261 1,244,471 (314,368) (729) 2,872 (8,594)
Preferred stock issuance
(3,450,000 shares) (Note 9) $35 166,444
Shares issued under stock
purchase plan, and for
exercises of options and
warrants (557,601 shares) 56 12,604
Cash dividends paid on
preferred stock ($2.74 per
share) (Note 9) (9,459)
Restricted stock amortization 794
Net loss (77,796)
Other (7) (1,659) (6) (2,872) 1,256
-- ----- --------- -------- ------ ------ ------
Balances, December 31, 1993 $35 $4,310 $1,421,860 $(401,623) $ (735) $ 0 $(6,544)
== ===== ========= ======== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
<PAGE>
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Storage Technology Corporation and its wholly owned subsidiaries (collectively
hereinafter referred to as StorageTek or the Company). Intercompany accounts
and transactions have been eliminated. As further discussed in Note 2, the
consolidated financial statements have been restated for all periods presented
to reflect the merger with Amperif Corporation as a pooling of interests.
REVENUE RECOGNITION
Revenue from end-user equipment sales, including sales-type leases, is
recognized at the time of acceptance by the customer, generally after
installation at a customer site. Revenue from original equipment
manufacturers and distributors is recognized at the time of shipment. Costs
associated with post-installation equipment support are estimated and accrued
at the time of the sale. Rental revenue associated with operating leases is
recorded ratably over the rental period.
End users of equipment sold or leased by StorageTek generally contract with
the Company for equipment service which includes normal maintenance and repair
or replacement of product components. Revenue from these contracts is
recognized as earned and the cost of performing these activities is expensed
as incurred.
CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND RESTRICTED CASH
Cash equivalents are short-term, highly liquid investments that are both
readily convertible to cash and have remaining maturities of three months or
less at the time of acquisition. Investments that do not qualify as cash
equivalents are classified as short-term investments. The carrying amount of
short-term investments is equal to cost, adjusted for premium or discount
amortization, plus accrued interest. The carrying value of short-term
investments approximates fair value. Restricted cash balances relate
primarily to funds received on behalf of third parties.
CAPITALIZED SOFTWARE COSTS
The Company capitalized costs of $23,092,000 in 1993, $9,148,000 in 1992, and
$7,486,000 in 1991 associated with acquiring and developing software products
to be marketed to customers. Other assets as shown on the Consolidated
Balance Sheet include unamortized software product costs of $36,068,000 as of
December 31, 1993, and $20,461,000 as of December 25, 1992. Amortization is
based on the greater of straight-line amortization over estimated useful
lives, generally four years, or the percentage of actual revenue versus total
anticipated revenue. Amortization of software costs was $7,485,000 in 1993,
$6,818,000 in 1992, and $2,877,000 in 1991.
F-5
<PAGE>
<PAGE>
DEPRECIATION AND AMORTIZATION
Computer equipment, and property, plant and equipment are recorded at cost and
depreciated on a straight-line basis over their estimated useful lives.
Capitalized machinery and equipment leases are amortized over the estimated
service lives or the periods of the leases, as applicable. Manufactured spare
parts are recorded at cost and amortized over their estimated useful service
lives. Goodwill, included within other assets on the Consolidated Balance
Sheet, represents the excess of purchase price over fair value of net assets
acquired and is amortized on a straight-line basis not exceeding 10 years.
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." See Note 8 for additional information regarding the Company's
accounting for income taxes.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency for StorageTek's foreign subsidiaries is the U.S.
dollar, reflecting the significant volume of intercompany transactions and
associated cash flows which result from the fact that nearly all of the
Company's products sold worldwide are manufactured in the United States.
Accordingly, monetary assets and liabilities are translated at year-end exchange
rates while non-monetary items are translated at historical rates. Revenue and
expenses are translated at the average rates in effect during the year, except
for cost of sales and depreciation which are translated at historical rates.
Foreign currency translation adjustments, net of associated hedging results, and
foreign currency transaction losses were $8,802,000 in 1993, compared to losses
of $8,372,000 in 1992 and $12,321,000 in 1991. See Note 13 for information with
respect to the Company's accounting policies for financial instruments utilized
in its foreign currency hedging program.
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share is computed under the treasury stock method
using the weighted average number of common shares and dilutive common stock
equivalent shares outstanding during the year. The Preferred Stock (see Note
9) and 8% Convertible Subordinated Debentures (see Note 7) are not common
stock equivalents and, therefore, have been excluded from the computation of
earnings (loss) per common share. The Preferred Stock and 8% Convertible
Subordinated Debentures presently have an anti-dilutive effect on the annual
computation of fully diluted earnings per common share.
RECENT PRONOUNCEMENTS
In November 1992, the Financial Accounting Standards Board issued SFAS No.
112, "Employers' Accounting for Postemployment Benefits" which generally
requires the accrual of the estimated cost of postemployment benefits provided
over the related service periods of active employees. The Company provides
certain severance and disability-related benefits to its employees. SFAS No.
112 is required to be adopted no later than fiscal 1994 and the Company plans
to adopt the new standard in the first quarter of 1994. The Company has not
finally determined the impact of adopting SFAS No. 112; however, it expects to
recognize a one-time charge of between $5,000,000 and $10,000,000 as a result
of the adoption of the new standard. The adoption of SFAS No. 112 will have
no cash flow impact.
F-6
<PAGE>
<PAGE>
NOTE 2 - BUSINESS COMBINATIONS
AMPERIF CORPORATION
In October 1993, the Company issued approximately 1,300,000 shares of
StorageTek common stock in exchange for all of the outstanding common and
preferred stock of Amperif Corporation (Amperif). The Company has also
reserved approximately 600,000 shares for issuance in connection with
Amperif's outstanding warrants and employee stock options. The merger was
accounted for as a pooling of interests and, accordingly, the consolidated
financial statements have been restated for all periods prior to the merger to
include the operations of Amperif, adjusted to conform with StorageTek's
accounting policies and presentation. Merger and consolidation expenses in
the amount of $5,522,000, included within restructuring and other charges on
the Consolidated Statement of Operations, were recognized in 1993 in
connection with the merger. Amperif designs, manufactures, markets and
services high-performance, information storage and retrieval subsystems for
mainframe computers.
Separate pre-merger revenue and net income of StorageTek and Amperif were as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
1993 1992 1991
----------------------------------------
<S> <C> <C> <C>
Revenue:
Pre-merger
StorageTek $1,065,438 $1,521,487 $1,584,904
Amperif 14,311 30,165 35,879
Merger adjustments (1,917)(a) (707) (1,263)
--------- --------- ---------
1,077,832 1,550,945 1,619,520
Post-merger 326,920
--------- --------- ---------
$1,404,752 $1,550,945 $1,619,520
========= ========= =========
Net income (loss):
Pre-merger
StorageTek $ (68,572) $ 15,494 $ 93,074
Amperif (21,266) (5,828) (2,342)
Merger adjustments (2,983)(a) (332) (920)
--------- --------- ---------
(92,821) 9,334 89,812
Post-merger 15,025
--------- --------- ---------
$ (77,796) $ 9,334 $ 89,812
========= ========= =========
</TABLE>
(a)The adjustments to revenue and net loss in 1993 relate principally to an
adjustment to the combined provision for income taxes. The adjustment
resulted from an evaluation of the combined companies' tax position.
Additionally, an adjustment was made to revenue and cost of revenue, in
equal and offsetting amounts, to eliminate transactions between StorageTek
and Amperif.
EDATA
In the second quarter of 1992, the Company acquired all of the outstanding
equity securities of Edata Scandinavia AB (Edata) for approximately
$75,000,000. The acquisition was accounted for as a purchase. Goodwill
associated with the acquisition (the excess of purchase price over the
estimated fair value of the net assets acquired) of $44,700,000 is included
within other
F-7
<PAGE>
<PAGE>
assets on the Consolidated Balance Sheet and is being amortized on a straight
- - - - -line basis over 10 years. Edata markets and distributes equipment and
systems for storage and management of large volumes of data, and for
automation and control of computer centers and information networks in
Belgium, Denmark, Finland, Luxembourg, the Netherlands, Norway and Sweden.
XL/DATACOMP, INC.
In November 1991, the Company issued approximately 3,250,000 shares of
StorageTek common stock in exchange for all of the outstanding common stock of
XL/Datacomp, Inc. (Datacomp). The Company also reserved approximately 450,000
shares for issuance in connection with Datacomp's outstanding employee stock
options and to satisfy Datacomp's employee stock purchase plan obligations.
The merger was accounted for as a pooling of interests and, accordingly, the
consolidated financial statements for 1991 include the operations of Datacomp.
An adjustment to accumulated deficit of $1,560,000 was made in 1991 to conform
Datacomp's reporting periods with StorageTek's fiscal year. Merger expenses
in the amount of $5,104,000, included within restructuring and other charges
on the Consolidated Statement of Operations, were recognized in 1991 in
connection with the merger. Datacomp is a full-service distributor of
midrange computer systems.
NOTE 3 - SALES-TYPE AND OPERATING LEASES
The Company offers lease financing to its customers to support the acquisition
of StorageTek products. Lease financings are made under both sales-type leases
and, to a lesser extent, operating leases. These leases typically provide for
a lease term of up to five years and the retention of title to the equipment by
StorageTek. The majority of StorageTek's lease financings are currently made
within the United States. The components of net investment in sales-type
leases are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
December 31, December 25,
1993 1992
---------------------------
<S> <C> <C>
Total minimum lease and maintenance payments $ 499,295 $ 550,201
Less: Executory costs (maintenance payments) (50,017) (41,464)
-------- --------
Net minimum lease payments 449,278 508,737
Estimated unguaranteed residual values 24,879 73,206
Less: Unearned interest income (50,314) (79,705)
-------- --------
423,843 502,238
Less: Current portion (171,165) (193,078)
-------- --------
$ 252,678 $ 309,160
======== ========
</TABLE>
F-8
<PAGE>
<PAGE>
Future minimum lease payments due from customers under sales-type leases and
noncancellable operating leases as of December 31, 1993, are as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
Sales-Type Operating
Leases Leases
-------------------------
<S> <C> <C>
1994 $210,110 $17,276
1995 155,363 10,450
1996 86,354 2,775
1997 37,431 170
1998 9,654 23
Thereafter 383
------- ------
$499,295 $30,694
======= ======
</TABLE>
Of the future minimum lease payments due from customers under sales-type
leases, the following amounts will be remitted under recourse and nonrecourse
borrowing arrangements (see Note 7): $109,007,000 in 1994; $84,487,000 in
1995; $45,330,000 in 1996; $17,361,000 in 1997; and $4,607,000 in 1998.
NOTE 4 - INVENTORIES
Inventories include material, labor and factory overhead and are accounted for
at the lower of cost (first-in, first-out method) or market. The Company
evaluates the need for reserves associated with obsolete, slow-moving, and
nonsalable inventory by reviewing net realizable values on a quarterly basis.
The components of inventories are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
December 31, December 25,
1993 1992
---------------------------
<S> <C> <C>
Raw materials $ 38,991 $ 45,060
Work-in-process 66,668 54,213
Finished goods 97,598 56,863
------- -------
$203,257 $156,136
======= =======
</TABLE>
NOTE 5 - COMPUTER EQUIPMENT
Computer equipment held for sale or lease to customers consists of the
following (in thousands of dollars):
<TABLE>
<CAPTION>
December 31, December 25,
1993 1992
---------------------------
<S> <C> <C>
Equipment on-rent $40,038 $ 31,015
Equipment shipped awaiting
revenue recognition 38,612 32,412
Equipment off-rent 18,674 39,854
------ -------
$97,324 $103,281
====== =======
</TABLE>
F-9
<PAGE>
<PAGE>
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
December 31, December 25,
1993 1992
---------------------------
<S> <C> <C>
Land and land improvements $ 12,160 $ 11,711
Buildings and building improvements 135,575 129,212
Machinery and equipment 525,083 495,609
-------- --------
672,818 636,532
Less: Accumulated depreciation (366,784) (331,435)
-------- --------
$ 306,034 $ 305,097
======== ========
</TABLE>
Machinery and equipment includes capitalized leases of $45,544,000 as of
December 31, 1993, and $38,861,000 as of December 25, 1992. Accumulated
depreciation includes accumulated amortization on such capitalized leases of
$20,381,000 as of December 31, 1993 and $18,636,000 as of December 25, 1992.
Maintenance and repairs, which are expensed as incurred, totalled $19,834,000
in 1993; $18,798,000 in 1992; and $15,210,000 in 1991.
NOTE 7 - DEBT, BANKING ARRANGEMENTS AND LEASE OBLIGATIONS
Long-term debt, including capitalized lease obligations, but excluding
nonrecourse borrowings, consists of the following (in thousands of dollars):
<TABLE>
<CAPTION>
December 31, December 25,
1993 1992
---------------------------
<S> <C> <C>
8% Convertible Subordinated Debentures
due 2015 $145,645 $145,645
Recourse borrowings secured by lease
commitments 60,533
9.53% Senior Secured Notes due 1996 55,000 55,000
Capitalized lease obligations 28,272 22,174
Other 7,874 22,232
------- -------
297,324 245,051
Less: Current portion (32,581) (18,211)
------- -------
$264,743 $226,840
======= =======
</TABLE>
8% CONVERTIBLE DEBENTURES
In May 1990, the Company issued $160,000,000 of 8% Convertible Subordinated
Debentures due 2015 (Convertible Debentures), which are unsecured subordinated
obligations of the Company and are convertible into common stock at a price of
$35.25 per share. The costs incurred in connection with the offering
($4,300,000) have been included in other assets on the Consolidated Balance
Sheet and are being amortized over the 25-year term of the Convertible
Debentures. Interest on the Convertible Debentures is payable semiannually in
arrears on November 30 and May 31. The Convertible Debentures became
redeemable at the option of StorageTek beginning May 31, 1993, at a premium of
5.6%, and are redeemable at decreasing premiums thereafter through May 30,
2000. Convertible Debentures in the principal amount of $8,000,000 per annum,
plus accrued interest, must be redeemed beginning May 31, 2000, through a
sinking fund which provides for the retirement of 75% of the Convertible
Debentures prior to their maturity on May 31, 2015. Convertible Debentures
purchased by the Company in the open market and Convertible Debentures
converted to
F-10
<PAGE>
<PAGE>
common stock may be applied to the sinking fund requirements. As of December 31,
1993, the Company held Convertible Debentures in the principal amount of
$14,300,000 available for sinking fund payments. The Company has reserved
4,132,000 shares of common stock for issuance upon conversion of the Convertible
Debentures. The aggregate fair value of the Convertible Debentures, based on the
quoted closing sales price on the New York Stock Exchange, was $158,389,000 as
of December 31, 1993.
RECOURSE BORROWINGS SECURED BY LEASE COMMITMENTS
The Company's recourse borrowings are secured by customer lease commitments
included within total assets (primarily net investment in sales-type leases --
see Note 3) and by the underlying equipment. The borrowings also provide for
limited recourse to the Company in the event of a default by a customer with
respect to the lease commitments. The weighted average interest rate as of
December 31, 1993, related to the borrowings was approximately 7.5%. Based on
the borrowing rates currently available to the Company for borrowings with
similar terms and maturities, the aggregate carrying value of the recourse
borrowings approximated fair value as of December 31, 1993.
9.53% SENIOR SECURED NOTES
In September 1991, the Company completed a $55,000,000 private placement of
9.53% Senior Secured Notes due August 31, 1996 (the Notes), collateralized by
U.S. lease and installment purchase receivables. Interest on the Notes is
payable semiannually in arrears on February 28 and August 31. The Notes are
redeemable at the option of the Company, in whole or in part, from time to
time, at a premium which is determined based on current interest rates and the
time remaining until maturity of the Notes. Under the terms of the Note
agreement, the Company is required to comply with certain financial and other
covenants, including restrictions on the payment of cash dividends on its
common and preferred stock. The aggregate fair value of the Notes, based on
the interest rates currently available for comparable notes with similar
maturities, was approximately $60,100,000 as of December 31, 1993.
BANKING AND CREDIT ARRANGEMENTS
In March 1993, the Company entered into a $150,000,000 two-year secured
multicurrency credit agreement with a group of U.S. and international banks
(the Revolver). The interest rates available under the Revolver depend on the
type of advance selected; however, the primary advance rate is the agent
bank's prime lending rate (6% as of December 31, 1993). The total amount
available under the Revolver is limited to a percentage of the Company's
eligible U.S. accounts receivable and lease assets (primarily net investments
in sales-type leases not previously utilized for secured borrowings). In
order to obtain funds under the Revolver, the Company is required to comply
with certain financial and other covenants, including restrictions on the
payment of cash dividends on its common stock. There were no advances under
the Revolver during 1993. Based on the amount of eligible accounts receivable
and leased assets assigned to the Revolver, the Company had approximately
$50,000,000 of available credit under the Revolver as of December 31, 1993.
As of December 31, 1993, the Company had unused committed lease discounting
lines of approximately $41,000,000 available in the United States for recourse
and nonrecourse borrowings. The Company also had unused committed lease
discounting lines of approximately $38,000,000 available through its foreign
subsidiaries for nonrecourse
F-11
<PAGE>
<PAGE>
borrowings. The ability to use these committed lease discounting lines is
limited by the availability of lease assets which meet the credit standards
of the lenders. The Company had, subject to lender credit approval,
approximately $58,000,000 of lease assets available for discounting under
these lines as of December 31, 1993. At the Company's option, a portion of
these lease assets can be utilized for borrowings under the Revolver.
SCHEDULED DEBT MATURITIES
Scheduled maturities of long-term debt, including future minimum lease
payments under capitalized lease obligations, but excluding nonrecourse
borrowings, as of December 31, 1993, are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Total Long-
Capitalized Other Term Debt
Leases Debt Commitments
---------------------------------------
<S> <C> <C> <C>
1994 $10,198 $ 24,206 $ 34,404
1995 9,393 23,217 32,610
1996 7,353 69,150 76,503
1997 2,773 5,675 8,448
1998 1,706 1,159 2,865
Thereafter 1,107 145,645 146,752
------ ------- -------
32,530 $269,052 $301,582
======= =======
Less: Amount representing
interest (4,258)
------
Present value of capitalized
lease obligations (including
$8,375 classified as current) $28,272
======
</TABLE>
NONRECOURSE BORROWINGS SECURED BY LEASE COMMITMENTS
Nonrecourse borrowings incurred in connection with the financing of certain of
the Company's customer lease obligations are secured by the lease commitments
and by the underlying equipment. The related lease receivables are also
reflected in the Consolidated Balance Sheet as accounts receivable to the
extent they represent amounts due on or prior to the balance sheet date, and
as part of net investment in sales-type leases for any amounts due thereafter
(see Note 3). The weighted average interest rate as of December 31, 1993,
related to the borrowings was approximately 9%. Based on the borrowing rates
currently available to the Company for nonrecourse borrowings with similar
terms and maturities, the aggregate carrying value of the nonrecourse
borrowings approximated fair value as of December 31, 1993.
OPERATING LEASE OBLIGATIONS
StorageTek had various operating leases in effect for certain buildings, sales
offices, and machinery and equipment. Rent expense was $37,086,000 in 1993;
$37,539,000 in 1992; and $32,363,000 in 1991. Future minimum rental
commitments required under all noncancellable operating leases with terms of
one year or more are as follows: $28,243,000 in 1994; $22,428,000 in 1995;
$17,769,000 in 1996; $13,178,000 in 1997; $10,761,000 in 1998; and $37,163,000
thereafter. The Company has also entered into an agreement with the French
government to begin leasing in early 1995 manufacturing and engineering
facilities currently under construction in France.
F-12
<PAGE>
<PAGE>
NOTE 8 - INCOME TAXES
Effective as of the beginning of fiscal 1993, the Company changed its method
of accounting for income taxes to comply with the provisions of SFAS No. 109.
A one-time benefit of $40,000,000 was recognized in the first quarter of 1993
as a result of the adoption of the new income tax accounting standard on a
prospective basis. This benefit results largely from the requirement under
SFAS No. 109 to recognize the tax benefits associated with net operating
loss and tax credit carryforwards to the extent their future realization is
determined, based on the weight of the available evidence, to be more likely
than not. The adoption of SFAS No. 109 had no cash flow impact.
Income (loss) before income taxes and cumulative effect of accounting change
consists of the following (in thousands of dollars):
<TABLE>
<CAPTION>
Year Ended
------------------------------------------
December 31, December 25, December 27,
1993 1992 1991
------------------------------------------
<S> <C> <C> <C>
United States $(114,196) $(5,545) $ 50,180
International 1,400 32,579 52,032
-------- ------ -------
$(112,796) $27,034 $102,212
======== ====== =======
</TABLE>
The provision for income taxes attributable to income (loss) before income
taxes and cumulative effect of accounting change consists of the following (in
thousands of dollars):
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------
December 31, December 25, December 27,
1993 1992 1991
-------------------------------------------
<S> <C> <C> <C>
Current tax provision
(benefit):
U.S. federal $ 3,200 $(2,500) $ 200
International 11,100 17,100 14,600
State 3,100 300 200
-------- ------ ------
17,400 14,900 15,000
-------- ------ ------
Deferred tax provision
(benefit):
U.S. federal (4,800) 2,800 (1,600)
International (4,200) 100 (1,400)
State (3,400) (100) 400
-------- ------ ------
(12,400) 2,800 (2,600)
-------- ------ ------
$ 5,000 $17,700 $12,400
======== ====== ======
</TABLE>
The provision for income taxes attributable to income (loss) before income
taxes and cumulative effect of accounting change includes benefits of
$1,422,000 in 1993; $4,074,000 in 1992; and $53,671,000 in 1991 from the
utilization of net operating loss carryforwards as well as benefits of
$7,432,000 in 1993; $11,284,000 in 1992; and $11,186,000 in 1991 as a result
of the Company's Grant of Industrial Tax Exemption issued by the Commonwealth
of Puerto Rico (the Tax Grant). On a per common share basis, the benefit of
the Tax Grant was $0.17 in 1993; $0.27 in 1992; and $0.27 in 1991. The
benefits from the Tax Grant, which expires in 2007, include reduced tax rates,
as well as the ability to utilize U.S. net operating losses through 1994 to
further reduce Puerto Rico tax liabilities. To the extent cumulative U.S. and
Puerto Rico taxable income exceeds the U.S. net operating loss carryforwards
in the future, the benefit from the utilization of U.S. operating losses will
be payable to Puerto Rico. The
F-13
<PAGE>
<PAGE>
cumulative benefit of the grant provision relating to the use of net operating
losses was $14,449,000 as of December 31, 1993.
The Company reported the following deferred income tax balances on its
Consolidated Balance Sheet as of December 31, 1993 (in thousands of dollars):
<TABLE>
<CAPTION>
<S> <C>
Deferred income tax assets, net of valuation allowance $52,260
Deferred income tax liabilities (8,285)
------
Net deferred income tax asset, December 31, 1993 $43,975
======
</TABLE>
The Company's net deferred income tax asset consists of the following as of
December 31, 1993 (in thousands of dollars):
<TABLE>
<CAPTION>
<S> <C>
Gross deferred income tax assets:
Net operating loss carryforwards $ 123,844
Tax credit carryforwards 63,265
Accrued liabilities and reserves 55,314
Foreign currency translation losses 11,779
Deferred intercompany profit 11,290
Other 26,193
--------
291,685
Less: Valuation allowance (165,456)
--------
126,229
--------
Gross deferred income tax liabilities:
Investment in sales-type leases (45,979)
Depreciation (24,130)
Other (12,145)
--------
(82,254)
--------
Net deferred income tax asset, December 31, 1993 $ 43,975
========
</TABLE>
The valuation allowance associated with the Company's deferred income tax
assets increased from $110,695,000 as of the beginning of fiscal 1993 to
$165,456,000 as of December 31, 1993. The valuation allowance relates
primarily to net operating loss carryforwards, tax credit carryforwards, and
net deductible temporary differences. The Company evaluated a variety of
factors in determining the amount of the deferred income tax assets to be
recognized pursuant to SFAS No. 109, including the number of years the
Company's operating loss and tax credits can be carried forward, the existence
of taxable temporary differences, the Company's earnings history, the
Company's near-term earnings expectations and possible reductions in the
Company's net operating loss carryforwards as a result of proposed adjustments
by the Internal Revenue Service to the Company's previously filed federal
income tax returns.
The deferred income tax provision for 1992 and the deferred income tax benefit
for 1991 resulted from the recognition of transactions in different periods
for financial reporting purposes than those allowed for tax purposes, and
primarily relate to deferred intercompany profit and sales-type leases.
StorageTek has not provided for income taxes on the cumulative undistributed
earnings of its foreign subsidiaries to the extent they are considered to be
reinvested indefinitely (approximately $55,264,000 as of December 31, 1993).
The amount of the unrecognized deferred tax liability for these unremitted
earnings was $3,144,000 as of December 31, 1993.
F-14
<PAGE>
<PAGE>
The provision for income taxes differs from the amount computed by applying
the U.S. federal income tax rates of 35% in 1993, and 34% in 1992 and 1991 to
income (loss) before income taxes and cumulative effect of accounting change
for the following reasons (in thousands of dollars):
<TABLE>
<CAPTION>
Year Ended
------------------------------------------
December 31, December 25, December 27,
1993 1992 1991
------------------------------------------
<S> <C> <C> <C>
U.S. federal income tax at
statutory rate $(39,479) $ 9,192 $ 34,752
Increase (decrease) in income
taxes resulting from:
Increase (decrease) in
unrecognized net operating
losses and future deductions 36,989 (7,746) (47,642)
Nondeductible items 10,390 4,746 2,867
Effect of Puerto Rico operations (4,936) (6,541) (5,947)
State income taxes, net of
federal benefits 759 378 6,603
Foreign tax rate and translation
differentials 682 6,436 4,638
Restructuring of international
subsidiaries 9,758 15,735
Capital loss carryover (2,368)
Other, net 595 1,477 3,762
------- -------- -------
Income tax expense attributable to
income (loss) before cumulative
effect of accounting change $ 5,000 $ 17,700 $ 12,400
======= ======= =======
</TABLE>
As of December 31, 1993, StorageTek had U.S. net operating loss carryforwards
of approximately $500,000,000 which expire in the years 2000 through 2006. As
a result of a change in ownership of the Company's capital stock, as defined
under Section 382 of the Internal Revenue Code, the Company is limited to
using approximately $106,000,000 of its operating loss carryforwards in each
taxable year, with unused amounts (approximately $310,000,000 as of December
31, 1993) being added to the annual limitations in future years.
Additionally, approximately $10,000,000 of the Company's net operating loss
carryforwards relate to acquired losses of Amperif which are subject to
substantial limitations. Approximately $31,000,000 of the Company's net
operating loss carryforwards relate to tax deductions associated with stock
option plans and, accordingly, the related benefit will be recognized as an
adjustment to additional paid-in capital when realized.
StorageTek is also subject to alternative minimum tax and, as such, has
alternative minimum tax net operating loss carryforwards of approximately
$267,000,000 and alternative minimum tax credit carryforwards of approximately
$15,000,000.
StorageTek's federal income tax returns for the years 1985 through 1987 have
been examined by the Internal Revenue Service (the IRS) and the Company's
federal income tax returns for the years 1988 through 1990 are currently under
examination. The IRS has proposed adjustments of approximately $360,000,000.
The Company agrees with approximately $70,000,000 of these adjustments. The
remaining adjustments relate principally to tax accruals for post-petition
interest, professional fees and other deductions associated with distributions
made to implement the Company's reorganization under Chapter 11 of the U.S.
Bankruptcy Code. The Company is protesting these remaining adjustments
through the IRS appeals process. Although the Company believes it has
meritorious legal defenses to these
F-15
<PAGE>
<PAGE>
proposed adjustments, to the extent it is unsuccessful in sustaining these
items, the Company's net operating loss carryforwards and resulting future
cash savings from utilizing such carryforwards, will be reduced accordingly.
NOTE 9 - SALE OF PREFERRED AND COMMON STOCK
In March 1993, the Company completed a public offering of 3,450,000 shares of
$3.50 Convertible Exchangeable Preferred Stock, $.01 par value (Preferred
Stock), at a price of $50.00 per share. The proceeds of the Preferred Stock
offering, after deducting all associated costs, were $166,479,000. Dividends
on the Preferred Stock are cumulative and payable quarterly in arrears at an
annual rate of $3.50 per share, when and as declared by the Company's Board of
Directors. The liquidation value of each share of Preferred Stock is $50.00,
plus unpaid dividends.
The Preferred Stock is convertible at any time at the option of the holder,
unless previously redeemed, into shares of StorageTek common stock at an
initial conversion rate of 2.128 shares of common stock for each share of
Preferred Stock (equivalent to a conversion price of $23.50 per share of
common stock). The Preferred Stock is redeemable for cash at any time on and
after March 15, 1996, in whole or in part, at the option of the Company,
initially at a redemption price of $52.45 per share, and thereafter at prices
decreasing ratably annually to $50.00 per share on and after March 15, 2003,
plus accrued and unpaid dividends. The Preferred Stock is also exchangeable,
in whole but not in part, at the option of the Company on any dividend payment
date beginning March 15, 1995, for 7% Convertible Subordinated Debentures due
2008 at the rate of $50.00 principal amount of debentures for each share of
Preferred Stock. The debentures contain conversion and optional redemption
provisions substantially identical to those of the Preferred Stock, and are
subject to a mandatory sinking fund.
In May 1991, the Company completed a public offering of 3,450,000 shares of
common stock at a price of $41.00 per share. The proceeds of the common stock
offering, after deducting all associated costs, were $135,362,000.
NOTE 10 - EMPLOYEE BENEFIT PLANS, OPTIONS AND WARRANTS
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's 1987 Employee Stock Purchase Plan (Purchase Plan), as
amended, employees may be offered the right to collectively purchase a maximum
of 150,000 shares of StorageTek's common stock, plus any remaining shares from
earlier offering periods, in six-month consecutive offering periods through
April 30, 1995. Eligible employees may contribute up to 10% of their pay
toward purchase of StorageTek common stock at a price equal to 85% of the
lower of the market price on the first or the last day of each offering
period. Proceeds received from the issuance of shares are credited to
stockholders' equity in the fiscal year the shares are issued. The Company
issued 446,699, 320,082 and 624,845 shares of StorageTek common stock under
the Purchase Plan in 1993, 1992 and 1991, respectively.
F-16
<PAGE>
<PAGE>
STOCK OPTION AND RESTRICTED STOCK PLANS
As of December 31, 1993, the Company had an aggregate of 3,337,698 common
shares reserved for issuance under its employee equity plans (Employee Plans).
These plans provide for the issuance of common shares pursuant to stock option
exercises, restricted stock awards and other equity awards. There were
502,732 shares available for grant under the Employee Plans as of December 31,
1993.
Employee stock options are granted under the Employee Plans at the fair market
value of the common stock on the date of grant and generally vest over three
years. Options granted under the Employee Plans must be exercised no later
than 10 years from the date of grant.
The Company awarded a total of 139,144 and 95,338 shares of common stock under
its Employee Plans in 1992 and 1991, respectively, pursuant to restricted
stock agreements, at a price per share equal to par value. The restricted
stock generally vests upon the participants' retirement; however, the vesting
period can be accelerated if, in the Board of Directors' view, the Company
achieves certain pre-established financial goals. The restricted stock may
not be transferred in any manner until such time as it is vested. If a
participant ceases employment prior to the time of vesting, the stock must be
resold to the Company at par value. Unearned compensation, which is
determined as the difference between par value and market value on the date of
the award, is charged to stockholders' equity and amortized to expense over
the anticipated vesting period of the stock.
The Company also has a Nonemployee Director Stock Option Plan (Director Plan)
under which the Company grants stock options to nonemployee directors for the
purchase of an aggregate maximum of 350,000 shares of common stock. All
Director Plan stock options are granted at the fair market value of the common
stock on the date of grant. There were 100,000 shares available for grant
under the Director Plan as of December 31, 1993.
The following summarizes information with respect to options granted under the
Company's Employee and Director Plans:
<TABLE>
<CAPTION>
Number of Shares Option Price Per Share
------------------------------------------
<S> <C> <C>
Outstanding, December 27, 1991 2,351,990 $ 0.93 - $49.00
Granted 314,370 17.28 - 75.50
Exercised (450,929) 0.93 - 36.76
Cancelled or expired (64,210) 0.93 - 49.00
--------- ----------------
Outstanding, December 25, 1992 2,151,221 0.93 - 75.50
Granted 1,065,775 17.28 - 37.63
Exercised (72,552) 0.93 - 35.51
Cancelled or expired (79,478) 0.93 - 64.25
--------- ----------------
Outstanding, December 31, 1993 3,064,966 $ 3.43 - $75.50
========= ================
Exercisable, December 31, 1993 1,652,554 $ 3.43 - $75.50
========= ================
</TABLE>
F-17
<PAGE>
<PAGE>
WARRANTS AND DEFERRED PURCHASE RIGHTS
Warrants to purchase 5,013 and 64,294 shares of StorageTek common stock were
exercised in 1993 and 1991, respectively, at prices of $9.97 and $19.29 per
share. In connection with the Amperif merger, the Company assumed Amperif's
obligations with respect to warrants for the purchase of 59,778 shares of
common stock at a price of $16.73 per share which expire in 1995, and warrants
for the purchase of 324,000 shares of common stock at a price of $30.86 per
share which expire in 1996. All of these warrants were outstanding as of
December 31, 1993.
In connection with the Edata acquisition in 1992, the Company granted deferred
purchase rights for 101,000 shares of common stock with a purchase price per
share equal to par value. The deferred purchase rights vest upon the
attainment of certain financial goals or upon the passage of time. As of
December 31, 1993, deferred purchase rights for 66,663 shares of the Company's
common stock remained outstanding.
EMPLOYEE PROFIT SHARING AND THRIFT PLAN
Under StorageTek's Profit Sharing and Thrift Plan, StorageTek contributions
are contingent upon realization of profits by the Company which, at the sole
discretion of the Board of Directors, are adequate to justify a corporate
contribution. No contributions from StorageTek were authorized for 1993 and
1992. StorageTek authorized contributions of $7,000,000 for 1991.
NOTE 11 - STOCKHOLDER RIGHTS PLAN
In 1990, the Board of Directors adopted a new Stockholder Rights Plan (Rights
Plan). The Rights Plan is designed to deter coercive or unfair takeover
tactics and to prevent an acquiring entity from gaining control of the Company
without offering a fair price to all of the Company's shareholders.
Each right would entitle the holder of the Company's common stock to purchase
one one-hundredth of a share of Series B Junior Participating Preferred Stock
at an exercise price of $150, subject to adjustment to prevent dilution. The
rights are evidenced by the common stock certificates and will not separate
from the common stock until the earlier of (i) 20 days following the date on
which any person or entity acquires beneficial ownership of 15% or more of the
common stock (an Acquiring Person) and the right of redemption has not been
reinstated; or (ii) 10 days after a public announcement of a tender or
exchange offer by any person or entity if upon consummation such person would
be an Acquiring Person. Further, upon the occurrence of certain events
described below, the rights generally entitle each right holder (except the
Acquiring Person) to purchase that number of shares of the Company's common
stock which equals the $150 exercise price of the right divided by one-half of
the current market price of the common stock. Those events generally include
(i) 20 days after any person or entity becomes an Acquiring Person; and (ii) if
any person or entity becomes an Acquiring Person and thereafter, (a) the
Company is merged with or into an Acquiring Person and the Company's common
stock is changed, converted or exchanged; or (b) 50% or more of the Company's
assets or earning power is sold; or (c) an Acquiring Person engages in one or
more "self-dealing" transactions as described in the Rights Agreement.
F-18
<PAGE>
<PAGE>
The Company is generally entitled to redeem the rights for $.01 per right at
any time prior to the earlier of the date on which any person or entity
becomes an Acquiring Person or August 31, 2000. The rights will expire on
August 31, 2000, unless redeemed or exchanged earlier by the Company pursuant
to the Rights Plan.
NOTE 12 - LITIGATION
In the second quarter of 1992, seven purported class actions were filed in the
U.S. District Court for the District of Colorado against the Company and
certain of its officers and directors. These actions were subsequently
consolidated into a single action, and a consolidated amended complaint was
filed on July 7, 1992, seeking an unspecified amount of damages. The
complaint alleged that the defendants failed to properly disclose the status
of development of a new product and the Company's business prospects. The
complaint further alleged that the individual defendants sold shares of the
Company's common stock based on material inside information, in violation of
federal securities and common law. Following the court's ruling on the
defendants' motion to dismiss, a ruling which dismissed several of the fraud
and insider trading claims against a number of the individual defendants, the
class plaintiffs filed a second, and then a third, amended complaint which
renewed many of the dismissed fraud and insider trading claims and sought to
extend the class period to November 9, 1992. In response to the defendants'
second motion to dismiss, the court refused to extend the class period, but
did not dismiss any of the claims as pleaded in the third amended complaint.
The court has certified a class consisting (with certain exceptions) of those
who purchased StorageTek's common stock and related securities from December
23, 1991, to August 8, 1992. Depositions of Company employees and other
potential witnesses commenced in August 1993 and are expected to continue into
1994. In addition to the class action, a shareholder derivative action was
filed in the second quarter of 1992 based on substantially similar factual
allegations and the derivative action has been consolidated with the class
action. The Company believes the suits are without merit and intends to
vigorously defend against them. There can be no guarantee; however, that the
cases will result in decisions favorable to the Company. In the event of an
adverse decision, neither the amount nor the likelihood of any potential
liability which might result is reasonably estimable. In the derivative
action, any recovery would be the property of the Company.
In June 1993, the Company received a subpoena from the Denver Regional Office
of the Securities and Exchange Commission (the Commission) to produce certain
documents in connection with the Commission's order for an investigation of
possible violations of federal disclosure, reporting and insider trading
requirements. The requests by the Commission relate principally to
announcements and related disclosures concerning the status of development of
a new product in 1992.
In April 1992, Unisys Corporation (Unisys) filed a suit against Amperif and in
September 1993, Unisys filed additional suits against both Amperif and the
Company. All of the suits relate to patents (seven patents in all) which
Unisys alleges are violated by certain Amperif and StorageTek disk products.
Unisys has not specified the extent of damages it claims, but has asked the
court to enjoin further infringement. On October 18, 1993, StorageTek and
Amperif filed an action for declaratory relief against Unisys with respect to
some of the same patents, seeking the court's declaration that the patents are
not infringed and are invalid. The cases are pending in U.S. District Courts
for the Districts of Pennsylvania and Colorado. On October 19, 1993, Amperif
became a wholly owned subsidiary of StorageTek (see Note 2). In November
1993, Amperif and the Company moved to consolidate and transfer the
Pennsylvania cases to California. On December 29, 1993, the Pennsylvania
court held a
F-19
<PAGE>
<PAGE>
hearing on the consolidation and transfer, but has not issued a decision. The
Company believes that neither the Company's nor Amperif's products infringe the
Unisys patents. Further, the Company believes that there are questions as to the
validity of many of the Unisys patents, and that the conduct of Unisys in its
dealings with Amperif may make the patents unenforceable. There can be no
guarantee; however, that the cases will result in decisions favorable to the
Company. In the event of an adverse decision, neither the amount nor the
likelihood of any potential liability which might result is reasonably
estimable.
On January 24, 1994, Stuff Technology Partners II, a Colorado Limited
Partnership (Stuff), filed suit in Boulder County, Colorado, District Court
against the Company and certain subsidiaries. The suit alleges that the
Company breached a 1990 settlement agreement which had resolved earlier
litigation between the parties. The suit seeks injunctive relief and damages
in the amount of $2,400,000,000. The Company believes that the claims in the
suit are bound by the 1990 settlement between the Company and Stuff, the
claims are without merit, and the Company intends to vigorously defend against
them. The Company has not yet answered the complaint and no other proceedings
have taken place.
In addition, the Company is involved in various other less significant legal
proceedings. The outcomes of these legal proceedings are not expected to have
a material adverse effect on the financial condition or operations of the
Company based on the Company's current understanding of the relevant facts and
law.
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
A significant portion of the Company's revenue is generated by its
international operations. As a result, the Company's operations and financial
results can be materially affected by changes in foreign currency exchange
rates. In an attempt to mitigate the impact of foreign currency fluctuations,
the Company employs a hedging program which utilizes foreign currency options
and forward exchange contracts.
The Company utilizes foreign currency options, generally with maturities of
less than one year, to hedge its exposure to exchange-rate fluctuations in
connection with anticipated sales revenue from its international operations.
Realized and unrealized gains and losses on the options are deferred and
subsequently recognized as an adjustment to the associated sales revenue on
the Consolidated Statement of Operations. The Company held foreign currency
options with a face value of approximately $117,100,000 as of December 31,
1993, and $100,600,000 as of December 25, 1992. Unrealized gains, net of
hedging costs, of approximately $1,400,000 as of December 31, 1993, and
$5,400,000 as of December 25, 1992, existed in connection with option
contracts. The fair value of StorageTek's foreign currency options
is estimated by obtaining quotes from banks or brokers.
The Company also utilizes forward exchange contracts, generally with
maturities of less than two months, to hedge its exposure to exchange-rate
fluctuations in connection with monetary assets and liabilities held in
foreign currencies. The carrying amounts of these forward foreign exchange
contracts equal their fair value as the contracts are adjusted at each balance
sheet date for changes in exchange rates. Realized and unrealized gains and
losses on the forward contracts are recognized currently within marketing,
general, administrative and other income and expense, net, on the Consolidated
Statement of Operations as adjustments to the foreign exchange gains and
losses on the translation of net monetary assets. The Company held forward
foreign exchange contracts with a face value of approximately $94,200,000 as
of December 31, 1993, and $110,200,000 as of December 25, 1992.
F-20
<PAGE>
<PAGE>
The forward exchange contracts and foreign currency options do not subject the
Company to risk due to exchange rate movements as gains and losses on the
contracts offset gains and losses on the transactions being hedged. The
foreign currency hedging instruments utilized by StorageTek are generally
traded over the counter. Further, the Company does not believe there is
significant credit risk associated with these contracts as the counterparties
to these contracts consist of major international financial institutions, and
the Company limits the amount of the contracts it enters into with any one
party.
In December 1992, the Company received proceeds of $50,022,000 as a result of
an agreement with a financial institution to sell, on a limited recourse
basis, lease receivables. A gain of $1,678,000 was recognized in 1992 related
to the sale of these receivables. As a result of the agreement, net
investment in sales-type leases, as shown on the Consolidated Balance Sheet,
is reported net of lease receivables remaining to be collected of $30,917,000
as of December 31, 1993, and $48,442,000 as of December 25, 1992. The Company
remains contingently liable for up to $10,369,000 of the outstanding balance
pursuant to the recourse provisions as of December 31, 1993. Based upon the
Company's experience, no material credit risk exists under the recourse
provisions of the agreement.
Other financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company has a cash investment policy which generally
restricts investments to ensure preservation of principal and maintenance of
liquidity. Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Company's customer
base, and their dispersion across many different industries and geographies. As
of December 31, 1993, the Company had no significant concentrations of credit
risk.
NOTE 14 - RESTRUCTURING AND OTHER CHARGES
SUMMARY
In 1993, the Company recognized restructuring and other charges totaling
$74,772,000. Restructuring charges, which totaled $69,250,000, principally
relate to the reorganization of the Company's midrange business. Merger and
consolidation expenses of $5,522,000 in 1993 and $5,104,000 in 1991 were also
recognized in connection with the mergers with Amperif and Datacomp,
respectively.
The restructuring charge recognized in the third quarter of 1993 was a direct
result of the adoption by the Company of a formal action plan for restructuring
its midrange business. This action plan was developed by the Company's
management and approved by the Company's Board of Directors in September 1993.
The restructuring charges recorded were specific, incremental and direct costs
resulting from the restructuring plan and were based upon the facts available as
of the end of the third quarter of 1993. Most of the actions called for in the
plan were implemented in the fourth quarter of 1993.
BACKGROUND AND ACTION PLAN FOR RESTRUCTURING
In November 1991, StorageTek merged with XL/Datacomp, Inc. (Datacomp), a full-
service distributor of midrange computer systems and hardware support services.
Datacomp specialized in bundling IBM AS/400 computers with various third-party
manufactured data storage products to provide its customers with systems
solutions. StorageTek viewed the
F-21
<PAGE>
<PAGE>
merger as an opportunity to expand into the midrange marketplace by combining
anticipated StorageTek midrange data storage products with Datacomp's
customer base and channels of distribution.
During 1992 and the first half of 1993, Datacomp's revenue and profitability
declined as a result of delays in the availability of StorageTek manufactured
products and steep price declines for midrange DASD products. In addition to
Datacomp's past financial results not meeting StorageTek's expectations,
preliminary forecast information also became available during the third quarter
of 1993 in conjunction with the preparation of StorageTek's 1994 operating plan.
This information indicated that a significant improvement in the Company's
midrange business prospects was unlikely given the existing midrange business
structure.
In July 1993, StorageTek formed a team to review Datacomp's operations with the
stated charter of returning Datacomp to profitability. Between July and
September 1993, this team held interviews and performed site visits in order to
identify opportunities to improve profitability. The team developed a
restructuring plan (the "Action Plan") which identified the key elements of the
restructuring plan, specific steps to be taken in order to achieve these key
elements and the proposed timetable for completing each step. The Action Plan
was reviewed and approved by StorageTek's Board of Directors in September 1993
and included the following key elements:
. Improve profit margins by refocusing Datacomp's midrange product line and
downsizing its service operations. This included: (1) refocusing efforts and
remaining resources in the marketing and leasing of StorageTek manufactured
products which were expected to yield higher profit margins, (2) de-
emphasizing or eliminating the marketing and leasing of non-StorageTek
manufactured products and existing StorageTek manufactured products which
were not providing a satisfactory profit margin, and (3) downsizing the
midrange customer service base to eliminate unprofitable or marginally
profitable service accounts.
. Reduce operating expenses through headcount reductions. These reductions
could be achieved by: (1) consolidating various marketing and customer
service operations, (2) downsizing the midrange organization to reflect the
intensely competitive marketplace and expected near-term business prospects,
and (3) discontinuing non-strategic business operations.
F-22
<PAGE>
<PAGE>
COMPONENTS OF RESTRUCTURING CHARGE
Following is an itemization of the components included within the Company's 1993
restructuring charge (in millions of dollars):
<TABLE>
<CAPTION>
Non-cash Asset
Writedowns Accruals Total
--------------------------------------
<S> <C> <C> <C>
Residual interests associated with
lease receivables $19.4 $19.4
Inventory 13.5 13.5
Goodwill 12.8 12.8
Severance $8.5 8.5
Lease terminations and fixed assets 1.0 3.5 4.5
Spare parts for field service 2.7 2.7
Lease receivables 3.0 3.0
Advance to supplier 2.0 2.0
Consolidation of United Kingdom subsidiaries 1.5 1.5
Other 1.4 1.4
---- ---- ----
$57.3 $12.0 69.3
==== ====
Merger and consolidation charges associated
with merger with Amperif Corp. 5.5
----
Total restructuring and other charges $74.8
====
</TABLE>
Of the restructuring accruals of $12.0 million established at the time of the
restructuring, approximately $5.6 million remained to be paid as of December 31,
1993 - consisting of anticipated future severance payments of $2.9 million and
anticipated future lease payments of approximately $2.7 million.
The writedown of lease residual interests resulted from StorageTek's Action Plan
which included a decision to shift Datacomp's efforts away from leasing
activities associated with other manufacturers' equipment in favor of marketing
new StorageTek equipment, and as a result of the reduction in headcount. This
decision led the Company to conclude that it would be unable to realize the
recorded lease residual values in the future as a result of the reduced
emphasis on these leasing activities.
The inventory writedowns primarily related to a reduction in the market value of
existing product inventory resulting from the Action Plan which included a
decision to place greater emphasis on the marketing and leasing of new
StorageTek products which were anticipated to carry higher profit margins and
the decision to discontinue the manufacture of certain marginally profitably
midrange products. A portion of the writedowns also related to the immediate
liquidation of inventory associated with a small retail computer marketing
subsidiary which the Company discontinued.
The goodwill writedowns resulted from forecast information received in
connection with the preparation of the Company's 1994 operating plan which
indicated that two midrange tape products, which had associated capitalized
goodwill, would fall short of previous plans and not provide the originally
anticipated profit margins. As a result of the decision to reduce the sales
force and focus the remaining midrange sales force away from these products
pursuant to the Action Plan, it was concluded that permanent impairments of the
associated goodwill had resulted from the restructuring.
F-23
<PAGE>
<PAGE>
The severance charges resulted from headcount reductions associated with
midrange executive management, midrange marketing personnel, and midrange
customer service personnel. The accrual consisted principally of estimated
future severance payments, but also included $825,000 of relocation costs for
continuing employees as part of the consolidation of the customer service
organizations.
The Company recognized a charge of approximately $4.5 million associated with
the cost of lease terminations; the write-off of carrying values for associated
leasehold improvements; and for losses on the disposal of fixed assets. These
actions were taken as part of the Action Plan to reduce operating expenses by
consolidating, downsizing or eliminating operations associated with StorageTek's
midrange business.
A charge of approximately $2.7 million was recognized in connection with the
writedown of the carrying value of midrange spare parts for field service. The
Action Plan concluded that in order to improve service profit margins, a
significant increase in midrange customer service billing rates was necessary in
order to increase long-term profitability. The writedown reflects anticipated
excess parts expected to result from the decrease in the customer service base.
An additional reserve of approximately $3 million was established for lease
receivables expected to become uncollectible as a result of the decision to
downsize the midrange customer service base. An advance of approximately $2
million was written-off as a result of the decision to terminate the
relationship with a supplier of midrange products. Various costs aggregating
$1.5 million were also incurred in connection with the consolidation of separate
midrange and large systems operations in the United Kingdom.
NOTE 15 - OPERATIONS OF BUSINESS SEGMENTS AND IN GEOGRAPHIC AREAS
BUSINESS SEGMENTS
StorageTek operates in one principal business segment - the design,
manufacturing, marketing, and servicing of information storage and retrieval
subsystems for high-performance and midrange computer systems, as well as
computer networks.
F-24
<PAGE>
<PAGE>
GEOGRAPHIC AREAS
StorageTek operates principally in the United States, Europe, Canada,
Australia and Japan. Operations in Canada, Australia and Japan individually
account for less than 10% of the consolidated revenue and identifiable assets,
and have been combined and shown in the table below as "Other." U.S.
operating profit includes profit recognized in the United States on transfers
to other geographic areas. Information regarding each geographic area on an
unconsolidated basis for each of the last three years is shown below (in
thousands of dollars):
<TABLE>
<CAPTION>
Consolidated
1993 United States Europe Other Eliminations Total
- - - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers $ 938,613(1) $357,208 $108,931 $1,404,752
Transfers between areas 192,355 623 $(192,978)
--------- ------- ------- -------- ---------
Total revenue $1,130,968 $357,831 $108,931 $(192,978) $1,404,752
========= ======= ======= ======== =========
Operating profit (loss) $ (64,290) $(39,363) $ 3,869 $ (3,076) $ (102,860)
========= ======= ======= ========
Interest income (expense), net 11,246
General corporate expenses (21,182)(2)
---------
Loss before income taxes $ (112,796)
=========
Identifiable assets $1,557,720 $363,291 $ 71,875 $(408,746) $1,584,140
========= ======= ======= ========
General corporate assets 208,869
---------
Total assets $1,793,009
=========
</TABLE>
<TABLE>
<CAPTION>
Consolidated
1992 United States Europe Other Eliminations Total
- - - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers $ 977,574(1) $457,511 $115,860 $1,550,945
Transfers between areas 211,506 167 $(211,673)
--------- ------- ------- -------- ---------
Total revenue $1,189,080 $457,678 $115,860 $(211,673) $1,550,945
========= ======= ======= ======== =========
Operating profit $ 6,439 $ 327 $ 10,970 $ 9,197 $ 26,933
========= ======= ======= ========
Interest income (expense), net 18,465
General corporate expenses (18,364)
---------
Income before income taxes $ 27,034
=========
Identifiable assets $1,608,044 $431,427 $ 61,876 $(441,239) $1,660,108
========= ======= ======= ========
General corporate assets 78,935
---------
Total assets $1,739,043
=========
</TABLE>
F-25
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated
1991 United States Europe Other Eliminations Total
- - - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers $1,071,601(1) $415,839 $132,080 $1,619,520
Transfers between areas 282,738 $(282,738)
--------- ------- ------- -------- ---------
Total revenue $1,354,339 $415,839 $132,080 $(282,738) $1,619,520
========= ======= ======= ======== =========
Operating profit $ 84,285 $ 36,776 $ 7,915 $ (21,262) $ 107,714
========= ======= ======= ========
Interest income (expense), net 16,395
General corporate expenses (21,897)(2)
---------
Income before income taxes $ 102,212
=========
Identifiable assets $1,563,239 $331,524 $ 73,310 $(356,204) $1,611,869
========= ======= ======= ========
General corporate assets 123,782
---------
Total assets $1,735,651
=========
</TABLE>
(1) U.S. revenue from unaffiliated customers includes international
export sales to customers (principally in Europe) of $52,797,000 in
1993; $63,458,000 in 1992; and $82,363,000 in 1991.
(2) General corporate expenses include merger and consolidation
expenses of $5,522,000 in 1993 and $5,104,000 in 1991.
Sales between geographic areas are generally priced to reflect market value
and to provide an appropriate gross margin to the affiliate. Operating
profit, for the purpose of this footnote, consists of total revenue less
operating expenses, and excludes interest income, interest expense and general
corporate expenses for all years presented, and the cumulative effect of the
accounting change in 1993. Identifiable assets are those assets that are
associated with the operations in each geographic area. General corporate
assets are primarily cash and short-term investments not used in the
operations of the individual geographic regions.
F-26
<PAGE>
<PAGE>
NOTE 16 - QUARTERLY INFORMATION (UNAUDITED)
The following quarterly results of operations for the years ended December 31,
1993, and December 25, 1992, have been restated to account for the merger with
Amperif (see Note 2) as a pooling of interests (in thousands of dollars,
except per share amounts):
<TABLE>
<CAPTION>
Quarter Ended 1993
------------------------------------------------
March 26 June 25 September 24 December 31
------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $338,992 $358,503 $ 307,058 $400,199
Cost of revenue 224,505 249,935 228,407 263,066
------- ------- -------- -------
Gross profit 114,487 108,568 78,651 137,133
Operating expenses 109,837 115,670 132,582 130,020
Restructuring and other
charges 363 69,537 4,872
------- ------- -------- -------
Operating profit (loss) 4,650 (7,465) (123,468) 2,241
Interest (income) expense,
net (2,367) (2,784) (2,491) (3,604)
------- ------- -------- -------
Income (loss) before
income taxes and
accounting change 7,017 (4,681) (120,977) 5,845
Provision for income
taxes 3,000 600 1,900 (500)
------- ------- -------- -------
Income (loss) before
accounting change 4,017 (5,281) (122,877) 6,345
Cumulative effect of
accounting change 40,000
------- ------- -------- -------
Net income (loss) $ 44,017 $ (5,281) $(122,877) $ 6,345
======= ======= ======== =======
Earnings (loss) per
common share:
Primary:
Income (loss) before
accounting change $ 0.08 $ (0.19) $ (2.94) $ 0.08
Cumulative effect of
accounting change 0.92
------- ------- -------- -------
$ 1.00 $ (0.19) $ (2.94) $ 0.08
======= ======= ======== =======
Fully diluted:
Income before accounting
change $ 0.13
Cumulative effect of
accounting change 0.81
-------
$ 0.94 N/A N/A N/A
======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended 1992
------------------------------------------------
March 27 June 26 September 25 December 25
------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $339,369 $395,826 $394,479 $421,271
Cost of revenue 225,241 278,815 270,755 299,388
------- ------- -------- -------
Gross profit 114,128 117,011 123,724 121,883
Operating expenses 108,151 113,520 122,237 124,269
------- ------- -------- -------
Operating profit (loss) 5,977 3,491 1,487 (2,386)
Interest (income) expense,
net (5,877) (5,016) (4,474) (3,098)
------- ------- -------- -------
Income before income taxes 11,854 8,507 5,961 712
Provision for income taxes 2,000 3,600 1,400 10,700(a)
------- ------- -------- -------
Net income (loss) $ 9,854 $ 4,907 $ 4,561 $ (9,988)
======= ======= ======== =======
Earnings (loss) per
common share:
Net income (loss) $ 0.23 $ 0.11 $ 0.11 $ (0.24)
======= ======= ======== =======
</TABLE>
(a) Provision for income taxes for the quarter ended December 25, 1992,
includes a charge of $9,200,000 related to taxable income earned in
the first nine months of 1992. This adjustment in the fourth quarter
of 1992 was necessitated by differences between the Company's
forecasted and actual effective tax rate for 1992.
F-27
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
FOR STORAGE TECHNOLOGY CORPORATION
----------------------------------
To the Stockholders and
Board of Directors of
Storage Technology Corporation
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements listed in the index appearing under Item
14.(a) 1. and 2. on page 22 present fairly, in all material respects, the
financial position of Storage Technology Corporation and its subsidiaries at
December 31, 1993 and December 25, 1992, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993, in conformity with generally accepted accounting principles. 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 did not audit the consolidated statements of operations, of
cash flows and of changes in stockholders' equity of XL/Datacomp, Inc. for the
year ended December 31, 1991. These statements reflect total revenue of
$333,808,000 for the year ended December 31, 1991. Those statements were
audited by other auditors whose report thereon has been furnished to us, and
our opinion expressed herein, insofar as it relates to the amounts included
for XL/Datacomp, Inc., is based solely on the report of the other auditors.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the report of the other auditors provide a
reasonable basis for the opinion expressed above.
As discussed in Note 8 to the consolidated financial statements, the Company
changed its method of accounting for income taxes to adopt Statement of
Financial Accounting Standards No. 109 in 1993. We concur with this change in
accounting.
PRICE WATERHOUSE
Denver, Colorado
February 17, 1994
F-28
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
FOR XL/DATACOMP, INC.
---------------------
To the Board of Directors
of Storage Technology Corporation
We have audited the consolidated statements of operations and cash flows of
XL/Datacomp, Inc. and subsidiaries for the year ended December 31, 1991, and
the consolidated statement of stockholder's equity for the fifteen month
period ended December 31, 1991 (not presented separately herein). In
connection with our audit of the consolidated financial statements, we also
have audited the financial statement schedules (not presented separately
herein). These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of XL/Datacomp, Inc. and subsidiaries for the periods specified above,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
As discussed in Note 4 to the Company's consolidated financial statements, the
Company changed its method of accounting for income taxes in the year ended
December 31, 1991.
Chicago, Illinois KPMG PEAT MARWICK
January 31, 1992
F-29
<PAGE>
<PAGE>
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
-----------------------------------------------
SCHEDULE VIII
-------------
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
----------------------------------------------
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Additions -
Charged to
Balance Cost of Deductions - Balance
Beginning Service Spare Parts End
of Year and Rental Written Off of Year
---------------------------------------------------
<S> <C> <C> <C> <C>
Amortization of spare
parts for customer
services:
For the year ended:
December 31, 1993 $48,268 $20,208 $13,159 $55,317
====== ====== ====== ======
December 25, 1992 $41,896 $20,746 $14,374 $48,268
====== ====== ====== ======
December 27, 1991 $49,189 $14,216 $21,509 $41,896
====== ====== ====== ======
<CAPTION>
Deductions -
Accounts
Additions - Receivable
Balance Charged to Written Off Balance
Beginning Cost and Net of End
of Year Expenses Recoveries of Year
---------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts on accounts
receivable:
For the year ended:
December 31, 1993 $11,949 $ 7,228 $ 6,725 $12,452
====== ====== ====== ======
December 25, 1992 $10,733 $10,987 $ 9,771 $11,949
====== ====== ====== ======
December 27, 1991 $ 8,259 $ 4,494 $ 2,020 $10,733
====== ====== ====== ======
<CAPTION>
Additions -
Balance Charged to Deductions - Balance
Beginning Cost and Inventory End
of Year Expenses Written Off of Year
---------------------------------------------------
<S> <C> <C> <C> <C>
Inventory reserves:
For the year ended:
December 31, 1993 $24,147 $33,554 $21,796 $35,905
====== ====== ====== ======
December 25, 1992 $17,723 $18,703 $12,279 $24,147
====== ====== ====== ======
December 27, 1991 $18,163 $15,022 $15,462 $17,723
====== ====== ====== ======
</TABLE>
F-30
<PAGE>
<PAGE>
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
-----------------------------------------------
SCHEDULE IX
-----------
SHORT-TERM BORROWINGS
---------------------
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Maximum Average Average
Interest Amount Amount Interest
Balance Rate at Outstanding Outstanding Rate
End of End of During the During the During the
Category Year Year Year Year Year (a)
- - - ---------- ------ ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1993:
Amounts payable to
banks under
credit agreements $ 0 N/A $ 4,500 $ 1,794(b) 8.5%
Amounts payable to
financial services
company under a
working capital
financing
arrangement $ 0 N/A $ 5,248 $ 1,921(c) 12.3%
December 25, 1992:
Amounts payable to
banks under credit
agreements $ 2,300 8.8% $49,824 $10,560(b) 7.5%
Amounts payable to
financial services
company under a
working capital
financing
arrangement $ 5,220 11.5% $ 5,325 $ 1,627(c) 15.9%
December 27, 1991:
Amounts payable to
banks under credit
agreements $28,814 7.3% $93,637 $34,196(b) 9.7%
</TABLE>
(a) The weighted average interest rate during the period was calculated by
dividing actual interest expense for the year by the weighted average
amount outstanding during the period.
(b) The weighted average amount outstanding during the period was calculated
based on the total of the daily balance outstanding divided by the number
of days in the year.
(c) The weighted average amount outstanding during the period was calculated
based on the total of the month-end balances divided by 12.
F-31
<PAGE>
