10-K 1 IOMEGA CORPORATION ANNUAL 10-K FOR 1994 PART I ITEM 1. BUSINESS: Iomega Corporation ("Iomega" or the "Company") designs, manufactures and markets removable data storage devices, including magnetic disk drives based on Bernoulli Technology (registered trademark) , tape backup drives based on the industry standard QIC (quarter inch tape) format, and Zip (trademark) removable cartridge drives. The Company also markets a removable hard disk cartridge which is compatible with certain drives manufactured by SyQuest Technology, Inc. ("SyQuest") and utilizes rigid media, and Floptical (registered trademark) disk drives. The Company also designs, manufactures and markets subsystems and removable disks and cartridges for use with drives marketed by the Company. The Company was incorporated in Delaware in April 1980. Products Iomega's product lines include Bernoulli disk drives and related removable media disks, Ditto (trademark) QIC tape drives and related tape media, Zip removable cartridge disk drives and media cartridges, Floptical disk drives and related media disks and SyQuest-compatible removable hard disk cartridges. Following is a description of the Company's principal products: Bernoulli Products: These 5.25-inch half-height drives are removable storage devices based on the Company's Bernoulli Technology, which allows spinning flexible media to be precisely stabilized next to a read/write head with aerodynamic contours. The Company's Bernoulli drives are designed to combine the high capacity and rapid access generally associated with rigid "Winchester" disk drives with the media removability and expandable storage capacity generally associated with floppy disk drives and tape drives. The Company's Bernoulli drives and the associated disks are sold both in the form of a complete storage subsystem for IBM PC-compatible personal, laptop and notebook computers, Apple Macintosh personal and notebook computers, and SUN and other leading workstation products, and in the form of components for integration into larger systems by original equipment manufacturers (OEMs) or value added resellers (VARs). The Bernoulli drives use advanced Reed-Solomon error correction and come in 230, 150, 90, 44, and 20 megabyte (MB) disk drive capacities. They also come in external, internal and transportable versions. During 1994, the majority of the Company's Bernoulli sales came from the Bernoulli 150 drive and media cartridges. The Bernoulli MultiDisk 150 drive began shipping in October 1992 and was Iomega's first drive to use multiple capacity disks - 35, 65, 105 and 150MB. It is also capable of reading and writing to 90MB disks and reading 44MB disks of previous Bernoulli drives. The product has self-cleaning heads, which are designed to improve user convenience during operation. The Company began shipping the Bernoulli 230 drive in September 1994 and expects the Bernoulli 230 to account for a significant portion of 1995 Bernoulli sales. The Bernoulli 230 drive is capable of reading and writing 150 and 90MB disks and reading 44MB disks of previous Bernoulli drives. _________________________ Iomega, Bernoulli, and Bernoulli Technology are registered trademarks of, and the Iomega logo, Ditto, Zip, MultiDisk and Tape 250 are trademarks of Iomega Corporation. Floptical is a registered trademark of Insite Peripherals, Inc. All other company and product names mentioned are trademarks of their respective companies. Tape Products: The Iomega Tape 250 (now known as Ditto 250) drives were the industry's first commercially available QIC-standard, 1-inch high tape drives. These drives have a capacity of 250MB with data compression and are dual speed (500/1,000 kilobytes per second (Kbps)). Tape products are attached to the standard floppy interface in IBM PC-compatible computers. The parallel port Ditto 250 attaches to the printer parallel port on IBM PC compatible computers. The drives are shipped with application software for both Microsoft DOS and Microsoft Windows. The Company began shipping these products in June 1992. A significant portion of the Company's sales in 1994 were derived from tape products. In March 1995, the Company renamed and expanded its tape family, which is now known as the Ditto family of tape products. In late 1994, the Company began shipping Ditto 420. In March 1995, the Company announced and began to ship the Ditto 850 and 1700. The Company expects tape products to account for a significant portion of sales in 1995. Zip Products: Iomega started shipping 100MB Zip drives in March 1995. Two versions of the drive are currently offered: a parallel port version for use with IBM PC-compatible computers and a SCSI version for use with Apple Macintosh computers or IBM PC-compatible computers which have a SCSI adapter board. 100MB media cartridges are currently offered with a 25MB version planned. Also offered is a line of accessories. Zip is an external drive with a unique industrial design and color. It features a window to allow visibility of the cartridge being used, rubber feet for standing either flat or on its side, indicator lights and a finger slot for easy cartridge insertion. The parallel port version features printer pass through to allow normal operation of a printer which is often attached to the parallel port of the computer. The SCSI version has two connectors to allow it to be used in a daisy chained set-up with other SCSI devices. The drive's performance is such that application programs can be run directly from the Zip drive. The Zip drive comes with software to help users organize and copy their data. Software read/write protect is another feature for users to secure and protect their data. Floptical Products: Iomega's Floptical 3.5-inch, 21MB drives are read and write compatible with standard 720 kilobytes (KB) and 1.44MB floppy disk drives. The Company began shipping this product in October 1992. The Company has discontinued the development and manufacture of Floptical disk drives. However, the Company will continue to sell its remaining inventory and retains distribution rights to future generation Floptical drives. Subsystems: The Company provides an entire line of subsystems and software drivers for its Bernoulli and tape products. The subsystems are designed to work with multiple computer types, enabling users to move their storage device from machine to machine as their needs change. Models are available in single drive, dual drive, PC powered, and internal configurations. Software drivers are supplied to simplify the integration of the drive into the computer system. Drivers are supplied for leading operating systems including DOS 6.x, Microsoft Windows 3.x, Apple's Macintosh System 6.x and 7.x, and IBM's OS/2. Media: The Company manufactures removable disks using purchased media and sells them in multiple versions for use with its Bernoulli subsystems and drives. The Company has a five-year limited warranty on the disks used in its 230, 150, 90, 44, and 20MB Bernoulli drives. In addition, the Company provides tape cartridges manufactured for the Company to be used with its Ditto 250, 420, 720 and 1700 drives with a two-year limited warranty. The Company assembles Zip cartridges to be used with its Zip drive with a one- year limited warranty. The Company has distribution rights for removable hard disk cartridges manufactured by Nomai, S.A. in France. The cartridges are compatible with certain SyQuest 5.25" drives and utilize rigid media manufactured by IBM. The products come with a five-year limited warranty. Product Technology and Features Magnetic and optical storage drives such as rigid disk drives, tape drives, and floppy disk drives, are used as mass memory devices in computer systems to store and retrieve digital information. These devices are used to access data while the computer is in operation, provide storage backup for other memory devices, store data for archival purposes, and transport data between systems. Bernoulli Products: Disk drives store data on media which has either a rigid or flexible substrate coating with a thin layer of magnetic material which permits the recording, erasing and re-recording of data. As the media disk rotates in the disk drive, read/write heads record data on the disk or retrieve stored data from the disk. Flexible disk drives use thin plastic disks (flexible substrate) that are protected by a lightweight envelope and are removable from the drive mechanism. Rigid disk drives, known as fixed, hard or "Winchester" drives, use rigid aluminum disks that are either fixed permanently in the drive mechanism or contained in a removable sealed cartridge. The Company's Bernoulli drives differ from both floppy and Winchester disk drives in basic design and technology. The Company has applied Bernoulli principles of fluid mechanics to provide an aerodynamic coupling between the flexible media and recording head. The patented head contour creates a vacuum between the head and media to create a stable and intimate contact at the read/write gap, thus achieving very high linear densities. Because the Bernoulli head/disk interface is aerodynamically "soft", a particle of contamination can flow through the interface without permanent damage to the media or head. Similarly, shock and vibration, which can disable a rigid disk drive, may cause a recoverable error but little or no damage to the media or head in the Company's disk drives. Tape Products: Iomega's tape drives and subsystems are primarily designed to back-up and protect against loss of data stored on hard disk drives in IBM PC-compatible computers. The Iomega tape drives have a beltless design which the Company believes improves reliability. Tape drives are believed to be superior to floppy disk drives as backup devices due to the much higher capacity of the minicartridge used in tape drives to distribute, store and transfer software and data. The storage media used by Iomega's tape products is the industry-standard QIC-compatible series minicartridges. Zip Products: Iomega's Zip drives are designed for multiple uses: data transport, data back-up and hard drive expansion. The Zip drive utilizes high capacity flexible media and removability technologies developed in the Company's original Bernoulli products. It uses Winchester style nanoslide heads with a special airbearing surface combined with a unique linear voice coil motor. The drive reads and writes both the 3.5" 25MB and 100MB Zip cartridges. Floptical Products: Iomega's Floptical drives are based on technology licensed by the Company on a non-exclusive basis from Insite Peripherals, Inc. The Floptical drive utilizes the same read/write technology found in standard 3.5-inch floppy drives and is able to read and write to standard 3.5-inch floppy disks. Floptical disks are similar to standard floppy disks with the addition of an optical pattern on one surface. This pattern may be created either by stamping or by laser etching. The Company has developed a laser etching production process. SyQuest Compatible Disks: These removable hard disk cartridges are designed to be compatible with certain 5.25" disk drives marketed by SyQuest Technology, Inc. ("SyQuest"). The removable hard disk cartridges are manufactured for the Company by Nomai, S.A. in France. New Products and Product Development The Company operates in an industry that is subject to rapid technological change, and its ability to compete successfully depends upon, among other factors, its ability to anticipate such change. Accordingly, the Company continues to seek to improve its current lines of product offerings and to pursue the development of new products. In particular, there are projects underway to develop higher capacity tape products and to develop high capacity, high performance removable storage devices. During 1994, 1993 and 1992, the Company's research and development expenses were $15,438,000, $18,972,000, and $21,959,000, respectively (or 10.9%, 12.9%, and 15.8%, respectively, of sales). In October 1994, the Company announced its ZIP product, a 25MB and 100MB removable cartridge disk drive. The product capitalizes on the Company's core technical competencies: high capacity flexible media, heads with unique air bearing surfaces, and removability. The Company has applied for and is in the process of applying for a number of patents and copyrights in connection with the Zip product. The ZIP drive is intended for the consumer/mass market. Also, the Company is continuing development of product(s) for the high performance market currently served by its Bernoulli products. A 230MB version of the Bernoulli product family was introduced to the market in September 1994. In August 1991, the Company entered into a joint development agreement with AIWA Company, Ltd., Japan (AIWA) to develop a very high capacity 4 millimeter (MM) Helico-scanning device based on DAT technology. The Company sold its rights to AIWA in July 1994. In January 1992, the Company acquired certain assets, including intellectual property, of Springer Technologies, Inc., of Fremont, California. These assets were being used by the Company in the development of proprietary thin film head technology for possible application in future mass storage products. In February 1994, the Company sold this development operation to AIWA Research and Development, Inc., a subsidiary of AIWA. The Company has retained rights to purchase thin film heads from AIWA. In April 1990, the Company established a division located in San Diego, California, to develop magnetic tape drive products. The Company began shipping its Tape 250 products in June 1992 and the Tape 420 in November 1994. In March 1995, the Company renamed its tape product line Ditto and introduced the Ditto 850 and Ditto 1700 which the Company began shipping in March 1995. In January 1989, the Company entered into a technology licensing agreement with Insite Peripherals, Inc. ("Insite") for rights to use Insite's Floptical data recording technology. Under the licensing agreement, the Company has the nonexclusive option to manufacture and sell Floptical products developed by Insite and to participate in the development, manufacture, and sale of new products based on Floptical technology. The Company began shipping a 21MB laser Floptical drive in October 1992. In March 1994, the Company discontinued the development and manufacturing of Floptical disk drives, but retains the rights to manufacture and distribute in the future. The Company expects to continue to invest in the development of new drives and disks as well as the expansion of its family of products to include other technologies. Such product expansion may be accomplished through internal development, the acquisition of businesses or technologies, or the use of other companies' products in subsystems. The Company also expects to invest in cost reduction efforts for the manufacture of its existing products in 1995. Marketing The Company markets and sells storage subsystems, system components and media through several distribution channels. The Company sells its products primarily through distributors and OEMs located throughout the United States, Canada, South America, the Far East and Europe. Domestically, the Company's distributors sell storage subsystems to dealers, national retail chains, superstores, mail order companies, value added resellers (VARs), and franchisees for resale to end users, and sell the Company's drives to OEMs. OEMs and VARs incorporate the Company's drives and drive subsystems into systems and microcomputers designed for a wide range of applications. In addition, the Company is increasing its sales presence in the retail channels to sell its new Zip and Ditto product lines. These retail channels include computer superstores, mail order catalogs, office supply superstores, consumer electronics superstores, and specialty computer stores who sell directly to end users. The Company's Federal Systems Group addresses Federal government requirements through sales to Federal systems integrators and Federal resellers. The Company sells its products outside of North America primarily through international distributors, which accounted for approximately 37% of the total Company's sales in 1994. The Company has increased its sales efforts in the European market in the past several years. Sales are accomplished primarily through sales offices located in Germany, Belgium, Spain, Norway, the United Kingdom, Italy, and France. The Company began invoicing in foreign currencies in January 1992. The Company has contracts with certain of its customers which, in the event of a price decrease, allow those customers, subject to certain limitations, credit equal to the difference between the price originally paid and the new decreased price on units in the customers' inventories on the date of the price decrease. When a price decrease is anticipated, the Company establishes reserves for amounts estimated to be reimbursed to qualifying customers. As of December 31, 1994, the Company's sales, marketing and service organization consisted of 147 salespersons, sales support and service personnel worldwide. Manufacturing Bernoulli Products: The Company manufactures its Bernoulli drives by assembling various components, subcomponents and prefabricated parts manufactured by it or outside vendors. The Company manufactures its disk drive mechanism and the media cartridge used with its products. In manufacturing its disks, the Company processes flexible media obtained from outside vendors by placing a magnetic pattern on the media for head positioning and then inserting the media into a protective shell, which is manufactured by a vendor to the Company's specifications. The Company's Bernoulli drives and subsystems are currently manufactured as standard products with standard configurations. Tape Products: The Company manufactures its tape drives by assembling various components, subcomponents and prefabricated parts manufactured by the Company or outside suppliers. The Company tests these products to meet applicable industry standards. The Company packages its tape drives for sale to both end users and OEMs. Zip Products: The drive has been designed to be easily manufactured. The Company manufactures its Zip drives and cartridges by assembling various components, subcomponents and prefabricated assemblies manufactured for it by outside suppliers. The Company uses its servowriting technology to place a magnetic pattern on the flexible media to allow the drive to accurately find and follow the "tracks" which are used to magnetically store the customer's data. The Company depends on the continued and reliable supply of integrated circuits, media and other components and certain manufacturing equipment from several key vendors. The Company currently purchases media, read/write positioning assemblies, read/write heads, certain custom integrated circuits, actuator subassemblies, motors and certain other mechanical devices and assemblies from single manufacturers. The read/write positioning assemblies used in the Company's Bernoulli drives are purchased from SKF Textilmaschinen- Komponenten GmbH pursuant to a supply agreement which expires on September 30, 1997. The Company purchases other material from single source suppliers on a purchase order basis. Any failure or delay by its vendors to supply required items could have an adverse material effect on the Company's business. The Company has not experienced disruptions in its supply of critical components, other than disruptions in the ordinary course of business that have not had a material effect on the Company's business or operations. Competition The data storage industry is highly competitive. The Company competes with a number of companies that have financial, manufacturing and marketing resources greater than those of the Company and may also compete with licensees of the Company's products. Bernoulli Products: The Company's Bernoulli drives compete with other data storage devices that are available to personal computer users, primarily Winchester drives (including fixed, removable drive, removable disk and card-mounted versions), and 3.5" and 5.25" Magneto-Optical (MO) products. The Company's drives compete in the end user market with internal and external storage subsystems, primarily with subsystems based on removable Winchester drives and disks and 3.5" Magneto-Optical products. The Company's Bernoulli products compete in the market with a full range of storage products, including Winchester drives, removable Winchester drives, and high performance tape drives. Tape Products: The Company's Ditto tape drives compete with other QIC and DC2000-type products (which includes QIC and Irwin) in the entry level tape back-up market. The Company believes that this is a growing segment of the market due to the greater need for backups resulting from increased Winchester drive capacities. The data transfer rate for this class of tape drives is relatively slow and since tapes do not provide random access their usage is normally restricted to back-up applications. The Company sees the tape and Bernoulli markets as complementary markets with price and performance segmentation between these product families. The Company competes in the end user market with several internal and external tape products, including parallel port interface products. DC2000-type products currently offer capacities up to 1.7GB with compression. The tape market is considered a commodity market and, therefore, is very price competitive. ZIP Products: The Company's newly introduced ZIP products have many of the same competitors as its Bernoulli products and tape products. In addition, there are emerging technologies that are considered as competitive with the ZIP products. These emerging technologies include MD-Data, high capacity Floptical, and several recordable CD-ROM technologies. Floptical Products: The Company's Floptical drives compete with standard and high density floppy disk drives. The Company's Floptical drives also compete with floptical drives manufactured by Insite. SyQuest Compatible Disks: The removable hard disk cartridges directly compete with SyQuest's own removable cartridges and cartridges from other companies. The product is dependent on the drive manufacturer's success in developing an installed base in the market. Because the market in which the Company competes may be defined in a variety of different ways, both broadly (e.g., data storage) and narrowly (e.g., removable disk drive storage devices for personal computers), the Company believes that any attempt to identify the companies that it considers to be dominant in its industry would be both difficult and possibly misleading. However, the Company does believe that it faced more direct competition from removable storage devices for personal computers in 1994 than in any previous year and the Company expects that direct competition to continue and possibly increase in 1995. In the tape market, there are two major competitors -- Conner Periphials, Inc. and Colorado Memory Systems, a division of Hewlett Packard Company. The Company believes that most purchasers of its products distinguish among competitive products on the basis of some or all of the following criteria: price (cost per unit and cost per megabyte of storage capacity), performance (speed and capacity), functionality (reliability, product size and removability) and security of data. An additional competitive consideration, particularly in the OEM market, is the size (form factor) of the drive. Winchester and floppy drives are available in 8-inch, 5.25-inch, 3.5-inch, 2.5-inch and 1.8-inch form factors. The most common form factor for Winchester drives is 3.5-inches. The Company currently offers 5.25-inch Bernoulli drives, 3.5-inch Tape, 3.5- inch Floptical drives, and external 3.5-inch ZIP drives. The data storage industry is characterized by rapid technological development. The introduction by a competitor of products with superior performance or substantially lower prices would adversely affect the Company's business. Patents The Company owns 38 United States and 17 foreign patents, and has filed 39 U.S. and 3 foreign patents pending. Although the Company believes that its patents and patent applications have significant value, the Company also relies on copyrights and trade secrets to protect its technology. In addition, rapidly changing industry technology makes the Company's future success dependent primarily upon the technical competence and creative skill of its personnel. The Company has licensed from Insite certain rights relating to the Company's Floptical drives and related media. The Company also believes that it will be necessary or desirable for it to obtain licenses in connection with one or more of its future products, and believes, based on industry practice, that such licenses should be generally obtainable. The Company does not believe that the manufacture or sale of its current products infringes any patents or other intellectual property rights or requires any license from others. Principal Customers During the year ended December 31, 1994, sales to Ingram Micro D, Inc., a major distributor, accounted for 11% of sales. Backlog Purchasers of the Company's products do not generally provide the Company with long-term delivery schedules. Accordingly, backlog is generally not material to an understanding of the Company's business, and the Company's backlog at any time is not generally indicative of future levels of sales. Government Contracts No material portion of the Company's business is subject to renegotiation of profits or termination of contracts at the election of the United States government. Environmental Matters Compliance with federal, state and local environmental protection laws had no material effect on the Company in 1994 and is not expected to have a material effect in 1995. Employees As of December 31, 1994, the Company employed 886 persons (749 full-time and 137 part-time), including 94 in research and development, 560 in manufacturing, 110 in sales, marketing and service, 70 in general management and administration, and 52 in the European operations. During 1994, the Company completed restructuring actions which resulted in the elimination of approximately 200 positions from all levels of the organization. Foreign Sales Prior to July 1992, the Company's sales to foreign customers were primarily export sales. In July 1992, the Company's German subsidiary began to ship and invoice the majority of the Company's European sales. The Company still exports to areas outside of Europe. Export sales (excluding European sales subsequent to July 1992) for the years ended December 31, 1994, 1993 and 1992 were $6,133,000, $7,534,000, and $21,041,000, respectively. Export sales represented 4% of total sales in 1994, 5% in 1993, and 15% in 1992. Foreign sales of the German subsidiary represented another 33% of total sales in 1994, 23% in 1993, and 10% in 1992. For the details of geographic regions, see "Note 10, Operations By Geographic Region", to the Company's audited financial statements for the year ended December 31, 1994. Sales to foreign customers were primarily to customers located in Europe. The Company began billing in foreign currencies in January 1992, therefore increasing its exposure to changes in exchange rates. However, the Company is hedging its cash flows by utilizing forward exchange contracts. ITEM 2. PROPERTIES: The Company leases the facilities described in the following table:
Size Expiration Location (sq. ft.) of Lease Principal Use Roy, UT 24,000 May 1996 Administrative/Training Roy, UT 24,000 November 1995 Manufacturing Roy, UT 76,000 November 1997 Manufacturing Roy, UT 27,000 November 1995 Administrative/Marketing Roy, UT 14,000 November 1995 Administrative/Infor. Systems Roy, UT 36,000 May 1996 Research and Development San Diego, CA 11,000 July 2002 Research and Development
The Company also has rented a 20,000 square foot facility in Freiburg, Germany for use as its European headquarters. In addition, the Company leases a total of approximately 10,000 square feet for small sales offices, typically on a short-term basis, in Pleasanton, California; Dedham, Massachusetts; Dallas, Texas; Atlanta, Georgia; Vienna, Virginia; Costa Mesa, California; Hoffman Estate, Illinois; Toronto, Canada; Brussels, Belgium; Middlesex, Great Britain; Oslo, Norway; Milano, Italy; Madrid, Spain; and Cretail, France. ITEM 3. LEGAL PROCEEDINGS: There are no legal proceedings, other than ordinary routine litigation incidental to its business, to which the Company or its subsidiaries is a party or of which any of their property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: No matters were submitted to a vote of the Company's security holders during the quarter ended December 31, 1994. EXECUTIVE OFFICERS OF THE COMPANY Kim B. Edwards, 47, joined the Company as President and Chief Executive Officer on January 1, 1994. Mr. Edwards served as President and Chief Executive Officer of Gates Energy Products, Inc., a manufacturer of rechargeable batteries and the successor of General Electric Battery Division, from March 1993 to December 1993, and previously served in various other executive positions after joining Gates Energy Products, Inc. in January 1987. Leonard C. Purkis, 46, joined the Company as Senior Vice President and Chief Financial Officer on March 1, 1995. Mr. Purkis joined Iomega following 12 years at General Electric Co., where his most recent assignment was as Senior Vice President of Finance at GE Capital Fleet Services. He also held positions in the Financial Services, Lighting and Plastics businesses, with assignments in Europe and the U.S. Srini Nageshwar, 53, was promoted to Senior Vice President - European Operations in April 1991. Mr. Nageshwar joined the Company in January 1991 as Vice President - European Operations. Prior to joining the Company, Mr. Nageshwar was Executive Vice President for Marketing, Sales and Operations of OAZ Communications, a network fax server company, from February 1990 to December 1990. Prior to that, he was President and Chief Operating Officer of Cumulus Corporation, a memory peripherals manufacturing company, from January 1989 to February 1990. Prior to that, Mr. Nageshwar spent 24 years in marketing and general management positions with Hewlett-Packard Company, most recently as Value-Added Business Manager. Anton J. Radman, Jr., 42, is Senior Vice President - Sales and Marketing. Previously, he served as Senior Vice President - Corporate Development and Floptical Product Line Manager from January 1993 to June 1993. He also served as Senior Vice President - Corporate Development from December 1989 to January 1993. Mr. Radman was also President of the Bernoulli Optical Systems Co. (BOSCO) subsidiary of Iomega from April 1990 to January 1993. Mr. Radman joined the Company in April 1980 and his previous positions with the Company have included Vice President - Research and Development, Vice President - OEM Products and Sales Manager, and Senior Vice President - Micro Bernoulli Division from April 1988 until December 1989. Leon J. Staciokas, 67, is Senior Vice President and Chief Internal Operations Officer. Mr. Staciokas joined the Company in August 1987 as Senior Vice President - Operations. He served as acting Chief Executive Officer of the Company from October 1993 until January 1994. John G. Thompson, 54, was promoted to Vice President - Corporate Manufacturing in January 1993. Prior to that, Mr. Thompson was Vice President -Materials, Procurement and Engineering Services from March 1988 to January 1992. Mr. Thompson was Vice President/Controller of the Company from January 1988 until March 1988. Donald R. Sterling, 58, was promoted to Vice President, Corporate Counsel and Secretary in April 1994. Prior to that, he was Vice President for Legal Affairs and Secretary from August 1993 to March 1994. Mr. Sterling joined the Company in September 1988. Executive officers are elected on an annual basis and serve at the discretion of the Board of Directors. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS: The information required by this item is found in the section entitled "Securities" of the Company's 1994 Annual Report, which section is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA: The information required by this item is found in the tables entitled "Trends in Operations" and "Financial Conditions and Trends" of the Company's 1994 Annual Report, which tables are incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: The information required by this item is found in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's 1994 Annual Report, which section is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA: The information required by this item is contained in the section entitled "Financial and Operating Highlights" of the Company's 1994 Annual Report, which section is incorporated herein by reference, and in the financial statements and schedules referred to in the Index to Consolidated Financial Statements and Consolidated Financial Statement Schedules, filed as a part of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE: Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT: The information required by this item appears in the section entitled "ELECTION OF DIRECTORS - Nominees" of the Company's Proxy Statement for its 1995 annual meeting of stockholders and the section of such Proxy Statement entitled "ELECTION OF DIRECTORS - Board and Committee Meetings", which sections are incorporated herein by reference. Information regarding executive officers of the Company is furnished in Part I of this Annual Report on Form 10-K under the heading "Executive Officers of the Company." ITEM 11. EXECUTIVE COMPENSATION: The information required by this item appears in the sections entitled "ELECTION OF DIRECTORS -- Director's Compensation", "ELECTION OF DIRECTORS -- Executive Compensation", "ELECTION OF DIRECTORS -- Employment and Severance Agreements" and "ELECTION OF DIRECTORS -- Certain Business Relationships" of the Company's Proxy Statement for its 1995 annual meeting of stockholders, which sections are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT: The information required by this item is contained in the section entitled "Beneficial Ownership of Common Stock" of the Company's Proxy Statement for its 1995 annual meeting of stockholders, which section is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: The information required by this item is contained in the sections entitled "ELECTION OF DIRECTORS -- Employment and Severance Agreements" and "ELECTION OF DIRECTORS -- Certain Business Relationships" of the Company's Proxy Statement for its 1995 annual meeting of stockholders, which sections are incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K: (a) The following documents are filed as part of or are included in this Annual Report on Form 10-K: 1. The financial statements listed in the Index to Consolidated Financial Statements and Consolidated Financial Statement Schedules, filed as a part of this Annual Report on Form 10-K. 2. The financial statement schedule listed in the Index to Consolidated Financial Statements and Consolidated Financial Statement Schedules, filed as a part of this Annual Report on Form 10-K. 3. The exhibits listed in the Exhibit Index filed as a part of this Annual Report on Form 10-K. (b) Reports on Form 8-K: No reports on Form 8-K were filed by the Company during the last quarter of the year ended December 31, 1994. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. IOMEGA CORPORATION By: Kim B. Edwards Chief Executive Officer Date: March 29, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date --------------- --------------------------- ----- Chief Executive Officer and Kim B. Edwards Director (Principal executive officer) Senior Vice President-Finance, Leonard C. Purkis Chief Financial Officer and Treasurer (Principal financial and accounting officer) David J. Dunn Chairman of Board of Directors March 29, 1995 Willem H.J. Andersen Director Robert P. Berkowitz Director Anthony L. Craig Director Michael J. Kucha Director John R. Myers Director John E. Nolan Director The Honorable Director John E. Sheehan INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements appear in the Company's 1994 Annual Report to Stockholders and are incorporated herein by reference: Description ------------- Report of Independent Public Accountants Consolidated Balance Sheets at December 31, 1994 and 1993 Consolidated Statements of Operations for the Years Ended December 31, 1994, 1993 and 1992 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1994, 1993 and 1992 Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and 1992 Notes to Consolidated Financial Statements The following schedules are included in this Annual Report on Form 10-K: Description ------------ Report of Independent Public Accountants on Consolidated Financial Statement Schedules II - Valuation and Qualifying Accounts REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULES To Iomega Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Iomega Corporation's annual report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 25, 1995. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Salt Lake City, Utah January 25, 1995 IOMEGA CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions Balance at charged to Balance beginning costs and at end Description of period expenses Deductions of period (In thousands) ALLOWANCE FOR DOUBTFUL ACCOUNTS: Year ended December 31, 1994 $1,547 $ 323 $ (243)* $ 1,627 Year ended December 31, 1993 $ 901 $ 792 $ (146)* $ 1,547 Year ended December 31, 1992 $ 933 $ 17 $ (49)* $ 901 PRICE PROTECTION AND PROMOTION RESERVE: Year ended December 31, 1994 $ 67 $1,143 $(1,041)** $ 169 Year ended December 31, 1993 $ 73 $2,403 $(2,409)** $ 67 Year ended December 31, 1992 $ 58 $ 639 $ (624)** $ 73 ACCRUED RESTRUCTURING COSTS: Year ended December 31, 1994 $6,818 $ 875 $(7,693) $ - Year ended December 31, 1993 $ 0 $8,080 $(1,262) $ 6,818 OTHER RESTRUCTURING RESERVES: Year ended December 31, 1994 $4,649 $2,063 $(6,712) $ - Year ended December 31, 1993 $ 0 $4,649 $ - $ 4,649 * Represents write-offs of Accounts Receivable ** Credits granted against Accounts Receivable
EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included or incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8, File Nos. 2-87671, 33-13083, 33-20432, 33-23822, 33-41083, and 33-54438. ARTHUR ANDERSEN LLP Salt Lake City, Utah March 29, 1995 EXHIBIT INDEX The following exhibits are filed as part of this Annual Report on Form 10-K:
Exhibit Number Description ------------- ----------------------- 3.1 (1) Restated Certificate of Incorporation of the Company, as amended 3.2 (1) By-Laws of the Company, as amended 4.1 (1) Article Fourth of Restated Certificate of Incorporation of the Company and Certificate of Designation of Series A and Series B Convertible Preferred Stock (included in Exhibit 3.1) 10.1 (11) Lease dated January 6, 1993 between the Company and Damson/Birtcher Realty Income Fund-II, Limited Partnership relating to Iomega Park Building No. 1 10.2 (2) Lease dated June 21, 1991 between the Company and Damson/Birtcher Realty Income Fund-II, Limited Partnership relating to Iomega Park Building No. 2 10.3 (3) Lease dated November 9, 1992 between the Company and Damson/Birtcher Realty Income Fund-II, Limited Partnership relating to Iomega Park Building No. 3 10.4 (3) Lease dated November 9, 1992 between the Company and Damson/Birtcher Realty Income Fund-II, Limited Partnership relating to Iomega Park Building No. 4 10.5 (4) Lease Agreement dated October 29, 1984 between the Company and Damson/Birtcher Realty Income Fund-II, Limited Partnership (formerly with Western Mortgage Loan Corporation) (including an Amendment thereto dated January 30, 1986) relating to Iomega Park Building (Parking Lot) No. 5 10.6 (11) Lease dated January 6, 1993 between the Company and Damson/Birtcher Realty Income Fund-II, Limited Partnership relating to Iomega Park Building No. 6 10.7 (2) Lease dated June 21, 1991 between the Company and Damson/Birtcher Realty Income Fund-II, Limited Partnership relating to Iomega Park Building No. 7 10.7(a) Amendment to Lease dated May 20, 1994 between the Company and Damson/Birtcher Realty Income Fund-II, Limited Partnership relating to Iomega Park Building No. 7 10.8 (3) Lease dated November 9, 1992 between the Company and Damson/Birtcher Realty Income Fund-II, Limited Partnership relating to Iomega Park Building No. 8 10.9 (11) Aircraft Lease Agreement, dated April 8, 1993, between the Company and Beehawk Aviation, Inc. **10.10 (2) 1981 Stock Option Plan of the Company, as amended **10.11 (2) 1987 Stock Option Plan of the Company, as amended **10.12 (2) 1987 Director Option Plan of the Company, as amended 10.13 (12) 1994 Iomega Incentive Plan 10.13(a)(12) 1994 Iomega Incentive Plan for Tony Radman 10.13(b)(12) 1994 Iomega Incentive Plan for Leon Staciokas 10.13(c)(12) 1994 Iomega Incentive Plan for Don Sterling 10.13(d)(12) 1994 Iomega Incentive Plan for Srini Nageshwar 10.13(e)(12) 1994 Iomega Incentive Plan for John Thompson **10.14 (2) Employment Letter dated March 23, 1990 between the Company and Farouk Al-Nasser **10.15 (2) Employment Letter dated January 11, 1991 between the Company and Srini Nageshwar **10.16 Employment Letter dated November 29, 1993 between the Company and Kim Edwards **10.17 (3) Expatriate Agreement dated January 1, 1992 between the Company and Srini Nageshwar 10.18 (6) Agreement of Leasing dated as of December 26, 1984 between the Company and Lease Financing Corporation *10.19 (3) Agreement dated April 24, 1987 between the Company and SKF Textilmaschinen-Komponenten GmbH *10.19(a)(2) Third Modification dated October 17, 1991 to the Agreement between the Company and SKF Textilmaschinen-Komponenten GmbH *10.19(b)(11) Fourth Modification dated February 2, 1994 to the Agreement between the Company and SKF Textilmaschinen-Komponenten GmbH 10.20 (3) Form of Indemnification Agreement between the Company and each of its directors 10.21 (7) Rights Agreement dated as of July 28, 1989 between the Company and The First National Bank of Boston, as Rights Agent 10.21(a)(8) Amendment No. 1 dated September 24, 1990 to Rights Agreement dated as of July 28, 1989 between the Company and The First National Bank of Boston **10.22 Indemnity Agreement, dated April 21, 1994, between the Company and Srini Nageshwar **10.23 (10) Settlement Agreement, dated October 1, 1993, between the Company and Phillip Krumb **10.24 (11) Settlement Agreement, dated January 17, 1994, between the Company and Farouk Al-Nasser **10.25 (11) Secured Installment Promissory Note, dated September 17, 1993, between the Company and Fred Wenninger **10.26 Secured Installment Promissory Note, dated January 6, 1995, between the Company and Phillip P. Krumb **10.27 (11) Letter Agreement, dated April 13, 1993, between the Company and Farouk Al-Nasser **10.28 (11) Letter Agreement, dated April 13, 1993, between the Company and Anton J. Radman, Jr. 13.1 Portions of the Company's 1994 Annual Report (which is not deemed to be "filed" except to the extent that portions thereof are expressly incorporated by reference in this Annual Report on Form 10-K) 21.1 (11) Subsidiaries of the Company 23.1 Consent of Independent Public Accountants (appears on page 17 of this Annual Report on Form 10-K) 27 Financial Data Schedule * Confidential treatment previously granted as to certain portions. ** Management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. (1) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the period ended July 4, 1993. (2) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. (3) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. (4) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1990. (5) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1989. (6) Incorporated herein by reference to the exhibits to the Company's Registration Statement on Form S-1 (File No. 2-96209). (7) Incorporated herein by reference to the exhibits to the Company's Current Report on Form 8-K filed on August 12, 1989. (8) Incorporated herein by reference to the exhibits to the Company's Amendment No. 1 to Current Report on Form 8-K filed on September 25, 1990. (9) Incorporated herein by reference to the exhibits to the Company's Amendment No. 1 to Annual Report on Form 10-K for the year ended December 31, 1992. (10) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the period ended October 3, 1993. (11) Incorporated herein by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. (12) Incorporated herein by reference to the exhibits to the Company's Quarterly Report on Form 10-Q for the period ended October 2, 1994.
EX-10.7A 2 EXHIBIT 10.7(a) AGREEMENT TO EXTEND LEASE This Agreement is made and entered into as of this 20th day of May, 1994, by and between Damson/Birtcher Realty Income Fund-II, Limited Partnership (hereinafter called "Landlord") and IOMEGA Corporation (hereinafter called "Tenant") with respect to the following facts: WITNESSETH: A. Landlord and Tenant entered into a certain lease dated June 21, 1991, (the "Lease") under which Landlord demised to Tenant the Property commonly known as Building 7, consisting of approximately 70,000 square feet; and B. Said Lease is scheduled to expire by lapse of time on May 31, 1994; and C. Landlord and Tenant desire to amend said Lease so as to extend the Term thereof and to establish the rents payable thereunder during such period; and D. It is intended by this Agreement to amend said Lease; NOW, THEREFORE, in consideration of the Property, and of the covenants and agreements herein set forth, it is agreed that the Lease be hereby amended from and after the date hereof as follows: 1) Section 1.05 of the Lease, entitled Lease Term, is hereby extended for a period of forty-two (42) months, commencing on the last day of the initial Term of the Lease and expiring on the 30th day of November, 1997, unless the Lease shall sooner terminate as provided therein. 2) For the period from the first day of June, 1994, through and including the 30th day of November, 1997, Tenant shall pay to Landlord as Base Rent over and above the other and additional payments to be made by Tenant for the Property, the sum of One Million Three Hundred Twenty-eight Thousand Four Hundred Twenty and 82/100 Dollars ($1,328,420.82) payable monthly in advance on the first day of each and every calendar month as follows: Period Monthly Base Rent June 1, 1994 through and including November 30, 1995 $30,828.41 December 1, 1995 through and including November 30, 1996 $31,753.26 December 1, 1996 through and including November 30, 1997 $32,705.86 all at the place and in the manner in the Lease provided. 3) Except as herein specifically amended, all terms, provisions, covenants, and conditions of the Lease shall remain unchanged and in full force and effect, and the same are hereby ratified and confirmed. TENANT LANDLORD IOMEGA CORPORATION Damson/Birtcher Realty Income Fund-II, Limited Partnership By: /s/ C. David Correll By: Birtcher Investments Its: Authorized Agent Its: Dir. of Corporate Facilities By: /s/ Michael S. Buzar Date: May 27, 1994 Its: Senior Vice President Date: June 2, 1994 EX-10.16 3 EXHIBIT 10.16 IDANTA PARTNERS LTD. 4660 LaJolla Village Drive Suite 775 San Diego, California 92122 (619) 452-9690 Fax (619) 452-2013 November 29, 1993 Mr. Kim Edwards By Federal Express to: Turkey Creek Subdivision 10603 N.W. 67th Way Alachua, Florida 32615 And By Mail to: Box 43 Turkey Creek Alachua, Florida 32615 Dear Kim: As we discussed on the telephone this morning, Tony Craig, while he still has some calls outstanding, has essentially completed his reference checks and our offer to you of the position of President/CEO at Iomega Corporation is unqualified. This letter is to document the details of our offer: Cash Compensation: $240,000 initial base salary plus a cash bonus which could amount to $160,000. The details of how the bonus will be structured are to be worked out between you and Tony Craig for approval by the Board. I am hoping that you will work out a program which will be satisfactory for a number of years. As we discussed, it may be that criteria change over the years, but hopefully by a pre-arranged formula. We also agreed that notwithstanding the company's performance against the established criteria, the minimum bonus for 1994 would be $80,000. Stock Options: You will receive, at the time of your employment, options on 200,000 shares of Iomega common stock at a price equal to the market price at the close of business on the last day of trading before you join. 20% of the options will vest as of your starting date and 20% will vest on each of the four subsequent anniversary dates. Benefits: All benefits, including medical insurance, dental insurance, life insurance, 401k, four weeks' vacation, etc. will go into full effect immediately upon employment. Relocation Expenses: Coverage of all normal expenses associated with buying and selling a home, temporary storage charges, house hunting, moving insurance, and temporary living costs. Mr. Kim Edwards Page Two November 29, 1993 Transfer Allowance: A lump sum of one month's salary (grossed up for state and federal taxes) to compensate for miscellaneous and settling-in expenses. Home Sale Protection: Iomega will reimburse the difference between the actual selling price of your home and the average of the highest two of three appraisals if the actual selling price is less than the average of the two highest appraisals. In the event that the home has not sold after six months from the initial listing, Iomega will purchase the home at the average of the two highest of three appraisals. Tax Offset: Iomega will defray the total tax effects on all items of reimbursable expense which is considered taxable income and for which no corresponding tax deduction is available. The amount of tax defrayal will be determined by using your anticipated income tax rate and will be added to your gross income. Employment Contract: Severance of up to twelve months' salary if discharged for reasons other than fraud or other illegal acts. Severance pay will be paid at the annual salary rate prevailing at the time of discharge on a monthly basis until you are re-employed. If you are re-employed at less than your ending salary rate at Iomega, payments for the differential will be made until the expiration of the twelve-month period. You agree, if terminated, to use reasonable efforts to find re-employment. Employment Date: Employment to be effective January 1, 1994. I hope the foregoing is satisfactory and covers the items we have discussed. If you feel there are any discrepancies, please let me know. I hope you and your wife have an enjoyable visit to Utah. It's too bad you don't have time to do a little skiing. I understand it is very good. Best regards, Sincerely, David J. Dunn DJD:kc cc: Board of Directors EX-10.22 4 EXHIBIT 10.22 AGREEMENT BETWEEN IOMEGA CORPORATION AND SRINI NAGESHWAR THIS AGREEMENT is entered into by and between Iomega Corporation, a Delaware Corporation (the "Corporation") and Srini Nageshwar ("Mr. Nageshwar"). On August 28, 1986, the Corporation established a GmbH in Munich, Germany under the name of Iomega GmbH. Iomega GmbH was registered in Munich on September 15, 1986. Its name was changed to Iomega Europe GmbH ("the GmbH") and on April 7, 1993, was registered in the Commercial Register in Freiburg, Germany. The Corporation is represented by Mr. Kim B. Edwards, President and Chief Executive Officer and Board Member of said Corporation. Mr. Nageshwar was nominated as Gaeschaeftsfuehrer of the GmbH by its shareholders. As Gaeschaeftsfuehrer of the GmbH, Mr. Nageshwar is subject to potential liabilities under German law. To prevent hardship for Mr. Nageshwar, the parties hereto agree as follows: 1. The Corporation will indemnify and hold Mr. Nageshwar harmless against each liability whatsoever arising out of all business transactions carried on by Mr. Nageshwar in the name of the GmbH; provided, however, that such right of indemnity exists only to the extent that the liabilities incurred by Mr. Nageshwar under the name of the GmbH are in accordance with the delegated power given by the Directors of Iomega Corporation as limited by Section 145 of the Delaware General Corporation Law. Section 145 provides, in part, that a corporation shall have the power to indemnify an employee against liabilities arising out of proceedings (other than a derivative action) to which he is a party "by reason of the fact that he is ... [an] employee or agent of the corporation" provided that "he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful." This section further provides that with respect to derivative actions, a corporation shall have the power to indemnify an employee or agent against certain expenses arising out of such action provided that he "acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation" and provided further that "no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper." Section 145 further provides that any such indemnification shall be made only "upon a determination that the indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in [the preceding sentences]." 2. Subject to the above, Mr. Nageshwar is hereby granted the following authority, subject to the Corporation's policies and guidelines, as amended from time to time, the current policies and guidelines being those stated in the Attachment hereto: - To conclude lease contracts for the offices of the established GmbH, to purchase office furniture and equipment and to rent or acquire telephone and fax facilities for this office. - To hire employees and conclude labour contracts for GmbH employees. - To lease cars for executives of the GmbH in accordance with the Corporation's car policy. - To distribute, market and service computer equipment and computer accessories according to the subject matter of the GmbH. - To conclude with third parties and the administrations any agreements necessary or useful for the operation of the GmbH and to sign contracts and undertakings relating thereto. 3. This Agreement is subject to German law. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the dates shown below. /s/ Kim B. Edwards 4/21/94 Kim B. Edwards Date President and Chief Executive Officer Iomega Corporation /s/ Srini Nageshwar 4/21/84 Srini Nageshwar Date Managing Director Iomega Europe GmbH EX-10.26 5 EXHIBIT 10.26 SECURED INSTALLMENT PROMISSORY NOTE $283,425.00 Roy, Utah January 6, 1995 The undersigned promises to pay to the order of Iomega Corporation in Roy, Utah or at such other place as the holder hereof may designate in writing, the sum of Two Hundred Eighty Three Thousand Four Hundred Twenty-Five Dollars ($283,425.00) in one (1) installment with interest at prime rate which is 7 3/4 percent, payable on the unpaid balance. Stock certificates representing 165,625 shares of Iomega Corporation common stock will be held as collateral until the note has been paid in full. The installment shall be paid on or before one (1) year from the date of the Note, as shown above. This Note may be prepaid from time to time in whole or in part without permission or penalty. Any balance unpaid on the maturity of this Note shall bear interest thereafter, both before and after judgement, at the annual percentage rate stated above. Presentment, demand, protest, notice of dishonor and extension of time without notice are hereby waived, and the undersigned consents to the release of any security, or any part thereof, with or without substitution. /s/ Phillip P. Krumb 8400 Datapoint Drive Phillip P. Krumb Address ____________________________________ January 6, 1995 ____________________________________ Date EX-13.1 6 EXHIBIT 13.1 FINANCIAL AND OPERATING HIGHLIGHTS Iomega Corporation and Subsidiaries Financial Highlights For Years Ended December 31, 1994 1993 ------- ------ (In thousands, except per share data) Sales $141,380 $147,123 Cost of Sales 92,453 92,585 Operating Expenses 49,809 71,965 Net Loss (1,882) (14,525) Net Loss per Common Share $ (0.10) $ (0.80) Weighted Average Number of Shares Outstanding 18,473 18,106 Share Price : High $ 4.50 $ 6.60 Low 1.60 1.90
Quarterly Financial Information
For Year Ended December 31, 1994: Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total Year ------- ------- ------- ------- ----------- (In thousands, except per share data) Sales $34,506 $32,867 $35,534 $38,473 $141,380 Gross Margin 10,600 12,016 12,495 13,816 48,927 Net Income (Loss) (5,391) (238) 2,468 1,279 (1,882) Net Income(Loss) per Common Share $ (0.29) $ (0.01) $ 0.13 $ 0.07 $ (0.10) For Year Ended December 31, 1993: Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total Year (In thousands, except per share data) Sales $36,995 $36,495 $36,086 $37,547 $147,123 Gross Margin 15,593 14,809 13,810 10,326 54,538 Net Income (Loss) Before Cumulative Effect of Accounting Change (1,125) 942 329 (17,008) (16,862) Net Income (Loss) 1,212 942 329 (17,008) (14,525) Net Income (Loss) per Common Share Before Cumulative Effect of Accounting Change $(0.06) $ 0.05 $ 0.02 $(0.92) $ (0.93) Net Income (Loss) per Common Share $ 0.06 $ 0.05 $ 0.02 $(0.92) $ (0.80)
Operating Highlights
As of Year End December 31, 1994 1993 ------- -------- Employees 886 1,077 Facilities (square feet) 242,000 275,000 Earnings per share, outstanding shares and share prices have been retroactively adjusted to reflect the 5-for-4 stock split in November 1994 (See Note 2 to financial statements).
FINANCIAL REVIEW Iomega Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations TRENDS IN OPERATIONS The following table indicates the trends in certain components of the consolidated statements of operations for each of the last five years.
For Years Ended December 31, 1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- (In Thousands, except per share data) Sales $141,380 $147,123 $139,174 $136,566 $120,442 Cost of Sales 92,453 92,585 74,090 68,404 62,232 Gross Margin 48,927 54,538 65,084 68,162 58,210 Selling, General & Admin. 36,862 38,862 37,572 34,323 31,378 Research and Development 15,438 18,972 21,959 17,939 13,009 Restructuring Costs (Reversal) (2,491) 14,131 - - - Operating Income (Loss) (882) (17,427) 5,553 15,900 13,823 Interest Income 871 620 1,102 1,844 2,287 Interest Expense 15 70 54 55 157 Other Income (Expense) 52 221 (456) (128) (411) Income Taxes 1,908 206 1,474 5,236 1,584 Net Income (Loss) Before Cumulative Effect of Accounting Change (1,882) (16,862) 4,671 12,325 13,958 Net Income (Loss) (1,882) (14,525) 4,671 12,325 13,958 Net Income (Loss) per Common Share Before Cumulative Effect of Accounting Change $ (0.10) $ (0.93) $ 0.23 $ 0.60 $ 0.68 Net Income (Loss) per Common Share $ (0.10) $ (0.80) $ 0.23 $ 0.60 $ 0.68 Total Personnel 886 1,077 1,270 1,153 1,006 Earnings per share have been retroactively adjusted to reflect the 5-for-4 stock split in November 1994 (See Note 2 to financial statements).
RESULTS OF OPERATIONS The following table indicates the percentage relationships of income and expense items included in the consolidated statements of operations for each of the years ended December 31, 1994, 1993, and 1992, and the percentage changes of absolute dollars in these items for 1994 and 1993 as compared to the prior year.
As a Percentage of Percentage Increase Total Sales ( Decrease) For Years Ended December 31, 1994 1993 1992 1994 vs 1993 1993 vs 1992 ------- ------- ------- ------------ ------------ Sales 100.0% 100.0% 100.0% (3.9)% 5.7% Cost of Sales 65.4 62.9 53.2 (0.1) 25.0 Gross Margin 34.6 37.1 46.8 (10.3) (16.2) Operating Expenses: Selling, General and Administrative 26.1 26.4 27.0 (5.2) 3.4 Research and Development 10.9 12.9 15.8 (18.6) (13.6) Restructuring Costs (Reversal) (1.8) 9.6 - N/A N/A Total Operating Expenses 35.2 48.9 42.8 (30.8) 20.9 Operating Income (Loss) (0.6) (11.8) 4.0 94.9 (413.8) Interest Income 0.6 0.4 0.8 40.5 (43.7) Interest Expense - - - (78.6) - Other Income (Expense) - 0.1 (0.4) (76.5) 148.5 Income (Loss) before Income Taxes and Cumulative Effect of Accounting Change 0.0 (11.3) 4.4 100.2 (371.0) Income Taxes (1.3) (0.2) (1.0) 826.2 (86.0) Net Income (Loss) before Cumulative Effect of Accounting Change (1.3) (11.5) 3.4 88.8 (461.0) Cumulative Effect of Accounting Change - 1.6 - N/A N/A Net Income (Loss) (1.3)% (9.9)% 3.4% 87.0% (411.0)%
1994 was a year of transition for the Company as operations were restructured and redirected towards new development and marketing activities. As a result, the Company recorded a net loss for the year of $1.9 million or $0.10 per common share on sales of $141.4 million. The Company's gross margin percentage in 1994 was 34.6% compared to 37.1% in 1993. This decline in gross margin percentage was offset by a reduction in operating expenses (excluding restructuring items). Therefore, excluding the restructuring items for both years, the Company's operating loss before taxes was $3.4 million in 1994, as compared to a $3.3 million loss in 1993. Cash and temporary investments increased slightly from $18.8 million at December 31, 1993 to $19.8 million at December 31, 1994, and working capital increased from $30.5 million to $34.8 million during 1994. The Company expects revenues to increase in 1995 as a result of the new Zip products that it announced in 1994 and expects to start shipping in the first half of 1995. The Company also expects tape sales to increase, while sales of the Bernoulli product line are expected to decrease. The Company expects to experience losses in the first two quarters of 1995 due to the costs of introducing the new Zip products and the newly redesigned tape products, as well as the continuing cost of development efforts of other unannounced products that the Company expects to start shipping in the second half of 1995. The Company further expects its cash and working capital positions to decrease in 1995 based on budgeted capital expenditures and working capital requirements to fund these new product activities. The Company expects to be profitable in the second half of 1995. However, there can be no assurance that revenues will increase, unannounced products will ship on time, or that the Company will return to profitability in 1995. The following table depicts 1994 sales, gross margin percentage, pretax income (loss) and net income (loss) on a quarterly basis.
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr -------- -------- ------- ------- (In millions) Sales $ 34.5 $ 32.9 $35.5 $ 38.5 Gross Margin % 30.7% 36.6% 35.2% 35.9% Income (Loss) Before Income Taxes (2.7) (0.2) 1.0 1.9 Net Income (Loss) $ (5.4) $ (0.2) $ 2.5 $ 1.3
RESTRUCTURING ACTIONS During 1993, the Company recorded $14.1 million in restructuring costs relating to the write-offs of certain assets and the establishment of accruals and reserves for future restructuring of the Company's business, including the disposal of a portion of the Company's research and development operations, workforce reductions and other consolidation of operations, and other restructuring actions necessary to make the Company more customer driven, such as product realignment. These restructuring reserves and accruals totaled approximately $11.5 million at December 31, 1993. During the first quarter of 1994, the Company sold its thin film head development operations and discontinued its Floptical development operations. During the third quarter of 1994, the Company sold certain assets of its Floptical development operations and abandoned a product in the development stage. The abandonment of the development product was based on customer surveys which indicated there was not a demand for the product. During the fourth quarter of 1994, the Company disposed of tooling and other manufacturing equipment which had become obsolete due to product design changes to make the Company's products more consumer friendly. The Company also closed down or relocated several sales offices to streamline operations. In addition, the Company has reduced its workforce and paid out severance and outplacement costs in connection with two reductions in workforce, one of which occurred in January 1994 and the other in June 1994. These actions were included in the 1993 restructuring accruals and, therefore, had no impact on 1994 results of operations. At December 31, 1994, the Company has completed the restructuring actions related to the costs recorded in 1993. Accordingly, the Company reversed $2.5 million of restructuring reserves, representing the unused portion of the reserves established in December 1993, which served as an offset of operating expenses. The reversal of reserves related to workforce reductions and consolidation of operations. Due to natural workforce attrition, the Company did not have to lay off as many individuals as previously estimated. At the end of 1993, management anticipated shutting down or consolidating some major operations due to poor performance. Several of these changes were not made due to major improvement in the operations' economic performances. However, the reversal of these reserves was partially offset by the disposal of research and development operations and product realignment which cost more than originally anticipated. The following table summarizes the activity in these restructuring reserves during the year ended December 31, 1994: (In thousands)
Disposal of Research & Consolidation Development Product Workforce of Operations Realignment Reductions Operations Total ---------- ----------- ---------- ------------ ------ Reserves at December 31, 1993 $ 2,469 $ 3,188 $ 3,540 $ 2,300 $11,497 Charges against reserves (2,972) (3,728) (2,027) (279) (9,006) Reversal to income 503 540 (1,513) (2,021) (2,491) ---------- ----------- ---------- ----------- ------- Reserves at December 31, 1994 $ - $ - $ - $ - $ - ========== =========== =========== =========== ========
1994 AS COMPARED TO 1993 Sales decreased by 4% in 1994 when compared to 1993. Significant declines in sales of 5.25 inch 44 and 90 megabyte Bernoulli drive products were partially offset by increased sales of 5.25 inch 150 and 230 megabyte Bernoulli drive products. Bernoulli drive sales dollars in total declined in 1994 as compared to 1993. Unit sales of Bernoulli drives were relatively flat in 1994 versus 1993, but price reductions resulted in lower sales dollars. Bernoulli disk sales also declined in 1994 as compared to 1993 in both dollars and units. These declines in Bernoulli sales were partially offset by increased sales of tape products. Tape drive unit sales doubled in 1994 as compared to 1993, while sales dollars increased at a slightly lower rate due to a lower average price on tape products in 1994. Sales of the Company's SyQuest compatible removable hard disk cartridges increased in 1994, which offset a decline in Floptical product sales. Sales to the U.S. market declined in 1994 when compared to 1993 as a result of decreasing sales of Bernoulli products, which were only partially offset by increases in tape product sales. International sales, including export sales, increased by approximately 25% and represented 37% of total consolidated sales in 1994 compared to 28% in 1993. Substantial increases in sales of tape products in Europe were the primary reason for the increased sales in the international channels. As previously mentioned, the Company expects to begin shipping its new Zip product line in the first half of 1995. Although the Company has received positive initial reaction to the Zip product line from the marketplace, the Company is unable to predict actual sales levels. The Company expects increased sales from its tape product line and from additional planned removable drive product offerings. These increases will be partially offset by a continuing decline in the Bernoulli product business. Sales are expected to increase in all channels in 1995, including the retail channel. However, there can be no assurance that the anticipated sales increases will be realized. Cost of sales increased as a percentage of sales from 62.9% in 1993 to 65.4% in 1994. The decline in the gross margin percentage is partially due to a higher mix of tape products which have lower gross margins than the Bernoulli products. In addition, all product lines continue to experience competitive price pressures which have resulted in lower selling prices in 1994 when compared to 1993. Partially offsetting these factors, both the Bernoulli and tape product lines benefitted from significant production cost reductions which were realized throughout 1994. Management expects the gross margin percentage to decline in 1995 when compared to the overall 1994 rate as a result of continuing declines in sales of the higher margin Bernoulli products and the increasing sales of the lower margin tape products. In addition, the new Zip product line will have lower initial margins than the tape product line due to start-up costs and lower volumes. The Zip margins are expected to improve as volumes increase and manufacturing processes are improved. Also, the Company plans to remain price competitive on all product lines and further price decreases are likely. These lower sales prices are expected to be partially offset by improvements in material cost and reductions in overhead expenses planned for 1995. Selling, general and administrative expenses decreased by $2.0 million and decreased slightly as a percentage of sales from 26.4% to 26.1%. Decreases in sales, general and administrative expenses resulted from restructuring actions which occurred in January and June of 1994, including the closing down of the Floptical product line, as well as streamlining operations in both the U.S. and Europe. Sales and marketing expenses were increased in the latter part of 1994 to introduce the Zip product line and to reposition the Company's marketing strategy worldwide. In addition, selling, general and administrative expenses increased in 1994 due to the payment of management bonuses. Management plans to decrease selling, general and administrative expenses as a percent of sales in 1995 as compared to 1994. The actual levels of expenses will be dependent on 1995 sales and the expenses required to successfully launch the new Zip product line, as well as other new products planned for 1995. Research and development expenses decreased by $3.5 million and declined as a percentage of sales from 12.9% in 1993 to 10.9% in 1994. The major decline in research and development expenses resulted from the sale of the Company's thin film head development operation located in Fremont, California in the first quarter of 1994 and from closing its Floptical development laboratory located in Boulder, Colorado in the first quarter of 1994. Offsetting these decreases were increased development spending on the Company's tape product line and development costs for the Company's new Zip product line. Management expects research and development spending to be approximately the same in absolute dollars in 1995 as compared to 1994. Spending on Bernoulli development efforts will be decreased in 1995 as compared to 1994, with increased spending being planned for tape products, Zip products and other future products. As mentioned earlier, the Company's operating expenses were reduced in 1994 due to the reversal of restructuring reserves totaling $2.5 million. The Company had previously recorded restructuring reserves totaling $11.5 million at December 31, 1993. During 1993 and 1994, the Company effected most of the restructuring actions that had been planned, but due to changing conditions, it elected to change the scope and focus of other previously planned activities. As a result, the Company no longer required $2.5 million of the previously recorded reserves and reversed the unneeded reserves in the fourth quarter of 1994. The Company has no remaining restructuring reserves on its balance sheet at December 31, 1994. Interest income increased by $.3 million in 1994 as compared to 1993 due to a slight increase in cash and temporary investments, as well as higher interest rates earned on available balances. Other income consists primarily of royalties received, offset in part by losses incurred on the writedown of computer systems and foreign currency losses. In 1993, the Company increased its deferred tax assets as required by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). The deferred tax assets net value at December 31, 1993 was $5.0 million. The realizability of deferred tax assets were reevaluated throughout 1994 in light of changing business conditions and uncertainties regarding previously contemplated strategies. As a result, the Company recorded a tax provision of $3.3 million to increase the valuation allowance to cover the realizability of the deferred tax assets to its estimated realizable value as of December 31, 1994. In addition to this tax provision which was recorded in 1994, the Company recognized a tax benefit of $1.4 million in the third quarter of 1994 as a result of a change in an estimate on the Company's 1993 tax return due to a change in the transfer price on products between the Company and its German subsidiary. The change in transfer price was a result of an independent economic study. The above items resulted in a tax provision for 1994 totaling $1.9 million. 1993 AS COMPARED TO 1992 Sales increased by 5.7% in 1993 when compared to 1992. Significant declines in sales of 5.25 inch 20, 44 and 90 megabyte Bernoulli drive products were partially offset by increased sales of 5.25 inch 150 megabyte Bernoulli drive products. Bernoulli drive sales dollars in total declined in 1993 as compared to 1992. Unit sales of Bernoulli drives were relatively flat in 1993 versus 1992, but price reductions resulted in lower sales dollars. Bernoulli disk sales also declined in 1993 as compared to 1992 in both dollars and units. These declines in Bernoulli sales were more than offset by increased sales of tape and Floptical products, resulting in a net increase in total sales. On a sales channel basis, sales to the domestic distribution channel were relatively flat when compared to 1992, sales to the domestic federal channel were down, and sales to the domestic OEM channel increased over 1992. International sales, primarily to Europe, increased by approximately 20% and represented 28% of total sales in 1993 compared to 25% in 1992. Substantial increases in sales of tape products in Europe were the primary reason for the increased sales in the international channels. Cost of sales increased as a percentage of sales from 53.2% in 1992 to 62.9% in 1993. The decline in the gross margin percentage is partially due to a higher mix of tape and Floptical products, which have lower gross margins than the Bernoulli products. Also, within the Bernoulli products, a 25% price reduction announced on September 1, 1993 and a slightly lower mix of higher margin disk products resulted in a lower gross margin on Bernoulli products. Selling, general and administrative expenses increased by $1.3 million but decreased slightly as a percentage of sales from 27.0% to 26.4%. Increases in sales and marketing and administrative expenses in Europe plus increases in sales and marketing and administrative expenses associated with removable hard disk cartridges and increased administrative expenses associated with tape products were partially offset by decreases in domestic sales and marketing expenses and decreases in other general and administrative expenses. Research and development expenses declined by $3.0 million and declined as a percentage of sales from 15.8% in 1992 to 12.9% in 1993. The decline in research and development expenses was comprised of reductions in Bernoulli, Floptical and tape development. These decreases were partially offset by increased expenses related to thin film head development. The Company recorded restructuring expenses of $14.1 million representing 9.6% of sales in 1993. Interest income declined by $.5 million in 1993 as compared to 1992 due to a slight decline in cash and cash equivalents, as well as lower interest rates earned on available balances. The Company recorded $.2 million of other income in 1993 comprised of a $.5 million gain on the sale of an idle facility, offset by recognition of losses on foreign currency transactions. In 1993, the Company recorded an income tax provision of $.2 million. This provision represented the net increase in the valuation allowance necessary to cover the realizability of the deferred tax assets offset by the tax benefits which were recognized as the result of operating losses and tax credits. Effective January 1, 1993, the Company adopted SFAS No. 109. In accordance with the provisions of SFAS No. 109, the Company recognized the cumulative effect of this accounting change totaling $2.3 million in the consolidated statement of operations for the year ended December 31, 1993. LIQUIDITY AND FINANCIAL RESOURCES The Company's liquidity and financial resources improved during 1994 as total cash and temporary investments increased by $1.0 million and working capital increased by $4.3 million. The Company generated $5.3 million of cash from operations. Operating cash flow was partially offset by $4.3 million of cash and temporary investments used in investing activities. The major components of cash used in investing activities were $7.1 million for purchases of equipment and leasehold improvements, which was partially offset by proceeds from the sale of discontinued research and development operations. These discontinued operations included the previously mentioned sale of the thin film head development laboratory, and the sale of certain Floptical assets and intellectual properties related to its Floptical product line. Accounts receivable decreased by $2.8 million as a result of improved collection efforts which resulted in a decrease in the days sales outstanding in receivables at the end of 1994. Inventories increased by $3.7 million due primarily to higher inventory levels required to support the increase in tape product sales. In addition, the Bernoulli inventories increased as a result of not meeting sales expectations in the fourth quarter of 1994. Accounts payable and accrued liabilities decreased by $3.4 million due primarily to the liquidation of $6.8 million of accruals associated with restructuring costs which were recorded at the end of 1993. This reduction was partially offset by increases related to management bonuses of which the majority was paid in the first quarter of 1995. During 1994, the Company added $7.1 million in equipment and leasehold improvements. The additions were comprised primarily of manufacturing production equipment, as well as development assets, personal computers and related equipment and software required to support the increasing tape sales volumes and to support the new Zip product line. Management expects 1995 capital expenditures to be higher than 1994 due primarily to manufacturing production equipment needed for the Zip product line, new tape products and other planned future products. The Company expects net cash flows from operating and investing activities in 1995 to be negative. The Company believes its current cash and temporary investments, together with funds expected to be generated from operations, will be sufficient to satisfy its cash needs through 1995. However, this will depend on the success of the new Zip product line, as well as on the actual level of expenditures incurred by the Company for capital equipment and working capital required to support unannounced new products that are planned to start shipping in the last half of 1995. If demand for the Company's new products exceed expectations, the Company may need to obtain working capital from financial institutions or other funding sources. Inflation has not had a significant impact on the Company's business or results of operations in 1994. FINANCIAL CONDITIONS AND TRENDS
December 31, 1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- (In thousands) Cash and Temporary Investments $19,793 $18,804 $19,691 $31,611 $29,107 Trade Receivables, Net 18,892 21,685 15,482 19,168 13,648 Inventories 17,318 13,572 18,546 12,019 9,955 Total Assets 75,833 81,089 86,955 87,046 72,780 Accounts Payable and Accrued Liabilities 25,739 29,023 20,261 21,159 18,035 Current Portion of Capital Lease Obligations - - 11 153 182 Working Capital 34,818 30,550 35,038 43,165 36,107 Long-Term Obligations and Redeemable Preferred Stock 1,031 976 926 889 994 Equipment and Leasehold Improvement Additions During Year 7,083 6,567 12,980 8,482 5,518
SECURITIES Iomega Common Stock is traded on the Nasdaq National Market under the symbol IOMG. As of December 31, 1994, there were 1,977 holders of record of Common Stock. The Company has not paid dividends on its Common Stock in the past and has no present intention to do so in the future. The following table reflects the high and low sales prices for 1994 and 1993, retroactively adjusted for the 5-for-4 stock split in November 1994.
1994 1993 -------------- -------------- Price Range of Common Stock: High Low High Low ----- ---- ----- ---- 1st Quarter $2.50 $1.80 $6.60 $3.10 2nd Quarter 2.10 1.60 4.10 3.00 3rd Quarter 3.20 2.10 3.40 2.00 4th Quarter 4.50 2.30 3.50 1.90
CONSOLIDATED STATEMENTS OF OPERATIONS Iomega Corporation and Subsidiaries
For Years Ended December 31, 1994 1993 1992 ------- ------- ------- (In thousands, except per share data) Sales $141,380 $147,123 $139,174 Cost of Sales 92,453 92,585 74,090 -------- -------- -------- Gross Margin 48,927 54,538 65,084 Operating Expenses: Selling, general and admin. 36,862 38,862 37,572 Research and development 15,438 18,972 21,959 Restructuring costs (reversal) (2,491) 14,131 - -------- -------- ------- Total operating expenses 49,809 71,965 59,531 Operating Income (Loss) (882) (17,427) 5,553 Interest income 871 620 1,102 Interest expense (15) (70) (54) Other income (expense) 52 221 (456) -------- -------- -------- Income (Loss) Before Income Taxes and Cumulative Effect of Accounting Change 26 (16,656) 6,145 Income Taxes (1,908) (206) (1,474) --------- -------- ------- Net Income (Loss) Before Cumulative Effect of Accounting Change (1,882) (16,862) 4,671 Cumulative Effect of Accounting Change - 2,337 - -------- -------- ------- Net Income (Loss) $ (1,882) $(14,525) $ 4,671 ======== ======== ======= Net Income (Loss) Per Common Share: Net income (loss) before cumulative effect of accounting change $ (0.10) $ (0.93) $ 0.23 Cumulative effect of accounting change - 0.13 - -------- -------- ------ Net income (loss) $ (0.10) $ (0.80) $ 0.23 ======== ======== ====== Weighted Average Common Shares Outstanding (Includes effects of 5-for-4 stock split (see Note 2)) 18,473 18,106 20,265
The accompanying notes to consolidated financial statements are an integral part of these statements. CONSOLIDATED BALANCE SHEETS Iomega Corporation and Subsidiaries
Assets December 31, 1994 1993 --------- ------- (In thousands) Current Assets: Cash and cash equivalents $ 16,861 $ 18,804 Temporary investments 2,932 - Trade receivables, less allowance for doubtful accounts of $1,627,000 and $1,547,000, respectively 18,892 21,685 Inventories 17,318 13,572 Deferred tax assets (net) 477 2,494 Other current assets 4,077 3,018 -------- -------- Total current assets 60,557 59,573 Equipment and Leasehold Improvements, at cost: Machinery and equipment 45,585 53,311 Leasehold improvements 6,034 6,628 Furniture and fixtures 4,737 4,459 Equipment and construction in process 2,837 987 -------- -------- 59,193 65,385 Less: Accumulated depreciation and amortization (43,917) (47,025) -------- -------- 15,276 18,360 Deferred Tax Assets (Net) - 2,491 Other Assets - 665 -------- -------- $ 75,833 $ 81,089 ======== ======== The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
CONSOLIDATED BALANCE SHEETS Iomega Corporation and Subsidiaries
Liabilities and Shareholders' Equity December 31, 1994 1993 -------- -------- (In thousands) Current Liabilities: Accounts payable $ 7,228 $ 7,067 Accrued restructuring costs - 6,818 Accrued payroll and bonus 3,047 1,947 Deferred revenue 1,947 1,494 Accrued vacation 1,954 1,790 Accrued warranty 3,943 2,497 Other accrued liabilities 7,620 7,410 -------- -------- Total current liabilities 25,739 29,023 Commitments and Contingencies (Note 4) Series A Convertible Preferred Stock, Authorized 1,200,000 shares; Outstanding 258,816 and 258,962 shares, respectively (Mandatory Redemption Price $5.00 per share) 1,031 976 Shareholders' Equity: Preferred Stock, $0.01 par value; Authorized 3,300,000 shares, none issued - - Series C Junior Participating Preferred Stock, Authorized 250,000 shares, none issued - - Common Stock, $.0333 par value; Authorized 30,000,000 shares; issued 18,519,749 and 18,455,196 shares, respectively (includes effects of 5-for-4 stock split (see Note 2)) 617 590 Note receivable from shareholder (597) (597) Additional paid-in capital 48,258 60,082 Accumulated earnings 785 2,744 -------- ------- 49,063 62,819 Less: 2,891,588 Common Stock treasury shares, at cost - (11,729) -------- -------- Total shareholders' equity 49,063 51,090 -------- -------- $ 75,833 $ 81,089 ======== ======== The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Iomega Corporation and Subsidiaries
Note Common Stock Receivable Additional ------------------ from Paid-in Accumulated Treasury Shares Amount Shareholder Capital Earnings Stock Total --------- ------- ----------- -------- ------------ --------- ------ (In thousands, except per share data) Balances at December 31, 1991 16,961,833 $ 565 $ 0 $ 58,125 $ 12,752 $ (6,597) $ 64,845 Sale of shares to employees at an average price of $2.03 cash per share 235,131 9 - 471 - - 480 Purchase of 848,900 shares at an average cost of $6.18 cash per share - - - - - (5,248) (5,248) Accretion of Series A Convertible Preferred Stock redemption premium - - - (50) - - (50) Dividends on Series A Convertible Preferred Stock - - - - (76) - (76) Tax benefit from early dispositions of employee stock - - - 200 - - 200 Recognition of compensation from Employee Stock Purchase Plan - - - 60 - - 60 Issuance of 19,812 treasury shares under Employee Stock Purchase Plan - - - 86 - 56 142 Net Income - - - - 4,671 - 4,671 ---------- ------ -------- ------- ------ ------- ------- Balances at December 31, 1992 17,196,964 574 0 58,892 17,347 (11,789) 65,024 Sale of shares to employees at an average price of $2.06 cash per share 190,296 6 - 386 - - 392 Sale of shares to officer at an average price of $2.03 per share for a note receivable 294,000 10 (597) 587 - - - Accretion of Series A Convertible Preferred Stock redemption premium - - - (51) - - (51) Dividends on Series A Convertible Preferred Stock - - - - (78) - (78) Tax benefit from early dispositions of employee stock - - - 214 - - 214 Recognition of compensation from Employee Stock Purchase Plan - - - 84 - - 84 Issuance of 11,551 treasury shares under Employee Stock Purchase Plan - - - (30) - 60 30 Net Loss - - - - (14,525) - (14,525) ---------- ------ ------ ------- -------- ------- Balances at December 31, 1993 17,681,260 590 (597) 60,082 2,744 (11,729) 51,090 Sale of shares to employees at an average price of $1.68 cash per share 157,901 5 - 251 - - 256 Purchase of 130,000 shares at an average cost of $2.35 cash per share - - - - - (305) (305) Accretion of Series A Convertible Preferred Stock redemption premium - - - (55) - - (55) Dividends on Series A Convertible Preferred Stock - - - - (77) (77) Tax benefit from early dispositions of employee stock - - - 28 - - 28 Recognition of compensation from Employee Stock Purchase Plan - - - 8 - - 8 Issuance of 5,057 treasury shares under Employee Stock Purchase Plan - - - (17) - 17 - Five-for-four Common Stock split effected in the form of a 25% stock dividend 680,588 22 - (12,039) - 12,017 - Net Loss - - - - (1,882) - (1,882) ---------- -------- ------- --------- ------- ------ ------- Balances at December 31, 1994 18,519,749 $ 617 $ (597) $ 48,258 $ 785 $ - $49,063 ========== ======== ======= =========== ======= ====== =======
The accompanying notes to consolidated financial statements are an integral part of these statements. CONSOLIDATED STATEMENTS OF CASH FLOWS Iomega Corporation and Subsidiaries
For Years Ended December 31, 1994 1993 1992 -------- -------- -------- (In thousands) Increase (Decrease) in Cash and Cash Equivalents Cash Flows from Operating Activities: Net Income (Loss) $ (1,882) $(14,525) $ 4,671 Non-Cash Revenue and Expense Adjustments: Depreciation and amortization expense 6,853 8,472 6,447 Cumulative effect of accounting change - (2,337) - Deferred income tax provision 4,508 - - Gain on sale of property held for resale - (459) - Change in restructuring reserves 1,590 5,554 - Other (314) (292) 373 Changes in Assets and Liabilities: Trade receivables (net) 2,793 (6,203) 3,686 Inventories (3,747) 3,786 (6,527) Other current assets (1,135) (694) (645) Accounts payable 161 1,696 (659) Accrued liabilities (3,516) 6,333 524 --------- --------- ---------- Net cash provided from operating activities 5,311 1,331 7,870 Cash Flows from Investing Activities: Purchase of equipment and leasehold improvements (7,083) (6,567) (12,980) Purchase of temporary investments (8,825) - - Sale of temporary investments 5,893 - - Prepayment of royalties - (1,000) (2,000) Proceeds from sale of property held for resale - 4,461 - Proceeds from sale of research and development assets 2,792 - - Net (increase) decrease in other assets (10) 343 (151) --------- --------- ---------- Net cash used in investing activities (7,233) (2,763) (15,131) Cash Flows from Financing Activities: Proceeds from sales of Common Stock 256 402 566 Tax benefit from early dispositions of employee stock 28 214 200 Principal payments on capitalized lease obligations - (11) (153) Redemption of Series A Convertible Stock - (2) (2) Purchase of treasury stock (305) - (5,248) Utilization of treasury stock for Stock Purchase Plan - 20 56 Payment of dividends on Preferred Stock - (78) (78) --------- --------- ---------- Net cash provided from (used in) financing activities (21) 545 (4,659) --------- --------- ---------- Net Change in Cash and Cash Equivalents (1,943) (887) (11,920) Cash and Cash Equivalents at Beginning of Year 18,804 19,691 31,611 --------- --------- ---------- Cash and Cash Equivalents at End of Year $16,861 $18,804 $ 19,691 ========= ========= ========== Supplemental Schedule of Non-Cash Investing and Financing Activities: Net receivable (payable) associated with revaluation of forward exchange contracts $ (111) $ 49 $ (48) Sale of Common Stock for a Note $ - $ 597 $ - The accompanying notes to consolidated financial statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Iomega Corporation and Subsidiaries (1) SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries after elimination of all material intercompany accounts and transactions. Revenue Recognition - Revenue is recognized when units are shipped to customers. However, revenue recognition is deferred on shipments to distributors whose inventory is in excess of normal distributor inventory requirements. The Company's general policy is not to accept returns of product except for those products under warranty or for which the customer has a right of return agreement. The deferral of sales in excess of normal distributor inventory requirements totaled $1,947,000 and $1,494,000 at December 31, 1994 and 1993, respectively, and is recorded in deferred revenue. Price Protection - The Company has agreements with certain of its customers which, in the event of a price decrease, allow those customers (subject to certain limitations) credit equal to the difference between the price originally paid and the reduced price on units in the customers' inventories at the date of the price decrease. When a price decrease is anticipated, the Company establishes reserves for amounts estimated to be reimbursed to the qualifying customers. Inventories - Inventories include direct materials, direct labor, and manufacturing overhead costs and are recorded at the lower of cost (first-in, first-out) or market and consist of the following: December 31, 1994 1993 (In thousands) Raw materials $ 7,524 $ 6,979 Work-in-process 4,839 2,030 Finished goods 4,955 4,563 ------- ------- $ 17,318 $ 13,572 ====== ====== Equipment and Leasehold Improvements - When property is retired or otherwise disposed of, the book value of the property is removed from the asset and related accumulated depreciation and amortization accounts, and the net gain or loss is included in the determination of net income. Depreciation is provided based on the straight-line method over the following estimated useful lives of the property. Machinery and equipment 2 - 5 years Leasehold improvements 5 years Furniture and fixtures 10 years Product Development - Product research and development costs are expensed as incurred. Warranty Costs - A two-year limited warranty is generally provided on the Company's disk drives and disk drive subsystems. A one-year limited warranty is generally provided on the Company's Floptical drives, and magneto-optical disks. A two or five-year limited warranty is generally provided on the tape drives and tape media. A five-year limited warranty is generally provided on the Company's Bernoulli 5.25 inch disks. The Floptical media carries a lifetime warranty. A five-year limited warranty is generally provided on certain brands of the removable hard disk cartridges and a lifetime warranty is provided on a specific brand. Warranty costs of the removable hard disk cartridges are shared with the manufacturer. The estimated warranty costs to be incurred are accrued at the time of sale. Net Income (Loss) Per Common Share - Net income (loss) per common share is based on the weighted average number of shares of Common Stock and dilutive common stock equivalent shares outstanding during the year. Common stock equivalent shares consist primarily of stock options and convertible preferred stock that have a dilutive effect when applying the treasury stock method. In periods where losses are recorded, common stock equivalents would decrease the loss per share and are therefore not added to weighted average shares outstanding. The outstanding shares and earnings per share have been restated for all periods presented to reflect the impact of the stock split described in Note 2. Foreign Currency Translation - For purposes of consolidating foreign operations, the Company has determined the functional currency for its foreign operations is the U.S. dollar. Therefore, translation gains and losses are included in the determination of income as a component of other income and expense. Income Taxes - The Company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements. These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. General business tax credits are accounted for using the "liability" method, which reduces Federal income tax expense in the year in which these credits are generated. Cash Equivalents and Temporary Investments - For purposes of cash flows, the Company considers all highly liquid debt instruments purchased with maturities of three or fewer months to be cash equivalents. Instruments with maturities in excess of three months are classified as temporary investments. At December 31, 1994, all temporary investments had maturities of less than six months. Cash equivalents and temporary investments primarily consist of certificates of deposit (CDs), investments in money market mutual funds, commercial paper and banker's acceptances and are recorded at cost which approximates market. Accordingly, the Company classifies all cash equivalents and temporary investments as held to maturity. The Company's policy is to invest in high quality commercial paper of reputable companies rated at A2P2 or above. The diversification of risk is consistent with Company policy to maintain liquidity and ensure safety of deposit. The CDs collateralize the letters of credit described in Note 4. Reclassifications - Certain reclassifications where made to the 1993 and 1992 consolidated financial statements to conform with the 1994 presentation. (2) STOCK SPLIT On October 27, 1994, the Company's Board of Directors declared a 5-for-4 stock split which was effected in the form of a 25% Common Stock dividend paid on November 23, 1994 to stockholders of record at the close of business on November 9, 1994 ("Stock Split"). The Company paid cash in lieu of issuing fractional shares. In connection with the Stock Split, the Board of Directors approved the issuance of 5 stock options for every 4 stock options outstanding and reduced the option price by 25%. The transaction has been accounted for as a stock split. Of the shares of Common Stock distributed by the Company in connection with the Stock Split, approximately 3,017,000 were treasury shares and the remainder were authorized but unissued shares. The cost of the treasury shares and authorized but unissued shares was recorded as a reduction in additional paid-in capital. All earnings per share and outstanding shares have been retroactively restated in the financial statements for all periods presented. (3) INCOME TAXES Income before income taxes is comprised of $208,000 for domestic operations and a loss of $182,000 for foreign operations in 1994. Loss before income taxes and cumulative effect of accounting change was comprised of $7,338,000 for domestic operations and $9,318,000 for foreign operations in 1993. Income tax (provision)/benefit consists of the following. December 31, 1994 1993 1992 (In thousands) Current Income Taxes: Federal $ 1,217 $ (164) $ (980) State 208 (22) (307) Foreign - - - -------- --------- --------- 1,425 (186) (1,287) -------- --------- --------- Prepaid (Deferred) Taxes: Federal (6) 7,486 (187) State - - - Change in Valuation Allowance (3,327) (7,506) - -------- --------- --------- (3,333) (20) (187) -------- --------- --------- Income Taxes $ (1,908) $ (206) $ (1,474) ======== ========= ========= Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). In accordance with the provisions of SFAS No. 109, the Company recognized the cumulative effect of this accounting change totaling $2.3 million in the consolidated statement of operations for the year ended December 31, 1993. The accounting change resulted in a $3.8 million increase in the deferred tax asset. The increase was reduced by a $1.5 million valuation allowance resulting in a current benefit of 2.3 million recorded in the first quarter of 1993. The Company established the $1.5 million valuation allowance for the foreign net operating loss carryover and a portion of the other deferred assets which may not be realized. The valuation allowance for deferred tax assets was increased by $3.2 million in the first quarter of 1994. This increase in the valuation allowance was partially offset by a $.5 million increase in the deferred tax assets resulting in a $2.7 million reduction of the net deferred tax asset. Included in the results for the third quarter of 1994 was a current combined federal and state tax benefit of $1.4 million. This benefit was due to a change in the estimated 1993 transfer price of products sold by the Company to its German subsidiary. The change in transfer price was the result of an independent economic study. At December 31, 1994, the Company had $12.9 million of deferred tax assets. The deferred assets have been reduced by a $12.3 million valuation allowance. This allowance (an increase for the year of $3.3 million) has been established for the foreign net operating loss and research credit carryover assets and temporary differences which will not be realized in 1995. The Company has not assumed future profitability in determining the realizability of the net deferred tax assets. The components of and the changes in the net deferred tax assets and liabilities for the year ended December 31, 1994 are as follows: Deferred December 31, (Expense) December 31, 1993 Benefit 1994 (In thousands) Deferred tax assets: Bad debt reserves $ 469 $ 13 $ 482 Inventory reserves 824 116 940 Fixed asset reserves 21 15 36 Accrued expense reserves 2,994 1,602 4,596 Inventory unicap adjustment 151 9 160 Foreign net operating loss carryover 3,024 (1,531) 1,493 Research credit carryover 3,480 1,885 5,365 Intercompany profit in inventory 31 64 95 Restructuring charges 3,502 (3,502) - Other (382) 166 (216) -------- -------- -------- Total deferred tax assets 14,114 (1,163) 12,951 Valuation allowance (9,006) (3,327) (12,333) -------- -------- -------- Deferred tax asset net of valuation allowance 5,108 (4,490) 618 Deferred tax liabilities: Accelerated depreciation (123) (18) (141) -------- --------- -------- Net deferred tax assets $ 4,985 $ (4,508) $ 477 ======== ========= ======== Cash paid for income taxes was $94,000 in 1994, $1,322,000 in 1993, and $2,215,000 in 1992. The Company received cash refunds of $2,247,000 during 1994. For financial reporting purposes, the tax effect of the Company's current and cumulative foreign net operating losses are fully considered in the deferred tax assets. The Company has a current domestic tax loss which will be carried back against prior years' taxable income. The Company has a foreign tax operating loss carryforward of $4,950,000. As of December 31, 1994, the Company has tax credit carryforwards of approximately $5.6 million for financial reporting purposes and $4.5 million for regular income tax reporting purposes, expiring on various dates through 2008. The difference between financial and regular tax credit carryforwards is attributable to the assumed carryback of 1994 temporary differences for financial reporting purposes to prior years' taxable income. The Company's 1994 and 1992 regular federal income tax provision has been reduced to the "alternative minimum tax" by general business credit carryforwards. The difference between income taxes at the statutory tax rate and the actual rate is shown in the following table (in thousands). December 31, 1994 1993 1992 Federal Statutory Rate $ (9) $ 5,663 $(2,089) Utilization of Tax Credits 4 947 981 Loss from Foreign Subsidiary - - (708) Change in Transfer Price 1,400 - - Deductible Items - 21 74 State Income Taxes (22) 669 (307) Increase in deferred asset valuation reserve (3,327) (7,506) - Foreign Income Taxes - - - Other 46 - 575 -------- -------- ------- Income Taxes $ (1,908) $ (206) $(1,474) ======== ======== ======== (4) COMMITMENTS AND CONTINGENCIES Litigation - From time to time, the Company is involved in lawsuits and claims generally incidental to its business. It is the opinion of management, after discussions with legal counsel, that the ultimate dispositions of these suits and claims will not have a material adverse effect on the Company's financial statements. Lease Commitments - The Company conducts its operations from leased facilities. Aggregate lease commitments under non-cancelable operating leases in effect at December 31, 1994 are as follows (in thousands): Lease Years Ending December 31, Commitments 1995 $1,559 1996 635 1997 442 1998 71 1999 71 ------ $2,778 ====== Total rent expense for the years ended December 31, 1994, 1993 and 1992 was approximately $1,989,000, $2,336,000, and $2,128,000, respectively. Letters of Credit - The Company has several letters of credit, of which approximately $1,000,000 was outstanding at December 31, 1994. These letters of credit expire on various dates through July 1995 and are secured by Certificates of Deposit. Bonus Plan - The Company's Board of Directors adopted a 1994 bonus plan that provided for bonus payments to officers and key employees. The payment of the 1994 bonuses was contingent upon the Company and the employees achieving certain objectives. At December 31, 1994, the Company has accrued $1,400,000 for management bonuses of which the majority will be paid in February 1995. Profit Sharing Plan - In 1991, the Company's Board of Directors adopted a profit sharing plan that provided for payments to all eligible employees of their share of a pool that equaled 6.0% of the Company's annual income before income taxes. In 1994, the plan was amended to 5.0% of the Company's annual income before income taxes. Employees must complete one year of continuous employment to be eligible. Employees receive a share of the profit sharing pool based upon their annual salary as a ratio to total annual salaries of all eligible employees. The Company paid $505,000 of profit sharing for the 1992 profit sharing plan. There were no profit sharing payments for fiscal 1993 and 1994. Foreign Exchange Contracts - The Company has commitments to sell foreign currencies relating to forward exchange contracts in order to hedge against future currency fluctuations. The contracts mature at various dates through May 1995. At December 31, 1994, the Company had 7,500,000 Deutsche Marks in forward exchange sales contracts outstanding. Gains and losses on foreign currency contracts intended to be used to hedge operating requirements are reported currently in income. Gains and losses on foreign currency contracts intended to meet firm commitments are deferred and are recognized as part of the cost of the underlying transaction being hedged. At December 31, 1994, all of the Company's forward exchange contracts were speculative. The Company's theoretical risk in these transactions is the cost of replacing, at current market rates, these contracts in the event of default by the counterparty. (5) PREFERRED STOCK The Company has authorized the issuance of up to 5 million shares of Preferred Stock, $.01 par value per share. The Company's Board of Directors has the authority, without further shareholder approval, to issue Preferred Stock in one or more series and to fix the rights and preferences thereof. During 1987, in connection with the settlement of litigation, the Company designated 1,200,000 shares of Preferred Stock as Series A Convertible Preferred Stock. These shares were issued in 1989. In July 1989, the Company designated 250,000 shares of Preferred Stock as Series C Junior Participating Preferred Stock in connection with its Shareholder Rights Plan (see Note 6). Series A Convertible Preferred Stock - Each share of Series A Convertible Preferred Stock (Series A Stock): (1) has a liquidation preference of $5; (2) accrues dividends at a rate of 6% (which shall accrue but not be paid if the Company's after-tax net income is insufficient to pay them); (3) is convertible, provided the fair market value of the Common Stock is at least $12 per share, by either the holders of the Series A Stock or the Company, into the number of shares of Common Stock determined by dividing $7.50 by the fair market value of the Common Stock at the time of conversion; (4) will be redeemed by the Company on the tenth anniversary of its issuance at a price of $5 plus accrued but unpaid dividends; and (5) has no voting rights, except as required by law. At December 31, 1994, the accrued but unpaid dividends were $155,000. In March 1990, the Company offered to purchase all of the outstanding shares of its Series A Stock at a price of $2.00 per share in cash in order to reduce the administrative costs and dividend requirements and provide stockholders with an opportunity to sell their shares. The Company believes there is currently no established trading market for the Series A Stock. In 1990, the Company acquired approximately 935,000 shares of Series A Stock for approximately $2.0 million. In 1991, the Company acquired 5,388 shares for approximately $11,000. In 1992, 1993 and 1994, the Company repurchased a minimal number of shares. The Company may repurchase additional shares of Series A Stock in the future. Series C Junior Participating Preferred Stock - Each share of Series C Junior Participating Preferred Stock (Series C Stock) will: (1) have a liquidation preference of $125 per share; (2) have rights to dividends, subject to the rights of any series of Preferred Stock ranking prior and superior to the Series C Stock, when and if declared by the Board of Directors; (3) not be redeemable; and (4) have voting rights which entitle the holder to 125 votes per share. (6) PREFERRED STOCK PURCHASE RIGHTS In July 1989, the Company adopted a Shareholder Rights Plan and declared a dividend of eight-tenths of one preferred stock purchase right for each outstanding share of Common Stock. Under certain conditions, each right may be exercised to purchase one one-hundredth of a share of Series C Stock at an exercise price of $15. The rights will be exercisable only if a person or group has acquired beneficial ownership of 20% or more of the Common Stock or announced a tender or exchange offer that would result in such a person or group owning 30% or more of the Common Stock. The Company generally will be entitled to redeem the rights at $.01 per right at any time until the tenth day following public announcement that a 20% stock position has been acquired and in certain other circumstances. If any person or group becomes a beneficial owner of 25% or more of the Common Stock (except pursuant to a tender or exchange offer for all shares at a fair price as determined by the outside members of the Board of Directors) or if a 20% stockholder consolidates or merges into or engages in certain self-dealing transactions with the Company, each right not owned by a 20% stockholder will enable its holder to purchase such number of shares of Common Stock as is equal to the exercise price of the right divided by one-half of the current market price of the Common Stock on the date of the occurrence of the event. In addition, if the Company engages in a merger or other business combination with another person or group in which it is not the surviving corporation or in connection with which its Common Stock is changed or converted, or if the Company sells or transfers 50% or more of its assets or earning power to another person, each right that has not previously been exercised will entitle its holder to purchase such number of shares of Common Stock of such other person as is equal to the exercise price of the right divided by one-half of the current market price of such Common Stock on the date of the occurrence of the event. (7) STOCK OPTIONS Stock Option Plans - The Company has a 1981 Stock Option Plan (the "1981 Option Plan") and a 1987 Stock Option Plan (the "1987 Option Plan"). The 1981 Option Plan has expired and no further options may be granted under this plan; however, outstanding options previously granted under this plan remain in effect. Both plans permit the granting of incentive and nonstatutory stock options. The plans cover an aggregate of 6,875,000 shares of Common Stock. The exercise price of options granted under the 1987 Option Plan may not be less than 100% of the fair market value of the Common Stock at the date of grant in the case of incentive stock options, and may not be less than 25% of the fair market value of the Common Stock at the date of grant in the case of nonstatutory stock options. Options under both plans must be exercised within ten years from the date of grant in the case of incentive stock options and within ten years and one month from the date of grant in the case of nonstatutory stock options, or sooner if so specified within the option agreement. At December 31, 1994, the Company had reserved an aggregate of 4,535,881 shares for issuance upon exercise of options granted or to be granted under these plans. The following table presents the aggregate options granted, forfeited, and exercised under the 1981 and 1987 Option Plans during 1994, 1993, and 1992 at their respective exercise price ranges. All options and option prices have been restated for the stock split. 1994 1993 1992 --------- --------- --------- Options outstanding at January 1, 2,349,723 2,978,051 3,077,150 Options granted (1994 at prices from $1.80 to $3.18; 1993 at prices from $2.10 to $5.70; 1992 at prices from $4.70 to $8.75 per share) 734,875 101,678 167,954 Options forfeited (1994 at prices from $1.25 to $8.75; 1993 at prices from $0.80 to $8.70; 1992 at prices from $3.00 to $7.70 per share) (472,797) (124,636) (17,219) Options exercised (1994 at prices from $0.80 to $2.40; 1993 at prices from $0.32 to $3.00; 1992 at prices from $0.32 to $4.20 per share) (158,047) (605,370) (249,834) ---------- ---------- --------- Options outstanding at December 31, (1994 prices from $0.80 to $8.75; 1993 prices from $0.80 to $8.75; 1992 prices from $0.32 to $8.75 per share) 2,453,754 2,349,723 2,978,051 ========= ========= ========= Exercisable at December 31, (prices ranging from $0.80 to $8.75 per share) 1,628,687 1,886,950 1,993,749 ========= ========= ========= Reserves for future grant at December 31, 2,082,127 1,831,782 1,808,824 ========= ========= ========= Director Stock Option Plans - The 1987 Director Stock Option Plan (the "Director Plan") covered 250,000 shares of Common Stock. The Director Plan provided for the grant to each non-employee director of the Company, on his initial election as a director, an option to purchase 31,250 shares of Common Stock. The exercise price per share of the option is equal to the fair market value of the Company's Common Stock on the date of grant of the option. Options become exercisable in five equal annual installments, commencing one year from the date of grant, provided the holder continues to serve as a director of the Company. Any option granted under the Director Plan must be exercised no later than ten years from the date of grant. All options granted under the Director Plan are nonstatutory options. Subsequent to year end, the Board adopted the 1995 Director Stock Option Plan. This Plan covers 200,000 shares of Common Stock and provides for the grant to each non-employee director of the Company, on his initial election as a director, an option to purchase 25,000 shares of Common Stock. The following table presents the aggregate options granted, forfeited and exercised under the Director Plan during 1994, 1993 and 1992 at their respective exercise price ranges. All options and option prices have been restated for the stock split. 1994 1993 1992 Options outstanding at January 1, 168,750 137,500 156,250 Options granted at $1.60 per share in 1994 and $3.50 per share in 1993 62,500 31,250 - Options exercised at $1.70 per share in 1994 and $2.20 per share in 1992 (31,250) - (18,750) --------- ------- -------- Options outstanding at December 31, (1994 at prices from $1.60 to $3.50; 1993 at prices from $1.70 to $3.50; 1992 at prices from $1.70 to $2.75 per share) 200,000 168,750 137,500 ======= ======= ======= Exercisable at December 31, (prices ranging from $1.60 to $3.50 per share) 100,000 93,750 93,750 ======= ======= ======= Reserved for future grant at December 31, - 62,500 93,750 ======= ======= ======= Other Stock Options - In December 1987, the Company granted to each of five of the six members of the Board of Directors an option to purchase 31,250 shares of Common Stock. The exercise price of these options was $1.20 per share in the case of four options, and $1.40 per share in the case of the other option. Each option is exercisable in increments of 6,250 shares per year beginning one year from the date of grant and must be exercised no later than ten years and one month from the date of grant. During 1992, options to purchase 25,000 shares were exercised at $1.20 per share. At December 31, 1994, options for the purchase of 81,250 shares were outstanding and exercisable at prices ranging from $1.20 to $1.40 per share. (8) STOCK PURCHASE PLAN 1991 Stock Purchase Plan - On January 25, 1991, the Company's Board of Directors approved an employee stock purchase plan for 1991, 1992, and 1993. Eligible employees were allowed to purchase Common Stock at market value on the date coincident with the distribution of the semiannual profit sharing payments. The employee will earn a premium equal to 25% of their original purchase on each of the first four anniversaries of purchase provided the employee is still employed by the Company and the shares are still held by the Company. A total of 1,500,000 shares were approved for the three-year plan with 250,000 shares plus the premium of 250,000 shares approved for each year. Employees participating in the profit sharing plan used up to 66 % of their profit sharing payment to purchase stock. As of December 31, 1994, a total of 43,641 shares have been purchased pursuant to this plan and a total of 8,836 of premium shares have been issued under this plan. (9) RETIREMENT PLAN The Iomega Retirement and Investment Savings (IRIS) Plan permits eligible employees to make tax deferred investments through payroll deductions. Each year the Company may contribute to the IRIS Plan at the discretion of the Board of Directors, based on the prior year's earnings of the Company. The IRIS Plan is subject to compliance with Section 401(k) of the Internal Revenue Code and the Employee Retirement Income Securities Act of 1974. Under the terms of the IRIS Plan, all contributions are immediately vested in full. The Company contributed approximately $319,000, $398,000, and $434,000 to the IRIS Plan for the years ended December 31, 1994, 1993 and 1992, respectively. (10) OPERATIONS BY GEOGRAPHIC REGION Prior to July 1992, the Company's sales to foreign customers were primarily export sales. In July 1992, the Company's German subsidiary began to ship and invoice the majority of the Company's European sales. The Company still exports to areas outside of Europe. Export sales (excluding European sales subsequent to July 1992) for the years ended December 31, 1994, 1993 and 1992 were $6,133,000, $7,534,000, and $21,041,000, respectively. The Company has two primary geographic regions: domestic and foreign. Domestic operations include all U.S. and export operations. Foreign operations are comprised of the subsidiary in Germany and sales offices located in France, Belgium, the United Kingdom, Spain, Italy and Germany. The sales offices in France, Belgium, the United Kingdom, Italy and Spain are branches of U.S. subsidiaries. Inventory is transferred from domestic operations to the German subsidiary at an arms-length price determined by an independent economic study. Following is a summary of the Company's operations by geographic location. For the Year Ended December 31, 1994: Domestic Foreign Intercompany Operations Operations Transactions Consolidated (In thousands) Net Sales: To Unaffiliated Customers $ 95,554 $ 45,826 $ - $ 141,380 To Affiliates 26,393 - (26,393) - Cost of Sales 87,305 31,522 (26,374) 92,453 --------- -------- ----------- --------- Gross Margin 34,642 14,304 (19) 48,927 ========= ======== =========== ========= Operating Expenses 45,049 4,760 - 49,809 ========= ======== =========== ========= Net Income (Loss) $ (9,729) $ 7,866 $ (19) $ (1,882) ========= ======== =========== ========= Identifiable Assets $ 61,696 $ 14,228 $ (91) $ 75,833 ========= ======== =========== ========= Capital Expenditures $ 5,894 $ 1,189 $ - $ 7,083 ========= ======== ========== ========= For the Year Ended December 31, 1993: Domestic Foreign Intercompany Operations Operations Transactions Consolidated (In thousands) Net Sales: To Unaffiliated Customers $ 112,961 $ 34,162 $ - $ 147,123 To Affiliates 26,750 - (26,750) - Cost of Sales 89,984 29,997 (27,396) 92,585 --------- ---------- --------- --------- Gross Margin 49,727 4,165 646 54,538 ========= ========== ========= ========= Operating Expenses 58,454 13,511 - 71,965 ========= ========== ========= ========= Net Income (Loss) $ (4,147) $ (11,024) $ 646 $ (14,525) ========= ========== ========= ========= Identifiable Assets $ 68,004 $ 13,214 $ (129) $ 81,089 ========= ========= ========= ========= Capital Expenditures $ 4,920 $ 1,647 $ - $ 6,567 ========= ========= ========= ========= For the Year Ended December 31, 1992: Domestic Foreign Intercompany Operations Operations Transactions Consolidated (In thousands) Net Sales: To Unaffiliated Customers $ 125,391 $ 13,783 $ - $ 139,174 To Affiliates 12,217 - (12,217) - Cost of Sales 74,658 10,791 (11,359) 74,090 --------- --------- ---------- --------- Gross Margin 62,950 2,992 (858) 65,084 ========= ========= ========== ========= Operating Expenses 53,463 6,068 - 59,531 ========= ========= ========== ========= Net Income (Loss) $ 8,699 $ (3,170) $ (858) $ 4,671 ========= ========= ========= ========= Identifiable Assets $ 77,507 $ 10,398 $ (950) $ 86,955 ========= ========= ========= ========= Capital Expenditures $ 11,830 $ 1,150 $ - $ 12,980 ========= ========= ========= ========= (11) OTHER MATTERS Significant Customers - During 1994, sales to Ingram Micro D, Inc. accounted for 11% of the Company's sales. During 1993, sales to Ingram Micro D, Inc. accounted for 14% of the Company's sales. During 1992, sales to Ingram Micro D, Inc. and Merisel, Inc. accounted for 19% and 10%, respectively, of the Company's sales. No other single customer accounted for more than 10% of the Company's sales during the years indicated. Concentration of Credit Risk - The Company markets its products primarily through computer product distributors who in turn sell to dealers and their franchises for resale to end users. Accordingly, as the Company grants credit to its customers, a substantial portion of outstanding accounts receivable are due from computer product distributors. At December 31, 1994, the customers with the ten highest outstanding accounts receivable balances totaled $7.1 million or 34% of the gross accounts receivable. At December 31, 1994, the outstanding accounts receivable balance from one customer was $3.1 million or 15% of gross accounts receivable. If any one or a group of these customers' receivable balances should be deemed uncollectible it could have a material adverse effect on the Company's operations. Purchases From Related Parties - The Company purchased inventory items totaling $398,000, $372,000, and $538,000 for the years ended December 31, 1994, 1993, and 1992, respectively, from a vendor having a common director with the Company. Notes Receivable From Related Parties - In September 1993, the Company loaned an executive officer approximately $679,000 as part of the officer's severance package; a portion of the loan was used by the executive to exercise stock options. This amount of the loan is included in note receivable from shareholder in the accompanying consolidated financial statements. The Company received a note from the officer which bears interest at an annual rate of 4.5% and is payable in two equal annual installments of $340,000 which are due on or before January 1995 and January 1996. The note is with full recourse and is collateralized by the stock purchased. Subsequent to December 31, 1994, the Company loaned another executive officer approximately $283,000 as part of the officer's severance package. A portion of the loan was used by the executive to exercise stock options. The Company received a note from the officer which bears interest at an annual rate of 7.75% and is payable in full on or before January 1996. The note is with full recourse and is collateralized by the stock purchased. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Iomega Corporation and Subsidiaries To Iomega Corporation: We have audited the accompanying consolidated balance sheets of Iomega Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Iomega Corporation and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. As explained in Note 3 to the consolidated financial statements, effective January 1, 1993, the Company changed its method of accounting for income taxes. ARTHUR ANDERSEN LLP Salt Lake City, Utah January 25, 1995 EX-27 7
5 1000 12-MOS DEC-31-1994 DEC-31-1994 16861 2932 20519 (1627) 17318 60557 59193 43917 75833 25739 0 617 1031 0 49063 75833 141380 141380 92453 49809 (923) 0 15 26 1908 (1882) 0 0 0 (1882) (0.10) (0.10)