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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE
REQUIRED] For the fiscal year ended
December 31, 1996
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 No. 0-20292
Ampex Corporation
(Exact name of Registrant as specified in its charter)
Delaware 13-3667696
(State of incorporation) (I.R.S. employer identification number)
500 Broadway
Redwood City, California 94063-3199
(Address of principal executive offices, including zip code)
(415) 367-2011
(Registrant's telephone number, including area code)
------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock, par value $.01 per share
Securities registered pursuant to Section 12(g)
of the Act:
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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. [ ]
The approximate aggregate market value of the voting stock held by
non-affiliates of the Registrant as of January 31, 1997 was $268,697,466, based
on a price of $7.81 per share, which was the closing price of the Registrant's
Class A Common Stock on the American Stock Exchange on that date. The Class A
Common Stock is the only class of voting stock outstanding.
As of January 31, 1997, there were 45,471,647 outstanding shares of Class A
Common Stock and no outstanding shares of Class C Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Proxy Statement for its 1997 Annual Meeting of Stockholders is
incorporated by reference into Part III (Items 10, 11, 12 and 13) of this Form
10-K.
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PART I
ITEM 1. BUSINESS
Introduction
Ampex Corporation ("Ampex" or the "Company") is one of the world's
leading innovators in the fields of magnetic recording, digital image processing
and high-performance digital storage for the visual information age. In recent
years, the Company has directed substantial resources to developing products for
the emerging commercial mass data storage market. Ampex provides data storage
solutions that serve a wide range of customer needs, including scientific and
technical applications such as aerospace testing, oil exploration and
entertainment.
The Company's principal products are its DST(R) tape drives and robotic
library systems for computer mass data storage, its DIS(TM) and DCRsi(TM)
instrumentation recorders, and its DCT(R) professional video recorders and image
processing systems. The Company's DST products for the mass data storage market
offer superior data access times, rapid data transfer rates and extremely low
cost per megabyte of storage. Ampex DIS instrumentation recorders allow users to
record instrumentation data on DST tape cartridges, so that the data can be used
in a computer environment as well as in an instrumentation environment. Ampex
DCRsi instrumentation recorders are designed for demanding aeronautical
applications such as commercial and military flight testing, as well as other
applications involving comparable data-gathering challenges in extreme
environments. The Company's DCT video recording products have been developed for
high-end digital component recording applications in entertainment and imaging
markets.
During its 53-year history, Ampex has developed extensive technical
expertise in the storage, processing and retrieval of digital images. The
Company commits substantial resources to the research, development and
engineering of new products that capitalize on its knowledge, experience and
patent portfolio. As an example of this strategy, since the last quarter of 1994
the Company has been seeking to commercialize its patented "keepered media"
technology. This project, which has not yet resulted in any revenues to the
Company, has the potential to significantly increase the capacity of hard disk
drives with nominal incremental cost. In December, 1996, the Company announced
that it had entered into an agreement with a disk drive manufacturer pursuant to
which such manufacturer may acquire keepered media for use in forthcoming hard
disk drive products. See "Keepered Media Development Program."
The Company was incorporated in Delaware in January 1992 as the
successor to a business originally organized in 1944. References to "Ampex" or
the "Company" include subsidiaries and predecessors of Ampex Corporation, unless
the context indicates otherwise. The principal executive offices of the Company
are located at 500 Broadway, Redwood City, California 94063, and its telephone
number is (415) 367-2011. The Company's Class A Common Stock is traded on the
American Stock Exchange under the symbol "AXC."
This Form 10-K contains predictions, projections and other statements
about the future that are intended to be "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended
(collectively, "Forward-Looking Statements.") Forward-Looking Statements are
included with respect to various aspects of the Company's strategy and
operations, including but not limited to its keepered media development program
and other product development efforts; potential effects of the Company's recent
consolidation of manufacturing operations; possible future market opportunities
for its data storage and video recording products; the development of
application software for its DST products; possible future patent license
agreements and royalty income; possible future product line changes; and the
Company's liquidity. Each Forward-Looking Statement that the Company believes is
material is accompanied by cautionary statements identifying important factors
that could cause actual results to differ materially from those described in the
Forward-Looking Statement. The cautionary statements are set forth following the
Forward-Looking Statement, and/or in other sections of the Form 10-K. IN
ASSESSING FORWARD-LOOKING STATEMENTS CONTAINED
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IN THIS FORM 10-K, READERS ARE URGED TO READ CAREFULLY ALL CAUTIONARY STATEMENTS
- -- INCLUDING THOSE CONTAINED IN OTHER SECTIONS OF THE FORM 10-K.
Company Strategy
The Company has historically developed products which are complete
systems targeted at the extremely high performance segments of the market for
the storage of images and data and for digital image processing and compression.
A relatively high proportion of the content of its products is designed by Ampex
itself, and is specific to the requirements of its system products. Ampex
believes that certain technologies that it currently uses only in its own
products potentially could create additional markets for the Company,
principally in the form of components or subsystems, or through the licensing of
proprietary technologies. The Company also believes that by commercializing
these products, it may potentially be able to gain access to markets which are
larger than those addressed by its complete systems products for which
relatively high prices limit the market potential. For example, certain patented
Ampex technologies are used on consumer video recorders that are priced at a few
hundred dollars, while its professional digital video recorders have list prices
that approach $70,000 per unit. While continuing its practice of licensing such
technology, Ampex determined in 1994 to evaluate employing certain of its
patented technologies as a basis for entering into new business areas as a
supplier of products.
The Company's strategy is to continue to develop high performance
systems, and also to seek opportunities to commercialize existing or newly
developed technologies in the areas of imaging and storage that result from
these developments. The first such technology that Ampex is attempting to
commercialize is its keepered media for use in computer hard disk drives. See
"Keepered Media Development Program". The Company is evaluating additional
possibilities to commercialize its technology, but has not yet determined to
pursue any additional project or projects beyond the research and development
stage. There can be no assurance that keepered media or any other technology
that Ampex may seek to develop will be commercially successful. See "New Product
Development and Industry Conditions."
Products
The Company currently has three principal product groups: mass data
storage products and instrumentation recorders (including its DST tape drives
and robotic library systems, its DIS and DCRsi instrumentation recorders and
related tape and after-market equipment); professional video recording products
(primarily its DCT video recorders and image processing systems and related tape
products); and other products (consisting principally of television after-market
equipment). These product groups are described below. For information concerning
net sales for each product group, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Mass Data Storage Products and Instrumentation Recorders. In 1992,
Ampex entered the high-performance commercial mass data storage market with its
DST series of 19 millimeter data storage products, including tape drives and
robotic library systems. The Company believes its DST mass data storage products
offer a price-performance advantage over alternative magnetic, optical, solid
state or disk-based storage systems now available, providing fast data access
times, rapid data transfer rates and extremely low cost per megabyte of storage.
Access time is one of the most important sustainable advantages of DST
products compared to alternative tape-based storage systems. Older tape-based
storage products achieve low-cost storage but trade off accessibility; since the
data stored is not available for most online or near-online applications, such
systems are generally limited to back-up and archival storage applications. DST
products, in contrast, combine low storage cost per megabyte with fast access to
rapidly transferable information. DST products achieve a level of data-access
performance that is believed to be unique in tape-based storage through the use
of software logic that enables a library or even a single tape drive to organize
information using partitions, much as disk drives do. Individual segments can
then be accessed quickly and updated independently. This patented Ampex
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technology, introduced in 1994, gives DST products the performance of a digital
tape drive and the efficiency and access speed of partitioned memory. DST
systems also provide rapid data transfer rates that exceed the speed of other
mass storage products such as optical disk, allowing a user to download stored
information to a computer at a sustained rate of 15 megabytes per second
("MB/sec").
DST tape drives use core technology developed by Ampex for its digital
video recorders. The drives use high-density metal particle tape cartridges,
which are available in three different sizes providing storage capacities of 25,
75 or 165 gigabytes ("GB") per cartridge. DST robotic library systems
incorporate multiple tape cartridges and tape drives and provide from 1.2
terabytes to 6.4 terabytes of storage capacity while occupying only a fraction
of the floor space required by competing storage systems.
The Company's DST product line currently includes the DST 310 tape
drive, the DST 810 library and the DST 410 library. The DST 310 tape drive is a
single cartridge tape drive that provides convenient and fast backup for
applications such as large databases or disk arrays. The DST 310 accepts any of
the three DST cartridge sizes, and offers a sustained data transfer rate of 15
MB/sec and a search speed in excess of 800 MB/sec. (All transfer rates relate to
raw uncompressed data.)
The DST 810 library is designed to combine from one to four DST tape
drives and has a capacity of 6.4 terabytes of data. It can transfer data at
sustained aggregate rates of up to 60 MB/sec and can access any cartridge stored
in the system within a few seconds. The DST 810 library system is optimized for
large file size applications and, accordingly, is suited for image-based
document storage, medical records, news archives, oil and gas seismic data and
CAD/CAM image data, as well as potential video-on-demand applications. The DST
410 library is an entry-level library with a storage capacity of 1.2 terabytes
of data.
In the fourth quarter of 1996, the Company announced the availability
of new "double-density" versions of its 19 millimeter data storage product line.
The new versions will double the amount of data that can be stored on a single
cartridge with a corresponding reduction in the cost per megabyte of the
Company's mass data storage products. Although the new versions are intended to
enhance the performance of the Company's data storage products, the availability
of new versions could cause a decline in sales of the Company's existing 19
millimeter data storage cartridges. As with any new product, there could be
delays in delivering this new version in commercial quantities, which is
scheduled to occur in the first quarter of 1997. (References to storage capacity
of the Company's mass storage products in this Report refer to existing
single-density versions unless the context otherwise specifies.)
Although the Company believes that its DST drives and library systems
offer significant advantages over competitive systems, there are a variety of
risks involved in this product line. The Company's DST products incorporate a
proprietary magnetic tape format that is not compatible with current industry
standard formats. The Company has not licensed its tape format to other
manufacturers and as such is the sole source of these products. In addition,
other factors relating to the markets for these products and to competition in
these markets may affect future sales of DST products. See "Markets -- Mass Data
Storage Products and Instrumentation Recorders," "Distribution and Customers,"
"Competition," and "New Product Development and Industry Conditions."
Ampex had been well-established for a number of years as a supplier of
instrumentation recorders. Ampex has supplied these recorders primarily to
government agencies for use in data collection, satellite surveillance and
defense-related applications, as well as to defense contractors and aerospace
and other industrial users primarily for test and measurement purposes. Ampex
instrumentation recorders have been used on almost every advanced commercial and
U.S. military aircraft, as well as on many foreign aircraft. The Company
believes they are well-suited to these demanding aeronautical applications, and
other applications involving comparable data-gathering challenges in extreme
environments, because of their unmatched performance and reliability.
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In 1995, the Company expanded its 19 millimeter product line by the
introduction of its DIS instrumentation recorders and library systems. The
Company's principal instrumentation products currently are the DIS 120i and DIS
160i instrumentation/data recorders and the DIS 220i automated
instrumentation/data library, the DCRsi 240, DCRsi 107 and DCRsi 75 digital
instrumentation recorders. The Company's DIS products are designed for mass
storage of instrumentation data. These recorders use the same 19mm helical scan
recording technology used in the Company's DST products. Data from DIS recorders
can be stored on DST cartridges, placed in DST libraries and accessed using DST
tape drives, so that all the benefits of DST mass storage products are
available, including rapid, random access to the data for subsequent processing.
The DIS 120i and 160i drives have capacities of 25, 75 or 165 GB (depending on
the DST cartridge used) and record/reproduce rates of 120 Mb and 160 Mb per
second, respectively. The DIS 220i automated library, which is the
instrumentation version of the DST 410 library, can hold up to 1.2 terabytes of
data. The Company introduced double density versions of each of its DIS
recorders at the time it similarly upgraded its DST product line.
The DCRsi recorders are rugged, highly reliable and compact recorders
that permit uninterrupted data capture over very long periods of time, such as
during test flights of new aircraft. The DCRsi 240 instrumentation recorder has
the capability of storing 48 GB of data at a record/reproduce rate of up to 240
megabits ("Mb") per second. The DCRsi 107 instrumentation recorder has a similar
storage capacity and a record/reproduce rate of 107 Mb per second. During 1995,
the Company introduced the DCRsi 75 recorder, a lower cost DCRsi model with a
record-reproduce rate of 75 Mb per second. Shipments of DCRsi 75 recorders
commenced in 1996.
A significant portion of instrumentation product sales reflect
purchases by the federal government, which can be subject to significant
fluctuations. See "Markets -- Mass Data Storage Products and Instrumentation
Recorders." In addition, other factors relating to the markets for the Company's
instrumentation products and to competition in these markets may affect future
sales of these products. See "Distribution and Customers," "Competition," and
"New Product Development and Industry Conditions."
Professional Video Recording Products. The Company's DCT products,
which employ a 19-millimeter digital component video recorder format, are
designed primarily for use in high-quality post-production applications. DCT
products record in a digital component format compatible with "CCIR-601," a
worldwide signal standard for digital component television equipment. The
Company's DCT 1700d digital tape drive is designed for high-end performance, as
its output is not subject to signal degradation even during complex layering and
special effects sequences. In order to process the higher data volume involved
in digital component recording, DCT recorders employ data compression
techniques.
Ampex also offers a variety of switchers and systems products as part
of the DCT product line, including digital special effects systems and
production switchers, that are used in connection with the production of
television programming. These products focus on the on-line segment of the
professional television industry. On-line operations typically require equipment
to operate at high speeds and require the highest picture quality. In order to
process video signals at the required speeds, Ampex's products employ advanced
proprietary signal processing and other electronic technologies, many of which
are also used in the Company's data storage digital recorder systems. Ampex's
switchers and systems products also incorporate advanced filtering techniques
and incorporate significant special purpose software to manipulate, generate or
combine video signals.
In the period 1992 to 1994, the Company discontinued sales of many
older (primarily analog) recorders, switchers and systems products, which
contributed to the decline in sales for this product group during the past three
years. Sales levels have also been adversely affected by changes in the
traditional markets for the Company's professional video products and by the
reduction in the Company's distribution network for these products. See "Markets
- -- Professional Video Recording Products." In 1995 and 1996, sales of these
products consisted almost exclusively of DCT video recorders and image
processing systems. The Company
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expects that in future years, it will offer only digital video products, which
now consist of its high-performance DCT video recorders, and switchers and
systems products for use in conjunction with DCT recorders.
Other Products. The Company's other products are currently almost
entirely television after-market products (including spare parts) relating to
television products that the Company now manufactures, or that it manufactured
in prior periods and continues to support. Ampex's after-market activities have
declined as a percentage of net sales in recent years as the Company has
narrowed its professional television product line, and many of the products that
have historically generated a significant portion of these net sales (including
Betacam small-format recorder after-market products, turnkey studio facilities,
mobile vans, computer core memory products and refurbished equipment accepted as
trade-ins on new equipment sales) have been discontinued.
Markets
Mass Data Storage Products and Instrumentation Recorders. The Company's
DST mass data storage systems are designed to meet the rapidly changing
requirements of the mass data storage market. The market for mass storage
devices has undergone an evolution in recent years. Historically, mass storage
devices were used to store data off-line as protection against catastrophes
affecting on-line storage, to archive data for record retention purposes or as a
low-cost means of storing infrequently used data. More recently there is a
growing demand for mass storage devices that provide cost-effective storage and
rapid access to data. The demand for storage devices that can store large
amounts of data in a readily accessible manner has grown due to two factors.
First, faster and lower-cost computer processors are generating more data.
Second, a steadily growing percentage of information is created, stored,
accessed and transmitted in visual form (such as drawings, pictures, scanned
documents and other images), and the storage of visual information requires much
greater capacity than the storage of text. For example, while one page of text
requires 2,000 bytes of storage, one second of full-color video requires
30,000,000 bytes.
Ampex's initial target applications for its DST products have been
scientific and technical applications such as digitized design drawings of large
engineering companies, seismic data of oil exploration companies, and data for
large government or commercial models such as weather forecasts or aerodynamic
simulations. While the Company has experienced some success in certain of these
markets, the Company believes that in order for DST product sales to increase
significantly, it will be necessary for the products to gain broader acceptance
in commercial markets. The Company is now seeking to address hierarchical
storage management and database backup applications in commercial markets, and
recently announced that its DST 310 tape drive and DST 410 library are now
supported by certain third party hierarchial storage management and UNIX file
system back up software packages. However, the Company cannot predict the extent
to which such software will result in increased sales of DST products.
Furthermore, at present, most businesses do not have massive databases, and
unless their storage capacity requirements increase significantly, they will not
become potential customers for DST products.
The expanding use of information networks may create additional market
opportunities for DST products beyond the types of commercial applications
described above. Companies are developing local and wide area data networks to
move information (including visual information) more effectively within their
organizations. For example, client/server computer networks are being used by an
increasing number of large organizations to distribute data from a central
storage point along the network to be processed by the remote user. The
information moving over these types of networks needs to be stored and accessed
quickly, cost-effectively and safely. The increasing popularity of these
networks could lead to an increase in demand for high-capacity storage devices
that can connect to networks, such as the Company's DST products. However, there
can be no assurance that this will occur. The use of such networks may not
continue to grow, and even if growth does continue, customers in these markets
may select other storage systems to meet their data storage needs.
The Company has supplied its instrumentation recorders to U.S. and
foreign government agencies for many years, and this continues to be the primary
market for the Company's DCRsi products. Sales to
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government agencies are subject to fluctuation as a result of changes in
government spending programs (including defense programs), and may also be
disrupted by pending budget discussions in Congress. Sales to these markets
could be adversely affected by pressure on government agencies to reduce
spending, and any material decline in the current level of government purchases
of the Company's products could have a material adverse effect on the Company.
The Company's instrumentation recorders are also sold to customers in a variety
of commercial markets, including airplane manufacturers and satellite
down-links.
The Company expects that the primary markets for its new DIS
instrumentation recorders will be the markets in which it currently sells its
DCRsi recorders. While DCRsi recorders are particularly effective for capturing
data in difficult environments, the Company's DIS products will enable these
customers to store and access their instrumentation data more cost-effectively
in less harsh environments that do not require the ruggedness of a DCRsi
recorder.
Professional Video Recording Products. The Company's DCT professional
recording products are designed to provide high-performance capabilities for
customers in entertainment and imaging markets. Historically, Ampex sold its
professional video products to television companies and broadcasters that used
them to produce or edit television commercials or programs for broadcast. More
recently, however, the production and editing of television commercials and
programs is increasingly being performed by independent organizations rather
than by broadcasters or cable television companies themselves. These services
are commonly known as "post-production" services. Most of Ampex's video
recording product sales are to such post-production facilities or to motion
picture studios that use Ampex products for their in-house post-production
needs. Post-production customers whose business reputations are based on high
picture quality and whose needs include rapid editing capabilities currently
represent the major market for the Company's DCT digital component video
recording products. The Company does not serve the lower end of the
post-production market. See "New Product Development and Industry Conditions,"
and "Competition."
Sales of the Company's video recording products have declined in recent
years as a result of changing conditions in the traditional markets for the
Company's products. In response to these changes, the Company has reduced its
product line, marketing expenditures and distribution network for its video
products. These factors have had and will continue to have a negative impact on
sales of the Company's video recording products. Nevertheless, video products
remain a significant business for Ampex for strategic reasons. The Company
believes that its continuing presence in the entertainment market, with its DCT
products, may expand the market for the Company's DST data storage products. In
addition, the Company believes that the emergence of multi-channel compressed
cable, digital satellite delivery, video-on-demand, and other delivery services
that offer alternatives to over-the-air analog television broadcasting, may
provide new market opportunities for its DCT products. If these markets develop,
the Company believes that DCT products would meet the technical requirement for
a virtually flawless signal source for high quality compressed signal
distribution. However, there can be no assurance that these markets will
develop. It is possible that alternative information delivery systems will not
replace traditional methods. Even if these alternative delivery methods become
more established, customers in these markets may select other products or
technologies to meet their signal source requirements.
Distribution and Customers
The Company's distribution strategy with respect to its first
generation of DST products was to rely primarily on OEMs to establish market
acceptance of the DST products. With the introduction of its second-generation,
lower-priced DST products in 1994, these OEM relationships were terminated, and
the Company currently distributes all its 19 millimeter products (including DST
and DIS recorders) directly through its internal sales force, as well as through
independent value-added resellers. The Company's DST products are sold to
customers such as oil and gas companies, imaging companies, information and
entertainment delivery companies and broad-band telecommunications companies.
The Company is also pursuing opportunities in the market for storage of very
large databases maintained by many commercial and government entities.
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The Company's instrumentation recorders (including its DIS recorders)
are sold primarily to government agencies involved in data collection, satellite
surveillance and defense-related activities, as well as to defense contractors
and other industrial users for testing and measurement purposes. Sales of
instrumentation recorders are made through the Company's internal domestic and
international sales forces, as well as through independent sales organizations
in foreign markets.
Ampex's professional video recording products are sold principally to
customers in entertainment markets, including independent post-production
houses, broadcast and cable networks, motion picture studios and independent
television stations. The Company distributes its video products through its
internal sales force and through various independent distributors.
The Company currently operates a total of eight sales offices,
including five in the U.S., two in Germany, one in Japan and one in the United
Kingdom. During 1993 and 1994, the Company closed a number of domestic and
foreign sales offices.
Ampex's sales to U.S. government agencies (either directly or
indirectly, through government contractors) represented 18.0% of net sales in
1996, compared to 14.7% in 1995 and 21.4% in 1994. Products sold for U.S.
government use include primarily instrumentation recording systems. Sales to
government customers are subject to fluctuations as a result of changes in
government spending programs. See "Markets -- Mass Data Storage Products and
Instrumentation Recorders."
No single non-governmental customer accounted for more than 10% of
Ampex's total net sales in 1995 or 1996.
Research, Development and Engineering
Scanning recording systems such as those developed by Ampex involve
extremely complex technology. As a result, over the years Ampex has developed
extensive expertise in a wide area of technical disciplines and has developed
fundamental innovations in magnetic recording technology, channel electronics
and digital image processing. In 1996, the Company spent approximately 17% of
net sales for research and development programs and engineering costs, compared
to 16% in 1995 and 15% in 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 3 of Notes to
Consolidated Financial Statements. These continuous research and development
efforts have resulted in a substantial patent portfolio covering not only
existing products, but also covering technological innovations that may result
in future commercial products. With respect to current products, the Company has
allocated a major portion of its research and development budget in recent years
to the 19 millimeter digital recording technology included in its DST, DIS and
DCT products. The Company will continue to fund future generations of its mass
data storage and instrumentation recorders, but it will also allocate a growing
percentage of its research and development budget to commercializing its
patented keepered media technology (described below) and to researching other
new product opportunities that capitalize on its expertise and patented
technology in magnetic recording, channel electronics and digital image
processing.
Keepered Media Development Program
During 1994, the Company initiated a technology research and
development program to explore the feasibility of commercializing its invention
of a proprietary magnetic media technology referred to as "keepered media." This
invention was patented in 1991, and the Company has pending patent applications
for related inventions. Specifically, the Company's program involves the
development of magnetic disks employing keeper layers for use in the hard disk
drives that are attached to most computers. Keepered magnetic disk media are
designed to improve the capacity of hard disk drives, primarily by reducing
magnetic "spacing losses" resulting from the separation between the magnetic
disk and the read head and by shielding the read head from magnetic signals not
directly under the head. The Company believes that this technology provides
significant capacity
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improvement with only a nominal incremental manufacturing cost. The Company also
believes that this technology may have potential application in flexible
magnetic media, such as floppy disks and magnetic tape.
In December, 1996, Ampex announced that it had entered into an
agreement with Maxtor Corporation ("Maxtor"), a disk drive manufacturer,
pursuant to which Maxtor may acquire keepered media disk platters for use in
Maxtor's hard disk drives. Maxtor has advised Ampex that it is developing a disk
drive program incorporating keepered media, which Maxtor has indicated it
expects to introduce in the later part of 1997. Maxtor is a leading producer of
disk drives, primarily for desktop and mobile computer systems. According to
published sources, its market share in 1995 was approximately 8% of the
worldwide total. Maxtor is an independently operated member of the Hyundai group
of companies, which had worldwide revenues in 1995 exceeding $23 billion.
Maxtor, as the first disk drive manufacturer to invest in a product
program utilizing keepered media, has received favorable economic terms from the
Company. In addition to agreeing to a relatively low profit margin, Ampex has
agreed, for the initial term of the agreement, to ensure that Maxtor's price per
unit for keepered media is lower by a fixed percentage than that charged to any
other customer. Ampex has also committed to co-fund the development of a
preamplifier chip required by Maxtor for use with keepered media, for up to
$250,000. In return, Maxtor agreed that the manufacturer of the preamplifier
chip so funded will be free to sell such product to other disk drive
manufacturers.
The agreement with Maxtor is for an initial term of three years, and is
renewable for an additional three year term at Maxtor's option, subject to
certain conditions, on terms no less favorable than those given any other
manufacturer selling similar quantities in like circumstances. Maxtor is not
bound by the agreement to complete a disk drive program or to purchase any
minimum quantity of keepered media platters. However, unless certain minimum
quantities are purchased by specified dates prior to March 31, 1998, Ampex will
have the right to terminate the agreement or alter its terms.
The agreement also provides that, if Ampex develops the internal
capability to manufacture keepered media for sale in commercial volumes, Maxtor
will use reasonable efforts to include Ampex as a supplier, subject to
negotiation of a purchase agreement and qualification of Ampex as a vendor.
Ampex has not yet decided to commence commercial manufacture of keepered media,
and is unable to forecast when or if it will do so. Accordingly, in order to
enable Maxtor to commence production in accordance with its current schedule,
the agreement permits Maxtor to acquire keepered media from independent media
manufacturers approved by Ampex and/or to manufacture media at Maxtor's own
facilities for sale by it.
The Company is continuing to negotiate with other manufacturers that
could become customers for keepered media. However, Ampex may not continue to
offer the favorable pricing and other terms it had offered prior to the
conclusion of the Maxtor agreement. Accordingly, there is no assurance that any
other manufacturer will agree to purchase keepered media, or that Ampex could
obtain pricing or other terms from other manufactures that Ampex regards as
favorable or acceptable. In addition, there could be unforeseen technical or
economic reasons why manufacturers would not proceed with the technology. Ampex
does not anticipate receipt of significant revenues from its keepered media
program before fiscal 1998, although limited revenues could be generated later
in 1997. In any event, there can be no assurance as to the timing or amount, if
any, of revenues that Ampex may generate from the Maxtor arrangement or from any
agreement which the Company may conclude with other manufacturers with which it
has had discussions.
To date, Ampex has directed the majority of its keepered media
development efforts to potential disk drive programs that employ inductive
heads, which according to published reports are used in the majority of disk
drives currently in production. However, a number of disk drive manufacturers
have expressed an intention to effect a transition to magneto-resistive heads in
all or a substantial portion of their disk drive production in the future. In
early November 1996, Ampex, together with a disk drive manufacturer (other than
Maxtor) and a head manufacturer, participated in tests of keepered media with
magneto-resistive heads. The tests included a demonstration of the activation of
the keeper layer by a magneto-resistive head of a common
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design. While Ampex believes that this is an indication that keepered media may
be able to address the disk drive market for both inductive and
magneto-resistive heads, it has not yet conducted sufficient performance and
other testing to ensure that this will in fact be possible in commercial
production. The agreement with Maxtor permits the use of keepered media with
both inductive or magneto-resistive heads.
It is not possible, at present, to forecast what effect a change in the
mix of drives using inductive versus magneto-resistive heads may have on the
market for keepered media. It is also possible that further analysis by the
Company, or by potential customers, will identify other technical or economic
issues of which Ampex, at present, is unaware. In a high technology industry
such as data storage, other technology may be under development, or may be
developed in the future, that could be technically or economically superior to
keepered media.
The Company does not presently have manufacturing facilities suitable
for producing keepered media in quantity, and the Company does not intend to
license merchant manufacturers of disk drive platters except to the extent
necessary to permit disk drive manufacturers, such as Maxtor, to acquire
keepered disks for incorporation in disk drives produced by such manufacturers.
Although the Company has held discussions with several U.S. and foreign
producers of disk drive platters, no commitments have been obtained by the
Company with respect to availability, price or other terms from such producers.
If the Company commences commercial production, capital requirements could be
significant and the Company would probably be required to issue debt or equity
securities, which would increase the Company's financial leverage or dilute
earnings.
The Company anticipates that further development of its keepered media
technology will require additional expenditures for capital equipment and an
increase in the current rate of its expenditures for research, development and
engineering, which have been relatively constant in recent years.
If the Company's keepered media technology becomes commercially
successful, that portion of the Company's business may be materially dependent
on the Company's patents covering the technology. However, there can be no
assurance that patents currently held by Ampex, or that may be issued pursuant
to pending and future patent applications filed by Ampex, will not be
challenged, or that patent protection, in itself, would ensure the commercial
success of this program or would provide adequate protection against similar or
other technologies independently developed by industry competitors.
While the Company believes that keepered media has the potential to
expand its business significantly, in view of the many uncertainties associated
with its development and commercialization (some of which are described above
and in the Company's prior filings with the Commission), it is impossible to
forecast when, or if, any benefit will be realized by the Company. Since the
prospects for keepered disk media are highly speculative, there is a risk that
the market price of the Company's securities may experience increased
volatility, in addition to the volatility that may result from other factors
affecting the Company, such as changes in financial performance, analysts'
estimates, or product or technology announcements by the Company or its
competitors. See also "Market for Registrant's Common Equity and Related
Stockholder Matters."
Patents, Licenses and Trademarks
As a result of its on-going research and development expenditures, the
Company has developed substantial proprietary technology, certain of which it
has elected to patent or to seek to patent. As of January 31, 1997, Ampex held
approximately 370 patents in the U.S., approximately 530 corresponding patents
in other countries, and had approximately 200 U.S. and foreign patent
applications pending. The majority of these patents and pending patents relate
to the Company's recording technology. The Company continually reviews its
patent portfolio and allows non-strategic patents to lapse, thereby avoiding
substantial renewal fees. Many of the patents held during 1993 and 1994 related
to discontinued television products, technologies that were no longer generating
significant royalty revenues, or other technologies that were no longer
strategically important to the Company. Accordingly, the Company allowed a
significant number of patents to lapse during 1994 and 1995.
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Ampex has granted numerous royalty-bearing patent licenses to, and
holds patent licenses from, third parties. These third parties are primarily
foreign companies engaged in the manufacture and sale of video tape recorders
and media. Ampex has not granted any licenses under its scanning recorder
patents specifically for data storage applications, but it may do so in the
future if it determines that it would support the Company's marketing strategy.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations for the Three Years Ended December 31, 1996
- -- Royalty Income."
During the fourth quarter of 1995, the Company initiated a lawsuit
against a major foreign manufacturer of VHS video recorders and television
receivers, in which the Company alleges patent infringement. In response to the
Company's lawsuit, this manufacturer filed a lawsuit against Ampex alleging
patent infringement. See "Legal Proceedings." The Company is also attempting to
negotiate license agreements with the remaining unlicensed manufacturers of 8mm
camcorders. However, there can be no assurance that such licensing efforts
(including any necessary litigation) will be successful.
It is not possible to predict the amount of royalty income that will be
received in the future. Royalty income has historically fluctuated widely due to
a number of factors that the Company cannot predict, such as the extent of use
of the Company's patented technology by third parties, the extent to which the
Company must pursue litigation in order to enforce its patents, and the ultimate
success of its licensing and litigation activities. Moreover, there can be no
assurance that the Company will continue to develop patentable technology that
will generate significant patent royalties in future years.
U.S. patents are, at present, in force for a period of 20 years from
the date of application and patents granted by foreign jurisdictions are
generally in force for between 14 years to 20 years from the date of
application. Ampex has obtained its present patents over the course of the past
20 years and, accordingly, has patents in force that will expire from time to
time over the next 20 years. Patents are important to the current overall
business of the Company, both as a source of protection of the proprietary
technology used in the Company's current products, and as a source of royalty
income. While results of operations would be adversely affected by the loss of
patents that generate significant royalty income, management believes that none
of Ampex's current product lines is materially dependent upon a single patent or
license or group of related patents or licenses, and that timely introduction of
products incorporating new technologies or particularly suited to meet the needs
of a specific market or customer group is a more important determinant of the
success of Ampex's current business. If the Company's patented keepered media
technology becomes commercially successful, that portion of the Company's
business may be materially dependent on the patents covering the technology. See
"Research, Development and Engineering."
Ampex regards its trademark Ampex(R) and the Ampex logo as valuable to
its businesses. Ampex has registered its trademark and logo in the U.S. and a
number of foreign countries. U.S. trademark registrations are generally valid
for an initial term of 10 years and renewable for subsequent 10-year periods.
The Media Subsidiaries, which were sold by the Company in November 1995, have a
non-exclusive license to use the Ampex trademark on their audio, video and
instrumentation media products through May 2000. Ampex has not granted any other
material rights to use its name or logo to any other third party. Other
trademarks of Ampex include DCT, DST, DCRsi and DIS.
Manufacturing
The Company's products are manufactured at Ampex's facilities in
Redwood City, California and Colorado Springs, Colorado. Products are designed
and engineered primarily in Redwood City, California. Because the Company's mass
data storage products incorporate many of the technologies and components of the
Company's 19mm-based video tape recorders, the manufacturing process of the mass
data storage products has benefited from the existing video recorder production
facilities and techniques.
In January 1996, the Company sold its Redwood City, California
property, and has relocated its manufacturing, administrative and RD&E
operations to smaller facilities located on a portion of the property
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that it leased back at the time of sale. In May 1996, the Company sold a portion
of its Colorado Springs, Colorado facility which was not required for current
operations. See "Properties." The Company believes that its consolidated
manufacturing facilities continue to have sufficient capacity to accommodate
business growth for its present products in the foreseeable future, and that the
relocations will not have a long-term adverse effect on the Company's
manufacturing capacity or on its ability to meet the customer demands for its
products in a timely manner. However, relocation entails the risks of disruption
or delays in operations, which could temporarily adversely impact sales or
profitability.
The Company does not presently have any manufacturing facilities that
would be suitable for manufacturing any products that may result from the
Company's keepered media research and development program. See "Research,
Development and Engineering."
The Company maintains insurance, including business interruption
insurance, that management considers to be adequate and customary under the
circumstances. However, there is no assurance that the Company will not incur
losses beyond the limits of, or outside the coverage of, its insurance.
Sources of Supply
Ampex uses a broad variety of raw materials and components in its
manufacturing operations. While most materials are readily available from
numerous sources, Ampex purchases certain components, such as customized
integrated circuits, from a single domestic or foreign manufacturer. Significant
delays in deliveries of, or defects in the supply of, such components could
adversely affect Ampex's manufacturing operations pending qualification of an
alternative supplier. The Company does not generally enter into long-term raw
material supply contracts. In addition, many of the components of Ampex's
products are designed, developed and manufactured by Ampex itself, and thus are
not readily available from alternative sources.
Order Backlog and Quarterly Fluctuations
A substantial portion of the Company's backlog at a given time is
normally shipped within one or two quarters thereafter. Therefore, sales in any
quarter are heavily dependent upon orders received in that quarter and the
immediately preceding quarter. Ampex's backlog of firm orders at December 31,
1996 was $3.4 million, compared to $13.8 million at December 31, 1995 and $19.1
million at December 31, 1994. The backlog at December 31, 1996 was approximately
14% of average quarterly net sales, based on 1996 sales levels.
Ampex does not generally include foreign orders in backlog until it has
obtained requisite export licenses and other documentation. Orders may be
subject to cancellation in the event shipments are delayed.
Ampex's sales and results of operations are generally subject to
quarterly fluctuations, reflecting customer ordering patterns as well as the
availability of new products. In addition, sales to government customers
(primarily sales of instrumentation products) are subject to fluctuations as a
result of changes in government spending programs. Significant fluctuations in
sales of these products can materially affect the Company's gross margin as well
as its sales. See "Business -- Markets -- Mass Data Storage Products and
Instrumentation Recorders" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Accordingly, results of a given
quarter are not necessarily indicative of results to be expected for a fiscal
year.
Competition
Ampex encounters significant competition in all its product markets.
Although its competitors vary from product to product, many are significantly
larger companies with greater financial resources, broader product lines and
other competitive advantages.
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Ampex competes in the mass data storage market with a number of
well-established competitors, such as IBM, Storage Technology Corporation,
Exabyte Corporation, Sony Corporation and Quantum Corporation, as well as
smaller companies. In 1996, IBM Corporation announced the general availability
of a new high-capacity, high-speed tape storage product designated "Magstar."
Also, Sony Corporation in 1995 introduced its DTF tape drive, which is intended
for the mass data storage industry. In the mass data storage market, the Company
believes that the principal competitive factors are product performance, cost of
equipment and media, product reliability and availability of service and
support. The Company believes its strongest competitive advantage is in the area
of product performance. However, DST products are relatively expensive in
comparison to other competitive products, and are generally cost-effective only
if the customer requires the high level of performance and storage capacity of
DST products. While the Company is working to reduce the cost of its DST
products, the prices of other storage systems, such as disk drives, are also
declining. In addition, although DST products offer faster data access times
than competing tape-based library systems, magnetic disks deliver faster data
access than DST products. There can be no assurance that the Company can compete
successfully on a long-term basis in the mass data storage market.
In the instrumentation market, the Company competes primarily with
companies that depend on government contracts for a major portion of their sales
in this market, including Sony, Loral Data Systems, Datatape Incorporated and
Metrum Incorporated. The number of competitors in this market has decreased in
recent years as the level of government spending in many areas has declined. The
principal competitive factors in this market are cost, product reliability,
product performance and the ability to satisfy applicable government procurement
requirements.
In the professional video recorder market, Sony and Panasonic are the
leading competitors of the Company. Competition in this market is based
principally on design and manufacturing expertise, new product development,
service, reliability and price. In the high end of the market, management
believes that Ampex is competitive in each of these areas. DCT products are not
competitive in the lower end of the market. In addition, sales have been
declining in recent years as the Company has discontinued many of its
professional video products.
If the Company is able to commercialize products based on its keepered
media technology, the Company expects that it will face competition from
companies offering a variety of storage media alternatives, including current
disk manufacturers. The Company will continue to evaluate potential competitive
factors as it proceeds with its efforts to commercialize its keepered media
technology. See "Keepered Media Development Program."
New Product Development and Industry Conditions
The data storage, instrumentation and video recording industries are
characterized by continual technological change and the need to introduce new
products and product upgrades. This requires a high level of expenditure for
research and development. Obsolescence of existing product lines, or the
inability to develop and introduce new products, could have a material adverse
effect on sales and results of operations. Although Ampex has completed
development of its 19 millimeter digital video tape recorders and its
second-generation mass data storage drives and robotic library systems, the
Company must continue to invest in research and development programs to improve
these products and develop new products. No assurance can be given that existing
products will not become obsolete, that any new products will win commercial
acceptance or that Ampex's new products or technology will be competitive. See
"Competition." Furthermore, the introduction of new products or technologies can
be hampered by technical problems in design, manufacturing and test procedures
or the occurrence of other unforeseen events. For example, although the Company
has entered into an initial agreement with a disk drive manufacturer relating to
its keepered media technology, there are still many problems that could arise in
commercializing this technology. See "Keepered Media Development Program."
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Ampex has been manufacturing its 19 millimeter digital video recorders
since 1989, and has been selling its DCT recorders since 1992. However, sales of
all of its video recording products have declined substantially in recent years,
partly as a result of changes in the market for the Company's products, as
lower-cost small format recorders have replaced traditional high-end products
for many applications. The Company expects that the traditional markets for its
video products will continue to decline. Accordingly, any significant increases
in sales of DCT products will depend on the success of the Company's efforts at
identifying and developing new markets for the products, and there can be no
assurance that the Company can do so. See "Markets -- Professional Video
Recording Products."
Sales of the Company's instrumentation products can be significantly
affected by changes in government spending levels. See "Markets -- Mass Data
Storage Products and Instrumentation Recorders" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company significantly restructured its product lines during 1993
and 1994, and the Company has no present plans to discontinue any of its current
principal products. However, like all technology companies, the Company must
continually reassess its products based on their ability to respond to the
changing demands of the marketplace. If, as a result of such a reassessment, the
Company decides to discontinue any significant products, such a decision could
have a material adverse effect on sales and operating results.
International Operations
During the past three years, the Company has derived significant net
sales from its foreign operations. However, sales in international markets
(particularly sales of professional video products) have been declining in
recent years. Sales to foreign customers (including U.S. export sales) accounted
for approximately 34.1% of net sales in 1996, compared to 35.6% in 1995 and
37.5% in 1994. Foreign marketing operations are conducted primarily through
local distributors and agents, with support from Ampex's internal marketing and
sales organization. See "Distribution and Customers."
Foreign operations are subject to the usual risks attendant upon
investments in foreign countries, including limitations on repatriation of
earnings, restrictive actions by local governments, fluctuations in foreign
currency exchange rates and nationalization. Additionally, export sales are
subject to export regulations and restrictions imposed by the U.S. Department of
State and the U.S. Department of Commerce.
In certain prior periods, declines in the value of the U.S. dollar in
relation to certain foreign currencies have favorably affected Ampex's
international operations, and in other periods the strength of the dollar
relative to such currencies has adversely affected its operations. Fluctuations
in the value of international currencies can be expected to continue to affect
Ampex's operations in the future, although the impact will be less significant
than it was in periods with a higher proportion of sales in foreign currencies.
The Company currently does not hedge its assets that are denominated in foreign
currencies. U.S. export sales are denominated in U.S. dollars.
See Note 20 of Notes to Consolidated Financial Statements for
additional information concerning the Company's foreign operations.
Environmental Regulation and Proceedings
The Company's facilities are subject to numerous federal, state and
local laws and regulations designed to protect the environment from waste
emissions and hazardous substances. Ampex is also subject to the federal
Occupational Safety and Health Act and other laws and regulations affecting the
safety and health of employees in its facilities. Management believes that Ampex
is generally in compliance in all material respects with all applicable
environmental and occupational safety laws and regulations or has plans to bring
operations into compliance. Management does not anticipate that capital
expenditures for pollution control equipment for fiscal 1997 will be material.
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Owners and occupiers of sites containing hazardous substances, as well
as generators and transporters of hazardous substances, are subject to broad
liability under various federal and state environmental laws and regulations,
including liability for investigative and cleanup costs and damages arising out
of past disposal activities. Such liability may be joint and several, and may be
imposed regardless of fault or the legality of the original disposal activity.
The Company has been named as a potentially responsible party by the United
States Environmental Protection Agency with respect to four contaminated sites
that have been designated as "Superfund" sites on the National Priorities List
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980. The Company is engaged in various environmental investigation,
remediation and/or monitoring activities at several sites located off Company
facilities, including the removal of solvent contamination from subsurface
aquifers at a site in Sunnyvale, California, and surface clean-up and
contamination assessment at a third-party treatment, storage and disposal
facility in Jamestown, North Carolina. Some of these activities involve the
participation of state and local government agencies. Five sites involved with
these activities (including the four Superfund sites) are associated with the
operations of its former magnetic tape subsidiaries ("Media"). Although the
Company sold Media in November 1995, the Company may have continuing liability
with respect to environmental contamination at these sites. During 1996, the
Company spent a total of approximately $0.4 million in connection with
environmental investigation, remediation and monitoring activities and expects
to spend from $0.2 to $0.5 million in fiscal 1997 for such activities.
Because of the inherent uncertainty as to various aspects of
environmental matters, including the extent of environmental damage, the most
desirable remediation techniques and the time period during which cleanup costs
may be incurred, it is not possible for the Company to estimate with any degree
of certainty the ultimate costs that it may incur with respect to the currently
pending environmental matters referred to above. Nevertheless, at December 31,
1996, the Company had an accrued liability of $2.2 million for environmental
liabilities. Based on facts currently known to management, management believes
it is only remotely likely that the liability of the Company in connection with
such pending matters, either individually or in the aggregate, will be material
to the Company's financial condition or results of operations or material to
investors, or that the Company's liability will materially exceed the amounts
already accrued.
While the Company believes that it is generally in compliance with all
applicable environmental laws and regulations or has plans to bring operations
into compliance, it is possible that the Company will be named as a potentially
responsible party in the future with respect to additional Superfund or other
sites. Furthermore, the Company conducts its business in foreign countries as
well as in the U.S., and it is not possible to predict the effect that future
domestic or foreign regulation could have on Ampex's business, operating results
or cash flow.
Employees
As of December 31, 1996, Ampex employed 527 people worldwide, compared
to 531 at December 31, 1995 and 565 at December 31, 1994. Approximately 7% of
Ampex's current worldwide workforce is employed in the Company's international
operations, compared to 6% at December 31, 1995 and 7% at December 31, 1994. No
employees are covered by any collective bargaining agreement. The Company is
dependent on the performance of certain key members of management and key
technical personnel. The Company has not entered into employment agreements with
any such individuals. Edward J. Bramson, who has served as the Company's Chief
Executive Officer since 1991, is also engaged in the management of certain
companies affiliated with Sherborne Holdings Incorporated, a privately owned
Delaware holding company and a company stockholder. Mr. Bramson currently
devotes most of his time to the management of the Company. The loss of the
services of Mr. Bramson or other key individuals could have a material adverse
effect on the Company.
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ITEM 2 PROPERTIES
As of January 31, 1997, the Company's principal properties were as
follows:
Approximate
Square Footage
Location Activities Conducted of Facility
- -------- -------------------- ----------------
Redwood City, California Executive offices, RD&E
and manufacturing (1) 196,798
Colorado Springs, Colorado Manufacturing 229,961
Chineham, England Sales and service (2) 7,184
Tokyo, Japan Sales and service (2) 3,886
Sulzbach, Germany Sales and service (2) 13,530
- -------------------
(1) The majority of this property (186,440 square feet) is leased under a ten
year lease entered into in connection with the January 1996 sale of this
property. The remainder (10,358 square feet) is leased on a short term
basis.
(2) These facilities are leased under leases that expire at various times
through 2000.
In addition to the properties and leased facilities listed above, Ampex
leases office space and warehouse facilities from time to time at various
domestic and foreign locations. In addition, the Company has outstanding lease
obligations with respect to various facilities whose functions were terminated
in connection with the Company's prior period restructuring of its business
operations. The Company is subleasing portions of these facilities pending
termination of the underlying leases.
On January 25, 1996, the Company completed the sale of its real
property in Redwood City, California. All of the functions that were located at
the Redwood City site have been relocated to portions of the facility that have
been leased back from the purchaser under two separate leases. One lease covers
approximately 132,150 square feet in buildings leased for a term of 10 to 13
years. The second lease covers a 54,290 square foot building occupied on an
interim basis under similar terms, but the lease contains a provision allowing a
move to a new 60,000 square foot building to be constructed on the property by
the purchaser. The Company has a one-time option to terminate each of these two
leases after five years. At the time of the sale, the Company entered into a
lease for the new building for a term of 8 to 10 years. This lease contains a
provision allowing the Company to cancel its obligations under the lease prior
to the beginning of construction of the new building. The new building is not
expected to be completed for 2 to 5 years after the date of sale.
In May 1996, the Company sold a portion of its property, amounting to
77,000 square feet of facilities and associated property, in Colorado Springs,
Colorado. The Company conducts its Colorado operations in the remaining 229,961
square foot portion of the Colorado Springs property that was retained.
The Company believes that its current facilities, including machinery
and equipment, are generally in good condition, well-maintained and suitable for
their intended uses, and that its facilities have, and will continue to have,
adequate capacity to accommodate the Company's present needs and business growth
for its present products in the foreseeable future. However, the Company does
not presently have any manufacturing facilities that would be suitable for
manufacturing any products that may result from the Company's keepered media
research and development program. See "Business -- Keepered Media Development
Program."
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ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its
businesses. In the opinion of management, no such current or pending lawsuits,
either individually or in the aggregate, are likely to have a material adverse
effect on the Company's financial condition, results of operations or cash
flows. See also "Environmental Regulation and Proceedings" and Note 11 of Notes
to Consolidated Financial Statements.
On September 22, 1995, the Company filed a lawsuit against Mitsubishi
Electric Corporation and Mitsubishi Electric America Inc. in the U.S. District
Court for the District of Delaware, alleging patent infringement and breach of a
license agreement in connection with the manufacturing of VHS video recorders
and television receivers. The Company is seeking damages and injunctive relief.
In response to the Company's lawsuit, on December 12, 1995, Mitsubishi filed a
lawsuit against Ampex in the U.S. District Court for the Central District of
California, alleging patent infringement and seeking unspecified damages and
injunctive relief. Trial of the Mitsubishi lawsuit commenced in March 1997 and
trial of the Company's lawsuit is expected to commence shortly thereafter unless
a negotiated settlement is reached. See also "Business -- Patents, Licenses and
Trademarks."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages are as follows:
Name Age Position
---- --- --------
Edward J. Bramson 46 Chairman and Chief Executive Officer
Craig L. McKibben 46 Vice President,Chief Financial Officer and Treasurer
Robert L. Atchison 59 Vice President
Richard J. Jacquet 57 Vice President
Joel D. Talcott 55 Vice President and Secretary
Each of the executive officers of the Company serves in such capacity
at the discretion of the Board.
Edward J. Bramson is Chairman of the Board, Chief Executive Officer and
a director of the Company. He has been an officer and director of the Company
since 1987, and since January 1991 has been Chief Executive Officer of the
Company. He is also Chairman and Chief Executive Officer of Sherborne Holdings
Incorporated and Sherborne & Company Incorporated, and is a limited partner of
Newhill Partners, L.P. These entities, which are private investment holding
companies, may be deemed to be affiliates of the Company. Mr. Bramson is also a
director of Buffalo Color Corporation, a specialty chemicals manufacturer, and
of Hillside Capital Incorporated, a private industrial holding company with
which he has been associated since 1976.
Craig L. McKibben is Vice President, Treasurer, Chief Financial Officer
and a director of the Company. Mr. McKibben has been an officer and a director
of the Company since 1989. From 1983 to 1989, he was a partner at the firm of
Coopers & Lybrand, independent public accountants. He is also Chairman,
President and Chief Executive Officer of Lanesborough Corporation (which is the
parent of Buffalo Color Corporation) and Vice President and a director of
Sherborne Holdings Incorporated and of Sherborne & Company Incorporated.
Robert L. Atchison is Vice President of the Company. Since January
1994, he has been responsible for all operating activities of the Company, and
recently assumed responsibility for certain of the Company's sales and marketing
activities. From April 1991 to January 1994, he was responsible for engineering
and operations for the Company. Mr. Atchison also serves as President and a
director of Ampex Data Systems
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Corporation, a wholly owned subsidiary of the Company. He has served as an
executive officer of the Company and various subsidiaries since 1987.
Richard J. Jacquet is Vice President of the Company. Since January
1994, he has been responsible for all administrative functions of the Company.
From 1989 to January 1994, he was responsible for personnel and human resources
matters for the Company. Mr. Jacquet has been associated with the Company since
1988, serving as Director of Human Resources prior to his appointment in 1989 as
Vice President.
Joel D. Talcott is Vice President and Secretary of the Company,
positions he has held since 1987. He has served as General Counsel since January
1996, a position he also held from 1987 to January 1994. He is also responsible
for the Company's patent licensing activities (having served as Patent Counsel
from 1981 to 1987), and has supervisory responsibility for investor relations
and corporate communications functions. Mr. Talcott is an officer and director
of Ampex Data Systems Corporation, a wholly-owned subsidiary of the Company.
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) The following table sets forth the high and low prices for the
Company's Class A Common Stock for each quarter during fiscal 1995 and 1996.
Prices for 1995 represent high and low quarterly bids on the NASD OTC Bulletin
Board as reported by the National Quotation Bureau. Prices for the fourth
quarter of 1995 represent the highest and lowest daily prices for the quarter on
the NASD OTC Bulletin Board as reported by on-line stock price quotation
services. OTC Bulletin Board prices are interdealer prices and may not represent
actual transactions. Since January 16, 1996, the Class A Common Stock has been
traded on the American Stock Exchange under the symbol "AXC."
The trading price of the Company's Class A Common Stock has been and
can be expected to be subject to significant volatility, reflecting a variety of
factors, including quarterly variations in operating results, analysts'
estimates, the Company's keepered media development program, announcements of
new product introductions by the Company or its competitors and general economic
or market conditions. In addition, the stock market in general and technology
companies in particular have experienced a high degree of price volatility,
which has had a substantial effect on the market prices of many technology
companies for reasons that often are unrelated or disproportionate to operating
performance.
Fiscal Year High Low
----------- ---- ---
1995
First Quarter $2.06 $0.50
Second Quarter 2.63 0.75
Third Quarter 4.75 1.25
Fourth Quarter 4.50 2.88
1996
First Quarter 7.06 3.63
Second Quarter 15.75 5.38
Third Quarter 9.50 5.13
Fourth Quarter 11.38 6.25
As of January 31, 1997, there were 826 holders of record of the
Company's Class A Common Stock and no holders of Class C Common Stock.
The Company has not declared any dividends on its Common Stock since
its incorporation in 1992 and has no present intention of paying dividends. The
Company currently intends to retain any earnings to support the development of
its business. The Company's ability to pay dividends is restricted by certain
contractual agreements (which generally limit dividends to no more than $500,000
per year), as well as by the terms of its outstanding redeemable preferred
stock. In addition, the Company's working capital financing subsidiary is
restricted in its ability to pay dividends or make other cash transfers to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and Notes 9 and 12 of
Notes to Consolidated Financial Statements.
(b) The following sets forth information as to securities sold by the
Company during the past three years which were not registered under the
Securities Act of 1933, as amended (the "Securities Act"):
On October 23, 1996, the Company issued 400,000 shares of Class A Stock
to SH Securities Co. LLC ("SH LLC"), a limited liability company controlled by
Edward J. Bramson, chief executive officer of the Company. The shares were sold
for an aggregate price of $2,750,000, of which $550,000 was paid in cash and
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the balance by a promissory note issued by SH LLC. All such shares have been
pledged to the Company as security for the promissory note issued by SH LLC. The
purchaser represented that the acquisition of such securities was made for
investment and not with a view to resale or other distribution absent
registration under the Securities Act or the availability of an exemption
therefrom. The transaction was exempt from registration under the Securities Act
by reason of Section 4(2) thereof as a transaction by an issuer not involving
any public offering.
Information as to additional sales of unregistered securities by the
Company during the past three years is contained in Item 15 of Amendment No. 2
to Registration Statement on Form S-1 of the Company (File No. 33-91312) filed
with the Securities and Exchange Commission and is incorporated herein by
reference. All such sales were made to affiliates of the Company or to
institutional investors who represented that the acquisition of such securities
was made for investment and not with a view to resale or other distribution
absent registration under the Securities Act or the availability of an exemption
therefrom. The transactions were exempt from registration under the Securities
Act by reason of Section 4(2) thereof as transactions by an issuer not involving
any public offering.
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ITEM 6. SELECTED FINANCIAL DATA
The financial data required by Item 6 is included immediately following
Item 14 hereof.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Company and its subsidiaries should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto,
included elsewhere in this Report.
Product Groups
The Company has three principal product groups: computer mass data
storage products and instrumentation recorders (including its DST tape drives
and robotic library systems, its DIS and DCRsi instrumentation products, and
related tape and after-market equipment); professional video recording products
(primarily its DCT video recorders and image processing systems and related tape
products); and other products (consisting principally of television after-market
equipment). No other class of similar products accounted for more than 10% of
net sales during the comparison periods discussed below. During the past three
years, the Company has focused its efforts on high-performance digital data
storage and delivery systems for the emerging commercial mass data storage
market, and has discontinued many older products and businesses. The Company
operates in one industry segment for financial reporting purposes: the design,
development, production and distribution of high-speed, high-capacity magnetic
recording products and systems.
Results of Operations for the Three Years Ended December 31, 1996
Net Sales. Net sales increased slightly to $96.5 million in 1996 from
$95.7 million in 1995 compared to $127.2 million in 1994. During 1996, sales of
the Company's 19 millimeter tape-based mass data storage and instrumentation
products increased significantly from sales levels realized in 1995, offsetting
the decline in sales of its professional video recording products and other
products. The decline in net sales from 1994 to 1995 resulted primarily from
product eliminations and market withdrawals in connection with the restructuring
of the Company's business operations (as illustrated in the table below), as
well as the discontinuance of OEM sales of DST products. Net sales in recent
years have also been impacted by the closing of several international sales
offices as part of the Company's restructuring activities. Sales to foreign
customers (including U.S. export sales) declined to $32.9 million in 1996 (34.1%
of net sales), from $34.0 million in 1995 (35.6% of net sales), and $47.7
million in 1994 (37.5% of net sales).
During the three years ended December 31, 1996, sales backlog has
declined from $19.1 million in 1994, to $13.8 million in 1995 and to $3.4
million in 1996. Accordingly, future periods net sales will be increasingly
dependent upon current order activity. In addition, future results may be
impacted by declines in government procurement of instrumentation products and
the effects of the Company's recent consolidation of its manufacturing
facilities. Accordingly, there can be no assurance that quarterly sales levels
in fiscal 1997 will attain levels realized during the comparable quarters of
fiscal 1996.
The following table shows sales of the Company's continuing products
for the past three years. Sales of products that have been discontinued
(consisting primarily of older video recording equipment, related after- market
products and computer systems products) are shown separately.
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Net Sales
(in millions)
1996 1995 1994
---- ---- ----
Mass data storage/
instrumentation $71.6 $65.6 $66.8
Professional video 9.9 10.6 13.3
Other products 15.0 18.9 21.6
---- ---- ----
Total continuing products 96.5 95.1 101.7
Total discontinued products - 0.6 25.5
---- ---- ----
TOTAL NET SALES $96.5 $95.7 $127.2
Mass Data Storage Products and Instrumentation Recorders. Sales of data
storage products and instrumentation products and related after-market products
experienced a 9.1% increase from 1995 to 1996 and a slight decline from 1994 to
1995. The 1996 results reflect significant increases in sales of 19 millimeter
data storage products, reflecting the introduction of DIS instrumentation
versions of DST products and a high level of sales to customers in the oil and
gas industry in the first quarter of fiscal 1996, partially offset by declines
in sales of DCRsi instrumentation recorders. See "Business -- Distribution and
Customers," above.
Substantially all of the Company's sales of its first-generation DST
products were made in the first half of 1994 to a major OEM customer pursuant to
a non-recurring contract. These sales accounted for 78% of total DST product
sales in 1994. When the Company announced its new line of lower-priced DST tape
drives and robotic libraries in July 1994, its OEM arrangements were terminated
and the Company began to expand its DST direct marketing activities.
As previously disclosed in order for DST product sales to increase
significantly, the Company believes that it will be necessary for the products
to gain broader acceptance in commercial markets, in addition to the specialized
technical markets from which most of the Company's revenue from 19 millimeter
products is currently derived. See "Markets -- Mass Data Storage Products and
Instrumentation Recorders," above.
In the fourth quarter of 1996, the Company announced a new version of
its 19 millimeter mass data storage products that will double the amount of data
that can be stored on a single cartridge. Although the availability of this new
version is intended to enhance the Company's competitive position, it could
cause a decline in sales of the Company's existing 19 millimeter products.
A significant portion of instrumentation product sales reflect
purchases by the federal government. Direct and indirect sales to U.S.
government agencies amounted to $17.4 million, $14.0 million and $27.2 million
in 1996, 1995 and 1994, respectively, representing 18.0%, 14.7% and 21.4% of net
sales in those years. While sales to government agencies have historically
consisted primarily of instrumentation recorders, the Company has recently
experienced an increase in sales of data storage products to these customers.
Sales to government agencies fluctuate as a result of changes in government
spending programs (including defense programs), and may also be impacted by
pending budget discussions in Congress. The Company is unable to forecast the
extent to which sales may be adversely affected in future periods by these
factors. See also "Business -- Distribution and Customers" and "Business --
Markets -- Mass Data Storage Products and Instrumentation Recorders," above.
Professional Video Recording Products. The Company has streamlined its
video product line to concentrate on products that utilize the Company's
proprietary digital compression and image processing technology. Most of the
declines in 1994 and 1995 resulted from the discontinuation of older analog
products.
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Sales of the Company's DCT digital products have also declined during the past
three years, as the Company has closed certain domestic and international sales
offices as part of its restructuring. The reduced distribution network for the
Company's video products is expected to have a continuing negative impact on
sales of these products. However, DCT products accounted for 100% of video
product sales in 1996, compared to 95% in 1995 and 66% in 1994. In future
periods, the Company expects that its sales of professional video recording
products will consist almost exclusively of DCT video recorders and image
processing systems.
Other Products. Net sales from all other products (consisting primarily
of television after-market products) have decreased significantly as the Company
has narrowed its professional television product line. Sales of other products,
such as turnkey studio facilities, mobile vans, computer core memory products,
ceramic materials and refurbished equipment accepted as trade-ins on new
equipment sales, were essentially eliminated by the end of 1995. The Company
expects that in the future, sales of all other products will consist almost
exclusively of television after-market equipment relating to television products
that the Company now manufactures, or that it manufactured in prior periods and
continues to support.
Gross Profit. Gross profit as a percentage of net sales was 45.7% in
1996 and 45.9% in 1995, which represents a significant improvement from 39.1% in
1994. The improved gross margins reflect the effects of the Company's
restructuring activities, which have reduced fixed manufacturing and
administrative costs, as well as an improved sales mix of newer, higher margin
products. If sales of the Company's relatively high- margin instrumentation
recorders are adversely affected by pressure on government agencies to reduce
spending, gross margins in future periods could be adversely affected.
Selling and Administrative Expenses. Selling and administrative
expenses increased to $27.1 million in 1996 from $22.6 million in 1995 and $24.3
million in 1994, representing an increase of 19.7% from 1995 to 1996 and a
decrease of 6.8% from 1994 to 1995. The 1996 increase of $4.5 million was
entirely related to the ongoing patent infringement litigation with a foreign
consumer products manufacturer. The Company did not incur any patent
infringement litigation costs during 1995 or 1994. The Company expects to
continue to incur litigation costs during the first half of 1997 at similar
levels to those incurred in the last half of 1996. See "Legal Proceedings"
above. The Company anticipates that beginning in 1997, it should begin to
realize savings in facilities operating costs from levels incurred in 1996 as a
result of relocating its Redwood City, California operations into smaller
facilities. However, a variety of unanticipated events (such as property tax
increases, uninsured property damage losses, unexpected maintenance problems or
other occurrences) could reduce or eliminate anticipated cost savings.
Research, Development and Engineering Expenses. Research, development
and engineering expenses were $15.9 million in 1996 compared to $15.6 million in
1995 and $18.8 million in 1994. These expenses represented 16.5%, 16.3% and
14.8% of net sales in 1996, 1995 and 1994, respectively. The Company does not
capitalize any material amounts of RD&E expenditures. The majority of RD&E
expenses in 1995 and 1994 were used to enhance the price/performance levels of
the Company's mass storage products, as well as to integrate the Company's mass
storage systems with various computer manufacturers' servers, workstations and
other computer systems. Since the second half of 1994, the Company has also been
investing in the development of its keepered media technology. See "Business --
Research, Development and Engineering," above. The Company is committed to
investing in research, development and engineering programs at levels that can
be supported by current levels of sales, and the Company currently anticipates
that such expenses in 1997 may increase over 1996 levels as a percentage of net
sales. See "Business -- Research, Development and Engineering," above and Note 3
of Notes to Consolidated Financial Statements.
Royalty Income. Royalty income was $10.5 million in 1996 compared to
$15.0 million in 1995 and $7.4 million in 1994. Ampex records patent royalties
when income is earned and receipt is assured. The Company's royalty income
derives from patent licenses, and the Company receives most of its royalty
income from licenses with companies that manufacture consumer video products
(such as VCRs and camcorders) and, in certain cases, professional video tape
recorders. During this period a growing portion of royalty income related to 8mm
video recorders and camcorders.
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Approximately $2.0 million of 1996 royalty income was non-recurring
royalties resulting from negotiated settlements related to prior sales of
products by licensees. This compares to $10.5 million and $5.1 million of
non-recurring royalty income in 1995 and 1994, respectively. Royalty income has
historically fluctuated widely due to a number of factors that the Company
cannot predict, such as the extent of use of the Company's patented technology
by third parties, the extent to which the Company must pursue litigation in
order to enforce its patents, and the ultimate success of its licensing and
litigation activities. During the fourth quarter of 1995, the Company initiated
a lawsuit against a major foreign manufacturer of VHS video recorders and
television receivers in which the Company alleges patent infringement. See
"Legal Proceedings," above. If additional lawsuits are brought against other
manufacturers, litigation costs will increase. The Company is also attempting to
negotiate license agreements with additional manufacturers of 8mm camcorders.
However, there can be no assurance that such licensing efforts (including any
litigation that may be required) will be successful. See "Business -- Patents,
Licenses and Trademarks," above.
Restructuring Charges (Credits). The restructuring charges recorded in
earlier years included accruals for severance costs, estimated vacated lease
obligations including termination costs and the closure of certain foreign
subsidiaries. During 1996 and 1995 the Company entered into transactions that
reduced its anticipated obligations under several vacated leases. In addition,
certain expenses related to the closure of foreign subsidiaries were less than
originally anticipated. These factors resulted in restructuring credits of $0.5
million and $2.5 million during 1996 and 1995, respectively. As of December 31,
1996, the Company had a remaining balance of $7.6 million of accrued
restructuring costs. The Company will continue to evaluate the amount of accrued
restructuring costs on a quarterly basis, and the Company may make additional
adjustments in future periods if it determines that its actual obligations will
differ significantly from the amounts accrued.
Operating Income. The Company generated operating income of $12.0
million in 1996, $23.1 million in 1995 and $14.0 million in 1994. Operating
income was 12.5% of net sales in 1996, 24.2% of net sales in 1995 and 11.0% of
net sales in 1994. Non-recurring royalty income was $2.0 million, $10.5 million
and $5.1 million in 1996, 1995 and 1994, respectively. Selling and
administrative expenses for 1996 includes $4.9 million related to patent
infringement litigation costs. Restructuring charges (credits) were ($0.5)
million in 1996 compared to ($2.5) million in 1995. Excluding the above items,
operating income would have been $14.4 million, $10.1 million and $8.9 million
for 1996, 1995 and 1994, respectively. This year-over-year improvement in
operating income, as adjusted, reflects the effects on gross profit of the
Company's restructuring activities, its improved sales mix of products and
continued controls on recurring selling and administrative expenses.
Interest Expense. Interest expense was $0.8 million in 1996 compared
to $3.8 million in 1995 and $8.3 million in 1994. The decreases from 1994 to
1995 resulted primarily from the April 1994 exchange of 14% senior discount
notes, issued in 1992, for cumulative convertible preferred stock. See Note 9 of
Notes to Consolidated Financial Statements. The decrease from 1995 to 1996
resulted primarily from the conversion of the 8% zero-coupon notes with a
principal amount at maturity of $27.4 million into approximately 8.5 million
shares of Common Stock during the first quarter of 1996. In January 1996, the
mortgage on the real property in Redwood City, California was repaid from the
cash proceeds of the sale. See Note 9 of Notes to Consolidated Financial
Statements.
Amortization of Debt Finance Costs. These amounts reflect periodic
amortization of financing costs over the remaining terms of the debt. Due to the
conversion of the zero-coupon notes and the retirement of the mortgage in 1996,
all remaining deferred financing costs were written off during 1996.
Interest Income. Interest income increased significantly to $3.3
million in 1996 from $1.1 million in 1995 and $0.7 million in 1994. Higher cash
balances and imputed interest on the notes received in connection with the sale
of the Company's Redwood City, California property in January 1996 resulted in
the increase in 1996. See "Properties," above, and Note 7 of Notes to
Consolidated Financial Statements. The slight increase from 1994 to 1995 is a
result of higher cash balances and higher interest rates.
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Other (Income) Expense, Net. In 1996, other income (expense), net
included a gain of $0.9 million on the sale of the smaller of its two
manufacturing facilities in Colorado Springs, Colorado offset by moving- related
expenditures of $0.9 million. In 1994, other (income) expense, net, included a
gain of $7.3 million resulting from the Company's termination of health care
benefits for retirees, as well as gains from the sale of certain real property
and other assets in connection with the Company's restructuring activities. For
1995, other (income) expense, net, consisted primarily of foreign currency
transaction gains and losses resulting from the Company's foreign operations.
Provision for Income Taxes. As a result of timing differences in
December 31, 1995 and December 31, 1994, the Company was not required to include
any provision for U.S. federal tax liabilities in 1995 or 1994. In 1996, the
Company was required to set up a provision for Alternative Minimum Tax (AMT) of
$0.2 million due to the utilization of net operating loss carryforwards to
offset the gain on the sale of the Redwood City, California real property. At
December 31, 1996, the Company had net operating loss carryforwards for income
tax purposes of $95.3 million expiring in the years 2005 through 2009. As a
result of the financing transactions that were completed in April 1994 and
February 1995, the Company is limited in the amount of net operating loss
carryforwards that are available to offset consolidated federal income tax
liabilities of the Company. See Note 19 of Notes to Consolidated Financial
Statements. The Company derives pretax foreign income from its international
operations, which are conducted principally by its foreign subsidiaries. In
addition, the Company's royalty income is subject, in certain cases, to foreign
tax withholding. Such income is taxed by foreign taxing authorities, and the
Company's domestic interest and amortization expenses and operating losses, if
any, are not deductible in computing such foreign taxes. The provisions for
income taxes in 1996, 1995 and 1994 consist primarily of foreign income taxes
and withholding taxes on royalty income.
Gain of Business Held for Disposition. In November 1995, the Company
completed the disposition of its Media subsidiaries, which had been accounted
for as a business held for disposition since the quarter ended June 30, 1993.
The sale did not result in the receipt of any cash proceeds by the Company and
the non-recurring gain of $43.9 million in 1995 represented the elimination of
net liabilities of Media, less taxes and other costs. See Note 2 of Notes to
Consolidated Financial Statements.
Net Income. The Company reported net income of $12.7 million in 1996,
$63.3 million in 1995 and $15.5 million in 1994. Net income benefited from the
non-recurring gain of $43.9 million on the sale of Media in 1995, and from the
factors discussed above in Operating Income.
Liquidity and Capital Resources
Cash Flow. At December 31, 1996, the Company had cash and short-term
investments of $30.7 million, up significantly from $19.7 million at December
31, 1995. Working capital improved to $39.2 million at December 31, 1996, from
$10.7 million at December 31, 1995. The improvement in cash and working capital
was primarily due to proceeds received from the sale of portions of its Redwood
City, California and Colorado Springs, Colorado facilities. See Note 7 to the
Company's Consolidated Financial Statements. The Company's operating activities
used cash of $6.1 million during 1996, and generated cash of $2.9 million in
1995. The decline in operating cash flow for the year ended December 31, 1996,
was primarily attributable to the factors discussed above in "Net Income," to
other moving-related expenditures of $6.9 million, and to a net increase in
inventories resulting from the implementation of the Company's previously
announced strategy to increase inventories in anticipation of increased DST
product sales. While the Company began shipping its DST 810 library system in
the fourth quarter of 1996, it presently has no material backlog of orders for
this product. The increased investment in inventories, particularly with respect
to its DST 810 product, which has limited sales history, may expose the Company
to an increased risk of inventory write-offs. Cash flows from investing
activities and financing activities for 1996 reflect the Company's sale of real
estate in Colorado and California.
The Company has available a working capital facility that allows it to
borrow or obtain letters of credit totaling $7.0 million through May 1998, based
on eligible accounts receivable. At December 31, 1996, the
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Company had no material borrowings outstanding and had letters of credit issued
against the facility totaling $1.5 million.
Financing Transactions. In January 1996, the Company repaid the
balance of the $7.4 million mortgage loan on the Redwood City property from a
portion of the cash proceeds of the sale. Also, during 1996, the Company's
convertible notes with an aggregate face amount at maturity of $27.4 million
were converted into approximately 8.5 million shares of Common Stock, and
warrants to purchase approximately 1.7 million shares were exercised. In
December 1997, the Company is scheduled to redeem the outstanding Noncumulative
Preferred Stock out of funds legally available therefor (generally, the excess
of the value of assets over liabilities). In certain instances the Company may
redeem the Noncumulative Preferred Stock by issuing common stock at 90% of fair
market value. As of December 31, 1996, the Company does not have sufficient
funds legally available to redeem the Noncumulative Preferred Stock. In the
event the Company does not have sufficient funds legally available to redeem the
Noncumulative Preferred Stock in full on the redemption date, the Company would
remain obligated to redeem such shares from time to time thereafter to the
extent funds become legally available for redemption, and would generally be
precluded from declaring any cash dividends on, or repurchasing shares of, its
common stock, until the Noncumulative Preferred Stock has been redeemed in full.
See Note 12 of Notes to Consolidated Financial Statements. There can be no
assurance that the Company will have adequate liquidity or have funds legally
available to redeem the Noncumulative Preferred Stock on the redemption date or
in the future. Although the Company has no current plans for redemption of the
Noncumulative Preferred Stock prior to maturity, it will continue to evaluate
this possibility in light of market conditions, its liquidity and other factors.
Any such redemption could include issuance of additional debt or equity
securities or other actions that might result in dilution of current
stockholders' equity interests in the Company.
In the second quarter of 1996, the Company filed a shelf registration
statement with the Securities and Exchange Commission covering 1,150,000 shares
of common stock which may be offered from time to time by the Company, the
proceeds of which would be used for general corporate purposes, including, if
required, the acquisition of specialized production and test equipment for use
in the Company's keepered media development program. See "Keepered Media
Development Program." The sale of common stock covered by the shelf registration
statement could adversely affect the market price for the common stock, and
would dilute current stockholders' interests by approximately 2.5% if all such
shares were to be issued.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by Item 8 and the financial statement
schedules required by Item 14(d) are included following Item 14 hereof. The
supplementary data called for by Item 8 is not applicable to the Company.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this item is incorporated herein by
reference to the Company's Proxy Statement for its 1997 Annual Meeting of
Stockholders (the "Proxy Statement").
Information regarding executive officers is included in Part I hereof
as Item 4A and is incorporated by reference into this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated herein by
reference to the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed with this Report
1. Financial Statements (see Item 8 above)
Ampex Corporation Consolidated Financial Statements
as of December 31, 1996, 1995 and 1994 and for each
of the three years in the period ended December 31,
1996
2. Financial Statement Schedules (see Item 8 above)
Schedule II Valuation and Qualifying Accounts
3. Exhibits
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Exhibit
Number Description
- ------- -----------
2.1 Purchase and Sale Agreement dated as of November 29, 1995,
between the Company, as seller, and The Martin Group of
Companies, as buyer, relating to the Company's real property
in Redwood City, California, and First Amendment to Purchase
and Sale Agreement dated January 19, 1996 (filed as Exhibit
2.01 to the Company's Form 8-K dated January 25, 1996 (the
"January 1996 8-K") and incorporated herein by reference)
2.2 Secured Purchase Money Promissory Note in the face amount
of $6.5 million, and Secured Purchase Money Promissory Note
(Phase 2 Land) in the face amount of $11.0 million, each dated
January 24, 1996, made by Martin/Campus Associates, L.P., and
payable to the Company (filed as Exhibit 2.02 to the January
1996 8-K and incorporated herein by reference)
2.3 Stock Purchase Agreement dated as of November 10, 1995,
among the Company, Quantegy Acquisition Corp., Ampex Media
Holdings Incorporated, Ampex Media Corporation and Ampex
Recording Media Corporation (filed as Exhibit 10.1 to the
Company's Form 8-K dated November 13, 1995 and incorporated
herein by reference)
3.1 Restated Certificate of Incorporation of the Company dated
June 1, 1993 (filed as Exhibit 4.01 to the Company's Form 10-Q
for the quarter ended March 31, 1993 and incorporated herein
by reference); Certificate of Amendment of Restated
Certificate of Incorporation of the Company filed with the
Secretary of State of Delaware on April 22, 1994 (filed as
Exhibit 3.2 to the Company's Form 8-K filed on May 2, 1994
(the "May 1994 8-K") and incorporated herein by reference);
and Certificate of Amendment of Restated Certificate of
Incorporation of the Company filed with the Secretary of State
of Delaware on April 20, 1995 (filed as Exhibit 4.1 to the
Company's Form 10-Q for the quarter ended March 31, 1995 (the
"First Quarter 1995 10-Q") and incorporated herein by
reference)
3.2 Certificate of Ownership and Merger of Ampex Video Systems
Corporation and Ampex Recording Systems Corporation into Ampex
Systems Corporation (filed as Exhibit 3.2 to the Company's
Form 10-Q for the quarter ended March 31, 1994 (the "First
Quarter 1994 10-Q") and incorporated herein by reference)
3.3 Certificate of Ownership and Merger of Ampex Systems
Corporation into the Company (filed as Exhibit 3.1 to the May
1994 8-K and incorporated herein by reference)
3.4 Certificate of Designations, Preferences and Rights of the
Company's 8% Noncumulative Preferred Stock (filed as Exhibit
3.1 to the Company's Form 8-K filed on February 24, 1995 (the
"February 1995 8-K") and incorporated herein by reference)
3.5 By-Laws of the Company, as amended through April 20, 1995
(filed as Exhibit 4.2 to the First Quarter 1995 10-Q and
incorporated herein by reference)
4.1 Form of Class A Common Stock Certificate (filed as Exhibit
4.4 to the Company's Post-Effective Amendment No. 1 on Form
S-3 to Form S-1 (File No. 33-91312) (the "1996 Form S-3") and
incorporated herein by reference)
4.2 Form of Class C Common Stock Certificate (filed as Exhibit
4.5 to the Form S-3 and incorporated herein by reference)
4.3 Form of 8% Noncumulative Preferred Stock Certificate (filed
as Exhibit 4.6 to the Form S-3 and incorporated herein by
reference)
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4.4 Exchange Agreement for 8% Noncumulative Preferred Stock and
Common Stock, dated as of February 14, 1995, among the
Company and the Initial Holders named therein (filed as
Exhibit 4.1 to the February 1995 8-K and incorporated herein
by reference)
4.5 Exchange Agreement for 8% Step-Up Rate Cumulative Convertible
Preferred Stock, Warrants and Common Stock, dated as of April
22, 1994, among the Company and the Initial Holders named
therein (filed as Exhibit 4.1 to the May 1994 8-K and
incorporated herein by reference)
4.6 Exchange Agreement for Zero-Coupon Convertible Notes,
Warrants and Common Stock, dated as of April 22, 1994, among
the Company and the Initial Holders named therein (filed as
Exhibit 4.2 to the May 1994 8-K and incorporated herein by
reference)
4.11 Registration Rights Agreement for Notes dated as of April 22,
1994 among the Company and the Initial Holders named therein
(filed as Exhibit 4.6 to the May 1994 8-K and incorporated
herein by reference)
4.13 Registration Rights Agreement for 8% Noncumulative Preferred
Stock dated as of February 14, 1995 among the Company and the
Initial Holders named therein (filed as Exhibit 4.2 to the
February 1995 8-K and incorporated herein by reference)
4.14 Registration Rights Agreement for Shares dated as of February
14, 1995 among the Company and the Initial Holders named
therein (filed as Exhibit 4.3 to the February 1995 8-K and
incorporated herein by reference)
4.15 Stock Purchase Agreement, dated February 10, 1995, between
the Company and Edward J. Bramson, and related promissory
note issued to the Company by Sherborne Investments
Corporation (each filed as an Exhibit to Amendment No. 6 to
Schedule 13D, filed on February 23, 1995 by Edward J. Bramson
and the other filing parties named therein, and incorporated
herein by reference)
4.16 Stock Subscription and Debt Exchange Agreement dated as of
January 25, 1993 between the Company and Sherborne Group
Incorporated, and Registration Rights Agreement dated as of
January 25, 1993 between the Company and Sherborne Group
Incorporated, executed in counterpart by Sherborne Holdings
Incorporated (each filed as an Exhibit to Amendment No. 1 to
Schedule 13D, filed on February 3, 1993 by Sherborne Group
Incorporated, Sherborne Holdings Incorporated and the other
filing parties named therein, and incorporated herein by
reference)
4.17 Letter Agreement between the Company and Sherborne Group
Incorporated, dated December 22, 1993, providing for the
issuance of shares of Class A Common Stock to Sherborne Group
Incorporated in exchange for cancellation of debt (filed as
Exhibit 4.24 to the Company's Form 10-K for fiscal 1993 (the
"1993 10-K") and incorporated herein by reference)
4.18 Promissory Note in the amount of $1,754,727, issued by the
Company to NH Holding Incorporated, dated December 22, 1993
(filed as Exhibit 4.25 to the 1993 10-K and incorporated
herein by reference)
10.1 Tax Indemnification Agreement dated as of July 24, 1992 among
Sherborne Group Incorporated, NH Holding Incorporated, the
Company and certain affiliates and former
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affiliates of the Company (filed as Exhibit 10.11 to the
Company's Form 10-Q for the quarter ended September 30, 1992
(the "Third Quarter 1992 10-Q") and incorporated herein by
reference)
10.2 Ampex Corporation 1992 Stock Incentive Plan and related
documents, as amended through August 22, 1996 (filed as
Exhibit 4.03 to the Company's Post-Effective Amendment No. 1
to Registration Statement on Form S-8 (File No. 333-05623)
and incorporated herein by reference)
10.3 Ampex Systems Corporation Savings Plan (1993 Restatement)
(filed as Exhibit 10.13 to the 1993 10-K and incorporated
herein by reference)
10.4 First and Second Amendments to the Ampex Corporation Savings
Plan, dated November 29, 1994 and December 22, 1994,
respectively (amending the plan identified in Exhibit 10.3
above) (filed as Exhibit 4 to the 1994 10-K and incorporated
herein by reference)
10.5 Third and Fourth Amendments to the Ampex Corporation Savings
Plan, dated August 4, 1995 (filed as Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended June 30, 1995 (the
"Second Quarter 1995 10-Q") and incorporated herein by
reference)
10.6 Ampex Systems Corporation Employees' Retirement Plan,
effective generally as of January 1, 1990 (filed as Exhibit
10.5 to the 1994 10-K and incorporated herein by reference)
and an amendment thereto effective as of February 1, 1994
(filed as Exhibit 10.14 to the 1993 10-K and incorporated
herein by reference)
10.7 Amendment No. 2 the Ampex Corporation Employees' Retirement
Plan, dated November 29, 1994 (amending the plan identified
in Exhibit 10.6 above) (filed as Exhibit 10.6 to the 1994
10-K and incorporated herein by reference)
10.8 Third Amendment to the Ampex Corporation Employees'
Retirement Plan, dated August 4, 1995 (filed as Exhibit 10.2
to the Second Quarter 1995 10-Q and incorporated herein by
reference) and Fourth Amendment to the Ampex Corporation
Employees' Retirement Plan, dated February 27, 1996 (filed as