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UNITED STATES
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, 1997
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 checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.____
The aggregate market value of Common Stock held by non-affiliates of
the registrant at January 31, 1999, was $1,702,661,625, 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 outstanding at
January 31, 1999, was 268,274,768.
Documents incorporated by reference:
o Specifically identified portions of the Company's Annual Report to
Stockholders for the year ended December 31, 1998, into Part I and
Part II of Form 10-K.
o Specifically identified portions of the Company's Definitive Proxy
Statement for its 1999 annual meeting of stockholders into Part
III of Form 10-K .
PART I
This Annual Report on Form 10-K contains a number of forward-looking statements,
including, without limitation, information with respect to Iomega(1)
Corporation's ("Iomega" or the "Company") plans to establish and maintain
original equipment manufacturer ("OEM") relationships and license its Zip(R),
Jaz(R) and Clik!(TM) technologies to third parties, the Company's manufacturing
strategies, cost control and cost-reduction initiatives, relationships with
third parties, the availability of key components, current and future product
development projects, including the anticipated availability of new products
expected to be shipped in 1999, including, without limitation, a Clik! drive
designed to fit into a PCMCIA slot for slimline notebook computers and an
internal Zip 250MB drive, the expectation that the first cameras with built-in
Clik! drives will reach the market during 1999, anticipated products to be
engineered, manufactured or marketed in 1999 by third parties under licensing
arrangements, efforts to protect its intellectual property rights, the possible
effects of another party succeeding in producing and selling Zip-, Jaz- or
Clik!-compatible disks without infringing or violating the Company's
intellectual property rights, the possible effects of adverse outcomes in
litigation or in resolutions of infringement claims asserted by third parties,
the expected decline in first quarter revenue as compared to fourth quarter
revenue and the expected results of operations for the first quarter of 1999.
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",
"intends" 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, market acceptance of, and demand for, the Company's drive and
removable disk products, manufacturing issues, including availability of certain
key components of the Iomega Zip, Jaz and Clik! drives and disks, sales mix
between disks and drives, sales mix of OEM drive sales versus retail and
distribution sales, product development delays, quality issues, the Company's
success in filling a number of key management vacancies, including the
appointment of a new Chief Financial Officer and a new head of the global
Product, Sales and Marketing function, intellectual property rights, the outcome
of litigation described in Part I, Item 3 of this Annual Report on Form 10-K and
the other factors set forth under the captions "Factors Affecting Future
Operating Results", "Year 2000 Readiness" and "Disclosures About Market Risk"
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.
ITEM 1. BUSINESS:
The Company designs, manufactures and markets innovative personal and
professional storage solutions, based on removable-media technology, for users
of personal computers and consumer electronics devices. The Company's primary
data storage solutions include disk drives and disks marketed under the
trademarks Zip, Jaz and Clik!. The Company's Zip and Jaz storage systems 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 storage
generally associated with floppy disk drives and disks, including expandable
storage capacity and data transportability, management and security. The
Company's Clik! storage systems are designed to provide a miniaturized
removable-media storage solution for use in notebook computers and a variety of
hand-held electronic devices.
- --------------------------
(1) Iomega, Zip, Jaz, Bernoulli and the stylized "i" logo are trademarks of
Iomega Corporation registered in the United States and certain other countries;
Clik!, ZipPlus, Ditto, Ditto Max, n hand, Zip Built-In, AutoDetect and RecordIt
are trademarks of Iomega Corporation. All other products and brand names
mentioned are the property of their respective owners.
Iomega Storage Solutions
The Company believes its Zip, Jaz and Clik! disk drives and disks
address key information storage and management needs of personal computer users
and various electronic device 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. The Company's Clik! disk drives and disks provide an affordable storage
solution for portable digital products from digital cameras and handheld
personal computers ("HPCs") to notebook computers. Specifically, the Company's
Zip, Jaz and Clik! products are designed to offer the following benefits to
personal computer users:
Expandable Storage Capacity
As personal computer users and other electronic device users (in the case of
Clik!) are increasingly forced to expand their primary storage capacity
(generally provided by the hard disk drive incorporated in the computer or flash
memory in the case of consumer electronic devices), Zip, Jaz and Clik! provide
an easy and efficient way to do so. The Zip, Jaz and Clik! drives can be easily
connected or installed and offer unlimited additional storage capacity, in
increments of 40 megabytes ("MBs") in the case of Clik!, 100 or 250MBs in the
case of Zip and 1 or 2 gigabytes ("GBs") in the case of Jaz.
Media Removability
The Company's Zip and Jaz products store data on high-capacity removable disks,
thus enabling personal computer users to:
o take programs and files from an office computer to use on a home or
laptop computer;
o share or transfer programs and files with other personal computer
users;
o organize data by storing different files on different disks;
o 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;
o remove particularly sensitive or valuable information from the computer
for storage in a different location, thus protecting it against
viewing, modification or damage by another user of the computer; and
o create easily-accessible backup copies of important electronic data.
The Company's Clik! products store data on high-capacity removable disks, thus
enabling users of various consumer electronic devices to:
o download high resolution photos from CompactFlash(TM) or Smart
Media(TM) memory cards on a single Clik! disk without having to return
to a personal computer;
o carry e-mails, web pages, presentations, price lists, contact lists,
letters and memos for a laptop or handheld computer on a single Clik!
disk;
o have a removable storage solution for various HPCs and notebook
computers; and
o take programs and files from an office computer to use on a home or
laptop computer.
Data Backup
The Company's Zip, Jaz and Clik! storage systems, 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 storage systems provide a combination of price,
performance and features that make them attractive data storage solutions for
their target markets. Zip offers data access times, transfer rates and storage
capacity that greatly exceed those offered by conventional floppy disk drives
and disks, 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. Clik! offers compact storage and
higher capacity than current mobile storage solutions at an attractive price for
a variety of hand-held electronic device customers.
Products
The Company offers products targeted at both the mass market and the
high-performance market. Zip drives and Clik! drives were designed to achieve
price levels that the Company deems crucial to mass-market consumers. The Jaz
1GB and 2GB drives, on the other hand, are principally targeted to more
professionally-demanding customers, while still offering affordability. Iomega's
Zip, Jaz and Clik! products continued to be recognized by industry publications
and trade groups during 1998, receiving a number of prestigious awards,
including: Info World's "Industry Innovations Award - The Best and the
Brightest" (Zip); MacHome Journal "Home Choice Award - Removable Media Drive"
(Zip); PC Computing's "MVP Award" (Zip); PC World's "Best Buy Zip ATAPI" (Zip);
Computer Currents' "Best Removable Drive" (Jaz); Computer Shopper's "Best
Removable/Backup Drive" (Jaz); PC Computing's "MVP Award" (Jaz); and Popular
Science's "Best of What's New" (Clik!).
The following table lists the principal data storage devices currently
being offered by the Company:
Typical
Product Interface Retail
Family Capacity Model (Year introduced) Price (2) Technology
- ------ -------- ----- -------------------- --------- -----------------
Zip Drives:
100MB External Parallel Port (1995) $ 99.95 Composite
SCSI (1995) 99.95 winchester heads
USB (1998) 129.95
Internal 3.5" ATAPI (1997) 99.95
Notebook 15 MM ATAPI (1997) 199.95
12.7 MM ATAPI (1998) 199.95
250MB External Parallel Port (1998) 199.95
SCSI (1998) 199.95
Zip Disks:
100MB (1995) $ 9.99 Advanced
250MB (1998) 16.66 flexible media
Clik! Drives:
40MB Various drive bundles Composite
(see description below) (1998) winchester heads
Clik! Disks:
40MB (1998) $ 9.99 Advanced
flexible media
Jaz Drives:
1GB External SCSI (1995) $299.95 Thin-film heads
Internal 3.5" SCSI (1995) 279.95
2GB External SCSI (1998) 349.95
Internal 3.5" SCSI (1998) 349.95
Jaz Disks:
1GB (1995) $ 84.95 Dual rigid media
2GB (1998) 99.95
(2) Indicates the minimum advertised price or, if none, the typical price at
which the drive and disks are sold at retail. Disk prices represent per unit
purchase price in multi-packs.
Zip Products
Since their introduction in March 1995 and through the end of 1998,
more than 21 million Zip drives have been shipped. Designed as an affordable
mass-market product, Zip drives address multiple needs of personal computer
users: data storage, archiving, hard drive expansion, data transportability,
distributing files (including multimedia presentations), data security and
backup. Zip drives use durable, high-capacity flexible media and Winchester-type
composite nanoslider heads with a special airbearing surface combined with a
linear voice coil motor. Zip drives provide high capacity and rapid access and
can be used for a number of data storage purposes. The original Zip 100MB disks
provide users of personal computers, including Apple/Macintosh-compatible
personal computers, with a minimum of 70 times the capacity of, and up to 20
times faster performance than, traditional floppy disks. Zip drives operate with
leading operating systems for personal computers and workstations, including
Windows 98, Windows 95, Windows NT, Windows 3.x, Macintosh and OS/2. Software
included with the Zip drives provide a 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. All
models feature a compact design, operation lights and a finger slot for easy
cartridge insertion and removal.
Zip drives carry a one-year limited warranty. Certain OEM customers
have a three-year limited warranty on the Company's Zip drives. Prior to 1998,
Zip disks had a limited lifetime warranty except where local law prohibited such
warranties. Beginning in 1998, Zip disks carry a limited five-year warranty.
Zip 100MB External. Originally introduced in 1995, Zip 100MB external drives are
now available in three interface models: parallel port, SCSI and USB. The
parallel port version is for use with IBM compatible PCs, the SCSI version for
use with SCSI-enabled (either built in or through the addition of an adapter
board with an external connector) computers and the USB version for use with PCs
and the latest Apple computer models such as the G3 and iMac. The SCSI version
of the Zip 100MB drive offers faster performance than the parallel port and USB
versions of the drive, featuring a maximum sustained data transfer rate of up to
1.4MBs per second. All external models feature a window for viewing the
cartridge label.
Zip 100MB Internal. Originally introduced in February 1996 (with an IDE
interface), the 3.5-inch form factor Zip 100MB drive is now available with an
ATAPI interface for both OEMs and retail channels. In 1997, the Company
introduced a 15 mm version for the notebook computer market. This was followed
with a 12.7 mm version in 1998. The ATAPI version features a maximum sustained
transfer rate of 1.4MBs per second. The notebook versions are sold to OEMs for
incorporation into notebook computers and external models.
Zip 250MB. Introduced in the fourth quarter of 1998, the Zip 250MB drive was
designed to meet demand for higher storage capacity fueled by the prevalence of
graphics in most applications, the emergence of audio and video files and the
proliferation of internet downloads. In addition to two and one-half times the
capacity of the original Zip 100MB drive, the ZIP 250MB drive has increased
performance by one and one-half times and reads and writes to Zip 100MB
cartridges allowing sharing of files with users of Zip 100MB drives. The SCSI
version of the Zip 250MB drive offers faster performance than the parallel port
version of the drive, featuring a maximum sustained transfer rate up to 1.4MBs
per second.
The Zip 250MB is available as an external drive with either parallel
port or SCSI interfaces. A 3.5-inch form factor internal Zip 250MB drive with an
ATAPI interface is expected to be available in 1999.
OEMs. As of March 1999, the following PC companies incorporate, or have
announced plans to incorporate, Zip 100MB drives in selected models of their
lines of personal computers as a standard or optional feature: Acer, Apple,
Chicony, Clevo, Compal, Compaq, Dell, Fujitsu Limited ("Fujitsu"), Gateway,
Hewlett-Packard, Hitachi - Japan, IBM, LaCie Limited, Micron Electronics, NEC
Corporation ("NEC"), Packard Bell, Sharp, Siemens, Sony, Toshiba Corporation
("Toshiba") and Umax.
Clik! Products
Clik! is a miniaturized removable-media storage solution for use in a
variety of hand-held consumer electronics devices such as digital cameras,
personal digital assistants ("PDAs"), audio recorders, mobile telephones,
hand-held global positioning system ("GPS") units and palm top and notebook
computers. The Company began shipping limited quantities of its Clik! drive for
digital cameras and 40MB Clik! disks in December 1998. The Company also began
shipping limited quantities of its Clik! drive for mobile computers and its
Clik! Drive Plus bundle for digital cameras, notebook computers and Windows CE
products in early 1999.
Clik! drives are designed to connect to virtually any portable digital or
desktop product and to allow consumers to easily share information between
products and synchronize information back to a desktop computer. For digital
cameras, Clik! disks are like tiny rolls of film since they are designed to
store more than current mobile storage solutions and at a lower cost. The 40MB
Clik! disk will hold approximately 60-80 "megapixel" images or hundreds of lower
resolution images. The handheld Clik! Mobile Drive weighs less than seven ounces
and Clik! 40MB disks are 2" by 2", approximately half the size of a credit card.
A Clik! drive designed to fit into a PCMCIA slot for slimline notebook computers
and the first digital camera with a built-in Clik! drive are expected to be
available in 1999.
The Clik! Drive for Mobile Computers is available with a typical retail
price of $199. The Clik! Drive for Digital Cameras is available for a typical
retail price of $249. The Clik! Drive Plus is available with a typical retail
price of $299. The 40 MB disks sell for a typical retail price as low as $9.99
per disk, when purchased in a 10-pack.
Clik! drives carry a one-year limited warranty. Clik! disks have a limited
five-year warranty.
OEMs. At the end of 1998, the Company had announced the following OEM partners
for Clik!: AGFA, Compaq, Sharp and Varo Vision. The Company has signed licensing
or co-development agreements with Citizen Watch Co., Ltd. ("Citizen"),
Matsushita Communication Industrial Co., Ltd. ("MCI") and NEC that grant
non-exclusive rights to manufacture and market Clik! mobile storage drives to
other OEMs and consumers worldwide and for use in their own portable electronic
products.
Jaz Products
Jaz products address the high-performance needs of personal computer
and other system users in several areas: professional applications (graphics,
desktop publishing, software development, IT/MIS, CAD/CAM, audio and video),
corporate users (sales force automation and backup) and personal computer
enthusiasts (multimedia and worldwide web applications). Jaz drives incorporate
many advanced technological features including 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 that secures the dual disk platters when not installed in a drive,
eliminating rattle and reducing the possibility of losing valuable information.
The drives operate with leading operating systems for personal computers and
workstations, including Windows 98, Windows 95, Windows NT, Windows 3.x,
Macintosh and OS/2. Software included with Jaz drives provide a 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 versions of the drives weigh approximately two pounds,
feature design enhancements similar to those introduced with external Zip
drives, including a unique 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
and auto-sensing SCSI termination.
Jaz drives carry a one-year limited warranty. Prior to 1998, Jaz disks
had a limited lifetime warranty except where local law prohibited such
warranties. Beginning in 1998, Jaz disks carried a limited five-year warranty.
Jaz 1GB. The Company began shipping Jaz 1GB drives and Jaz 1GB disks in December
1995. The Jaz 1GB drive offers data transfer rates comparable to those of many
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. Using 1GB disks, Jaz is capable of storing 1,000 24-bit full color
pictures, 56 minutes of video (2X CD-ROM quality data), or 1.7 hours of audio
(CD-quality, stereo). The Jaz 1GB drive is available in external and internal
SCSI versions. An adapter, the Jaz Traveler, is offered to connect the external
drive to a PC's parallel port connector.
Jaz 2GB. Due to the demand for an even higher capacity drive, the Company began
shipping Jaz 2GB, a 2-gigabyte storage solution, in February 1998. The Jaz 2GB
removable drive utilizes an ultra-SCSI interface, includes a complete software
suite, provides twice the capacity and up to 40 percent faster performance than
the original Jaz 1GB drive. With an average sustained transfer rate of 7.4
megabytes per second, Jaz 2GB is fast enough to deliver full-screen, full-motion
video. The Jaz 2GB drive is also capable of reading and writing to Jaz 1GB
disks. The Jaz 2GB drive is available in external and internal SCSI versions.
Ditto Products
In March 1999, the Company announced that it had entered into an agreement to
sell certain assets associated with its Ditto tape product line to Tecmar
Technologies, Inc. ("Tecmar"). Under the terms of the agreement, Tecmar will pay
the Company $3.0 million for intellectual property and exclusive rights to the
Company's Ditto product line which includes the Ditto 2GB, 10GB DittoMax Pro and
the 7GB Ditto Max drives. As part of the agreement, Tecmar will also obtain
certain software rights, intellectual property rights, equipment, the Ditto
brand name for tape and tape-related products and product logos. No Iomega
facilities or employees will be transferred to Tecmar in connection with the
transaction. The Company will continue to sell its current Ditto finished goods
inventory for three months following the closing of the sale; after which,
Tecmar will buy the Company's remaining finished goods inventory. The Company
will also continue to sell existing Ditto cartridges for a period of time. The
Company will provide warranty support for its Ditto 2GB and Ditto Max products
until the warranties expire and will provide technical support for Ditto
products sold by the Company. Tecmar will provide out-of-warranty service for
Ditto 2GB and Ditto Max tape drive customers.
Marketing and Sales
Marketing
The Company believes that broadening the distribution of its products
through strategic marketing alliances with a variety of key companies within the
computer and consumer electronic industries is a critical element in the
Company's strategic goal of being the supplier of choice for smart, portable
solutions for personal computers and the growing market of consumer electronic
devices. 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 Company has also focused
and will continue to focus on establishing and maintaining OEM relationships
with leading personal computer manufacturers for Zip and Jaz products and
consumer electronic manufacturers for Clik! products as well as granting
royalty-based licenses that allow third-party manufacturers to produce and sell
the Company's drives to OEMs and other customers for their own accounts. Sales
of Zip drives to OEM customers increased to over 55% of total Zip drive unit
sales in 1998, as compared to approximately 32% in 1997. To support and foster
increased Zip OEM sales, Iomega initiated a broad-based Zip Built-In(TM)
campaign during 1997.
During 1998, the Company announced the following three marketing
programs to improve the role of the Company's products in the business and
personal lives of its customers: Record/Play, Beyond-PC and software tools.
Record/Play enables authors, artists, music producers and, eventually, video and
film producers to protect their copyrighted property. Record/Play also enables
businesses to protect confidential or proprietary business and client
information. The Company's Zip, Jaz and Clik! disks carry an embedded serial
number that allows content to be encrypted, thus allowing content to be replayed
but not re-recorded. Beyond-PC promotes the installation of the Company's
storage technologies on digital appliances other than the PC. Zip drives are
being designed into, or made compatible with, scanners, set-top boxes,
projection systems, music and audio devices, medical devices and printers. By
the end of 1998, Beyond-PC had garnered support from non-PC makers such as
WebSurfer Inc. (TV set-top boxes for internet access), Microtek International,
Inc. (stand-alone scanners), Lexmark and NEC (external compatibility with
printers), Roland Corporation (music recorders), 360 Systems (broadcast-quality
sound record/playback), InFocus Systems Inc. (projection systems) and Stryker
Endoscopy (digital capture for high-resolution medical images). Software tools
for the Company's Zip, Jaz and Clik! drives are provided by the Company to
improve customer satisfaction and to increase media consumption. The software
tools are available as a free download on the Company's website (www.iomega.com)
and include such tools as Iomega RecordIt, Norton Zip Rescue and Iomega
Photoprinter. Iomega RecordIt, when used with the Company's Zip, Jaz and Clik!
disks, allows a PC or Mac computer to be used as a digital audio recorder.
Norton Zip Rescue is a disaster recovery software tool that is stored on a
single 100MB or 250MB Zip disk that allows Zip drive users to perform system
recovery quickly and easily. Iomega Photoprinter, primarily designed for the
Clik! drive for digital cameras, allows users to view JPG, bitmap and pic images
in thumbnail views and allows users to size images up to 8x10. Iomega
Photoprinter also works with Zip and Jaz drives as well as hard drives.
The Company's worldwide marketing group is responsible for positioning
and promoting the Company's products. The Company participates in various
industry tradeshows, including CeBit, COMDEX and MacWorld, and seeks to generate
coverage of its products in a wide variety of trade publications. During 1998,
the Company continued major print advertising campaigns for its Zip, Jaz and
Ditto products and television advertising campaigns in support of its Zip
products with an emphasis on the Company's Zip Built-In campaign aimed at
increasing awareness of the availability of, and demand for, Zip storage
solutions as a built-in feature in personal computers.
Retail Distribution
Retail outlets for the Company's products include computer superstores,
consumer electronic superstores, mail order catalogs, office supply superstores,
specialty computer stores and other retail outlets. 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 Europe. Retailers
carrying the Company's products include Best Buy, Circuit City, CompUSA, Costco
Warehouse, Fry's Electronics, MicroCenter, OfficeDepot, Office Max, Sam's Club
and Staples in the U.S.; and Dixons, FINAC, Media Markt, PC World and Vobis in
Europe. Distributors include CMS Peripherals, Ingram Micro, Merisel, MicroAge
and Tech Data in the U.S.; Actebis, Computer 2000, Ingram Micro Europe and Karma
International in Europe; and Gennett Technologies, Q*Soft Australia Pty. Ltd.
and Sunkyong Distribution Ltd. in Asia.
Strategic Marketing Alliances
In addition to sales through retail and distribution channels, the
Company has entered into a number of strategic marketing alliances with a
variety of companies within the computer and consumer electronic industries.
These alliances include OEM arrangements providing for certain of the Company's
products to be incorporated in new computer systems and portable electronic
devices at the time of purchase. During 1998, the Company continued to gain
significant industry support from major PC companies that began, or announced
plans to begin, incorporating Zip drives into their computer systems as standard
or optional features. At the end of 1998, the Company's OEM partners included,
among others: Acer, Apple, Chicony, Clevo, CNF, Compal, Compaq, Dell, Fujitsu,
Gateway, Hewlett-Packard, Hitachi, IBM, LaCie Limited, Lexmark, Micron
Electronics, Microtek, NEC, Packard Bell, Sharp, Siemens, Sony, Toshiba, Umax,
and VST. The Company is beginning to gain significant industry support from
major consumer electronic companies that have announced plans to begin to
incorporate Clik! drives into their computer systems as standard or optional
features. At the end of 1998, the Company had announced the following OEM
partners for Clik!: AGFA, Compaq, Sharp and Varo Vision. The Company has signed
licensing or co-development agreements with Citizen, MCI and NEC that grant
non-exclusive rights to manufacture and market Clik! mobile storage drives to
other OEMs and consumers worldwide and for use in their own portable electronic
products.
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, Fuji and Verbatim
who offer Zip drives in Japan and Zip disks globally in packages which feature
Iomega's name in addition to the partner's name.
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 and has established several sales offices in both Europe and Asia.
Prior to 1997, the Company had been invoicing predominantly in foreign
currencies in Europe. In 1997 and 1998, the majority of sales to European
customers were denominated in U.S. dollars. Sales to Asian customers are
typically denominated in U.S. dollars with the exception of Japan, where sales
are primarily invoiced in the Japanese Yen. In total, sales outside of the
United States represented 34%, 39% and 34% for the years ended December 31,
1998, 1997 and 1996, respectively.
Sales
As is common practice in the industry, the Company's arrangements with
its retail and distribution 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. In addition, distribution and retail customers generally have the
right to return excess inventory within specified time periods. The Company
establishes reserves for inventory returns. There can be no assurance that these
reserves will be sufficient or that any future returns or price protection
charges will not have a material adverse effect on the Company's results of
operations and financial condition.
The Company sells its products primarily through computer product
distributors, retailers and OEMs. Accordingly, since the Company grants credit
to its customers, a substantial portion of outstanding accounts receivable are
due from computer product distributors, certain large retailers and OEMs. At
December 31, 1998, the customers with the ten highest outstanding accounts
receivable balances totaled $124.0 million, or 42% of gross accounts receivable,
with one customer accounting for $29.3 million, or 10% 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, 1998, sales to Ingram Micro, Inc., a
distributor, accounted for 16% of sales. During the year ended December 31,
1997, sales to Ingram Micro, Inc., accounted for 14% of sales. No other single
customer accounted for more than 10% of the Company's sales in 1998 or 1997.
Seasonality and Other Fluctuations of Revenue
Iomega's Zip products are targeted to the retail consumer market and to
personal computer OEMs. The Company's Jaz products are targeted primarily to the
retail consumer market. The Company's Clik! products are targeted to the retail
consumer market and to various consumer electronic device OEMs. Management
believes the markets for the Company's products are generally seasonal, with a
higher proportional share of total sales occurring in the fourth quarter and
sales slowdowns commonly occurring during the first quarter and summer months.
Due to first quarter seasonality and component constraints associated with
ramping new products, the Company publicly stated in January 1999 that it
expected first quarter 1999 results to be approximately breakeven with the
possibility of a small profit or loss. However, there can be no assurance that
the expected results will be realized.
Revenues and growth rates for any prior quarter are not necessarily
indicative of revenues or growth rates to be expected in any future quarter.
Manufacturing
The Company's products are manufactured by the Company at facilities in
Penang, Malaysia and Roy, Utah and by independent parties who manufacture
products for the Company on a contract basis. Manufacturing activity generally
consists of assembling various components, subcomponents and prefabricated parts
manufactured by outside vendors. Since the first quarter of 1997, a substantial
portion of the Company's Zip drives and Jaz drives and disks have been
manufactured in the Penang, Malaysia facility that was purchased by the Company
in September 1996.
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 purchased a 376,000 square-foot,
manufacturing facility in Penang, Malaysia to serve as an additional
manufacturing site for the Company's Zip drives and Jaz drives and disks. During
1998, the Company announced plans to open a new manufacturing facility in Roy,
Utah to serve as a regional manufacturing facility to produce products to be
sold in the Americas. Utah was selected as a new manufacturing location because
of its favorable economics from a logistical perspective and good geographic
proximity to both OEM customers and the Company's core Zip research and
development team. Regional manufacturing is part of the Company's move toward
the virtual enterprise model that provides cost savings and reduces the
Company's required investment in inventory. Although the Company believes it is
positioned (either through existing capacity or planned additional capacity) 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 not from time to time encounter difficulties in
providing necessary levels of manufacturing capacity; that it will be successful
in managing relationships with third-party manufacturers; or that third-party
manufacturing will be able to meet the Company's quality requirements or
third-party quantity requirements for manufactured products. The Company
currently has third-party manufacturing relationships with MegaMedia Corporation
and Sentinel N.V. (which produce a significant majority of all Zip disks).
During 1996 and 1997, the Company granted non-exclusive worldwide
licenses to MCI and NEC, respectively, to manufacture and sell Zip drives under
MCI's and NEC's brand names, as well as to OEMs. MCI commenced shipping drives
in April 1997, and NEC commenced shipping drives in May 1997. In 1998, the
Company granted Toshiba a non-exclusive worldwide license to redesign,
manufacture and market slimline internal Zip drives and external
PCMCIA-connected Zip solutions. Toshiba has announced plans to manufacture and
market slimline Zip drives to OEM notebook manufacturers worldwide and into the
beyond-PC applications market in 1999. Toshiba is also expected to engineer and
manufacture slimline Zip drives for the Company to be included in a substantial
portion of Iomega-branded notebook OEM and future smaller form factor retail Zip
drives. In 1998, the Company granted non-exclusive worldwide licensing or
co-development agreements to Citizen, MCI and NEC to manufacture and sell Clik!
drives for use in their own portable electronic products, to other OEMs and
consumers worldwide. These agreements increase competition faced by the Company,
including price competition, since the Company does not control the price at
which Citizen, MCI or NEC sells products for its own account. The Company
receives (or will receive) royalties on units sold to third parties by Citizen,
MCI and NEC.
Certain components incorporated in, or used in, the manufacture of the
Company's products are currently available only from single or sole source
suppliers. In particular, media used in Zip disks is currently obtained
exclusively from Fuji Photo Film and certain integrated circuits used in Zip
drives are obtained exclusively from L.S.I. Logic Corporation. The Company has
experienced difficulty in the past, and may experience difficulty in the future,
in obtaining a sufficient supply of key components on a timely basis. The
Company continues to develop relationships with qualified manufacturers with the
goal of securing high-volume manufacturing capabilities and controlling the 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 of
components on a timely basis or realize any future cost savings. For example,
sales were adversely affected during the second and third quarters of 1997 due
to a shortage of certain integrated circuits for Zip drives and supplier quality
problems. Sales were also adversely affected in the fourth quarter of 1997 due
to a shortage of components for notebook Zip drives. Sales may be adversely
affected for these or similar reasons in the future.
The Company purchases a portion of its single, sole and limited source
components pursuant to purchase orders without guaranteed supply arrangements.
The inability to obtain sufficient components and equipment, 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 (or, in the case of a
component purchased exclusively from one supplier, the Company could be
prevented from producing any quantity of the affected product(s) until such
component becomes available from an alternative source), delay product
shipments, increase the Company's material or manufacturing costs or cause an
imbalance in the inventory levels 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 January 1999 of approximately
$71 million, compared to a backlog at the end of January 1998 of approximately
$220 million. The backlogs at the end of January 1999 and 1998 were related to
both orders with scheduled shipment dates in future months and delays in new
product introductions. 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 or perceived 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
1997 and 1998, the Company's efforts were primarily focused on the development
of the Company's Clik! products and enhancing the features, developing different
system interfaces, developing higher capacity and performance versions,
enhancing and expanding compatibility with various computers and operating
systems and reducing the production costs of its existing Zip and Jaz products.
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.
Clik!, a miniaturized removable-media storage solution for use in
notebook computers and a variety of handheld electronic devices, began shipping
late in the fourth quarter of 1998 in limited volumes. Clik! (successor to the
n hand technology announced in 1996) represents the Company's first product
which is primarily targeted to digital camera and other consumer electronic
manufacturers. The Company believes Clik! has the potential to open up several
new markets for removable magnetic recording devices. The Company does not have
prior experience in these channels. Accordingly, there are additional risks that
the Clik! products will not achieve significant market presence or otherwise be
successful.
During 1998, 1997 and 1996, the Company's research and development
expenses were $101.5 million, $78.0 million and $42.1 million, respectively (or
6.0%, 4.5% and 3.5%, respectively of net sales). Increased research and
development spending in 1998 was primarily related to increased spending for new
product development, including Clik! development, and continued development and
enhancement of Zip, Jaz and other products.
The Company operates in an industry that is subject to both rapid
technological change and rapid change in consumer demands. 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 drive products with
improved features and to develop and manufacture those new products within a
cost structure that enables the Company to sell such products through effective
channels at lower prices than those of competing products. 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 with other
data storage devices, such as fixed hard drives (for upgrade), magnetic
cartridge disk drives (that use either floppy or rigid media), magnetic tape
drives, magneto optical drives, optical disk drives and "floptical" disk drives.
The Company believes that its Clik! products compete with other data storage
devices including various formats of flash memory, certain fixed hard drives and
magnetic cartridge disk drives (that use either floppy or rigid media). Current
competing solutions of removable media data storage devices include LS-120, or
SuperDisk, (product co-developed by the consortium of Compaq Computer, Imation,
O.R. Technology and MKE), HiFD (product co-developed by Sony Corporation and
Fuji Photo Film Co., Ltd.), UHD144 (product in development by Caleb Technology
Corporation), Orb (product developed by Castlewood Systems, Inc.), Pro-FD
(product in development by Samsung Electro-Mechanics Co., Ltd.), Microdrive
(product in development by IBM), Memorystick (product developed by Sony
Corporation), and the new CD-R and CD-RW drives. Although the Company believes
that its Zip, Jaz and Clik! products offer advantages over the other
removable-media storage devices and other storage solutions available today, the
Company believes that the price, performance and usability levels of existing
removable-media products have improved and will continue to improve and that
other companies will introduce new removable-media storage devices and new
non-removable storage solutions. Accordingly, the Company believes that its Zip,
Jaz and Clik! 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 or achieve a leading market
position. If such is the case, there can be no assurance that the Company's
products would achieve significant market acceptance.
To the extent that Zip and Jaz drives are used for incremental primary
storage capacity, they compete with non-removable media storage devices such as
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, Ltd. 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 Company believes that it is currently the only source of supply for
the disks used in its Zip, Jaz and Clik! drives. It is possible that other
sources of supply for disks used in Zip or Jaz drives will emerge as a result of
another party succeeding in producing disks that are compatible with Zip, Jaz
and Clik! drives without infringing the Company's proprietary rights or as a
result of licenses granted by the Company to other parties.
In the OEM market, 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 has entered into license agreements with MCI and NEC for
the manufacture and sale of Zip drives. The Company has signed licensing or
co-development agreements with Citizen, MCI and NEC that grants non-exclusive
rights to manufacture and sell Clik! mobile storage drives to other OEMs and
consumers worldwide and for use in its own portable electronic products.
Accordingly, the Company faces competition from such licensees and expects to
compete in the future with any other 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; 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 any
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 would adversely affect gross
margins 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, removability,
transportability 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 Clik! 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 5.25-inch, 3.5-inch, 2.5-inch and 1.8-inch
form factors. The most common form factor for Winchester and floppy drives is
3.5-inches. The Company currently offers 3.5-inch Zip and Jaz drives. The most
common system interface for the OEM market is ATAPI. The Company currently
offers internal Zip drives in ATAPI and SCSI interface models and internal Jaz
drives in SCSI 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 availability of
competitive products with superior performance, functionality, ease of use,
security or substantially lower prices could 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. While the Company currently intends to
vigorously enforce its intellectual property rights, there can be no assurance
that the steps taken by the Company to protect its technology and enforce its
rights will be successful. The Company has filed approximately 300 U.S. and
foreign patent applications relating to its Zip, Jaz and Clik! drives and disks,
although there can be no assurance that such patents will be issued. The Company
holds more than 120 individually or jointly owned U.S. and foreign patents
relating to its Zip, Jaz, Clik! and Bernoulli(R) technologies. There can be no
assurance that any patents obtained by the Company will provide substantial
value or protection to the Company, that their validity will not be challenged
or that affirmative defenses to infringement will not be asserted. The validity
of certain of the Company's patents has been challenged by parties against whom
infringement claims have been asserted. If another party were to succeed in
producing and selling Zip-, Jaz- or Clik!- compatible disks in volume, without
infringing or violating the Company's intellectual property rights, the
Company's sales would be adversely affected and such adverse effects could be
material. It is also possible that the price at which the Company sells its
proprietary disks could be adversely affected by the availability of such disks
from other parties. Moreover, because the Company's Zip, Jaz and Clik! disks
have higher gross margins than the Zip, Jaz and Clik! 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 products will also depend on the
technical competence and creative skill of its personnel in addition to legal
protections afforded its existing drive and disk technology.
As is typical in the data storage industry, from time to time, the
Company has been, and may in the future be, notified of claims that it may be
infringing certain patents, trademarks and other intellectual property rights of
third parties. It is not possible to predict the outcome of such claims and
there can be no assurance that such claims will be resolved in the Company's
favor. If one or more of such claims is resolved unfavorably, there can be no
assurance that such outcomes will not have a material adverse effect on the
Company's business or financial results. The data storage industry has been
characterized by significant litigation relating to infringement of patents and
other intellectual property rights. The Company has in the past been engaged in
infringement litigation, both as plaintiff and defendant. There can be no
assurance that future intellectual property claims will not result in
litigation. If infringement were established, the Company could be required to
pay substantial damages or be enjoined from manufacturing and selling the
infringing product(s) in one or more countries, or both. In addition, the costs
of engaging in intellectual property litigation may be substantial regardless of
outcome, and there can be no assurance that the Company will be able to obtain
any necessary licenses on satisfactory terms.
Certain technology used in the Company's products is licensed on a
royalty-bearing basis from third parties, including certain patent rights
relating to Zip products. The termination of a license arrangement could have a
material adverse effect on the Company's business and financial results.
Employees
As of December 31, 1998, the Company employed 4,865 persons worldwide,
consisting of 3,489 in manufacturing, 477 in general management and
administration, 321 in research and development, 222 in sales, marketing and
service, 225 in customer satisfaction and 131 in product management. None of the
Company's employees are subject to a collective bargaining agreement, and the
Company has never experienced a work stoppage. The Company's success will depend
in large part upon the services of a number of key employees. The loss of the
services of one or more of these key employees could have a material adverse
effect on the Company. Effective March 24, 1998, Kim B. Edwards resigned as
President and Chief Executive Officer of the Company. Effective October 22,
1998, the Company announced the appointment of Jodie K. Glore as Chief Executive
Officer and President of the Company. Mr. Glore was also elected to serve as a
member of the Company's Board of Directors. During the interim period, the
position was filled by James E. Sierk, a member of the Company's Board of
Directors. Effective June 5, 1998, Leonard C. Purkis resigned as Senior Vice
President, Finance and Chief Financial Officer. Dan E. Strong, Vice President
and Corporate Controller, has assumed the role of interim Chief Financial
Officer while the Company conducts a search for a new Senior Vice President,
Finance and Chief Financial Officer. The Company is in the process of conducting
a search for an Executive Vice President to head the global Product, Sales and
Marketing function. Jodie K. Glore has assumed this role during the interim
period. In January 1999, the Company announced organizational changes designed
to focus the Company's 1999 corporate priorities of growing revenue and
improving profitability and asset utilization. With this organizational
realignment, the Company is now organized around business functions as opposed
to its previous structure of decentralized product business units. As a result
of this organizational change, two members of the Company's senior management
team, Ted Briscoe, formerly President of the Company's personal storage
division, and Fred Forsyth, formerly President of the Company's professional
products division, will be leaving the Company. There can be no assurance that
the Company will be successful in attracting and/or retaining key employees,
that the transition to a functional organization will not result in short-term
disruptions or that the transition will eventually produce the desired results.
Government Contracts
No material portion of the Company's business is subject to
renegotiations 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 1998 and is not expected to have a
material effect in 1999.
ITEM 2. PROPERTIES:
The Company's executive offices, certain distribution facilities,
certain manufacturing facilities and certain research and development facilities
are located in leased offices and warehouses in the Roy, Utah area. The Company
leases warehouse facilities in North Carolina to serve as its principal
distribution center for North America. 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
warehouses and for research and development activities. The Company has
announced plans to open a new manufacturing facility in Roy, Utah during 1999 to
serve as a regional manufacturing facility to produce products to be sold in the
Americas. The manufacturing facility will be located in a leased warehouse in
the Roy, Utah area.
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 for local sales, marketing and
technical support personnel. In September 1996, the Company purchased a 376,000
square foot manufacturing facility in Penang, Malaysia.
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 to which any of their property is subject.
On September 10, 1998, a purported class action lawsuit, Rinaldi et al.
v. Iomega Corporation, was filed against the Company in the Superior Court of
Delaware, New Castle County. The suit alleges that a defect in the Company's Zip
drives causes an abnormal clicking noise that may indicate damage to the Zip
drive or disks. The Company intends to vigorously defend against this suit.
On October 9, 1998, Hi-Val, Inc. filed a complaint against the Company
and other parties, Hi-Val, Inc. v. Nomai, S.A., Nomus, Inc., Kevin Scheier and
Iomega, in the Superior Court of California, County of Santa Clara. The
complaint alleges tortious interference with contract, tortious interference
with prospective economic advantage, unfair business practices, and conspiracy
against Iomega, and other claims against the other parties. The claims are
related to an alleged arrangement between Nomai, S.A. and Hi-Val for Hi-Val to
distribute Nomai's XHD cartridges. Plaintiff seeks to recover $26 million in
alleged, unspecified damages. The Company intends to vigorously defend against
this complaint.
Beginning on February 10, 1998, several purported class action
complaints were filed in the United States District Courts for the District of
Utah and the Southern District of New York, against the Company and certain of
its former officers on behalf of certain persons who purchased the Company's
common stock during the period from September 22, 1997 to January 22, 1998.
These cases have now been consolidated in the District of Utah and a
consolidated class action complaint, Karacand v. Kim B. Edwards, Leonard C.
Purkis and Iomega Corporation, was filed on July 8, 1998. A separate individual
suit, Ora v. Iomega Corporation, et al., was filed on May 27, 1998, in Superior
Court of the State of California for the County of Los Angeles. The Karacand
complaint alleges that the Company and certain of its former officers violated
certain federal securities laws; the Ora complaint alleges that the Company and
certain of its former officers violated certain federal and state securities
laws and alleges that Mr. Edwards breached his duties as a director of the
Company. Both complaints seek an unspecified amount of damages. Management
believes that the named defendants have highly meritorious defenses to the
allegations made in these lawsuits. The Company intends to vigorously defend
against such allegations.
On February 25, 1998, the Company was served with a complaint in a
purported class action filed in the Supreme Court of the State of New York,
entitled Christian Champod v. Iomega Corporation. The named plaintiff claims to
have commenced the action on behalf of a purported class consisting of certain
persons who purchased Iomega Ditto tape drives since February 18, 1992, and a
subclass consisting of such purchasers who called the Company's "800" or "888"
telephone number for technical assistance and/or customer service and were
charged a fee for the call. The complaint claims violations of certain
provisions of the New York General Business Law and fraudulent inducement, based
on, among other things, alleged advertising and product packaging
representations regarding the Ditto products' ability to "read" certain
non-Ditto cartridges. Additionally, the complaint alleges that Iomega's product
packaging, indicating that a customer could call a toll free "800" or "888"
telephone number for technical assistance, implicitly, but falsely, represented
that the customer could receive free telephone technical support. The Company
intends to vigorously defend against such allegations.
On July 23, 1997, the Company initiated litigation against SyQuest
Technology, Inc. ("SyQuest") in the United States District Court in the District
of Delaware for infringing the Company's U.S. Patent No. 5,644,444, U.S. Design
Patent No. D378,518 and the Company's registered trademark "JET". The complaint
sought monetary damages and injunctive relief enjoining SyQuest from further
infringement. The matter was scheduled for trial in April 1999; however, the
trial date has been delayed as a result of SyQuest's filing of a voluntary
petition in the United States Bankruptcy Court under Chapter 11 of the U.S.
Bankruptcy Code in November 1998. The Company also filed complaints on March 6,
1998 and April 29, 1998 in the Paris District Court alleging claims of copyright
and patent infringement. On January 13, 1999, the Company announced that it had
entered into a definitive agreement to purchase certain assets of SyQuest,
including all of its intellectual property, and its inventory and fixed assets
in the U.S., for $9.5 million in cash, subject to certain closing conditions and
adjustments (see Note 16 of the Company's 1998 Annual Report to Stockholders,
which section is incorporated herein by reference). One of the conditions of the
proposed purchase was approval by the U.S. Bankruptcy Court, which was obtained
on February 24, 1999. As part of the agreement, the Company would release
SyQuest and SyQuest would release the Company from all claims in connection with
patent and trademark infringement litigation pending between the parties in
Delaware and in Paris, France.
The Company continues to be committed to vigorously protecting and
enforcing its intellectual property rights and to attacking unfair competition.
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, 1998.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company as of March 1, 1999 were as
follows:
Name Age Position
Jodie K. Glore 51 Chief Executive Officer, President and Director
L. Scott Flaig 55 Executive Vice President and Chief Operating Officer
James A. Taylor 52 Executive Vice President and Chief Marketing Officer
Dan E. Strong 40 Vice President, Corporate Controller and Interim
Chief Financial Officer
Laurie B. Keating 45 Senior Vice President, General Counsel and Secretary
James C. Kelly 41 Senior Vice President, Product Development and Chief
Technology Officer
Anton J. Radman, Jr. 46 Senior Vice President, Strategic Business
Development
Roxie Craycraft 44 Acting Vice President, Customer Service and
Applications
Kevin O'Connor 40 Vice President, Human Resources
Robert J. Simmons 36 Vice President and Treasurer
Jodie K. Glore joined the Company as Chief Executive Officer and
President on October 22, 1998. From 1994 to 1998, Mr. Glore served as President
and Chief Operating Officer of Rockwell Automation, the leading supplier of
industrial automation products, systems and software in North America, and a
division of Rockwell International. From January 1992 until January 1994, Mr.
Glore served as Senior Vice President for the Industrial Computer and
Communications Group ("ICCG"), which later became known as the Automation Group
of Rockwell International. From September 1985 until January 1992, Mr. Glore
served in various management positions at Square D Company, including Corporate
Vice President of Sales and Marketing, Vice President and General Manager of
Square D's Automation Products Division and Vice President and General Manager
of Square D's Power Equipment Business. Prior to that, Mr. Glore was employed
for six years at Allen Bradley, now part of Rockwell Automation, in various
supervisory and managerial positions including, new product development, market
planning services and product marketing.
L. Scott Flaig joined the Company in November 1997. From 1996 to 1997,
Mr. Flaig was an adjunct professor at Northwestern University, lectured at top
business schools across the country and performed consulting services in the
area of supply chain management. From 1992 to 1995, Mr. Flaig was Senior Vice
President, Worldwide Operations for Dell Computer Corporation based in Austin,
Texas. He has also held senior operations management positions at Ernst & Young,
Digital Equipment Corporation and Xerox.
James A. Taylor joined the Company as Executive Vice President and
Chief Marketing Officer in April 1998. From 1996 to 1998, Mr. Taylor served as
Senior Vice President of Global Marketing at Gateway 2000, Inc. From 1994 to
1996, Mr. Taylor served as Executive Managing Director and General Manager at
Hill & Knowlton, an international public relations firm. Prior to that, Mr.
Taylor served as Executive Managing Director of Yankelovich Partners, an
international marketing research and public opinion firm and as a partner with
Ernst & Young as National Director of Marketing.
Dan E. Strong assumed the role of Interim Chief Financial Officer in
June 1998. Mr. Strong was promoted to Corporate Controller in January 1997, and
Vice President and Corporate Controller in January 1998. Mr. Strong has held
various management positions within the finance and accounting organizations 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.
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, from May 1987 to March 1989, served as Group Counsel at
Tandem Computers Incorporated, a fault-tolerant computer maker and software
provider.
James C. Kelly was appointed Senior Vice President, Product Development
and Chief Technology Officer in January 1999. Mr. Kelly joined the Company in
June 1991 and his previous positions with the Company have included President
and Vice President and General Manager of the Mobile Storage Division, Vice
President of Tape Engineering and Director of Tape Engineering. Previously, Mr.
Kelly served as a Staff Engineer at Cipher Data Products from November 1984 to
June 1991.
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.
Roxie Craycraft was appointed as Acting Vice President, Customer
Service and Applications in January 1999. Mr. Craycraft joined the Company in
January 1996 and his previous positions with the Company have included Director,
Materials & Inventory and Vice President, Customer Satisfaction. Previously, Mr.
Craycraft was employed at Gates Corporation from 1975 to 1995 and served in
various supervisory and managerial positions, including Corporate Materials
Manager; Managing Director, Asia/Pacific in Hong Kong; Plant Manager and
Business Manager.
Kevin O'Connor joined the Company as Vice President, Human Resources in
January 1997. Mr. O'Connor came to the Company from Dell Computer Corporation
where he held several senior human resource positions. While at Dell, from
October 1995 to December 1996, Mr. O'Connor 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 joined the Company as Treasurer in January 1996. In
January 1998, he was promoted to Vice President, Treasurer. He was Assistant
Treasurer of Oracle Corporation, a software company, from June 1989 to January
1996.
Executive officers are elected on an annual basis and serve at the
discretion of the Board of Directors.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS:
The information required by this item is found in the section entitled
"Securities" of the Company's 1998 Annual Report to Stockholders, which section
is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA:
The information required by this item is found in the tables entitled
"Trends in Operations" and "Financial Conditions and Trends" of the Company's
1998 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 1998 Annual Report to Stockholders, which section
is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
A discussion of the Company's exposure to, and management of, market
risk is contained in the section entitled "Disclosures About Market Risk" of the
Company's 1998 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 section
entitled "Financial Highlights" of the Company's 1998 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 1999 annual meeting of stockholders entitled
"Item One - ELECTION OF DIRECTORS" and "-- STOCK OWNERSHIP INFORMATION --
Section 16(a) Beneficial Ownership Reporting Compliance", which sections are
incorporated herein by reference and in Part I of this Annual Report on Form
10-K under the heading "EXECUTIVE OFFICERS OF THE COMPANY" except for the
following information about Messrs. Nolan and Sheehan, who are retiring from the
Board upon the expiration of their terms at the 1999 Annual Meeting of
Stockholders.
John E. Nolan, age 71, has been a partner at the law firm of Steptoe &
Johnson LLP since 1963. He has served as counsel for Chrysler and Ford in major
environmental cases, for Aleyska in the Trans-Alaska Pipeline case and for the
New York Stock Exchange. He is a member of the Center for Public Resources'
Panel of Distinguished Neutrals, a Mediator for the United States Court of
Appeals for the District of Columbia Circuit and an arbitrator of major
governmental and business cases. He is a director of Hooper Holmes, Inc.
The Honorable John E. Sheehan, age 69, an entrepreneur since 1976, is a
director and the principal stockholder of several of the privately owned
enterprises which he founded. He is Chairman and Chief Executive Officer of
Rhome Management Co., which provides oversight to his various corporate
interests. He is also a member of the Executive Committee of the Associates of
the Harvard Business School and Chairman Emeritus of the Board of Trustees of
the U.S. Naval Academy Alumni Association. Mr. Sheehan is a former member of the
Board of Governors of the Federal Reserve System.
ITEM 11. EXECUTIVE COMPENSATION:
The information required by this item appears in the sections of the
Company's Proxy Statement for its 1999 annual meeting of stockholders entitled
"ITEM ONE - ELECTION OF DIRECTORS - DIRECTOR Compensation", "-- Executive
Compensation" and "-- Compensation Committee Interlocks and Insider
Participation" 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 1999 annual meeting of stockholders
entitled "ITEM ONE - ELECTION OF DIRECTORS - STOCK OWNERSHIP INFORMATION --
Ownership by Management and Principal Stockholders", which section is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The information required by this item is contained in the sections of
the Company's Proxy Statement for its 1999 annual meeting of stockholders
entitled "ITEM ONE - ELECTION OF DIRECTORS EXECUTIVE COMPENSATION -- Employment
and Severance Agreements", which section is 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,
1998.
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/Jodie K. Glore
-------------------------------------
Jodie K. Glore
Chief Executive Officer and President
Date: March 25, 1999
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/ Jodie K. Glore
- --------------------------------- Chief Executive Officer and President ) March 25, 1999
Jodie K. Glore )
)
/s/ Dan E. Strong )
- --------------------------------- Vice President, Corporate Controller )
Dan E. Strong and Interim Chief Financial Officer ) March 25, 1999
(Principal financial and accounting )
officer) )
)
)
/s/ David J. Dunn Chairman of the Board of Directors ) March 25, 1999
- --------------------------------- )
David J. Dunn )
)
)
/s/ John W. Barter Director ) March 25, 1999
- --------------------------------- )
John W. Barter )
)
)
/s/ Robert P. Berkowitz Director ) March 25, 1999
- --------------------------------- )
Robert P. Berkowitz )
)
)
/s/ John R. Myers Director ) March 25, 1999
- --------------------------------- )
John R. Myers )
)
)
/s/ John E. Nolan Director ) March 25, 1999
- --------------------------------- )
John E. Nolan )
)
/s/ M. Bernard Puckett Director ) March 25, 1999
- --------------------------------- )
M. Bernard Puckett )
)
)
/s/ John M. Seidl Director ) March 25, 1999
- --------------------------------- )
John M. Seidl )
)
/s/ John E. Sheehan Director ) March 25, 1999
- --------------------------------- )
The Honorable John E. Sheehan )
)
)
/s/ James E. Sierk Director ) March 25, 1999
- --------------------------------- )
James E. Sierk )
)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED
FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements appear in the Company's
1998 Annual Report to Stockholders and are incorporated herein by reference:
DESCRIPTION
-----------
Report of Independent Public Accountants
Consolidated Balance Sheets at December 31, 1998 and 1997
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996
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....................... 25
II - Valuation and Qualifying Accounts...................... 26
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 19, 1999 (except
with respect to the matter discussed in Note 6, as to which the date is January
29, 1999.) 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 24 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 19, 1999
IOMEGA CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
Balance at charged to Balance
beginning costs and at end of
Description of period expenses Deductions period
- ------------------------------ --------- ---------- ---------- --------
(in thousands)
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
Year ended December 31, 1998 $ 11,266 $ 805 $ (2,009)* $ 10,062
Year ended December 31, 1997 $ 8,992 $ 3,598 $ (1,324)* $ 11,266
Year ended December 31, 1996 $ 1,861 $ 9,022 $ (1,891)* $ 8,992
PRICE PROTECTION AND
VOLUME REBATES:
Year ended December 31, 1998 $ 28,499 $ 89,033 $ (69,936)** $ 47,596
Year ended December 31, 1997 $ 17,041 $ 44,956 $ (33,498)** $ 28,499
Year ended December 31, 1996 $ 1,633 $ 24,480 $ (9,072)** $ 17,041
- ---------------
* Represents write-offs of Accounts Receivable
** Credits granted against Accounts Receivable