-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CGBhLri827ZmqTo3IKoCiE+vPEcEoodhvjEbavb6jlnFNAL5W53FBlqDq3r516mj TzxKQBRe5hTguPWfZMv98Q== 0000723610-98-000005.txt : 19980406 0000723610-98-000005.hdr.sgml : 19980406 ACCESSION NUMBER: 0000723610-98-000005 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19971228 FILED AS OF DATE: 19980330 DATE AS OF CHANGE: 19980403 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STRATUS COMPUTER INC CENTRAL INDEX KEY: 0000723610 STANDARD INDUSTRIAL CLASSIFICATION: 3571 IRS NUMBER: 042697554 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-10405 FILM NUMBER: 98580104 BUSINESS ADDRESS: STREET 1: 55 FAIRBANKS BLVD CITY: MARLBORO STATE: MA ZIP: 01752 BUSINESS PHONE: 5084602000 MAIL ADDRESS: STREET 1: 55 FAIRBANKS BLVD CITY: MARLBORO STATE: MA ZIP: 01752 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For The Year Ended December 28, 1997 Commission File No. 0-12064 STRATUS COMPUTER, INC. (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2697554 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 FAIRBANKS BOULEVARD, MARLBOROUGH, MA 01752 (Address of principal executive offices) (Zip Code) (508) 460-2000 (Registrant's telephone number, including area code) Securities Registered Pursuant to Section 12(b) of The Act: Title of each class Name of each exchange on which registered Common Stock, $.01 par New York Stock Exchange, Boston Stock value per share Exchange, Chicago Stock Exchange, Pacific Exchange Common Stock Purchase Rights New York Stock Exchange, Boston Stock Exchange, Chicago Stock Exchange, Pacific Exchange Securities Registered Pursuant to Section 12(g) of The Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $1,046,322,161 based on the last reported sale price of the Common Stock on the New York Stock Exchange, Boston Stock Exchange, Chicago Stock Exchange, and Pacific Exchange on March 23, 1998. Number of shares outstanding of each class of Common Stock as of March 23, 1998: 24,297,757 shares of Common Stock (par $.01). DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K into Document which incorporated Portions of Annual Report to Stockholders for the Year Ended December 28, 1997. Parts I, II and IV Portions of Proxy Statement for Annual Meeting of Stockholders on April 22, 1998. Part III PART I Item 1. Business Stratus Computer, Inc. ("Stratus" or "the Company") was founded in 1980, The Company's business objective is to be the premier supplier of hardware, software and service solutions to targeted telecommunications and enterprise server markets where continuous availability is a critical need. Continuous availability, as compared to the term "high availability," refers to Stratus(R) systems' ability to substantially reduce the two main sources of downtime: 1) downtime due to unexpected system failures such as hardware or operating system crashes, and 2) downtime associated with shutting down a system for planned maintenance and upgrade procedures. Stratus systems are used primarily for on-line transaction processing, message switching, communications control, distributed computing and other interactive applications in which system availability and data integrity are critical. The Company competes in two major market areas: 1) telecommunications where service providers use Stratus systems at critical points in their networks and operations support systems, and 2) enterprise server applications which support enterprise-wide computing in a client/server architecture. Five key telecommunications applications have been targeted: 1) home location register; 2) local number portability; 3) internet infrastructure; 4) intelligent network services; and 5) network operations support systems. Enterprise server applications are found in the electronic commerce, financial services, retail, travel, healthcare, and gaming industries PRODUCTS The core business includes continuously available hardware-based fault- tolerant computer systems, and a customer service organization providing customer support, education and professional services. The Company's software business offers application software and professional services for targeted markets. Core Business Stratus Continuous Processing(TM) Systems are used as highly reliable and expandable computer "platforms" on which businesses run critical online business operations. Key Stratus product features which apply to this type of computing and provide a high level of application availability include a hardware-based fault-tolerant design which provides uninterrupted operations in the event of hardware component failures, remote online service, customer-replaceable components and support of industry standards. Stratus systems achieve fault tolerance through a proprietary hardware architecture, duplication of off-the-shelf microprocessors and other critical processing components, and one of four operating systems: 1) the proprietary Stratus Virtual Operating System (VOS); 2) Stratus FTX(R), the Company's UNIX(R) System V.4-compliant operating system; 3) the Company's implementation of the HP-UX(TM) operating system; and 4) Windows NT(R) Server running on its cluster-based hardware product. The hardware products which use Stratus' hardware-based fault-tolerant design do not require unique application programming, a competitive advantage over high- availability clustering. The Continuum(R) family of hardware fault-tolerant computer systems was announced in 1995. Using Hewlett-Packard(TM) PA-RISC 7100(R) microprocessors, Continuum systems provided up to four times the price/performance of the previous core product line, the XA/R(TM) Series of fault-tolerant systems, and represented the largest increase in price/performance in the Company's history. In June 1996, Stratus began shipments of the Continuum Series 400, an entry-level extension of the existing Continuum hardware family, and in November 1996, made the HP-UX operating system available on this new system. In 1997, the entire Continuum family was upgraded to the Hewlett-Packard PA-RISC 8000 microprocessor, the PA-RISC 8000, providing a performance increase of two to four times over previous Continuum products while maintaining binary compatibility. The Continuum Series offers three ranges of systems. Continuum Models 412, 415, 418, 422, 425, and 428 are entry-level systems. The Series 400's Peripheral Component Interconnect subsystem leverages off-the-shelf components to provide high-performance, industry-standard bus capabilities. This means the system's I/O options can be expanded as readily as technology allows. Continuum Models 610, 618, 620, 625 and 628 are midrange high-performance systems that provide open continuously available computing in distributed and departmental environments. Continuum Models 1210, 1215, 1218, 1220, 1225, 1228 and 1245 are the family's high-end systems for the expandability and growth path customers need for large online transaction processing applications. Models 418, 428, 618, 628, 1218 and 1228 were introduced in 1997 and use the Hewlett-Packard PA-RISC 8000 microprocessor. The Continuum family offers high performance, continuous availability and open systems. Design innovations include incorporating up to 2 GB of memory on each CPU board, offloading memory traffic from the bus, dedicated I/O processors and symmetric multiprocessing. The Continuum architecture allows users to expand system capabilities incrementally as needs increase. All Continuum models within each range and product generation utilize the same system logic cabinet and are upgradable simply by swapping or adding processor boards. Designs of the memory, disk, and I/O subsystems also simplify incremental growth. The Continuum Series supports up to three I/O communications processors, four logical RISC processors, 2GB of duplex memory, 855GB of duplex disk and 84 I/O adapters. The Continuum Series' architecture enables the Company to offer one of the strongest availability guarantees in the industry. In the guarantee, the Company agrees to refund a month's maintenance fees to a customer if the customer experiences even one second of unplanned downtime in hardware, Stratus value-added software or operating system. Stratus offers the guarantee in addition to the standard Stratus Continuum hardware one-year warranty. Stratus systems can identify and isolate many of their own component failures, and automatically dial in to a Stratus Customer Assistance Center (CAC) to report the failure and order replacement parts. Duplicate hardware components keep the system running the same as before the failure. Users can readily replace these components. CAC personnel can diagnose and fix most software problems remotely. As with all Stratus systems, the Continuum Series is binary compatible among all models and is source code compatible with all prior Stratus models, including the previous XA/R Series based on i860 microprocessors from Intel and the XA2000(TM) Series based on the 680X0 microprocessors from Motorola. Full source code compatibility protects existing software investments by allowing earlier applications to easily run on Continuum with only a recompile. All Continuum models can be ordered with the FTX operating system, Stratus' native implementation of the UNIX System V, Release 4 operating system. All 400 Series Continuum products can also be ordered with Hewlett- Packard's HP-UX operating system, and all Continuum Series 600 and 1200 products can be ordered with VOS, the Company's proprietary operating system. The Company plans to make the HP-UX operating system available on Continuum models 1218 and 1228 later in 1998. The FTX operating system provides an industry standard computing environment that complies with SVID (System V Interface Definition) Issue 3, POSIX 1003.1 and X/Open's XPG3 standard. FTX facilitates customers' implementations of heterogeneous networks based on open systems, and provides for the portability of applications from other UNIX systems. FTX is a fault-tolerant and scalable native port of UNIX System V, Release 4 Multiprocessing, maintaining all of the open features and benefits of standard UNIX, with added extensions for reliability, availability and serviceability. In addition, FTX provides an adaptable UNIX environment that allows users to customize their telecommunications services to meet local requirements. The HP-UX operating system, running on the HP(TM) PA-RISC microprocessor, is one of the most open UNIX operating systems available in the industry today. It provides enterprise-level functionality, including broad scalability, high performance, a large number of application solutions and integrated system and network management solutions. The HP- UX operating system running on Stratus hardware also provides complete Application Binary Interface compatibility with other systems running the same release of HP-UX operating system. This means that a broad range of middleware and applications currently operating on HP-UX operating system can be moved without change to Stratus' implementation of the HP-UX operating system. The VOS operating system provides a sophisticated environment tuned to meet the needs of critical online computing environments. VOS also supports a large portfolio of industry-specific applications that provide solutions to customers with critical computing needs. RADIO Cluster(TM) supports the Windows NT Server operating system to provide a high level of reliability in a PC superserver. Redundancy of RADIO Cluster's compute processing, storage handling and high-speed networking eliminates the single points of failure common to PC servers. In 1997, the Company announced its intention to base the next generation of Continuum systems on the Intel(R) IA-64 microprocessor, , which is being jointly developed by Intel and Hewlett-Packard. The next generation will bring Stratus' continuous availability and the IA-64's 64-bit processing to both UNIX and Windows NT Server environments. In 1997, the Company began to re-deploy its Windows NT Server engineering resources away from the RADIO Cluster product line to re-focus them on the Merced-based fault-tolerant Continuum products which will run both the Windows NT Server and HP-UX operating systems. Application Software Application software and professional services solutions, designed for Stratus systems and other platforms, are provided through the company's wholly owned subsidiaries, S2 Systems, Inc. (S2(TM)) and the TCAM Group of companies (TCAM(TM)), as well as through select third parties such as software houses, systems integrators and value-added resellers. S2 is a leading provider of business applications, advanced data communications, middleware and consulting and support services for businesses in the financial services, banking, brokerage, retail, healthcare, insurance and travel and transportation industries. Products include ON/2(TM) for banking solutions, the Customer Relationship Marketing suite for retail solutions and HealthLine(TM) for medical claims processing. S2 also specializes in high-performance communications and connectivity solutions with its Network Express(TM) product, providing businesses from virtually any industry a flexible gateway for their legacy systems (central systems housing vital business data) to connect with a wide array of remote systems and terminals. TCAM is a leading provider of application software and services to the worldwide securities industry. TCAM offers a broad range of application solutions, including its Alaris product for stock lending, an Advanced Order Management product for Internet-enabled retail brokerage transactions, and its SWAN product for settlements in PC, client/server, distributed and continuous availability computing environments using both open and proprietary operating systems on a broad range of hardware platforms. Stratus, the Stratus logo, Continuum and FTX are registered trademarks, and RADIO, RADIO Cluster, Continuous Processing, HealthLine, XA- R and XA are trademarks of Stratus Computer, Inc. ON/2 is a registered trademark and S2 and Network Express are trademarks of S2 Systems, Inc. TCAM is a trademark of TCAM Systems, Inc. HP, Hewlett-Packard and HP-UX are trademarks of Hewlett-Packard Company. All other trademarks are the property of their respective owners. MARKETING AND SALES A headquarters staff of sales and marketing professionals is employed with responsibility for direction of the field sales force, marketing strategy, technical support, advertising and public relations, customer and field training, competitive analysis and product planning. The Company is in the process of expanding its marketing function in order to increase the Company's identity in the marketplace and to improve its understanding of product requirements in strategic market segments such as telecommunications. Stratus sells its products and services to end users directly through its sales organization in the United States, Mexico, Canada, Western Europe, the Far East, Japan, Australia and New Zealand, and indirectly through or in conjunction with its system integrators, VARs, application software houses and distributors. The Company's distributors are located in Central and South America, Central and Eastern Europe, the Middle East, Africa and the Far East. The Company has reseller agreements with Hewlett- Packard's Local Product Organizations in Germany/Switzerland, France and the United Kingdom which allow the Hewlett-Packard organization to resell Stratus products to their customers. The Company also sells through certain general purpose OEMs such as NEC Corporation. NEC has non- exclusive rights to sell Stratus' UNIX-based, fault-tolerant systems worldwide. Targeting the telecommunications market, NEC uses Stratus systems in a variety of applications, including integration with various NEC telecommunications solutions. The Company's strategy is to continue to focus the sales organization on targeted vertical industries and major application opportunities within the telecommunications and enterprise server markets, expand indirect sales channels and improve selling efficiencies. For information on sales by geographic segment, see Note 13 in Notes to Consolidated Financial Statements included as part of the 1997 Annual Report to Stockholders, which Note 13 is incorporated herein by reference. Competition The Company faces intense competition from a growing number of companies who offer a wide spectrum of business-class servers and employ a variety of techniques aimed at maintaining system and data availability. Most of these companies offer their solutions to the same markets targeted by Stratus. While the Company's primary competitors are Compaq Computer Corporation (as a result of its acquisition of Tandem Computers, Inc.), Hewlett-Packard Company, IBM and Sun Microsystems, Inc., the Company expects to encounter additional competition in the future from vendors such as Sequent Computer Systems, Inc. who integrate hardware and software products from such providers as Intel Corporation and Microsoft Corporation. While its primary competitors are substantially larger and have significantly more resources, the Company believes that its singular focus on critical online business applications, its expertise in continuous availability, automated service and its specialized vertical application focus provide unique advantages compared with those of its competitors. The Company also believes it competes successfully on the basis of product capabilities, total cost of ownership and its third party marketing programs. BACKLOG Part of the Company's manufacturing and distribution strategy is to minimize the elapsed time between receipt of customer purchase orders and delivery of equipment. The final completion of the Company's manufactured products is usually accomplished with standard parts and without the need for additional engineering, generally permitting shipment of products within 30 to 60 days from receipt of order. Throughout the Company's history a very substantial portion of quarterly shipments tend to be made in the last month of each quarter, and any backlog is generally filled within weeks of the beginning of the next quarter. Customers have the ability to accelerate, defer or cancel delivery of any orders placed with the Company. For these reasons, the amount of backlog is not important to an understanding of the Company's business. RAW MATERIALS, SUBCONTRACT LABOR AND MANUFACTURING The Company's volume manufacturing is located outside the United States at the Company's manufacturing facility in Dublin, Ireland. The Company purchases all of its system component parts and peripheral devices from other manufacturers. The majority of printed circuit boards are purchased from board subcontractors in the United States who manufacture in accordance with production standards and quality controls established by Stratus. Presently, the Company believes it has adequate supplies and commitments from vendors to satisfy 1998 forecasted requirements, and no delays in product shipments are expected. Peripheral devices, assemblies and parts are available from a number of different suppliers, but certain integrated circuits, printed circuit boards, plastic parts, and disk and tape drives are purchased from single sources of supply. During the second half of 1997, the company experienced favorable cost trends on the purchases of its disk drive products. This resulted from excess capacity in most of the segments of the disk drive industry, which is expected to continue in 1998. The Company has not experienced any significant difficulties in obtaining supplies of memory devices, integrated circuits, peripherals, assemblies or parts, but shortages, if any, could result in production delays that may adversely affect its business. PRODUCT DEVELOPMENT Hardware and software development expenditures are expected to grow in absolute dollars over the next 12 months, but remain constant as as percentage of total revenues. The Company's total research and development expenditures, which include certain capitalized software development costs, were $101.5 million in 1997, $90.3 million in 1996, and $94.2 million in 1995. These investments reflect the Company's long-standing commitment to provide leading- edge hardware and software products to the telecommunications and reliable enterprise server marketplaces, particularly in support of mission critical applications. The Company leverages base hardware and software technologies supplied by partners, with development activities primarily focused on technologies which enhance systems and applications availability. The Company has made significant investments in telecommunications middleware products which simplify service creation for telecommunications providers and software developers, and which provide a high level of reliability for the delivery of those services. In 1997, the major development efforts were directed towards the Company's Continuum product line, and the Company began to transition resources away from its RADIO Cluster product line. Resources not focused at sustaining engineering for RADIO Cluster are being re-deployed to focus on the Company's new Merced-based fault-tolerant products that will support the Microsoft(R) Windows NT Server operating system. The Company owns patents and has patent applications pending in the United States and abroad relating to certain of its products. While the Company believes that the pending applications relate to patentable devices or concepts, there can be no assurance that any patents will be issued or that any patents issued can be successfully defended. The Company believes that patents are less significant in its industry than such factors as innovative and creative skills, technical experience and the management ability of its personnel. EMPLOYEES As of December 28, 1997, the Company employed 2,487 persons. Item 2. Properties The Company currently occupies three buildings on a 112 acre site at its corporate headquarters location in Marlborough, Massachusetts. These three buildings and the underlying land (approximately 50 acres) plus a 62 acre adjoining parcel are owned by the Company. In the third quarter of 1997, the Company purchased the third building and underlying land (all of which had been leased under an operating lease) for $21.6 million in cash. The Company also owns its manufacturing and office facility in Dublin, Ireland. The aggregate amount of office, engineering, manufacturing and customer service space that is owned by the Company is approximately 612,836 square feet. Information relating to the above facilities is set forth in the following table. Floor Space Owned/ Plant Location Use (Sq. Ft.) Leased - - -------------- --------------- --------- ------ Marlborough, Office, engineering 202,087 Own MA Marlborough, Office, engineering 198,341 Own MA and customer service Marlborough, Office, engineering 102,408 Own MA and manufacturing Dublin, Office, engineering Ireland and manufacturing 110,000 Own Prior to the purchase of the third building at the Marlborough site, the Company's fiscal year 1997 rent for the leased Marlborough facility was approximately $1.5 million for the eight month period plus real estate taxes and other occupancy expenses. The Company also leases additional sales, customer service and education space at locations throughout the United States, Canada, Mexico, Europe, the Far East, Australia, New Zealand and South Africa at an aggregate annual rent of approximately $11.3 million for fiscal year 1997. Item 3. Legal Proceedings The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Management does not believe these actions will have a material adverse affect on the financial position or results of operations of the Company. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters The approximate number of holders of record of the Company's common stock at March 23, 1998 was 1,103. Additional information required by this item is incorporated herein by reference to the "Common Stock Information" appearing on page 34 of the 1997 Annual Report to stockholders. Item 6. Selected Financial Data The information required by this item is incorporated herein by reference to the "Financial History" appearing on pages 14-15 of the 1997 Annual Report to Stockholders. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by this item is incorporated herein by reference to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing on pages 16-20 of the 1997 Annual Report to Stockholders. Item 8. Financial Statements and Supplementary Data The financial statements listed in the "Index to Consolidated Financial Statements" filed as part of the Annual Report, together with the report of Ernst & Young LLP dated January 21, 1998, are incorporated herein by reference to the "Financial Statements and Supplementary Data" contained in pages 21-35 of the 1997 Annual Report to Stockholders. Item 9. Disagreements on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant A. Directors of the Company: The information required by this item is incorporated herein by reference to the "Election of Directors" appearing on pages 2-4 of the Proxy Statement for Annual Meeting of Stockholders on April 22, 1998. B. The executive officers of the Company are as follows: Name Age Position Bruce I. Sachs 38 President and Chief Executive Officer William E. Foster 53 Chairman Maurice L. Castonguay 46 Vice President, Finance and Administration, and Chief Financial Officer Stephen C. Kiely 52 Vice President, Platform Products Edward J. Mezzanotte 53 Vice President, Stratus Software Group J. Donald Oldham 56 Vice President, Worldwide Sales Roderick K. Randall 39 Vice President, Worldwide Marketing David M. Weishaar 46 Vice President, Worldwide Operations John F. Young 55 Vice President, Human Resources Eileen Casal 39 Vice President, General Counsel David P. Gamache 40 Vice President, Corporate Controller Mr. Sachs began his employment with Stratus in April 1997 and assumed the positions of President and Chief Executive Officer in May 1997. Previously, Mr. Sachs served as Executive Vice President and General Manager of the Internet Telecom Business Group at Bay Networks, Inc. from December, 1995, to May, 1997. He also served as Chief Executive Officer of Xylogics, Inc. from August, 1993 until the company was purchased by Bay Networks in December, 1995. Mr. Sachs joined Xylogics in May 1989 as Director of Engineering. Mr. Foster, a founder of the Company, was, from February 1980, to January 1996, Chairman and Chief Executive Officer of the Company. From 1980 until November 1993, Mr. Foster also served as President of the Company. From August 1996, to May 1997, he was President and Chief Executive Officer. From January 1996, he has been Chairman of the Company. Mr. Castonguay was appointed Vice President of Finance and Administration, and Chief Financial Officer in August 1997. Mr. Castonguay previously served as Vice President of Finance and Chief Financial Officer at Gradient Technologies, Inc. from March, 1996 to August, 1997. He also served as Chief Financial Officer of Xylogics, Inc. from September, 1990 to March, 1996. Mr. Kiely was, prior to joining the Company in 1994, Vice President for EON Corporation and prior to that from 1990 through June 1993 Vice President for Bull HN Information Systems, Inc. He joined the Company and was elected Vice President, Engineering in September 1994. From January 1996 to November 1996, he served as Vice President, Continuum Products Group. From November 1996, he has served as Vice President, Platform Products. Mr. Mezzanotte was appointed Vice President and General Manager, Software Business Group in October 1997. Mr. Mezzanotte previously served as Vice President and General Manager of the Company's Isis Distributed Systems Division. Prior to joining the Company in 1996, Mr. Mezzanotte served as President of Powertel Inc. from June 1995 to July 1996. From April 1993 to June 1995 Mr. Mezzanotte was president of the Systems Exchange, a company he co-founded in 1993. Mr. Oldham joined the Company in March 1984 as Regional Director for the Company's Eastern Sales Region. In December 1990 he was appointed Vice President, Telecommunications Sales. In May 1994 he was elected Vice President, Telecommunications Division. He has served as Vice President, Worldwide Sales since his election in October 1994. Mr. Randall was appointed Vice President of Worldwide Marketing in October 1997. Mr. Randall previously served as Vice President of Strategic Market Development at Madge Networks, Inc. from May, 1996 to September, 1997, when the company he co-founded in 1987, Teleos Communication, Inc. was acquired by Madge Networks, Inc. in 1996. Mr. Randall held a variety of senior executive roles at Teleos between 1987 and 1996, most recently as Vice President and Chief Technology Officer. Mr. Weishaar joined the Company in August 1993, and was elected Vice President, Worldwide Operations. Prior to that time, he was Vice President of European Operations and prior to that Vice President, East Coast Operations for Sun Microsystems, Inc. Mr. Young joined the Company in 1985 as Director, Human Resources. He was elected Vice President, Human Resources in October 1990. Ms. Casal joined the Company in September 1986 as Corporate Staff Attorney. From October 1990 to October 1995, she served as Division Counsel for the Company's International Division. From October 1995 she served as Associate General Counsel and in February 1996 she was elected Vice President, General Counsel. Mr. Gamache joined the Company in June 1983. Since that time he has served in several corporate and operational finance positions including General Accounting Manager, International Sales Controller, Director, Finance and Administration - International Division and Director, Finance and Administration - Worldwide Sales. In October 1995 he was elected Vice President, Corporate Controller. Effective April 27, 1998, Mr. Gamache will resign from his position. Item 11. Executive Compensation The information required by this item is incorporated herein by reference to the "Executive Compensation" appearing on pages 6-10 of the Proxy Statement for Annual Meeting of Stockholders on April 22, 1998. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item is incorporated herein by reference to the tables on pages 1 and 5 of the Proxy Statement for Annual Meeting of Stockholders on April 22, 1998. Item 13. Certain Relationships and Related Transactions None. Financial History
In thousands except per share amounts and employees, unaudited 1997 1996(F1) 1995(F1) 1994(F2) 1993(F2) 1992 1991 1990 1989 1988 - - ----------------------------------------------------------------------------------------------------------------------------------- Summary of operations - - ----------------------------------------------------------------------------------------------------------------------------------- Total revenues $688,275 $609,329 $587,922 $576,556 $513,680 $486,266 $448,632 $403,850 $341,327 $265,314 - - ----------------------------------------------------------------------------------------------------------------------------------- Product revenue percent 71% 67% 65% 72% 77% 79% 82% 84% 85% 88% Service revenue percent 29% 33% 35% 28% 23% 21% 18% 16% 15% 12% Gross profit margin 310,685 269,771 284,732 321,961 292,811 289,070 267,312 237,995 207,613 160,787 Gross profit margin percent to sales 45.1% 44.3% 48.4% 55.8% 57.0% 59.4% 59.6% 58.9% 60.8% 60.6% Operating expenses 228,545 219,637(F1) 272,664(F1) 252,283(F2) 267,395(F2) 220,649 205,241 186,913 153,920 115,671 Operating expenses percent to sales 33% 36% 46% 44% 52% 45% 46% 46% 45% 44% Operating income 82,140 50,134 12,068 69,678 25,416 68,421 62,071 51,082 53,693 45,116 Operating income percent to sales 12% 8% 2% 12% 5% 14% 14% 13% 16% 17% - - ----------------------------------------------------------------------------------------------------------------------------------- Net income $ 74,114 $ 43,520 $ 17,338 $ 60,982 $ 16,607 $ 56,945 $ 49,705 $ 36,987 $ 35,393 $ 29,344 - - ----------------------------------------------------------------------------------------------------------------------------------- Cash flow data Net cash provided by operating activities $186,268 $ 99,118 $ 48,090 $140,621 $121,919 $ 97,445 $ 81,127 $ 36,102 $ 21,622 $ 12,696 Acquisition of property, plant and equipment 73,832 48,165 54,734 53,858 33,668 60,759 31,478 27,395 36,963 17,807 Depreciation of property, plant and equipment 47,786 41,790 42,864 40,395 35,111 31,778 28,910 19,893 16,889 10,547 Share data Shares used to compute earnings per share-basic 23,522 23,437 23,417 24,132 23,271 22,564 21,314 20,378 19,872 19,441 Shares used to compute earnings per share-diluted 24,635 23,774 23,757 24,649 23,769 23,457 22,419 20,894 20,712 20,257 Earnings per share-basic $ 3.15 $ 1.86 $ 0.74 $ 2.53 $ 0.71 $ 2.52 $ 2.33 $ 1.82 $ 1.78 $ 1.51 Earnings per share-diluted $ 3.01 $ 1.83 $ 0.73 $ 2.47 $ 0.70 $ 2.43 $ 2.22 $ 1.77 $ 1.71 $ 1.45 Common stock price High $ 58.81 $ 34.87 $ 39.62 $ 38.50 $ 41.25 $ 54.25 $ 50.62 $ 29.00 $ 35.25 $ 31.50 Low $ 26.63 $ 17.12 $ 23.37 $ 23.25 $ 20.25 $ 29.50 $ 20.75 $ 14.62 $ 19.25 $ 19.50 Book value per share $ 25.09 $ 22.28 $ 20.49 $ 20.31 $ 18.13 $ 17.03 $ 14.18 $ 11.15 $ 9.12 $ 7.08 Year-end position Total assets $750,361 $638,921 $607,809 $613,410 $558,531 $467,182 $397,081 $327,574 $274,098 $199,787 Working capital 383,875 325,724 292,993 324,431 299,293 277,600 237,977 170,306 136,257 101,273 Long-term obligations and deferrals 887 3,634 7,168 10,150 13,743 3,951 6,543 18,822 29,402 10,170 Stockholders' equity 600,776 519,484 478,391 490,152 435,960 389,663 314,026 230,281 183,972 138,985 Return on average stockholders' equity 13% 9% 4% 13% 4% 16% 18% 18% 22% 24% Employees 2,487 2,293 2,441 2,878 2,610 2,622 2,492 2,381 2,147 1,711 - - ----------------------------------------------------------------------------------------------------------------------------------- Operating expenses in 1996 and 1995 included charges of $4,623 and $24,500, respectively, to cover the costs of reducing the Company's cost structure. Operating expenses in 1994 and 1993 included charges of $7,800 and $36,230, respectively, to write off purchased research and development acquired in connection with the Company's acquisitions.
Management's Discussion and Analysis of Financial Condition and Results of Operations The following table summarizes the percentage relationships of income and expense items included in the Consolidated Statements of Income for the three years ended December 28, 1997 and the percentage changes in those items when compared to the preceding year. Percentage of total revenues Percentage increase (decrease) 1997 1996 1995 1997 1996 1995 - - ------------------------------------------------------------------------------- Product sales 71% 67% 65% 20% 6% (8%) Service revenue 29% 33% 35% (2%) (1%) 27% - - ------------------------------------------------------------------------------- Total revenues 100% 100% 100% 13% 4% 2% - - ------------------------------------------------------------------------------- Product cost of sales 37% 35% 32% 18% 14% 11% Service expense 18% 21% 20% 0% 8% 36% - - ------------------------------------------------------------------------------- Gross profit 45% 44% 48% 15% (5%) (12%) - - ------------------------------------------------------------------------------- Research & development expense 13% 13% 14% 14% (5%) (1%) Selling, general & administrative expenses 20% 22% 28% 2% (18%) 3% Restructuring charge - 1% 4% N/A (81%) N/A - - ------------------------------------------------------------------------------- Total operating expenses 33% 36% 46% 5% (1%) 8% - - ------------------------------------------------------------------------------- Operating Income 12% 8% 2% 64% 315% (83%) - - ------------------------------------------------------------------------------- Other income, including interest income and interest expense 2% 1% 2% 94% (31%) 29% - - ------------------------------------------------------------------------------- Income before provision for income taxes 14% 9% 4% 67% 162% (72%) Provision for income taxes 3% 2% 1% 58% 205% (73%) - - ------------------------------------------------------------------------------- Net income 11% 7% 3% 70% 151% (72%) - - ------------------------------------------------------------------------------- OVERVIEW Stratus' mission is to be the premier supplier of computer systems and services where continuous availability is a critical need. The Company differentiates itself from its competitors with two core competencies: a hardware-based fault- tolerant computer architecture which provides the most reliable computer platforms on the market; and a customer service organization and service products which are uniquely suited to supporting the most demanding computing environments in the world. The Company intends to focus its sales and marketing resources on those industry markets, applications and customers which place the greatest value on computer availability and customer support. In 1997, the largest and fastest growing of these markets was telecommunications, accounting for 53 percent of product revenue. The Company has reallocated a significant share of its engineering, marketing, and sales resources to this market and believes that strong growth in telecommunications will continue well into the future. The Company has made a significant investment in telecommunications middleware products which simplify service creation for telecommunications providers, and which provide the highest level of reliability for the delivery of those services. Partnerships with key application providers enable the Company to offer comprehensive solutions for complex telecommunications requirements, including Local Number Portability (LNP) and Home Location Register (HLR). The second major market focus of the Company is financial services. Marketing and sales resources are directed at the increasing number of online applications which require continuous access by customers to account information, and in which there is an absolute requirement for data integrity in customer-initiated transactions. The Company's software subsidiaries, S2 Systems, Inc. and TCAM Systems, Inc., provide leading-edge application solutions to the banking, securities, and retail industry markets. The Company markets its products and services through direct sales organizations in the U.S., and in certain countries internationally, as well as through international distributors and international OEM partners. NEC, an OEM partner since 1990, was the Company's largest customer in 1997, with product revenues of $153.2 million. Increasing the proportion of its product sales through indirect channels is part of the Company's strategy to increase revenues. Selling efficiencies gained by this model allow the Company to include a strong low-end offering in its product family, providing the Company access to the much broader market available at lower price points. The Company markets these products as open, easy-to-use and affordable. They are used to support a wide variety of critical applications where fault tolerance was not previously economical. To strengthen its market position as a supplier of open systems, the Company offers four operating systems: The Hewlett-Packard HP-UX Operating system (OS), which is the most commercially successful UNIX operating system available; the Microsoft Windows NT Server, the fastest growing operating system; FTX, Stratus' own fault-tolerant UNIX offering; and VOS, Stratus' proprietary operating system. Sales of systems running the HP-UX OS, introduced in late 1996, began to increase rapidly in the fourth quarter of 1997. The Company expects continued strong growth in sales of systems using the HP-UX OS due to the very large number of third-party HP-UX application software providers who are now able to combine their products with Stratus' continuous availability for critical applications. The Company maintains a significant level of engineering investment to ensure that its products remain competitive in terms of price/performance. In 1997, the Continuum family of computer platform products was upgraded to the Hewlett-Packard PA-RISC 8000 microprocessor, providing a performance increase of two to four times over previous Continuums. Since the new generation is fully compatible with previous Continuum PA-RISC models, the Company anticipates a smooth product transition. Also in 1997, the Company announced its intention to base the next generation of Continuum products on the Intel IA-64 microprocessor, code-named Merced, which is being jointly developed by Intel and Hewlett-Packard, and which is planned to support both the HP-UX OS and Windows NT Server computing environments. The Company remains focused on computer availability and intends to leverage the technology advances of other companies such as Hewlett-Packard, Intel and Microsoft to reduce cost and time to market for future generations of products. The Company plans to improve performance, functionality and price/performance across all of its product lines to compete in broader markets. OPERATING RESULTS The Company's 1997 net income of $74.1 million, or $3.01 per share (diluted), increased $30.6 million, or 70% from 1996 net income of $43.5 million, or $1.83 per share (diluted). Net income in 1996 increased $26.2 million, or 151% from 1995 income of $17.3 million, or $0.73 per share (diluted). Operating income for 1996 and 1995 included restructuring charges of $4.6 million, or $0.19 per share (diluted) and $24.5 million, or $1.03 per share (diluted), respectively. Excluding these charges, 1996 net income would have been $47.1 million, or $1.98 per share (diluted) and 1995 net income would have been $36.9 million, or $1.55 per share (diluted). NET REVENUES Total 1997 net revenues increased $78.9 million to $688.3 million, 13% higher than in 1996. This compares with an increase of $21.4 million, or 4%, from 1995 to 1996 and an increase of $11.4 million, or 2%, from 1994 to 1995. The increase in 1997 was primarily due to product revenue growth in the telecommunications and financial services markets, while the 1996 increase was primarily attributable to growth in telecommunications. The following table details the percentage of product sales for each of the Company's distribution channels: Percent of total 1997 1996 1995 - - ------------------------------------------------ Domestic direct 34 38 44 International direct 22 28 33 NEC 31 22 11 Distributors 13 12 12 - - ------------------------------------------------ Total 100 100 100 - - ------------------------------------------------ The Company's product sales increased 20% in 1997 compared with 1996. This compares to 6% growth in 1996 and an 8% decline in 1995. The 1997 increase was driven primarily by increased hardware product revenues. Strong results in 1997 were realized through domestic direct and sales to NEC. In spite of competitive pressure, there was not a material impact on the Company's pricing structure. The 1996 increase was driven primarily by increased hardware product revenues through the NEC and domestic direct channels into the telecommunications market sector. In 1997, international direct product sales decreased 4% from 1996, following a decline of 8% in 1996 and 12% in 1995. International direct sales in 1997 were strong in the United Kingdom, Hong Kong, PRC and Singapore, but were more than offset by declines in Mexico and several continental European countries. The Company's direct product sales in the U.S. increased 9% from 1996 following declines of 9% in 1996 and 12% in 1995. The increase in the U.S. was mainly due to stronger sales in the financial services and electronic commerce industries. Revenue from the Company's indirect product channels grew by 52%, 53% and 9% in 1997, 1996 and 1995, respectively. This revenue growth was due primarily to increased sales to NEC. In 1997, sales to NEC grew by 70%, following increases of 111% in 1996 and 70% in 1995. Distributor sales increased 20% in 1997 compared with a 2% increase in 1996 and a 17% decline in 1995. Year-over- year 1997 distributor revenues increased due to stronger sales through Olivetti and in Europe. While the Far East region contributed 35% of the Company's revenues during 1997, the sales in Far Eastern countries currently experiencing significant economic, currency devaluation and liquidity problems during the year contributed only 4% of total revenues. The Company's service revenue declined 2% in 1997 compared with 1996. This decline compares to a decrease of 1% in 1996 and 27% growth in 1995. The decline in 1997 was mainly due to an 18% decrease in professional services revenue due to the completion of several large integration projects during 1997. This decline was partially offset by a 2% increase in maintenance and education revenue. GROSS PROFIT Product sales generated a gross profit of 48% in 1997 compared with 47% in 1996 and 51% in 1995. The one point growth in 1997 was primarily the result of a favorable product mix and manufacturing efficiencies gained as a result of increased volume. The decline from 1995 to 1996 resulted primarily from increased competitive pressure, an aggressively priced Continuum product line introduced early in the year, unfavorable impact of foreign exchange rate movement and a decrease in software license revenues. Service gross profit was 37%, 38%, and 44% in 1997, 1996, and 1995, respectively. The decreases from 1996 to 1997 and from 1995 to 1996 were due primarily to lower professional services revenues. RESEARCH AND DEVELOPMENT The Company's investment in research and development of $90.6 million in 1997 increased 14% over 1996, compared with a 5% decrease in 1996 and a 1% decrease in 1995. Research and development expense as a percent of revenue was 13% for both 1997 and 1996, and 14% in 1995. These investments reflect the Company's long-standing commitment to provide leading-edge hardware and software products to the telecommunications and reliable enterprise server marketplaces, particularly in support of mission critical applications. In 1997, the Company's research and development efforts were directed primarily towards the Company's Continuum product line. The Company continued to enhance its Continuum product line, leveraged by the successful incorporation of the Hewlett Packard industry-leading PA-RISC microprocessor, and the HP-UX, FTX and VOS operating system technologies. During 1997, the Company began to transition resources away from its RADIO Cluster product line. Resources not focused at sustaining engineering for RADIO Cluster are being re-deployed to focus on the Company's new Merced-based fault-tolerant products that will support the Microsoft Windows NT Server operating system. This Intel IA-64 microprocessor technology with 64-bit processing will be brought to the next generation of Continuum products. Management believes that ongoing expenditures in research & development, and focusing on core competencies further leveraged by effective partnerships are vital to future growth. The Company expects to continue to invest in these technologies in the normal course of its business cycle to bring competitive products to market, and to realize the benefits of purchased research and development. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased $2.7 million, or 2%, in 1997 to $137.9 million compared with a decrease of $29.1 million, or 18%, in 1996 and an increase of $4.1 million, or 3%, in 1995. As a percentage of total revenues, selling, general and administrative expenses were 20% in 1997, down from 22% in 1996 and 28% in 1995. The Company's strategy is to continue to focus the sales organization on targeted vertical industries and application opportunities within the telecommunications and enterprise server markets, expand indirect sales channels and improve selling efficiencies. The Company is in the process of expanding its marketing function in order to increase the Company's identity in the marketplace and to improve its understanding of product requirements in strategic market segments such as telecommunications. RESTRUCTURING During 1996, the Company restructured its software business to improve operating results by aligning expenses with revenues, and to focus on new strategic product offerings. As a result, a $4.6 million restructuring charge was recorded for workforce reductions and asset write-downs related to the discontinuation of certain product programs. During 1995, after completing an evaluation of the Company's economic model and cost structure, management approved a plan to restructure its operations. As a result, a $24.5 million restructuring charge was recorded for the reduction of the worldwide workforce by approximately 575 employees, as well as the consolidation of certain manufacturing and sales operations. The action was taken to re-size the expense structure of the Company, bringing expense levels in line with the new economic model. Of the total charge, $13.0 million was related to the workforce reduction and $11.5 million was related to the consolidation of facilities and operations. OTHER INCOME Interest income increased in 1997 primarily due to higher amounts of invested cash and marketable securities as compared to 1996. A decrease in 1997 interest expense was attributable to lower levels of long-term debt. Through the use of forward foreign exchange contracts, the Company substantially negates the effects of foreign currency fluctuations on foreign currency denominated intercompany receivables and payables. The cost of hedging the Company's currency exposures is included in other income. INCOME TAXES The Company's effective tax rate was 22.0% in 1997, 23.3% in 1996 and 20.0% in 1995. The 1997 tax rate was lower than the previous year due to a change in the mix of the taxable income among the Company's subsidiaries, and the increased utilization of research credits. The Company has recorded a net deferred tax asset at December 28, 1997. Although realization is not assured, based on the Company's history of profitability and expectation of future income, management believes it is likely that the deferred tax asset will be realized. LIQUIDITY AND CAPITAL RESOURCES The Company had cash, cash equivalents and marketable securities of $259.7 million at the end of 1997. Corresponding balances at the end of 1996 and 1995 were $174.9 million and $155.1 million, respectively. Total assets at the end of 1997 increased to $750.4 million compared with $638.9 million in 1996. Stockholders equity increased to $600.8 million in 1997 from $519.5 million in 1996. Cash generated from operating activities was $186.3 million in 1997 compared to $99.1 million in 1996 and $48.1 million in 1995. The increase in cash generated from operating activities in 1997 compared with 1996 is primarily attributable to higher profits in 1997. The Company used net cash of $13.7 million for the acquisition of businesses in 1995. There were no such expenditures in 1996 or 1997. Capital expenditures were $73.8 in 1997 compared to $48.2 million in 1996 and $54.7 million in 1995. In the third quarter of 1997, the Company purchased the third building and underlying land (all of which had been leased under an operating lease) at its corporate headquarters site in Marlborough, Massachusetts for $21.6 million in cash. In addition, the Company expended $28.8 million in 1997, $25.1 million in 1996 and $23.2 million in 1995 on other long- term assets. The Company continues to invest in capital equipment and other long-term assets, principally software technologies used to broaden the functionality of product offerings aimed at target markets. Investments will be made in amounts sufficient to support future growth and enhance operations in order to maintain the highest standards of overall quality. In 1998, the Company plans to spend approximately $45 million on capital equipment and $25 million for other long-term assets. Net proceeds from the Company's Employee Stock Purchase Plan and stock option plans were $29.8 million in 1997, $10.5 million in 1996, and $16.3 million in 1995. For fiscal years 1997, 1996, and 1995, the Company repurchased common stock on the open market as follows: 765,700 shares for $26.2 million, 534,300 shares for $12.6 million, and 1,511,800 shares for $44.6 million, respectively. The Company has an approved stock repurchase program designed to fund the Employee Stock Purchase Plan and stock option plans. The Company anticipates that it will repurchase approximately 1.1 million shares in the open market in 1998. The Company believes its existing cash balance, including cash equivalents and marketable securities and cash generated from future operations, will be sufficient to meet the Company's cash requirements for the foreseeable future. YEAR 2000 In 1996, the Company recognized the need to ensure its operations would not be adversely impacted by Year 2000 software failures. The Company has dedicated resources to coordinate the identification, evaluation and implementation of the changes to computer systems and applications necessary to achieve a Year 2000 data conversion with no effect on customers or disruption to business operations. These actions are necessary to ensure that the systems and applications will recognize and process information in the year 2000 and beyond. Major areas of potential business impact have been identified and initial conversion efforts are underway. In 1997, the Company replaced its core financial, order management and manufacturing systems with year 2000 compliant applications. The Company also is communicating with customers, suppliers, dealers, financial institutions and others with which it does business to coordinate year 2000 conversion. The Company estimates these activities will be completed by June 1999. In addition, the Company has funded internal development plans to ensure that all products for sale are year 2000 compliant by the end of 1998. The total cost of compliance is not expected to have a material adverse impact on the Company's financial position or results of operations. OUTLOOK Future operating results of the Company will be dependent, in part, upon its ability to continue to execute its strategy for growth in its two principal business areas: 1) the telecommunications and financial services markets with focus on the core product line of Continuum fault-tolerant computer systems, and 2) the application software markets addressed by the Company's S2 and TCAM subsidiaries. The Company will align its product strategies to meet the industry-specific requirements of targeted growth markets. The Company will continue to invest in its core business by developing and introducing products which will expand the breadth of the Continuum product family. In addition, the Company plans to continue to support customer needs for its distributed computing products. The development and delivery of telecommunications middleware, application software and professional services will be targeted towards those market segments where computer availability is a critical need. FACTORS THAT MAY AFFECT FUTURE RESULTS Except for the historical information contained herein, the matters discussed in this Annual Report are forward-looking statements. The Company cautions readers to recognize that actual future results could differ materially from historical performance as a result of the following and other factors: Future operating results are dependent upon the timing and market acceptance of new and enhanced product introductions by the Company or its competitors, several of which are larger than the Company, including competitors offering high-availability solutions. The transition of customers from existing to new products in a rapidly changing technological environment, as well as unexpected delays and/or cancellations in customer purchases of existing products in anticipation of new products, are inherent risks. Revenues and earnings may be impacted by the Company's ability to strengthen its position in open systems by increasing sales of its Continuum systems running the HP-UX operating system. The Company historically books and ships a large percentage of its revenues towards the end of each quarter, making revenue forecasting difficult. In addition, product volumes and product mix comprising the forecast are dependent upon customers' changing demands and needs. As the Company increases its product and service offerings, the process of planning and forecasting revenue becomes increasingly difficult. Each of these factors may subject the Company to fluctuations in revenues and earnings. Substantially all of the Company's product manufacturing and many of its suppliers are located outside the United States. In conjunction with the forecast process discussed above, the Company must adjust operations to satisfy production requirements as demand changes. Production capacity is dependent upon the ability of the Company's suppliers to provide components on time and at reasonable prices. Supply constraints, dependence on single-source vendors, foreign currency exchange rate fluctuations, foreign country political and economic changes, as well as changes in export and trade regulations could adversely impact the Company's operations. A significant amount of the Company's business is derived from international markets, including the Far East. While existing business levels in countries which are currently experiencing significant economic, currency devaluation and liquidity problems did not materially impact the Company during 1997, there is no assurance that future financial results will not be adversely impacted by economic events in other parts of the Far East or elsewhere. In addition to its direct channels, the Company continues to expand its indirect distribution channels through resellers and distributors. One customer, NEC, represented 22%, 15% and 7% of net revenues in 1997, 1996 and 1995, respectively. The financial condition of, and ongoing business relationship with, such resellers and distributors is important to the Company's financial success. Fluctuations in channel mix may be significant and can have a significant impact on gross margins and therefore on earnings per share. As the technology marketplace continues to evolve in anticipation of meeting customers' changing needs, the industry continues to experience competitive pressures on price and gross margins. Downward pressures on price and gross margins and unexpected revenue and margin shifts may cause the Company to change its operations and as such, may adversely impact the Company's financial results. Competition for employees with the skills required by the Company is intense in the geographic areas in which the Company's primary operations are located. The Company believes that its future success will depend on its continued ability to attract and retain qualified employees, especially in the high-technology engineering areas. CONSOLIDATED STATEMENTS OF INCOME For the years ended December 28, 1997, December 29, 1996, and December 31, 1995 In thousands, except per share amounts 1997 1996 1995 - - ------------------------------------------------------------------------------- Revenues Product sales $489,214 $406,956 $383,850 Service 199,061 202,373 204,072 - - ------------------------------------------------------------------------------- Total revenues 688,275 609,329 587,922 - - ------------------------------------------------------------------------------- Cost of sales Product cost of sales 252,487 214,580 187,935 Service expense 125,103 124,978 115,255 - - ------------------------------------------------------------------------------- Gross profit 310,685 269,771 284,732 - - ------------------------------------------------------------------------------- Operating expenses Research and development expense 90,647 79,818 83,824 Selling, general and administrative expenses 137,898 135,196 164,340 Restructuring charge - 4,623 24,500 - - ------------------------------------------------------------------------------- Total operating expenses 228,545 219,637 272,664 - - ------------------------------------------------------------------------------- Operating income 82,140 50,134 12,068 Interest income 10,903 6,545 8,715 Interest expense (354) (760) (1,077) Other income 2,328 836 1,966 - - ------------------------------------------------------------------------------- Income before provision for income taxes 95,017 56,755 21,672 Provision for income taxes 20,903 13,235 4,334 - - ------------------------------------------------------------------------------- Net income $ 74,114 $ 43,520 $ 17,338 - - ------------------------------------------------------------------------------- Earnings per share: Basic $ 3.15 $ 1.86 $ 0.74 Diluted $ 3.01 $ 1.83 $ 0.73 Shares used to compute earnings per share: Basic 23,522 23,437 23,417 Diluted 24,635 23,774 23,757 - - ------------------------------------------------------------------------------- See accompanying notes CONSOLIDATED BALANCE SHEETS At December 28, 1997 and December 29, 1996 In thousands, except share and per share amounts 1997 1996 - - ------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $178,611 $131,683 Marketable securities 81,070 43,187 Accounts receivable, net 161,346 175,061 Inventories 76,635 63,283 Prepaid expenses 14,699 14,540 Other current assets 20,212 13,773 - - ------------------------------------------------------------------------------- Total current assets 532,573 441,527 - - ------------------------------------------------------------------------------- Property, plant and equipment, less accumulated depreciation 148,790 122,756 Other assets, net 68,998 74,638 - - ------------------------------------------------------------------------------- Total assets $750,361 $638,921 - - ------------------------------------------------------------------------------- Liabilities and stockholders' equity Current liabilities Accounts payable $ 34,860 $ 30,357 Accrued expenses: Compensation-related 24,395 17,422 Other 31,636 34,204 - - ------------------------------------------------------------------------------- Total accrued expenses 56,031 51,626 Income taxes payable 27,906 13,564 Short-term borrowings and obligations 1,487 2,667 Deferred revenue 28,414 17,589 - - ------------------------------------------------------------------------------- Total current liabilities 148,698 115,803 Long-term obligations and deferrals 887 3,634 Stockholders' equity Common stock, $.01 par value, 150,000,000 shares authorized, 27,645,033 and 26,252,242 shares issued and outstanding in 1997 and 1996, respectively 276 263 Junior common stock, $.01 par value, 500,000 shares authorized - - Additional paid-in capital 255,691 219,237 Retained earnings 465,538 391,424 Cumulative translation adjustment (5,877) (2,826) - - ------------------------------------------------------------------------------- Subtotal 715,628 608,098 Less: shares in treasury, at cost, 3,700,000 and 2,934,300 shares in 1997 and 1996, respectively (114,852) (88,614) - - ------------------------------------------------------------------------------- Total stockholders' equity 600,776 519,484 - - ------------------------------------------------------------------------------- Total liabilities and stockholders' equity $750,361 $638,921 - - ------------------------------------------------------------------------------- See accompanying notes CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the period January 1, 1995 to December 28, 1997 Additional Cumulative Total Common paid-in Retained Treasury translation stockholders' In thousands, except share amounts stock capital earnings stock adjustment equity - - -------------------------------------------------------------------------------------------------------------------- Balance at January 1, 1995 $250 $191,971 $330,566 $ (31,402) $(1,233) $490,152 Repurchase of 1,511,800 shares of common stock - - - (44,616) - (44,616) Exercise of 472,124 options issued under employee stock option plans 5 9,688 - - - 9,693 Issuance of 248,332 shares of common stock under Employee Stock Purchase Plan 2 6,588 - - - 6,590 Foreign currency translation adjustment - - - - (827) (827) Compensation expense associated with grant of stock options - 61 - - - 61 Net income for the year ended December 31, 1995 - - 17,338 - - 17,338 - - -------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 257 208,308 347,904 (76,018) (2,060) 478,391 Repurchase of 534,300 shares of common stock - - - (12,596) - (12,596) Exercise of 242,091 options issued under employee stock option plans 3 4,480 - - - 4,483 Issuance of 264,028 shares of common stock under Employee Stock Purchase Plan 3 5,963 - - - 5,966 Foreign currency translation adjustment - - - - (766) (766) Tax benefit from non-qualified stock options - 424 - - - 424 Compensation expense associated with grant of stock options - 62 - - - 62 Net income for the year ended December 29, 1996 - - 43,520 - - 43,520 - - -------------------------------------------------------------------------------------------------------------------- Balance at December 29, 1996 263 219,237 391,424 (88,614) (2,826) 519,484 Repurchase of 765,700 shares of common stock - - - (26,238) - (26,238) Exercise of 1,035,751 options issued under employee stock option plans 10 21,882 - - - 21,892 Issuance of 357,040 shares of common stock under employee stock purchase plan 3 7,856 - - - 7,859 Foreign currency translation adjustment - - - - (3,051) (3,051) Tax benefit from non-qualified stock options - 6,219 - - - 6,219 Compensation expense associated with grant of stock options - 497 - - - 497 Net income for the year ended December 28, 1997 - - 74,114 - - 74,114 - - -------------------------------------------------------------------------------------------------------------------- Balance at December 28, 1997 $276 $255,691 $465,538 $(114,852) $(5,877) $600,776 - - -------------------------------------------------------------------------------------------------------------------- See accompanying notes
CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 28, 1997, December 29, 1996 and December 31, 1995 In thousands 1997 1996 1995 - - ------------------------------------------------------------------------------- Operating activities Cash flows from operating activities: Net income $ 74,114 $ 43,520 $ 17,338 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 80,974 67,345 66,040 Restructuring charge - 4,623 24,500 Add (deduct) changes in working capital: Accounts receivable, net 13,715 (9,485) (22,596) Inventory (13,352) (2,013) (15,725) Accounts payable and accrued liabilities 8,290 (12,301) 7,233 Income tax payables 14,342 4,947 (24,710) Other working capital items 8,185 2,482 (3,990) - - ------------------------------------------------------------------------------- Net cash provided by operating activities 186,268 99,118 48,090 Investing activities Cash flows from investing activities: Acquisition of property, plant and equipment (73,832) (48,165) (54,734) Acquisition of businesses, net of cash acquired - - (13,711) Purchases of marketable securities (129,295) (31,557) (119,945) Proceeds from sale and maturity of marketable securities 91,412 51,875 94,516 Acquisition of other assets (28,846) (25,092) (23,172) - - ------------------------------------------------------------------------------- Net cash used in investing activities (140,561) (52,939) (117,046) Financing activities Cash flows from financing activities: Net proceeds from employee stock plans 29,751 10,511 16,344 Acquisition of treasury stock (26,238) (12,596) (44,616) Reduction of long-term obligations and deferrals (1,776) (3,531) (3,187) - - ------------------------------------------------------------------------------- Net cash (used in) provided by financing activities 1,737 (5,616) (31,459) Effect of exchange rate changes on cash (516) (472) 73 - - ------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 46,928 40,091 (100,342) Cash and cash equivalents at beginning of year 131,683 91,592 191,934 - - ------------------------------------------------------------------------------- Cash and cash equivalents at end of year $178,611 $131,683 $ 91,592 - - ------------------------------------------------------------------------------- See accompanying notes NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. The investment in the Company's joint venture with Axime S.A. of France (see Note 12) is accounted for using the equity method. All intercompany transactions and balances have been eliminated in consolidation. Cash equivalents and marketable securities Cash equivalents include highly liquid investments with maturities of three months or less at time of acquisition and are comprised primarily of government securities, commercial paper and bank notes carried at cost, which approximates fair value. Marketable securities consist of securities with maturities greater than ninety-one days. Marketable securities are reported at fair values which are based on quoted market prices. Translation of foreign currencies The Company translates the assets and liabilities of its foreign subsidiaries at the exchange rates in effect at the balance sheet date. Revenues and expenses are translated at average exchange rates for the period. Gains and losses from foreign currency translation are recorded in "cumulative translation adjustment", a separate component of stockholders' equity. Accounts receivable The Company states its accounts receivable at their estimated net realizable value. The allowance for doubtful accounts was $8.3 million at December 28, 1997 and December 29, 1996. Inventories Inventories are valued at the lower of cost (first-in, first-out) or market. Property, plant and equipment Property, plant and equipment is stated at cost. Depreciation expense of $47.8 million in 1997, $41.8 million in 1996 and $42.9 million in 1995 was calculated using the straight-line method based upon the following estimated useful lives: Land improvements 15 years Buildings and improvements 15-39 years Machinery and equipment 2-5 years Leasehold improvements shorter of term of lease or life of asset Service and spare parts 4 years Software Costs related to the conceptual formulation and design of software are expensed as research and development. Costs incurred subsequent to attaining technological feasibility to produce the finished product are generally capitalized. These costs are amortized over the lesser of three years or the estimated product life cycle. Intangible assets The Company has classified as goodwill the cost in excess of fair value of net assets acquired in purchase transactions. Unamortized goodwill costs, included in other assets on the consolidated balance sheets, were $14.2 million at December 28, 1997 and $18.5 million at December 29, 1996. Goodwill is being amortized using the straight-line method over a period of seven years. The Company periodically evaluates the carrying value of intangible assets for impairment. Any impairment is charged to expense in the period identified. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, but are not limited to, collectibility of accounts receivable, carrying value of inventory, and recoverability of capitalized software, goodwill and deferred tax assets. Actual results could differ from those estimates. Revenue recognition Revenue from product sales is generally recognized at the time of shipment. Software license revenue is recognized at the time of delivery. Service, product support and professional services revenues are recognized over the contractual period or as the services are provided. The American Institute of Certified Public Accountants issued Statement of Position 97-2 "Software Revenue Recognition" (SOP 97-2) in October 1997. SOP 97-2 will be effective for the Company beginning with transactions entered into on or after December 29, 1997. The Company believes SOP 97-2 will not have a material impact on the Company's financial position or results of operations. Income taxes The Company provides deferred taxes to recognize temporary differences between financial reporting and tax accounting. The Company's practice is to reinvest the earnings of its foreign subsidiaries in those operations and to repatriate unremitted earnings only when it is advantageous to do so. Foreign exchange contracts The Company continually enters into forward foreign exchange contracts to hedge foreign currency transactions for periods consistent with its committed exposures. These contracts protect the Company from risk due to exchange rate movements because gains and losses on the contracts offset losses and gains on the assets, liabilities and transactions being hedged. As of December 28, 1997 and December 29, 1996, the Company had $42.5 million and $71.9 million, respectively, of net foreign exchange contracts outstanding, predominantly in European currencies and Japanese yen. The maturities of foreign exchange contracts generally do not exceed six months. Foreign currency transaction gains and losses, which are included in other income, as well as unrealized gains and losses on forward foreign exchange contracts, are not material to the Company's consolidated financial statements. Concentration of credit risk The Company sells its products to customers in diversified industries, primarily in the United States, Europe, the Asia Pacific Rim, and Central and South America. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses and such losses have been within management's expectations. The Company invests its cash equivalents principally in deposits with major banks and in money market securities of companies and municipal government entities with strong credit ratings. These securities mature within three months of their purchase date and therefore, are subject to minimal risk. The Company's investments in marketable securities consist primarily of time deposits, obligations of states and political subdivisions, U.S. government issues, commercial paper and corporate bonds. The weighted average maturity of these investments does not exceed eighteen months. Employee stock plans Proceeds from the sale of common stock issued under the Employee Stock Purchase Plan and stock option plans are credited to common stock at the par value. The excess of the share price over par value is credited to additional paid-in capital. The Company's stock plans are accounted for under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Income tax benefits arising from employee's premature disposition of purchased shares and exercise of non-qualified stock options are credited to additional paid-in capital. Earnings per share In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share", which is required to be adopted for financial statements issued for periods ending after December 15, 1997. In accordance with this Statement, the Company changed the method previously used to compute earnings per share and restated all prior periods presented. Basic earnings per share is calculated based on the weighted average number of common shares outstanding. Diluted earnings per share includes the effect of dilutive stock options of 1,113,000 shares in 1997, 337,000 shares in 1996 and 340,000 shares in 1995. The anti-dilutive impact of employee stock options was not material in each of the three years. There is no difference between diluted earnings per share and amounts previously reported as earnings per share. Effect of recent accounting pronouncements In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income," which is effective for fiscal years beginning after December 15, 1997. This Statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income includes unrealized gains or losses on available-for-sale securities and foreign currency translation adjustments, both of which currently are reported in stockholders' equity. Application of Statement 130 only changes the display and disclosure of previously reported information and will not impact amounts previously reported for net income or stockholders equity, nor affect the comparability of previously issued financial statements. Adoption of this standard is not expected to have a material impact on the Company's financial statements or results of operations. In June 1997, the Financial Accounting Standards Board issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information," which is effective for fiscal years beginning after December 15, 1997. The Statement changes the way that public companies report segment information in annual financial statements and also requires those companies to report selected segment information in interim financial reports to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Statement 131 is effective for financial statements for fiscal years beginning after December 15, 1997 and therefore, the Company will adopt the new requirements retroactively in 1998. Management has not completed its review of Statement 131 and therefore, has not concluded whether the adoption of this statement will have a significant effect on the Company's reported segments. 2. AVAILABLE-FOR-SALE INVESTMENTS Management determines the appropriate classification of investments at the time of purchase and reevaluates such designation as of each balance sheet date. All of the Company's investments at December 28, 1997 and December 29, 1996 have been classified as being "available-for-sale", and are included in cash equivalents and marketable securities on the consolidated balance sheets. Gross realized and unrealized gains and losses were not material in 1997, 1996 and 1995. The cost of investments sold is based on the specific identification method. The following is a summary of available for sale investments at December 28, 1997 and December 29, 1996: Estimated Estimated fair value fair value In thousands 1997 1996 - - ---------------------------------------------------------------- Time deposits at banks $130,726 $ 74,155 Obligations of states and political subdivisions 2,000 30,242 U.S. government issues 58,712 4,900 Commercial paper 20,903 - Corporate bonds 16,500 4,000 - - ---------------------------------------------------------------- Total available-for-sale investments $228,841 $113,297 - - ---------------------------------------------------------------- 3. INVENTORIES Inventories consisted of the following: In thousands 1997 1996 - - ---------------------------------------------------------------- Finished products $32,872 $35,921 Work in process 2,665 1,542 Parts and assemblies 41,098 25,820 - - ---------------------------------------------------------------- Total inventories $76,635 $63,283 - - ---------------------------------------------------------------- 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following: In thousands 1997 1996 - - ---------------------------------------------------------------- Land and improvements $ 6,424 $ 3,241 Buildings 50,175 33,620 Machinery and equipment 296,817 267,083 Leasehold improvements 25,057 24,282 Service and spare parts 19,333 19,829 Construction in progress 6,488 7,042 - - ---------------------------------------------------------------- Total property, plant and equipment 404,294 355,097 - - ---------------------------------------------------------------- Less accumulated depreciation 255,504 232,341 Net property, plant and equipment $148,790 $122,756 - - ---------------------------------------------------------------- 5. CAPITALIZED SOFTWARE DEVELOPMENT COSTS Unamortized software development costs, included in other assets on the consolidated balance sheets, were $33.8 million and $34.0 million at December 28, 1997 and December 29, 1996, respectively. Amortization expense, along with adjustments to net realizable value, is included in product cost of sales, and amounted to $29.0 million in 1997, $23.1 million in 1996 and $20.1 million in 1995. 6. INCOME TAXES The components of income (loss) before provisions for income taxes consisted of the following: In thousands 1997 1996 1995 - - ------------------------------------------------------------------- Domestic $ 5,667 $(3,087) $(27,157) Foreign 89,350 59,842 48,829 - - ------------------------------------------------------------------- Income before provision for income taxes $95,017 $56,755 $ 21,672 - - ------------------------------------------------------------------- The provision for income taxes includes $6.2 million and $0.4 million in 1997 and 1996, respectively, resulting from the allocation of tax benefits from non-qualified stock options directly to additional paid-in capital. The provision (benefit) for income taxes consisted of the following: In thousands 1997 1996 1995 - - ------------------------------------------------------------------- Current Federal $ 6,290 $ 452 $(3,312) State 750 295 250 Foreign 17,032 11,518 14,465 - - ------------------------------------------------------------------- Total current 24,072 12,265 11,403 - - ------------------------------------------------------------------- Deferred Federal (2,815) 419 (4,612) State (699) 105 (382) Foreign 345 446 (2,075) - - ------------------------------------------------------------------- Total deferred (3,169) 970 (7,069) Provision for income taxes $20,903 $13,235 $ 4,334 - - ------------------------------------------------------------------- The following table reconciles the Federal income tax rate to the tax rate used in the calculation of the provision for income taxes as reported in the financial statements: 1997 1996 1995 - - ------------------------------------------------------------------- Income tax at U.S. Federal statutory rate 35.0% 35.0% 35.0% State income taxes, net of Federal benefit 0.1% 0.5% (0.4%) Foreign sales corporation exempt income (0.1%) - (0.6%) Tax effect of foreign operations (14.4%) (13.8%) (15.5%) Research and development credits (2.1%) (1.3%) - Tax exempt interest income (0.3%) (0.9%) (3.4%) Goodwill 1.2% 1.1% 1.6% Other, net 2.6% 2.7% 3.3% - - ------------------------------------------------------------------- Effective tax rate 22.0% 23.3% 20.0% - - ------------------------------------------------------------------- The Company paid income taxes of $10.3 million in 1997, $12.4 million in 1996 and 26.3 million in 1995. The earnings from products manufactured and sold by the Company's Ireland manufacturing subsidiary are subject to a 10% tax rate through December 2010. The Company has research and development credit carryforwards of $6.4 million that begin to expire in the year 2005, and alternative minimum tax credit carryforwards of $0.6 million which carry forward indefinitely. Deferred tax assets and (liabilities) included in other current assets and other non-current assets on the consolidated balance sheets as of December 28, 1997 and December 29, 1996 were comprised of the following: In thousands 1997 1996 - - -------------------------------------------------------- Deferred tax assets Depreciation/amortization, net $11,988 $10,862 Inventory/other reserves 15,581 14,052 Carryforward losses, federal and state tax credits 8,207 7,169 Deferred gain on sale of building - 698 Intercompany profit elimination 563 741 Deferred compensation 355 706 Other 2,316 3,128 - - -------------------------------------------------------- Total deferred tax assets 39,010 37,356 Valuation allowance (3,947) (3,947) - - -------------------------------------------------------- Net deferred tax assets $35,063 $33,409 - - -------------------------------------------------------- Taxes are not provided on unremitted earnings of subsidiaries outside the United States as such earnings are permanently reinvested. Unremitted earnings at December 28, 1997 and December 29, 1996 approximated $327.2 million and $256.9 million, respectively. If these earnings are remitted in the form of dividends or otherwise, the Company will be potentially subject to both U.S. income taxes and foreign withholding taxes less an adjustment for applicable foreign tax credits. It is not practical to estimate the amount of taxes payable on these foreign earnings. The Company has recorded a net deferred tax asset on December 28, 1997. Although realization is not assured, based on the Company's history of profitability and expectation of future taxable income, management believes it is likely that the deferred tax asset will be realized. 7. DEBT On January 3, 1997, the Company canceled its $50 million Multicurrency Revolving Credit Agreement because management concluded that it was no longer needed. There were never any borrowings against this Agreement. In 1993, the Company issued $7.5 million of promissory notes and $4.1 million of deferred compensation obligations in connection with the acquisition of Isis Distributed Systems, Inc. The remaining balance of $1.5 million on these obligations was paid in January 1998. Certain subsidiaries have entered into credit arrangements with local banks, principally in the form of overdraft borrowings, for the purpose of short-term liquidity management. Borrowings under these agreements, whose carrying amounts approximated fair value, were $0.9 million at December 29, 1996 with a weighted average interest rate of 4.8%. There were no outstanding borrowings at December 28, 1997. The Company paid interest of approximately $0.4 million in 1997, $0.7 million in 1996 and $1.2 million in 1995. 8. STOCK PLANS Employee option plans The Company maintains three active stock option plans: the 1983 Stock Option Plan; the Non-Qualified Stock Option Plan; and the 1997 Non- Qualified Stock Option Plan. The 1983 Stock Option Plan provides for the granting of both incentive stock options and non-statutory (non-qualified) stock options. On April 23,1997, both the 1983 Stock Option Plan and the Non Qualified Stock Option Plan increased the number of shares reserved for option grants under the plans by a combined 1,500,000 for a total of 10,880,200. In addition, the number of options a participant may be granted under these plans increased from 100,000 to 500,000 shares. The 1997 Non-Qualified Plan was adopted and approved by the Board of Directors of the Company on January 13, 1997 and provided for the reservation of 3,000,000 shares of common stock for issuance upon the exercise of options. The option prices for non-qualified grants under all plans are determined by the Compensation and Stock Option Committee of the Board of Directors (the Committee), subject to a minimum option price of not less than 50% of the fair market value of the stock at the time of grant for options granted under the 1983 Stock Option Plan and, for options granted under the Non-Qualified Stock Option Plan to persons whose transactions are subject to Section 16(b) of the Securities Exchange Act of 1934. The option price for grants intended to qualify as incentive stock options under Section 422A of the Internal Revenue Code, as amended, shall not be less than 100% of the fair market value of the stock on the date of grant. The terms of exercise of the options are also determined by the Committee. All options granted to date become exercisable in full not later than one year from the date of grant, have a ten year life and vest over a four or five year period from the date of grant. At December 28, 1997, shares available for future grants consisted of 1,808,136 for the 1997 plan and 2,128,341 on a combined basis for the 1983 Stock Option Plan and the Non-Qualified Stock Option Plan. At December 29, 1996, 930,927 shares were available for future grants on a combined basis under the 1983 Stock Option Plan and the Non-Qualified Stock Option Plan. The Company applies APB Opinion No.25 and related interpretations in accounting for its stock-based compensation plans, including its Employee Stock Purchase Plan. During 1997, the Company issued options to certain executives at exercise prices which were below the market value of the stock on the date of grant. The compensation expense related to these options, which was $0.5 million in 1997, will be recognized over the vesting period of four years. Had compensation expense for the Company's stock-based compensation plans been determined based upon the fair market value at the grant date for stock option awards (stock options) and at the end of the plan period for stock purchased under its Employee Stock Purchase Plan (stock purchase shares), the Company's net income and diluted earnings per share on a pro forma basis would have been $64.2 million, or $2.61 per share (diluted) in 1997, $37.8 million, or $1.59 per share (diluted) in 1996 and $14.1 million, or $0.59 per share (diluted) in 1995. The fair value of stock options granted and stock purchase shares issued during 1997, 1996 and 1995 was estimated at the date of the grant and the end of the plan period, respectively, using the Black-Scholes option-pricing model with the following weighted-average assumptions: volatility 46.9%, 36.3% and 29.5%, respectively; risk-free interest rate of 6.25%, 6.13% and 5.99%, respectively; and no dividends. The weighted-average expected life was 3.0 years for 1997 and 4.0 years for both 1996 and 1995. The effects on fiscal 1997, 1996 and 1995 pro forma net income and earnings per share of expensing the estimated fair value of stock options and stock purchase shares are not necessarily representative of the effects on reported net income for future years due to such factors as the vesting period of the stock options and the potential for issuance of additional stock options and stock purchase shares in future years. Stock option activity was as follows: Shares Weighted- under average options exercise price - - ------------------------------------------------------------- Outstanding, January 1, 1995 3,145,515 $24.74 Granted 1,226,168 $26.79 Exercised (472,124) $20.11 Canceled (708,487) $27.61 - - ------------------------------------------------------------- Outstanding, December 31, 1995 3,191,072 $25.58 - - ------------------------------------------------------------- Exercisable, December 31,1995 3,191,072 $25.58 - - ------------------------------------------------------------- Granted 3,779,521 $20.08 Exercised (242,091) $20.14 Canceled (3,072,104) $26.53 - - ------------------------------------------------------------- Outstanding, December 29, 1996 3,656,398 $19.57 - - ------------------------------------------------------------- Exercisable, December 29, 1996 3,656,398 $19.57 - - ------------------------------------------------------------- Granted 2,039,846 $31.85 Exercised (1,035,751) $21.13 Canceled (545,396) $21.01 - - ------------------------------------------------------------- Outstanding, December 28, 1997 4,115,097 $25.09 - - ------------------------------------------------------------- Exercisable, December 28, 1997 4,115,097 $25.09 - - ------------------------------------------------------------- The weighted-average fair value of stock options granted during 1997 was $14.51 for options issued at market price and $28.12 for below market options. The weighted-average fair value of stock options granted in 1996 and 1995 was $7.78 and $9.77, respectively. The weighted average fair value of stock purchase shares issued during 1997, 1996 and 1995 was $8.35, $7.61 and $9.95, respectively. Stock options outstanding at December 28, 1997 are summarized as follows: Weighted- average Weighted- Range of Number remaining average exercise outstanding contractual exercise prices at 12/28/97 life price - - ------------------------------------------------------------- $11.88-$26.75 2,824,752 8.3 $20.45 $27.00-$41.63 961,530 8.9 $32.13 $43.00-$56.75 328,815 9.5 $44.40 - - ------------------------------------------------------------- $11.88-$56.75 4,115,097 8.6 $25.09 During 1996, the Board of Directors authorized the Company to offer holders of all outstanding unexercised stock options granted between January 1, 1994, and July 25, 1996, under the Company's stock option plans the opportunity to exchange such options for an equal number of new options under the 1983 Stock Option Plan and the Non-Qualified Stock Option Plan. Approximately 2,467,000 shares were exchanged for new options issued at the fair market value ($17.125) of the Company's common stock on the date of the exchange (July 25, 1996). These new options were non-qualified and began a new four-year vesting schedule. Employee purchase plan Under the Company's Employee Stock Purchase Plan, employees may purchase the Company's common stock at a price equal to 85% of the fair market value of the stock, as defined. In April 1997, the shareholders approved an increase in the number of shares which may be issued under the Plan from 3,100,000 to 4,100,000. Common stock reserved for future grants aggregated 815,898 and 172,938 shares at December 28, 1997 and December 29, 1996, respectively. There were 357,040 shares issued at an average price of $23.64 in 1997, 264,028 shares issued at an average price of $21.36 in 1996 and 248,332 shares issued at an average price of $26.56 in 1995. Stockholder rights plan In December 1990, the Company adopted a Stockholder Rights Plan, and declared a distribution of Rights under the Plan to holders of record of common stock on December 20, 1990. The Plan is designed to assure that all Stratus Computer, Inc. stockholders receive fair and equal treatment in the event of any unsolicited attempt to acquire control of the Company. Under the Plan, each share of common stock carries one Right to purchase additional stock at a purchase price of $110.00 subject to adjustment in certain circumstances. The Rights are not exercisable or transferable apart from the common stock until ten days after, (i) another person or group of persons has acquired, or obtained the right to acquire, at least 20% of the common stock, (ii) notice of a tender or exchange offer that would result inanother person or group of persons beneficially owning at least 20% of the outstanding shares of common stock or (iii) determination by the Board of Directors of the Company that a 15% stockholder is an "Adverse Person". On the occurrence of certain Triggering Events, as described in the Plan, holders of Rights become entitled, upon exercise, to purchase shares of the Company's common stock at a substantial discount. The Rights are redeemable by the Company for $0.01 per Right and expire on December 4, 2000. Common stock repurchase program Beginning in April 1994 through December 1997, the Board of Directors has approved four plans to repurchase up to 4.8 million shares of Common Stock on the open market. In 1997, 1996, and 1995 the Company repurchased 765,700 shares for $26.2 million, 534,300 shares for $12.6 million and 1,511,800 shares for $44.6 million, respectively. 9. EMPLOYEE BENEFIT PLANS The Company has a benefit plan available to all domestic employees which qualifies as a deferred compensation plan under Section 401(k) of the Internal Revenue Code. Employees may contribute to the plan from 2% to 15% of their salary on a pre-tax basis, subject to certain statutory limitations ($9,500 in 1997). The Company matches 100% of the first 11/2% of the employee's pre-tax contributions. The Company may make an additional contribution of 11/2% of the employee's pre-tax contributions, up to a maximum of $4,800 per participant, based on the achievement of certain performance criteria established by the Board of Directors. Contributions are invested at the direction of the employee in one or more investment funds. Company contributions accrued to the plan were $3.4 million in 1997 and $2.6 million in 1996. There were no Company contributions accrued to the plan in 1995. Employees in several countries outside of the U.S. are covered by defined contribution plans in accordance with applicable government regulations and local practices. Expenses attributable to these plans were not material in 1997, 1996 and 1995. 10. COMMITMENTS AND CONTINGENCIES Lease Obligations The Company leases certain corporate and branch sales offices. The leases range from one to seven years and generally contain renewal options for periods ranging from one to twenty years and require the Company to pay all executory costs. The following is a schedule of required future minimum lease payments under operating leases at December 28, 1997: In thousands Operating leases - - -------------------------------------------- 1998 $10,843 1999 8,430 2000 5,570 2001 2,878 2002 1,161 Subsequent years 1,166 - - -------------------------------------------- Total minimum lease payments $30,048 - - -------------------------------------------- Total rental expense was $15.2 million in 1997, $18.1 million in 1996 and $18.7 millon in 1995. The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Management does not believe these actions will have a material adverse affect on the financial position or results of operations of the Company. 11. RESTRUCTURING During the second quarter of 1996, the Company restructured its software business to improve operating results by aligning expenses with revenues, and to focus on new strategic product offerings. The restructuring action resulted in a charge of $4.6 million, and included charges for workforce reductions and asset write-downs related to the discontinuation of certain product programs. This restructuring was substantially completed in 1996.During the third quarter of 1995, the Company recorded a $24.5 million restructuring charge for the reduction of its worldwide workforce, as well as the consolidation of certain manufacturing and sales operations. The action was taken to re-size the expense structure of the Company, as a result of a significant decline in gross margins, and to place expense levels in line with its new economic model. Of the total charge, $13.0 million was related to the workforce reduction and $11.5 million was related to the consolidation of facilities and operations. In 1995 and 1996, the Company released 575 employees and charged $15.0 million and $9.5 million, respectively, against the reserve for severance and facility related actions, thereby completing the restructuring action. 12. ACQUISITIONS AND STRATEGIC INVESTMENTS In December 1995, the Company entered into a joint venture relationship with Axime, S.A. of Paris, France to develop, support and market certain integrated solutions for the Automated Teller Machines/Point of Sale market in France and other authorized countries. The Company invested approximately $6.0 million in cash for 50% ownership of Axime's banking and retail application software and professional services business. This investment is accounted for using the equity method. The difference between the carrying amount of the investment and the underlying equity net assets of the joint venture entity is being amortized over seven years. In July 1995, the Company acquired all the outstanding stock of Comercializacion TEA, S.A. DE C.V. (COMTEA), its Mexico distributor, for approximately $4.1 million in cash plus additional consideration of up to $13.6 million based upon COMTEA's attainment, if achieved, of certain objectives over a three-year period commencing at acquisition. In January 1995, the Company, through its TCAM Systems, Inc. subsidiary, acquired all the outstanding stock of Femcon Associates, Inc., which provides system integration and customized software solutions to the worldwide securities industry, for approximately $3.0 million in cash. The 1995 acquisitions were accounted for using the purchase method of accounting. The excess cost over the fair value of the acquired net assets is being amortized on a straight-line basis over seven years. 13. SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION The Company operates in one industry segment; the design, manufacture, marketing and service of continuously available online transaction processing systems and related software. Geographic information for 1997, 1996 and 1995 was as follows: In thousands 1997 1996 1995 - - ------------------------------------------------------------------------------- Revenues United States $289,151 $274,892 $289,500 Intercompany 37,789 41,296 46,165 - - ------------------------------------------------------------------------------- Total United States 326,940 316,188 335,665 Ireland 187,546 129,145 66,760 Intercompany 189,478 155,342 110,003 - - ------------------------------------------------------------------------------- Total Ireland 377,024 284,487 176,763 Europe 103,846 107,136 124,956 Other international, principally the Far East 107,732 98,156 106,706 Eliminations (227,267) (196,638) (156,168) - - ------------------------------------------------------------------------------- Total revenues $688,275 $609,329 $587,922 Operating income (loss) United States $ 296 $ (8,734) $ (3,260) Ireland 82,726 42,642 29,741 Europe 849 5,448 (13,365) Other international, principally the Far East 9,165 7,631 4,691 Eliminations (10,896) 3,147 (5,739) - - ------------------------------------------------------------------------------- Total operating income $ 82,140 $ 50,134 $ 12,068 Assets United States $627,063 $526,333 $507,638 Ireland 125,454 122,234 67,926 Europe 102,635 62,585 72,335 Other international, principally the Far East 45,716 48,893 51,180 Corporate assets (cash, cash equivalents and marketable securities) 259,681 174,870 155,097 Eliminations (410,188) (295,994) (246,367) - - ------------------------------------------------------------------------------- Total assets $750,361 $638,921 $607,809 - - ------------------------------------------------------------------------------- Intercompany transactions are accounted for at prices which approximate arm's- length transactions. The Company has distribution agreements with various companies, including NEC. During 1997,1996 and 1995, product and service revenue from NEC accounted for 22%, 15% and 7% of total revenues, respectively. UNAUDITED QUARTERLY FINANCIAL DATA
Diluted earnings In thousands, except Total Gross Net income (loss) Stock prices per share amounts and stock prices revenues profit (loss) per share High Low - - ------------------------------------------------------------------------------------------------------------------------- Fiscal 1997 First quarter $155,665 $ 69,949 $14,778 $0.62 $34.50 $26.63 Second quarter 167,572 75,943 17,401 0.71 50.25 30.63 Third quarter 175,023 78,976 19,260 0.77 58.81 48.25 Fourth quarter 190,015 85,817 22,675 0.91 50.13 31.44 - - ----------------------------------------------------------------------------- Total $688,275 $310,685 $74,114 $3.01 - - ------------------------------------------------------------------------------------------------------------------------- Fiscal 1996 First quarter $142,925 $ 64,119 $10,583 $0.45 $34.87 $25.50 Second quarter 140,301 60,735 4,455 0.19 31.75 26.50 Third quarter 150,010 65,799 10,757 0.45 29.00 17.12 Fourth quarter 176,093 79,118 17,725 0.74 27.75 19.12 - - ----------------------------------------------------------------------------- Total $609,329 $269,771 $43,520 $1.83 - - ------------------------------------------------------------------------------------------------------------------------- Fiscal 1995 First quarter $128,502 $ 64,523 $ 6,414 $0.26 $39.62 $26.37 Second quarter 140,317 67,763 6,089 0.26 31.75 26.37 Third quarter 150,743 71,957 (9,268) (0.40) 32.75 23.37 Fourth quarter 168,360 80,489 14,103 0.60 35.50 24.25 - - ----------------------------------------------------------------------------- Total $587,922 $284,732 $17,338 $0.73 - - ------------------------------------------------------------------------------------------------------------------------- Second quarter 1996 results include a non-recurring pre-tax charge of $4.6 million to cover the cost of workforce reductions and asset dispositions relating to the Company's software business. Third quarter 1995 results include a non-recurring pre-tax charge of $24.5 million to cover the cost of a 21% workforce reduction and the consolidation of certain manufacturing and sales facilities. Stratus Computer, Inc. common stock is traded via the New York Stock Exchange, the Boston Stock Exchange, the Chicago Stock Exchange and the Pacific Exchange under the trading symbol SRA. No dividends have been declared on the common stock.
REPORT OF INDEPENDENT AUDITORS The Board of Directors Stratus Computer, Inc. We have audited the accompanying consolidated balance sheets of Stratus Computer, Inc. as of December 28, 1997 and December 29, 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 28, 1997. 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 consolidated financial position of Stratus Computer, Inc. at December 28, 1997 and December 29, 1996 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 28, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Boston, Massachusetts January 21, 1998 Senior Management List Directors Alexander V. d'Arbeloff Chairman, Teradyne, Inc. Paul J. Ferri General Partner, Matrix Partners William E. Foster Chairman, Stratus Computer, Inc. Gardner C. Hendrie Sigma Partners Robert M. Morrill Private Investor Candy M. Obourn Vice President, Eastman Kodak Company President, Business Imaging Systems Bruce I. Sachs President and Chief Executive Officer, Stratus Computer, Inc. Paul J. Severino Former Chairman, Bay Networks, Inc. Officers Bruce I. Sachs President and Chief Executive Officer William E. Foster Chairman Eileen Casal Vice President, General Counsel Maurice L. Castonguay Vice President, Finance and Administration and Chief Financial Officer David P. Gamache Vice President, Corporate Controller Stephen C. Kiely Vice President, Platform Products Edward J. Mezzanotte Vice President, Stratus Software Group J. Donald Oldham Vice President, Worldwide Sales Roderick K. Randall Vice President, Worldwide Marketing David M. Weishaar Vice President, Worldwide Operations John F. Young Vice President, Human Resources Clerk Richard N. Hoehn, Esq. Partner, Choate, Hall & Stewart Treasurer Gerald P. Campenella PART IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K (a) 1. Financial Statements: The financial statements are listed in the Index to Consolidated Financial Statements filed as part of this Annual Report. 2. Schedule: The schedule listed in the accompanying Index to Consolidated Financial Statements is filed as part of this Annual Report. 3. Exhibits: The exhibits listed in the accompanying Index to Exhibits are filed as part of this Annual Report. (b) Reports on Form 8-K None. STRATUS COMPUTER, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS COVERED BY REPORT OF INDEPENDENT AUDITORS Item 14(a) Reference (page) ------ ------------- Form Annual Report 10-K to Stockholder ------ ------------- Data incorporated by reference to the attached 1997 Annual Report to Stockholders: Consolidated Balance Sheets at December 29, 1996 and December 28, 1997 22 For the years ended December 31, 1995, December 29, 1996 and December 28, 1997: Consolidated Statements of Income 21 Consolidated Statements of Stockholders' Equity 23 Consolidated Statements of Cash Flows 24 Notes to Consolidated Financial Statements 25-33 Supplementary information: Quarterly Financial Data (unaudited) 34 Consolidated schedule for the year ended December 28, 1997: II - Valuation and qualifying accounts F-1 All other schedules have been omitted since the required information is not applicable or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or the Notes thereto. The financial statements listed in the preceding index which are included in the 1997 Annual Report to Stockholders are hereby incorporated by reference. With the exception of the pages listed in the preceding index, and pages 14-20 and 34 noted in items 5 through 7, the 1997 Annual Report to Stockholders is not to be deemed filed as part of this report. STRATUS COMPUTER, INC. SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 28, 1997 ACCOUNTS BALANCE AT BALANCE AT RECEIVABLE BEGINNING OF END OF ALLOWANCE PERIOD ADDITIONS DEDUCTIONS(1) PERIOD - - ---------- ------------ --------- ------------- ---------- FISCAL YEAR 1995 $8,593,634 7,520,111 (7,478,021) $8,635,724 FISCAL YEAR 1996 $8,635,724 5,852,630 (6,168,457) $8,319,897 FISCAL YEAR 1997 $8,319,897 4,587,320 (4,600,297) $8,306,920 (1) Write-offs of uncollectible accounts receivable net of recoveries. F - 1 INDEX TO EXHIBITS 3.1 - Articles of Organization of Registrant. (1) 3.1 (a) - Amendments to Articles of Organization. (2) (4) 3.2 (b) - By-Laws of Registrant, as amended through January 31, 1995, (1) 4.11 - Stock Option Plan (January 1983). (3) 4.11(a) - Restatement of Employee Stock Option Plan dated January 28, 1992.(7) 4.11(b) - Amendment to Option Plans dated January 25, 1994. (6). 4.11(c) - Amendment to Option Plans dated January 31, 1995. 4.11(d) - Amendment to Option Plans dated August 1, 1995. (8) 4.11(e) - Amendment to Option Plans dated April 23, 1997. (11) 4.13 - Employee Stock Purchase Plan. (3) 4.13(a) - Amended and Restated Employee Stock Purchase Plan dated April 21, 1992. (7) 4.13(b) - Amendment to Employee Stock Purchase Plan dated January 25, 1994. 4.13(c) - Amendment to Employee Stock Purchase Plan dated January 31, 1995. 4.13(d) - Employee Stock Purchase Plan amended and restated as of August 1, 1995. (8) 4.13(e) - Employee Stock Purchase Plan amended and restated as of April 23, 1997. (11) 4.15 - Non-Qualified Common Stock Option Plan (November 1984). (3) 4.15(a) - Restatement of Non-Qualified Common Stock Option Plan dated January 28, 1992. (7) 4.15(b) - Non-Qualified Common Stock Option Plan Restatement Number 4 effective August 1, 1995. (8) 4.15(c) - Non-Qualified Common Stock Option Plan Restatement Number 5 effective April 23, 1997. (11) 4.18 - Rights Agreement dated December 4, 1990. (5) 4.20 - 1997 Non-Qualified Common Stock Option Plan (January 1997). (11) 10.18 - Lease dated January 30, 1990 between Registrant and LePercq Corporate Income Fund, L.P. (2) 10.19 - Employment Agreement for Bruce I. Sachs, dated April 23, 1997. (9) 10.20 - Consultant Agreement for Bruce I. Sachs, dated April 23, 1997. (9) 10.21 - Employment Agreement for Maurice L. Castonguay, dated July 17, 1997. 10.22 - Employment Agreement for William E. Foster, dated September 10, 1997. 10.23 - Employment Agreement for Roderick K. Randall, dated October 23, 1997. (10) 13.0 - 1997 Annual Report to Stockholders (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 - Subsidiaries of the Registrant, filed herewith. 23.1 - Consent of Ernst & Young LLP, filed herewith. (1) Incorporated herein by reference to same exhibit number of Item 16 to Registration Statement on Form S-1 (No. 2-85169) filed with the Securities and Exchange Commission on July 15, 1983 as amended on August 25, 1983 and August 26, 1983. (2) Incorporated herein by reference to same exhibit number of Item 14 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 28, 1990. (3) Incorporated herein by reference to Items 4 through 13 of Registration Statements on Form S-8 (No. 33-2174, No. 33-11864, No. 33-28742, No. 33-67758, No. 33-64709 and No. 333-27147) filed with the Securities and Exchange Commission on December, 16, 1985, February 17, 1987, May 15, 1989, August 23, 1993, December 4, 1995 and May 15, 1997, respectively. (4) Incorporated herein by reference to same exhibit number of Item 14 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1988. (5) Incorporated herein by reference to Exhibit 1 to Registration Statement on Form 8-A filed with the Securities and Exchange Commission on December 6, 1990. (6) Incorporated herein by reference to same exhibit number of Item 14 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 1994. (7) Incorporated herein by reference to Exhibit 28 of Registration Statement on form S-8 (33-67758) filed with the Securities and Exchange Commission on August 23, 1993. (8) Incorporated herein by reference to Exhibits 10.1, 10.2, 10.3 of Registration Statement on form S-8 (33-64709) filed with the Securities and Exchange Commission on December 4, 1995. (9) Incorporated herein by reference to same exhibit number of Item 6 of Form 10-Q filed with the Securities and Exchange Commission on August 13, 1997. (10) Incorporated herein by reference to Exhibit 10 of Item 6 of Form 10-Q filed with the Securities and Exchange Commission on November 12, 1997. (11) Incorporated herein by reference to Exhibits 10.1, 10.2, 10.3 of Registration Statement on form S-8 (333-27147) filed with the Securities and Exchange Commission on May 15, 1997. 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, on the 27th day of March 1998. Stratus Computer, Inc. BY: Maurice L. Castonguay --------------------- Maurice L. Castonguay, Vice President, Finance and Administration, and Chief Financial Officer 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 BRUCE I. SACHS President March 27, 1998 - - -------------- and Chief Executive Officer (Bruce I. Sachs) (Principle Executive Officer) MAURICE L. CASTONGUAY Vice President, Finance and March 27, 1998 - - --------------------- Administration, and Chief (Maurice L. Castonguay) Financial Officer (Principal Financial Officer and Principal Accounting Officer) WILLIAM E. FOSTER Chairman March 27, 1998 - - ----------------- and Director (William E. Foster) ALEXANDER V. D'ARBELOFF Director March 27, 1998 - - ----------------------- (Alexander V. d'Arbeloff) PAUL J. FERRI Director March 27, 1998 - - ------------- (Paul J. Ferri) GARDNER C. HENDRIE Director March 27, 1998 - - ------------------ (Gardner C. Hendrie) ROBERT M. MORRILL Director March 27, 1998 - - ----------------- (Robert M. Morrill) CANDY M. OBOURN Director March 27, 1998 - - --------------- (Candy M. Obourn) PAUL J SEVERINO Director March 27, 1998 - - --------------- (Paul J.Severino) Exhibit 10 - Material Contracts 10.21 July 17, 1997 Mr. Maurice Castonguay Dear Maurice: On behalf of Stratus Computer, Inc. ("Stratus") it is my pleasure to offer you the position of Vice President of Finance and Administration, Chief Financial Officer and Treasurer of Stratus, reporting to me. You will be paid in accordance with Stratus' Executive Variable Compensation Program which is composed of the following elements: Base Salary of $10,000 bi-weekly, which is equivalent to $260,000 annually. Variable compensation component at a rate of 48% of your base salary as listed above, under Stratus' current Variable Compensation Plan ("VC Plan"). This equates to $125,000 annually at 100% attainment of your goals. The annual variable compensation is based on your attainment of certain individual goals in combination with the Company meeting or exceeding designated financial performance goals, as approved by the Board of Directors and the Compensation Committee. The terms of the VC Plan will be discussed with you after having been set by the Board and the Compensation Committee at the beginning of each fiscal year. Guaranteed variable compensation for the first twelve (12) months of your employment, at the annual rate of $125,000 per annum. Your 1998 annual variable compensation shall be paid to you on a pro-rata basis for those months remaining in 1998 following the end of your guaranteed twelve (12) month period, in accordance with the terms of the VC Plan. Your total compensation at 100% attainment of goals is $385,000 annually. You will also be eligible for the over-achievement rates, if applicable, as outlined in the VC Plan documents. You will have the option to purchase 100,000 shares of Stratus common stock under the Company's 1983 Employee Stock Option Plan and/or the 1997 Non- Qualified Stock Option Plan ("Plans"). The purchase price for these options will be discounted by $10.00/share below the fair market value on the date determined by the Stock and Compensation Committee. All options will vest over a four (4) year period and have a ten (10) year exercise period as provided in the Plans. All options vest in full, immediately, in the event of certain change of control events further described in the Plans. Participation in such Stratus executive officer and employee benefit programs as shall be in effect from time to time. Enclosed is a copy of the additional benefits which you receive as a member of my staff. Due to the Immigration Control and Reform Act of 1986, you will be required to verify your identity and employment eligibility by completing the I-9 Employment Eligibility Form and supplying Stratus with the required documents on your fist day of employment. Your acceptance of this offer of employment is contingent upon compliance with the Immigration Act of 1986. Failure to complete the I-9 form or provide original documentation may result in termination of employment. You will be required to sign Stratus' Standard Employee Proprietary Information Agreement covering inventions, concepts and protection of confidential and proprietary information. A copy of this agreement is available for your review upon request. In the event that your employment with the Company is terminated upon certain change of control events (as defined in the Plans), you shall be entitled to a lump sum payment of one year's total compensation (base and target salary at 100% attainment) as of the termination date upon execution of a separate mutually agreed termination agreement containing customary release and non- competition language. Maurice, I am excited about the prospect of having an individual with your background and experience on the Executive Management Team at Stratus. I would like your official start date to be on or before September 2, 1997. If this letter sets forth the terms of the offer we have negotiated with you, kindly indicate your acceptance in the space provided and send one signed original back to me or John Young, Vice President, Human Resources. Welcome aboard. Very truly yours, I accept the position of Vice President of Finance and Administration, Chief Financial Officer and Treasurer commencing on or before September 2, 1997 in accordance with the terms hereof. - - ------------------------------ ------------------------------ John F. Young, Maurice Castonguay Vice President, Human Resources on behalf of Bruce I. Sachs ------------------------------ President, Date Chief Executive Officer ------------------------------ Start Date Exhibit 10 - Material Contracts 10.22 EMPLOYMENT AGREEMENT AND RELEASE Issue Date: September 10, 1997 The following is an agreement between William E. Foster, as undersigned Employee (hereinafter referred to as "you" or "your"), and Stratus Computer, Inc. ("Company") regarding the termination of your employment with the Company. The Effective Date shall be the last date that the Agreement is executed by both you and the Company. A. EMPLOYMENT (1) Employment/Benefits: Your regular employment with the Company shall continue until 5:00 PM, EST, on January 30, 2001, or, when you begin full time employment elsewhere, whichever date is earlier ("Termination Date"). (For the purposes of this Agreement "full time employment" shall be defined to mean your accepting any position for which a W-2 form will be submitted to the Internal Revenue Service and for which the average weekly hours to be worked by you can reasonably be expected to exceed 30 hours per week but shall expressly exclude any consultancy arrangements you may enter into). From May 16, 1997 through the Termination Date, inclusive, ("Relevant Period") you acknowledge that you have been and will continue to be on special assignment to the Company's Chief Executive Officer ("CEO"). Notwithstanding this and subject only to Sections C, D, and E below, the Company understands that nothing contained in this Agreement shall prohibit Employee from entering into consultancy arrangements. (2) For the period of September 10, 1997 - December 31, 1997 you shall continue to be paid a salary, in accordance with the Company's standard practices, based on your current base salary of four hundred thousand and ten dollars ($400,010), at a bi- weekly rate of fifteen thousand, three hundred and eighty-five dollars ($15,385). In addition you shall be eligible to receive any 1997 variable compensation pursuant to the terms of the 1997 Stratus' Executive Variable Compensation Plan ("VC Plan"), attached hereto as Appendix A. (3) For the period of January 1, 1998 - January 30, 2001, you shall be paid a salary, in accordance with the Company's standard practices, based on a total compensation figure (base salary plus variable compensation) of one million five hundred thousand dollars ($1,500,000) for the entire period, at a bi-weekly rate of eighteen thousand, seven hundred and fifty dollars ($18,750). In the event January 30, 2001 does not fall on the last day of the pay period, the last applicable pay period will be prorated based on the biweekly rate stated herein, so that you are paid until January 30, 2001. (4) In the event that (a) you begin full time employment prior to January 30, 2001 as defined above, your employment with the Company shall cease, all payments being made to you and all benefits being provided to you under this Agreement shall cease and your stock options shall cease vesting, effective as of the date you begin such full time employment elsewhere. (5) For so long as your regular employment continues pursuant to the terms of this Agreement, you shall continue to: (i) participate in the Company's Benefit Plans and Programs, either directly; and/or (ii) be offered participation in separate but comparable plans and programs to those of the Company; and/or (iii) be offered monetary compensation necessary to allow you to obtain comparable benefits under separate plans and programs to those of the Company, to the same extent as you participated in such plans and programs and with the same levels of Company contribution as were provided to you prior to the Effective Date (or under such plans or programs and with such contributions as are provided by the Company under amendments to any such plans or programs made after the Effective Date affecting generally executive employees in positions comparable to that you held prior to the Effective Date). The Company's Benefit Plans and Programs shall include the following: health and dental insurance plans, the short term disability plan, the long term disability plan, life insurance plan, Section 401(k) SECAP plan, Employee Stock Purchase Plan and stock option plans. Further the coverages alternatives described in (i)-(iii) above are not limited to one coverage alternative being applied against all plans and programs (i.e. some plans and programs may utilize coverage alternative (i), while others may utilize coverage alternative (ii) or (iii)). The application of which option shall apply to which plans and programs shall be mutually agreed between the parties but shall take into account that which the Company is legally capable of providing. Notwithstanding the generality of the foregoing you agree that there is no vacation balance owing to you and that you will stop accruing vacation hours as of the Issue Date. (6) Beginning on May 16, 1997 through the Termination Date, inclusive, ("Relevant Period") you acknowledge that you have been and will continue to be on special assignment to the Company's CEO. It is agreed that you will have those duties specifically requested by the CEO which shall include the following: (a) Assisting the CEO with developing, monitoring, maintaining and modifying the Company's Strategic Planning Program and Process. (b) Regularly reviewing, commenting upon and providing recommendations on the Company's Product Plans and Product Development; (c) Reviewing and assessing, on an on-going basis, the Company's (including its subsidiaries) corporate structure as it relates to possible asset and stock mergers, acquisitions and dispositions. (d) Reviewing and assessing possible merger, acquisition and disposition strategies for the Company and its subsidiaries; (e) Furthering the Company's Channel Development by assisting to foster key strategic alliance relationships; (f) Promoting major customer account growth; and (g) Enhancing the Company's market recognition and penetration in order to generate new Customer accounts. The Company shall reimburse you for any normal and customary expenses incurred by you when performing any duties requested by the CEO. (7) In addition, in consideration of your releasing the Company from any claims that you may have with regard to your age, as such release is stated in Section I below, including rights under the ADEA, you will be paid an additional one hundred dollars ($100.00), which sum shall be included with your last payment under this Agreement. (8) Stock Options (a) Notwithstanding any provision to the contrary contained in any other agreement between the parties hereto, it is agreed that any options to purchase Stratus Common Stock which you have been previously granted (as of the Issue Date) and which are currently unvested shall continue to vest during your employment until your Termination Date pursuant to the terms of their applicable Stock Option Agreements and Stock Option Plans. A summary of such options, as of the Issue Date, is contained in Appendix B to this Agreement. (b) You may exercise all fully vested stock options identified in Appendix B during the period commencing with the Issue Date and ending thirty (30) days after your Termination Date. (c) For purposes of clarity, in the event you begin full time employment elsewhere, prior to January 30, 2001, your stock options shall cease to vest and you shall have thirty (30) days after the date you begin full time employment elsewhere to exercise all fully vested stock options. (9) Financial Planning: From the date of this Agreement until your Termination Date the Company agrees to pay for your financial planning with The AYCO Company, L.P., P.O. Box 15073, Albany, NY. 12212-5073, to the same extent as was provided to you prior to the Effective Date. (10)Benefits Upon Death: With the exception of the right to exercise stock options, and life insurance benefits, if any, all rights and benefits of the Employee under this Agreement shall terminate upon your death. In the event that any options remain unvested on the date of your death, it is agreed that said unvested options shall have their vesting date accelerated so that they vest on the date of your death and that your estate shall have thirty (30) days from said date to exercise any and all remaining options. B. DIRECTORSHIPS (1) Notwithstanding anything to the contrary herein, Employee and the Company acknowledge that this Agreement shall have no impact or effect on the Employee's position as a member of the Company's Board of Directors ("Board") and/or as Chairman of said Board. As such, all Company and Employee rights and obligations arising solely from such Board and Chairman positions shall remain unaffected by the execution of this Agreement. (2) Further to Section B(1) above, Employee understands that: Commencing in 1998 and continuing through 2,000 or the earlier termination of this Agreement, the Employee shall, as a result of his Director position with the Company and pursuant to the terms of one of the Company's Stock Option Plans be granted, on an annual basis, an amount of non-qualified stock options equivalent in number and comparable in terms of grant date, price, and vesting schedule with those granted, on an annual basis, to Outside Directors under the NQ Plan, so long as the Employee is a Director of the Company on the date of the stock option award. (3) Notwithstanding anything to the contrary herein, the Company acknowledges that nothing in this Agreement shall prohibit the Employee from maintaining his Directorship positions at Avid Technology, Inc. and Video Server, Inc. and his Advisory Board position at Greenwich Street Travelers Fund. Additionally, nothing in this Agreement shall prohibit or restrict the Employee from serving as a Board of Director member for additional companies whose principal business is not in competition with the fault tolerant computer products of the Company. C. NONCOMPETITION With respect to any consultancy arrangement that the Employee enters into during the term of this Agreement, the Employee agrees, until January 30, 2001, he will not, directly or indirectly, without the prior written consent of the entire Board of Directors of the Company, (i) provide such consultancy service with or without pay, or (ii) own, manage, operate, join, control, participate in, or be connected as a stockholder, partner, or otherwise with any consultancy business whose principal business is in competition with the fault tolerant computer products of the Company as listed in the Company's price book or under development by or for the Company as of the Effective Date. It is further expressly agreed that the Company will or would suffer irreparable injury if Employee were to compete with said businesses of Company or any subsidiary or affiliate of the Company in violation of this Agreement and that Company would by reason of such competition be entitled to injunctive relief in a court of appropriate jurisdiction, and Employee further consents and stipulates to the entry of such injunctive relief in such a court prohibiting Employee from competing with the Company or any subsidiary or affiliate of the Company, as set forth above, in violation of this Agreement. D. ANTISOLICITATION With respect to any consultancy arrangement that the Employee enters into during the term of this Agreement the Employee promises and agrees, until January 30, 2001, that he will not influence or attempt to influence customers of the Company or any of its present or future subsidiaries or affiliates, either directly or indirectly, to divert their business to (i) Employee as a consultant or (ii) to any other consultancy business which the Employee owns, manages, operates, joins, controls, participates in or is connected to as a shareholder, partner or otherwise that is then in competition with the business of the Company, or any subsidiary or affiliate of the Company. E. SOLICITING EMPLOYEES With respect to any consultancy arrangement that the Employee enters into during the term of this Agreement, the Employee promises and agrees that he will not, before January 30, 2001, directly or indirectly solicit any of the Company employees who earned annually $50,000 or more as a Company employee during the last six (6) months of his or her own employment to work for (i) Employee's consultancy service; or (ii) any consultancy arrangement in which the Employee owns, arranges, operate, joins, controls, participates in or is connected to as a shareholder, partner or otherwise. F. SAVINGS AND SURVIVAL CLAUSE (1) Should any valid federal or state law or final determination of any administration agency or court of competent jurisdiction affect any provision of this Agreement, the provision or provisions so affected shall be automatically conformed to the law or determination and otherwise this Agreement shall continue in full force and effect. (2) Notwithstanding anything to the contrary herein, the Company agrees that this Agreement and the rights and obligations herein shall survive any change of ownership of the Company including but not limited to a merger, consolidation, disposition or acquisition such that the surviving or acquiring entity shall be required to honor the terms of this Agreement. G. ELECTION OF EMPLOYMENT AGREEMENT You understand, notwithstanding anything to the contrary, that you have twenty-one (21) days from physical receipt of this Agreement, as stated above, to execute this Agreement, but are under no obligation to do so. H. PROPRIETARY INFORMATION You have previously signed a Proprietary Information Agreement with the Company, which shall remain in full force and effect. Included among the materials the Company considers to be trade secrets or otherwise confidential, and thus covered by that Proprietary Information Agreement, and which you agree not to disclose to anyone else without the Company's written consent signed by a Company officer, are customer lists and marketing strategies; this list is not all encompassing. I. RELEASE In consideration of the foregoing Sections A(1) - A(10) of this Employment Agreement you hereby release and discharge the Company and its officers, directors, stockholders, employees, agents, subsidiaries and affiliates from any and all claims, demands or liabilities ("Claims") whatsoever, whether known or unknown or suspected to exist by you, which you ever had or may now have against the Company, or any of them, including, without limitation, any Claims, in connection with your employment with the Company and the termination of that employment, or pursuant to any federal, state, or local employment or discrimination laws, regulations, executive orders, or other requirements, including any actions related to age (including any Claims related to the ADEA), sex, sexual orientation, race or handicap discrimination, excepting any Claims arising solely from your positions as Chairman of and a member of the Company's Board, and excepting the obligations of the Company pursuant hereto. In addition you agree not to bring any action against the Company or any employee, director, officer, agent, subsidiary or affiliate of the Company, based on any of the foregoing. J. INDEMNIFICATION In consideration for your continuing cooperation with and assistance to Stratus as may be requested from time to time from the Company's Board, CEO or Executive Staff, and notwithstanding anything contained herein to the contrary, the Company agrees that this Employment Agreement and Release shall not release the Company or otherwise modify the Company's obligation to defend and indemnify the Employee against any and all claims, demands or liabilities arising out of the Employee's activities and duties which were performed within the scope of work of the Employee in his various positions with the Company including, without limitation, as President, COO, CEO, Chairman, Officer or Director of the Company or any of its subsidiaries or affiliates, which obligation the Company acknowledges and confirms and further agrees shall survive the Termination Date or any termination of this Agreement. The Company agrees to reimburse you for all expenses that you incur in providing such cooperation and assistance. K. DISCONTINUANCE OF EMPLOYMENT It is understood that if you violate any of your commitments under this Agreement, the Company may discontinue your employment and/or all payments and benefits it is hereby agreeing to pay to you in addition to exercising all other rights it may have under the law. Without limiting the foregoing, should this Agreement be terminated by Stratus pursuant to this Section K, you will receive no further payments, or any of the other rights and/or benefits contained herein. L. ENTIRE AGREEMENT It is expressly understood that there is no agreement or understanding between you and the Company about or pertaining to the termination or reinstatement of your employment with the Company, or the Company's obligations to you with respect to such termination, except what is set forth in this Agreement. It is specifically agreed that in any event such employment shall cease on the Termination Date. M. ARBITRATION/GOVERNING LAW Employee and the Company agree to arbitrate any disputes that might arise under this Agreement. Such arbitration shall take place in front of one arbitrator, before the American Arbitration Association (AAA), in Massachusetts. The arbitrator may award legal fees if deemed appropriate. This Agreement shall be construed, enforced and governed by the Laws of the Commonwealth of Massachusetts. N. BINDING EFFECT This Agreement shall be binding upon and inure to the benefit of any successor of the Company and any such successor shall be deemed substituted for the Company for all purposes. As used herein, "successor" shall include any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires the assets or business or stock of the Company. O. INDEPENDENT REVIEW Employee declares that he has read the foregoing, has been given the opportunity to have the agreement reviewed by an attorney of his choice and agrees to the conditions and obligations as set forth. Employee understands that he has seven (7) days from the date of execution to revoke this Agreement in writing. Dated:---------------------- ------------------------------------ William E. Foster Dated:---------------------- ------------------------------------ On Behalf of the Company & the Board of Directors: Bruce I. Sachs Chief Executive Officer President Director APPENDIX A Bill's incentive is $350K, 50% or $175K is for corporate performance and 50% or $175K is for performance on individual goals. His individual goals and the percentages of his award were: 30% Add one new major partner during 1997 that will produce a minimum of $50M when the partnership matures. 30% Achieve at least 90% of each target market: $219.7M for Telco; $79.7M for RES and $24.5M for Radio. 40% Hire a CEO by June 1997. The individual performance component is leveraged by an EPS multiplier. For example if Bill made 90% of his goals and the company achieved EPS of $2.30, Bill's individual award would be .9 x $175 x 1.00 = $157.5K. The corporate score is based on two metrics: (1) Increase revenue by 14% in 1997 over 1996; and (2) improve customer satisfaction, i.e. reduce below satisfactory responses on our customer satisfaction survey by 10% over 1996 score. These two components are not weighted. The Board sets the overall score in January. If the Board said the score was .9, then Bill would receive .9 x $175K = $157.5. APPENDIX B Stock Option Personnel Summary
AS OF 9/10/97 Stratus Computer, Inc. ID: 04-2697554 55 Fairbanks Boulevard Marlboro, MA 01752 WILLIAM E. FOSTER ID: 0001 32 Saddlebrook Road Sherborn, MA USA 01770 Option Number Date Plan Type Granted Price Exercised Vested Cancelled Unvested Outstanding Exercisable 000011 5/12/80 80 RSP 800,000.00 $0.01 800,000.00 800,000.00 0.00 0.00 0.00 0.00 000264 5/10/83 83 ISO 16,000.00 $1.50 16,000.00 16,000.00 0.00 0.00 0.00 0.00 000401 11/15/83 83 ISO 4,000.00 $11.75 4,000.00 4,000.00 0.00 0.00 0.00 0.00 000940 11/28/84 83 ISO 10,000.00 $9.50 10,000.00 10,000.00 0.00 0.00 0.00 0.00 002853 10/26/87 83 NQ 15,000.00 $15.25 15,000.00 15,000.00 0.00 0.00 0.00 0.00 006159 10/12/90 83 NQ 85,000.00 $15.25 85,000.00 85,000.00 0.00 0.00 0.00 0.00 006715 10/12/90 83 NQ 30,000.00 $15.25 15,000.00 30,000.00 0.00 0.00 15,000.00 15,000.00 007532 2/25/93 83 NQ 30,000.00 $30.75 0.00 27,000.00 0.00 3,000.00 30,000.00 27,000.00 008276 9/ 8/93 83 NQ 30,000.00 $23.25 0.00 24,000.00 0.00 6,000.00 30,000.00 24,000.00 010656 7/25/96 83 NQ 100,000.00 $17.13 0.00 25,000.00 0.00 75,000.00 100,000.00 25,000.00 011203 1/13/97 83 NQ 40,000.00 $26.75 0.00 5,000.00 0.00 35,000.00 40,000.00 5,000.00 TOTAL 1,160,000.00 [$5.6560] 945,000.00 1,041,000.00 0.00 119,000.00 215,000.00 96,000.00
EXHIBIT 21.1 - SUBSIDIARIES The following is a list of the Company's current subsidiaries, all of which are wholly-owned: ORGANIZED UNDER LAWS OF ------------- Stratus Securities Corporation Massachusetts Stratus World Trade Corporation Delaware Stratus International, Inc. Massachusetts Stratus F.S.C., Inc. U.S. Virgin Islands S2 Systems, Inc. Delaware SRA Holding L.L.C. Delaware SRA Investments L.L.C. Delaware TCAM Systems, Inc. New York The following is a list of subsidiaries of Stratus World Trade Corporation, all of which are wholly-owned: ORGANIZED UNDER LAWS OF ------------- Stratus Computer Belgium N.V. Belgium Stratus Computer GmbH Germany Stratus Computer B.V. Netherlands Stratus Holding & Finance, B.V. Netherlands Stratus Computer (H.K.) Ltd. Hong Kong Stratus Computer Corporation Canada Stratus Computer Japan Company, Ltd. Japan Stratus Computer S.A. France Stratus Computer Pty., Ltd. Australia Stratus Holding & Finance Company, Ltd. Ireland Stratus Computer AB Sweden Stratus Computer AG Switzerland Stratus Computer (Singapore) Pte., Ltd. Singapore Stratus Computer (N.Z.) Ltd New Zealand Stratus Computer Luxembourg S.A. Luxembourg Stratus Computer (Korea) Ltd. Korea Stratus Computer Philippines, Inc. Philippines Stratus Computer (Pty.) Ltd. South Africa Stratus (Bermuda) Holding Ltd. Bermuda Stratus (Bermuda) Financing Ltd. Bermuda Stratus Computer C.V. The Netherlands The following are wholly-owned subsidiary companies of Stratus Holding & Finance Company, Ltd: ORGANIZED UNDER LAWS OF ------------- Stratus Computer Limited Ireland Stratus Investments Limited Bermuda Stratus U.K. Holding and Finance, Ltd. United Kingdom The following is a wholly-owned subsidiary company of Stratus Computer, Ltd.: ORGANIZED UNDER LAWS OF ------------- Stratus Computer Ireland Ireland The following is a wholly-owned subsidiary company of Stratus Holding & Finance B.V.: ORGANIZED UNDER LAWS OF ------------- Stratus Computer S.A. Spain The following is an 80% owned subsidiary company of Stratus Holding & Finance B.V. and a 20% owned subsidiary of Stratus World Trade Corporation: ORGANIZED UNDER LAWS OF ------------- Stratus Italia S.R.L. Italy The following are wholly-owned subsidiary companies of Stratus UK Holding & Finance Company, Ltd.: ORGANIZED UNDER LAWS OF ------------- Stratus Computer Limited United Kingdom S2 Systems International Limited United Kingdom Stratus de Mexico S.A. de C.V. Mexico The following is a 90% owned subsidiary company of Stratus U.K. Holding & Finance Company, Ltd., and a 10% owned subsidiary of Stratus World Trade Corporation: ORGANIZED UNDER LAWS OF ------------- TCAM Systems (U.K.) Limited United Kingdom The following is a list of the Company's current joint ventures, all of which are 50% owned: ORGANIZED UNDER LAWS OF ------------- Astria S.A. France EXHIBIT 23.1 - Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Stratus Computer, Inc. of our report dated January 21, 1998, included in the 1997 Annual Report to Stockholders of Stratus Computer, Inc. Our audits also included the financial statement schedule of Stratus Computer, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this schedule based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 2-88104, 2-89901, 33-2174, 33-11864, 33-28742, 33-67758, 33-64709 and 333-27147, and Form S-3 No. 33-77764 and in the related prospectus) of our report dated January 21, 1998, with respect to the consolidated financial statements and schedule of Stratus Computer, Inc. included or incorporated by reference in the Annual Report (Form 10-K) for the year ended December 28, 1997. ERNST & YOUNG LLP Boston, Massachusetts March 25, 1998 EX-27 2
5 0000723610 STRATUS COMPUTER, INC. 1000 12-MOS DEC-28-1997 JAN-30-1996 DEC-28-1997 178611 81070 162616 8307 76635 532573 404294 255503 750361 148696 887 276 0 0 600499 750361 489213 688275 252487 481032 0 0 (12877) 95018 20904 74114 0 0 0 74114 3.15 3.01
EX-27 3
5 0000723610 STRATUS COMPUTER, INC. 1000 3-MOS DEC-29-1996 JAN-01-1996 MAR-31-1996 77587 64125 163157 8633 70733 407857 329716 210108 605882 111977 4465 258 0 0 489181 605882 91119 142925 48057 131252 0 0 (1895) 13568 2985 10583 0 0 0 10583 .45 .45
EX-27 4
5 0000723610 STRATUS COMPUTER, INC. 1000 6-MOS DEC-29-1996 JAN-01-1996 JUN-30-1996 81735 64125 148896 9175 76070 399539 338670 217145 597688 95013 4125 260 0 0 498200 597688 180638 283226 95832 262576 0 0 (3629) 19279 4241 15038 0 0 0 15038 .64 .64
EX-27 5
5 0000723610 STRATUS COMPUTER, INC. 1000 9-MOS DEC-29-1996 JAN-01-1996 SEP-29-1996 100670 40117 164429 6258 73311 414601 346379 222902 615348 102335 3851 260 0 0 508902 615348 282255 433236 150949 404952 0 0 (5149) 33433 7638 25795 0 0 0 25795 1.10 1.09
EX-27 6
5 0000723610 STRATUS COMPUTER, INC. 1000 12-MOS DEC-29-1996 JAN-01-1996 DEC-29-1996 131683 43187 183381 6320 63283 441527 355097 232341 638921 115803 3634 260 0 0 519224 638921 406956 609329 214580 434217 0 0 (6622) 56755 13235 43520 0 0 0 43520 1.86 1.83
EX-27 7
5 0000723610 STRATUS COMPUTER, INC. 1000 3-MOS DEC-28-1997 DEC-30-1996 MAR-30-1997 145640 37552 145440 8534 86029 440281 359041 237080 635046 117616 1970 265 0 0 537731 635046 106527 155665 56309 109772 0 0 (2460) 18946 4168 14778 0 0 0 14778 .64 .62
EX-27 8
5 0000723610 STRATUS COMPUTER, INC. 1000 6-MOS DEC-28-1997 DEC-30-1996 JUN-29-1997 135349 79420 139777 8156 85259 479575 368213 244093 674661 128356 1724 271 0 0 544307 674662 223945 323237 115899 225890 0 0 (5355) 41255 9076 32179 0 0 0 32179 1.39 1.33
EX-27 9
5 0000723610 STRATUS COMPUTER, INC. 1000 9-MOS DEC-28-1997 DEC-30-1996 SEP-28-1997 166560 81080 133101 8422 83405 497244 399972 253847 709777 136782 750 275 0 0 571970 709777 348944 498260 180912 348906 0 0 (9073) 65946 14508 51438 0 0 0 51438 2.20 2.10
EX-27 10
5 0000723610 STRATUS COMPUTER, INC. 1000 12-MOS DEC-31-1995 JAN-02-1995 DEC-31-1995 91592 63505 170072 8606 61270 415243 323529 207148 607809 122250 7169 259 0 0 478134 607809 383850 587922 187935 575855 0 0 (9604) 21672 4334 17338 0 0 0 17338 .74 .73
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