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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 FISCAL YEAR ENDED DECEMBER 31, 1996
1-12333
(Commission file number)
Iomega Corporation
(Exact name of registrant as specified in its charter)
Delaware 86-0385884
(State of Incorporation) (IRS employer identification number)
1821 West Iomega Way, Roy, UT 84067
(Address of principal executive offices) (ZIP Code)
(801) 778-1000
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------------------- -----------------------------------------
Common Stock, par value
$.03-1/3 per share New York Stock Exchange
Rights to Purchase Series C
Junior Participating
Preferred Stock, $0.01 par
value per share New York Stock Exchange
6-3/4% Convertible Subordinated
Notes due 2001 New York Stock 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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
----- -----
Indicate by check mark if disclosure of delinquent fliers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
-----
The aggregate market value of Common Stock held by non-affiliates of the
registrant at January 31, 1997 was $2,015,680,000, based upon the last
reported sales price of the Common Stock as reported by the New York Stock
Exchange. The number of shares of the registrant's Common Stock oustanding
at January 31, 1997 was 128,392,814.
Documents incorporated by reference:
- - Specifically identified portions of the Company's Annual Report to
Stockholders for the year ended December 31, 1996 into Part I and Part II of
Form 10-K.
- - Specifically identified portions of the Company's Definitive Proxy
Statement for its 1997 annual meeting of stockholders into Part III of Form
10-K .
This Annual Report on Form 10-K contains a number of forward-looking
statements, including information with respect to the Company's plans to
position its products as industry standards, establish OEM relationships
and license its Zip and Jaz technologies to third parties, the Company's
manufacturing strategies and relationships with third parties, the
availability of key components, current and future product development
projects, including the anticipated availability and specifications of
n-hand, and efforts to protect its intellectual property rights. For this
purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes", "anticipates", "plans",
"expects" and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause
actual events or the Company's actual results to differ materially from
those indicated by such forwarding-looking statements. These factors
include, without limitation, those set forth under the caption "Factors
Affecting Future Operating Results" included under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Part II
of this Annual Report on Form 10-K.
PART I
ITEM 1. BUSINESS:
Iomega Corporation ("Iomega" or the "Company") designs, manufactures
and markets innovative data storage solutions, based on removable-media
technology, for personal computer users. The Company's primary data
storage solutions include disk drives marketed under the trademarks Zip
and Jaz and a family of tape drives marketed under the trademark Ditto.
The Company's Zip and Jaz disk drives are designed to provide users with
the benefits of high capacity and rapid access generally associated with
hard disk drives and the benefits of media removability generally
associated with floppy disk drives, including expandable storage capacity
and data transportability, management and security. The Company's Ditto
tape drives primarily address the market for backup data storage. The
Company began shipping Zip drives in March 1995 and Jaz drives in December
1995.
Iomega Solutions
The Company believes its Zip and Jaz disk drives address key
information storage and management needs of today's personal computer users
by providing affordable, easy-to-use storage solutions that combine the
high capacity and rapid access of hard disk drives with the benefits of
media removability generally associated with floppy disk drives.
Specifically, the Company's products offer the following benefits to
personal computer users:
Expandable Storage Capacity. As personal computer users are increasingly
forced to expand their primary storage capacity (generally provided by the
hard disk drive incorporated in the computer), Zip and Jaz provide an easy
and efficient way to do so. Both the Zip and Jaz drive can be easily
connected or installed and offer unlimited additional storage capacity, in
increments of 100 megabytes (MBs), in the case of Zip, and 1 gigabyte
(GB), in the case of Jaz.
Media Removability. Both Zip and Jaz store data on high-capacity removable
disks, thus enabling computer users to:
- - take programs and files from an office computer and work with them on a
home or laptop computer;
- - share programs and files with other personal computer users;
- - organize data by storing different files on different disks;
- - create a "separate personal computer" for each person using the computer
(such as different family members) -- each user can store his or her
software and data on a single disk that can be removed from the computer
and privately stored when that person is not using the computer; and
- - remove particularly sensitive or valuable information from the computer
for storage in a different location, thus protecting it against viewing
or modification by another user of the computer and against damage to
the computer.
Data Backup. The Company's family of Ditto tape drives, as well as the Zip
and Jaz drive, offer a convenient and effective way for personal computer
users to create backup copies of their programs and files.
Attractive Price, Performance and Features. The Company believes that its
Zip, Jaz and Ditto drives provide a combination of price, performance and
features that makes them attractive data storage solutions for their target
markets. Zip offers data access times and transfer rates and storage
capacity that greatly exceed that offered by conventional floppy disk drives,
along with the benefits of removable media, at a price that is attractive to
mass-market customers. Jaz offers many performance features comparable to
those of most other data storage devices (including conventional hard disk
drives), at a competitive price. Ditto offers high backup capacities (up
to 3.2 GBs compressed) more suitable to today's larger hard disks, at prices
competitive with low-capacity tape drives while incorporating simple
"one-step" software that allows users to backup while they continue working.
Products
The Company offers products targeted at both the mass market and the
high-performance market. The Zip drive and the Ditto 2GB tape drives were
designed to achieve price levels which the Company deems crucial to mass-
market consumers. The Jaz drive and Ditto 3200 tape drive, on the other
hand, are principally targeted to more technically demanding, high-end
customers, while still offering affordability. Iomega's Zip, Jaz and Ditto
products continued to be recognized by industry publications and trade groups
during 1996, receiving a number of prestigious awards, including: Computer
Shopper's "Best Removable Backup Drive" (Zip); Gadget Guru's "Product of the
Year" (Jaz); Home Office Computing's "Editors' Choice Award" (Zip); Mobile
Computing's "Best Product of 1996" (Ditto 2GB); PC Magazine's "World Class
Award Finalist" (Jaz); PC World's "Best Products of 1996 - Best Portable
Drive"(Zip); PC Computing's "MVP" (Jaz); Windows Magazine's "Win 100 Product
of the Year" (Jaz); Windows Sources' "Stellar Award" (Jaz); and Macworld's
"World Class Award - Storage" (Jaz).
The following table lists the principal data storage devices currently
being offered by the Company:
Product
(Year Introduced) * Media and Capacity** Technology
- ------------------- -------------------- -----------------------
Zip (1995) 100-MB Zip Disks Drive: Winchester heads
Disks: Advanced flexible
media
Jaz (1995) 1-GB Jaz Disks Drive: Thin-film heads
Disks: Two rigid disk
platters
Ditto 2GB (1996) Ditto Tape Drive: Direct drive
minicartridges mechanism
Ditto 3200 (1995) (2GB and 3.2GB) Media: Industry standard
quarter inch
cartridges
* Drives are available in internal and external versions.
** The indicated capacities for Ditto drives represent the maximum capacity
using data compression.
Zip
Over 4 million Zip drives have been shipped since its introduction in
March 1995 through the end of 1996. Designed as an affordable mass-market
product, the Zip drive addresses multiple needs of personal computer users:
hard drive expansion, data transportability, data security and backup. The
drive uses interchangeable 100-MB Zip disks to provide users of IBM-
compatible and Apple Macintosh-compatible personal computers with 70 times
the capacity of, and superior performance to, traditional floppy disks.
Zip drives were designed with 100-MB disks based on the results of the
Company's market research, which showed that a substantial majority of the
files stored on personal computers are 100 MBs or less.
Zip drives use durable, high-capacity flexible media and Winchester-type
nanoslide heads with a special airbearing surface combined with a linear
voice coil motor. The Zip drive provides high capacity and rapid access and
can be used for a number of data storage purposes. The SCSI and IDE
interface versions of the Zip drive, which offer faster performance than
the parallel port version of the drive, feature 29 millisecond average seek
time and an average sustained data transfer rate of 1.00 MB per second.
Software included with the Zip drive provides a total data storage solution
by helping users organize, copy, move and backup their data and offers
software read/write protection, which further enables users to secure and
protect their data.
The external, portable version of the Zip drive weighs approximately one
pound and is offered in a parallel port version for use with IBM PC-compatible
computers and a SCSI version for use with Apple Macintosh-compatible computers
or IBM PC-compatible computers which have a SCSI adapter board. The parallel
port version features printer pass-through to allow normal operation of a
printer in the same port. The SCSI version has two connectors allowing it to
be connected with other SCSI devices. The external Zip drive has a
distinctive, compact design, including a royal blue color, a window allowing
visibility of the label on the cartridge being used, rubber feet for
positioning the drive flat or on its side, operation lights and a finger slot
for easy cartridge insertion and removal. Internal versions of the Zip drive
include SCSI interface and IDE interface models. During 1996, Iomega
introduced an internal 3.5 inch SCSI interface Zip drive which fits in most
standard drive bays.
As of March 1997, the following PC and consumer electronics companies
incorporate, or have announced plans to incorporate, Zip drives in selected
models of their lines of personal desktop computers as a standard or optional
feature: Apple, Canon, Compaq, Dell, Gateway 2000, Hewlett-Packard, IBM,
Micron Electronics, NEC, Packard Bell, Power Computing and Unisys.
The Zip drive carries a one-year limited warranty and Zip disks are sold
with a limited lifetime warranty.
Jaz
The Company began shipping Jaz drives and 1-GB Jaz disks in December 1995.
Jaz addresses the high-performance needs of personal computer and other system
users in three areas: multimedia applications (audio, video and graphics),
personal data management, and hard drive upgrade and expansion. The Jaz drive
offers data transfer rates comparable to those of most current hard disk
drives, with an average sustained transfer rate of 5.4 MBs per second, 12
millisecond average seek time and 17.5 millisecond average access time. Jaz
disks are available in a capacity of 1 GB, which the Company's market research
indicated was a capacity that many high-performance computer users demand.
Using 1-GB disks, Jaz is capable of storing and playing up to two hours of
MPEG1 compressed DSS satellite quality video, up to eight hours of CD-quality
audio, two hours of digital audio with real-time playback, more than 20,000
scanned documents for document imaging or up to four minutes of full-screen,
full-motion broadcast-quality video. The Jaz drive is available in both
external and internal SCSI versions.
The Jaz drive's technical features include tri-pad, thin-film recording
heads, dynamic head loading and drag and drop motorized cartridge ejection.
Jaz disks feature a dual rigid platter cartridge and a proprietary disk
capture system which secures the dual disk platters when not installed in a
drive, eliminating rattle and reducing the possibility of losing valuable
information. The drive operates with leading operating systems for personal
computers and workstations, including Windows 95, Windows NT, Windows 3.x,
Macintosh and OS/2. Software included with the Jaz drive provides a total
data storage solution by helping users organize, copy, move and backup their
data and offers software read/write protection, which further enables users
to secure and protect their data.
The external version of the drive, which weighs approximately two pounds,
features design enhancements similar to those introduced with the external
Zip drive, including a unique jade colored casing, a window to allow
visibility of the label on the cartridge being used and operating lights.
Additional features include an auto-switching power supply to allow
operation in different countries, auto-sensing SCSI termination and anti-gyro
disk locking to increase durability.
As of March 1997, Micron Electronics, Power Computing and Gateway 2000
offer the Company's Jaz drives as built-in options in selected models of
their lines of personal desktop computers.
The Jaz drive carries a one-year limited warranty and Jaz disks are sold
with a limited lifetime warranty.
Ditto
The Company's Ditto family of tape drives addresses the need of personal
computer users for an easy-to-use, affordable and dependable backup solution.
In response to information learned from consumers regarding the characteristics
demanded from backup storage devices, the Company redesigned its family of tape
drives, which had originally been introduced in 1992. The Company offers
internal and external models ranging in capacity from 2 GBs to 3.2 GBs (using
data compression). The tape drives are primarily designed to backup and
protect against loss of data stored on hard disk drives in IBM PC-compatible
computers and offer storage capacities large enough to protect all of the data
on most hard drives, not just selected files. Iomega's tape drives have a
patented beltless design which the Company believes enhances reliability.
The Ditto 2GB is specifically designed to read and write Ditto 2GB cartridges,
a proprietary tape format introduced in 1996 that offers 2.5 times the
capacity of Travan 800 cartridges for approximately two-thirds the price and
are available only from the Company and Sony, the manufacturer of the
cartridges. The Ditto 3200 reads and writes Travan TR-3 and QW-3020XLF
cartridges and reads certain QIC and Travan cartridges.
The Ditto family of tape drives has achieved several industry firsts.
In April 1992, the Iomega Tape 250 (later renamed the Ditto 250) became the
industry's first commercially available QIC-standard, one-inch high tape drive
and in March 1995 became the industry's first internal 250-MB tape drive to
sell for under $100. In June 1995, the Ditto 420 became the industry's first
internal 420-MB tape drive to sell for under $100. In October 1995, the
Company introduced the Ditto Easy 800, which the Company believes was the
industry's first external parallel port 800-MB tape drive to sell for under
$150. The Ditto Easy 800 and subsequent models feature an enhanced design
similar to, and are stackable with, the Zip and Jaz drives.
The Company's tape products are generally available in either internal
or external models. The internal versions attach to the standard floppy
drive interface in IBM PC-compatible computers, while the external versions
attach to the parallel printer port on IBM PC-compatible computers and offer
pass-through capability for a printer. The drives are shipped with backup
software for both DOS and Windows. The Company's tape products include
1-Step software designed to permit the backup of an entire hard disk in a
single step while the user continues working.
As of March 1997, Micron Electronics and Gateway 2000 offer the Company's
Ditto drives as built-in options in selected models of their lines of
personal desktop computers.
The Ditto 2GB and the Ditto 3200 carry a two-year limited warranty.
Ditto media is also sold with a two-year limited warranty.
Bernoulli
During late 1996, the Company discontinued production of its Bernoulli
drives. These 5-1/4 inch half-height drives were removable-media storage
devices based on the Company's proprietary Bernoulli technology. The
Bernoulli MultiDisk 150 drive began shipping in October 1992 and was Iomega's
first drive to use multiple capacity disks - 35, 65, 105 and 150 MBs. The
Company began shipping the Bernoulli 230 drive in September 1994. The
Company plans to continue to produce its multiple capacity disks, as well as
provide warranty and repair support to its Bernoulli customers.
Marketing and Sales
The Company believes that broadening the distribution of its products
through strategic marketing alliances with a variety of key companies within
the computer industry is a critical element in the Company's strategic goal
of establishing its products as industry standards. The Company's initial
marketing strategy for the introduction of its new products has been to
generate consumer awareness of and demand for such products by focusing on
aftermarket sales to existing users of personal computers through leading
computer retail channels. The next step in the Company's strategy is to
position its products as industry standards. To accomplish this, the Company
plans to continue its focus on establishing and maintaining OEM relationships
with leading personal computer manufacturers as well as granting royalty-
based licenses that allow third party manufacturers to produce and sell the
Company's drives to OEMs and consumers for their own accounts.
During 1996, the Company introduced a number of promotions designed to
expand the size of the market for its products. The Company also decreased
the suggested retail prices of its Jaz and Ditto drives and announced a
series of rebate programs for its Zip products, which offered qualifying
purchasers of Zip products the choice of receiving a cash rebate or certain
merchandise. During the summer of 1996, the Company engaged a third party
firm (the "Administrator") to administer the Company's rebate programs. Many
consumers have complained about delays in receiving their rebate checks or
merchandise and difficulties in obtaining timely responses to rebate inquiries
and certain customers have initiated litigation relating to the rebate
programs. See "Item 3 -- Legal Proceedings." The Company has also received
a number of letters from State Attorneys General, Consumer Protection Agencies
and other governmental bodies concerning complaints about the rebate programs.
In light of the difficulties experienced in managing the volume of 1996 rebate
requests, the Company has added resources to assist the administrator in
processing rebate requests and responding to rebate inquiries more quickly.
The Company is monitoring the progress in achieving faster turnaround on
issuing rebate checks and merchandise, and in answering rebate related
questions.
Since July 1996, the Administrator has received several hundred thousand
Zip rebate requests. The Company will, and has always intended to, pay every
qualifying rebate request. In March 1997, the Company was informed by the
Administrator of certain recently discovered shortcomings in the procedures
relied on to process rebate requests. As a result of these shortcomings, a
substantial number of customers whose rebate requests (for between $50 and
$70) had been approved were not promptly paid by the Administrator. The
Company has taken immediate steps to rectify this problem and rebate checks
have been sent or will shortly be sent to all of these customers. The
Company was also recently informed by the Administrator that a substantial
number of customers whose 1996 rebate request submissions (or resubmissions
after an initial determination of ineligibility) have not been notified of the
status of their submissions. The Company is in the process of notifying each
of these customers, as well as a group of customers whose requests for certain
rebate merchandise (a carry-bag) have been delayed due to a supply shortage.
The delays in fulfilling the Company's rebate obligations and in notifying
customers of the status of their requests have resulted in customer
dissatisfaction and frustration. Despite the Company's efforts to improve
the administration of its rebate programs, customer dissatisfaction arising
from thes programs could adversely affect the Company's reputation and its
future marketing and sales efforts. The Company knows its future success
depends in large measure on the loyalty of its customers -- in particular, the
users of the more than 5,000,000 Zip drives shipped to date -- and is
determined to preserve, or where necessary rebuild, that loyalty.
Retail Distribution
Retail outlets for the Company's products include mail order catalogs,
computer superstores, office supply superstores, consumer electronics
superstores and specialty computer stores. The Company sells its products
to retail channels directly, as well as indirectly through distributors.
The Company's products are sold at a retail level by most of the leading
retailers of computer products in the United States and can be found in more
than 10,000 storefronts around the world. Retailers carrying the Company's
products include Best Buy, Circuit City, Computer City and CompUSA in the
U.S., and Vobis, FNAC, MicroWarehouse and Dixons in Europe. Distributors
include Ingram Micro, Merisel, MicroAge and Tech Data in the U.S.; Ingram
Micro Europe, Computer 2000 and Actebis in Europe; and Gennett Technologies,
Sunkyong Distribution Ltd. and Q*Soft Australia Pty. Ltd. in Asia.
Strategic Marketing Alliances
In addition to sales through retail channels, the Company has entered
into a number of strategic marketing alliances with a variety of companies
within the computer industry. These alliances include OEM arrangements
providing for certain of the Company's products to be incorporated in new
computer systems at the time of purchase. During 1996, the Company
continued to gain significant industry support from major PC and consumer
electronics companies that began or announced plans to begin to incorporate
Zip, Jaz and/or Ditto drives into their computer systems as standard or
optional features. At the end of 1996, the Company's OEM customers
included: Hewlett-Packard, Micron Electronics, Packard Bell, IBM, Canon,
NEC, Power Computing, Unisys and Gateway 2000. In early 1997, the
Company announced OEM arrangements with Compaq, Dell and Apple.
The Company's strategic alliances also include private-branding and
co-branding arrangements with major vendors of computer products covering
the resale of the Company's products by such companies as Maxell, Sony
and Fuji, who distribute Zip disks in packages which feature Iomega's name
in addition to the partner's name. In addition, Fuji offers private-branded
Zip drives in Japan.
International
The Company sells its products outside of North America primarily
through international distributors and retailers. The Company has increased
its sales and marketing efforts in the European and Asian markets in the
past several years. Sales are accomplished primarily through sales offices
located throughout Europe and Asia/Pacific. The Company has been invoicing
predominantly in foreign currencies in Europe since January 1992. Sales to
Asian customers are denominated in U.S. dollars. In total, sales outside
of the United States represented 34%, 32% and 37% for the years ended
December 31, 1996, 1995 and 1994, respectively. Information regarding the
Company's operations by geographic region appears in Note 12 of the
Company's Consolidated Financial Statements filed as a part of this Form
10-K and is incorporated herein by reference.
Marketing
The Company's worldwide marketing group is responsible for positioning
and promoting the Company's products. The Company participates in various
industry tradeshows, including MacWorld, CeBIT and COMDEX, and seeks to
generate coverage of its products in a wide variety of trade publications.
During 1996, the Company conducted significant print advertising campaigns
for its Zip, Jaz and Ditto products and television advertising campaigns in
support of its Zip and Ditto products. The Company expects marketing and
advertising expenses to increase in the future as the Company seeks to expand
market awareness of its products and educate consumers about the many
possible uses for Zip and Jaz disks.
As is common practice in the industry, the Company's arrangements with
its customers generally allow customers, in the event of a price decrease,
credit equal to the difference between the price originally paid and the new
decreased price on units in the customers' inventories on the date of the
price decrease. When a price decrease is anticipated, the Company
establishes reserves for amounts estimated to be reimbursed to qualifying
customers. During 1996, the Company began offering limited-time, mail-in
rebates for certain of its drives and disks. In addition, customers
generally have the right to return excess inventory within specified time
periods. The Company establishes reserves for anticipated rebate redemptions
and inventory returns. There can be no assurance that these reserves will be
sufficient or that any future returns, rebates or price protection charges
will not have a material adverse effect on the Company's results of
operations.
The Company markets its products primarily through computer product
distributors and retailers. Accordingly, since the Company grants credit
to its customers, a substantial portion of outstanding accounts receivable
are due from computer product distributors and certain large retailers.
At December 31, 1996, the customers with the ten highest outstanding accounts
receivable balances totaled $81.2 million, or 32% of gross accounts
receivable, with one customer accounting for $29.4 million, or 12% of gross
accounts receivable. If any one or a group of these customers' receivable
balances should be deemed uncollectible, it would have a material adverse
effect on the Company's results of operations and financial condition.
During the year ended December 31, 1996, sales to Ingram Micro, Inc., a
distributor, accounted for 15% of sales. No other single customer accounted
for more than 10% of the Company's sales in 1995 or 1996.
Seasonality
The Company's Zip, Jaz and Ditto products are targeted primarily to the
retail consumer market. This market is generally seasonal, with a substantial
portion of total sales occurring in the fourth quarter and sales slowdowns
commonly occurring during the summer months. Accordingly, in light of the
seasonal nature, revenues for any prior quarter may not necessarily be
indicative of the revenues to be expected in any future quarter.
Manufacturing
The Company's products are manufactured by the Company at facilities in
Roy, Utah and Penang, Malaysia and by independent parties manufacturing
products for the Company on a contract basis. Manufacturing activity
generally consists of assembling various components, subcomponents and
prefabricated parts manufactured by the Company or outside vendors.
During 1995, the Company was unable to produce enough of its products
to fill all of its orders and, therefore, turned to third-party manufacturers
to help satisfy demand. During 1996, the Company entered into an agreement
to purchase a 376,000 square-foot, manufacturing facility in Penang, Malaysia
to initially serve as an additional manufacturing site for the Company's Jaz
drives and disks. The Company's success in ramping up operations in Penang
and the cost-saving opportunities provided by closer proximity to the
Company's storage component suppliers led the Company to re-evaluate several
of its contract manufacturing relationships and in December 1996 the Company
announced plans to move substantial portions of its Zip, Jaz and Ditto drive
production away from third-party manufacturers, as well as its own
manufacturing operations in Roy, Utah, to this new facility. Although the
Company believes it is positioned to produce the majority of its products
in the future, it still intends to use certain third-party manufacturers for
the foreseeable future. There can be no assurance that the Company will be
successful in managing its own operations or those of such third-party
relationships, or that third-party manufacturing will be able to meet the
Company's quantity or quality requirements for manufactured products. The
Company currently has third-party manufacturing relationships with
Electronics Assembly, Inc. in the Philippines (Zip drives), and MegaMedia
Computer at their locations in Taiwan, Malaysia and California and
Sentinel N.V. in Belgium (Zip disks).
During 1996, the Company granted a non-exclusive worldwide license to
Matsushita Communication Industrial Co., Ltd. of Japan (MCI) to manufacture
and sell Zip drives under MCI's brand names, as well as to OEM's. MCI
commenced production in the fourth quarter of 1996. This agreement increases
competition and may increase price competition since the Company does not
set the price at which MCI sells its products. The Company receives
royalties on units sold to third parties by MCI.
Many components incorporated in, or used in the manufacture of, the
Company's products are currently available only from single or sole source
suppliers. The Company has experienced difficulty in the past, and may
experience difficulty in the future, in obtaining a sufficient supply of
many key components on a timely basis. During 1995 and early 1996, the
Company was unable to obtain a sufficient supply of certain integrated
circuits used in the Company's Zip and Jaz drives. During 1996, the Company
established agreements with Motorola, Texas Instruments and Symbios Logic
(leading industry component suppliers) to commit design teams and utilize
their wafer fabrication capacity for the development and manufacture of
the various integrated circuit technologies used in the Company's personal
storage products. Starting in January 1997, these companies joined Adaptec
and Atmel as suppliers who provide silicon solutions to assist the Company
in meeting its demands. The Company believes these relationships will
help secure high-volume manufacturing capabilities and help drive down the
overall cost of current and future models of the Company's products;
however, there can be no assurance that the Company will be able to obtain
a sufficient supply to fully satisfy the Company's demands for such
integrated circuits or realize any future cost savings.
The Company purchases a substantial portion of its sole and limited
source components and equipment pursuant to purchase orders without
guaranteed supply arrangements. The inability to obtain sufficient
components and equipment, or to obtain or develop alternative sources of
supply at competitive prices and quality, or to avoid manufacturing delays
could prevent the Company from producing sufficient quantities of its
products to satisfy market demand, result in delays in product shipments,
increase the Company's material or manufacturing costs or cause an imbalance
in the inventory level of certain components. Moreover, difficulties in
obtaining sufficient components may cause the Company to modify the design
of its products to use a more readily available component, and such design
modifications may result in product performance problems. Any or all of
these problems could in turn result in the loss of customers, provide an
opportunity for competing products to achieve market acceptance and
otherwise adversely affect the Company's business and financial results.
The Company had a backlog at the end of December 1996 of approximately
$76 million, compared to a backlog at the end of December 1995 of
approximately $188 million. The backlog at the end of December 1996 was
related primarily to orders with scheduled shipment dates in future months;
whereas substantially all of the December 1995 backlog was related to
significant component shortages related to the Company's Zip and Jaz
products. Based in part on the Company's current estimates regarding the
expected availability of components (which estimates are based on information
provided to the Company by its suppliers, the Company's current inventory of
components and the Company's experience in its business) and the Company's
manufacturing capacities, the Company believes that it will be able to fill
all orders in the December 1996 backlog during the first quarter of 1997,
unless such orders are scheduled for delivery outside the first quarter of
1997 or canceled or rescheduled. However, there can be no assurance that
the Company's current estimates regarding the expected availability of
components will, in fact, turn out to be correct. In addition, the purchase
agreements or purchase orders pursuant to which orders are made generally
allow the customer to cancel orders without penalty, and the Company has
experienced some cancellations or rescheduling of orders in backlog.
Moreover, it is common in the industry during periods of product shortages
for customers to engage in practices such as double ordering in order to
increase a customer's allowance of available product. Accordingly, the
Company's backlog as of any particular date should not be relied upon as an
indication of the Company's actual sales for any future period.
Product Development
An important element of the Company's business strategy is the ongoing
enhancement of existing products and the development of new products.
During 1994 and 1995, the Company's product development efforts were
primarily devoted to the development of its Zip and Jaz products, which
began commercial shipment in March 1995 and December 1995, respectively.
During 1996, the Company's efforts were primarily focused on reducing the
production costs of its existing Zip, Jaz and Ditto products, enhancing
the features, developing different system interfaces, developing higher
capacity and performance versions, and enhancing and expanding compatibility
with various computers and operating systems. In particular, there are
projects underway to develop higher capacity and performance drives and
media, to create and provide necessary software support that will allow
computers to be started (or booted) from Zip drives, and to develop smaller
subsystem versions of the Company's products, as well as lower profile
versions of the Zip drive which could be installed in laptop computers, a
rapidly growing segment of the computer industry. Moreover, the Company
is looking at advanced head/media systems for future platforms beyond the
current family of Jaz products and plans to increase its efforts in the
areas of software utilities and solutions, which will continue to emphasize
"ease of use" functionality.
In addition to the development and enhancements to its Zip, Jaz and
Ditto products, the Company is developing a new storage device called n-hand,
which is designed to be built into hand-held consumer electronics devices
ranging from digital cameras and game devices to cellular phones and personal
digital assistants. N-hand is expected to provide a single, affordable means
of capturing, moving and storing information across multiple products. The
Company expects n-hand, with an announced price of less than $10 per disk,
to be the first affordable personal storage solution of its kind. Each
disk will be approximately half the size of a business card and is expected
to hold 20 MB of data. N-hand has the potential to open up several new
markets for removable magnetic recording devices and is expected to be
available beginning in late 1997 or early 1998. Development of the n-hand
product is ongoing and there can be no assurance that the Company will be
successful in developing, manufacturing and marketing this product or that
it will be able to do so within in the desired time frame or at the desired
price point.
During 1996, 1995 and 1994, the Company's research and development
expenses were $42,101,000, $19,576,000 and $15,438,000, respectively (or
3.5%, 6.0% and 10.9%, respectively) of net sales. Research and development
spending in 1996 was primarily related to efforts focused on the Company's
Zip, Jaz and Ditto product lines, as well as the recently announced n-hand
product.
The Company operates in an industry that is subject to both rapid
technological change and rapid change in consumer demands. For example,
over the last 10 years the typical hard disk drive included in a new personal
computer has increased in capacity from approximately 40 MBs to over 2 GB
while the price of a hard disk drive has remained constant or even decreased.
The Company's future success will depend in significant part on its ability
to continually develop and introduce, in a timely manner, new removable-media
disk drives and tape products with improved features, and to develop and
manufacture those new products within a cost structure that enables the
Company to sell such products at lower prices than those of comparable
products today. There can be no assurance that the Company will be
successful in developing, manufacturing and marketing new and enhanced
products that meet both the performance and price demands of the data storage
market.
Competition
The Company believes that its Zip and Jaz products compete most directly
with other removable-media data storage devices, such as magnetic cartridge
disk drives, optical disk drives and "floptical" disk drives. Current
suppliers of removable-media data storage devices include Syquest Technology
(which offers SyJet, a 1.5 GB removable cartridge hard disk drive), a
consortium comprised of Compaq Computer, Imation and MKE (which has
introduced the LS 120, a 120 MB floptical drive that is compatible with
conventional floppy disks), Panasonic (which offers the Power Drive, a
removable optical drive), Nomai (which offers the MCD family of drives,
including 540 MB and 750 MB removable cartridge hard disk drives), and Sony
(which offers the MD-DATA drive, a disk drive based on removable magneto-
optical technology). In addition, Mitsumi and Swan Instruments together
are expected to introduce a high-capacity, removable-media disk drive in
1997 that will also directly compete with Zip and Jaz. Although the Company
believes that its Zip and Jaz products offer advantages over the other
removable-media storage devices available today, the Company believes that
the price, performance and usability levels of competing removable-media
products have improved and will continue to improve and that existing as well
as new competitors will introduce new removable-media storage devices.
Accordingly, the Company believes that its Zip and Jaz products will face
increasingly intense competition.
The Company believes that in order to compete successfully against
current and future sources of competition, it will be necessary to further
reduce the manufacturing costs of its products, thus enabling the Company to
sell its products at lower prices. As new and competing removable-media
storage solutions are introduced, it is possible that any such solution that
achieves a significant market presence or establishes a number of significant
OEM relationships will emerge as an industry standard and achieve a dominant
market position. If such is the case, there can be no assurance that the
Company's products would achieve significant market acceptance, particularly
given the Company's size and market position vis-a-vis other competitors.
To the extent that Zip and Jaz drives are used for incremental primary
storage capacity, they also compete with conventional hard disk drives,
which are offered by companies such as Seagate Technology, Western Digital
Corporation, Quantum Corporation and Maxtor Corporation, as well as
integrated computer manufacturers such as NEC, IBM, Fujitsu, Hitachi and
Toshiba. In addition, the leading suppliers of conventional hard disk
drives could at any time determine to enter the removable-media storage
market.
The disks used in the Company's Zip drives are currently available from
the Company and from Fuji, Maxell and Sony, who sell Zip disks in packages
which feature Iomega's name in addition to the partner's name with
authorization from the Company. The disks used in the Company's Jaz drives
are currently available only from the Company. The Company believes that it
and its authorized manufacturers are currently the sole manufacturing source
for Zip- and Jaz-compatible disks. Additional sources of supply of disks
designed for use with Zip and/or Jaz drives may emerge either as a result of
another party succeeding in producing compatible disks without infringing
or violating the Company's proprietary rights, or as a result of licenses
granted by the Company to other parties. Accordingly, the Company's Zip
and Jaz disks may face increasing competition in the future, including the
possibility of competition from parties not licensed by the Company.
The Company's tape drives compete in the market for backup data storage
with other QIC and DC2000-type products (which includes QIC and Irwin),
including parallel port interface products. DC2000-type products currently
offer capacities up to 4 GBs with compression. The Company's two major
competitors in the tape drive market are Seagate Technology and Hewlett-
Packard. Tape drives may in the future encounter increased competition
from other forms of removable-media storage devices. With the exception of
a proprietary tape format for the Ditto 2GB, which is available only from
the Company and Sony, the tapes used in the Company's tape drives are
available from a number of sources, including Imation and Verbatim, and the
Company is not the primary source of supply for these tapes.
In the OEM market for both its disk drives and tape drives, the Company
competes with the vendors mentioned above, as well as with the manufacturers
of personal computers, who may elect to manufacture data storage devices
themselves.
The Company intends to license its products or technology to other
computer manufacturers on a royalty-bearing basis in order to increase market
share and acceptance of its products and help promote them as industry
standards. In 1996, the Company entered into a license agreement with
Matsushita Communication Industrial Co., Ltd. of Japan (MCI) authorizing MCI
to manufacture and sell Zip drives. Accordingly, the Company expects to
compete in the future with licensees of the Company's products. In addition,
the Company has granted certain companies the right to purchase drives or
disks from the Company (generally at a discount to the price paid by retail
channels) and resell such products under private brand names, and the
Company's products may become subject to increased price competition from
such private branded resellers. Price competition from other resellers of
the Company's products, whether or not the Company has a manufacturing
relationship with such party, may result in increased pressure on the Company
to reduce the prices at which its products are sold to such resellers or
others or to offer rebates. The Company continually evaluates its prices and
may elect to reduce prices or offer rebates in the future. Reductions in
the prices at which the Company sells its products or any rebates offered by
the Company could adversely affect gross margin and would adversely effect
gross margin percentage to the extent such reductions or rebates are not
offset by reductions in the cost of manufacturing such products.
The Company believes that most consumers distinguish among competitive
data storage products on the basis of some or all of the following criteria:
price (cost per unit and cost per megabyte of storage capacity), performance
(speed and capacity), functionality (reliability, product size and
removability, and size of installed base of users), ease of installation and
use, and security of data. Price is a particularly important factor with
respect to the Company's mass-market products (the Zip and Ditto 2GB drives).
Additional competitive considerations, particularly in the OEM market, are
the size (form factor) of the drive and the interface type with which the
drive is compatible. Winchester drives are available in 5-1/4 inch, 3-1/2
inch, 2-1/2 inch and 1.8 inch form factors. The most common form factor for
Winchester and floppy drives is 3-1/2 inches. The Company currently offers
3-1/2 inch Zip, Jaz and Ditto drives. The most common system interface for
the OEM market is IDE. The Company currently offers internal Zip drives in
IDE and SCSI interface models, internal Jaz drives in SCSI interface models,
and internal Ditto drives in floppy interface models.
The data storage industry is highly competitive, and the Company expects
that competition will substantially increase in the future. In addition,
the data storage industry is characterized by rapid technological development.
The Company competes with a number of companies that have greater financial,
manufacturing and marketing resources than the Company. The introduction by
a competitor of products with superior performance or substantially lower
prices would adversely affect the Company's business.
Proprietary Rights
The Company relies on a combination of patent, copyright and trade secret
laws to protect its technology. The Company has filed more than 200 U.S.
and foreign patent applications relating to its Zip and Jaz drives and disks,
although there can be no assurance that such patents will issue. The Company
holds over 50 U.S. and foreign patents, nine of which relate to its Zip
products, six of which relate to its Jaz products, three of which relate to
its Ditto products and most of the remainder of which relate to its Bernoulli
products. The Company believes that a combination of patent rights (pursuant
to various issued patents and a number of pending patent applications),
copyright and trade secret protection should prevent another party from
legally manufacturing and selling disks that work effectively and reliably
with the Company's Zip and Jaz drives (except pursuant to a license from the
Company). However, there can be no assurance that the steps taken by the
Company to protect such technology will be successful, or that such efforts
will succeed in all countries. If another party were to succeed in producing
and selling Zip- or Jaz-compatible disks without infringing or violating the
Company's proprietary rights, the Company's sales would be materially
adversely affected, and the price at which the Company sells disks could also
be materially adversely affected. Moreover, because the Company's Zip and Jaz
disks have significantly higher gross margins than the Zip and Jaz drives, the
Company's net income would be disproportionately affected by any such sales
shortfall. Due to the rapid technological change that characterizes the
Company's industry, the Company believes that the success of its disk drives
will also depend on the technical competence and creative skill of its
personnel in addition to legal protections afforded its existing drive
technology. See "Item 3 -- Legal Proceedings."
As is typical in the data storage industry, from time to time the Company
has been, and may in the future be, notified that it may be infringing certain
patents and other intellectual property rights of others. The Company,
however, is not currently aware of any such threatened or pending legal
challenge to the technology which is incorporated in its products which it
expects to have a material adverse effect on its business or financial
results. The Company has in the past been engaged in several patent
infringement lawsuits, both as plaintiff and defendant. There can be no
assurance that future claims will not result in litigation. If infringement
by the Company were established, the Company could be required to pay damages
or be enjoined from selling the infringing product, or both. In addition,
there can be no assurances that the Company will be able to obtain any
necessary licenses on satisfactory terms or that the Company when appearing
as a plaintiff in litigation will prevail or recover meaningful damages or
relief.
Certain technology used in the Company's products is licensed on a
royalty-bearing basis from third parties, including the backup software
included with the Company's Ditto products and certain patent rights relating
to Zip products. The Company has entered into a letter agreement regarding
the Zip patent rights and is in the process of negotiating a more detailed
license agreement for these rights. The failure to execute a definitive Zip
patent agreement or the termination of the Company's existing license
arrangements could have a material adverse effect on the Company's business
and financial results.
Employees
As of December 31, 1996, the Company employed 2,926 persons worldwide,
including 165 in research and development, 2,257 in manufacturing, 265 in
sales, marketing and service, and 239 in general management and
administration. None of the Company's employees are subject to a collective
bargaining agreement, and the Company has never experienced a work stoppage.
During December 1996, the Company announced its plans to shift a
substantial portion of its high volume production to Penang, Malaysia. As
a result, during 1997 the Company expects to reduce its work force in Roy,
Utah by approximately 500 to 700 employees in the manufacturing and
distribution areas.
Government Contracts
No material portion of the Company's business is subject to
renegotiation of profits or termination of contracts at the election of
the United States government.
Environmental Matters
Compliance with federal, state and local environmental protection laws
had no material effect on the Company in 1996 and is not expected to have a
material effect in 1997.
ITEM 2. PROPERTIES:
The Company's executive offices, certain research and development
facilities, and certain manufacturing and distribution facilities are
located in leased offices and warehouses in the Roy, Utah area. In
addition, the Company also leases office space in various locations
throughout North America for local sales, marketing and technical support
personnel, as well as other locations used for research and development
activities.
Additionally, the Company leases office space in Geneva, Switzerland for
use as its international headquarters, and in Utrecht, the Netherlands for
use by its European logistics and distribution personnel. The Company also
leases office space throughout Europe and Asia/Pacific for local sales,
marketing and technical support personnel. In September 1996, the Company
entered into an agreement with Quantum Corporation to purchase a 376,000
square foot manufacturing facility in Penang, Malaysia. The closing of the
purchase is expected to occur in the first half of 1997.
The Company owns substantially all equipment used in its facilities
through either outright purchases or capital leases.
ITEM 3. LEGAL PROCEEDINGS:
Except as set forth below, in management's opinion, there are no
material pending legal proceedings, other than ordinary routine litigation
incidental to its business, to which the Company or any of its subsidiaries
is a party or of which any of their property is subject.
The Company has been named as a defendant in Pizzimenti, et al.
v. Iomega Corporation, a class action filed in the Chancery Court of the
State of Delaware in and for New Castle County on March 10, 1997. The named
plaintiffs purport to represent all persons in the United States who bought
Iomega Zip drives or Zip disks since July 1, 1996 and who were allegedly
not paid timely rebates. The complaint alleges that the Company breached
contracts with those consumers and violated the Delaware Consumer Fraud Act
by failing to send rebates to them within the time period specified in the
Company's rebate offer. The complaint seeks immediate payment of the
rebates (which are in an amount of $50 per Zip drive purchased, up to $20
per 10-pack of Zip disks purchased and/or, at the customer's election,
certain merchandise) plus interest to each putative class member, together
with payment of plaintiffs' attorneys' fees. An adverse outcome in this
class action suit would not, in the opinion of management, have a material
adverse effect in financial terms on the Company's financial condition or
results of operations. However, an adverse outcome, particularly if
accompanied by negative publicity, could have an adverse effect on the
Company's business by harming the Company's reputation and goodwill with
current or prospective customers.
During March 1997, the Company became aware that a French
competitor, Nomai S.A. (the "Defendant"), was allegedly informing customers
that it planned to announce a disk product claimed to be compatible with
the Company's Zip drive. The Company has not licensed the Defendant to
manufacture or sell Zip products, and believes the Defendant's planned
product would infringe the Company's copyrights, patents and other
intellectual property rights, and constitute unfair competition.
Accordingly, the Company took immediate steps to protect its rights and
obtained from the Landgericht Court in Hannover, Germany, a preliminary
injunction against the Defendant. The injunction was served on the
Defendant on March 19, 1997, and prohibits the Defendant, for an initial
period of six months (unless earlier canceled by the court), from
manufacturing or offering its planned product in Germany. To the Company's
knowledge, the Defendant has not to date announced or offered its planned
product for sale, in Germany or elsewhere. In support of the Company's
claims against the Defendant, the Company's French counsel obtained
materials from the Defendant's premises on March 19, 1997, in a seizure
process permitted by a French Court. The Company then filed suit against
the Defendant on March 25, 1997, in the District Court in Paris, France,
alleging unfair competition, copyright infringement and patent infringement.
An adverse outcome in these proceedings could result in the introduction by
the Defendant in one or more countries of a Zip-compatible disk product. Any
such introduction could have a material adverse effect on the Company's future
sales and operating results, depending upon, among other things, the quality,
reliability, time to market and competitiveness of any product ultimately
introduced by the Defendant, and the Defendant's ability to manufacture its
product in volume, market and distribute it effectively, and deliver future
enhanced versions of the product. See "Item 1 -- Business -- Proprietary
Rights". The Company intends to vigorously protect and enforce its
intellectual property rights in these proceedings against the Defendant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matters were submitted to a vote of the Company's security holders
during the quarter ended December 31, 1996.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company as of March 1997 are as follows:
Name Age Position
Kim B. Edwards 49 President, Chief Executive Officer and
Director
Leonard C. Purkis 48 Senior Vice President, Finance and Chief
Financial Officer
M. Wayne Stewart 51 Senior Vice President and Chief Operating
Officer
Laurie B. Keating 43 Senior Vice President, General Counsel
and Secretary
Srini Nageshwar 54 Senior Vice President, Europe
Anton J. Radman, Jr. 44 Senior Vice President, Strategic Business
Development
Edward D. Briscoe 34 Vice President and General Manager,
Personal Storage Division
Reed M. Brown 43 Vice President, Manufacturing
Douglas M. Clifford 53 Vice President, Research and Development
Timothy L. Hill 38 Vice President, Worldwide Marketing and Sales
James C. Kelly 39 Vice President and General Manager, Tape
Business Products
Willard C. Kennedy 50 Vice President, Customer Satisfaction and
Logistics
Kevin O'Connor 39 Vice President, Human Resources
Robert J. Simmons 34 Treasurer
Dan E. Strong 38 Corporate Controller
Kim B. Edwards joined the Company as President and Chief Executive Officer
on January 1, 1994. Mr. Edwards served as President and Chief Executive
Officer of Gates Energy Products, Inc., a manufacturer of rechargeable
batteries and the successor of General Electric Battery Division, from March
1993 to December 1993. From January 1987 until March 1993, Mr. Edwards
served in various other executive positions for Gates Energy Products, Inc.,
including Vice President and General Manager of its Consumer Business Unit
and Vice President of Marketing and Sales. Prior to that, Mr. Edwards was
employed for 18 years at General Electric Company in various marketing and
sales positions.
Leonard C. Purkis joined the Company as Senior Vice President, Finance and
Chief Financial Officer in March 1995. Mr. Purkis also served as Treasurer of
the Company from March 1995 until January 1996. Mr. Purkis joined Iomega
following 12 years at General Electric Company, where his most recent
assignment was as Senior Vice President of Finance at GE Capital Fleet
Services. He also held positions in the Financial Services, Lighting and
Plastics businesses, with assignments in Europe and the U.S.
M. Wayne Stewart was appointed Senior Vice President and Chief Operating
Officer in August 1996. Mr. Stewart joined the Company as Senior Vice
President, Operations in January 1996. Prior to that, Mr. Stewart was Vice
President of Global Manufacturing Concepts and Engineering Services at
Whirlpool Corporation, a consumer appliance company, from January 1995 to
December 1995. From September 1970 to December 1994, Mr. Stewart was
Manufacturing Manager for Hewlett-Packard.
Laurie B. Keating joined the Company as Senior Vice President, General
Counsel and Secretary in January 1997. Previously, Ms. Keating served as
Senior Vice President, General Counsel and Secretary of Sybase, Inc., a
software company, which she joined in March 1989 as General Counsel and
Secretary. Prior to that Ms. Keating served as Group Counsel at Tandem
Computers Incorporated, a fault-tolerant computer maker and software
provider from May 1987 to March 1989.
Srini Nageshwar was promoted to Senior Vice President, Europe in April
1991 after joining the Company in January 1991 as Vice President, Europe.
Prior to joining the Company, Mr. Nageshwar held various senior management
and marketing positions with technology companies.
Anton J. Radman, Jr., has been Senior Vice President, Strategic
Business Development since April 1995. Mr. Radman joined the Company in
April 1980 and his previous positions with the Company have included Senior
Vice President, Sales and Marketing, Senior Vice President, Corporate
Development, President of the Bernoulli Optical Systems Co. (BOSCO)
subsidiary of the Company, Vice President, Research and Development, Vice
President, OEM Products and Sales Manager, and Senior Vice President,
Micro Bernoulli Division.
Edward D. Briscoe was appointed Vice President and General Manager,
Personal Storage Division in January 1997. Mr. Briscoe joined the Company
as Vice President, Sales in January 1995. From May 1993 to January 1995,
Mr. Briscoe was Director of Sales and Marketing for Apple Computer's
Personal Interactive Electronics Division. Prior to that, Mr. Briscoe was
Executive Assistant to the President of Apple USA. From July 1987 to
April 1992, he held various sales management positions with Apple Computer,
Inc.
Reed M. Brown joined the Company as Vice President, Manufacturing in
February 1996. Prior to that, Mr. Brown was Director of Manufacturing at
Quantum Corporation, a manufacturer of hard disk drives, from March 1994
to January 1996. From January 1979 to February 1994, Mr. Brown was
Production Manager for Hewlett-Packard Company.
Douglas M. Clifford joined the Company as Vice President, Research and
Development in October 1996. Prior to that, Mr. Clifford worked 28 years
in various research and development and general management positions for
Hewlett-Packard. His last assignment at Hewlett-Packard was the Information
Storage Group Research and Development Manager where he was responsible for
coordinating the research and development activities of five divisions and
their supporting laboratories.
Timothy L. Hill was appointed Vice President, Worldwide Marketing and
Sales in January 1997. Mr. Hill joined the Company as Vice President,
Marketing in July 1994. Mr. Hill was Vice President, Marketing of Falcon
Microsystems, a federal reseller and systems integrator, from August 1993
to July 1994. Prior to that, Mr. Hill was Director of Marketing and Sales
for the Consumer Business Division of Gates Energy Products from January
1988 to August 1993.
James C. Kelly was appointed Vice President and General Manager, Tape
Business Products in January 1997. Mr. Kelly joined the Company in June
1991 and his previous positions with the Company have included Vice
President of Tape Engineering and Director of Tape Engineering.
Willard C. Kennedy was appointed Vice President, Customer Satisfaction
and Logistics in January 1997. Mr. Kennedy joined the Company as Vice
President, Worldwide Logistics and Materials in November 1995. From January
1994 to November 1995, he was Senior Vice President and General Manager of
the Digital Videocommunications Systems for Philips Consumer Electronics.
He also held positions at Philips Consumer Electronics as Vice President of
Logistics from October 1992 to January 1994 and Vice President of Purchasing
from September 1990 to October 1992. Before joining Philips, Mr. Kennedy
held a variety of management positions in manufacturing, purchasing and
engineering over a period of 20 years with General Electric Company.
Kevin O'Connor joined the Company as Vice President, Human Resources in
January 1997. Mr. O'Connor joins the Company from Dell Computer Corporation
where he held several senior human resource positions. From October 1995 to
December 1996, he was Vice President, Human Resources Asia Pacific., from
July 1994 to September 1995, he was Vice President, Human Resources North
America, and from May 1993 to June 1994, he was Director, Human Resources
Worldwide Operations. Prior to his employment with Dell, Mr. O'Connor spent
six years as a Senior Group Manager of Human Resources with the Frito Lay
Division of Pepsico.
Robert J. Simmons has been Treasurer since January 1996. He was
Assistant Treasurer of Oracle Corporation, a software company, from June
1989 to January 1996.
Dan E. Strong was promoted to Corporate Controller in January 1997. Mr.
Strong has held various management positions within the finance and
accounting organization of the Company from January 1985 to June 1994 and
from September 1995 to December 1996. From June 1994 through September 1995
Mr. Strong was Vice President and Chief Financial Officer of Pro Image Inc.,
a retailer of licensed sports apparel.
Executive Officers are elected on an annual basis and serve at the
discretion of the Board of Directors.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS:
Except as set forth below, the information required by this item is found
in the section entitled "Securities" of the Company's 1996 Annual Report to
Stockholders, which section is incorporated herein by reference.
During the fourth quarter of 1996, the Company issued 1,113 shares of
Common Stock upon conversion of its 6-3/4% Convertible Subordinated Notes
due 2001 in reliance upon the exemption from registration set forth in
Section 3(a)(9) of the Securities Act. No underwriters were engaged in
connection with such issuances. The Company did not sell any other equity
securities during 1996 that were not registered under the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA:
The information required by this item is found in the tables entitled
"Trends in Operations" and "Financial Conditions and Trends" of the Company's
1996 Annual Report to Stockholders, which tables are incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
The information required by this item is found in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" of the Company's 1996 Annual Report to Stockholders, which
section is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
The information required by this item is contained in the sections
entitled "Financial Highlights" and "Quarterly Financial Information" of the
Company's 1996 Annual Report to Stockholders, which section is incorporated
herein by reference, and in the financial statements and schedule referred
to in the Index to Consolidated Financial Statements and Consolidated
Financial Statement Schedule, filed as a part of this Annual Report on Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
The information required by this item appears in the sections of the
Company's Proxy Statement for its 1997 annual meeting of stockholders
entitled "ELECTION OF DIRECTORS - Nominees", "ELECTION OF DIRECTORS - Board
and Committee Meetings", and "ELECTION OF DIRECTORS - Section 16(a)
Beneficial Ownership Reporting Compliance", which sections are incorporated
herein by reference. Information regarding the executive officers of the
Company is furnished in Part I of this Annual Report on Form 10-K under the
heading "Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION:
The information required by this item appears in the sections of the
Company's Proxy Statement for its 1997 annual meeting of stockholders
entitled "ELECTION OF DIRECTORS - Director's Compensation", "ELECTION OF
DIRECTORS - Executive Compensation", "ELECTION OF DIRECTORS - Employment
and Severance Agreements" and "ELECTION OF DIRECTORS - Certain Business
Relationships", which sections are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The information required by this item is contained in the section of the
Company's Proxy Statement for its 1997 annual meeting of stockholders entitled
"Beneficial Ownership of Common Stock", which section is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The information required by this item is contained in the sections of the
Company's Proxy Statement for its 1997 annual meeting of stockholders
entitled "ELECTION OF DIRECTORS - Employment and Severance Agreements" and
"ELECTION OF DIRECTORS - Certain Business Relationships", which sections
are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
(a) The following documents are filed as part of or are included in this
Annual Report on Form 10-K:
1. The financial statements listed in the Index to Consolidated Financial
Statements and Consolidated Financial Statement Schedule, filed as a
part of this Annual Report on Form 10-K.
2. The financial statement schedule listed in the Index to Consolidated
Financial Statements and Consolidated Financial Statement Schedule,
filed as a part of this Annual Report on Form 10-K.
3. The exhibits listed in the Exhibit Index filed as a part of this
Annual Report on Form 10-K.
(b) Reports on Form 8-K: No reports on Form 8-K were filed by the Company
during the last quarter of the year ended December 31, 1996.
(c) Exhibits - See Item 14(a)3 above.
(d) Financial Statements Schedule - See Item 14(a)2 above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
IOMEGA CORPORATION
By: /s/ Kim B. Edwards
------------------
Kim B. Edwards
Chief Executive Officer
Date: March 26, 1997
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
/s/ Kim B. Edwards Chief Executive Officer and Director March 26, 1997
Kim B. Edwards (Principal executive officer)
/s/ Leonard C. Purkis Senior Vice President - Finance and March 26, 1997
Leonard C. Purkis Chief Financial Officer (Principal
financial and accounting officer)
/s/ David J. Dunn Chairman of the Board of Directors March 26, 1997
David J. Dunn
Director
Willem H.J. Andersen
Director
Robert P. Berkowitz
/s/ Michael J. Kucha Director March 26, 1997
Michael J. Kucha
/s/ John R. Myers Director March 20, 1997
John R. Myers
/s/ John E. Nolan Director March 20, 1997
John E. Nolan
/s/ John E. Sheehan Director March 22, 1997
The Honorable
John E. Sheehan
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED
FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements appear in the Company's
1996 Annual Report to Stockholders and are incorporated herein by reference:
Description
Report of Independent Public Accountants
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
The following schedule is included in this Annual Report on Form 10-K:
Description Page Reference
Report of Independent Public Accountants on
Consolidated Financial Statement Schedule 24
II - Valuation and Qualifying Accounts 25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
To Iomega Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Iomega Corporation's annual
report to stockholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 24, 1997. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the index on page 23 is the responsibility of the Company's
management and is presented for the purpose of complying with Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 24, 1997
IOMEGA CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at charged to Balance
beginning costs and at end
Description of period expenses Deductions of period
- ------------------------------ ---------- --------- ---------- ----------
(in thousands)
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
Year ended December 31, 1996 $1,861 $ 9,022 $(1,891) * $ 8,992
Year ended December 31, 1995 $1,627 $ 799 $ (565) * $ 1,861
Year ended December 31, 1994 $1,547 $ 323 $ (243) * $ 1,627
PRICE PROTECTION AND
VOLUME REBATES:
Year ended December 31, 1996 $1,633 $ 24,480 $(9,072) ** $ 17,041
Year ended December 31, 1995 $ 169 $ 7,103 $(5,639) ** $ 1,633
Year ended December 31, 1994 $ 67 $ 1,143 $(1,041) ** $ 169
ACCRUED RESTRUCTURING COSTS:
Year ended December 31, 1994 $6,818 $ 875 $(7,693) $ -
OTHER RESTRUCTURING RESERVES:
Year ended December 31, 1994 $4,649 $ 2,063 $(6,712) $ -
* Represents write-offs of Accounts Receivable
** Payments to customers and credits granted against Accounts Receivable
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included or incorporated by reference in this Form 10-K into
the Company's previously filed Registration Statements on Form S-8, File Nos.
2-87671, 33-13083, 33-20432, 33-23822, 33-41083, 33-54438, 33-59027, 33-62029
and 333-15335.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
March 26, 1997
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report on
Form 10-K:
Exhibit
Number Description
3(i).1 (17) Restated Certificate of Incorporation of the Company, as
amended
3(ii).1 (1) By-Laws of the Company, as amended
4.1 (17) Indenture, dated March 13, 1996, between the Company and
State Street Bank and Trust Company
4.2 (7) Rights Agreement dated as of July 28, 1989 between the
Company and The First National Bank of Boston, as Rights
Agent
4.2 (a) (8) Amendment No. 1 dated September 24, 1990 to Rights
Agreement dated as of July 28, 1989 between the Company
and The First National Bank of Boston
4.3 Instruments with respect to other long-term debt of the
Company and its consolidated subsidiaries are omitted
pursuant to Item 601(b)(4)(iii) of Regulation S-K since
the total amount authorized under each such omitted
instrument does not exceed 10 percent of the total assets
of the Company and its subsidiaries on a consolidated
basis. The Company hereby agrees to furnish a copy of
any such instrument to the Securities and Exchange
Commission upon request.
10.1 (11) Lease dated January 6, 1993 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited Partnership
relating to Iomega Park Building No. 1
10.1 (a)(19) Amendment to Lease dated August 14, 1995 between the
Company and Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 1
10.2 (19) Lease dated August 14, 1995 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited Partnership
relating to Iomega Park Building No. 2
10.3 (3) Lease dated November 9, 1992 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited Partnership
relating to Iomega Park Building No. 3
10.3 (a)(19) Amendment to Lease dated August 14, 1995 between the
Company and Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 3
10.4 (3) Lease dated November 9, 1992 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited Partnership
relating to Iomega Park Building No. 4
10.4 (a)(19) Amendment to Lease dated August 14, 1995 between the
Company and Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 4
10.5 (4) Lease Agreement dated October 29, 1984 between the Company
and Damson/Birtcher Realty Income Fund-II, Limited
Partnership (formerly with Western Mortgage Loan
Corporation)(including an Amendment thereto dated January
30, 1985) relating to Iomega Park Building (Parking Lot)
No. 5
10.6 (11) Lease dated January 6, 1993 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited Partnership
relating to Iomega Park Building No. 6
10.6 (a)(19) Amendment to Lease dated August 14, 1995 between the
Company and Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 6
10.7 (2) Lease dated June 21, 1991 between the Company and Damson/
Birtcher Realty Income Fund-II, Limited Partnership
relating to Iomega Park Building No. 7
10.7 (a)(13) Amendment to Lease dated May 20, 1994 between the Company
and Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 7
10.8 (3) Lease dated November 9, 1992 between the Company and
Damson/Birtcher Realty Income Fund-II, Limited Partnership
relating to Iomega Park Building No. 8
10.8 (a)(19) Amendment to Lease dated August 14, 1995 between the
Company and Damson/Birtcher Realty Income Fund-II, Limited
Partnership relating to Iomega Park Building No. 8
10.9 (19) Lease Agreement dated January 25, 1996 between the Company
and Boyer Iomega LLC, by the Boyer Company, L.C., its
Manager
** 10.10 (2) 1981 Stock Option Plan of the Company, as amended
** 10.11 (2) 1987 Stock Option Plan of the Company, as amended
** 10.12 (2) 1987 Director Stock Option Plan of the Company, as
amended
** 10.13 1995 Director Stock Option Plan of the Company, as
amended
** 10.14 (2) Employment Letter dated January 11, 1991 between the
Company and Srini Nageshwar
** 10.15 (13) Employment Letter dated November 29, 1993 between the
Company and Kim Edwards
** 10.16 (3) Expatriate Agreement dated January 1, 1992 between the
Company and Srini Nageshwar
10.17 (3) Form of Indemnification Agreement between the Company
and each of its directors
10.18 (7) Rights Agreement dated as of July 28, 1989 between the
Company and The First National Bank of Boston, as Rights
Agent
10.18(a) (8) Amendment No. 1 dated September 24, 1990 to Rights
Agreement dated as of July 28, 1989 between the Company
and The First National Bank of Boston
10.19 (13) Indemnity Agreement, dated April 21, 1994 between the
Company and Srini Nageshwar
** 10.20 (11) Letter Agreement, dated April 13, 1993, between the
Company and Anton J. Radman, Jr.
10.21 (16) Iomega Incentive Plan for Kim B. Edwards
10.22 (16) Loan Agreement, dated July 1995, between the Company and
Wells Fargo Bank, N.A., Commercial Finance Division
10.22(a)(16) Security Agreement, dated July 5, 1995, between the
Company and Wells Fargo Bank, N.A. Commercial Finance
Division
10.22(b)(16) Wells Fargo Continuing Commercial Letter of Credit
Agreement, dated July 5, 1995
10.22(c)(19) First Amendment to Loan Agreement, dated August 24, 1995,
between the Company and Wells Fargo Bank, N.A.,
Commercial Finance Division
10.22(d)(19) Second Amendment to Loan Agreement, dated October 16, 1995,
between the Company and Wells Fargo Bank, N.A., Commercial
Finance Division
10.22(e)(19) Third Amendment to Loan Agreement, dated November 30, 1995,
between the Company and Wells Fargo Bank, N.A., Commercial
Finance Division
10.22(f)(19) Fourth Amendment to Loan Agreement, dated January 12, 1996,
between the Company and Wells Fargo Bank, N.A., Commercial
Finance Division
10.22(g)(20) Fifth Amendment to Loan Agreement, dated March 12, 1996,
between the Company and Wells Fargo Bank, N.A., Commercial
Finance Division
10.22(h)(20) Sixth Amendment to Loan Agreement, dated May 13, 1996,
between the Company and Wells Fargo Bank, N.A., Commercial
Finance Division
10.22(i)(22) Seventh Amendment to Loan Agreement, dated July 31, 1996,
between the Company and Wells Fargo Bank, N.A., Commercial
Finance Division
10.23 (19) Master Lease Agreement, dated August 29, 1995, between the
Company and USL Capital Corporation
10.24 (19) Loan Commitment Agreement, dated October 23, 1995, between
the Company and Heller Financial, Inc., Commercial
Equipment Finance Division
10.25 (19) Factoring Agreement, dated November 10, 1995, between
Iomega Europe GmbH and Heller Bank, AG
10.26 (19) Revolving Loan Agreement, dated January 12, 1996, between
the Company and First Security Bank of Utah, N.A.
10.27 (17) Indenture, dated March 13, 1996, between the Company and
State Street Bank and Trust Company
10.28 (20) Lease dated December 8, 1995, between the Company and John
Arrillaga, Trustee and Richard T. Peery, Trustee relating
to Milpitas Bldg. 8
10.29 (21) Lease dated April 9, 1996, between the Company and Security
Capital Industrial Trust
10.30 (22) Agreement for the Sale and Purchase of Assets in Malaysia,
dated September 13, 1996, between the Company and Quantum
Corporation.
10.30(a)(22) Exhibit A to the Agreement for the Sale and Purchase of
Assets in Malaysia, dated September 13, 1996, between the
Company and Quantum Corporation - Preliminary Form of
Secured Promissory Note
10.30(b)(22) Exhibit B to the Agreement for the Sale and Purchase of
Assets in Malaysia, dated September 13, 1996, between the
Company and Quantum Corporation - The Indemnification
Agreement
10.31 1996 Bonus Plan
13.1 Portions of the Company's 1996 Annual Report (which is
not deemed to be "filed" except to the extent that
portions thereof are expressly incorporated by reference
in this Annual Report of Form 10-K)
21.1 Subsidiaries of the Company
23.1 Consent of Independent Public Accountants (appears on page
26 of this Annual Report on Form 10-K)
27.1 Financial Data Schedule (only filed as part of electronic
copy)
- --------------------------
** Management contract or compensation plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of
Form 10-K
(1) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended July 4, 1993 (File
No. 0-11963).
(2) Incorporated herein by reference to the exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991 (File
No. 0-11963)
(3) Incorporated herein by reference to the exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992 (File
No. 0-11963).
(4) Incorporated herein by reference to the exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 1990 (File
No. 0-11963).
(5) Incorporated herein by reference to the exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 1989 (File
No. 0-11963).
(6) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 2-96209).
(7) Incorporated herein by reference to the exhibits to the Company's
Current Report on Form 8-K filed on August 12, 1989 (File No. 0-11963).
(8) Incorporated herein by reference to the exhibits to the Company's
Amendment No. 1 to Current Report on Form 8-K filed on
September 25, 1990 (File No. 0-11963).
(9) Incorporated herein by reference to the exhibits to the Company's
Amendment No. 1 to Annual Report on Form 10-K for the year
ended December 31, 1992 (File No. 0-11963).
(10) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended October 3, 1993
(File No. 0-11963).
(11) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-K for the year ended December 31, 1993
(File No. 0-11963).
(12) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended October 2, 1994
(File No. 0-11963).
(13) Incorporated herein by reference to the exhibits to the Company's
Annual Report on Form 10-K for the period ended December 31, 1994
(File No. 0-11963).
(14) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended April 2, 1995 (File
No. 0-11963).
(15) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended July 2, 1995 (File
No. 0-11963).
(16) Incorporated herein by reference to the Exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended October 1, 1995
(File No. 0-11963).
(17) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-3 (File No. 33-64995).
(18) Incorporated by reference to Appendix to the Company's definitive
Proxy Statement for the 1995 Annual Meeting of Stockholders (File No.
0-11963).
(19) Incorporated herein by reference to the exhibits to the Company's
Annual Report on Form 10-K for the period ended December 31, 1995
(File No. 0-11963).
(20) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1996 (File
No. 0-11963).
(21) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1996 (File
No. 0-11963).
(22) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended September 29, 1996
(File No. 0-11963).