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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from__________ to __________
Commission File No. 0-20292
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Ampex Corporation
(Exact name of Registrant as specified in its charter)
Delaware 13-3667696
(State of incorporation) (I.R.S. employer
identification number)
1228 Douglas Avenue
Redwood City, California 94063-3199
(Address of principal executive offices, including zip code)
(650) 367-2011
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock, par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act:
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements, for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting and non-voting common stock held by
non-affiliates of the Registrant as of February 28, 2002 was approximately
$7,213,929 based on a price of $0.14 per share, which was the closing price of
the Registrant's Class A Common Stock on the American Stock Exchange on that
date. The Class A Common Stock is the only class of common stock outstanding.
As of February 28, 2002 there were 61,652,996 outstanding shares of Class A
Common Stock and no outstanding shares of Class C Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Proxy Statement for its 2001 Annual Meeting of Stockholders
is incorporated by reference into Part III (Items 10, 11, 12 and 13) of this
Form 10-K.
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AMPEX CORPORATION
FORM 10-K
Year Ended December 31, 2001
INDEX
Page
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PART I
ITEM 1. BUSINESS....................................................... 1
ITEM 2. PROPERTIES..................................................... 16
ITEM 3. LEGAL PROCEEDINGS.............................................. 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 18
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT........................... 18
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.................................... 19
ITEM 6. SELECTED FINANCIAL DATA........................................ 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................... 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK...................................... 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 31
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................... 31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY................ 32
ITEM 11. EXECUTIVE COMPENSATION......................................... 32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT............................................. 32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 32
SIGNATURES AND POWER OF ATTORNEY........................................ 37
i
PART I
ITEM 1. BUSINESS
Introduction
Ampex Corporation ("Ampex" or the "Company") is a leading innovator of
visual information technology. During its 57-year history, Ampex has developed
substantial proprietary technology relating to the electronic storage,
processing and retrieval of data, particularly images. Ampex currently holds
approximately 750 patents and patent applications covering digital
image-processing, data compression and recording technologies. The Company,
through its wholly-owned subsidiary, Ampex Data Systems Corporation ("Data
Systems"), incorporates this technology in the design and manufacture of very
high performance tape-based storage products, principally for digital
recording, archiving and rapid restore/backup applications. The Company also
leverages its investment in research and development through its Corporate
Licensing division that licenses Ampex patents to manufacturers of consumer
electronics products. In the past ten years, the Company has received royalty
payments in excess of $115 million.
In the second quarter of 2001, the Company determined that the Internet
video operations of its wholly-owned subsidiary, iNEXTV, were unlikely to
generate sufficient advertising revenues to achieve profitability within an
acceptable time frame. Accordingly, as of June 30, 2001, the Company closed
iNEXTV's operations in New York City and terminated development of Internet
video technology in Redwood City, California. The Company discontinued funding
its subsidiary, AENTV in Los Angeles and its partially-owned affiliate, TV1.de
in Munich, Germany. The Company's Internet operations have been classified as
discontinued operations for all periods presented.
Ampex had announced its intention to sell Data Systems, and in 2000 and
through September 2001, the Company's consolidated financial statements
included this subsidiary's operations as a discontinued business. Ampex did not
receive offers to purchase Data Systems that, in the opinion of the Company's
Board of Directors, were adequate. Accordingly, the Company has ceased its
efforts to sell Data Systems and has restated financial statements for all
periods included in this Form 10-K to include Data Systems as a component of
its continuing operations.
Subsequent to December 31, 2001, the Company completed previously announced
restructurings of its principal senior debt. The debt restructuring has
improved the Company's financial position by deferring significant debt
repayments which would otherwise have been due in 2002 and 2003. The Company
has agreed until such indebtedness is repaid in full it will apply
substantially all its future net patent royalty stream to the repayment of the
restructured indebtedness. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Senior Notes
Restructuring."
The Company was incorporated in Delaware in January 1992 as the successor to
a business originally organized in 1944. References to "Ampex" or the "Company"
include subsidiaries and predecessors of Ampex Corporation, unless the context
indicates otherwise. The principal executive offices of the Company are located
at 1228 Douglas Avenue, Redwood City, California 94063, and its telephone
number is (650) 367-2011. The Company's Class A Common Stock is traded on the
American Stock Exchange under the symbol "AXC".
Forward-Looking Statements
This Form 10-K contains predictions, projections and other statements about
the future that are intended to be "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Company, or industry results, to differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
factors include, among others, those described under
1
"Risk Factors," below. These forward-looking statements speak only as of the
date of this Report. The Company disclaims any obligation or undertaking to
disseminate updates or revisions of any expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based. IN ASSESSING FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10-K,
READERS ARE URGED TO READ CAREFULLY ALL SUCH CAUTIONARY STATEMENTS.
Risk Factors
Risk of Continuing Losses
Ampex has incurred significant net losses in the three years ended December
31, 2001, primarily attributable to its Internet video programming activities.
As of June 30, 2001, the Company closed its Internet businesses and recorded
charges to write-off its investments in iNEXTV and its affiliates as well as to
provide for costs of closure, principally real estate leases. In prior years,
the Company's disk storage subsidiary, MicroNet incurred operating losses, and,
in 2000, the Company provided reserves to close down MicroNet. The Company no
longer operates either of these businesses and it has provided reserves for all
known costs that have been guaranteed by it.
The Company's continuing operations include the results of Data Systems and
the Company's corporate licensing division. In 2001, total revenues were not
sufficient to offset operating costs of these businesses. In addition, the
Company incurs substantial interest expense on its indebtedness. Although the
Company has restructured the operations of Data Systems in order to position it
to operate at a profit at lower sales levels, there is no assurance it will do
so in future periods. In addition, while the Company's licensing activities
have been historically profitable, the Company cannot predict the amount of
licensing royalties that it may realize in future periods. Future profitability
from licensing will be dependent upon obtaining new licensees of the Company's
patents for use in new products such as digital camcorders, digital cameras,
DVDs and other consumer products. Manufacturers of those products have
previously not licensed the Company's patents for such products. Licensing
negotiations can take as much as several years to conclude, and the Company to
date has held only preliminary discussions with prospective licensees of
products other than digital camcorders.
Accordingly, there is a material risk that the Company will incur operating
losses in future periods. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," below and the other Risk
Factors included in this section.
Risks of Declining Liquidity
The Company has experienced a substantial reduction in its cash and
marketable securities which declined from $15.4 million at December 31, 2000 to
$8.0 million at December 31, 2001.
To deal with its declining liquidity, the Company in 2001 restructured and
extended the maturity dates of its outstanding senior debt, discontinued
certain unprofitable Internet video operations, and borrowed funds from a
former affiliate to make required contributions to its employee retirement plan
which is substantially underfunded. See "Pension Plan Matters." Management
currently believes that these actions, coupled with anticipated royalty
collections under licensing agreements presently in effect, should be
sufficient to satisfy all projected cash obligations for at least the next 12
months.
During the past several years, the Company has initiated cost reduction
programs at Data Systems and continues to implement strategies to lower its
operating overhead. Data Systems currently believes that it should operate at a
cash flow breakeven at current sales levels and that it should have adequate
liquidity to satisfy its obligations for at least the next 12 months. However,
sales levels at Data Systems have declined in recent years and there can be no
assurance that this trend will not continue. The television production and
broadcast market,
2
which historically has been one of Data Systems' principal markets, has been
adversely affected by depressed advertising spending. In order for Data Systems
to realize substantial future sales growth, the Company believes that the
broadcast market must recover.
Data Systems obtained a short-term inventory line of credit in October 2001
that provided additional liquidity to enable it to develop a repayment plan for
its trade accounts payable, much of which had become past due by the end of the
third quarter of 2001. This facility is scheduled to expire by March 31, 2002,
and it is not expected to be renewed. Also, Data Systems' accounts receivable
line of credit, against which outstanding borrowings at December 31, 2001
totaled $1.0 million, is scheduled to expire in May 2002. Data Systems is
seeking to obtain a replacement accounts receivable line of credit to deal with
its seasonal changes in cash flow. If the accounts receivable facility is not
replaced or extended, Data Systems will be required to implement additional
cash conservation strategies, possibly including additional personnel or
inventory reductions or deferral of capital spending.
Risks Associated with Acquisition Strategy
Ampex is not currently seeking to make any acquisitions of new businesses.
At present, the terms of the Company's principal debt instruments substantially
restrict the Company's ability to make acquisitions or investments in new
businesses. However, Ampex has made, and may under certain circumstances in the
future make, acquisitions of, and/or investments in, other businesses. These
entities may be involved in new businesses in which Ampex has not historically
been involved. Ampex may not be able to identify or acquire additional
acquisition candidates in the future, or complete any further acquisitions or
investments on satisfactory terms.
Acquisitions and investments involve numerous additional risks, including
difficulties in the management of operations, services and personnel of the
acquired companies, and of integrating acquired companies with Ampex and/or
each other's operations. Ampex may also encounter problems in entering markets
and businesses in which it has limited or no experience. Acquisitions can also
divert management's attention from other business concerns. Ampex has made and
may make additional investments in companies in which it owns less than a 100%
interest. Such investments involve additional risks, including the risk that
Ampex may not be in a position to control the management or policies of such
entities, and the risk of potential conflicts with other investors.
Accordingly, there can be no assurance that any acquisitions or investments
that Ampex has made, or may make in the future, will result in any return, or
as to the timing of any return. All of the Company's acquisitions of Internet
companies have been written off during 2000 and 2001. In addition, Ampex
elected to discontinue the operations of MicroNet, which it acquired in 1998.
It is possible that Ampex could lose all or a substantial portion of any future
investments.
Fluctuations in Royalty Income
Ampex's results of operations in certain prior periods reflect the receipt
of significant royalty income, including material nonrecurring payments
resulting from negotiated settlements primarily related to sales of products by
manufacturers before negotiating licenses from Ampex. Although Ampex has a
substantial number of outstanding and pending patents, and its patents have
generated substantial royalties in the past, it is not possible to predict the
amount of royalty income Ampex will receive in the future. Ampex's expenditures
for research and development have been declining in recent years, which may
have a long-term adverse effect on Ampex's portfolio of licensable technologies.
Royalty income has historically fluctuated significantly from
quarter-to-quarter and year-to-year due to a number of factors that Ampex
cannot predict. These factors include the extent to which third parties use its
patented technology, the extent to which the Company must pursue litigation in
order to enforce its patents, and the ultimate success of its licensing and
litigation activities.
3
In recent years, a significant portion of the Company's royalty income
stream has been based on patents covering analog and digital VCRs. Sales of
analog VCRs are declining rapidly and several patents covering them are
scheduled to expire in 2003. In order for the Company to attain levels of
royalty income realized in prior years, it will be necessary for it to
successfully conclude licensing negotiations with manufacturers of digital
camcorders, digital still cameras, DVDs and/or other consumer products. The
Company's patents have historically not been licensed for use in many of these
products and there can be no assurance that negotiations will be successful.
The Company may be required to pursue litigation if its negotiations are not
successful. Management believes that the expected increase in royalties from
new digital products will not be sufficient to offset the expected decline in
analog VCR royalties during at least the first six months of 2002.
The costs of patent litigation can be material and litigation may not be
successful. The institution of patent enforcement litigation may also increase
the risk of counterclaims alleging infringement by Ampex of patents held by
third parties or seeking to invalidate patents held by Ampex. Moreover, there
is no assurance that Ampex will continue to develop patentable technology that
will be able to generate significant patent royalties in future years to
replace patents as they expire.
As part of restructuring its senior long-term indebtedness, the Company has
agreed to apply substantially all proceeds of future royalties to repay
principal and accrued interest. The Company projects that for the foreseeable
future, net royalty income will be distributed first to the holders of the
Senior Secured Discount Notes and second to the holders of the Senior Notes for
the repayment of principal and interest on such indebtedness. In the event of
default, the holders of the Notes will be entitled to collect the proceeds of
patent royalties directly for application to repay the Notes.
Dependence on Licensed Patent Applications and Proprietary Technology
Ampex's success depends, in part, upon its ability to establish and maintain
the proprietary nature of its technology through the patent process. There can
be no assurance that one or more of Ampex's patents will not be successfully
challenged, invalidated or circumvented or that it will otherwise be able to
rely on such patents for any reason. In addition, there can be no assurance
that competitors, many of whom have substantial resources and have made
substantial investments in competing technologies, will not seek to apply for
and obtain patents that prevent, limit or interfere with Ampex's ability to
make, use and sell its products either in the United States or in foreign
markets. If any of Ampex's patents are successfully challenged, invalidated or
circumvented or its right or ability to manufacture products were to be
proscribed or limited, Ampex's ability to continue to manufacture and market
its products could be adversely affected, which would likely have a material
adverse effect upon Ampex's business, financial condition and results of
operations.
Litigation may be necessary to enforce Ampex's patents, to protect trade
secrets or know-how owned by the Company or to determine the enforceability,
scope and validity of the proprietary rights of others. Any litigation or
interference proceedings brought against, initiated by or otherwise involving
Ampex may require Ampex to incur substantial legal and other fees and expenses
and may require some of its employees to devote all or a substantial portion of
their time to the prosecution or defense of such litigation or proceedings.
Rapid Technological Change and Risks of New Product and Services Development
All the industries and markets from which Ampex derives revenues, directly
or through its licensing program, are characterized by continual technological
change and the need to introduce new products, product upgrades, services and
patentable technology. This has required, and will continue to require, that
Ampex spend substantial amounts for the research, development and engineering
of new products and advances to existing products. Research and development
spending has declined in recent years due to pressures to reduce spending at
Data Systems and further spending cuts may be necessary if sales levels
continue to fall. Continuance of this trend could adversely affect Ampex's
ability to remain competitive in the future. No assurance can be given that
4
Ampex's existing products will not become obsolete or that any new products,
services or technologies will win commercial acceptance. Obsolescence of
existing product lines, or inability to develop and introduce new products and
services, could have a material and adverse effect on the Company's sales and
results of operations in the future. The development and introduction of new
technologies, services and products are subject to inherent technical and
market risks, and there can be no assurance that Ampex will be successful in
this regard.
Competition
The market for Data Systems products and services is highly competitive and
characterized by multiple competitors, most of whom have greater financial
resources than Data Systems. Data Systems' products incorporate many high
performance features and functions in order to differentiate them from their
competitors. However, other companies may develop competing technologies or
products that render Data Systems products as inferior.
Dependence on Certain Suppliers
The Company's manufacturing subsidiaries purchase certain components from a
single domestic or foreign manufacturer for use in its products. Significant
delays in deliveries or defects in such components have adversely affected
Ampex's manufacturing operations in the past, pending qualification of an
alternative supplier. In addition, Ampex produces highly engineered products in
relatively small quantities. As a result, Ampex's ability to cause suppliers to
continue production of certain products on which it may depend may be limited.
Ampex does not generally enter into long-term raw materials or components
supply contracts. A significant portion of Data Systems trade accounts payable
had become past due during 2001. Data Systems has entered into agreements with
most of its trade creditors that provide for the systematic repayment of
accounts payable over several months and continued access to critical
manufacturing components in future periods. Certain suppliers have required
prepayment or payment at the time of delivery of materials or services.
Risks Related to International Operations
International operations are subject to a number of special risks, including
limitations on repatriation of earnings, restrictive actions by local
governments, and fluctuations in foreign currency exchange rates and
nationalization. Additionally, export sales are subject to export regulation
and restrictions imposed by U.S. government agencies. Fluctuations in the value
of foreign currencies can affect Ampex's results of operations. Ampex does not
normally seek to mitigate its exposure to exchange rate fluctuations by hedging
its foreign currency positions.
Volatility of Stock Price
The trading price of Ampex's Common Stock has been and can be expected to be
subject to significant volatility, reflecting a variety of factors, including:
. quarterly fluctuations in patent royalty revenues and operating results;
. developments in the status of the Company's patent licensing negotiations;
. announcements of acquisitions or new product introductions by Ampex or its
competitors;
. reports and predictions concerning the Company by analysts and other
members of the media;
. issuances of substantial amounts of Common Stock in order to redeem
outstanding shares of its Preferred Stock, or otherwise; and
. fluctuations in trading volume of the Company's Common Stock, and general
economic or market conditions.
5
The stock market in general, and technology companies in particular, have
experienced a high degree of price volatility, which has had a substantial
effect on the market prices of many such companies for reasons that often are
unrelated or disproportionate to operating performance. These broad market and
industry fluctuations may adversely affect the price of Ampex's Common Stock,
regardless of its operating performance. The Company has been notified by the
American Stock Exchange ("Amex") that it will continue to list the Company's
Common shares pending a review of the Company's 2001 Form 10-K and public
disclosures. If the Company's Common Shares become delisted from Amex, the
share price might become more volatile and an active market may no longer be
maintained.
Dependence on Key Personnel
Ampex is highly dependent on its management. Ampex's success depends upon
the availability and performance of key executive officers and directors. The
Company has not entered into employment agreements with its key employees, and
the loss of the services of key persons could have a material adverse effect
upon Ampex. The Company does not maintain key man life insurance on any of
these individuals.
Anti-Takeover Consequences of Certain Governing Instruments
Ampex's Certificate of Incorporation provides for a classified Board of
Directors, with members of each class elected for a three-year term. The
Certificate of Incorporation provides for nullification of voting rights of
certain foreign stockholders in certain circumstances involving possible
violations of security regulations of the United States Department of Defense.
The instrument governing Ampex's outstanding Preferred Stock, which has an
aggregate liquidation value of approximately $30.2 million at December 31,
2001, requires that Ampex make mandatory offers to redeem those securities out
of legally available funds in the event of a change of control. For this
purpose, a change of control includes the following events: a person or group
of people acting together acquires 30% or more of Ampex's voting securities;
Ampex merges, consolidates or transfers all or substantially all of its assets;
or the dissolution of Ampex. The Certificate of Incorporation authorizes the
Board of Directors to issue additional shares of Preferred Stock without the
vote of stockholders. The indenture governing Ampex's outstanding Senior Notes,
in the total principal amount of approximately $49 million, requires Ampex to
offer to repurchase the Senior Notes at a purchase price equal to 101% of the
outstanding principal amount thereof together with accrued and unpaid interest
in the event of a change of control. Under the indenture, a change of control
includes the following events: a person or group of people acting together
acquires 50% or more of the Company's voting stock; or the transfer of
substantially all of the Company's assets to any such person or group, other
than to certain subsidiaries and affiliates of Ampex. In addition, the Senior
Discount Notes must be redeemed in certain events, including the sale of Data
Systems, certain asset sales or a change of control (as defined) of Ampex or
Data Systems.
These provisions could have anti-takeover effects by making an acquisition
of Ampex by a third party more difficult or expensive in certain circumstances.
Nonpayment of Dividends
Ampex has not declared dividends on its Common Stock since its incorporation
in 1992 and Ampex has no present intention of paying dividends on its Common
Stock. Ampex is restricted by the terms of certain agreements and of the
outstanding Preferred Stock as to the declaration of dividends.
Environmental
Ampex's facilities are subject to numerous federal, state and local laws and
regulations designed to protect the environment from waste emissions and
hazardous substances. Owners and occupiers of sites containing hazardous
substances, as well as generators and transporters of hazardous substances, are
subject to broad liability under various federal and state environmental laws
and regulations, including liability for investigative
6
and cleanup costs and damages arising out of past disposal activities. Ampex
has been named from time to time as a potentially responsible party by the
United States Environmental Protection Agency with respect to contaminated
sites that have been designated as "Superfund" sites, and are currently engaged
in various environmental investigation, remediation and/or monitoring
activities at several sites located off Company facilities. There can be no
assurance Ampex will not ultimately incur liability in excess of amounts
currently reserved for pending environmental matters, or that additional
liabilities with respect to environmental matters will not be asserted. In
addition, changes in environmental regulations could impose the need for
additional capital equipment or other requirements. Such liabilities or
regulations could have a material adverse effect on Ampex in the future.
Products
All of the Company's products are manufactured by Data Systems and are
comprised of its very high performance tape-based mass data storage and
instrumentation products. The Company's mass data storage products consist of
its DST and DIS series of 19-millimeter scanning recorders and robotic library
systems, and related tape and after-market parts. The Company's data
acquisition and instrumentation products consist of its DCRsi digital
instrumentation recorders and related tape and after-market parts. Data Systems
also continues to offer spare parts to repair professional video recorders and
other products that it previously manufactured and marketed to the television
production and post-production industries. Sales of spare parts of legacy
television products accounted for 5.6% of sales for the year ended December 31,
2001 and less than 10% of sales in the prior two years. For information
concerning net sales for each product group comprising in excess of 10% of net
sales see "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
19-millimeter Products. In 1992, Ampex entered the high-performance mass
data storage market with its DST series of 19-millimeter data storage products,
including tape drives and robotic library systems. With the 2000 introduction
of its "Quad Density" product line, the DST series is in its third generation.
Based on its own evaluation and that of outside sources, the Company believes
that its DST and DIS mass data storage products offer a price/performance
advantage over alternative magnetic, optical, solid-state or disk-based storage
systems now available, providing fast data access times, rapid data transfer
rates and low cost per megabyte of storage.
Access time is one of the most important sustainable advantages of DST
products compared to alternative tape-based storage systems. Other tape-based
storage products achieve low-cost storage but trade off accessibility; since
the data stored is not available for most online or near-online applications,
such systems are generally limited to backup and archival storage applications.
DST products, in contrast, combine low storage cost per megabyte with fast
access to rapidly transferable information. DST products use software logic
that enables a library or even a single tape drive to organize information
using partitions, much as disk drives do. Individual segments can then be
accessed quickly and updated independently. This proprietary Ampex technology,
introduced in 1994, gives DST products the performance of a digital tape drive
and the efficiency and access speed of partitioned memory. DST systems also
provide rapid data transfer rates that exceed the speed of other mass storage
products such as optical disks, allowing a user to download stored information
to a computer at a sustained rate of 15 megabytes per second ("MB/sec"), with
an option available to increase to a rate of 20MB/sec without utilizing
compression.
DST and DIS tape drives use core technology developed by Ampex for its
digital video recorders. The drives use high-density metal particle tape
cartridges, which are available in a range of sizes providing storage
capacities from 100 to 660GB per cartridge in quad-density format. DST
automated library systems incorporate multiple tape cartridges and tape drives
and provide from 1.2 to 12.8 terabytes ("TB") of storage capacity while
occupying only a fraction of the floor space required by competing storage
systems. As each of the three generations of the product line was introduced,
the Company provided for the ability to upgrade to the new format. In early
2001, the Company began shipping expansion modules which expand DST library
storage capacities up to approximately 100 terabytes.
7
Ampex's quad-density DST product line currently includes the DST 314 tape
drive, the DST 414 automated cartridge library, the DST 714 and DST 814
automated library system. The DST 314 is a single cartridge tape drive that
provides rapid backup/restore applications for large databases or disk arrays.
The DST 314 is capable of accepting 100GB, 300GB and 660GB cartridges. The DST
414 automated cartridge library is an entry-level library with a storage
capacity of up to 4.8TB in less than eight square feet of floor space. The DST
714 automated library is designed to combine one or two tape drives, and
features a storage capacity of 12.8TB. This automated tape library product was
designed to fill the gap between the Company's DST 414 and DST 814 products.
The DST 814 library system is designed to combine from one to four tape drives
and is optimized for large file size applications and, accordingly, is suited
for image-based document storage, medical records, news archives, oil and gas
seismic data and CAD/CAM image data, as well as potential video-on-demand
applications. These products can deliver a sustained rate of 15MB/sec across a
SCSI-2 interface, search speeds of up to 1600MB/sec, average access time of
less than 16 seconds and capacity of up to 660GB on a single cartridge. The
Company also offers expansion modules for the DST 714 and DST 814 products,
which permit additional storage capacity for those products.
Although the Company believes that its DST drives and library systems offer
significant advantages over competitive systems, these products incorporate a
proprietary magnetic tape format that is not compatible with current industry
standard formats. The Company has not licensed its tape format to other
manufacturers and, as such, is the sole source of these products. In addition,
other factors relating to the markets for these products and to competition in
these markets may affect future sales of DST products. See "Markets--Mass Data
Storage and Instrumentation Products," "Markets--Distribution and Customers,"
"Markets--Competition," and "--New Product Development and Industry Conditions."
The Company's 19-millimeter tape-based instrumentation products currently
are the DIS 124i and DIS 164i instrumentation/data recorders and the DIS 224i
automated instrumentation/data library. The Company's DIS products are designed
for mass storage of instrumentation data. These recorders use the same 19-mm
helical scan recording technology used in the Company's DST products. Data from
DIS recorders can also be stored on DST cartridges, placed in DST libraries and
accessed using DST tape drives, so that all the benefits of DST mass storage
products are available, including rapid, random access to the data for
subsequent processing. The DIS 124i and 164i drives have capacities of 100, 300
or 660GB (depending on the DST cartridge used) and record/reproduce rates of
120 megabits ("Mb") and 160Mb per second, respectively.
Data Acquisition/Instrumentation Products. Ampex has been well established
for a number of years as a supplier of instrumentation recorders. Ampex has
supplied these recorders primarily to government agencies for use in data
collection, satellite surveillance and defense-related applications, as well as
to defense contractors and aerospace and other industrial users primarily for
test and measurement purposes. Ampex instrumentation recorders have been used
on almost every advanced commercial and U.S. military aircraft, as well as on
many foreign aircraft. The Company believes they are well suited to these
demanding aeronautical application and other applications involving comparable
data-gathering challenges in extreme environments, because of their performance
and reliability.
The Company's principal data acquisition/instrumentation products currently
are the DCRsi 240, DCRsi 120 and DCRsi 75 digital instrumentation recorders.
The DCRsi recorders are rugged, highly-reliable and compact recorders that
permit uninterrupted data capture over very long periods of time, such as
during test flights of new aircraft. The DCRsi 240 instrumentation recorder has
the capability of storing 48GB of data at a record/reproduce rate of up to 240
megabits ("Mb") per second. The DCRsi 120 instrumentation recorder has a
similar storage capacity and a record/reproduce rate of 120Mb per second. The
DCRsi 75 recorder is the Company's lowest cost DCRsi model with a
record-reproduce rate of 75Mb per second.
In 2001, the Company developed the DDRs 400, a new generation of airborne
instrumentation recorders utilizing hard disks rather than tape. The data and
control interface is fully compatible with the DCRsi product
8
line. The recorder is smaller, lighter, consumes less power, has a higher data
rate and larger storage capacity than the previous generation of tape-based
recorders. The Company has shipped Beta units to customers for evaluation and
testing.
A significant portion of data acquisition and instrumentation recorder sales
reflect purchases by prime contractors to the federal government, which can be
subject to significant fluctuations. See "Markets--Data
Acquisition/Instrumentation Recorders." In addition, other factors relating to
the markets for the Company's instrumentation products and to competition in
these markets may affect future sales of these products. See "Distribution and
Customers, Competition," and "New Product Development and Industry Conditions."
Data Systems' other products are primarily television after-market products
(including spare parts) relating to television products that the Company
manufactured in prior periods and continues to support.
Markets for Data Systems Products
Digital Archives and Mass Storage Libraries. The Company's 19-millimeter
mass storage tape drives and library systems are optimized for applications
that must handle large amounts of data, such as those that process and store
images, digital video and streaming data. The Company's markets are presently:
1. Government intelligence gathering and archiving. In recent years, the
Company's products were selected for use in certain large government
programs that required delivery of new systems over several years. The
Company has significant market share in government directed streaming
data applications, such as satellite telemetry and airborne intelligence
gathering. Sales of service, spare parts and tape have been an important
component of the Company's total revenues, and the Company projects that
they will represent an increasing percentage of future total revenues as
new system sales decline.
2. Broadcast digital video, which is projected to grow as broadcasters
re-equip to deliver new digital signals by 2006. The Company's digital
video archive systems have become the industry standard due to their
high performance and reliability, with installations at ABC, Viacom/CBS,
Fox Broadcasting, USA Networks and Public Broadcasting Stations. The
decline in advertising spending has caused this market to defer capital
spending, including plans to purchase digital archives from the Company
and its competitors.
3. Oil and gas seismic archives with a customer base that includes
Exxon/Mobil, Shell and Chevron/Texaco.
The Company believes that the emergence of applications that video, graphics
and other images over the Internet or private networks may create new markets
for the Company's data storage products. The Company's management realizes that
these applications will require bandwidth improvements to current information
delivery systems before the information storage systems offered by the Company
and others will be required. As these technical obstacles are overcome and
commercial markets ultimately develop, the Company believes that it will
experience aggressive competition from other companies, and there can be no
assurance that the Company will be able to remain competitive against products
ultimately offered by such companies.
Data Acquisition/Instrumentation Recorders. Data Systems' DCRsi recording
drives and magnetic media are designed to acquire large volumes of data in
stressful physical environments, and are used extensively in airborne and naval
intelligence acquisition and for the collection of test data during the design
and qualification of aircraft. DCRsi products are used by U.S. and foreign
military and intelligence agencies (including those of Germany, Japan and the
United Kingdom), as well as by manufacturers of commercial airplanes, such as
Boeing Corporation, and by Airbus, the consortium of European airframe
manufacturers. A significant portion of DCRsi products are also sold in
versions that are intended for use in ground facilities for the long-term
storage or analysis of data previously collected in mobile environments.
9
The storage capacity and data transfer rates of the Company's DCRsi products
can be varied continuously from fractions of a megabit per second up to 240
megabits per second on its highest performance versions. These products perform
in conditions of extreme shock and vibration, variations in gravitational force
and temperature, humidity and electronic interference, such as those found in
aircraft, helicopters and space vehicles. These products are designed for data
interchange between locations and agencies. In ground-based applications, which
generally are less harsh environments that do not require the ruggedness of a
DCRsi recorder, the storage and analysis functions of DCRsi products can also
be performed by the Company's 19-millimeter DST and DIS mass data storage
products.
The U.S and foreign government agencies continue to be the primary market
for the Company's DCRsi products. Sales to government agencies are subject to
fluctuation as a result of changes in government spending programs (including
defense programs) and could be adversely affected by pressure on government
agencies to reduce spending. Any material decline in the current level of
government purchases of the Company's products could have a material adverse
effect on the Company.
Distribution and Customers
The Company currently distributes its 19-millimeter products (including DST
and DIS recorders) directly through its internal sales force, as well as
through independent value-added resellers. The Company's DST products are sold
to customers such as oil and gas companies, imaging companies, information and
entertainment delivery companies and broadband telecommunications companies.
The Company is also pursuing opportunities for storage of very large databases
maintained by many commercial and government entities.
The Company's instrumentation recorders (including its DIS recorders) are
sold primarily to prime contractors who in turn sell to government agencies
involved in data collection, satellite surveillance and defense-related
activities, as well as to defense contractors and other industrial users for
testing and measurement purposes. Sales of instrumentation recorders are made
through the Company's internal domestic and international sales forces, as well
as through independent sales organizations in foreign markets.
The Company currently operates a total of six sales offices, including four
in the U.S., one in Japan and one in the United Kingdom.
Ampex's sales of systems to U.S. government agencies (either directly or
indirectly through government contractors) represented 57.4% of U.S. systems
sales in fiscal 2001 compared to 45.5% in fiscal 2000 and 44.2% in fiscal 1999.
Products sold for U.S. government use include primarily instrumentation
recording systems. Sales to government customers are subject to customary
contractual provisions permitting termination at the government's election. See
"Markets--Mass Data Storage and Instrumentation Products."
In 2001, two customers each individually accounted for more than 10% of
total net product sales and collectively accounted for 32.1% of total net
product sales. In 2000, three customers each individually accounted for more
than 10% of total net product sales and collectively accounted for 34.8% of
total net product sales. In 1999, one customer accounted for 10.5% of total
product sales.
Research, Development and Engineering
Scanning recording systems such as those developed by Ampex involve
extremely complex technology. As a result, Ampex has developed extensive
expertise in a wide area of technical disciplines and has developed fundamental
innovation in digital image processing, magnetic recording technology and
channel electronics. In 2001, the Company spent approximately 11.9% of total
revenue for research and development programs and engineering costs, compared
to 11.5% in 2000 and 11.8% in 1999. While the percentage of research,
development and engineering expense to total revenues has remained relatively
constant, the amount spent has declined substantially in response to lower
sales levels. Future research, development and engineering spending
10
may need to be reduced if Data Systems were to experience further declines in
revenues. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 2 of Notes to Consolidated Financial
Statements. In prior years, the Company designed and manufactured a wide range
of professional television products, and the Company patented many of its
innovations. While the Company exited those markets several years ago, many
patents covering innovations in the field remain in force. These technologies
form the foundation of the Company's digital patent portfolio that it is
seeking to exploit with new licensing agreements covering digital cameras, DVDs
and computer games. In recent years, with respect to current products, the
Company has allocated a major portion of its research and development budget to
the 19-millimeter digital recording technology including the introduction of
double and then quad-density recorders and expansion modules for its DST and
DIS products and to sustaining engineering on all of its product lines. The
Company will continue its sustaining engineering processes and, with available
funds, develop lower cost versions of its data acquisition and instrumentation
products, such as the recently developed DDRs disk-based recorder, and to
improve the ability of these products to interface with other companies'
products. See "Products--Mass Data Storage and Instrumentation" above. Ampex
will also continue researching other new product opportunities that capitalize
on its expertise and patented technology in digital image processing, magnetic
recording and channel electronics. All of the Company's research, development
and engineering efforts are subject to certain risks and uncertainties
described below under "New Product Development and Industry Conditions," and
there can be no assurance that any of these efforts will be technologically or
commercially successful.
Patents, Licenses and Trademarks
As a result of its ongoing research and development expenditures, the
Company has developed substantial proprietary technology, certain of which it
has elected to patent or to seek to patent. As of December 31, 2001, Ampex held
over 750 patents and patent applications, including approximately 300 patents
in the U.S., approximately 400 corresponding patents in other countries, and
approximately 80 U.S. and foreign patent applications pending. The majority of
these patents and pending patents relate to the Company's recording technology.
The Company continually reviews its patent portfolio and allows non-strategic
patents to lapse, thereby minimizing substantial renewal fees.
Ampex has granted numerous royalty-bearing patent licenses to, and holds
patent licenses from, third parties. Certain of the Company's patented
innovations have been adopted for use in mass market consumer products, and as
a result, the Company receives the majority of its licensing royalties from
foreign manufacturers of analog and digital video tape recorders. Several of
the Company's patents covering analog VCRs expire by 2003. Late in 2001, the
Company entered into an agreement with a major Japanese manufacturer of digital
camcorders to license its intellectual property which resulted in payments on
prior period shipments of products amounting to $3 million. The Company has
contacted other unlicensed manufacturers of digital camcorders and has
initiated licensing discussions with them. There can be no assurance that such
licensing efforts (including any necessary litigation) will be successful.
The Company also believes that it has patents that are used in the
manufacture of digital still cameras, DVDs, video games and other consumer
electronic products. The Company intends to offer licenses to major
manufacturers of these products. Ampex will continue to evaluate additional
products as potential licensing opportunities to the extent that its technical
and financial resources permit. Ampex has not granted any licenses under its
scanning recorder patents specifically for data storage applications, but it
may do so in the future if it determines that this would support the Company's
marketing strategy.
It is not possible to predict the amount of royalty income that will be
received in the future. Royalty income has historically fluctuated widely due
to a number of factors that the Company cannot predict, such as the extent of
use of the Company's patented technology by third parties, the extent to which
the Company must pursue litigation in order to enforce its patents, and the
ultimate success of its licensing and litigation activities. Moreover, there
can be no assurance that the Company will continue to develop patentable
technology that will generate significant patent royalties in future years.
11
U.S. patents are, at present, in force for a period of 20 years from the
date of application and patents granted by foreign jurisdictions are generally
in force for between 14 years to 20 years from the date of application. Ampex
has obtained its present patents over the course of the past 20 years and,
accordingly, has patents in force that will expire from time to time over the
next 20 years. Patents are important to the current overall business of the
Company, both as a source of protection of the proprietary technology used in
the Company's current products, and as a source of royalty income. While
results of operations would be adversely affected by the loss of patents that
generate significant royalty income, management believes that none of Ampex's
current product lines is materially dependent upon a single patent or license
or group of related patents or licenses, and that timely introduction of
products incorporating new technologies or particularly suited to meet the
needs of a specific market or customer group is a more important determinant of
the success of Ampex's current business. Nevertheless, there can be no
assurance that the Company will continue to develop patentable technology that
will be able to generate significant patent royalties in future years to
replace patents as they expire. See "Research, Development and Engineering."
Ampex regards its trademark "Ampex" and the Ampex logo as valuable to its
businesses. Ampex has registered its trademark and logo in the U.S. and a
number of foreign countries. U.S. trademark registrations are generally valid
for an initial term of 10 years and renewable for subsequent 10-year periods.
Ampex has not granted any material rights to use its name or logo to any other
third party.
Trademarks of the Company used in this Report include Ampex include Ampex,
DCT, DST, DCRsi and DIS, all of which are trademarks of Ampex Corporation. All
other trademarks and service marks used in this Report are the property of
Ampex or their respective owners.
Manufacturing
The Company's products are manufactured at Ampex's facilities in Redwood
City, California and Colorado Springs, Colorado. Products are designed and
engineered primarily in Redwood City. Because the Company's mass data storage
products incorporate many of the technologies and components of the Company's
19-mm-based videotape recorders, the manufacturing process of the mass data
storage products has benefited from the existing video recorder production
facilities and techniques.
The Company believes that its Colorado Springs, CO manufacturing facility is
larger than required or projected to be required to accommodate business growth
in the foreseeable future. Accordingly, the Company is seeking a tenant to
lease up to 150,000 square feet of presently underutilized space.
The Company maintains insurance, including business interruption insurance,
that management considers to be adequate and customary under the circumstances.
However, there is no assurance that the Company will not incur losses beyond
the limits of, or outside the coverage of, its current insurance.
Sources of Supply
Ampex uses a broad variety of raw materials and components in its
manufacturing operations. While most materials are readily available from
numerous sources, Ampex purchases certain components, such as customized
integrated circuits and flexible magnetic media, from a single domestic or
foreign manufacturer. Significant delays in deliveries of, or defects in the
supply of, such components could adversely affect Ampex's manufacturing
operations pending qualification of an alternative supplier. In addition, the
Company produces highly-engineered products in relatively small quantities. As
a result, its ability to cause suppliers to continue production of certain
products on which the Company may depend may be limited. The Company does not
generally enter into long-term raw material supply contracts. In addition, many
of the components of Ampex's products are designed, developed and manufactured
by Ampex itself, and thus are not readily available from alternative sources.
12
Fluctuations in Operating Results; Seasonality and Backlog
Ampex's sales and results of operations are generally subject to quarterly
and annual fluctuations. Factors affecting operating results include: customer
ordering patterns; availability and market acceptance of new products; timing
of significant orders and new product announcements; order cancellations;
receipt of royalty income; and numerous other factors. Ampex's revenues are
typically dependent upon receipt of a limited number of customer orders
involving relatively large dollar volumes in any given fiscal period,
increasing the potential volatility of its sales revenues from quarter to
quarter. In addition, sales to government customers (primarily sales of DCRsi
instrumentation products) are subject to fluctuations as a result of changes in
government spending programs, which can materially affect the Company's gross
margin as well as its sales. Sales of most of the Company's products have
historically declined during the first and third quarters of its fiscal year,
due to seasonal procurement practices of its customers.
A substantial portion of the Company's backlog at a given time is normally
shipped within one or two quarters thereafter. Therefore, sales in any quarter
are heavily dependent on orders received in that quarter and the immediately
preceding quarter. Ampex's backlog of firm orders at December 31, 2001 was $4.6
million, compared to $3.4 million at December 31, 2000 and $3.0 million at
December 31, 1999. Ampex does not generally include foreign orders in backlog
until it has obtained requisite export licenses and other documentation. Orders
may be subject to cancellation in the event shipments are delayed. For all of
the foregoing reasons, results of a given quarter are not necessarily
indicative of results to be expected for a fiscal year.
Competition
Ampex encounters significant competition in all its product markets.
Although its competitors vary from product to product, many are significantly
larger companies with greater financial resources, broader product lines and
other competitive advantages.
Ampex competes in the mass data storage market with a number of
well-established competitors, such as IBM Corporation, Storage Technology
Corporation, Sony Corporation and ADIC as well as smaller companies. In
addition, other manufacturers of scanning video recorders may seek to enter the
mass data storage market in competition with the Company. In the mass data
storage market, the Company believes that the principal competitive factors are
product performance, cost of equipment and media, product reliability and
availability of service and support. The Company believes its strongest
competitive advantage is in the area of product performance. However, DST
products are relatively expensive in comparison to other competitive products,
and are generally cost effective only if the customer requires the high level
of performance and storage capacity of DST products. While the Company is
working to reduce the cost of its DST products, the prices of other storage
systems, such as disk drives, are also declining. In addition, although DST
products offer faster data access times than competing tape-based library
systems, magnetic disks deliver faster data access than DST products. There can
be no assurance that the Company can compete successfully on a long-term basis
in the mass data storage market.
In the instrumentation market, the Company competes primarily with companies
that depend on government contracts for a major portion of their sales in this
market, including Sony Corporation, L-3 Communications Corporation, Calculex
and Sypris Solutions, Inc. The number of competitors in this market has
decreased in recent years as the level of government spending in many areas has
declined. The principal competitive factors in this market are cost, product
reliability, product performance and the ability to satisfy applicable
government procurement requirements.
New Product Development and Industry Conditions
The data storage and instrumentation industries are characterized by
continual technological change and the need to introduce new products and
product upgrades. This requires a high level of expenditure for research and
13
development. Obsolescence of existing product lines, or the inability to
develop and introduce new products, could have a material adverse effect on
sales and results of operations. Although Ampex has completed development of
its third-generation mass data storage drives and robotic library systems, the
Company must continue to invest in research and development programs to improve
these products and develop new products. Due to declining sales levels, over
the past few years, Ampex has been required to reduce amounts invested in
research, development and engineering. If this trend continues, its ability to
remain competitive will be affected. No assurance can be given that existing
products will not become obsolete, that any new products will win commercial
acceptance or that Ampex's new products or technology will be competitive. See
"Competition." Furthermore, the introduction of new products or technologies
can be hampered by technical problems in design, manufacturing and test
procedures or the occurrence of other unforeseen events.
Sales of the Company's instrumentation products can be significantly
affected by changes in government spending levels. See "Markets--Mass Data
Storage and Instrumentation Products--Data Acquisition Instrumentation
Recorders" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
International Operations
Substantially all of the Company's licensing income is derived from foreign
customers. Sales of products to foreign customers accounted for approximately
19.6% of net sales in fiscal 2001, compared to 20.6% in fiscal 2000 and 28.1%
in 1999. Foreign marketing operations are conducted primarily through local
distributors and agents, with support from Ampex's internal marketing and sales
organization. See "Distribution and Customers."
Foreign operations are subject to the usual risk attendant upon investments
in foreign countries, including limitations on repatriation of earnings,
restrictive actions by local governments, fluctuation in foreign currency
exchange rates and nationalization. Additionally, export sales are subject to
export regulations and restrictions imposed by the U.S. Department of State and
the U.S. Department of Commerce.
In certain prior periods, declines in the value of the U.S. dollar in
relation to certain foreign currencies have favorably affected Ampex's
international operations, and in other periods the strength of the dollar
relative to such currencies has adversely affected its operations. Fluctuations
in the value of international currencies can be expected to continue to affect
Ampex's operations in the future, although the impact will be less significant
than it was in periods with a higher proportion of sales in foreign currencies.
The Company currently does not hedge its assets that are denominated in foreign
currencies. U.S. export sales are denominated in U.S. dollars.
See Note 21 of Notes to Consolidated Financial Statements for additional
information concerning the Company's foreign operations.
Environmental Regulation and Proceedings
The Company's facilities are subject to numerous federal, state and local
laws and regulations designed to protect the environment from waste emissions
and hazardous substances. Ampex is also subject to the federal Occupational
Safety and Health Act and other laws and regulations affecting the safety and
health of employees in its facilities. Management believes that Ampex is
generally in compliance in all material respects with all applicable
environmental and occupational safety laws and regulations or has plans to
bring operations into compliance. Management does not anticipate that capital
expenditures for pollution control equipment for fiscal 2003 or 2002 will be
material.
Owners and occupiers of sites containing hazardous substances, as well as
generators and transporters of hazardous substances, are subject to broad
liability under various federal and state environmental laws and
14
regulations, including liability for investigative and cleanup costs and
damages arising out of past disposal activities. The Company has been named as
a potentially responsible party by the United States Environmental Protection
Agency with respect to four contaminated sites that have been designated as
"Superfund" sites on the National Priorities List under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980. The Company is
engaged in six environmental investigation, remediation and/or monitoring
activities at sites located off Company facilities, including the removal of
solvent contamination from subsurface aquifers at a site in Sunnyvale,
California. Some of these activities involve the participation of state and
local government agencies. The other five sites (including the four Superfund
sites) are associated with the operations of the Media subsidiaries formerly
owned by the Company. Although the Company sold Media in November 1995, the
Company may have continuing liability with respect to environmental
contamination at these sites if Media fails to discharge its responsibilities
with respect to such sites. During 2001, the Company spent a total of
approximately $0.1 million in connection with environmental investigation,
remediation and monitoring activities and expects to spend a similar amount in
fiscal 2002 for such activities.
Because of the inherent uncertainty as to various aspects of environmental
matters, including the extent of environmental damage, the most desirable
remediation techniques and the time period during which cleanup costs may be
incurred, it is not possible for the Company to estimate with any degree of
certainty the ultimate costs that it may incur with respect to the currently
pending environmental matters referred to above. Nevertheless, at December 31,
2001, the Company had an accrued liability of $1.2 million for pending
environmental liabilities associated with the Sunnyvale site and certain other
sites currently owned or leased by the Company. The Company has not accrued any
liability for contingent liabilities it may incur with respect to former Media
sites discussed above. Based on facts currently known to management, management
believes it is only remotely likely that the liability of the Company in
connection with such pending matters, either individually or in the aggregate,
will be material to the Company's financial condition or results of operations
or material to investors.
While the Company believes that it is generally in compliance with all
applicable environmental laws and regulations or has plans to bring operations
into compliance, it is possible that the Company will be named as a potentially
responsible party in the future with respect to additional Superfund or other
sites. Furthermore, because the Company conducts its business in foreign
countries as well as in the U.S., it is not possible to predict the effect that
future domestic or foreign regulation could have on Ampex's business, operating
results or cash flow. There can be no assurance that the Company will not
ultimately incur liability in excess of amounts currently reserved for pending
environmental matters, or that additional liabilities with respect to
environmental matters will not be asserted. In addition, changes in
environmental regulations could impose the need for additional capital
equipment or other requirements. Such liabilities or regulations could have a
material adverse effect on the Company in the future.
Employees
As of December 31, 2001 in its continuing operations, Ampex employed 156
people worldwide, compared to 260 at December 31, 2000 and 305 at December 31,
1999. Approximately 12% of Ampex's current worldwide workforce is employed in
the Company's international operations, compared to 8% at December 31, 2000 and
10% at December 31, 1999. No employees are covered by any collective bargaining
agreement. The Company is dependent on the performance of certain key members
of management and key technical personnel. The Company has not entered into
employment agreements with any such individuals. Edward J. Bramson, who has
served as the Company's Chief Executive Officer since 1991, is also engaged in
the management of certain companies affiliated with Sherborne Holdings
Incorporated, a privately-owned Delaware holding company and a Company
stockholder. Mr. Bramson currently devotes most of his time to the management
of the Company. The loss of the services of Mr. Bramson or other key
individuals could have a material adverse effect on the Company.
15
As of December 31, 2000, in its discontinued operations Ampex employed 75
people in its Internet affiliates and 53 people at MicroNet, as compared to 109
people and 51 people, respectively, at December 31, 1999.
Pension Plan Matters
In 1994, the Company, the Pension Benefit Guaranty Corporation (the "PBGC")
certain affiliates, including Hillside Capital Incorporated ("Hillside"), who
were members of a "group under common control" for purposes of the Employee
Retirement Income Security Act ("ERISA") entered into certain agreements in
connection with the liquidation of the Company's former parent, NH Holding
Incorporated ("NHI"), relating to the pension plans of the Company and of its
former Media subsidiaries, which are substantially underfunded. See Note 16 of
Notes to Consolidated Financial Statements. Pursuant to these agreements,
Hillside has advanced to the Company $1.3 million for pension contributions
that were scheduled in 2001 that the Company was unable to make. Ampex agreed
to repay such amounts in accordance with the terms of the agreements, and has
agreed to grant Hillside a security interest in certain assets as collateral
for advances which it is required to make pursuant to the agreement. The
agreement contains certain restrictive covenants which, among other things,
restrict Ampex's ability to declare dividends, sell all or substantially all
its assets or commence liquidation, or engage in specified transaction, with
certain related parties, breach of which could result in acceleration of the
Company's potential termination liabilities. In 1994, the Company discontinued
accrual of benefits under the pension plans, but has continued to fund its plan
in accordance with ERISA. The Company is also contingently liable to fund the
Media plan if Media fails to do so.
ITEM 2. PROPERTIES
As of December 31, 2001, the Company's principal properties were as follows:
Approximate
Square
Footage of
Location Activities Conducted Facility
- -------- -------------------- -----------
Redwood City, California...... RD&E, manufacturing,sales and marketing (1) 91,760
New York City, NY............. Executive offices (2) 19,000
Colorado Springs, Colorado.... Manufacturing (3) 229,961
Chineham, Basingstoke, England Sales and service (4) 7,184
Tokyo, Japan.................. Sales and service (5) 3,886
- --------
(1) The Company is attempting to sublet 60,000 square feet representing a
two-story building that the Company no longer occupies. The lease term
extends to September 2008.
(2) This facility lease terminates in April 2008. The Company is seeking to
sublet a substantial portion of these facilities previously used by its
former Internet video subsidiary.
(3) This property is subject to a deed of trust securing senior discount notes
issued by Data Systems in November 2000. The facility is underutilized by
Data Systems and it is seeking a tenant to lease up to 150,000 square feet
of the facility.
(4) These facilities are leased under a ten-year lease, which is terminable at
the option of the Company or the landlord in 2002.
(5) These facilities are leased under leases that expire during July 2002. The
current plan is to renew the lease on a year-to-year basis.
In addition to the properties and leased facilities listed above, Ampex
leases office space and warehouse facilities from time to time at various
domestic and foreign locations.
The Company believes that its current facilities, including machinery and
equipment, are generally in good condition, well-maintained and suitable for
their intended uses, and that its facilities have, and will continue to have,
adequate capacity to accommodate the Company's present needs and business
growth for its present products in the foreseeable future.
16
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business. In
the opinion of management, no such current or pending lawsuits, either
individually or in the aggregate, are likely to have a material adverse effect
on the Company's financial condition, results of operations or cash flows.
The State of California assessed income tax in the amount of $0.5 million
for the period 1983-1985 while the Company was a subsidiary of The Signal
Companies (currently Honeywell International Inc.). On January 2, 2002, the
Company was granted a deferral of its appeal until October 2002, in order for
it to enter into settlement discussions with the Franchise Tax Board regarding
the outstanding assessment that, with interest and penalty, totals $2.7 million
at December 31, 2001.
The Company's facilities are subject to numerous federal, state and local
laws and regulations designed to protect the environment from waste emissions
and hazardous substances. Ampex is also subject to the federal Occupational
Safety and Health Act and other laws and regulations affecting the safety and
health of employees in its facilities. Management believes that Ampex is
generally in compliance in all material respects with all applicable
environmental and occupational safety laws and regulations or has plans to
bring operations into compliance. Management does not anticipate that capital
expenditures for pollution control equipment for fiscal 2002 or 2003 will be
material.
Owners and occupiers of sites containing hazardous substances, as well as
generators and transporters of hazardous substances, are subject to broad
liability under various federal and state environmental laws and regulations,
including liability for investigative and cleanup costs and damages arising out
of past disposal activities. The Company has been named as a potentially
responsible party by the United States Environmental Protection Agency with
respect to four contaminated sites that have been designated as "Superfund"
sites on the National Priorities List under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980. The Company is engaged in six
environmental investigation, remediation and/or monitoring activities at sites
located off Company facilities, including the removal of solvent contamination
from subsurface aquifers at a site in Sunnyvale, California. Some of these
activities involve the participation of state and local government agencies.
The other five sites (including the four Superfund sites) are associated with
the operations of the Media subsidiaries formerly owned by the Company.
Although the Company sold Media in November 1995, the Company may have
continuing liability with respect to environmental contamination at these sites
if Media fails to discharge its responsibilities with respect to such sites.
During 2001, the Company spent a total of approximately $0.1 million in
connection with environmental investigation, remediation and monitoring
activities and expects to spend a similar amount in fiscal 2002 for such
activities.
Because of the inherent uncertainty as to various aspects of environmental
matters, including the extent of environmental damage, the most desirable
remediation techniques and the time period during which cleanup costs may be
incurred, it is not possible for the Company to estimate with any degree of
certainty the ultimate costs that it may incur with respect to the currently
pending environmental matters referred to above. Nevertheless, at December 31,
2001, the Company had an accrued liability of $1.2 million for pending
environmental liabilities associated with the Sunnyvale site and certain other
sites currently owned or leased by the Company. The Company has not accrued any
liability for contingent liabilities it may incur with respect to former Media
sites discussed above. Based on facts currently known to management, management
believes it has no contingent liability in connection with such pending
matters, either individually or in the aggregate, will be material to the
Company's financial condition or results of operations or material to investors.
While the Company believes that it is generally in compliance with all
applicable environmental laws and regulations or has plans to bring operations
into compliance, it is possible that the Company will be named as a potentially
responsible party in the future with respect to additional Superfund or other
sites. Furthermore, because the Company conducts its business in foreign
countries as well as in the U.S., it is not possible to predict the effect that
future domestic or foreign regulation could have on Ampex's business, operating
results or cash
17
flow. There can be no assurance that the Company will not ultimately incur
liability in excess of amounts currently reserved for pending environmental
matters, or that additional liabilities with respect to environmental matters
will not be asserted. In addition, changes in environmental regulations could
impose the need for additional capital equipment or other requirements. Such
liabilities or regulations could have a material adverse effect on the Company
in the future.
The Company believes that its current facilities, including machinery and
equipment, are generally in good condition, well-maintained and suitable for
their intended uses, and that its facilities have, and will continue to have,
adequate capacity to accommodate the Company's present needs and business
growth for its present products in the foreseeable future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages as of February 1, 2002
are as follows:
Name Age Position
---- --- --------
Edward J. Bramson. 50 Chairman and Chief Executive Officer
Craig L. McKibben. 51 Vice President, Chief Financial Officer and Treasurer
Robert L. Atchison 64 Vice President
Joel D. Talcott... 60 Vice President and Secretary
Each of the executive officers of the Company serves in such capacity at the
discretion of the Board.
Edward J. Bramson is Chairman of the Board, Chief Executive Officer and a
director of the Company. He has been an officer and director of the Company
since 1987, and since January 1991 has been Chief Executive Officer of the
Company. Mr. Bramson also serves as Chairman and Chief Executive Officer of
Sherborne Holdings Incorporated, Sherborne & Company Incorporated, First
Jeffson Corporation and Second Jeffson Corporation, is a limited partner of
Newhill Partners, L.P. These entities, which are private investment holding
companies, may be deemed to be affiliates of the Company. Mr. Bramson is also a
director of Hillside Capital Incorporated, a private industrial holding company
with which he has been associated since 1976.
Craig L. McKibben is Vice President, Treasurer, Chief Financial Officer and
a director of the Company. Mr. McKibben has been an officer and a director of
the Company since 1989. Mr. McKibben also serves as Vice President and
Treasurer and a director of Ampex Holdings Corporation, and as Vice President
of each of Ampex Data Systems Corporation, and Ampex Finance Corporation. He is
also Vice President and a director of Sherborne Holdings Incorporated and of
Sherborne & Company Incorporated and is a Vice President of First Jeffson
Corporation and Second Jeffson Corporation. Mr. McKibben also serves as
disbursing agent of NHI, the Company's former parent. From 1983 to 1989, he was
a partner at the firm of Coopers & Lybrand L.L.P., a predecessor of
PricewaterhouseCoopers LLP, independent public accountants.
Robert L. Atchison is Vice President of the Company. Since January 1994 he
has been responsible for all operating activities of the Company, and in 1996
assumed responsibility for certain of the Company's sales and marketing
activities. From April 1991 to January 1994, he was responsible for engineering
and operations for the Company. Mr. Atchison also serves as Vice President and
a director of Ampex Data Systems Corporation and as President and a director of
Ampex International Sales Corporation, wholly-owned subsidiaries of the
Company. He has served as an executive officer of the Company and various
subsidiaries since 1987.
18
Joel D. Talcott is Vice President and Secretary of the Company, positions he
has held since 1987. He has served as General Counsel since January 1996, a
position he also held from 1987 to January 1994. He is also responsible for the
Company's patent licensing activities (having served as Patent Counsel from
1991 to 1987), and has supervisory responsibility for investor relations and
corporate communications functions. Mr. Talcott also serves as Chairman of
Ampex Data Systems Corporation, as Vice President and Secretary and a director
of Ampex Data Systems Corporation, Ampex Finance Corporation and Ampex
International Sales Corporation and as Vice President and Secretary of Ampex
Holdings Corporation, wholly-owned subsidiaries of the Company.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) The following table sets forth the high and low prices for the Company's
Class A Common Stock for each quarter during fiscal 2001 and 2000. Since
January 16, 1996, the Class A Common Stock has been traded on the American
Stock Exchange under the symbol "AXC."
Fiscal Year High Low
----------- ----- -----
2001
First Quarter. $0.87 $0.26
Second Quarter 0.73 0.26
Third Quarter. 0.38 0.07
Fourth Quarter 0.20 0.10
2000
First Quarter. $5.50 $3.00
Second Quarter 3.44 1.50
Third Quarter. 1.75 1.00
Fourth Quarter 1.06 0.25
As of January 29, 2002, there were 859 holders of record of the Company's
Class A Common Stock.
The Company has not declared any dividends on its Common Stock since its
incorporation in 1992 and has no present intention of paying dividends on its
Common Stock. The Company is also restricted by the terms of the Indenture for
the Senior Notes, Senior Discount Notes and certain other agreements and of its
outstanding Noncumulative Preferred Stock as to the declaration of dividends.
Under current circumstances, the Company may not pay any cash dividends on its
Common Stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and Notes 10 and 13
of Notes to Consolidated Financial Statements.
(b) On or about October 29, 2001, the Registrant issued and sold to
Sherborne & Company Incorporated (now named First Jeffson Corporation; ("FJC"),
1,000,000 shares of its Class A Stock having a market value at the time of
issuance of approximately $160,000. The shares were issued as a commitment fee
for the line of credit extended by FJC to the Registrant's subsidiary, Ampex
Data Systems Corporation, and no separate cash consideration was received by
the Registrant. The shares were not registered under the Securities Act of
1933, as amended (the "1933 Act") in reliance upon the exemption contained in
Section 4(2) thereof for any transaction not involving a public offering of
securities. FJC is wholly-owned by Edward J. Bramson, the Chairman and Chief
Executive Officer of the Registrant. The transaction was negotiated directly
between the Registrant and FJC, and no underwriter, broker or dealer was
involved in the transaction. The Registrant has agreed to register such shares
for resale under the 1933 Act.
19
ITEM 6. SELECTED FINANCIAL DATA
The financial data required by Item 6 is included immediately following Item
14 hereof.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Critical Accounting Policies and Estimates
Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation
of financial statements. Note 1 of the Notes to the Consolidated Financial
Statements includes a summary of the significant accounting policies and
methods used in the preparation of our Consolidated Financial Statements. The
following is a brief discussion of the more significant accounting policies and
methods used by us. In addition, Financial Reporting Release No. 61 was
recently released by the SEC to require all companies to include a discussion
to address, among other things, liquidity, off-balance sheet arrangements,
contractual obligations and commercial commitments.
General
Ampex's discussion and analysis of its financial condition and results of
operations are based upon Ampex's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires Ampex
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. The most significant estimates and assumptions relate to the
recoverability of receivables and inventories and the adequacy of allowances
for returns and doubtful accounts. Actual amounts could differ significantly
from these estimates.
Revenue Recognition
The Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), as
amended by SAB 101A and 101B. SAB 101 requires that four basic criteria must be
met before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred or services rendered; (3) the fee is fixed
and determinable; and (4) collectibility is reasonably assured. Determination
of criteria (3) and (4) are based on management's judgments regarding the fixed
nature of the fee charged for services rendered and products delivered and the
collectibility of those fees. Should changes in conditions cause management to
determine these criteria are not met for certain future transactions, revenue
recognized for any reporting period could be adversely affected. Products sold
are generally covered by a warranty for periods ranging from 90 days to one
year. The Company accrues a warranty reserve for estimated costs to provide
warranty services. The Company's estimate of costs to service its warranty
obligations is based on historical experience and expectation of future
conditions. To the extent the Company experiences increased warranty claim
activity or increased costs associated with servicing those claims, its
warranty accrual will increase resulting in decreased gross profit.
Accounts Receivable
We perform ongoing credit evaluations of our customers and adjust credit
limits based upon payment history and the customer's current credit worthiness,
as determined by our review of their current credit information. We
continuously monitor collections and payments from our customers and maintain a
provision for estimated credit losses based upon our historical experience and
any specific customer collection issues that we have identified. While such
credit losses have historically been within our expectations and the provisions
established, we can not guarantee that we will continue to experience the same
credit loss rates that we have in the past. Since our accounts receivable are
concentrated in a relatively few number of customers, a significant
20
change in the liquidity or financial position of any one of these customers
could have a material adverse impact on the collectability of our accounts
receivables and our future operating results.
Inventories
We value our inventory at the lower of the actual cost to purchase and/or
manufacture the inventory or the current estimated market value of the
inventory. We regularly review inventory quantities on hand and record a
provision for excess and obsolete inventory based primarily on our estimated
forecast of product demand and production requirements for the next twelve
months. A significant increase in the demand for our products could result in a
short-term increase in the cost of inventory purchases while a significant
decrease in demand could result in an increase in the amount of excess
inventory quantities on hand. If actual market conditions are less favorable
than those projected by management, additional inventory write-downs may be
required. As a result of continuing sales declines, Data Systems further wrote
down it inventory by $2.1 million in the fourth quarter of 2001. Additionally,
our estimates of future product demand may prove to be inaccurate, in which
case we may have understated or overstated the provision required for excess
and obsolete inventory. If our inventory is determined to be overvalued, we
would be required to recognize such costs in our cost of goods sold at the time
of such determination. We make every effort to ensure the accuracy of our
forecasts of future product demand, any significant unanticipated changes in
demand or technological developments could have a significant impact on the
value of our inventory and our reported operating results.
Deferred Taxes
Ampex records a valuation allowance to reduce its deferred tax assets to the
amount that is more likely than not to be realized. We recognize deferred tax
assets and liabilities based on the differences between the financial statement
carrying amounts and the tax bases of assets and liabilities. We regularly
review the deferred tax assets for recoverability and establish a valuation
allowance based on historical taxable income or loss, projected future taxable
income or loss, and the expected timing of the reversals of existing temporary
differences.
Warranty
Our warranty reserve is established based on our best estimate of the
amounts necessary to settle future and existing claims on products sold as of
the balance sheet date. While we believe that our warranty reserve is adequate
and that the judgment applied is appropriate, such amounts estimated to be due
and payable could differ materially from what will actually transpire in the
future.
Pension and Other Postretirement Benefits
The determination of our obligation and expense for pension and other
postretirement benefits is dependent on our selection of certain assumptions
used by actuaries in calculating such amounts. Those assumptions are described
in Note 16 to the consolidated financial statements and include, among others,
the discount rate, expected long-term rate of return on plan assets and rates
of increase in compensation and healthcare costs. In accordance with generally
accepted accounting principles, actual results that differ from our assumptions
are accumulated and amortized over future periods and therefore, generally
affect our recognized expense and recorded obligation in such future periods.
While we believe that our assumptions are appropriate, significant differences
in our actual experience or significant changes in our assumptions may
materially affect our pension and other postretirement obligations and our
future expense. The Company's domestic employees participate in a qualified
noncontributory defined benefit pension plan. In early 1994, the Company
amended the plan to terminate benefit service and compensation credit accruals
as of February 1, 1994. To the extent that there is an increase or decrease to
the Company's pension liabilities based on its annual actuarial valuation,
Ampex records the change directly to the minimum pension liability account,
which is part of stockholders' deficit. The Company remains the plan sponsor of
a pension plan ("Media Plan") although it disposed of the company ("Media") in
November 1995. Media is contractually required to provide funding for its
obligations. The Company includes a nominal reserve in its liabilities for the
Media Plan's unfunded status. Certain of the
21
Company's former employees of a closed foreign subsidiary were covered by a
contributory pension plan. The Company includes a reserve in its liabilities
for the Plan's unfunded status based on an actuarial valuation.
Valuation of Long-Lived Assets and Investments
We periodically review the carrying value of our long-lived assets and
investments for continued appropriateness. This review is based upon our
projections of anticipated future cash flows. While we believe that our
estimates of future cash flows are reasonable, different assumptions regarding
such cash flows could materially affect our evaluations.
Contingencies
We account for contingencies in accordance with SFAS No. 5, "Accounting for
Contingencies." SFAS No. 5 requires that we record an estimated loss from a
loss contingency when information available prior to issuance of our financial
statements indicates that it is probable that an asset has been impaired or a
liability has been incurred at the date of the financial statements and the
amount of the loss can be reasonably estimated. Accounting for contingencies
such as environmental, legal and income tax matters requires us to use our
judgment. While we believe that our accruals for these matters are adequate, if
the actual loss from a loss contingency is significantly different than the
estimated loss, our results of operations may be over or understated.
The following discussion and analysis of the financial condition and results
of operations of the Company and its subsidiaries should be read in conjunction
with the Consolidated Financial Statements and the Notes thereto, included
elsewhere in this Report.
Licensing Revenue and Product Groups
The Company's principal product groups are Data Systems' mass data storage
and instrumentation recorder products.
Data Systems mass data storage and instrumentation products group includes:
(i) 19-millimeter scanning recorders and library systems (DST and DIS products)
and related tape and aftermarket parts; and (ii) data acquisition and
instrumentation products (primarily DCRsi instrumentation recorders) and
related tape and aftermarket parts. Other products consist principally of
television aftermarket products that the Company previously manufactured but
still supports. No other class of similar products accounted for more than 10%
of net sales during the comparison periods discussed below.
The following table shows licensing revenue and sales of Data System's
products by product group for the past three years.
2001 2000 1999
----- ----- -----
(in millions)
Ampex Corporation
Licensing revenue................................ $12.1 $12.3 $19.9
Ampex Data Systems Corporation
Mass data storage tape drives and Library systems $19.1 $25.7 $23.3
Data acquisition and Instrumentation recorders... 9.6 14.7 19.0
Other............................................ 5.3 7.2 9.3
----- ----- -----
Total net product sales.......................... $34.0 $47.6 $51.6
===== ===== =====
22
Results of Operations for the Three Years Ended December 31, 2001
Net Product Sales. Net sales decreased by 28.6% to $34.0 million in 2001
from $47.6 million in 2000, compared to $51.6 million in 1999. In 2001, the
sales decline was experienced across all of Data Systems' product lines. In
2000, the sales decline was primarily due to lower sales of instrumentation
products, offset in part by greater Data Systems' DST products. In 2000 and
2001, the majority of Data Systems' sales of 19-millimeter mass data storage
libraries and tape drives were to government customers who use the product for
imaging and intelligence gathering. These sales fluctuate as a result of
changes in government spending programs (including defense programs), and
seasonal procurement practices of government agencies. Data Systems' commercial
customer base consists primarily of television broadcasters and production
companies as well as the oil and gas industry. The television market has
declined in 2001 due to capital budget restrictions that have been imposed due
to a depressed advertising market. However, the Company believes this market
may represent its largest commercial opportunity for the sale of its DST
product line for the next several years as broadcasters install digital
archives for their content in order to achieve greater operational flexibility
and efficiency. In each of the past three years, government agencies and
defense contractors have been the largest market for Data Systems' mass data
storage and instrumentation recorders. This market has recently experienced an
increase in activity as additional funding has been granted for intelligence
gathering programs. However, the Company has no reason to believe that the
increase in spending will continue beyond 2002 and future periods may well
experience significant pressure to reduce spending.
The Company's backlog of firm orders increased to $4.6 million at December
31, 2001 from $3.4 million at December 31, 2000. The Company typically operates
with low levels of backlog, requiring it to obtain the vast majority of each
period's orders in the same period that they must be shipped to the customer.
Historically, a small number of large orders has significantly impacted sales
levels and often orders are received late in the quarter making it difficult to
predict sales levels in future periods. See "Business--Fluctuations in
Operating Results; Seasonality; Backlog."
Royalties. Royalty income was $12.1 million in 2001, $12.3 million in 2002
and $19.9 million in 1999. The Company's royalty income derives from patent
licenses. The Company receives most of its royalty income from licenses with
companies that manufacture consumer video products (such as VCRs and
camcorders) and, in certain cases, professional video tape recorders. Certain
license agreements are scheduled to expire during 2002 and there can be no
assurance that licensees will renew their license agreements. Also, in prior
years, the Company negotiated paid up license agreements with certain consumer
product manufacturers. In recent years, a significant portion of the Company's
royalty income stream has been based on patents covering analog and digital
VCRs. Sales of analog VCRs are declining rapidly and several patents covering
them are scheduled to expire in 2003. In order for the Company to attain levels
of royalty income realized in prior years, it will be necessary for it to
successfully conclude licensing negotiations with manufacturers of digital
camcorders, digital still cameras, DVDs and/or other consumer products. The
Company's patents have historically not been licensed for use in many of these
products and there can be no assurance that negotiations will be successful.
The Company may be required to pursue litigation if its negotiations are not
successful. Management believes that the expected increase in royalties from
new digital products will not be sufficient to offset the expected decline in
analog VCR royalties during at least the first six months of 2002. The Company
is assessing whether manufacturers of digital cameras, computer video games and
DVD recorders are using its patented technology and has entered into
preliminary discussions with certain manufacturers to license the Company's
patents for such use. There can be no assurance that the manufacturers of these
products are utilizing the Company's technology or, if used, whether the
Company will be able to negotiate license agreements with the manufacturers.
Royalty income has historically fluctuated widely due to a number of factors
that the Company cannot predict or control such as the extent of use of the
Company's patented technology by third parties, the materiality of any
nonrecurring royalties received as the result of negotiated settlements for
products sold by manufacturers prior to entering into licensing agreements with
the Company, the extent to which the Company must pursue litigation in order to
enforce its patents, and the ultimate success of its licensing and litigation
activities.
23
In the fourth quarter of 2001, the Company received $3.5 million of
royalties for past use of its technology from a manufacturer of 6 millimeter
digital camcorders and will also receive ongoing payments. The Company is in
licensing discussions with additional manufacturers of digital camcorders which
the Company believes use the same technology. There can be no assurance that
the Company will be successful in negotiating additional licenses.
Gross Profit. Gross profit as a percentage of net sales were 28.0% in 2001,
38.8% in 2000 and 35.5% in 1999. The decline in gross profit percentage in 2001
was due to a greater percentage of sales represented by Data Systems' sales of
lower margin mass data storage systems versus higher margin instrumentation
product sales and an overall decline in sales volume that resulted in lower
absorption of fixed manufacturing costs. In addition, in 2001 the Company
provided a $2.1 million reserve to write down the carrying value of inventory
that its current sales forecast indicates may not be utilized during the next
24 months. Further consolidation of manufacturing operations in Colorado
Springs and certain restructuring actions in the second half of 2001 are
expected to result in improved gross profit margins during 2002. However, the
Company has been notified that it may receive a substantial government order
that provides for future tape and service revenue in exchange for a reduced
equipment purchase price. Shipments against this order would result in
depressed gross margins in 2002 to be recovered in tape and service margins in
future years.
Intellectual Property Costs. Intellectual property costs relate to those
expenditures incurred by the Company's in-house patent department in procuring
royalty income and expenditures associated with patent enforcement litigation.
The costs of patent litigation can be material, and the institution of patent
enforcement litigation may also increase the risk of counterclaims alleging
infringement by the Company of patents held by third parties or seeking to
invalidate patents held by the Company. See "Legal Proceedings," below.
Selling and Administrative Expenses. Selling and administrative expenses
decreased to $14.2 million (30.9% of total revenue) in 2001 from $15.1 million
(25.3% of total revenue) in 2000 and $17.3 million (24.2% of total revenue) in
1999. Selling and administrative costs declined in 2001 compared to 2000 and
1999 as a result of savings realized due to a reduction in headcount and
relocation of certain administrative functions from Redwood City, CA to
Colorado Springs, CO.
Research, Development and Engineering Expenses. Research, development and
engineering expenses represented 11.9%, 11.5% and 11.8% of total revenue in
2001, 2000 and 1999, respectively. The Company does not capitalize any RD&E
expenditures. The majority of RD&E expenses in each of these years was incurred
in completing the third generation DST product line and sustaining engineering
on other products to enhance their price/performance levels. In recent years,
the Company has decreased the amount spent in research, development and
engineering programs due to declining sales levels. The Company may be required
to make additional cuts in R&D spending if Data System's sales continue to
decline. If this trend were to continue, the Company's ability to develop new
competitive products and renew its portfolio of licensable technology in future
years would be adversely affected.
Restructuring Charges (Credits). The Company recorded a net restructuring
charge with respect to its continuing operations of $3.5 million in 2001 and
$0.9 million in 1999. The charge in 2001 included $1.0 million in connection
with the Company's elimination of 86 positions in engineering, manufacturing
and administration in Redwood City, CA and Colorado Springs, CO all of whom
were terminated as of year-end. In the fourth quarter of 2001, the Company
consolidated its activities in Redwood City, CA and vacated one administrative
building. The restructuring reserve at December 31, 2001 includes future
rentals, net of estimated sublet income, associated with this property and the
write-off of leasehold improvements for $2.5 million. In 1999, Data Systems
relocated substantially all of its DCRsi manufacturing operations from Redwood
City to Colorado Springs, and eliminated 86 positions in manufacturing and
engineering. During 2001, the Company paid $1.5 million related to employee
termination benefits and lease costs of abandoned facilities. The remaining
balance of accrued restructuring costs at December 31, 2001 will substantially
be paid in 2002. The Company evaluates
24
the amount of accrued restructuring costs, including projected sublet income,
on a quarterly basis, and may make additional adjustments in future periods if
it determines that its actual obligations will differ significantly from
remaining amounts accrued.
Operating Income (Loss). The Company reported an operating loss of $2.3
million in 2001. In 2000 and 1999, the Company reported operating income of
$7.7 million and $10.2 million, respectively. The operating loss in 2001 was
primarily due to the decline in sales of Data Systems' products, a write-down
in inventory carrying values for potentially surplus material and a charge of
$3.5 million for restructuring of continuing operations.
Interest Expense. Interest expense increased between the comparison periods
due to the issuance of Senior Discount Notes in November 2000 that raised $8
million of net proceeds and that has accreted in value to $10.0 million at
December 31, 2001. The Company is seeking to refinance up to $6 million of the
Senior Discount Notes from a conventional mortgage or sale and leaseback of its
Colorado Springs, CO facility, but no commitments or agreements from any lender
have been received at the date of this Report. The Company anticipates that
interest expense may increase in fiscal 2002 reflecting increases in the
outstanding amount of 12% Notes and additional borrowing from Hillside.
Amortization of Debt Financing Costs. These amounts reflect periodic
amortization of financing costs over the remaining terms of the debt. Financing
costs associated with the January 1998 issuance of the 12% Senior Notes are
being charged to expense over five years.
Interest Income. Interest income is earned on cash balances and short and
long-term investments. Lower interest income in 2001 and 2000 from levels
realized in 1999 resulted from lower rates and significantly lower investment
balances in those periods.
Other (Income) Expense, Net. Other (income) expense, net consists primarily
of foreign currency transaction gains and losses resulting from the Company's
foreign operations. In 2000, other income included the value of the settlement
of certain litigation between the Company and a shareholder of a former
Internet investment.
Provision for Income Taxes. The provisions for income taxes in 2001, 2000
and 1999 consisted primarily of foreign income taxes and withholding taxes on
royalty income. The Company was not required to include any material provision
for U.S. Federal income tax in any of the last three fiscal years due to the
utilization of net operating loss carry forwards and timing differences. At
December 31, 2001, the Company had net operating loss carry forwards for income
tax purposes of $217 million, expiring in the years 2005 through 2021. As a
result of financing transactions that were completed in 1994 and 1995, the
Company is limited in the amount of net operating loss carry forwards that can
offset consolidated Federal taxable income in a given year. The Company derives
pretax foreign income from its international operations, which are conducted
principally by its foreign subsidiaries. In addition, the Company's royalty
income is subject, in certain cases, to foreign tax withholding. Such income is
taxed by foreign taxing authorities, and the Company's domestic interest and
amortization expenses and operating loss carry forwards are not deductible in
computing such foreign taxes.
Loss from Discontinued Operations and Loss on Disposal of Discontinued
Operations. In February 2001, the Board of Directors of the Company authorized
management to close MicroNet, its wholly-owned subsidiary that made high
performance disk arrays and Storage Area Networks, and to establish a reserve
of $2.1 million for the costs of closure and to write off its investment of
$4.2 million as of December 31, 2000. Ampex transferred MicroNet assets to an
entity that distributed the asset sale proceeds to MicroNet creditors.
Through December 31, 2001, the Company paid and charged $1.2 million against
the restructuring reserve. During 2001, the Company entered into sublease
agreements that reduced its estimated future lease costs by $0.4 million which
was recognized as income from discontinued operations. The remaining balance of
the MicroNet reserve totals $0.5 million which represents estimated lease
payments in excess of sublease income expected to be paid out over the lease
term which expires in 2004, and is included in its net liabilities of
discontinued operations. This obligation has not been discounted to present
value.
25
A summary of the operating results of MicroNet are as follows:
Years ended December 31,
-----------------------
2001 2000 1999
---- ------- -------
(in thousands)
Revenues........................................... -- 12,128 10,988
Costs and operating expenses excluding amortization -- (16,277) (13,732)
Goodwill amortization.............................. -- (1,213) (1,214)
Operating loss..................................... -- (5,362) (3,958)
Income (loss) from discontinued operations......... 378 (5,362) (3,958)
In July 2001, the Board of Directors of the Company authorized management to
close iNEXTV's operations in New York City and to cease future funding its
other Internet-based affiliates, AENTV in Los Angeles and TV1.de in Munich,
Germany. The Company established a reserve to write down its investment to net
realizable value and to provide for the costs of closure at the end of the
quarter ended June 30, 2001.
A summary of the loss on disposal of iNEXTV are as follows:
Years ended December 31,
------------------------
2001 2000 1999
------- ---- ----
(in thousands)
Impairment charge.......................... (4,602) -- --
Provision for closure...................... (5,736) -- --
Loss on disposal of discontinued operations (10,338) -- --
The impairment charge represents the write down of the Company's investment
in its Internet video businesses, including an additional investment in TV1
during the first quarter of 2001 of $1.7 million, to estimated net realizable
value. The net liabilities of iNEXTV reflected on its balance sheet after the
impairment charge, together with the provision for closure costs, are included
in the net liabilities of discontinued operations. The provision for closure
costs includes future payments to be made over a seven-year period for facility
rental commitments and related costs of $5.0 million, employee and contractor
severance costs of $0.6 million and other costs of $0.1 million. In addition to
the reserve for closure, the net liabilities of discontinued operations for
iNEXTV included the reclass of certain liabilities at the time of closure of
$1.1 million. During 2001, the Company paid and recorded charges of $2.0
million against the net liabilities of discontinued operations. The unamortized
balance in the net liabilities of discontinued operations totaled $4.8 million
at December 31, 2001.
A summary of the operating results of iNEXTV are as follows:
Years ended December 31,
------------------------
2001 2000 1999
------ ------- -------
(in thousands)
Revenues........................................... 188 2,896 1,851
Costs and operating expenses excluding amortization (6,277) (23,113) (14,230)
Goodwill amortization and writedown of assets...... (211) (5,412) (3,328)
Operating loss..................................... (6,300) (25,629) (15,707)
Equity in loss of unconsolidated subsidiary........ (999) (903) (197)
Loss from discontinued operations.................. (7,294) (26,536) (16,622)
Internet revenues in 2000 were principally from webcasting, video production
and event marketing services, substantially all of which were provided by the
Company's subsidiary, TV onthe WEB, which the Company ceased funding in October
2000. In 2000 and 1999, TV onthe WEB reported a net loss of $9.7 million and
$6.0 million, respectively.
26
Net Loss. The Company reported a net loss of $28.1 million in 2001, $36.7
million in 2000 and $15.6 million in 1999, primarily as a result of the factors
discussed above under "Loss from Discontinued Operations and Loss on Disposal
of Discontinued Operations."
Benefit from Extinguishment of Mandatorily Redeemable Preferred Stock. The
Company issued shares of Common Stock valued at $2.50 per share to satisfy its
redemption obligation on the Redeemable and Convertible Preferred Stock, which
was higher than fair value per share of Common Stock. As a result, the Company
recorded a benefit available to common stockholders in the year ended December
31, 2001, 2000 and 1999 of $5.7 million, $1.3 million and $0.4 million,
respectively, representing the difference between the fair value and $2.50 per
share for the number of shares issued, on the Consolidated Statements of
Operations.
Liquidity and Capital Resources.
General. As a result of continuing losses, the Company's liquidity has
declined materially in recent years. In response, the Company has been required
to restructure and extend the maturity date of its long-term senior debt, to
discontinue unprofitable Internet video operations and to borrow funds from a
former affiliate in order to make required contributions to its employee
retirement pension plans. The Company has also significantly restructured and
down-sized the operations of Data Systems and borrowed funds for working
capital purposes. Management believes that these actions, coupled with
anticipated royalty collections under licensing agreements presently in effect,
should be sufficient to satisfy all projected cash obligations for at least the
next 12 months.
Recent Senior Debt Restructurings. In the first quarter of 2002, the
Company completed certain previously announced restructurings of its
outstanding 12% Senior Notes due 2003 and Data Systems' Senior Discount Notes
due March 31, 2002, which are the Company's principal senior debt obligations.
The 12% Senior Notes were exchanged for new Notes due 2008 and the due date of
the Senior Discount Notes was extended to 2005. The restructured Notes are
secured by liens on the Company's royalty stream that may be generated from
existing and future patent licenses and, in addition, the Senior Discount Notes
are secured by a deed of trust on Data Systems' manufacturing facility in
Colorado Springs, CO. and are guaranteed by the Company. The new securities
provide for the payment of accrued interest and principal out of "Available
Cash Flow" of the Company, which includes all future royalty proceeds received
by the Company, net of withholding taxes, pension payments and specified
operating expenses, as well as the proceeds of certain potential asset sales,
less a working capital reserve of up to $2.5 million. The Company is required
to generate a minimum of $25 million of Available Cash Flow during the three
years ending December 31, 2004 or an event of default will occur under the
Senior Note Indenture. Prior to maturity, the new Notes are payable as to
accrued interest and principal solely to the extent of Available Cash Flow
(including certain potential asset sales) received by the Company, and unpaid
accrued interest will be payable through the issuance of additional Notes or
capitalized. The security interest in royalty payments granted to the new 12%
Senior Noteholders is subordinated to the security for the Senior Discount
Notes and no cash payments on the 12% Senior Notes may be made until all
payments of interest and principal have been made on the Senior Discount Notes.
All payments due at maturity on the Notes must be made in cash.
Management believes that these restructurings have improved the Company's
financial position by deferring significant debt repayments which would
otherwise have been due in 2002 and 2003 and by limiting the amount of cash
payments required to be made on the restructured Note prior to maturity to the
actual amount of Available Cash Flow received by the Company. However,
application of Available Cash flow to debt service will substantially restrict
the amount of cash flow available for investment in the Company's operations
and facilities or other corporate purposes.
The indentures under which the 12% Senior Notes and the Senior Discount
Notes were issued contain customary affirmative and negative restrictive
covenants that limit the payment of dividends, the incurrence of additional
indebtedness or liens, certain sales of assets and other actions by the Company
and restricted subsidiaries. In the event of default, the holders of the Notes
would be entitled to enforce the liens granted by the Company on its future
patent royalty stream and the Colorado Springs facility and to apply amounts
collected to repayment of the Notes.
27
Cash Flow. The decline in cash and short-term investments in 2001 and 2000
from levels at December 31, 1999 resulted primarily from operating losses of
the Company's Internet video businesses and operations of the Internet
Technology Group that have been closed as of June 30, 2001. Data Systems used
cash in its operating activities totaling $1.5 million in 2001 and $0.2 million
in 2000 and generated cash from operating activities totaling $1.1 million in
1999. Discontinued operations used cash totaling $8.7 million in 2001, $26.8
million in 2000 and $24.8 million in 1999.
Pursuant to an agreement between the Company, Hillside Capital Incorporated,
("Hillside") and certain other parties, dated November 22, 1994, Hillside is
obligated to fund pension contributions in the event the Company is unable to
do so. At the Company's request, Hillside has made three pension contributions
totaling $1.3 million through December 31, 2001, and has been issued notes by
the Company in the amount of the pension contributions. Under the terms of the
notes, accrued interest is payable quarterly, a principal payment of $150,000
is due on the first anniversary of each note, wtih the remainder due on the
fourth anniversary of the notes. The notes are secured by a lien on Data
Systems' inventories. The Company anticipates that additional pension payments
to be funded by Hillside in fiscal 2002 may total approximately $6 million, but
this amount may vary based on future actuarial valuations.
Ampex has reduced headcount and overhead expenses during 2001 in order to
operate at a cash breakeven level at current sales levels, and recorded a
restructuring reserve of $3.5 million in connection with its cost reduction
initiatives. In the fourth quarter of 2001, the Company reserved for the cost
of future lease commitments, less estimated sublet income, for an
administrative building that has been vacated. In October 2001, Data Systems
entered into a revolving credit agreement providing for borrowings of up to
$2.5 million, secured principally by the borrower's inventories. The Company
has guaranteed all borrowings. The facility is expected to be repaid in full on
March 31, 2002 and it is not expected that it will be renewed or replaced.
Management's current projections indicate that Data Systems should generate
sufficient liquidity to meet its obligations over at least the next twelve
months.
The Company has available, through a subsidiary, a working capital facility
that allows it to borrow or obtain letters of credit totaling $7.0 million,
based on eligible accounts receivable, through May 2002. At December 31, 2001,
the Company had borrowings outstanding of $1.0 million and had letters of
credit issued against the facility totaling $1.1 million. At December 31, 2000,
the Company had borrowings outstanding of $2.4 million and had letters of
credit issued against the facility totaling $1.1 million. The facility is
scheduled to expire in May 2002. The Company is seeking to obtain a new $4.0
million accounts receivable line of credit that it believes will be adequate to
deal with its currently foreseen seasonal cash flows. If the accounts
receivable facility is not replaced or extended, Data Systems will be required
to implement alternative cash conservation strategies.
An aggregate listing of the Company's contractual obligations and commercial
commitments is as follows:
Payments Due by Period
--------------------------------------
Less than 1-3 4-5 After 5
Contractual Obligations Total 1 Year Years Years Years
----------------------- ------ --------- ------ ------ -------
Senior Debt (a)........................ 57,971 -- -- 9,955 48,016
Other debt (b)......................... 1,269 450 -- 819 --
Capital lease obligations.............. 44 17 27 -- --
Operating leases (c)................... 19,605 3,621 6,180 5,436 4,368
Other long-term obligations (d)........ 35,390 6,766 13,745 10,186 4,693
- --------
(a) The maturity date of the Senior Discount Notes is January 2005 and the
maturity date of the Senior Notes is August 2008. Pursuant to these
agreements, substantially all Available Cash Flow is to be applied first to
the Senior Discount Notes in full repayment of principal and accrued
interest and second to the Senior Notes in full repayment of principal and
accrued interest. Accordingly, payments due on these obligations could vary
from the amounts shown in the table. See Note 10 to Consolidated Financial
Statements.
(b) Other debt includes Hillside notes payable. See Note 10 to Consolidated
Financial Statements.
(c) Operating leases include facility rentals of discontinued operations or
abandoned leaseholds which the Company is attempting to sublease. Amounts
shown above, exclude projected sublease rental income
28
which the Company has included in establishing reserves for the closure of
discontinued operations or reserve for restructuring.
(d) Other long-term obligations include estimated pension contributions for the
Ampex Corporation Employees' Retirement Plan based on actuarial assumptions
presently in effect and an assumed rate of return on pension assets of 8%
per annum. If interest rates decline, if the return on assets is less than
projected or the actuarial assumptions change, future pension contributions
could increase over amounts shown above. Hillside is contractually
obligated to advance the Company funds sufficient to make its pension
contributions if the Company does not have the ability to do so.
Contributions due to the Media Plan are excluded from the above schedule
since Media is primarily obligated to make such contributions. See Note 16
to Consolidated Financial Statements. The Other long-term obligations also
includes a foreign defined benefit plan, a foreign retirement allowance and
domestic supplementary retirement plans which are included in the Company's
liabilities at $8.9 million.
Amount of Commitment
Expiration Per Period
-----------------------------------
Less than 1-3 4-5 After 5
Total 1 Year Years Years Years
----- --------- ----- ----- -------
Lines of Credit (a).......... 8,000 8,000 -- -- --
Standby Letters of Credit (b) 1,143 1,143 -- -- --
- --------
(a) The Company has a $7.0 million line of credit collateralized by accounts
receivable. Borrowings at December 31, 2001 totaled $1.0 million and the
largest outstanding amount during 2001 was $2.4 million. The facility is
scheduled to expire in May 2002. The Company is seeking to replace this
facility with a $4 million line of credit collateralized by accounts
receivable but has not received any commitments regarding this facility to
date. Data Systems has a $1.0 million short-term inventory line of credit
which is scheduled to expire by March 31, 2002, and is not expected to be
renewed. See Notes 10 to Consolidated Financial Statements.
(b) The Company has obtained standby letters of credit from a bank to support
its obligations under various building leases. The Company has
collateralized these standby letters of credit with accounts receivable.
In April 2001, the staff of the American Stock Exchange ("Amex") notified
the Company that it would conduct a review of the Company's eligibility for
continued listing on the Amex, and requested certain additional information and
financial data concerning the Company's business and financial condition. The
Company submitted this information and in July the Exchange informed the
Company that it would continue the Company's listing pending a review of the
September 30, 2001 Form 10-Q, subject to continued monitoring of the Company's
public disclosures. Subsequently, the Amex notified the Company that it would
continue its listing pending a review of the Company's Form 10-K for 2001.
Recent Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 141 ("FAS 141"), Business Combinations, and No. 142 ("FAS 142"),
Goodwill and Other Intangible Assets. FAS 141 addresses financial accounting
and reporting for business combinations and supercedes APB16, Business
Combinations. The provisions of FAS 141 are required to be adopted July 1,
2001. The most significant changes made by FAS 141 are: (1) requiring that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001, (2) establishing specific criteria for the recognition of
intangible assets separately from goodwill, and (3) requiring unallocated
negative goodwill to be written off immediately as an extraordinary gain.
FAS 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their acquisition and supercedes APB 17, Intangible
Assets. The provisions of FAS 142 are required to be adopted in fiscal years
beginning after December 15, 2001. The most significant changes made by FAS 142
are: (1) goodwill and indefinite lived intangible assets will no longer be
amortized, (2) goodwill will be tested for
29
impairment at least annually at the reporting unit level, (3) intangible assets
deemed to have an indefinite life will be tested for impairment at least
annually, and (4) the amortization period of intangible assets with finite
lives will no longer be limited to forty years.
The Company has adopted FAS 141 effective July 1, 2001 which will result in
the Company accounting for any business combination consummated on or after
that date under the purchase method of accounting. The Company will also apply
the non-amortization provisions of FAS 142 for any business combination
consummated on or after July 1, 2001.
The Company will adopt FAS 142 effective January 1, 2002. At December 31,
2001 there was no goodwill and goodwill amortization on the Company's financial
statements.
In August 2001, the FASB issued Statement No. 143 ("FAS 143"), Accounting
for Asset Retirement Obligations. The standard requires entities to record the
fair value of a liability for an asset retirement obligation in the period in
which the obligation is incurred. When the liability is initially recorded, the
entity capitalizes the cost by increasing the carrying amount of the related
long-lived asset. Over time, the liability is accreted to its present value
each period, and the capitalized cost is depreciated over the useful life of
the related asset. The standard is effective for 2003. The company is currently
reviewing the requirements of this new standard and has not yet determined its
impact on the company's financial position or results of operations.
In October 2001, the FASB issued Statement No. 144 ("FAS 144"), Accounting
for the Impairment or Disposal of Long-Lived Assets, which supercedes Statement
No. 121 ("FAS 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and certain provisions of APB Opinion No.
30, Reporting Results of Operations/Reporting the Effects of Disposal of a
Segment of a Business. FAS 144 requires that long-lived assets to be disposed
of by sale, including discontinued operations, be measured at the lower of
carrying amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. As a result, discontinued operations
will no longer be measured at net realizable value or include amounts for
operating losses that have not yet occurred. FAS 144 also broadens the
reporting requirements of discontinued operations to include all components of
an entity that can be distinguished and eliminated from the rest of the
entity's ongoing operations. The provisions of FAS 144 are effective for fiscal
years beginning after December 15, 2001. The company is currently reviewing the
requirements of this new standard and has not yet determined its impact on the
company's financial position or results of operations.
In February 2002, the Emerging Issues Task Force ("EITF") issued statement
D-103, "Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred." This standard requires entities to record
out-of-pocket expenses recharged to their customers as revenue. The standard is
effective for 2002, with reclassification of prior periods. The Company is
currently reviewing the requirements of this new standard and has not yet
determined its impact in the Company's results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not use derivative financial instruments in its investment
portfolio. The investment portfolio generally has been comprised of US Treasury
Bills. These securities mature within one year and are classified as available
for sale in accordance with FAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Investments in both fixed-rate and floating-rate
interest-earning instruments carry a degree of interest-rate risk. Fixed-rate
securities may have their fair market value adversely impacted due to a rise in
interest rates, while floating-rate securities may produce less income than
expected if interest rates fall.
At December 31, 2001 the Company did not hold any investments. The Company
did have a number of cash and cash equivalent accounts whose return varied
directly proportionally to US interest rates. A decrease in interest rates
would not have a material effect on the current-year financial condition or
results of operations.
30
The Company has a revolving credit line with a domestic financial
institution to finance Data Systems' working capital requirements. The
Company's domestic revolving credit agreement permits borrowings up to $7.0
million, based on eligible accounts receivable as defined in the agreement,
less a standby letter of credit facility in the amount of $2.5 million. Average
borrowings under these agreements during both 2001 and 2000 were less than $0.2
million at an average interest rate of 7.7% and 9.8%, respectively. Maximum
borrowings outstanding at any time during 2001 and 2000 were $2.4 million and
$2.4 million, respectively. At December 31, 2001, the Company had borrowings
outstanding of $1.0 million and had letters of credit issued against the
facility totaling $1.1 million. If a 10% increase in interest rates were to
occur at January 1, 2002 and remain in effect throughout 2002, and the balance
remained the same, interest expense and cash outflow would increase by less
than $20,000.
Foreign Currency Exchange Rate Risk.
Certain of the Company's licensing agreements are denominated in foreign
currencies. Such currencies fluctuate against the US dollar impacting the
amount of cash collected and revenue recognized. International revenues from
the Company's foreign subsidiaries were less than 25% of total revenues.
International product sales are made mostly from the Company's foreign sales
subsidiaries and are typically denominated in the local currency of each
country. The foreign subsidiaries incur most of their expenses in the local
foreign currency. Accordingly, all foreign subsidiaries use the local currency
as their functional currency.
The Company's international business is subject to risks typical of an
international business including, but not limited to, differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility.
Accordingly, the Company's future results could be materially adversely
impacted by changes in these or other factors.
The Company's exposure to foreign exchange rate fluctuations arises in part
from intercompany accounts in which costs incurred in the United States are
charged to the Company's foreign sales subsidiaries. These intercompany
accounts are typically denominated in the US dollar. The Company is also
exposed to foreign exchange rate fluctuations as the financial results of
foreign subsidiaries are translated into U.S. dollars in consolidation. As
exchange rates vary, these results, when translated, may vary from expectations
and adversely impact overall expected profitability. The effect of foreign
exchange rate fluctuations on the Company in 2001 and 2000 was not material.
Investment Risk.
The Company has in the past invested in equity instruments of technology
companies for business and strategic purposes. These investments are included
in other long-term assets and are accounted for under the cost method when
ownership is less than 20% and the Company does not have significant influence
over the business operations. The Company's policy is to regularly review the
assumptions underlying the operating performance and cash flow forecasts in
assessing the carrying values. The Company identifies and records impairment
losses on long-lived assets when events and circumstances indicate that such
assets might be impaired. All of the Company's investments in the Internet
video industry have been written down to their estimated net realizable value.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by Item 8 and the financial statement
schedules required by Item 14(d) are included following Item 14 hereof. The
supplementary data called for by Item 8 is not applicable to the Company.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this item is incorporated herein by reference to
the Company's Proxy Statement for its 2002 Annual Meeting of Stockholders (the
"Proxy Statement").
Information regarding executive officers is included in Part I hereof as
Item 4A and is incorporated by reference into this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to
the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM S-K
(a) Documents Filed with this Report:
1. Financial Statements (see Item 8 above).
Ampex Corporation Consolidated Balance Sheets and Statements of
Operations and Comprehensive Income (Loss), of Cash Flows, and of
Stockholders' Deficit as of December 31, 2001, 2000 and 1999 and for
each of the three years in the period ended December 31, 2001.
2. Financial Statement Schedule (see Item 8 above) Schedule II Valuation
and Qualifying Accounts.
3. Exhibits.
Exhibit
Number Description
- ------ -----------
3.1* Restated Certificate of Incorporation of the Company, as amended through June 21, 1999.
3.2* By-Laws of the Company, as amended through April 20, 1995.
4.1 Form of Class A Common Stock Certificate (filed as Exhibit 4.4 to the Company's Post-Effective
Amendment No. 1 on Form S-3 to Form S-1 (File No. 33-93312) (the "1996 Form S-3") and
incorporated herein by reference).
4.2 Form of Class C Common Stock Certificate (filed as Exhibit 4.5 to the 1996 Form S-3 and
incorporated herein by reference.
4.3 Promissory Note in the amount of $1,754,727, issued by the Company to NH Holding Incorporated,
dated December 22, 1993 (filed as Exhibit 4.25 to the Company's Form 10-K for its fiscal year ended
December 31, 1993 and incorporated herein by reference).
32
Exhibit
Number Description
- ------ -----------
4.4* Indenture, dated as of February 28, 2002, between the Company and State Street Bank and Trust
Company, as trustee, relating to the Company's 12% Senior Notes due 2008, including forms of 12%
Senior Notes and Security Agreement.
4.5 Note Purchase Agreement dated as of November 6, 2000, among Ampex Data Systems Corporation
("Data Systems"), the Company and the several Purchasers named therein (previously filed as
Exhibit 4.1 to the Company's Form 10-Q for the quarter ended September 30, 2000 (the "Third
Quarter 2000 10-Q") and incorporated herein by reference).
4.6 Amendment to Note Purchase Agreement, dated as of May 30, 2001, among Data Systems, the
Company and the several Note Purchasers named therein (filed as Exhibit 4.1 to the Company's
Form 10-Q for the quarter ended June 30, 2001 (the "Second Quarter 2001 Form 10-Q") and
incorporated herein by reference).
4.7 Second Amendment to Note Purchase Agreement, dated as of August 13, 2001, among Data
Systems, the Company and the several Note Purchasers named therein (filed as Exhibit 4.3 to the
Second Quarter 2001 Form 10-Q and incorporated herein by reference).
4.8 Third Amendment to Note Purchase Agreement, dated as of October 26, 2001, among Data Systems,
the Company and the several Note Purchasers named therein (filed as Exhibit 4.4 to the Second
Quarter 2001 Form 10-Q and incorporated herein by reference).
4.9* Fourth Amendment to Note Purchase Agreement, dated as of January 31, 2002, among Data
Systems, the Company and the several Note Purchasers named therein.
4.10 Form of Second Interest Deferral Agreement, dated as of November 14, 2001, among Ampex
Corporation and each of the Holders of the Company's 12% Senior Notes due March 15, 2003 (filed
as Exhibit 4.5 to the Company's Form 10-Q for the quarter ended September 30, 2001 (the "Third
Quarter 2001 Form 10-Q") and incorporated herein by reference).
4.11 Senior Discount Note due May 31, 2001 in the amount of $6,243,688.89 (previously filed as Exhibit
4.2 to the Third Quarter 2000 10-Q and incorporated herein by reference).
4.12 Senior Discount Note due May 31, 2001 in the amount of $1,895,405.56 (previously filed as Exhibit
4.3 to the Third Quarter 2000 10-Q and incorporated herein by reference).
4.13 Senior Discount Note due May 31, 2001 in the amount of $780,461.11 (previously filed as Exhibit
4.4 to the Third Quarter 2000 10-Q and incorporated herein by reference).
4.14 Deed of Trust, Security Agreement, Financing Statement and Assignment of Rents and Revenues,
dated as of November 6, 2000, between Data Systems and the Trustee named therein (previously
filed as Exhibit 4.5 to the Third Quarter 2000 10-Q and incorporated herein by reference).
4.15 First Amendment to Deed of Trust, Security Agreement, Financing Statement and Assignment of
Rents and Revenues, dated as of May 30, 2001, between Data Systems and the Trustee named therein
(filed as Exhibit 4.2 to the Second Quarter 2001 Form 10-Q and incorporated herein by reference).
4.16 Form of Management Rights Letter (previously filed as Exhibit 4.6 to the Third Quarter 2000 10-Q
and incorporated herein by reference).
4.17 Form of Management Rights Letter (previously filed as Exhibit 4.7 to the Third Quarter 2000 10-Q
and incorporated herein by reference).
4.18 Collateral Security Agreement, dated as of November 6, 2000, between the Company and the
Secured Party named therein (previously filed as Exhibit 4.8 to the Third Quarter 2000 10-Q and
incorporated herein by reference).
4.19* Fifth Amendment to Note Purchase Agreement, dated as of March 25, 2002, among Data Systems,
the Company and the several Note Purchasers named therein.
33
Exhibit
Number Description
- ------ -----------
10.01 Ampex Corporation 1992 Stock Incentive Plan and related documents, as amended through June 18,
1999 (filed as Exhibit 4.01 to the Company's Registration Statement on Form S-8 (File No. 333-
81534) and incorporated herein by reference).
10.02 Ampex Systems Corporation Savings Plan (1997 Restatement) (filed as Exhibit 10.3 to the
Company's Form 10-K for its fiscal year ended December 31, 1997 (the "1997 Form 10-K") and
incorporated herein by reference).
10.03 Ampex Corporation 2000 Stock Bonus Plan, as adopted on June 9, 2000 (filed as Exhibit 4.01 to the
Company's Registration Statement on Form S-8 (File No. 333-41652) and incorporated herein by
reference).
10.04 Ampex Systems Corporation Employees' Retirement Plan, as amended and restated as of January 1,
1997 (filed as Exhibit 10.4 to the Company's 1997 Form 10-K and incorporated herein by
reference).
10.05 Ampex Corporation Supplemental Retirement Income Plan, as amended through September 3, 1985
(filed as Exhibit 10.27 to Amendment No. 3 to the Company's Registration Statement on Form S-1
(File No. 33-47660) and incorporated herein by reference).
10.06* Form of Indemnification Agreement entered into between the Company and members of the Board
of Directors.
10.07 Loan and Security Agreement by and between Ampex Finance Corporation and Congress Financial
Corporation dated May 5, 1994 (filed as Exhibit 10.2 to the Company's Form 10-Q for the quarter
ended March 31, 1994 and incorporated herein by reference) and Amendment Agreement dated as
of July 31, 1995, second Amendment Agreement, dated March 29, 1996 (filed as Exhibit 10.2 to the
Company's Form 10-Q for the quarter ended June 30, 1996 and incorporated herein by reference),
third Amendment Agreement, dated December 26, 1996 (filed as Exhibit 10.13 to the Company's
Form 10-K for its fiscal year ended December 31, 1996 (the "1996 Form 10-K") and incorporated
herein by reference).
10.08 Fourth Amendment Agreement to Loan and Security Agreement by and between Ampex Finance
Corporation and Congress Financial Corporation dated April 7, 1999 (previously filed as Exhibit
10.8 to the Company's Form 10-K for its fiscal year ended December 31, 1999 (the "1999 Form
10-K") and incorporated herein by reference).
10.09 Form of Employment Security Letter entered into between the Company and certain executive
officers of the Company, dated July 24, 1998 (previously filed as Exhibit 10.9 to the 1999 Form
10-K and incorporated herein by reference).
10.10* Lease dated January 19, 1996 by and between Martin/Campus Associates, LP as landlord and the
Company as tenant, with respect to approximately 132,150 square feet of premises located on
Douglas Avenue and on Broadway in Redwood City, California.
10.11 Amendment dated September 10, 1998 and amendment dated November 19, 1999 to Lease between
Martin/Campus Associates, LP as landlord and the Company as tenant.
10.12* Lease dated January 19, 1996 by and between Martin/Campus Associates, LP as landlord and the
Company as tenant, with respect to approximately 60,000 square feet of premises to be constructed
on Broadway in Redwood City, California.
10.13 Assignment and assumption of lease dated November 21, 2000 between the Company as assignor
and Data Systems as assignee (previously filed as Exhibit 10.15 to the 2000 Form 10-K and
incorporated herein by reference).
10.14* Joint Settlement Agreement dated November 22, 1994, by and among Pension Benefit Guaranty
Corporation, the Ampex Group (a group of companies that includes the Company), the Limited
Hillside Group and the Sherborne Group.
34
Exhibit
Number Description
- ------ -----------
10.15* Hillside-Ampex/Sherborne Agreement by and among the Ampex Group (a group of companies that
includes the Company), the Limited Hillside Group and the Sherborne Group, dated December 1,
1994, as amended.
10.16 Promissory Note dated August 6, 1999, issued by Sherborne Investments Corporation to the
Company in the principal amount of $1,779,050 (filed as Exhibit 10.21 to the 2000 Form 10-K and
incorporated herein by reference).
10.17* Promissory Note dated April 18, 2001, issued by Sherborne Capital Incorporated to the Company in
the principal amount of $1,848,000.
10.18 Promissory Note dated November 15, 2000, issued by Sherborne Investments Corporation to the
Company in the principal amount of $1,015,000.50 (filed as Exhibit 10.23 to the 2000 Form 10-K
and incorporated herein by reference).
10.19 Loan Agreement, dated as of October 29, 2001, between Sherborne & Company Incorporated and
Data Systems to advance funds up to an aggregate amount at any one time outstanding not in excess
of $2,500,000.00 (filed as Exhibit 4.6 to the Third Quarter 2001 Form 10-Q and incorporated herein
by reference).
10.20 Secured Promissory Note, dated as of October 29, 2001, between Data Systems and Sherborne &
Company Incorporated (filed as Exhibit 4.7 to the Third Quarter 2001 Form 10-Q and incorporated
herein by reference).
10.21 Security Agreement, dated as of October 29, 2001, by Data Systems in favor of Sherborne &
Company Incorporated (filed as Exhibit 4.8 to the Third Quarter 2001 Form 10-Q and incorporated
herein by reference).
10.22 Guarantee Agreement, dated as of October 29, 2001, between the Company and Sherborne &
Company Incorporated (filed as Exhibit 4.9 to the Third Quarter 2001 Form 10-Q and incorporated
herein by reference).
10.23 Letter Agreement, dated as of October 29, 2001, between the Company and Sherborne & Company
Incorporated providing for the issuance to Sherborne & Company Incorporated of 1,000,000 shares
of the Company's Class A Common Stock (filed as Exhibit 4.10 to the Third Quarter 2001 Form 10-
Q and incorporated herein by reference).
10.24 Form of Note between the Company and Hillside Capital Incorporated to fund pension contributions
(filed as Exhibit 4.11 to the Third Quarter 2001 Form 10-Q and incorporated herein by reference).
21.1* Subsidiaries of the Company.
23.1* Consent of Independent Accountants.
24.1* Power of Attorney (included in the signature page of this Report).
(b) Reports on Form 8-K. No reports on Form 8-K were filed by company
during the fourth quarter of 2001.
(c) Exhibits. See Item 14(a)(3) above.
Financial Statement Schedules . See Items 8 and 14(a)(2) above.
- --------
* Filed herewith.
35
SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data, which have
been derived from and should be read in conjunction with the Company's
Consolidated Financial Statements, and the Notes thereto, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," both of which are included elsewhere herein. There have been no
cash dividends declared for the periods presented.
Subsequent to year-end 2000, the Company announced that it was closing
MicroNet, a business which manufactured disk-based storage products that Ampex
acquired in 1998. The operating results of MicroNet have been classified as
"Discontinued Operations" in the Consolidated Statement of Operations for each
of the three years ended December 31, 2000. Ampex has excluded the assets and
liabilities of MicroNet in the Consolidated Balance Sheets at December 31,
2000. The Consolidated Balance Sheets of prior periods have not been restated
to exclude the assets and liabilities of MicroNet.
In the second quarter of 2001, the Company announced that it was closing
iNEXTV, a business involved in Internet video operations started in 1999. The
operating results of iNEXTV have been classified as "Discontinued Operations"
in the Consolidated Statement of Operations for each of the three years ended
December 31, 2001. Ampex has excluded the assets and liabilities of iNEXTV in
the Consolidated Balance Sheets at June 30, 2000. The Consolidated Balance
Sheets of prior periods have not been restated to exclude the assets and
liabilities of iNEXTV.
Statement of Operations Data:
Year Ended December 31,
---------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- ------- -------
(in thousands, except per share data)
Total revenue..................... $ 46,020 $ 59,854 $ 71,483 $68,394 $92,861
Total costs and operating expenses 48,340 52,153 61,252 68,201 79,397
Income (loss) from continuing
operations....................... (10,875) 1,480 5,012 13,454 14,803
Net income (loss)................. (28,129) (36,696) (15,568) 10,438 14,803
Diluted income (loss) per share
from continuing operations....... (0.18) 0.02 0.07 0.25 0.32
Diluted income (loss) per share... (0.38) (0.50) (0.21) 0.20 0.32
Balance Sheet Data:
Year Ended December 31,
-------------------------------------------------
2001 2000 1999 1998 1997
--------- -------- -------- -------- --------
(in thousands)
Working capital............ $ 4,698 $ 15,024 $ 47,262 $ 69,958 $ 44,607
Total assets............... 39,173 60,317 107,320 116,001 81,671
Long-term debt............. 58,790 46,086 44,666 43,380 2
Redeemable preferred stock. 30,050 34,346 38,642 43,718 69,970
Convertible preferred stock 102 2,250 3,770 20,000 --
Total stockholders' deficit (123,599) (81,235) (32,822) (71,154) (90,015)
36
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMPEX CORPORATION
By: /s/ Edward J. Bramson
-------------------------------
Edward J. Bramson
Chairman and Chief Executive
Officer
Date: March 29, 2002
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint Edward J. Bramson, Craig L. McKibben,
Joel D. Talcott, David Griffin or any of them, with full power to act, his
attorney-in-fact, with the power of substitution for him in any and all
capacities, to sign any or all amendments to this report, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
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 Company
and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Edward J. Bramson
- ------------------------------ Chairman, Chief Executive Officer March 29, 2002
Edward J. Bramson and Director (Principal Executive Officer)
/s/ Craig L. McKibben
- ------------------------------ Vice President, Chief Financial Officer, March 29, 2002
Craig L. McKibben Treasurer and Director
(Principal Financial
Officer and
Principal Accounting
Officer)
/s/ Douglas T. McClure. Jr.
- ------------------------------ Director March 29, 2002
Douglas T. McClure, Jr.
/s/ Peter Slusser
- ------------------------------ Director March 29, 2002
Peter Slusser
/s/ William A. Stoltzfus. Jr.
- ------------------------------ Director March 29, 2002
William A. Stoltzfus, Jr.
37
AMPEX CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants.................................... F-2
Consolidated Balance Sheets
As of December 31, 2001 and 2000................................... F-3
Consolidated Statements of Operations and Comprehensive Income (Loss)
For Each of the Three Years in the Period Ended December 31, 2001.. F-4
Consolidated Statements of Cash Flows
For Each of the Three Years in the Period Ended December 31, 2001.. F-5
Consolidated Statements of Stockholders' Deficit
For Each of the Three Years in the Period Ended December 31, 2001.. F-6
Notes to Consolidated Financial Statements........................... F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Ampex Corporation:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 33 present fairly, in all material
respects, the financial position of Ampex Corporation and its subsidiaries at
December 31, 2001 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 14(a)(2) on page 33 present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
--------------------------------------
PricewaterhouseCoopers LLP
San Jose, California
March 26, 2002
F-2
AMPEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 31, December 31,
2001 2000
------------ ------------
ASSETS
------
Current assets:
Cash and cash equivalents...................................................... $ 8,015 $ 10,384
Short-term investments......................................................... -- 5,011
Accounts receivable (net of allowances of $153 in 2001 and $269 in 2000)....... 6,002 9,389
Inventories.................................................................... 13,258 16,546
Other current assets........................................................... 4,426 4,162
--------- ---------
Total current assets........................................................ 31,701 45,492
Property, plant and equipment..................................................... 6,599 11,227
Intangible assets, net............................................................ -- 211
Investment in unconsolidated companies............................................ -- 1,678
Deferred pension asset............................................................ -- 377
Other assets...................................................................... 873 1,332
--------- ---------
Total assets................................................................ $ 39,173 $ 60,317
========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
-------------------------------------------
Current liabilities:
Notes payable.................................................................. $ 2,584 $ 8,397
Accounts payable............................................................... 3,665 4,321
Net liabilities of discontinued operations..................................... 1,383 2,059
Accrued restructuring costs.................................................... 2,038 423
Other accrued liabilities...................................................... 17,333 15,268
--------- ---------
Total current liabilities................................................... 27,003 30,468
Long-term debt.................................................................... 58,790 46,086
Other liabilities................................................................. 41,740 27,189
Deferred income taxes............................................................. 1,213 1,213
Net liabilities of discontinued operations........................................ 3,874 --
--------- ---------
Total liabilities........................................................... 132,620 104,956
--------- ---------
Commitments and contingencies (Note 15)
Mandatorily redeemable nonconvertible preferred stock, $1,000 liquidation value:
Authorized: 69,970 shares in 2001 and in 2000
Issued and outstanding--none in 2001 and in 2000................................. -- --
Mandatorily redeemable preferred stock, $2,000 liquidation value:
Authorized: 21,859 shares in 2001 and in 2000
Issued and outstanding--15,025 shares in 2001; 17,173 in 2000.................... 30,050 34,346
Convertible preferred stock, $2,000 liquidation value:
Authorized: 10,000 shares in 2001 and in 2000
Issued and outstanding--51 shares in 2001; 1,885 in 2000......................... 102 2,250
Stockholders' deficit:
Preferred stock, $1.00 par value:
Authorized: 898,171 shares in 2001 and in 2000
Issued and outstanding--none in 2001 and in 2000.............................. -- --
Common stock, $.01 par value:
Class A:
Authorized: 175,000,000 shares in 2001 and in 2000
Issued and outstanding--61,652,996 shares in 2001; 58,075,396 in 2000...... 616 581
Class C:
Authorized: 50,000,000 shares in 2001 and in 2000
Issued and outstanding--none in 2001 and in 2000........................... -- --
Other additional capital....................................................... 428,161 421,578
Notes receivable from stockholders............................................. (4,642) (4,642)
Accumulated deficit............................................................ (510,023) (481,894)
Accumulated other comprehensive income......................................... (37,711) (16,858)
--------- ---------
Total stockholders' deficit................................................. (123,599) (81,235)
--------- ---------
Total liabilities, redeemable preferred stock and stockholders' deficit..... $ 39,173 $ 60,317
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
AMPEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except share and per share data)
Year Ended December 31,
-------------------------------------
2001 2000 1999
----------- ----------- -----------
Royalty income...................................................... $ 12,056 12,272 $ 19,850
Product sales....................................................... 33,964 47,582 51,633
----------- ----------- -----------
Total revenue...................................................... 46,020 59,854 71,483
----------- ----------- -----------
Intellectual property costs......................................... 646 1,052 1,268
Cost of product sales............................................... 24,451 29,101 33,323
Research, development and engineering............................... 5,494 6,883 8,463
Selling and administrative.......................................... 14,231 15,117 17,277
Restructuring charges............................................... 3,518 -- 921
----------- ----------- -----------
Total costs and operating expenses................................. 48,340 52,153 61,252
----------- ----------- -----------
Operating income (loss)............................................ (2,320) 7,701 10,231
Interest expense.................................................... 7,233 5,723 5,461
Amortization of debt financing costs................................ 529 350 349
Interest income..................................................... (330) (1,321) (2,516)
Other (income) expense, net......................................... (52) 242 10
----------- ----------- -----------
Income (loss) from continuing operations before income taxes....... (9,700) 2,707 6,927
Provision for income taxes.......................................... 1,175 1,227 1,915
----------- ----------- -----------
Income (loss) from continuing operations........................... (10,875) 1,480 5,012
Loss from discontinued operations (net of taxes of nil in 2001, 2000
and 1999)......................................................... (6,916) (31,898) (20,580)
Loss on disposal of discontinued operations (net of taxes of nil in
2001, 2000 and 1999).............................................. (10,338) (6,278) --
----------- ----------- -----------
Net loss........................................................... (28,129) (36,696) (15,568)
Benefit from extinguishment of mandatorily redeemable preferred
stock............................................................. 5,720 1,263 374
----------- ----------- -----------
Net loss applicable to common stockholders......................... (22,409) (35,433) (15,194)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on marketable securities.................... -- (141) 141
Foreign currency translation adjustments........................... (160) (186) 303
Minimum pension adjustment......................................... (20,693) (17,553) 29,631
----------- ----------- -----------
Comprehensive income (loss)........................................ $ (43,262) $ (53,313) $ 14,881
=========== =========== ===========
Basic income (loss) per share:
Income (loss) per share from continuing operations................. $ (0.18) $ 0.03 $ 0.09
Loss per share from discontinued operations........................ $ (0.29) $ (0.68) $ (0.39)
Loss per share applicable to common stockholders................... $ (0.38) $ (0.63) $ (0.29)
----------- ----------- -----------
Weighted average number of common shares outstanding................ 59,112,007 56,320,023 53,137,283
=========== =========== ===========
Diluted income (loss) per share:
Income (loss) per share from continuing operations................. $ (0.18) $ 0.02 $ 0.07
Loss per share from discontinued operations........................ $ (0.29) $ (0.53) $ (0.29)
Loss per share applicable to common stockholders................... $ (0.38) $ (0.50) $ (0.21)
----------- ----------- -----------
Weighted average number of common shares outstanding................ 59,112,007 71,527,127 72,047,857
=========== =========== ===========
F-4
AMPEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
-----------------------------
2001 2000 1999
-------- -------- ---------
Cash flows from operating activities:
Net loss..................................................................... (28,129) $(36,696) $ (15,568)
Loss from discontinued operations............................................ 17,254 38,176 20,580
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation, amortization and accretion................................. 3,439 2,184 2,422
Loss (gain) on sale of assets............................................ -- 6 (928)
Issuance of stock for services rendered.................................. 160 -- --
Foregiveness of stockholders note receivable............................. -- -- 176
Changes in operating assets and liabilities:
Accounts receivable................................................... 3,141 372 883
Inventories........................................................... 3,288 (578) 2,434
Other assets.......................................................... (252) (2,607) (2,565)
Accounts payable...................................................... (453) (1,225) (77)
Other accrued liabilities and income taxes payable.................... 3,998 (2,884) 2,875
Accrued restructuring costs........................................... 424 (3,130) 730
Other liabilities..................................................... (2,191) (922) (7,663)
-------- -------- ---------
Net cash provided by (used in) continuing operations.............. 679 (7,304) 3,299
Net cash used in discontinued operations.......................... (8,705) (23,106) (13,146)
-------- -------- ---------
Net cash used in operating activities............................. (8,026) (30,410) (9,847)
-------- -------- ---------
Cash flows from investing activities:
Purchases of short-term investments.......................................... -- (32,217) (110,736)
Proceeds received on the maturity of short-term investments.................. -- 50,451 117,274
Proceeds from the sale of short-term investments............................. 5,011 6,640 14,817
Additions to property, plant and equipment................................... (123) (399) (1,275)
Deferred gain on sale of assets.............................................. (113) (815) (816)
-------- -------- ---------
Net cash provided by continuing operations........................ 4,775 23,660 19,264
Net cash provided by (used in) discontinued operations............ 121 (3,570) (10,405)
-------- -------- ---------
Net cash provided by investing activities......................... 4,896 20,090 8,859
-------- -------- ---------
Cash flows from financing activities:
Borrowings under working capital facilities.................................. 34,577 43,137 32,001
Repayments under working capital facilities.................................. (33,734) (33,486) (31,252)
Repayment of notes payable-affiliates........................................ -- (12) (10)
Debt financing costs......................................................... -- -- (20)
Proceeds from issuance of common stock....................................... 14 346 432
Proceeds from exercise of warrants........................................... -- -- 459
-------- -------- ---------
Net cash provided by (used in) continuing operations.............. 857 9,985 1,610
Net cash used in discontinued operations.......................... -- (107) (1,278)
-------- -------- ---------
Net cash provided by financing activities......................... 1,017 9,878 332
-------- -------- ---------
Effects of exchange rates on cash................................. (96) 228 (46)
-------- -------- ---------
Net decrease in cash and cash equivalents......................... (2,369) (214) (702)
Cash and cash equivalents, beginning of period.................................. 10,384 10,598 11,300
-------- -------- ---------
Cash and cash equivalents, end of period........................................ $ 8,015 $ 10,384 $ 10,598
======== ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
AMPEX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For Each of the Three Years in the Period Ended
December 31, 2001
(in thousands)
Accumulated
Comprehensive Income (Loss)
---------------------------------
Unrealized
Common Stock Notes Gain (Loss) Minimum
Class A Other Receivable on Short- Cumulative Pension Total
------------- Additional from Accumulated Term Translation Liability Stockholders'
Shares Amount Capital Stockholders Deficit Investments Adjustment Adjustment Deficit
------ ------ ---------- ------------ ----------- ----------- ----------- ---------- -------------
Balances, December 31, 1998. 49,783 $498 $391,849 $(4,818) $(429,630) -- $ 578 $(29,631) $ (71,154)
Net loss.................. -- -- -- -- (15,568) -- -- -- (15,568)
Translation adjustments... -- -- -- -- -- -- 303 -- 303
Unrealized gain (loss) on
short-term investments... -- -- -- -- -- $ 141 -- -- 141
Minimum pension liability
adjustment............... -- -- -- -- -- -- -- 29,631 29,631
Note forgiveness.......... -- -- -- 176 -- -- -- -- 176
Preferred stock converted
or redeemed.............. 5,339 53 21,253 -- -- -- -- -- 21,306
Exercise of warrants...... 204 2 457 -- -- -- -- -- 459
Issuance of shares for
investment in Executive
Branch Webcasting........ 304 3 1,449 -- -- -- -- -- 1,452
Stock options exercised... 312 3 429 -- -- -- -- -- 432
------ ---- -------- ------- --------- ----- ----- -------- ---------
Balances, December 31, 1999. 55,942 $559 $415,437 $(4,642) $(445,198) $ 141 881 -- $ (32,822)
Net loss.................. -- -- -- -- (36,696) -- -- -- (36,696)
Translation adjustments... -- -- -- -- -- -- (186) -- (186)
Unrealized gain (loss) on
short-term investments... -- -- -- -- -- (141) -- -- (141)
Minimum pension liability
adjustment............... -- -- -- -- -- -- -- (17,553) (17,553)
Preferred stock converted
or redeemed.............. 1,930 20 5,797 -- -- -- -- -- 5,817
Exercise of warrants...... -- -- 23 -- -- -- -- -- 23
Stock options exercised... 203 2 321 -- -- -- -- -- 323
------ ---- -------- ------- --------- ----- ----- -------- ---------
Balances, December 31, 2000. 58,075 $581 $421,578 $(4,642) $(481,894) -- $ 695 $(17,553) $ (81,235)
Net loss.................. -- -- -- -- (28,129) -- -- -- (28,129)
Translation adjustments... -- -- -- -- -- -- (160) -- (160)
Minimum pension liability
adjustment............... -- -- -- -- -- -- -- (20,693) (20,693)
Issuance of shares to
Sherborne................ 1,000 10 150 -- -- -- -- -- 160
Preferred stock converted
or redeemed.............. 2,578 25 6,419 -- -- -- -- -- 6,444
Stock based compensation
charge for non-
employees................ -- -- 14 -- -- -- -- -- 14
------ ---- -------- ------- --------- ----- ----- -------- ---------
Balances, December 31, 2001. 61,653 $616 $428,161 $(4,642) $(510,023) -- $ 535 $(38,246) $(123,599)
====== ==== ======== ======= ========= ===== ===== ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Ampex Corporation
Ampex Corporation ("Ampex" or the "Company") is a leading innovator of
visual information technology. The Company, through its wholly-owned
subsidiary, Ampex Data Systems Corporation, ("Data Systems") incorporates this
technology in the design and manufacturer of very high performance tape-based
storage products, principally for digital recording, archiving and rapid
restore/backup applications. The Company also leverages its investment in
research and development through its Corporate Licensing division that licenses
Ampex patents to manufacturers of consumer electronics products.
Ampex had announced its intention to sell Data Systems and for the nine
months ended September 30, 2001 and the years ended December 31, 2000 and 1999
the Company's consolidated financial statements included this subsidiary's
operations as a business held for sale. The Company engaged financial advisors
to represent it and conducted discussions with prospective buyers who expressed
interest in purchasing Data Systems. Ampex did not receive offers to purchase
Data Systems that, in the opinion of the Company's Board of Directors, were
adequate. Accordingly, the Company has ceased its efforts to sell Data Systems
and has restated financial statements for all periods to include Data Systems
as a component of its continuing operations for all periods presented.
In the second quarter of 2001, the Company determined that the Internet
video operations of its wholly-owned subsidiary, iNEXTV, were unlikely to
generate sufficient advertising revenues to achieve profitability within an
acceptable time frame. Accordingly, as of June 30, 2001, the Company closed
iNEXTV's operations and discontinued funding its subsidiary, AENTV in Los
Angeles and its partially-owned affiliate, TV1.de in Munich, Germany. The
Company's Internet operations have been classified as discontinued operations
for all periods presented.
As of the year-end 2000, Ampex decided to discontinue the operations of
MicroNet Technology, Inc. ("MicroNet"), its wholly-owned subsidiary that made
high performance disk arrays and storage area network products. The operations
of MicroNet have been classified as "Discontinued Operations" in the
Consolidated Statements of Operations for all periods presented. At December
31, 2000, the Company established a reserve for the costs of closure and to
write-off its investment in MicroNet which is included in "Loss on Disposal of
Discontinued Operations." As a result, there are no assets or liabilities of
MicroNet included in the Consolidated Balance Sheet as of December 31, 2001 and
2000.
The Company's continuing operations consist of Ampex's intellectual property
licensing department and Data Systems.
Liquidity
As a result of continuing losses, the Company's liquidity has declined
materially in recent years. In response, the Company has been required to
restructure and extend the maturity date of its long-term senior debt, to
discontinue unprofitable Internet video operations and to borrow funds from a
former affiliate in order to make required contributions to its employee
retirement pension plan. The Company has also entered into agreements with
certain vendors to extend the due date of related accounts payable balances.
The Company has also significantly restructured and down-sized the operations
of Data Systems and borrowed funds for working capital purposes. Management
currently believes that these actions, coupled with anticipated royalty
collections under licensing agreements presently in effect, should be
sufficient to satisfy all projected cash obligations for at least the next 12
months. The Company has experienced a substantial reduction in its cash and
marketable securities which declined to $8.0 million at December 31, 2001 from
$15.4 million at December 31, 2000.
F-7
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As further discussed in Note 10, in the first quarter of 2002, the Company
completed certain previously announced restructurings of its outstanding 12%
Senior Notes due 2003 and Data Systems' Senior Discount Notes due 2002, which
are the Company's principal senior debt obligations. The 12% Senior Notes were
exchanged for new Notes due 2008 and the due date of the Senior Discount Notes
was extended to 2005. Management believes that these restructurings have
improved the Company's financial position by deferring significant debt
repayments which would otherwise have been due in 2002 and 2003 and by limiting
the amount of cash payments required to be made on the restructured Note prior
to maturity to the actual amount of Available Cash Flow received by the
Company. In addition, as discussed at Note 10, pursuant to agreements between
the Company, Hillside Capital Incorporated, ("Hillside") and certain other
parties, Hillside is obligated to fund pension contributions in the event the
Company is unable to do so. At the Company's request, Hillside has made three
pension contributions totaling $1.3 million through December 31, 2001, and has
issued notes by the Company in the amount of the pension contributions. Under
the terms of the notes, $150,000 is due on the first anniversary of each note,
with the remainder due on the fourth anniversary of the notes.
The Company has available, through a subsidiary, a working capital facility
that allows it to borrow or obtain letters of credit totaling $7.0 million,
based on eligible accounts receivable, through May 2002, the facility
expiration date. At December 31, 2001, the Company had borrowings outstanding
of $1.0 million and had letters of credit issued against the facility totaling
$1.1 million. The Company is seeking to obtain a new $4.0 million accounts
receivable line of credit that it believes will be adequate to deal with its
currently foreseen seasonal cash flows. If the accounts receivable facility is
not replaced or extended, Data Systems will be required to implement
alternative cash conservation strategies.
The Company's ability to meet its obligations in the normal course of
business is dependent upon, among other items, its ability to collect trade
accounts receivable, competitively price product sales and services with the
market at a profit, and obtain additional working capital financing.
Note 2--Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements are presented in
accordance with Generally Accepted Accounting Principles. All intercompany
accounts and transactions have been eliminated. Certain reclassifications have
been made to the prior years' financial statements to conform to the current
year's presentation. These reclassifications had no effect on the prior years'
stockholders' deficit or net income.
Ampex had announced its intention to sell Data Systems and included this
subsidiary's operations as a business held for sale. The Company has ceased its
efforts to sell Data Systems and has restated financial statements for all
periods included in this Form 10-K to include Data Systems as a component of
its continuing operations for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net sales and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents consist of investments with original maturities of 90 days
or less.
F-8
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Short-term and Long-term Investments
The Company's investments are comprised primarily of debt securities and
consist of highly liquid U.S. Treasury instruments, investments in high yield
mutual funds and U.S. corporate securities. All investments are classified as
available for sale. Investments with remaining maturities of less than 12
months from the balance sheet date are classified as short-term investments.
Investments with remaining maturities of more than 12 months from the balance
sheet date are classified as long-term assets. Unrealized gains and losses, if
material, are reported net of tax as a separate component of stockholders'
equity under accumulated comprehensive income until realized. Realized gains
and losses, if any, are determined using the specific identification method.
Long-Term Contracts
Revenues and estimated profits on long-term contracts performed over
extended periods of time are recognized on the percentage-of-completion method
based on the total direct costs expected to be incurred on the contract.
Revenues and profits on long-term contracts are based on the Company's
estimates to complete and are reviewed periodically, with adjustments recorded
in the period in which revisions are made. Any anticipated losses on contracts
are charged to operations as soon as they are determinable. Estimated costs
associated with progress billings on long-term contracts are netted against
inventory and totaled $0.7 million at December 31, 2001 and $1.8 million at
December 31, 2000.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on
a standard cost basis which approximates the first in, first out (FIFO) method.
Appropriate consideration is given to obsolescence, excessive levels,
deterioration and other factors in evaluating net realizable value.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and stated net of
accumulated depreciation. Depreciation is computed on a straight-line basis
over the estimated useful lives of the assets ranging from three to nine years
for machinery and equipment and five to 50 years for buildings and
improvements. When assets are disposed of, the cost and related accumulated
depreciation are removed from the accounts and the resulting gains or losses
are included in the results of operations.
Intangible Assets
The net book value of goodwill associated with acquisitions was nil at
December 31, 2001 and $0.2 million at December 31, 2000. Goodwill was being
amortized on a straight-line basis and is included within the Consolidated
Balance Sheets caption intangible assets, net. On June 30, 2001, the Company
wrote off unamortized goodwill in connection with the closing its Internet
video operations. During 2000, the Company ceased funding operating losses
MicroNet and TV onthe WEB, and wrote off its remaining investment in those
subsidiaries, including all unamortized goodwill. The Company regularly reviews
the carrying value of intangible assets and writes down the carrying value of
long-lived assets to the extent estimated future undiscounted operating cash
flows are not sufficient to recover the carrying value of these assets over
their remaining useful life.
Foreign Currency Translation
Assets and liabilities of subsidiaries located outside the United States
have been translated at rates in effect at year end. Revenues and expenses are
translated at average rates during the year. Local currencies are
F-9
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
considered to be the functional currencies for all of the Company's foreign
subsidiaries. Accordingly, the effects of translating the financial statements
of foreign subsidiaries into U.S. dollars are reported in the cumulative
translation adjustment, a separate component of stockholders' deficit. Foreign
currency transaction gains and losses, which are included in other expense,
were not material in the periods reported.
Revenue Recognition
Royalty income is recorded when earned and receipt is assured. Revenue on
product sales and services are recognized at the time products are shipped and
at the time services are rendered to customers. The Company provides for
estimated costs to be incurred for product upgrades as well as costs that may
be incurred for product warranties upon shipment.
Research, Development and Engineering
Research and development costs are expensed as incurred and amounted to $5.0
million, $5.4 million and $7.8 million in 2001, 2000 and 1999, respectively.
Other engineering costs, principally incurred in connection with product
introductions and process enhancements, amounted to $0.5 million, $1.5 million
and $0.7 million in 2001, 2000 and 1999, respectively.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109
("SFAS 109"), Accounting for Income Taxes. Under this method, deferred income
taxes are recognized for temporary differences by applying enacted statutory
rates applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities. The
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized. See Note 19.
Foreign withholding taxes have been provided on the undistributed earnings
of foreign subsidiaries, giving recognition to applicable tax rates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of risk consist principally of short-term and long-term investments and trade
receivables. The Company invests its temporary cash balances in U.S. treasury
obligations, high yield mutual funds and U.S. corporate securities and, by
policy, limits the investment maturity and the amount of credit exposure to any
one financial institution or type of investment. The Company performs ongoing
credit evaluations on its customers, and collateral is generally not required
for trade receivables.
Fiscal Year
The Company's fiscal year is the 52 or 53-week period ending on the Saturday
nearest December 31. Fiscal 2001, 2000 and 1999 were 52-week years.
Comprehensive Income (Loss)
Comprehensive income (loss) as defined includes all changes in equity (net
assets) during a period from non-owner sources. Accumulated other comprehensive
income (loss), as presented on the accompanying
F-10
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidated Balance Sheets, consists of the net unrealized gains (losses) on
available-for-sale securities, net of tax, cumulative translation adjustments,
net of tax, and the minimum pension adjustment.
Income (Loss) Per Common Share
Basic income (loss) per common share is computed by dividing net income
(loss) applicable to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted income (loss) per common
share is computed giving effect to all potentially dilutive common shares that
were outstanding during the period.
Stock Options
The Company accounts for stock-based awards to employees in accordance with
APB No. 25 ("APB 25"), Accounting for Stock Issued to Employees and has adopted
the disclosure-only alternative of Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), Accounting for Stock Based Compensation. See Note 15.
Fair Value of Financial Instruments
For certain instruments that are short-term in nature, such as cash and cash
equivalents, short-term investments and working capital facilities, carrying
value approximates fair value. The Company's Senior Notes and Senior Discount
Notes have been valued at approximately par value at December 31, 2001 and
December 31, 2000 by the Company; however no securities have traded recently in
the secondary market. Management has determined that it is not practical to
estimate fair value for note payable-other, as no market for such instruments
currently exists. See Note 10.
Recent Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 141 ("FAS 141"), Business Combinations, and No. 142 ("FAS 142"),
Goodwill and Other Intangible Assets. FAS 141 addresses financial accounting
and reporting for business combinations and supercedes APB16, Business
Combinations. The provisions of FAS 141 are required to be adopted July 1,
2001. The most significant changes made by FAS 141 are: (1) requiring that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001, (2) establishing specific criteria for the recognition of
intangible assets separately from goodwill, and (3) requiring unallocated
negative goodwill to be written off immediately as an extraordinary gain.
FAS 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their acquisition and supercedes APB 17, Intangible
Assets. The provisions of FAS 142 are required to be adopted in fiscal years
beginning after December 15, 2001.The most significant changes made by FAS 142
are: (1) goodwill and indefinite lived intangible assets will no longer be
amortized, (2) goodwill will be tested for impairment at least annually at the
reporting unit level, (3) intangible assets deemed to have an indefinite life
will be tested for impairment at least annually, and (4) the amortization
period of intangible assets with finite lives will no longer be limited to
forty years.
The Company has adopted FAS 141 effective July 1, 2001 which will result in
the Company accounting for any business combination consummated on or after
that date under the purchase method of accounting. The Company will also apply
the non-amortization provisions of FAS 142 for any business combination
consummated on or after July 1, 2001.
F-11
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company will adopt FAS 142 effective January 1, 2002. At December 31,
2001 there was no goodwill and goodwill amortization on the Company's financial
statements.
In August 2001, the FASB issued Statement No. 143 ("FAS 143"), Accounting
for Asset Retirement Obligations. The standard requires entities to record the
fair value of a liability for an asset retirement obligation in the period in
which the obligation is incurred. When the liability is initially recorded, the
entity capitalizes the cost by increasing the carrying amount of the related
long-lived asset. Over time, the liability is accreted to its present value
each period, and the capitalized cost is depreciated over the useful life of
the related asset. The standard is effective for 2003. The company is currently
reviewing the requirements of this new standard and has not yet determined its
impact on the company's financial position or results of operations.
In October 2001, the FASB issued Statement No. 144 ("FAS 144"), Accounting
for the Impairment or Disposal of Long-Lived Assets, which supercedes Statement
No. 121 ("FAS 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and certain provisions of APB Opinion No.
30, Reporting Results of Operations / Reporting the Effects of Disposal of a
Segment of a Business. FAS 144 requires that long-lived assets to be disposed
of by sale, including discontinued operations, be measured at the lower of
carrying amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. As a result, discontinued operations
will no longer be measured at net realizable value or include amounts for
operating losses that have not yet occurred. FAS 144 also broadens the
reporting requirements of discontinued operations to include all components of
an entity that can be distinguished and eliminated from the rest of the
entity's ongoing operations. The provisions of FAS 144 are effective for fiscal
years beginning after December 15, 2001. The company is currently reviewing the
requirements of this new standard and has not yet determined its impact on the
company's financial position or results of operations.
In February 2002, the Emerging Issues Task Force ("EITF") issued statement
D-103, "Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred." This standard requires entities to record
out-of-pocket expenses recharged to their customers as revenue. The standard is
effective for 2002, with reclassification of prior periods. The Company is
currently reviewing the requirements of this new standard and has not yet
determined its impact in the Company's results of operations.
Note 3--Discontinued Operation
In February 2001, the Board of Directors of the Company authorized
management to close MicroNet, its wholly-owned subsidiary that made high
performance disk arrays and Storage Area Networks, and to establish a reserve
of $2.1 million for the costs of closure and to write off its investment of
$4.2 million as of December 31, 2000. Ampex transferred MicroNet assets to an
entity that distributed the asset sale proceeds to MicroNet creditors.
Through December 31, 2001, the Company paid and charged $1.2 million against
the restructuring reserve. During 2001, the Company entered into sublease
agreements that reduced its estimated future lease costs by $0.4 million which
was recognized as income from discontinued operations. The remaining balance of
the MicroNet reserve totals $0.5 million and is included in its net liabilities
of discontinued operations. This obligation has not been discounted to present
value.
F-12
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the operating results of MicroNet are as follows:
Years ended December 31,
------------------------
2001 2000 1999
----- ------- -------
(in thousands)
Revenues........................................... -- 12,128 10,988
Costs and operating expenses excluding amortization -- (16,277) (13,732)
Goodwill amortization.............................. -- (1,213) (1,214)
Operating loss..................................... -- (5,362) (3,958)
Income (loss) from discontinued operations......... 378 (5,362) (3,958)
In July 2001, the Board of Directors of the Company authorized management to
close iNEXTV's operations in New York City and to cease future funding its
other Internet-based affiliates, AENTV in Los Angeles and TV1.de in Munich,
Germany. The Company established a reserve to write down its investment to net
realizable value and to provide for the costs of closure at the end of the
quarter ended June 30, 2001.
A summary of the loss on disposal of iNEXTV are as follows:
Years ended December 31,
------------------------
2001 2000 1999
------- ------ -----
(in thousands)
Impairment charge.......................... (4,602) -- --
Provision for closure...................... (5,736) -- --
Loss on disposal of discontinued operations (10,338) -- --
The impairment charge represents the write down of the Company's investment
in its Internet video businesses, including an additional investment in TV1
during the first quarter of 2001 of $1.7 million, to estimated net realizable
value. The net liabilities of iNEXTV reflected on its balance sheet after the
impairment charge, together with the provision for closure costs, are included
in the net liabilities of discontinued operations. The provision for closure
costs includes future payments to be made over a seven-year period for facility
rental commitments and related costs of $5.0 million, employee and contractor
severance costs of $0.6 million and other costs of $0.1 million. In addition to
the reserve for closure, the net liabilities of discontinued operations for
iNEXTV included the reclassification of certain liabilities at the time of
closure of $1.1 million. During 2001, the Company paid and recorded charges of
$2.0 million against the net liabilities of discontinued operations. The
unamortized balance in the net liabilities of discontinued operations totaled
$4.8 million at December 31, 2001.
A summary of the operating results of iNEXTV are as follows:
Years ended December 31,
------------------------
2001 2000 1999
------ ------- -------
(in thousands)
Revenues........................................... 188 2,896 1,851
Costs and operating expenses excluding amortization (6,277) (23,113) (14,230)
Goodwill amortization and writedown of assets...... (211) (5,412) (3,328)
Operating loss..................................... (6,300) (25,629) (15,707)
Equity in loss of unconsolidated subsidiary........ (999) (903) (197)
Loss from discontinued operations.................. (7,294) (26,536) (16,622)
F-13
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Internet revenues in 2000 were principally from webcasting, video production
and event marketing services, substantially all of which were provided by the
Company's subsidiary, TV onthe WEB, which the Company ceased funding in October
2000. In 2000 and 1999, TV onthe WEB reported a net loss of $9.7 million and
$6.0 million, respectively.
Note 4--Computation of Basic and Diluted Income (Loss) per Share
A reconciliation of the numerator and denominator of basic and diluted
income (loss) per common share is provided as follows (in thousands, except per
share amounts):
Year Ended December 31,
----------------------------
2001 2000 1999
-------- -------- --------
Numerator
Income (loss) from continuing operations............... $(10,875) $ 1,480 $ 5,012
======== ======== ========
Net loss applicable to common stockholders............. $(22,409) $(35,433) $(15,194)
======== ======== ========
Denominator--Basic
Weighted average common stock outstanding.............. 59,112 56,320 53,137
-------- -------- --------
Basic income (loss) per share from continuing operations.. $ (0.18) $ 0.03 $ 0.09
-------- -------- --------
Basic loss per share...................................... $ (0.38) $ (0.63) $ (0.29)
======== ======== ========
Denominator--Diluted
Weighted average common stock outstanding.............. 59,112 56,320 53,137
Effect of dilutive securities:
Warrants........................................... -- -- 344
Stock options...................................... -- 277 1,448
Contingent shares.................................. -- 629 720
Conversion of redeemable preferred stock........... -- 14,301 16,399
-------- -------- --------
59,112 71,527 72,048
-------- -------- --------
Diluted income (loss) per share from continuing operations $ (0.18) $ 0.02 $ 0.07
======== ======== ========
Diluted loss per share.................................... $ (0.38) $ (0.50) $ (0.21)
======== ======== ========
In connection with the acquisition of MicroNet, the Company issued 720,000
shares of Common Stock from escrow in November 2000 subsequent to the
resolution of certain contingencies. These shares have been included in the
computation of basic and diluted weighted average common stock outstanding from
the issue date and in diluted weighted average common stock outstanding prior
to the issue date in periods when their inclusion is dilutive.
In the year ended December 31, 2001, the Company issued 859,200 shares of
Common Stock to redeem 1,074 shares of Convertible Preferred Stock and
1,718,400 shares of Common Stock were issued to redeem 2,148 shares of
Redeemable Preferred Stock. In the year ended December 31, 2000, 380,000 shares
of Common Stock were issued to convert 760 shares of Convertible Preferred
Stock and 1,549,500 shares of Common Stock were issued to redeem 2,148 shares
of Redeemable Preferred Stock. In the year ended December 31, 1999, 4,057,500
shares of Common Stock were issued to convert 8,115 shares of Convertible
Preferred Stock and 1,282,200 shares of Common Stock were issued to redeem
2,538 shares of Redeemable Preferred Stock. Such shares of common stock are
included in the weighted average common stock outstanding from the dates of
exchange.
F-14
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Shares of Common Stock potentially issuable to satisfy the Company's remaining
redemption obligation on the Convertible Preferred Stock and the Redeemable
Preferred Stock have been included in the computation of diluted weighted
average common stock outstanding in the periods where their deemed issuance
would have a dilutive effect. If the Company was to satisfy its remaining
redemption obligations by issuing Common Stock, based on the floor conversion
price, an additional 12,060,800 shares of Common Stock would be issued over the
number of common shares included in the diluted income per share computation at
December 31, 2001.
Stock options to purchase 3,661,694 shares of Common Stock at prices ranging
from $0.17 to $6.00 per share were outstanding at December 31, 2001, but were
not included in the computation of diluted loss per share because they are
anti-dilutive.
Stock options to purchase 3,517,511 shares of Common Stock at prices ranging
from $0.4375 to $6.00 per share were outstanding at December 31, 2000. The
Stock options were included in the computation of diluted weighted average
common stock outstanding at December 31, 2000 where the exercise price was
lower than the average market value of the common shares.
Stock options to purchase 3,175,134 shares of Common Stock at prices ranging
from $1.06 to $6.00 per share were outstanding at December 31, 1999. The Stock
options were included in the computation of diluted weighted average common
stock outstanding at December 31, 1999 where the exercise price was lower than
the average market value of the common shares.
In January 1998, Warrants to purchase 1,020,000 shares of Common Stock at
$2.25 per share were issued in connection with the issuance of the Senior
Notes. See Note 10. The Warrants were included in the computation of diluted
weighted average common stock outstanding at December 31, 2000 and 1999 when
the exercise price was lower than the average market value of the common
shares. On May 10, 1999, Warrants were exercised for 204,000 shares of Common
Stock, which are included in the weighted average common stock outstanding from
the date of issuance. The remaining outstanding warrants are excluded from the
computation of weighted average common stock outstanding at December 31, 2001,
as they are anti-dilutive.
Note 5--Supplemental Schedule of Cash Flow Information
Year Ended December 31,
--------------------------
2001 2000 1999
------- ------- --------
(in thousands)
Interest paid............................ $ 2,742 $ 5,330 $ 5,323
Income taxes paid........................ 1,230 1,258 1,638
Debt financing costs..................... 179 -- 20
Warrants................................. -- (23) (459)
Common stock issued for EBWC acquisition. -- -- 731
Common stock issued for services rendered 160 -- 721
Preferred stock (redemptions)............ (4,296) (4,296) (5,076)
Preferred stock (conversions)............ (2,148) (1,521) (16,230)
F-15
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6--Investments
There were no investments held by the Company at December 31, 2001. The
carrying and market value of investments at December 31, 2000 are as follows:
Available-for-Sale December 31, 2000
------------------------------------
Scheduled
Carrying Unrealized Fair Maturity
Value Gains Value Date
-------- ---------- ------ ---------
(in thousands)
U.S. government and agency obligations $4,998 -$ -- $4,998 Feb. 2001
High yield mutual funds............... 13 -- 13
------ ----- ------
Total.............................. $5,011 $ -- $5,011
------ ----- ------
Due within 1 year..................... $5,011
U.S. corporate securities are reported as other assets.
Note 7--Inventories
December 31,
---------------
2001 2000
------- -------
(in thousands)
Raw materials.. $ 6,133 $ 7,506
Work in process 4,156 4,805
Finished goods. 2,969 4,235
------- -------
Total....... $13,258 $16,546
======= =======
Inventories include a write down for obsolete and slow-moving items of $12.1
million and $10.2 million at December 31, 2001 and December 31, 2000,
respectively. Inventory disposals, which had previously been written down
totaled $1.2 million and $4.8 million, during 2001 and 2000, respectively. In
the fourth quarter of 2001, the Company included an additional provision for
obsolete inventory of $2.1 million.
Note 8--Property, Plant and Equipment
December 31,
------------------
2001 2000
-------- --------
(in thousands)
Land............................. $ 952 $ 952
Buildings and improvements....... 10,077 10,673
Furniture, fixtures and equipment 24,218 29,235
-------- --------
35,247 40,860
Less accumulated depreciation.... (28,648) (29,633)
-------- --------
Total......................... $ 6,599 $ 11,227
======== ========
Depreciation charged to continuing operations was $1.2 million, $1.3 million
and $1.8 million in 2001, 2000 and 1999, respectively. During the year, the
Company retired fixed assets from continuing operations with a
F-16
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
gross book value of $1.3 million. Furniture, fixtures and equipment associated
with the Company's discontinued Internet video operations, totaling $3.2
million, were included at December 31, 2000.
Note 9--Other Accrued Liabilities
December 31,
---------------
2001 2000
------- -------
(in thousands)
Compensation and employee benefits.... $ 2,492 $ 4,009
Pension............................... 7,056 2,968
Interest payable...................... 10 1,570
Deferred revenue and customer deposits 4,914 2,111
Warranty and other product costs...... 1,581 1,936
Capital lease......................... -- 314
Taxes................................. 307 245
Environmental......................... 150 250
Other................................. 823 1,865
------- -------
Total.............................. $17,333 $15,268
======= =======
The increase in accrued pension liabilities from December 31, 2000 to
December 31, 2001 is primarily attributed to the change in interest rate
assumptions and actuarial gains. See Note 16.
Note 10--Debt
December 31,
---------------
2001 2000
------- -------
(in thousands)
Notes Payable
Senior discount notes........................................... $ -- $ 8,240
Working capital facility........................................ 977 --
Notes payable to Sherborne & Company Incorporated--related party 1,000 --
Hillside notes payable.......................................... 450 --
Note payable--other............................................. 157 157
------- -------
Total........................................................ $ 2,584 $ 8,397
======= =======
Long-term Debt
Senior discount notes........................................... $ 9,955 $ --
Working capital facilities...................................... -- 2,403
Hillside notes payable.......................................... 819 --
Senior notes.................................................... 48,016 43,683
------- -------
Total........................................................ $58,790 $46,086
======= =======
F-17
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Notes Payable to Sherborne & Company Incorporated--Related Party
In October 2001, Data Systems entered into a revolving credit agreement,
providing for borrowings of up to $2.5 million, secured principally by Data
System's inventory. The Company has guaranteed all borrowings. Availability
under the agreement declines to $1.5 million in January 2002, to $750,000 in
February 2002 and the loan is due and payable in full on March 31, 2002. The
Company does not intend to seek to renew the facility. Borrowings bear interest
at 8% per annum on the outstanding balance. As a commitment fee Ampex issued to
the lender 1 million shares of its Common Stock having a market value of
approximately $160,000 which was taken as a charge to amortization of debt
financing costs. Data Systems had been seeking such financing for several
months but was unable to obtain it on commercially reasonable terms. The
lender, Sherborne & Company Incorporated, is a related party of the Company and
is wholly-owned by Edward Bramson, the Chairman and Chief Executive Officer of
Ampex Corporation.
Note Payable--Other
The note is a noninterest-bearing demand promissory note held by NH Holding
Incorporated. The outstanding balance at December 31, 2001 of $0.2 million is
expected to be paid or converted into shares of Common Stock in 2002.
Working Capital Facilities
Ampex has a revolving credit line with a domestic financial institution to
finance working capital requirements that is scheduled to expire in May 2002.
The Company's domestic revolving credit agreement permits borrowings up to $7.0
million, based on eligible accounts receivable as defined in the agreement,
less a standby letter of credit facility in the amount of $2.5 million. Average
borrowings under these agreements during both 2001 and 2000 were less than $0.2
million at an average interest rate of 7.7% and 9.8%, respectively. Maximum
borrowings outstanding at any time during 2001 and 2000 were $2.4 million and
$2.4 million, respectively. At December 31, 2001, the Company had borrowings
outstanding of $1.0 million and had letters of credit issued against the
facility totaling $1.1 million. At December 31, 2000, the Company had
borrowings outstanding of $2.4 million and had letters of credit issued against
the facility totaling $1.1 million. The Company pays a monthly commitment fee
of 0.5% per annum based on the average daily unused amount. The borrowings are
collateralized by certain current assets of the Company. The Company is seeking
to replace this line of credit with a $4 million line of credit but has not
received any binding commitments to date.
Hillside Notes
In 1994, the Company, the Pension Benefit Guaranty Corporation ("the PBGC")
and certain affiliates, including Hillside Capital Incorporated, ("Hillside"),
who were members of a "group under common control" for purposes of the Employee
Retirement Income Security Act ("ERISA") entered into certain agreements in
connection with the reorganization of the Company's former parent, NH Holding
Incorporated ("NHI"), relating to the pension plans of the Company and of its
former Media subsidiaries, which are substantially underfunded. See Note 16 of
the Notes to Consolidated Financial Statements. Pursuant to these agreements,
Hillside is obligated to fund pension contributions in the event the Company is
unable to do so. At the Company's request, Hillside has made three pension
contributions totaling $1.3 million through December 31, 2001. The Company has
issued notes to Hillside in the amount of the pension contributions. Under the
terms of the Notes, $150,000 is due on the first anniversary of the Note with
the remainder due on the fourth anniversary of the Notes. The Hillside Notes
provide for interest payable quarterly at 1 percent plus 175% of the applicable
mid-term Federal rate, (effective rate of 8.87% at December 31, 2001). The
Company has agreed to grant to Hillside a security interest in certain assets
as collateral for advances which it is required to make pursuant to the
agreement. The
F-18
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
agreement contains certain restrictive covenants which, among other things,
restrict the Company's ability to declare dividends, sell all or substantially
all of its assets or commence liquidation, or engage in specified transactions
with certain related parties, breach of which could result in acceleration of
the Company's potential termination liabilities.
Senior Notes and Senior Discount Notes
In 1998, the Company issued $44.0 million of 12% Senior Notes, due March 15,
2003, together with Warrants to purchase 1.02 million shares of Common Stock
which were valued at $765,000 using the Black-Scholes model. The Warrants are
exercisable at $2.25 per share at any time on or prior to March 15, 2003. In
November 2000, Data Systems issued Senior Discount Notes providing net proceeds
of $8 million that have accreted in value at an annual rate of 20% to $10.0
million at December 31, 2001. In the first quarter of 2002, the Company
restructured its outstanding 12% Senior Notes due 2003 and Data Systems' Senior
Notes due March 31, 2002.
The 12% Senior Notes were exchanged for new Notes due 2008 and the due date
of the Senior Discount Notes was extended to 2005. The restructured Notes are
secured by liens on the Company's royalty stream that may be generated from
existing and future patent licenses and, in addition, the Senior Discount Notes
are secured by a deed of trust on Data Systems' manufacturing facility in
Colorado Springs, CO. and are guaranteed by the Company. The new securities
provide for the payment of accrued interest and principal out of "Available
Cash Flow" of the Company, which includes all future royalty proceeds received
by the Company, net of withholding taxes and specified operating expenses, as
well as the proceeds of certain potential asset sales, less a working capital
reserve of up to $2.5 million. The Company is required to generate a minimum of
$25 million of Available Cash Flow during the three years ending December 31,
2004 or an event of default will occur under the Senior Note Indenture. Prior
to maturity, the new Notes are payable as to accrued interest and principal
solely to the extent of Available Cash Flow (including certain potential asset
sales) received by the Company, and unpaid accrued interest will be payable
through the issuance of additional Notes or capitalized. The security interest
in royalty payments granted to the new 12% Senior Noteholders is subordinated
to the security for the Senior Discount Notes and no cash payments on the 12%
Senior Notes may be made until all payments of interest and principal have been
made on the Senior Discount Notes. All payments due at maturity on the Notes
must be made in cash.
The Indentures under which the new securities were issued contain customary
affirmative and negative restrictive covenants that limit the payment of
dividends, the incurrence of additional indebtedness or liens, certain sales of
assets and other actions by the Company and restricted subsidiaries. In the
event of default, the holders of the Notes would be entitled to enforce the
liens granted by the Company on its future patent royalty stream and the
Colorado Springs facility and to apply amounts collected to repayment of the
Notes.
Noncurrent Maturities of Long-term Debt
The following table summarizes the scheduled noncurrent maturities of the
Company's long-term debt as of December 31, 2001, for years subsequent to 2002:
Year
---- (in thousands)
2005 $10,774
2008 48,016
F-19
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 11--Other Liabilities
December 31,
---------------
2001 2000
------- -------
(in thousands)
Pension...................... $28,465 $13,924
Reserve for tax liabilities.. 11,669 11,669
Other postemployment benefits 279 194
Environmental................ 1,020 1,020
Other........................ 307 382
------- -------
Total..................... $41,740 $27,189
======= =======
The increase in accrued pension liabilities from December 31, 2000 to
December 31, 2001 is primarily attributed to the change in interest rate
assumptions and actuarial gains. See Note 16.
Note 12--Commitments and Contingencies
Leases
The Company leases certain manufacturing and office facilities and equipment
under operating lease agreements. At December 31, 2001 future annual lease
obligations under leases with noncancellable lease terms in excess of one year
were as follows:
Year
---- (in thousands)
2002...... $ 3,621
2003...... 3,264
2004...... 2,916
2005...... 2,731
2006...... 2,705
Thereafter 4,368
-------
$19,605
=======
Total rent expense for all operating leases for continuing operations was
$3.0 million, $2.5 million and $4.1 million for the years ended December 31,
2001, 2000 and 1999, respectively.
The following is a schedule by years of future minimum lease payments under
a capital lease together with the present value of the net minimum lease
payments as of December 31, 2001:
Year
---- (in thousands)
2002....................................... $ 17
2003....................................... 17
2004....................................... 10
----
Net minimum lease payments................. 44
Less amount representing interest.......... (10)
----
Present value of net minimum lease payments $ 34
====
The capital lease was signed by a discontinued operation and was supported
by a guarantee issued by the Company. The asset has been written off as part of
the reserve established at the time of closing the discontinued operation.
F-20
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Legal Proceedings
The Company is currently a defendant in lawsuits that have arisen in the
ordinary course of its business. Certain subsidiaries have been assessed income
and value-added taxes together with penalties and interest. Management does not
believe that any such lawsuits or unasserted claims will have a material
adverse effect on the Company's financial position, results of operations or
cash flows.
The State of California assessed income tax in the amount of $0.5 million
for the period 1983 - 1985 while the Company was a subsidiary of The Signal
Companies (currently Honeywell International Inc.). On January 2, 2002, the
Company was granted a deferral of its appeal until October 2002, in order for
it to enter into settlement discussions with the Franchise Tax Board regarding
the outstanding assessment that, with interest and penalty, totals $2.7 million
at December 31, 2001.
Environmental Matters
Ampex's facilities are subject to numerous federal, state and local laws and
regulations designed to protect the environment from waste emissions and
hazardous substances. Owners and occupiers of sites containing hazardous
substances, as well as generators and transporters of hazardous substances, are
subject to broad liability under various federal and state environmental laws
and regulations, including liability for investigative and cleanup costs and
damages arising out of past disposal activities. Ampex has been named from time
to time as a potentially responsible party by the United States Environmental
Protection Agency with respect to contaminated sites that have been designated
as "Superfund" sites, and are currently engaged in various environmental
investigation, remediation and/or monitoring activities at several sites
located off Company facilities. Management has provided reserves, which have
not been discounted, related to investigation and cleanup costs and believes
that the final disposition of these matters will not have a material adverse
effect on the Company's financial position, results of operations or cash flows.
The Company has not accrued any liability for costs that might be assessed
against it by federal or state environmental agencies involving sites owned by
the Company's former subsidiary Media. Media is primarily responsible for the
cleanup at its facilities and at off site locations. The Company believes that
it has no material contingent liability in connection with the Media properties.
Guarantees
The Company has certain arrangements with banks primarily to facilitate the
issuance of performance guarantees or letters of credit. At December 31, 2001
and 2000, the Company was contingently liable for $1.2 million of general
performance guarantees and letters of credit.
Note 13--Preferred Stock
Each share of Convertible Preferred Stock and Redeemable Preferred Stock
entitles the holder thereof to receive noncumulative dividends at the rate of
8% per annum, if declared by the Company's Board of Directors. Each share of
Convertible Preferred Stock may be converted, at the option of the holder
thereof, at a conversion price of $4.00 per share, into 500 shares of Common
Stock, subject to adjustment under certain circumstances. Beginning in June
2001, the Company became obligated to redeem any remaining Convertible
Preferred Stock in quarterly installments through December 2008. For the year
ended December 31, 2001, the Company issued 859,200 shares of Common Stock to
satisfy the quarterly redemption requirements, leaving 51 shares of Convertible
Preferred Stock outstanding. For the year ended December 31, 2000, the holders
of 760 shares of Convertible Preferred Stock converted their holdings into
380,000 shares of Common Stock. Beginning in June
F-21
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1999, the Company became obligated to redeem the Redeemable Preferred Stock in
quarterly installments through March 2008. For the year ended December 31,
2001, the Company issued 1,718,400 shares of its Common Stock to satisfy the
quarterly redemption requirements, leaving 15,025 shares of Redeemable
Preferred Stock outstanding. The Company is obligated to redeem approximately
$4.4 million face amount of Convertible and Redeemable Preferred Stock over the
next twelve months. The Company has the option to make mandatory redemption
payments either in cash or in shares of Common Stock. In the event that the
Company does not have sufficient funds legally available to make any mandatory
redemption payment in cash, the Company will be required to make such
redemption payment by issuing shares of Common Stock. Shares of Common Stock
issued to make any optional or mandatory redemption payments will be valued at
the higher of $2.50 or fair market value per share of Common Stock. The Company
intends to issue shares of Common Stock to satisfy its redemption obligation on
the Redeemable Preferred Stock through December 31, 2002. To the extent that
the floor redemption price exceeds the fair value of shares issued to redeem
the Convertible Preferred Stock and the Redeemable Preferred Stock the Company
recognizes a benefit from extinguishment of preferred stock.
Note 14--Related Party Transactions
In October 2001, Data Systems entered into a revolving credit agreement with
Sherborne & Company Incorporated, a related party of the Company, which is
wholly-owned by Edward Bramson, the Chairman and Chief Executive Officer of
Ampex Corporation. The agreement provides for borrowings of up to $2.5 million,
declining to $1.5 million in January 2002, to $750,000 in February 2002 with
the balance due and payable in full on March 31, 2002. The loan is secured
principally by Data System's inventory and the Company has guaranteed all
borrowings. Borrowings bear interest at 8% per annum on the outstanding
balance. As a commitment fee Ampex issued to the lender 1 million shares of its
Common Stock having a market value of approximately $160,000. See Note 10.
The Company holds three promissory notes included in stockholder's deficit,
totaling $4.6 million, issued by affiliated companies controlled by Edward
Bramson, the Chairman and Chief Executive Officer of Ampex Corporation. The
notes bear interest at 7.96%, 6.34% and 5.74% per annum, mature in January
2005, October 2007 and October 2008, and are secured by a pledge of 1,300,000,
400,000 and 400,000 shares of Class A Stock of the Company, respectively. The
promissory notes represent indebtedness originally incurred in connection with
the purchase of shares of Class A Stock of the Company by Mr. Bramson or his
designees in prior fiscal years. The shares of Class A Stock that collateralize
these notes currently have a market value substantially less than the principal
amount of the notes. In the event of non-payment of any of the notes, there is
no assurance that the Company could recover the full amount thereof.
Note 15--Common Stock, Stock Options and Warrants
The Company's authorized capital stock consists of Class A Common Stock
("Class A Stock"), Class C Common Stock ("Class C Stock", and collectively with
Class A Stock, the "Common Stock") and Preferred Stock. Shares of Class C Stock
and Preferred Stock are generally nonvoting except in circumstances specified
in the Company's charter documents or as otherwise required by applicable
corporate law. Accordingly, holders of Class A Stock are generally the only
stockholders with voting rights. Each share of Class C Stock converts into one
share of Class A Stock automatically following transfer unless otherwise
elected by the transferee.
The Company's 1992 Stock Incentive Plan (the "Stock Incentive Plan") for
directors, executive officers and other key employees provides for the granting
of "nonqualified stock options" and "incentive stock options" to acquire Common
Stock and/or the granting of stock appreciation rights to obtain, in cash or
shares of Common Stock, the benefit of the appreciation of the value of shares
of Common Stock after the grant date.
F-22
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On June 18, 1999, at the Company's Annual Meeting, stockholders authorized
the issuance of an additional 4,000,000 shares of Common Stock under the 1992
Stock Incentive Plan. The Company is currently authorized to issue up to
8,250,000 shares of Common Stock under the Stock Incentive Plan.
At December 31, 2001, there were 3,661,694 options outstanding, including
1,302,610 vested options. The exercise prices range from $0.17 to $6.00 per
share and vesting schedules vary from immediate vesting to vesting over a
three-year period.
Weighted
Shares Aggregate Average
Available Number of Price per Exercise Exercise
for Grant Options Share Price Price
---------- ---------- ----------- ----------- --------
Balances, December 31, 1998 1,276,093 2,342,977 $1.06-10.50 $ 3,421,358 $1.46
Authorized................. 4,000,000 -- -- -- --
Granted.................... (1,298,850) 1,298,850 2.13-5.88 4,696,869 3.62
Canceled................... 154,977 (154,977) 1.06-10.50 (620,292) 4.00
Exercised.................. -- (311,716) 1.06-3.75 (406,674) 1.30
---------- ---------- ----------- ----------- -----
Balances, December 31, 1999 4,132,220 3,175,134 $ 1.06-6.00 $ 7,091,261 $2.23
Granted.................... (1,337,200) 1,337,200 0.438-3.88 2,594,953 1.94
Canceled................... 790,760 (790,760) 1.06-5.88 (2,150,438) 2.72
Exercised.................. -- (204,063) 1.06-1.50 (219,748) 1.08
---------- ---------- ----------- ----------- -----
Balances, December 31, 2000 3,585,780 3,517,511 $0.438-6.00 $ 7,316,028 $2.08
Granted.................... (2,285,000) 2,285,000 0.17-0.40 573,960 0.25
Canceled................... 2,140,817 (2,140,817) 0.38-5.88 (4,500,985) 2.10
---------- ---------- ----------- ----------- -----
Balances, December 31, 2001 3,441,597 3,661,694 $ 0.17-6.00 $ 3,389,003 $0.93
========== ========== =========== =========== =====
For the years ended December 31, 2001, 2000 and 1999, the weighted average
fair value of options granted was $0.15, $1.24 and $2.10 per share,
respectively.
At December 31, 2001, 2000 and 1999 there were 816,000 Warrants outstanding
exercisable at $2.25 per share, to provide a like number of shares of Common
Stock.
The options outstanding and currently exercisable by exercise price at
December 31, 2001 are as follows:
Options Currently
Options Outstanding Exercisable
--------------------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
-------- ----------- ------------ -------- ----------- --------
$0.17-$1.50 2,885,685 2.92 $0.53 813,293 $1.24
$1.56-$4.25 685,287 1.19 2.08 430,503 2.25
$4.87-$6.00 90,722 0.89 4.91 58,814 4.92
--------- ---- ----- --------- -----
3,661,694 2.54 $0.93 1,302,610 $1.74
========= ==== ===== ========= =====
F-23
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair values of options at the date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
December 31,
-------------------------------
2001 2000 1999
--------- --------- ---------
Expected life (years).. 1.0-3.5 1.0-3.5 1.0-3.5
Risk-free interest rate 2.0-4.52% 5.46-6.60% 4.59-6.59%
Expected volatility.... 1.29-1.60 1.03-1.25 0.95-1.5
Expected dividend yield -- -- --
The Company has elected to account for employee stock options using the
intrinsic value method prescribed by APB 25, and therefore compensation cost
for stock options is measured as the excess, if any, of the quoted market price
of the Company's stock at the date of the grant over the amount an employee
must pay to acquire the stock. Had compensation cost for the Company's
stock-based compensation plan been determined on the fair value of the grant
dates for awards under those plans consistent with the method of SFAS 123, the
Company's net income (loss) and diluted income (loss) per share would have been
reduced to the pro forma amounts indicated below:
Year Ended December 31,
----------------------------
2001 2000 1999
-------- -------- --------
(in thousands)
Net loss applicable to common stockholders:
As reported............................. $(22,409) $(35,433) $(15,194)
-------- -------- --------
Pro forma............................... $(22,606) $(36,770) $(17,987)
-------- -------- --------
Basic loss per share:
As reported............................. $ (0.38) $ (0.63) $ (0.29)
-------- -------- --------
Pro forma............................... $ (0.38) $ (0.65) $ (0.34)
-------- -------- --------
Diluted loss per share:
As reported............................. $ (0.38) $ (0.50) $ (0.21)
-------- -------- --------
Pro forma............................... $ (0.38) $ (0.51) $ (0.25)
-------- -------- --------
These proforma disclosures are not necessarily representative of the effects
on reported net income (loss) for future years.
F-24
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 16--Pension Plans
The Company's domestic employees participate in a qualified noncontributory
defined benefit pension plan. Benefits are based on years of service and salary
levels during the highest 60 consecutive months of the last 120 consecutive
months of service. In early 1994, the Company amended the plan to terminate
benefit service and compensation credit accruals as of February 1, 1994. The
impact of this curtailment was not material to the Company's liability accounts
relating to its pension plan. Certain of the Company's employees employed by
its foreign subsidiaries are covered by contributory pension plans maintained
and funded in accordance with local laws.
Pension expense for the domestic plan in 2001, 2000 and 1999 consisted of
the following:
Year Ended December 31,
----------------------------
2001 2000 1999
-------- -------- --------
(in thousands)
Interest on projected benefit obligation $ 12,340 $ 12,398 $ 11,744
Expected return on assets............... (12,937) (14,145) (13,006)
Recognized actuarial loss (gain)........ -- -- 2,083
-------- -------- --------
Net periodic pension cost (benefit).. $ (597) $ (1,747) $ 821
======== ======== ========
The domestic plan funded status and amounts included in the consolidated
balance sheets are as follows:
December 31,
--------------------
2001 2000
--------- ---------
(in thousands)
Actuarial present value of benefits:
Vested and total accumulated benefits. $ 171,680 $ 165,752
========= =========
Projected benefit obligation............. $(171,680) $(165,752)
Less: plan assets at fair value.......... 145,171 157,722
--------- ---------
(26,509) (8,030)
Unrecognized net loss.................... -- --
--------- ---------
Accrued pension cost..................... $ (26,509) $ (8,030)
========= =========
The Company remains the plan sponsor of a pension plan ("Media Plan")
although it disposed of the company ("Media") in November 1995. Media is
contractually required to provide funding for its obligations under the plan,
but if it fails to do so, the Company will be required to make any required
termination liability payments. As of December 31, 2001, the Company's
consolidated balance sheets included $0.3 million in "other accrued
liabilities" for the Media Plan's unfunded status. The Media Plan's projected
benefit obligation and plan assets at fair value at December 31, 2001, were
approximately $47.3 million and $40.1 million, respectively.
F-25
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following provides a reconciliation of benefit obligations, plan assets
and funded status of the plans:
December 31,
------------------
2001 2000
-------- --------
(in thousands)
Change in benefit obligation:
Benefit obligation at the beginning of the year........ $165,752 $164,747
Interest cost.......................................... 12,340 12,398
Actuarial gain......................................... 7,917 2,000
Benefits paid.......................................... (14,329) (13,393)
-------- --------
Benefit obligation at the end of the year.............. $171,680 $165,752
======== ========
Change in plan assets:
Fair value of plan assets at the beginning of the year. $157,722 $175,803
Actual return on plan assets........................... (436) (8,640)
Company contributions.................................. 2,214 3,952
Benefits paid.......................................... (14,329) (13,393)
-------- --------
Fair value of plan assets at the end of the year....... $145,171 $157,722
======== ========
Accrued benefit liability.............................. $(26,509) $ (8,030)
Accumulated other comprehensive income................. 40,945 19,655
-------- --------
Net amount recognized.................................. $ 14,436 $ 11,625
======== ========
Actuarial assumptions as of December 31, 2001 and 2000 are as follows:
December 31,
-----------
2001 2000
---- ----
Assumed discount rate............ 7.25% 7.75%
Rate of compensation increase.... N/A N/A
Expected long-term rate of return 8.0% 9.0%
Pension contributions in 2001 totaling $1.3 million were funded through the
issuance of Notes to Hillside. See Note 10. Assets of the domestic pension plan
are invested in directed trusts. At December 31, 2001 and 2000, assets of the
directed trusts were primarily invested in U.S. government obligations,
corporate stocks and bonds and units of common investment funds consisting of
short-term interest bearing instruments and common stock.
In accordance with Statement of Financial Accounting Standards No. 87,
Employers' Accounting for Pensions, the Company has recorded an additional
minimum pension liability for the underfunded plan of $38.2 million
representing the excess of unfunded accumulated benefit obligations over
previously recorded pension cost liabilities at December 31, 2001. To the
extent that these additional liabilities exceed related unrecognized prior
service cost and net transition obligations, the increase or decrease in
liabilities was charged directly to stockholders' deficit. For 2001 and 2000,
stockholders' deficit was charged $20.6 million and $17.6 million,
respectively. At December 31, 1999, the Company recorded a deferred pension
asset of $5.6 million representing the excess of the fair value of plan assets
less the unrecognized net actuarial gain over the accumulated benefit
obligation.
F-26
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of foreign pension expense were as follows:
Year Ended December 31,
----------------------
2001 2000 1999
---- ---- ----
(in thousands)
Service cost........................... $ -- $ -- $--
Interest cost.......................... 117 120 118
FAS 88 income.......................... -- -- (207)
Amortization and deferral.............. -- -- --
---- ---- ----
Net periodic pension cost (benefit). $117 $120 $(89)
==== ==== ====
The reconciliation of the funded status of the foreign plans is as follows:
December 31,
----------------------------------------------
2001 2000
Plans in Which Plans in Which
---------------------- ----------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
----------- ----------- ----------- -----------
(in thousands)
Actuarial present value of benefits:
Vested and total accumulated benefits................ $ -- $ 1,630 $-- $ 1,880
---- ------- --- -------
Projected benefit obligation............................ $ -- $ (1,63) $-- $(1,880)
Remaining unrecognized transition net (asset) obligation -- (73) -- 144
---- ------- --- -------
Prepaid (accrued) pension cost.......................... $-- $(1,703) $-- $(1,736)
==== ======= === =======
The Company also maintains a 401(k) savings plan available to domestic
employees. The Company matches certain portions of employee contributions after
one year of service. Contributions and expenses in connection with this plan
amounted to $0.4 million, $0.5 million and $0.6 million for the year ended
December 31, 2001, 2000 and 1999, respectively.
Note 17--Royalty Income
In 2001 and 1999, the Company received and recognized payments attributable
to negotiated settlements related to prior years' sales of products by
licensees. Such payments amounted to $3.5 million and $6.7 million in 2001 and
1999, respectively. The royalties for 2000 and the balance of royalties earned
in 2001 and 1999 represents royalties for product shipments in the current
period.
F-27
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 18--Restructuring Charges (Credits)
Restructuring charges (credits) for the years ended December 31, 2001, 2000
and 1999 consist of the following:
Year Ended December 31,
----------------------
2001 2000 1999
------ ---- -------
(in thousands)
Provisions for vacated lease obligations............. $2,000 $-- $(3,827)
Write-down of property, plant and equipment.......... 451 -- 440
Provisions for employee separation costs............. 1,014 -- 2,545
Provisions for relocation............................ 53 -- 301
Costs associated with closure of foreign subsidiaries -- -- 1,462
------ --- -------
$3,518 $-- $ 921
====== === =======
The Company recorded a net restructuring charge in 2001 of $3.5 million. The
Company's consolidation of facilities in Redwood City, California resulted in a
total charge of $2.5 million including a $2.0 million provision for future
lease obligations, net of estimated sublease rental income, $0.5 million for
the write-off of leasehold improvements and $53 thousand in connection with
relocation charges. The remaining $1.0 million restructuring charge represented
costs associated with the elimination of approximately 86 U.S. positions in
engineering, manufacturing and administration which were completed by year-end.
At December 31, 2001, the Company had a $2.0 million remaining liability
entirely related to the future lease obligations.
The Company recorded a net restructuring charge after certain credits in
1999 of $0.9 million. The charge included $3.3 million in connection with the
Company's elimination of 86 U.S. positions in engineering, manufacturing and
administration associated with the relocation of its DCRsi manufacturing
operations and other functions from its Redwood City, California facility to
its Colorado Springs, Colorado facility and $1.5 million for the closure of its
German subsidiary, offset by a credit of $3.9 million related to favorable
lease terminations at its Redwood City, California location.
The lease obligations associated with the Company's restructuring have not
been discounted to present value.
F-28
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 19--Income Taxes
Income (loss) from continuing operations before income taxes for domestic
and foreign operations consisted of the following:
Year Ended December 31,
-----------------------
2001 2000 1999
------- ------ ------
(in thousands)
Domestic $(9,272) $2,723 $6,924
Foreign. (428) (16) 3
------- ------ ------
$(9,700) $2,707 $6,927
======= ====== ======
The provision for (benefit of) income taxes consisted of the following:
Year Ended December 31,
----------------------
2001 2000 1999
------ ------ ------
(in thousands)
Current:
Federal..................................... $ -- $ -- $ --
State....................................... (24) 10 --
Foreign..................................... (31) (35) (95)
Foreign withholding taxes on royalty income. 1,230 1,252 2,010
------ ------ ------
1,175 1,227 1,915
------ ------ ------
Long-term:
State....................................... -- -- --
Foreign..................................... -- -- --
------ ------ ------
-- -- --
------ ------ ------
$1,175 $1,227 $1,915
====== ====== ======
The difference between taxes computed by applying the statutory federal
corporate income tax rate (effective for 2001, 2000, and 1999) to income (loss)
from continuing operations before income taxes and the actual provision for
income taxes was as follows:
Year Ended December 31,
------------------------
2001 2000 1999
------- ------ -------
(in thousands)
Federal income tax provision at statutory rate $(3,395) $ 947 $ 2,424
Domestic losses not benefited................. 3,245 -- --
Foreign gains not taxed....................... -- -- (1)
Foreign losses not benefited.................. 150 6 --
Rates in excess of U.S........................ 1,230 1,252 2,010
Temporary differences not previously benefited -- (953) (2,423)
Other, net.................................... (55) (25) (95)
------- ------ -------
$ 1,175 $1,227 $ 1,915
======= ====== =======
F-29
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table shows the major components of the deferred income tax
assets and liabilities as of December 31, 2001 and 2000:
December 31,
-------------------
2001 2000
--------- --------
(in thousands)
Inventory basis differences..................................................... $ 3,687 $ 3,176
Restructuring reserves and other liabilities not yet deductible for tax purposes 14,009 5,518
Loss carryforwards.............................................................. 84,758 48,904
Foreign withholding taxes on undistributed earnings of foreign subsidiaries..... (1,213) (1,213)
Property, plant and equipment basis differences................................. 712 696
Credit from prior year's minimum tax............................................ 1,191 1,191
Other........................................................................... 1,894 4,170
Less valuation allowance........................................................ (106,251) (63,655)
--------- --------
Deferred tax liability....................................................... $ (1,213) $ (1,213)
========= ========
A valuation allowance has been established to reduce the deferred tax asset
to the amount expected to be realized.
As at December 31, 2001, the Company had net operating loss carryforwards
for income tax purposes of $217 million expiring in the years 2005 through
2021. As a result of the financing transactions that were completed in April
1994 and February 1995, the Company's ability to utilize its net operating
losses and credit carryforwards as an offset against future consolidated
federal income tax liabilities will be restricted in its application, which
will result in a material amount of the net operating loss never being utilized
by the Company.
Note 20--Segment Reporting
The Company has the following operating segments: high-performance mass data
storage systems, instrumentation recorders and professional video products;
licensing of intellectual property. The accounting policies of the segments are
the same as those described in the summary of significant accounting policies.
The Company evaluates segment performance based on return on operating
assets employed. Profitability is measured as income or loss from continuing
operations before income taxes excluding goodwill amortization and
restructuring charges.
F-30
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Intersegment sales and transfers are accounted for at current market prices
but they were not significant to revenues.
Year Ended December 31, 2001
---------------------------------------------------
Mass Data
Storage Systems/ Licensing of Eliminations
Instrumentation Intellectual and
Recorders Property Corporate Totals
---------------- ------------ ------------ --------
Revenues from external customers........ $33,964 $12,056 $ -- $ 46,020
Interest income......................... 62 -- 268 330
Interest expense........................ 2,223 -- 5,010 7,233
Depreciation, amortization and accretion 2,601 2 836 3,439
Segment income (loss)................... (6,629) 11,410 (14,481) (9,700)
Segment assets.......................... 24,821 -- 14,352 39,173
Expenditures for segment assets......... 150 -- -- 150
Year Ended December 31, 2000
---------------------------------------------------
Mass Data
Storage Systems/ Licensing of Eliminations
Instrumentation Intellectual and
Recorders Property Corporate Totals
---------------- ------------ ------------ --------
Revenues from external customers........ 47,582 $12,272 $ -- 59,854
Interest income......................... 194 -- 1,127 1,321
Interest expense........................ 919 -- 4,804 5,723
Depreciation, amortization and accretion 1,375 3 806 2,184
Segment income (loss)................... 1,429 11,220 (11,169) 1,480
Segment assets.......................... 31,740 2 28,575 60,317
Expenditures for segment assets......... 399 -- -- 399
Year Ended December 31, 1999
---------------------------------------------------
Mass Data
Storage Systems/ Licensing of Eliminations
Instrumentation Intellectual and
Recorders Property Corporate Totals
---------------- ------------ ------------ --------
Revenues from external customers........ $51,633 $19,850 $ -- $ 71,483
Interest income......................... 255 -- 2,261 2,516
Interest expense........................ 624 -- 4,837 5,461
Depreciation, amortization and accretion 1,446 3 973 2,422
Segment income (loss)................... (2,736) 18,582 (10,834) 5,012
Segment assets.......................... 29,937 5 77,378 107,320
Expenditures for segment assets......... 990 -- 285 1,275
F-31
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 21--Foreign Operations
The following table shows certain financial information relating to the
Company's operations in various geographical areas:
Year Ended December 31,
----------------------------
2001 2000 1999
-------- -------- --------
(in thousands)
Total revenue:
United States............................................. $ 42,683 $ 56,439 $ 65,963
Europe, Africa and the Middle East........................ 3,030 4,425 8,574
Other foreign............................................. 2,331 3,409 3,286
Eliminations and corporate expenses....................... (2,024) (4,419) (6,340)
-------- -------- --------
Total................................................. $ 46,020 $ 59,854 $ 71,483
======== ======== ========
Year Ended December 31,
----------------------------
2001 2000 1999
-------- -------- --------
(in thousands)
Income (loss) from continuing operations before income taxes:
United States............................................. $ (9,085) $ 2,699 $ 8,851
Europe, Africa and the Middle East........................ (278) (70) (1,946)
Other foreign............................................. (337) 78 22
-------- -------- --------
Total................................................. $ (9,700) $ 2,707 $ 6,927
======== ======== ========
Loss from discontinued operations:
United States............................................. $(17,254) $(38,176) $(20,580)
======== ======== ========
Year Ended
December 31,
---------------
2001 2000
------- -------
(in thousands)
Identifiable assets:
United States...................... $28,488 $37,912
Europe, Africa and the Middle East. 924 2,316
Other foreign...................... 981 1,217
Eliminations and corporate assets.. 8,780 18,872
------- -------
Total.......................... $39,173 $60,317
======= =======
Transfers between geographic areas are at cost plus a reasonable profit.
Identifiable assets are classified by the location of the Company's facilities
and include cash, investments, accounts receivable, inventories, intangible
assets, other assets, deferred pension and property, plant and equipment.
Corporate assets consisted principally of cash, investments, interest
receivable, deferred pension assets, deferred financing fees and intangible
assets at December 31, 2001 and 2000.
F-32
AMPEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 22--Major Customers
The Company recorded revenue from one licensee and one customer in 2001,
which each individually accounted for more than 10% of the total revenue and
collectively accounted for 24.8%. In 1999, the Company recorded revenue from
one licensee which accounted for 14% of the total revenue. There were no
licensees and customers who accounted for more than 10% of the total revenue in
2000.
Note 23--Quarterly Financial Information (Unaudited)
The following is a summary of the unaudited quarterly financial information
for the years ended December 31, 2001 and 2000.
(In thousands, except share and per share data)
----------------------------------------------
Fiscal 2001
- -----------
Quarters ended March 31 June 30 Sept. 30 Dec. 31
- -------------- -------- -------- -------- --------
Total revenue.................................................... $12,161 $ 10,309 $ 9,589 $ 13,961
Operating loss................................................... (1,272) (1,253) 320 (115)
Loss from continuing operations.................................. (3,121) (3,216) (1,904) (2,634)
Net loss applicable to common stockholders....................... (5,824) (15,808) (188) (589)
Diluted loss per share from continuing operations................ $ (0.05) $ (0.06) $ (0.03) $ (0.04)
Diluted income (loss) per share applicable to common stockholders $ (0.10) $ (0.27) $ 0.00 $ (0.01)
Fiscal 2000
- -----------
Quarters ended March 31 June 30 Sept. 30 Dec. 31
- -------------- -------- -------- -------- --------
Total revenue.................................................... $14,858 $ 15,616 $ 14,455 $ 14,925
Operating income (loss).......................................... 2,198 2,291 1,809 1,403
Income (loss) from continuing operations......................... 1,057 551 336 (464)
Net loss applicable to common stockholders....................... (6,939) (7,918) (10,026) (10,550)
Diluted income (loss) per share from continuing operations....... $ 0.01 $ 0.01 $ 0.00 $ (0.01)
Diluted loss per share applicable to common stockholders......... $ (0.09) $ (0.11) $ (0.14) $ (0.18)
F-33
AMPEX CORPORATION
INDEX TO FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and Qualifying Accounts S-2
S-1
AMPEX CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at Additions Charges to Balance at
beginning of cost and other end of
Description period expenses accounts /(1)/ Deductions /(2)/ period
- ----------- ------------ --------- ------------- --------------- ----------
Allowance for doubtful accounts and sales returns
December 31, 1999............................. $1,360 $(540) $ (53) $(30) $737
December 31, 2000............................. $ 737 $ (39) $(428) $ (1) $269
December 31, 2001............................. $ 269 $ (99) $ (16) $ (1) $153
/(1)/ Includes transfers and reclassifications to other accounts, including any
disposition of MicroNet Technology, Inc. and iNEXTV accounts receivable.
/(2)/ Includes write-offs and disposition of accounts receivable.
S-2
AMPEX CORPORATION
2001 FORM 10-K
EXHIBIT INDEX
Description
- -----------
3.1 Restated Certificate of Incorporation of the Company, as amended through June 21, 1999.
3.2 By-Laws of the Company, as amended through April 20, 1995.
4.4 Indenture, dated as of February 28, 2002, between the Company and State Street Bank and Trust
Company, as trustee, relating to the Company's 12% Senior Notes due 2008, including forms of
12% Senior Notes and Security Agreement.
4.9 Fourth Amendment to Note Purchase Agreement, dated as of January 31, 2002, among Data
Systems, the Company and the several Note Purchasers named therein.
4.19 Fifth Amendment to Note Purchase Agreement, dated as of March 25, 2002, among Data Systems,
the Company and the several Note Purchasers named therein.
10.06 Form of Indemnification Agreement entered into between the Company and members of the
Board of Directors.
10.10 Lease dated January 19, 1996 by and between Martin/Campus Associates, LP as landlord and the
Company as tenant, with respect to approximately 132,150 square feet of premises located on
Douglas Avenue and on Broadway in Redwood City, California.
10.12 Lease dated January 19, 1996 by and between Martin/Campus Associates, LP as landlord and the
Company as tenant, with respect to approximately 60,000 square feet of premises to be
constructed on Broadway in Redwood City, California.
10.14 Joint Settlement Agreement dated November 22, 1994, by and among Pension Benefit Guaranty
Corporation, the Ampex Group (a group of companies that includes the Company), the Limited
Hillside Group and the Sherborne Group.
10.15 Hillside-Ampex/Sherborne Agreement by and among the Ampex Group (a group of companies
that includes the Company), the Limited Hillside Group and the Sherborne Group, dated
December 1, 1994, as amended.
10.17 Promissory Note dated April 18, 2001, issued by Sherborne Capital Incorporated to the Company
in the principal amount of $1,848,000.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney (included in the signature page of this Report).