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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, 1998
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)
(650) 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 statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the Registrant as of January 29, 1999 was approximately
$180,244,785, based on a price of $4.375 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 common stock outstanding.
As of January 29, 1999 there were 49,796,647 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 1999 Annual Meeting of Stockholders is
incorporated by reference into Part III (Items 10, 11, 12 and 13) of this Form
10-K.
AMPEX CORPORATION
FORM 10-K
Year Ended December 31, 1998
INDEX
Page
PART I 1
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 22
ITEM 3. LEGAL PROCEEDINGS 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 23
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT 23
PART II 24
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 24
ITEM 6. SELECTED FINANCIAL DATA 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 35
PART III 35
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 35
ITEM 11. EXECUTIVE COMPENSATION 35
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 35
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 35
PART IV 36
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM
8-K 36
SIGNATURES AND POWER OF ATTORNEY 42
PART I
ITEM 1. BUSINESS
Introduction
Ampex Corporation ("Ampex" or the "Company") is a leader in the design
and manufacture of high performance scanning recording devices and digital image
processors. Its specialized recording products are used for the acquisition of
data at high speeds under difficult conditions, such as those in aircraft, and
for the storage of mass computer data, especially images. The Company has
significant experience in digital image processing and has approximately 1,000
patents and patent applications in this field and in recording technology, from
which it has derived significant licensing income. The Company's principal
licensees are the manufacturers of consumer video products worldwide. Ampex is
currently working to utilize its experience in digital video to expand into new
lines of business related to the world wide web through internal projects,
acquisitions and strategic investments.
Ampex conducts its business operations primarily through its
subsidiaries, Ampex Data Systems Corporation ("Data Systems" or "ADSC"), which
manufactures its tape-based data storage, instrumentation and video products,
and MicroNet Technology, Inc., which manufactures its disk arrays and related
storage products for image-based markets such as the video and commercial
pre-press markets. Since the end of the second fiscal quarter of 1998, Ampex's
results of operations have included the operations of MicroNet, which the
Company acquired effective June 30, 1998. The addition of the MicroNet product
line complements Ampex's image-based storage products expertise by offering
disk, as well as tape-based, data storage solutions.
The principal product groups are Data Systems' mass data storage and
instrumentation products and its professional video and other products and
MicroNet's disk array computer storage products. The mass data storage and
instrumentation products group includes (i) 19-millimeter scanning recorders and
library systems (DST and DIS products) and related tape and after-market
equipment; and (ii) data acquisition and instrumentation products (primarily
DCRsi instrumentation recorders) and related tape and after-market equipment.
The Company's professional video and other products group includes primarily its
DCT video recorders and image processing systems and related tape products and
television after-market equipment. The Company's disk storage products primarily
include its DataDock and Genesis disk array systems.
Data Systems' DST tape drives and robotic library systems for computer
mass data storage offer rapid data access times, high-speed data transfer rates
and 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. Data Systems' 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. Data Systems' DCT video recording products
have been developed for high-end digital component recording applications in
entertainment and imaging markets. MicroNet's DataDock and Genesis disk drives
are computer data storage systems based upon redundant arrays of independent
drives (RAID), which permit users to configure their disk drives to store up to
one terabyte of data. These products are more fully described below under
"Products."
During its 55-year history, Ampex has developed extensive technical
expertise in electronic storage, processing and retrieval of digital images. The
Company participates at the high end of the video market with its DCT broadcast
video products, which pioneered the use of digital image compression in the
professional television industry. The major market for video technology is in
consumer products. Ampex has licensed its patents for the consumer market since
1968. In the years 1993 through 1998, the Company's licensing income averaged
$15.4 million per year, and in fiscal 1998 totaled $10.6 million. Royalty income
has fluctuated materially from year to year and there is no assurance that Ampex
will continue to generate comparable levels of licensing income in future years.
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In order to facilitate its plans to participate in world wide web
related markets, Ampex recently acquired ownership positions in three companies
providing electronic commerce support, production and distribution of video over
the Internet using streaming technology. See "Recent Developments" below.
Ampex's objective is to acquire or build Internet video production and
distribution capabilities in several major U.S. and foreign cities and to
distribute their content over the Internet. The Company's plan for its Internet
businesses to become profitable will require them to sell video advertising and
eventually to sell products electronically to customers who are viewing the
content. Ampex believes that its experience in digital video can be an asset in
expanding into this new business area, but any such new venture carries a
substantial risk of loss, and can be expected to be unprofitable for a
substantial period of time. See "Risk Factors - Risks of Internet Video
Strategy."
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 (650) 367-2011. The Company's Class A Common Stock is traded on the
American Stock Exchange under the symbol "AXC."
Recent Developments
In September 1998, the Company acquired approximately 19.9% of Reiter
Associates Inc. ("Reiter") with options to acquire a majority interest in the
future. Reiter is a provider of turnkey electronic commerce support, web hosting
and Internet consulting and monitoring services for enterprises that use the
world wide web. Subsequent to year-end, Ampex announced its intention to
exercise its option to acquire a majority interest in Reiter.
In January 1999, the Company announced it had purchased approximately
19.9% of the capital stock of TV onthe WEB, Inc. ("TV onthe WEB"), a provider of
webcasting services and producers of compressed video content for delivery over
the world wide web.
In February 1999, the Company announced it had purchased
approximately 19.9% of the capital stock of Alternative Entertainment Networks,
Inc. ("AENTV"), a producer and aggregator of streaming video content for
delivery over the world wide web.
The Company has options to acquire majority interests in each of TV
onthe WEB and AENTV, but until such time as it elects to exercise such options
the Company will account for the investments using the cost method. There can be
no assurance that the Company will exercise the options to acquire majority
interests in either TV onthe WEB or AENTV or, if it does, can successfully
integrate the acquired businesses or realize any financial benefit therefrom.
The Company currently anticipates that its Internet affiliates may incur
operating losses in the future, which could have a negative impact on the
Company's consolidated results of operations in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations for the Three Years Ended December 31, 1998."
Forward-Looking Statements
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 the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Company, or industry results, to differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
factors include, among others, those described under "Risk Factors", below.
These forward-looking statements speak only as of the date of this Report. The
Company disclaims any obligation or undertaking to disseminate updates or
revisions of any forward-looking statements contained or incorporated herein to
reflect any change in the Company's
2
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based. IN ASSESSING FORWARD-LOOKING
STATEMENTS CONTAINED IN THIS FORM 10-K, READERS ARE URGED TO READ CAREFULLY ALL
SUCH CAUTIONARY STATEMENTS.
Risk Factors
Risk of Increased Leverage
In January and July of 1998, Ampex issued a total of $44 million
principal amount of 12% Senior Notes due 2003. As a result, Ampex's total debt
increased significantly from the level at December 31, 1997, which was not
material. Pending utilization of the net proceeds of the Senior Notes, the
Company has temporarily invested these proceeds in cash equivalents, including
government securities, High Yield mutual funds and U.S. corporate securities.
The interest received on these investments has been, and is expected to continue
to be, substantially less than the interest payable on the Notes. In order to
minimize the difference between the interest currently received on these
investments and the interest payable on the Senior Notes, Ampex has invested a
significant portion of the Senior Notes proceeds in securities with higher
yields, longer terms and lower credit quality than U.S. government securities.
The Company may also engage in various transactions in derivative securities
although it has not done so to date.
As of December 31, 1998, Ampex had outstanding approximately $44.0
million of total borrowings. The degree to which Ampex is leveraged, and the
types of investments it selects, could have important consequences to investors,
including the following:
o a substantial portion of Ampex's consolidated cash flow from
operations must be dedicated to the payment of the principal
of and interest on outstanding indebtedness, and will not be
available for other purposes;
o Ampex's ability to obtain additional financing in the future
for working capital needs, capital expenditures, acquisitions
and general corporate purposes may be materially limited or
impaired, or such financing may not be available on terms
favorable to Ampex;
o Ampex may be more highly leveraged than its competitors, which
may place it at a competitive disadvantage;
o Ampex's leverage may make it more vulnerable to a downturn in
its business or the economy in general;
o investments in securities with lower credit quality or longer
maturities could subject Ampex to potential losses due to
nonpayment or changes in market value of those securities, and
transactions in derivative securities could expose Ampex to
losses caused by stock market fluctuations; and
o the financial covenants and other restrictions contained in
the Senior Note indenture and other agreements relating to
Ampex's indebtedness will restrict Ampex's ability to borrow
additional funds, to dispose of assets or to pay dividends on
or repurchase preferred or common stock.
Ampex expects that cash balances and cash flow from operations will
be sufficient to fund anticipated operating expenses, capital expenditures and
debt service requirements as they become due, at least through the current
fiscal year. There can be no assurance, however, that the amounts available from
these sources will be sufficient for such purposes. No assurance can be given
that additional sources of funding will be available if required or, if
available, will be on satisfactory terms. If Ampex cannot service its
indebtedness, it will be forced to adopt alternative strategies. These
strategies may include reducing or delaying capital expenditures, selling
assets, restructuring or refinancing Ampex's indebtedness, or seeking additional
equity capital. There can be no assurance that any of these strategies will be
successful or that they will permitted under the Senior Note Indenture.
3
Ampex derives a substantial portion of its operating income from
subsidiaries. Accordingly, Ampex will be dependent on dividends and other
distributions from its subsidiaries to generate the funds necessary to meet its
obligations, including the payment of principal and interest on the Senior
Notes. The ability of Ampex's subsidiaries to pay such dividends will be subject
to, among other things, the terms of any debt instruments of the subsidiaries
then in effect and applicable law.
Risk of Continuing Sales Decline; Anticipation of Future Losses
In recent years, Ampex's net sales have declined materially. These
declines primarily reflect declines in sales to U.S. and foreign government
agencies and defense contractors of Data Systems products, which are material to
operating results. These government agencies and contractors have experienced
continued pressure to reduce spending, which has particularly affected Data
Systems' sales to government contractors of its DCRsi instrumentation recorders,
which have generally been more profitable than its data storage and video
recording products. Sales of professional television and after-market products
are also expected to decline as a result of the announcement of new digital
television transmission standards.
In response to declining sales of these products, Ampex has been
seeking to expand its products and services, including through acquisitions.
Ampex has also instituted, and will continue to implement, cost reduction
programs. However, there can be no assurance that any of these strategies will
be successful, or that Ampex will be able to reverse recent sales declines.
Ampex currently anticipates that it is likely to report losses in the
first half of 1999 and depending on the results and timing of its acquisition
and cost reduction strategies, such losses could be incurred for subsequent
periods and for 1999 as a whole.
Risks Associated with Acquisition Strategy
In order to expand Ampex's products and services, Ampex has made, and
is considering making, acquisitions of, and/or investments in, other business
entities, including businesses not related to its historical lines of business.
See "Business-Recent Developments". Ampex may not be able to identify or acquire
additional acquisition candidates in the future, or complete any further
acquisitions or investments on satisfactory terms. In order to pay for future
acquisitions, Ampex may have to:
o issue additional equity securities, which would dilute the
ownership interest of existing Ampex shareholders;
o incur additional debt; and/or
o amortize goodwill and other intangibles or incur other
acquisition-related charges, which could materially impact
earnings. Ampex's results of operations for fiscal 1998
reflect charges of $1.5 million for acquisition-related
expenses and write-offs.
Acquisitions and investments involve numerous additional risks,
including difficulties in the management of operations, services and personnel
of the acquired companies, and of integrating acquired companies with Ampex
and/or each other's operations. Ampex may also encounter problems in entering
markets and businesses in which it has limited or no experience. Acquisitions
can also divert management's attention from other business concerns. Ampex may
make investments in companies in which it has less than a 100% interest. Such
investments involve additional risks, including the risk that Ampex may not be
in a position to control the management or policies of such entities, and risks
of potential conflicts with other investors. Ampex has invested in companies
that are in the early stage of development and may be expected to incur
substantial losses. Ampex's financial resources may not be sufficient to fund
the operations of such companies. Accordingly, there can be no assurance that
any acquisitions or investments that Ampex has made, or may make in the future,
will result in any return, or as to the timing of any return, Ampex could lose
all or a substantial portion of its investments.
Risks Associated with Internet Video Strategy
4
Ampex's strategy to expand its Internet video businesses involves
special risks in addition to the risks of acquisitions generally described
above. Such risks include, but are not limited to:
o future demand for the services of Ampex's Internet affiliates
and their ability to obtain and manage resources for growth
from their present size and to become profitable;
o Ampex's ability to transfer audio or video technology to
Internet-based applications;
o future demand for Internet-based audio, video and e-commerce
services;
o uncertainties as to the future availability of high-speed
Internet access;
o the introduction of new or enhanced Internet video products or
services by competitors; and
o the ability of Ampex or its Internet affiliates to obtain the
managerial, technical and other resources necessary to provide
such services or to do so while generating a profit.
If Ampex's strategy for the development of Internet-based activities
is implemented, it is likely that significant expenses would be incurred which
would cause the Company to report material losses in the future. Such losses
could negatively affect the price of the Company's securities in future periods,
and could require it to seek additional capital, which may not be available on
satisfactory terms or at all.
Fluctuations in Royalty Income
Ampex's results of operations in certain prior periods reflect the
receipt of significant royalty income, including material non-recurring payments
resulting from negotiated settlements primarily related to sales of products by
manufacturers before negotiating licenses from Ampex. Although Ampex has a
substantial number of outstanding and pending patents, and its patents have
generated substantial royalties in the past, it is not possible to predict the
amount of royalty income Ampex will receive in the future. Royalty income has
historically fluctuated widely due to a number of factors that Ampex cannot
predict, such as the extent to which third parties use its patented technology,
the extent to which it must pursue litigation in order to enforce its patents,
and the ultimate success of its licensing and litigation activities.
The costs of patent litigation can be material. The institution of
patent enforcement litigation may also increase the risk of counterclaims
alleging infringement by Ampex of patents held by third parties or seeking to
invalidate patents held by Ampex. Moreover, there is no assurance that Ampex
will continue to develop patentable technology that will be able to generate
significant patent royalties in future years to replace patents as they expire.
Ampex's royalty income fluctuates significantly from quarter to quarter and from
year to year, and there can be no assurance as to the level of royalty income
that will be realized in future periods.
Fluctuations in Operating Results
Ampex's sales and results of operations are generally subject to
quarterly and annual fluctuations. Various factors affect Ampex's operating
results, some of which are outside of the Company's control, including:
o customer ordering patterns;
o availability and market acceptance of new products;
o timing of significant orders and new product announcements;
o order cancellations; and
o receipt of royalty income.
5
Data Systems' revenues are typically dependent upon receipt of a
limited number of customer orders involving relatively large dollar volumes and
are difficult to forecast in any given fiscal period. Results can also be
significantly affected by any acquisitions or material investments that Ampex
may elect to make in a given quarter. Therefore, its results may fluctuate
significantly from quarter to quarter and from year to year. Results of a given
quarter or year may not necessarily be indicative of results to be expected for
future periods. In addition, fluctuations in operating results may negatively
affect Ampex's debt service coverage, or its ability to issue debt or equity
securities should it wish to do so, in any given fiscal period. Material
fluctuations in Ampex's results in future periods could have a material adverse
effect on the price of the Company's Common Stock.
Seasonality and Backlog
Sales of most of Ampex's products have historically declined during
the first and third quarters of the fiscal year, due to the seasonal procurement
practices of Ampex's customers. A substantial portion of Ampex's backlog at a
given time is normally shipped within one or two quarters thereafter. Therefore,
sales in any quarter are heavily dependent on orders received in that quarter
and the immediately preceding quarter.
Rapid Technological Change and Risks of New Product Development
All the industries and markets from which Ampex derives revenues,
directly or through its licensing program, are characterized by continual
technological change and the need to introduce new products, product upgrades
and patentable technology. This has required, and will continue to require, that
Ampex spend substantial amounts for the research, development and engineering of
new products and advances to existing products. No assurance can be given that
Ampex's existing products and technologies will not become obsolete or that any
new products or technologies will win commercial acceptance. Obsolescence of
existing product lines, or inability to develop and introduce new products,
could have a material and adverse effect on its sales and results of operations
in the future. The development and introduction of new technologies and products
are subject to inherent technical and market risks, and there can be no
assurance that we will be successful in this regard.
Competition
Ampex encounters significant competition in all its product markets.
Many of its competitors have greater resources and access to capital than the
Company. In the mass data storage market, Ampex competes with a number of
well-established competitors such as IBM Corporation, Storage Technology
Corporation, Exabyte Corporation and Quantum Corporation, as well as smaller
companies. In addition, other manufacturers of scanning video recorders may seek
to enter the mass data storage market in competition with us. For example, Sony
Corporation has entered this market with storage products based on its video
recording technology. In addition, price declines in competitive storage
systems, such as magnetic or optical disk drives, can negatively impact sales of
Ampex's DST products.
In the instrumentation market, Ampex 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.
MicroNet's competitors include both large companies such as EMC
Corporation, Data General Corporation and IBM and other small system
integrators. There is no assurance that MicroNet will be able to compete
successfully in these markets in the future.
The market for Internet products and services is highly competitive
and characterized by multiple competitors and low barriers to entry. Although
Ampex believes that its Internet video strategy is differentiated from its
competitors, Ampex holds no proprietary technology and is not in a position to
achieve dominance in any market segment of the Internet. In addition, the market
for Internet advertising and electronic commerce, upon which Ampex's Internet
operations will be partially dependent to achieve
6
ultimate profitability, is intensely competitive and Ampex believes that
competition in this field will intensify.
Dependence on Certain Suppliers
Ampex purchases certain components from a single domestic or foreign
manufacturer. Significant delays in deliveries or defects in such components
could adversely affect Ampex's manufacturing operations, pending qualification
of an alternative supplier. In addition, Ampex produces highly engineered
products in relatively small quantities. As a result, Ampex's ability to cause
suppliers to continue production of certain products on which it may depend may
be limited. Ampex does not generally enter into long-term raw materials or
components supply contracts.
Risks Related to International Operations
Although Ampex significantly curtailed its international operations
in connection with the restructuring of its operations in 1993, sales to foreign
customers (including U.S. export sales) continue to be significant to Ampex's
results of operations. International operations are subject to a number of
special risks, including limitations on repatriation of earnings, restrictive
actions by local governments, and fluctuations in foreign currency exchange
rates and nationalization. Additionally, export sales are subject to export
regulation and restrictions imposed by U.S. government agencies. Fluctuations in
the value of foreign currencies can affect Ampex's results of operations. Ampex
does not normally seek to mitigate its exposure to exchange rate fluctuations by
hedging its foreign currency positions.
In January 1999, the new "Euro" currency was introduced in certain
European countries that are part of the European Monetary Union. Beginning in
2003, all EMU countries are expected to be operating with the Euro as their
single currency. A significant amount of uncertainty exists as to the effect the
Euro will have on the marketplace generally. Some of the rules and regulations
relating to the governance of the currency have not yet been defined and
finalized. As a result, companies operating or conducting business in Europe
will need to ensure that their financial and other software systems are capable
of processing transactions and properly handling the Euro. Ampex is currently
assessing the effect the introduction of the Euro will have on its internal
accounting systems and the potential sales of its products. Ampex will take
appropriate corrective actions based on the results of such assessment. Ampex
has not yet determined the costs related to addressing this issue. This issue
and its related costs could materially and adversely affect Ampex's business.
Volatility of Stock Price
The trading price of Ampex's Common Stock has been and can be
expected to be subject to significant volatility, reflecting a variety of
factors, including:
o quarterly fluctuations in operating results;
o announcements of new product introductions by Ampex or its
competitors;
o reports and predictions concerning the Company by analysts and
other members of the media;
o issuances of substantial amounts of Common Stock in order to
redeem outstanding shares of its Preferred Stock; and
o general economic or market conditions.
The stock market in general, and Internet companies in particular,
have experienced a high degree of price volatility, which has had a substantial
effect on the market prices of many such companies for reasons that often are
unrelated or disproportionate to operating performance. These broad market and
industry fluctuations may adversely affect the price of Ampex's Common Stock,
regardless of its operating performance.
7
Dependence on Key Personnel
Ampex is highly dependent on its management. Ampex's success depends
upon the availability and performance of key executive officers and directors.
The loss of the services of key persons could have a material adverse effect
upon Ampex. Ampex does not maintain key man life insurance on any of these
individuals.
Anti-Takeover Consequences of Certain Governing Instruments
Ampex's Certificate of Incorporation provides for a classified Board
of Directors, with members of each class elected for a three-year term. The
Certificate of Incorporation provides for nullification of voting rights of
certain foreign stockholders in certain circumstances involving possible
violations of security regulations of the United States Department of Defense.
The instrument governing Ampex's outstanding Preferred Stock, which had an
aggregate liquidation value of approximately $63.7 million at December 31, 1998,
requires that Ampex make mandatory offers to redeem those securities out of
legally available funds in the event of a change of control. For this purpose, a
change of control includes the following events: a person or group of people
acting together acquires 30% or more of Ampex's voting securities; Ampex merges,
consolidates or transfers all or substantially all of its assets; or the
dissolution of Ampex. The Certificate of Incorporation authorizes the Board of
Directors to issue additional shares of Preferred Stock without the vote of
stockholders. The indenture governing Ampex's outstanding Senior Notes, in the
total principal amount of $44 million, requires Ampex to offer to repurchase the
Senior Notes at a purchase price equal to 101% of the outstanding principal
amount thereof together with accrued and unpaid interest in the event of a
change of control. Under the indenture, a change of control includes the
following events: a person or group of people acting together acquires 50% or
more of the Company's voting stock; or the transfer of substantially all of the
Company's assets to any such person or group, other than to certain subsidiaries
and affiliates of Ampex. These provisions could have anti-takeover effects by
making an acquisition of Ampex by a third party more difficult or expensive in
certain circumstances.
Nonpayment of Dividends
Ampex has not declared dividends on its Common Stock since its
incorporation in 1992 and Ampex has no present intention of paying dividends on
its Common Stock. Ampex is also restricted by the terms of certain agreements
and of the outstanding Preferred Stock as to the declaration of dividends.
Dependence on Licensed Patent Applications and Proprietary Technology
Ampex's success depends, in part, upon its ability to establish and
maintain the proprietary nature of its technology through the patent process.
There can be no assurance that one or more of Ampex's patents will be
successfully challenged, invalidated or circumvented or that it will otherwise
be able to rely on such patents for any reason. In addition, there can be no
assurance that competitors, many of whom have substantial resources and have
made substantial investments in competing technologies, will not seek to apply
for and obtain patents that prevent, limit or interfere with Ampex's ability to
make, use and sell its products either in the United States or in foreign
markets. If any of Ampex's patents are successfully challenged, invalidated or
circumvented or its right or ability to manufacture products were to be
proscribed or limited, Ampex's ability to continue to manufacture and market its
products could be adversely affected, which would likely have a material adverse
effect upon Ampex's business, financial condition and results of operations.
Litigation may be necessary to enforce Ampex's patents, to protect
trade secrets or know-how owned by the Company or to determine the
enforceability, scope and validity of the proprietary rights of others. Any
litigation or interference proceedings brought against, initiated by or
otherwise involving Ampex may require Ampex to incur substantial legal and other
fees and expenses and may require some of its employees to devote all or a
substantial portion of their time to the prosecution or defense of such
litigation or proceedings.
Environmental Issues
8
Ampex's facilities are subject to numerous federal, state and local
laws and regulations designed to protect the environment from waste emissions
and hazardous substances. 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. Ampex has been named from time
to time as a potentially responsible party by the United States Environmental
Protection Agency with respect to contaminated sites that have been designated
as "Superfund" sites, and are currently engaged in various environmental
investigation, remediation and/or monitoring activities at several sites located
off Company facilities. There can be no assurance Ampex will not ultimately
incur liability in excess of amounts currently reserved for pending
environmental matters, or that additional liabilities with respect to
environmental matters will not be asserted. In addition, changes in
environmental regulations could impose the need for additional capital equipment
or other requirements. Such liabilities or regulations could have a material
adverse effect on Ampex in the future.
Readiness for Year 2000
Many currently installed computer systems, software applications and
other control devices (collectively, "Systems") are coded to accept only two
digit entries in the date code field. As the year 2000 approaches, these code
fields will need to accept four digit entries to distinguish years beginning
with "19" from those beginning with "20". As a result, in just under one year
the Systems used by many companies may need to be modified to comply with year
2000 requirements. Ampex relies on its internal Systems in operating and
monitoring all major aspects of its business, including its manufacturing
processes, engineering management controls, financial systems (such as general
ledger, accounts payable and payroll modules), customer services,
infrastructure, embedded computer chips, networks and telecommunications
equipment and products. Ampex also relies on the external Systems of its
suppliers and other organizations with which it does business. Based on a review
of its Systems and the nature of the corrections needed to make the Systems
compliant, the Company believes there is minimal risk that the Systems will be
non-compliant on January 1, 2000. However, despite the efforts thus far to
address the year 2000 impact, the Company cannot guarantee that all internal and
external systems will be compliant, or that its business will not be materially
adversely affected by any such non-compliance. See "Management Discussion and
Analysis of Financial Condition and Results of Operations."
Products
As stated above in "Introduction," the Company's principal product
groups are its Data Systems' mass data storage and instrumentation products
(including DST, DIS, DCRsi) and professional video and other products (including
DCT), and its MicroNet products (including DataDock, Genesis, FibreFlex,
Premier). For information concerning net sales for each product group, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Data Systems' Products
19-millimeter Products. In 1992, Ampex entered the high-performance
mass data storage market with its DST series of 19-millimeter data storage
products, including tape drives and robotic library systems. Based on its own
evaluation and that of outside sources, the Company believes its DST and DIS
mass data storage product 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 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 use 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 proprietary Ampex technology, introduced in 1994,
gives DST products the performance of a digital
9
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 disks, allowing a user to download stored
information to a computer at a sustained rate of 15 megabytes per second
("MB/sec "), with an option available to increase to a rate of 20MB/sec.
DST and DIS 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 a range of sizes providing storage capacities
from 25 to 165 gigabytes ("GB") per cartridge in single density format and from
50 to 330GB per cartridge in double-density format. DST automated library
systems incorporate multiple tape cartridges and tape drives and provide from
1.2 to 12.8 terabytes ("TB") of storage capacity while occupying only a fraction
of the floor space required by competing storage systems. The Company plans to
announce the availability of expansion modules which can expand DST library
storage capacity in virtually unlimited increments.
Ampex's single-density DST product line currently includes the DST 310
tape drive, the DST 410 automated cartridge library and the DST 810 automated
library system. The DST 310 is a single cartridge tape drive that provides
convenient and fast backup for applications such as large databases or disk
arrays. The DST 310 is capable of accepting 25GB, 75GB and 165GB cartridges. The
DST 410 automated cartridge library is an entry-level library with a storage
capacity of up to 1.2TB in less than eight square feet of floor space. The DST
810 automated library is designed to combine from one to four tape drives, and
features a storage capacity of 6.4TB. 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. These
products can deliver a sustained rate of 15MB/sec across a SCSI-2 interface,
search speeds of up to 1600MB/sec, an average access time of less than 16
seconds and capacity of up to 165GB on a single cartridge.
The Company also offers "double-density" versions of its 19-millimeter
data storage product line. The DST 310, DST 410 and DST 810 products are all
available with double-density storage capacity, as the DST 312, DST 412 and DST
812 products, respectively. The DST 312 tape drive can hold 50GB, 150GB and
330GB cartridges, and the DST 412 library can store up to 2.4TB of data. The DST
812 library system can store 12.8TB of data at a cost of approximately $.02 per
megabyte. Although the new versions are intended to enhance the performance of
the Company's data storage products, the Company believes that the availability
of these new versions has contributed to the decline in sales of the Company's
existing 19-millimeter data storage products. Ampex is currently working to
double the per-cartridge capacity of its mass data storage products again
(quad-density) which, if successful, could permit the storage of as much as
660GB of data on a single cartridge. The Company believes that this will enable
it to maintain its relative cost advantage as per-megabyte costs of competing
storage technologies, such as disk drives, continue to decline. There can be no
assurance that these efforts will be successful or, if they are, that future
sales will not be adversely affected if the Company experiences any product
development delays or transition difficulties. (Subsequent references to storage
capacity of the Company's mass storage products in this Form 10-K refer to the
Company's new double-density versions unless the context otherwise specifies.)
In 1998, the Company began shipping a new medium-sized library
product, the DST 712, which has a maximum storage capacity of 5.8TB in 7.5
square feet of space and can accommodate one or two tape drives. This automated
tape library product was designed to fill the gap between the Company's DST 412
and DST 812 products. The Company also plans to announce its intention to offer
expansion modules for the DST 712 and DST 812 products, which will permit
additional storage capacity for those products on a cost-efficient, incremental
basis.
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
10
competition in these markets may affect future sales of DST products. See
"Markets - Mass Data Storage and Instrumentation Products," " - Distribution and
Customers," " - Competition, " and " - New Product Development and Industry
Conditions."
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 Company's DIS products are designed for mass
storage of instrumentation data. These recorders use the same 19-mm helical scan
recording technology used in the Company's DST products. Data from DIS recorders
can also 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 165GB (depending on
the DST cartridge used) and record/reproduce rates of 120 megabits ("Mb") and
160Mb per second, respectively. The DIS 220i automated library, which is the
instrumentation version of the DST 410 library, can hold up to 1.2TB of data.
The Company introduced double-density versions of each of its DIS recorders at
the time it similarly upgraded its DST product line.
Data Acquisition/Instrumentation Products. Ampex has 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 application and other applications involving
comparable data-gathering challenges in extreme environments, because of their
unmatched performance and reliability.
The Company's principal data acquisition/instrumentation products
currently are the DCRsi 240, DCRsi 107 and DCRsi 75 digital instrumentation
recorders. 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 48GB 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 107Mb per second. During 1995,
the Company introduced the DCRsi 75 recorder, a lower cost DCRsi model with a
record-reproduce rate of 75Mb per second. Shipments of DCRsi 75 recorders
commenced in 1996.
A significant portion of data acquisition and instrumentation recorder
sales reflect purchases by the federal government, which can be subject to
significant fluctuations. See "Markets - Data Acquisition/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 and Other Products. Data Systems' 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 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.
Data Systems 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 online segment of the
professional television industry. Online 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
11
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 in recent 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" and "Management's Discussion and Analysis
of Financial Condition and Results of Operation, - Results of Operations for the
Three Years Ended December 31, 1998 - Professional Video Recording and Other
Products." In 1998, 1997 and 1996, sales of these products consisted almost
exclusively of DCT video recorders and image processing systems. In view of the
recent announcement of standards for the digital transmission of television
signals, Ampex believes it is unlikely that such special purpose video products
will continue to be sold in material quantities. Accordingly, the Company
expects that its sales of products in this market will be limited to
after-market products and services, and that such sales will continue to decline
in future years. Certain of the Company's DST and DIS products have been used in
professional video recording markets, and the Company believes that the
potential for increased sales of its 19-millimeter products in these markets
could help to offset the decline in sales of its DCT products, but there can be
no assurance that this will occur.
Data Systems' 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. 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. Other products also
include the sale of a limited number of integrated circuits. See "Markets -
Components" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations for the Three Years Ended December
31, 1998 - Professional Video Recording and Other Products."
MicroNet Products
MicroNet products are grouped by product families described below.
MicroNet offers a wide variety of storage solutions targeted at image-based
creative professional markets, including principally digital pre-press and
digital video editing.
DataDock. DataDock transportable storage systems provides a high level
of performance, flexibility and safe removable operation available for desktop
systems.
DataDock and DataDock 525 storage systems were developed for use in the
publishing and collaborative content-creation markets where sharing of large
data files is integral to the workflow process. Available drive modules range
from hard disk drives, CD recorders, DVD-RAM and tape backup devices to high
performance disk arrays. DataDock products can be used with many computing
platforms and operating systems including Windows 95/98, NT, Mac OS, Sun Solaris
and SGI IRIX.
DataDock 7000 RAID storage systems provide platform and operating
systems interdependence combined with DataDock features in a self-contained RAID
system with capacities up to 250GB. DataDock 7000 systems were designed for
small to medium companies requiring a high performance mid-capacity RAID storage
system. The DataDock 7000 is scalable and can incorporate backup devices in the
unit in order to provide self-contained RAID storage and archive solution.
Genesis. MicroNet believes that many of its customers are migrating to
higher bandwidth internal networks requiring larger storage capabilities. The
Genesis RAID Systems have been developed in
12
response to this trend. These products incorporate many of the features of the
DataDock 7000 product line and can operate on a fibre channel interface.
The Genesis product line includes three scalable products defined by
capacity, interface and feature set. All are platform independent, fibre
channel-ready.
Genesis includes redundant RAID controllers for added security and a
web-based GUI (graphical user interface) for easier system management.
Genesis integrates dual FibreBridge technology allowing Genesis to
achieve high-speed fibre channel connectivity for integration in a Storage Area
Network (SAN), offering up to one terabyte of storage.
FibreFlex. FibreFlex is a complete, multi-platform compatible fibre
channel SAN that enables workgroups to achieve fast network access and was
designed as the next generation of connectivity for companies that work with
large data and graphic image files.
By integrating fibre channel switches, hubs and host adapters with
Genesis RAID system and file level data management software, MicroNet FibreFlex
allows multiple users to simultaneously access large data or graphics files
without typical network slowdown. By centralizing data and providing file level
data access, FibreFlex eliminates data copying time and provides true version
control, which MicroNet feels surpasses other Fibre networks that allow only
volume level access. User productivity is significantly increased in
multi-project, multi-user environments.
Premier Products. MicroNet Premier products provide users with
cost-effective backup and archive options for MicroNet disk array and RAID
systems. MicroNet Premier products have been designed to complement DataDock and
Genesis product lines and represent complete backup and archive solutions which
include the latest third party software compatible with the operating system the
customer has specified. Premier products range in capacity from 24GB to 490GB
and incorporate many tape storage technologies including AIT, DLT and DAT.
Markets
Data Systems' Products
19-millimeter Products. Data Systems' 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 online 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 combined with 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.
Despite the rapid increase in the need for data storage on the part of
most computer users, the Company believes that its mass storage products offer
such large capacities and high speeds that they currently exceed the capacity
needs and retrieval rates required by the majority of computer users.
Accordingly, the Company expects that its sales of these product will continue
to be limited to large and technically sophisticated corporations and national
and local government agencies for the foreseeable future. Ampex's customers in
these industries include Mobil, Amoco, the FBI, NASA, Time Warner, Fox
Television and Industrial Light and Magic. The Company also believes that if the
new digital television standards are widely adopted, Ampex may be able to sell
its DST and DIS products to customers who
13
historically purchased its specialized video products. Ampex's current sales of
mass data storage and instrumentation products are concentrated at present in
three major vertical industry markets - oil and gas exploration; government; and
digital video industry organizations. The Company believes that, whereas in
prior years organizations involved in the markets described above maintained
large technical staffs which were capable of integrating equipment such as the
Company's into their existing computer facilities, even the largest of these
potential customers are now increasingly likely to purchase complete solution,
or even to outsource certain activities and to reduce their in-house technical
staffs. This trend is unfavorable to companies like Ampex, which primarily
provide system components like mass data storage tape drives. The Company has
been working to address this by ensuring that certain widely used software can
interface with its products. For example, the Company is seeking to address
hierarchical storage management and database backup applications in certain
markets, and its DST 310 tape drive and DST 410 and 810 libraries are now
supported by certain third party hierarchical 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.
The Company believes that the emergence of applications that envision
the transmission of video, graphics and other images over the Internet or
private networks may create new markets for the Company's data storage products.
However, the Company's management believes that these applications will require
bandwidth improvements to current information delivery systems before the
information storage systems offered by the Company and others will be required.
Should this technical obstacle be overcome and commercial markets ultimately
develop, the Company believes that it will experience aggressive competition
from other companies, and there can be no assurance that the Company will be
able to remain competitive against products ultimately offered by such
companies.
Data Acquisition/Instrumentation Recorders. Data Systems' DCRsi
recording drives and magnetic media are designed to acquire large volumes of
data in stressful physical environments, and are used extensively in airborne
and naval intelligence acquisition and for the collection of test data during
the design and qualification of aircraft. DCRsi products are used by U.S. and
foreign military and intelligence agencies (including those of Germany, Japan,
the United Kingdom and Russia), as well as by manufacturers of commercial
airplanes, such as Boeing Corporation, and by Airbus, the consortium of European
airframe manufacturers. A significant portion of DCRsi products are also sold in
versions that are intended for use in ground facilities for the long-term
storage or analysis of data previously collected in mobile environments.
The storage capacity and data transfer rates of the Company's DCRsi
products can be varied continuously from fractions of a megabit per second up to
240 megabits per second on its highest performance versions. These products
perform reliably in conditions of extreme shock and vibration, variations in
gravitational force and extremes of temperature, humidity and electronic
interference, such as those found in aircraft, helicopters and space vehicles.
Because these products are widely used in their target markets, recordings made
on one machine can subsequently be reproduced on other machines at various
customer locations. In ground-based applications, which generally are less harsh
environments that do not require the ruggedness of a DCRsi recorder, the storage
and analysis functions of DCRsi products can also be performed by the Company's
19-millimeter DST and DIS mass data storage products.
The Company has supplied its data acquisition and instrumentation
products 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
government agencies are subject to fluctuation as a result of changes in
government spending programs (including defense programs). 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.
Professional Video Recording and Other 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
14
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.
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. In addition, the Company believes that the recent announcement of
standards for the digital transmission of television signals will cause sales of
its special purpose video products to continue to decline in future years. These
factors have had and will continue to have a negative impact on sales of the
Company's professional video recording and related after-market products.
MicroNet Products. MicroNet products are sold in many segments of the
high-end graphics market, which includes printers, book and magazine publishers,
advertising agencies, graphic designer's video production and post production
facilities, and web design and creation houses. MicroNet enjoys a significant
market share in both the production and post production market segments of the
digital video programming market.
Distribution and Customers
The Company currently distributes 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 for storage of very large databases
maintained by many commercial and government entities.
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.
MicroNet products, including DataDock, Genesis and Premier lines, are sold
primarily to the content-creation markets of publishing, pre-press and digital
video open systems post production markets. Sales of MicroNet products are made
through an internal sales force to a worldwide network of VARs, integrators and
distributors.
The Company currently operates a total of twelve sales offices,
including nine in the U.S., one in Germany, one in Japan and one in the United
Kingdom. Included in the Company totals, MicroNet maintains three regional sales
offices strategically located in the U.S.
Ampex's sales to U.S. government agencies (either directly or
indirectly through government contractors) represented 25.8% of net sales in
fiscal 1998 compared to 27.7% in fiscal 1997 and 18.0% in fiscal 1996. 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
15
programs and are subject to customary contractual provisions permitting
termination at the government's election. See "Markets - Mass Data Storage and
Instrumentation Products."
No single non-government customer accounted for more than 10% of the
Company's total net sales in 1998, 1997 or 1996.
Research, Development and Engineering
Scanning recording systems such as those developed by Ampex involve
extremely complex technology. As a result, Ampex has developed extensive
expertise in a wide area of technical disciplines and has developed fundamental
innovation in digital image processing, magnetic recording technology and
channel electronics. In 1998, the Company spent approximately 18% of net sales
for research and development programs and engineering costs, compared to 19% in
1997 and 17% in 1996. 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 or be useful 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 products, and presently is working to double
the current per-cartridge capacity of these products to 660GB of data and to
increase their data transfer rates above the current 15-20MB/sec levels. If
successful, these efforts will further enhance the cost efficiency of these
products. Ampex also plans to introduce lower cost versions of its data
acquisition and instrumentation products, and to improve the ability of these
products to interface with other companies' products. The Company hopes to
develop an expansion module that will increase the solid state memory capacity
of its DCRsi products, thereby increasing the speed of their data acquisition
functions. See "Products - Mass Data Storage and Instrumentation" above. Ampex
will also continue researching other new product opportunities that capitalize
on its expertise and patented technology in digital image processing, magnetic
recording and channel electronics. All of the Company's research, development
and engineering efforts are subject to certain risks and uncertainties described
below under "New Product Development and Industry Conditions," and there can be
no assurance that any of these efforts will be technologically or commercially
successful.
MicroNet will continue to focus its development and engineering efforts
on disk array products. The recently-introduced Genesis product line will build
on the DataDock 7000 family of disk arrays (RAID). MicroNet engineering is
developing new features for Genesis to include a native fibre channel-version of
the Genesis product line that utilizes fibre channel devices throughout the
system. This product line will leverage the 100MB/sec. bandwidth of fibre
channel to greatly increase data transfer rates to users on a storage area
network. It will be particularly attractive to users who require a very
high-sustained data transfer rate, such as for video applications. Design
emphasis is on performance, reliability, ease of use and management features.
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 December 31, 1998, Ampex
held over 1,000 patents and patent applications, including approximately 350
patents in the U.S., approximately 550 corresponding patents in other countries,
and approximately 125 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 minimizing substantial renewal fees.
Ampex has granted numerous royalty-bearing patent licenses to, and
holds patent licenses from, third parties. Certain of the Company's patented
innovations have been adopted for use in mass market consumer products, and as a
result, the Company receives the majority of its licensing royalties from
foreign manufacturers of VCRs and 8-mm camcorders. The Company intends to
negotiate license
16
agreements with remaining unlicensed manufacturers of 8-mm camcorders, but there
can be no assurance that any such licensing efforts (including any necessary
litigation) will be successful.
The Company believes that it has patents that may be used in the
manufacture of television receivers. In addition, Ampex is evaluating the extent
to which its technology may be employed or useful in video games, and will
continue to evaluate additional products as potential licensing opportunities to
the extent that its technical and financial resources permit. 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 this
would support the Company's marketing strategy.
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. Nevertheless, there can be no assurance
that the Company will continue to develop patentable technology that will be
able to generate significant patent royalties in future years to replace patents
as they expire. See "Research, Development and Engineering."
Ampex regards its trademark "Ampex" 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 Company's former magnetic tape subsidiaries (the "Media" subsidiaries),
which were sold by the Company in November 1995, have a nonexclusive license to
use the Ampex trademark on their audio, video and instrumentation media products
through July 2000. Ampex has not granted any other material rights to use its
name or logo to any other third party.
Trademarks of the Company used in this report include Ampex include
Ampex, DCT, DST, DCRsi and DIS, all of which are trademarks of Ampex
Corporation, and MicroNet, DataDock, Genesis, FibreFlex and Premier, all of
which are trademarks of MicroNet Technologies, Inc. All other trademarks and
service marks used in this Report are the property of Ampex or their respective
owners.
Manufacturing
The Company's products are manufactured at Ampex's facilities in
Redwood City, California and Colorado Springs, Colorado and MicroNet facilities
in Irvine, California. Products are designed and engineered primarily in Redwood
City and Irvine, California. Because the Company's mass data storage products
incorporate many of the technologies and components of the Company's 19-mm-based
videotape 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 relocated its manufacturing, administrative and RD&E operations to
smaller facilities located on a portion of the property that it leased back at
the time of sale. In May 1996, the Company sold a portion of its Colorado
17
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.
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 current 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 and flexible magnetic media, 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. In addition, the
Company produces highly-engineered products in relatively small quantities. As a
result, its ability to cause suppliers to continue production of certain
products on which the Company may depend may be limited. 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.
Fluctuations in Operating Results; Seasonality and Backlog
Ampex's sales and results of operations are generally subject to
quarterly and annual fluctuations. Factors affecting operating results include:
customer ordering patterns; availability and market acceptance of new products;
timing of significant orders and new product announcements; order cancellations;
receipt of royalty income; and numerous other factors. Ampex's revenues are
typically dependent upon receipt of a limited number of customer orders
involving relatively large dollar volumes in any given fiscal period, increasing
the potential volatility of its sales revenues from quarter to quarter. In
addition, sales to government customers (primarily sales of DCRsi
instrumentation products) are subject to fluctuations as a result of changes in
government spending programs, which can materially affect the Company's gross
margin as well as its sales. Sales of most of the Company's products have
historically declined during the first and third quarters of its fiscal year,
due to seasonal procurement practices of its customers.
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 on orders received in that quarter and the
immediately preceding quarter. Ampex's backlog of firm orders at December 31,
1998 was $1.6 million, compared to $6.9 million at December 31, 1997 and $3.4
million at December 31, 1996. The backlog at December 31, 1998 was approximately
11% of average quarterly net sales, based on 1998 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. For all of the foregoing reasons, 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.
Ampex competes in the mass data storage market with a number of
well-established competitors, such as IBM Corporation, Storage Technology
Corporation, Exabyte Corporation, Sony Corporation and Quantum Corporation, as
well as smaller companies. In addition, other manufacturers of scanning video
recorders may seek to enter the mass data storage market in competition with the
Company. For example, in 1996,
18
IBM announced the general availability of a new high-capacity,
high-speed tape storage product designated "Magstar." Also, Sony 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 Corporation, 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, although the
Company's sales of these products have declined due to the recently announced
digital television transmission standards. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of
Operations for the Three Years Ended December 31, 1998 - Mass Data Storage and
Instrumentation Recorders." DCT products are not competitive in the lower end of
the market. Sales of these products have been declining in recent years as the
Company has discontinued many of its professional video products.
MicroNet services the professional graphics community, which is
significant in range and therefore the company has competition in many different
segments. Competition comes mainly from captive storage solutions provided by
Compaq and Intergraph. In other segments of the professional graphics market,
MicroNet sees competition from captive storage solutions provided by the various
CPU manufacturers including Apple Computer, Silicon Graphics, Sun MicroSystems
and Intergraph. In the digital video open systems post-production market,
competitors such as DataDirect Networks and Rorke Data Systems have products
offering similar performance and capabilities. Sales of MicroNet products can be
affected by the performance of complementary software and hardware products and
market conditions in both the professional graphics and digital video open
systems post-production markets.
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 videotape 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.
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
19
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
"Products - Professional Video Recording and Other Products" and "Markets -
Professional Video Recording and Other Products."
Sales of the Company's instrumentation products can be significantly
affected by changes in government spending levels. See "Markets - Mass Data
Storage and Instrumentation Products - Data Acquisition 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
Although the Company's net sales revenues include significant revenue
from sales to foreign customers, these sales (particularly sales of professional
video products) have been declining in recent years. Sales to foreign customers
accounted for approximately 34.6% of net sales in fiscal 1998, compared to 31.2
% in fiscal 1997 and 34.1% in 1996. 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 risk attendant upon
investments in foreign countries, including limitations on repatriation of
earnings, restrictive actions by local governments, fluctuation 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 21 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 1999 or 2000 will be
material.
20
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. 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 six environmental investigation, remediation and/or monitoring
activities at sites located off Company facilities, including the removal of
solvent contamination from subsurface aquifers at a site in Sunnyvale,
California. Some of these activities involve the participation of state and
local government agencies. The other five sites (including the four Superfund
sites) are associated with the operations of the Media subsidiaries formerly
owned by the Company. Although the Company sold Media in November 1995, the
Company may have continuing liability with respect to environmental
contamination at these sites if Media fails to discharge its responsibilities
with respect to such sites. During 1998, the Company spent a total of
approximately $0.2 million in connection with environmental investigation,
remediation and monitoring activities and expects to spend a similar amount in
fiscal 1999 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,
1998, the Company had an accrued liability of $1.9 million for pending
environmental liabilities associated with the Sunnyvale site and certain other
sites currently owned or leased by the Company. The Company has not accrued any
liability for contingent liabilities it may incur with respect to former Media
sites discussed above. 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.
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, because the Company conducts its business in
foreign countries as well as in the U.S., 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. There can be no assurance that the
Company will not ultimately incur liability in excess of amounts currently
reserved for pending environmental matters, or that additional liabilities with
respect to environmental matters will not be asserted. In addition, changes in
environmental regulations could impose the need for additional capital equipment
or other requirements. Such liabilities or regulations could have a material
adverse effect on the Company in the future.
Employees
As of December 31, 1998, Ampex employed 461 people worldwide,
compared to 509 at December 31, 1997 and 527 at December 31, 1996. Approximately
8% of Ampex's current worldwide workforce is employed in the Company's
international operations, compared to 8% at December 31, 1997 and 7 % at
December 31, 1996. 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.
Pension Plan Matters
21
In 1994, the Company, the Pension Benefit Guaranty Corporation (the
"PBGC") and certain affiliates (the "Affiliates") who were members of a "group
under common control" for purposes of the Employee Retirement Income Security
Act ("ERISA") entered into certain agreements in connection with the liquidation
of the Company's former parent, NH Holding Incorporated ("NHI"), relating to
the pension plans of the Company and of its former Media subsidiaries, which are
currently underfunded. See Note 16 of Notes to Consolidated Financial
Statements. Pursuant to these agreements, the Affiliates agreed that if during
the terms of the agreements Ampex fails to make a required contribution to the
pension plans, the Affiliates will make or advance funds to permit Ampex to make
such contribution, and Ampex agreed to repay such amounts in accordance with the
terms of the agreements. Ampex has agreed to grant the Affiliates a security
interest in certain assets as collateral for any advances which the Affiliates
may be required to make in the future pursuant to the agreements. The agreements
contain certain restrictive covenants which, among other things, restrict
Ampex's ability to declare dividends, sell all or substantially all its assets
or commence liquidation, or engage in specified transaction,, with certain
related parties, breach of which could result in acceleration of the Company's
potential termination liabilities. In 1994, the Company discontinued accrual of
benefits under the pension plans, but has continued to fund its plan in
accordance with ERISA (and remains contingently liable to fund the Media plan if
Media fails to do so). No claims have been asserted or, to the knowledge of
management, are threatened under these agreements.
ITEM 2. PROPERTIES
As of December 31, 1998, the Company's principal properties were as
follows:
Approximate
Square Footage
Location Activities Conducted of Facility
- -------- -------------------- ---------------
Redwood City, California Executive offices, RD&E, (1)
manufacturing, sales and marketing 168,798
Colorado Springs, Colorado Manufacturing 229,961
Irvine, California Engineering, manufacturing, (2)
sales and marketing 67,940
Chineham, Basingstoke, England Sales and service (3) 7,184
Tokyo, Japan Sales and service (4) 3,886
Sulzbach, Germany Sales and service (4) 13,530
(1) 9,400 square feet is leased on a short-term basis until April 1999.
(2) This facility lease terminates in April 1999. Current plans include
relocation to a leased building in Irvine of approximately 33,000 square
feet.
(3) These facilities are leased under a ten-year lease, which is terminable
at the option of the Company or the landlord in 2002.
(4) 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 99,640 square feet in two buildings. The second lease covers a
newly constructed building of 59,760 square feet, which the Company first
occupied in September 1998. Concurrently with occupancy
22
of the new building, the leases on two other buildings totaling approximately
86,800 square feet were terminated.
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.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its
business. 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.
In 1995, the Company filed a lawsuit against Mitsubishi Electric
Corporation and Mitsubishi Electric America Inc. ("Mitsubishi") alleging patent
infringement by certain VHS video recorders and picture-in-picture television
receivers. In response, Mitsubishi filed a lawsuit against Ampex, alleging
patent infringement by certain Ampex video and data recorder products. In 1997,
the U.S. District Court for the Central District of California determined that
Ampex has no liability to Mitsubishi patents, and Mitsubishi appealed to the
Court of Appeals for the Federal Circuit. The filing of motions and oral
argument have been completed, and it is unknown when the Court will issue its
decision.
In 1997, the U.S. District Court for the District of Delaware ruled
in Ampex's case regarding Mitsubishi picture-in-picture television receivers
that a verdict and award of damages in favor of Ampex should be set aside on the
theory of prosecution history estoppel. The Company appealed to the Court of
Appeals for the Federal Circuit, which has affirmed the decision of the District
Court. The additional claims, which were asserted by the Company against
Mitsubishi with respect to infringement of Ampex patents in connection with
various VCR products, have been settled with an agreement providing, inter alia,
for a lump sum payment to the Company.
See also "Environmental Regulation and Proceedings" and Note 12 of
Notes to Consolidated Financial Statements for additional information with
respect to pending legal proceedings.
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 as of February 1,
1999 are as follows:
Name Age Position
----------------- --- -----------------
Edward J. Bramson 47 Chairman and Chief Executive Officer
Craig L. McKibben 48 Vice President, Chief Financial Officer
and Treasurer
K. Michael Cooper 51 Vice President
Robert L. Atchison 61 Vice President
Richard J. Jacquet 59 Vice President
Joel D. Talcott 57 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. Mr. Bramson also serves as President and a director of Ampex
Holdings Corporation, Vice President and a director of MicroNet, and an officer
and director of Ampex Data Systems Corporation, and a director of Ampex Finance
23
Corporation, each a wholly-owned subsidiary of the Company. He is also Chairman
and Chief Executive Officer of Sherborne Holdings Incorporated, Sherborne &
Company Incorporated and Sherborne Investments Corporation, is a limited partner
of Newhill Partners, L.P. and the managing member of SH Securities Co., L.L.C.
These entities, which are private investment holding companies, may be deemed to
be affiliates of the Company. Mr. Bramson is also a director 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. Mr. McKibben also serves as Vice President
and Treasurer and a director of Ampex Holdings Corporation, as Vice President
and a director of MicroNet, and as Vice President of each of Ampex Data Systems
Corporation, and Ampex Finance Corporation. He is also Vice President and a
director of Sherborne Holdings Incorporated and of Sherborne & Company
Incorporated. Since 1989, Mr. McKibben has been a director and executive officer
of NHI, the Company's former parent. From 1983 to 1989, he was a partner at the
firm of Coopers & Lybrand L.L.P., a predecessor of PricewaterhouseCoopers LLP,
independent public accountants
Robert L. Atchison is Vice President of the Company. Since January
1994 he has been responsible for all operating activities of the Company, and in
1996 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 Vice President and a
director of Ampex Data Systems Corporation and as President and a director of
Ampex International Sales Corporation, wholly-owned subsidiaries of the Company.
He has served as an executive officer of the Company and various subsidiaries
since 1987.
K. Michael Cooper, who joined the Company in June 1998, is Vice
President of the Company. He also serves as President and a director of Ampex
Data Systems Corporation and MicroNet, and as such has operating
responsibilities for these companies. Previously, Mr. Cooper served as President
and CEO for a computer peripheral company, and in a number of senior management
positions with the Hiller Group.
Richard J. Jacquet is Vice President of the Company. Since January 1994
be 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 also serves as Vice President of Ampex Data
Systems Corporation, Ampex Holdings Corporation and MicroNet. 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 1991 to 1987), and has supervisory responsibility for investor relations
and corporate communications functions. Mr. Talcott also serves as Vice
President and Secretary and a director of Ampex Data Systems Corporation, Ampex
Finance Corporation and Ampex International Sales Corporation and as Vice
President and Secretary of Ampex Holdings Corporation and MicroNet, wholly-owned
subsidiaries of the Company.
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 1997 and 1998.
Since January 16, 1996, the Class A Common Stock has been traded on the American
Stock Exchange under the symbol "AXC."
24
Fiscal Year High Low
--------------- ---------- ----------
1998
First Quarter $3.25 $2.00
Second Quarter 3.13 1.75
Third Quarter 2.13 1.00
Fourth Quarter 1.19 .69
1997
First Quarter $10.50 $5.63
Second Quarter 7.38 5.44
Third Quarter 6.25 3.88
Fourth Quarter 4.56 2.13
As of January 29, 1999, there were 833 holders of record of the
Company's Class A 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 on
its Common Stock. The Company is also restricted by the terms of the Indenture
for the Senior Notes and certain other agreements and of its outstanding
Noncumulative Preferred Stock as to the declaration of dividends. Under current
circumstances, the Company may not pay any cash dividends on its Common Stock.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and Notes 10 and 13 of Notes to
Consolidated Financial Statements.
(b) Information as to equity securities sold by the Company during
the fiscal year ended December 31, 1998 which were not registered under the