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FORM 10-K
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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
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
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title on which Registered
- --------------------------------------- -------------------------
Common Stock ($.10 par value) including
related preferred stock purchase rights New York Stock Exchange
8% Convertible Subordinated Debentures
due 2015 New York Stock Exchange
$3.50 Convertible Exchangeable
Preferred Stock New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] YES [ ] NO
As of February 24, 1994, there were 43,205,432 shares of common stock of the
registrant outstanding. The aggregate market value of voting stock held by
nonaffiliates of the registrant was $1,520,629,184 based on the last reported
sale price of the common stock of the registrant on the New York Stock
Exchange's consolidated transactions reporting system on February 24, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of its fiscal year ended
December 31, 1993. Portions of the registrant's definitive proxy statement
are incorporated by reference into Part III of this Form 10-K.
Page 2
PART I
ITEM 1. BUSINESS
General
- -------
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.
Page 3
Principal Products
- ------------------
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
--------------------------
1993 1992 1991
---------------------------------------------
$ million % $ million % $ million %
--------- --- --------- --- --------- ---
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
======= ===== ======= ===== ======= =====
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), 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
Page 4
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 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
Page 5
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.
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 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.
Page 6
Marketing, Distribution and Services
- ------------------------------------
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.
Manufacturing and Materials
- ---------------------------
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.
Page 7
Competition
- -----------
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
- -----------------------
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.
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.
Page 8
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
- -----------
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 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
- -------------
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.
Page 9
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.
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. In the Palm Bay - Melbourne, Florida area,
StorageTek owns approximately 199,000 square feet. 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 late 1994
approximately 180,000 square feet of manufacturing and engineering facilities
currently under construction in Toulouse, France.
ITEM 3. LEGAL PROCEEDINGS
Additional information regarding other legal proceedings is incorporated by
reference from Note 12 to the consolidated financial statements identified in
Part III, Item 14, of this Form 10-K.
In October 1992, Cigna Insurance Company (Cigna), the issuer of the Company's
primary director's and officer's liability insurance policy, filed suit
against the Company and its directors and officers seeking to rescind the
policy based on a clerical error. The parties subsequently settled this
matter in the fourth quarter of 1993.
StorageTek, via its predecessor-in-interest, Documation Inc., has been
identified as a potentially responsible party with respect to real property
located in Orlando, Florida. The Environmental Protection Agency has agreed
to settle the matter for approximately
Page 10
$96,000 plus the Company's "fair share" of unrecouped response costs
(estimated at less than $25,000), all payable out of the bankruptcy reserve.
StorageTek believes this arrangement is viable and will file a claim in this
amount against the bankruptcy reserve and, consequently, this settlement will
have no material adverse effect on the Company's financial condition and
results of operations.
On June 10, 1993, the Company filed a complaint against EMC Corp. in U.S.
District Court for the District of Colorado. The complaint alleges that EMC
Corp. has infringed three patents pertaining to the Company's disk storage
technology. The complaint seeks an injunction prohibiting further
infringement, treble damages in an unspecified amount, and an award of
attorney fees and costs. EMC Corp. filed an answer and counterclaim on July
20, 1993, alleging, among other things, patent misuse and seeking the
invalidation of the Company's patents, damages in an unspecified amount and an
award of attorney fees, costs and interest. Discovery has commenced and a
trial has been scheduled for October 1994.
On January 21, 1994, Bell Atlantic Business Systems Services, Inc. (BABSS)
filed suit in federal District Court for the Northern District of California,
alleging that a number of the Company's service business policies are illegal,
including price increases and parts and maintenance software availability.
BABSS has asked the court to order the Company to stop or change these
practices. A hearing on a motion of preliminary injunction is scheduled for
March 18, 1994. The complaint appears to focus on conduct of the Company
since December 1, 1993.
On February 11, 1994, the Company and its subsidiary XL/Datacomp, Inc., filed
suit in Boulder County, Colorado, District Court against Array Technology
Corporation and Tandem Computers Incorporated. The suit asks that the court
order defendants to either support certain disk drives purchased from
defendants or provide the Company with the technical data necessary for it to
provide such customer support.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of StorageTek security holders during the
fourth quarter of the year ended on December 31, 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Position with Company Age
---- --------------------- ---
Ryal R. Poppa Chairman of the Board, President, 60
and Chief Executive Officer
Lowell Thomas Gooch Executive Vice President Operations 49
Page 11
Derek A. Thompson Executive Vice President Worldwide 63
Field Operations
David E. Weiss Executive Vice President Systems 49
Development & Program Management
Gregory A. Tymn Senior Corporate Vice President 44
and Chief Financial Officer
John V. Williams Senior Corporate Vice President 50
Americas
Joseph E. Beal Corporate Vice President 51
Customer Satisfaction
David E. Lacey Corporate Vice President and 47
Controller
Fred G. Moore Corporate Vice President 46
Strategic Planning
Sewell I. Sleek Corporate Vice President 57
Human Resources
W. Russell Wayman Corporate Vice President 49
General Counsel and Secretary
Mr. Poppa became Chairman of the Board, Chief Executive Officer and a director
of the Company in January 1985, and also became President of the Company in
January 1988.
Mr. Gooch became Executive Vice President of Operations of the Company in
January 1989. From June 1987 to January 1989, he was Corporate Vice President
of Manufacturing; from January 1987 to June 1987, he was Vice President of
Americas/Pacific Operations; from January 1986 to January 1987, he was Vice
President of Federal Systems Operations. Mr. Gooch has been employed by the
Company in various capacities since 1972.
Mr. Thompson became Executive Vice President of Worldwide Field Operations in
March 1991. From July 1984 to March 1991, he was the Vice President of
Europe, Africa and Middle East.
Page 12
Mr. Weiss became Executive Vice President Systems Development & Program
Management in January 1993. He was a Senior Vice President Marketing from
June 1992 to January 1993 and Corporate Vice President Market Planning from
August 1991 to June 1992. From March 1991 through August 1991, he was a staff
vice president reporting to the Chief Executive Officer. Prior to joining
StorageTek, Mr. Weiss was employed by IBM for 23 years. Most recently, he was
the DASD Controller Development Director for IBM.
Mr. Tymn became Senior Vice President and Chief Financial Officer in March
1991. He was Corporate Vice President of Program Management from November
1989 until June 1992. From November 1987 through October 1989, he was the
Vice President and General Manager of StorageTek Printer Operations; and, from
July 1983 to November 1987, he was Vice President and Corporate Controller of
the Company.
Mr. Williams became Senior Corporate Vice President, Americas in August 1993.
He was Corporate Vice President from February 1992 through August 1993 and
Vice President of North America from September 1990 through February 1992.
Prior to rejoining StorageTek, Mr. Williams was employed by GRiD Systems Corp,
purchased by Tandy Corp. in 1988, where he served as vice president of
marketing.
Mr. Beal became Corporate Vice President Customer Satisfaction in August 1993.
He was a Vice President from 1988 through August 1993.
Mr. Lacey became a Corporate Vice President of the Company in December 1990
and Corporate Controller of the Company in October 1989. From February 1985
to October 1989, he was the Company's Director of Tax. Prior to joining
StorageTek, Mr. Lacey was employed by Price Waterhouse in various tax and
accounting capacities.
Mr. Moore became Corporate Vice President Strategic Planning in June 1990. He
was Vice President of Strategic Planning from January 1989 to June 1990; from
January 1988 to January 1989, he was Vice President of Systems Marketing; and
from June 1986 to January 1988, he was Director of Worldwide Product
Marketing.
Mr. Sleek became Corporate Vice President of Human Resources of the Company in
January 1989. From September 1985 to January 1989, he was Corporate Vice
President of Systems Development. Mr. Sleek has been employed by the Company
in various capacities since 1978.
Mr. Wayman became Corporate Vice President in March 1991; General Counsel
since January 1990 and Corporate Secretary of the Company since February 1990.
From May 1984 through January 1990, he was the General Counsel of VLSI
Technology, Inc.
Page 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The common stock of Storage Technology Corporation is traded on the New York
Stock Exchange under the symbol STK. The table below reflects the high and
low closing sales prices of the common stock on the New York Stock Exchange
for 1993 and 1992 as reported by the New York Stock Exchange. On December 31,
1993 there were 23,128 record holders of common stock of StorageTek.
1993 High Low
---- ---- ---
1st Quarter $27.250 $18.625
2nd Quarter 44.000 23.375
3rd Quarter 41.125 24.500
4th Quarter 33.625 25.000
1992 High Low
---- ---- ---
1st Quarter $76.625 $39.625
2nd Quarter 63.125 29.125
3rd Quarter 37.625 26.625
4th Quarter 32.000 19.625
Dividends
- ---------
StorageTek has never paid cash dividends on its common stock and currently
plans to continue to retain future earnings for use in its business. Further,
the Company's existing multicurrency credit agreement and 9.53% Senior Secured
Notes contain certain restrictions which limit the payment of cash dividends
based, primarily, upon the Company's consolidated net income. As of December
31, 1993, under the terms of both the multicurrency credit agreement and 9.53%
Senior Secured Notes the Company did not have cumulative consolidated net
income available for the payment of cash dividends on its common stock.
Page 14
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following data, insofar as it relates to the three fiscal years 1991
through 1993 (except for the 1991 Balance Sheet Data), has been derived from
the consolidated financial statements appearing elsewhere herein, including
the Consolidated Balance Sheet as of December 31, 1993, and December 25, 1992,
and the related Consolidated Statement of Operations for each of the three
years in the period ended December 31, 1993, and notes thereto. The data,
insofar as it relates to the Balance Sheet Data as of December 27, 1991,
December 28, 1990, and December 29, 1989, and the Statement of Operations Data
for the fiscal years 1990 and 1989, has been derived from the historical
financial statements of the Company, XL/Datacomp, Inc. and Amperif
Corporation, as pooled entities for such periods (see Note 2).
The following data (in thousands of dollars, except per share amounts) should
be read in conjunction with the consolidated financial statements and notes
thereto.
Year Ended December
-----------------------------------------------------------------
1993 1992 1991 1990 1989
-----------------------------------------------------------------
STATEMENT OF OPERATIONS DATA
Revenue $1,404,752 $1,550,945 $1,619,520 $1,594,804 $1,339,982
Cost of revenue 965,913 1,074,199 1,105,077 1,123,195 950,603
--------- --------- --------- --------- ---------
Gross profit 438,839 476,746 514,443 471,609 389,379
Research and product
development costs 163,286 152,702 123,269 104,013 90,549
Marketing, general,
administrative and other
income and expense, net 324,823 315,475 300,253 252,524 213,362
Restructuring and other
charges (Note 14) 74,772 5,104
--------- --------- --------- --------- ---------
Operating profit (loss) (124,042) 8,569 85,817 115,072 85,468
Interest expense 43,670 48,706 52,157 59,210 65,221
Interest income (54,916) (67,171) (68,552) (50,622) (46,198)
--------- --------- --------- --------- ---------
Income (loss) before income
taxes, extraordinary items
and accounting change (112,796) 27,034 102,212 106,484 66,445
Provision for income taxes 5,000 17,700 12,400 11,100 10,100
--------- --------- --------- --------- ---------
Income (loss) before
extraordinary items and
accounting change (117,796) 9,334 89,812 95,384 56,345
Extraordinary items (1,304)(a) 11,300(b)
Cumulative effect of
accounting change (Note 8) 40,000
--------- --------- --------- --------- ---------
Net income (loss) $ (77,796) $ 9,334 $ 89,812 $ 94,080 $ 67,645
========= ========= ========= ========= =========
Earnings (loss) per
common share:
Income (loss) before
extraordinary items and
accounting change $ (2.98) $ 0.22 $ 2.17 $ 2.63 $ 1.85
Net income (loss) (2.05) 0.22 2.17 2.59 2.22
BALANCE SHEET DATA
Working capital $ 468,497 $ 357,942 $ 436,067 $ 281,471 $ 271,831
Total assets 1,793,009 1,739,043 1,735,651 1,489,407 1,259,107
Long-term debt 361,718 369,998 373,025 337,912 431,718
Long-term debt, excluding
nonrecourse borrowings 264,743 226,840 208,081 155,640 313,388
Stockholders' equity 1,017,303 927,913 899,571 658,998 437,986
(a) In 1990, the Company recognized a net charge of $1,304,000 related to
repurchases of 8% Convertible Subordinated Debentures due 2015, and the
redemption and repurchase of 13.5% Senior Debentures.
(b) In 1989, the Company recognized an extraordinary gain of $11,300,000 from
the liquidation of its wholly owned subsidiary, Storage Technology
Products, B.V.
Page 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
- -------
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.
Page 16
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
----------------------------------
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
- -------
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.
Page 17
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
Page 18
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.
Page 19
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.
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 Datacomp,
respectively. The restructuring is expected to yield both improved operating
performance and expense reductions. The restructuring yielded expense
reductions of more than $10 million in the fourth quarter of 1993 and is
expected to yield expense reductions of almost $40 million during 1994.
Page 20
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.
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.
Page 21
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.
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
Page 22
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 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
Page 23
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. 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 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.
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.
Page 24
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 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.
Page 25
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements at Item 14, of this Form 10-K.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
There have been no disagreements on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure or
any reportable events.
As described in the Company's filing on Form 8-K dated as of May 26, 1992, at
a meeting of the Company's Audit Committee held on May 26, 1992, the Committee
determined to engage the accounting firm of Price Waterhouse as independent
accountants for all subsidiaries of the Company for 1992, subject to approval
of shareholders. The shareholders ratified the appointment on May 27, 1992,
at the Annual Meeting of Shareholders. As a result, the Company's subsidiary,
XL/Datacomp, Inc. (Datacomp), disengaged the accounting firm of KPMG Peat
Marwick (KPMG) and retained the accounting firm of Price Waterhouse to perform
the annual audit of the financial statements of Datacomp. Price Waterhouse,
who had been auditing the Company and all subsidiaries except Datacomp, had
expressed reliance upon KPMG's report in their report on the consolidated
financial statements of the Company for the year ended December 31, 1991.
KPMG's report on the financial statements for 1991 contained no adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty or audit scope. Additionally, there were no report modifications
for accounting principles, with the exception of an explanatory paragraph
referencing Datacomp's change in its method of accounting for income taxes in
the year ended December 31, 1991, a change with which KPMG concurred.
Page 26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information concerning the identity, background and experience of the
Company's directors is set forth in the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders to be held May 25, 1994 (the Proxy
Statement) and is incorporated herein by reference. Also, see the information
concerning executive officers set forth under the caption "Executive Officers
of the Registrant" in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning compensation of executive officers required under
this item is contained in the Company's Proxy Statement and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information concerning certain principal holders of securities and
security ownership of executive officers required under this item is contained
in the Company's Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information concerning certain relationships and related transactions
required under this item is contained in the Company's Proxy Statement and is
incorporated herein by reference.
Page 27
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-25
Report of Independent Accountants for XL/Datacomp, Inc. F-26
2. Financial Statement Schedules:
-----------------------------
VIII - Valuation and Qualifying Accounts and Reserves F-27
IX - Short-Term Borrowings F-28
All other schedules are omitted because they are not applicable or the
required information is included in the consolidated financial statements or
notes thereto.
3. Exhibits:
--------
(a) The exhibits listed below are filed as part of this Annual Report on
Form 10-K or are incorporated into this Annual Report on Form 10-K by
reference:
Page 28
4.1 Restated Certificate of Incorporation and Restated
By-Laws of Storage Technology Corporation dated July
28, 1987, as currently in effect (filed as Exhibit 3
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 25, 1987, and incorporated
herein by reference).
4.2 Certificate of Amendment to the Restated Certificate
of Incorporation dated May 22, 1989 (filed as Exhibit
(c)(1) to the Registrant's Current Report on Form 8-K
dated June 2, 1989, and incorporated herein by
reference).
4.3 Certificate of Second Amendment to the Restated
Certificate of Incorporation dated June 2, 1992 (filed
as Exhibit 3 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 26, 1992, and
incorporated herein by reference).
4.4 First Amendment to the Restated Bylaws of Storage
Technology Corporation, amending Section IV (filed as
Exhibit 3(c) to the Company's Annual Report on Form
10-K for the fiscal year ended December 25, 1987, and
incorporated herein by reference).
4.5 Specimen Certificate of Common Stock, $0.10 par value
of Registrant (filed as Exhibit (c)(2) as to the
Registrant's Current Report on Form 8-K dated June 2,
1989, and incorporated herein by reference).
4.6 Indenture dated as of May 31, 1990, between Storage
Technology Corporation and Manufacturers Hanover Trust
Company of California, Trustee, relating to the
Company's 8% Convertible Subordinated Debentures due
May 31, 2015 (filed as Exhibit 4.6 to the Company's
Registration Statement on Form S-3 filed May 11, 1990,
File No. 33-34876, and incorporated herein by
reference).
4.7 Registration Statement of the Registrant on Form 8-A
dated August 13, 1981 (filed as Exhibit 4.7 to the
Registrant's Registration Statement on Form S-3 filed
January 29, 1993, File No. 33-57678, and incorporated
herein by reference).
4.8 Registration Statement of the Registrant on Form 8-A
dated August 23, 1990 (filed as Exhibit 4.8 to the
Registrants' Registration Statement on Form S-3 filed
January 29, 1993, File No. 33-57678, and incorporated
herein by reference).
4.9 Rights Agreement dated as of August 20, 1990, between
Storage Technology Corporation and First Fidelity
Bank, N.A., New Jersey, Rights Agent, (filed as
Exhibit 4.1 to the Company's Current Report on Form
8-K on August 20, 1990, and incorporated herein by
reference).
Page 29
4.10 Certificate of Designations of Series B Junior
Participating Preferred Stock (filed as Exhibit A to
Exhibit 4.1 to the Registrant's Current Report on Form
8-K filed with the Commission on August 8, 1990, and
incorporated herein by reference).
4.11 Form of certificate for $3.50 Convertible Exchangeable
Preferred Stock (filed as Exhibit 4.11 to the
Registrants Registration Statement on Form S-3 filed
January 29, 1993, File No. 33-57678, and incorporated
herein by reference).
4.12 Form of Certificate of Designations of $3.50
Convertible Exchangeable Preferred Stock (filed as
Exhibit 4.12 to the Registrants Registration Statement
on Form S-3 filed January 29, 1993, File No. 33-57678,
and incorporated herein by reference).
4.13 Form of Indenture between the Registrant and American
Stock Transfer and Trust Company, as Trustee, relating
to the Registrant's 8% Convertible Subordinated
Debentures due 2008, (filed as Exhibit 4.13 to the
Registrants Registration Statement on Form S-3 filed
January 29, 1993, File No. 33-57678, and incorporated
herein by reference).
4.14 Form of 8% Convertible Subordinated Debentures due
2008 (filed as Exhibit 4.13 to the Registrant's
Registration Statement on Form S-3 filed January 29,
1993, File No. 33-57678, and incorporated herein by
reference).
*10.1 1982 Employee Stock Purchase Plan (filed as part of
the Company's Registration Statement on Form S-8,
filed November 4, 1982, File No. 2-80183, and
incorporated herein by reference).
*10.2 1987 Employee Stock Purchase Plan, as amended (filed
as part of the Company's Registration Statement on
Form S-8, filed November 10, 1989, as Registration No.
33-32243, and incorporated herein by reference).
*10.3 1984 Stock Option Plan (filed as part of the Company's
Registration Statement on Form S-8, filed February 10,
1984, File No. 2-89417, and incorporated herein by
reference).
- ------------------------
* Contract or compensatory plan or arrangement in which directors
and/or officers participate.
Page 30
*10.4 1987 Equity Participation Plan (filed as part of the
Company's Registration Statement on Form S-8, filed
December 28, 1987, File No. 33-19426, and incorporated
herein by reference).
*10.5 Amendment to the 1987 Equity Participation Plan (filed
as Exhibit 10(h) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 28, 1990,
and incorporated herein by reference).
*10.6 Storage Technology Corporation Amended and Restated
Stock Option Plan for Non-Employee Directors (filed as
part of the Company's Registration Statement on Form
S-8, filed November 12, 1989, File No. 33-32235, and
incorporated herein by reference).
*10.7 Employment Agreement between Storage Technology
Corporation and Harris Ravine, dated February 27, 1987
(filed as Exhibit 10(t) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 25,
1987, and incorporated herein by reference).
*10.8 Amendment to the 1987 Employee Stock Purchase Plan
(filed as part of the Registrant's Registration
Statement on Form S-8 filed September 18, 1991, File
No. 33-42818, and incorporated herein by reference).
*10.9 Storage Technology Corporation Amended and Restated
Stock Option Plan for Non-Employee Directors (filed as
part of the Registrant's Registration Statement on
Form S-8, filed September 18, 1991, file No. 33-42817,
and incorporated herein by reference).
*10.10 Employment Agreement between Storage Technology
Corporation and Ryal R. Poppa, dated December 13, 1989
(filed as Exhibit 10(k) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 29,
1989, and incorporated herein by reference).
*10.11 Employment Agreement between the Company and Geoffroy
de Belloy, dated September 13, 1990 (filed as Exhibit
10.11 to the Company's Annual Report on Form 10-K for
fiscal year ended December 27, 1991, and incorporated
herein by reference).
*10.12 Employment Agreement between the Company and Harris
Ravine dated June 6, 1991 (filed as Exhibit 10.12 to
the Company's Annual
- ------------------------
* Contract or compensatory plan or arrangement in which directors
and/or officers participate.
Page 31
Report on Form 10-K for fiscal year ended December 27,
1991, and incorporated herein by reference).
*10.13 Employment Agreement between the Company and Derek A.
Thompson dated February 26, 1991 (filed as Exhibit
10.13 to the Company's Annual Report on Form 10-K for
fiscal year ended December 25, 1992, and incorporated
herein by reference).
*10.14 Employment Agreement between the Company and John V.
Williams dated February 13, 1992 (filed as Exhibit
10(n) to the Registrant's Annual Report on Form 10-K
for the year ended December 25, 1992, and incorporated
herein by reference).
10.15 Form of Note Agreement dated as of August 30, 1991
relating to Registrant's 9.53% Senior Secured Notes
due August 31, 1996 (filed as Exhibit 4(e) to the
Registrant's Registration Statement on Form S-4 filed
October 25, 1991, File No. 33-43536, and incorporated
herein by reference).
10.16 Multicurrency Credit Agreement dated as of March 31,
1993, among the Registrant, Storage Technology De
Puerto Rico, Inc., XL/Datacomp, Inc. and StorageTek
Financial Services Corporation as Borrowers and Bank
of America National Trust and Savings Association as
Agent, Swing Line Bank and Issuing Bank, and the other
banks and financial institutions parties thereto (the
"Credit Agreement") (filed as Exhibit 10.15 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 26, 1993, and incorporated herein
by reference).
**10.17 First Amendment to the Multicurrency Credit Agreement
dated as of August 6, 1993.
**10.18 Second Amendment to the Multicurrency Credit Agreement
dated as of September 24, 1993.
*/**10.19 Agreement between the Company and Harris Ravine dated
October 8, 1993.
- ------------------------
* Contract or compensatory plan or arrangement in which directors
and/or officers participate.
** Indicates Exhibits filed with this Annual Report.
Page 32
**11.0 Computation of Earnings (Loss) per Common Share.
**21.0 Subsidiaries of Registrant.
**23.1 Consent of Price Waterhouse.
**23.2 Consent of KPMG Peat Marwick.
(b) Reports on Form 8-K. During the last quarter of the fiscal year
covered by this report the Company filed two reports on Form 8-K.
On October 15, 1993, the Company filed a Form 8-K in connection
with a publicly disseminated news release concerning third-quarter
1993 financial results. The Company filed a Form 8-K on October
20, 1993 in connection with a publicly disseminated news release
announcing the effectiveness of the merger with Amperif
Corporation.
- ------------------------
** Indicates Exhibits filed with this Annual Report.
Page 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 11, 1994 STORAGE TECHNOLOGY CORPORATION
By: /s/RYAL R. POPPA
------------------------------------
Ryal R. Poppa
Chairman of the Board, President and
Chief Executive Officer (Principal
Executive Officer)
By: /s/GREGORY A. TYMN
------------------------------------
Gregory A. Tymn
Senior Corporate Vice President
and Chief Financial Officer
(Principal Financial Officer)
By: /s/DAVID E. LACEY
------------------------------------
David E. Lacey
Corporate Vice President and Controller
(Principal Accounting Officer)
Page 34
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/JUDITH E.N. ALBINO
- ----------------------------
Judith E.N. Albino Director March 11, 1994
/s/WILLIAM L. ARMSTRONG
- ----------------------------
William L. Armstrong Director March 11, 1994
/s/ROBERT A. BURGIN
- ----------------------------
Robert A. Burgin Director March 11, 1994
/s/PAUL FRIEDMAN
- ----------------------------
Paul Friedman Director March 11, 1994
/s/STEPHEN J. KEANE
- ----------------------------
Stephen J. Keane Director March 11, 1994
/s/ROBERT E. LABLANC
- ----------------------------
Robert E. LaBlanc Director March 11, 1994
/s/ROBERT E. LEE
- ----------------------------
Robert E. Lee Director March 11, 1994
/s/HARRISON SHULL
- ----------------------------
Dr. Harrison Shull Director March 11, 1994
/s/RICHARD C. STEADMAN
- ----------------------------
Richard C. Steadman Director March 11, 1994
/s/ROBERT C. WILSON
- ----------------------------
Robert C. Wilson Director March 11, 1994
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
December 31, December 25,
1993 1992
---------------------------
ASSETS
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
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-1
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands, Except Per Share Amounts)
Year Ended
---------------------------------------
December 31, December 25, December 27,
1993 1992 1991
---------------------------------------
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
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands of Dollars)
Year Ended
---------------------------------------
December 31, December 25, December 27,
1993 1992 1991
---------------------------------------
OPERATING ACTIVITIES
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
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands of Dollars)
Capital in Cumulative
Preferred Common Excess of Accumulated Treasury Translation Unearned
Stock Stock Par Value Deficit Stock Adjustment
Compensation
----------------------------------------------------------------------------------
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)
== ===== ========= ======== ====== ====== ======
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying co