Form 10-Q
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 29, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-7534
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STORAGE TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-0593263
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One StorageTek Drive, Louisville, Colorado 80028-4309
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (303) 673-5151
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. /X/ YES / / NO
-- --
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock ($0.10 Par Value) - 105,914,764 shares outstanding as of May 6,
2002.
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
March 29, 2002
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Operations 4
Consolidated Statement of Cash Flows 5
Consolidated Statement of Comprehensive Income 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 23
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 24
Item 6 - Exhibits and Reports on Form 8-K 25
Signatures 30
Exhibit Index 31
2
STORAGE TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET
(In Thousands, Except Share Amounts)
03/29/02 12/28/01
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 484,461 $ 453,217
Accounts receivable 446,030 505,630
Inventories 152,432 183,980
Deferred income tax assets 95,190 95,459
Other current assets 11,356 16,240
--------- ---------
Total current assets 1,189,469 1,254,526
Property, plant, and equipment 274,004 232,289
Spare parts for maintenance 37,169 35,674
Deferred income tax assets 121,153 121,826
Other assets 121,296 114,568
--------- ---------
Total assets $1,743,091 $1,758,883
========= =========
LIABILITIES
Current liabilities:
Credit facilities $ -- $ 73,401
Current portion of long-term debt 739 812
Accounts payable 69,942 66,648
Accrued liabilities 404,010 361,113
Income taxes payable 215,826 212,566
--------- ---------
Total current liabilities 690,517 714,540
Long-term debt 9,214 9,523
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Total liabilities 699,731 724,063
--------- ---------
Commitments and contingencies (Note 5)
STOCKHOLDERS' EQUITY
Common stock, $0.10 par value,
300,000,000 shares authorized;
105,482,006 shares issued at March
29, 2002, and 105,032,665 shares
issued at December 28, 2001 10,548 10,503
Capital in excess of par value 884,549 875,379
Retained earnings 156,086 150,129
Accumulated other comprehensive income 6,235 7,642
Treasury stock of 200,643 shares at
March 29, 2002, and December 28,
2001, at cost (3,777) (3,777)
Unearned compensation (10,281) (5,056)
--------- ---------
Total stockholders' equity 1,043,360 1,034,820
--------- ---------
Total liabilities and
stockholders' equity $1,743,091 $1,758,883
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
3
STORAGE TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
Quarter Ended
------------------------------
03/29/02 03/30/01
---------- ----------
Revenue
Storage products $282,165 $305,360
Storage services 173,747 163,459
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Total revenue 455,912 468,819
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Cost of revenue
Storage products 160,816 173,615
Storage services 99,405 97,934
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Total cost of revenue 260,221 271,549
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Gross profit 195,691 197,270
Research and product development costs 54,505 64,194
Selling, general, administrative, and other
income and expense, net 133,996 138,243
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Operating profit (loss) 7,190 (5,167)
Interest income 2,050 2,248
Interest expense (483) (1,635)
------- -------
Income (loss) before income taxes 8,757 (4,554)
Benefit (provision) for income taxes (2,800) 1,550
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Net income (loss) $ 5,957 $ (3,004)
======= =======
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share $ 0.06 $ (0.03)
======= =======
Weighted-average shares 104,431 102,274
======= =======
Diluted earnings (loss) per common share $ 0.06 $ (0.03)
======= =======
Weighted-average and dilutive potential shares 107,449 102,274
======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
4
STORAGE TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands)
Quarter Ended
---------------------------
03/29/02 03/30/01
---------- ----------
OPERATING ACTIVITIES
Cash received from customers $512,530 $572,250
Cash paid to suppliers and employees (396,309) (512,380)
Interest received 2,050 2,248
Interest paid (483) (1,451)
Income tax refunded (paid) 2,173 (1,985)
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Net cash provided by operating activities 119,961 58,682
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INVESTING ACTIVITIES
Purchases of property, plant, and equipment (10,872) (16,818)
Proceeds from sale of property, plant, and equipment 6 76
Other assets (7,354) (3,078)
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Net cash used in investing activities (18,220) (19,820)
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FINANCING ACTIVITIES
Proceeds from employee stock plans 2,862 --
Proceeds from other debt 178 588
Repayments of credit facilities, net (73,401) (16,421)
Repayments of other debt (398) (7,249)
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Net cash used in financing activities (70,759) (23,082)
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Effect of exchange rate changes on cash 262 (3,392)
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Increase in cash and cash equivalents 31,244 12,388
Cash and cash equivalents - beginning of the
period 453,217 279,731
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Cash and cash equivalents - end of the period $484,461 $292,119
======= =======
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $ 5,957 $ (3,004)
Depreciation and amortization expense 23,917 30,502
Inventory writedowns 7,832 5,881
Translation gain (2,409) (662)
Other non-cash adjustments to income 7,732 117
Decrease in accounts receivable 56,618 104,532
(Increase) decrease in other current assets 2,600 (7,860)
(Increase) decrease in inventories 25,253 (34,993)
(Increase) decrease in spare parts (7,930) 4,130
(Increase) decrease in deferred income tax assets 997 (407)
Increase (decrease) in accounts payable 3,369 (11,230)
Decrease in accrued liabilities (7,751) (25,196)
Increase (decrease) in income taxes payable 3,776 (3,128)
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Net cash provided by operating activities $119,961 $ 58,682
======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
5
STORAGE TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
(In Thousands)
Quarter Ended
---------------------------
03/29/02 03/30/01
---------- ----------
Net income (loss) $ 5,957 $ (3,004)
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Other comprehensive income (loss), net of tax:
Cumulative effect of change in accounting
principle on adoption of Statement of
Financial Accounting Standards No. 133
and 138 -- (7,535)
Net gain (loss) on foreign currency cash
flow hedges (38) 18,194
Reclassification adjustment for net gains
included in net income (1,369) (1,964)
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Other comprehensive income (loss), net of tax (1,407) 8,695
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Comprehensive income $ 4,550 $ 5,691
======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
6
STORAGE TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PREPARATION
The accompanying interim consolidated financial statements of Storage Technology
Corporation and its wholly owned subsidiaries (StorageTek or the Company) have
been prepared on substantially the same basis as the Company's annual
consolidated financial statements and should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 28, 2001. In
the opinion of management, the interim consolidated financial statements reflect
all adjustments necessary for the fair presentation of results for the periods
presented, and such adjustments are of a normal, recurring nature.
The consolidated results for interim periods are not necessarily indicative of
expected results for the full fiscal year.
NOTE 2 - INVENTORIES
Inventories, net of associated reserves, consist of the following (in thousands
of dollars):
03/29/02 12/28/01
-------- --------
Raw materials $ 28,874 $ 41,850
Work-in-process 51,524 57,641
Finished goods 72,034 84,489
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$152,432 $183,980
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NOTE 3 - GOODWILL
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets." This statement addresses the accounting for goodwill and intangible
assets subsequent to their acquisition. SFAS No. 142 requires that goodwill no
longer be amortized. Under SFAS No. 142, goodwill will be tested for impairment
on an annual basis or as necessary and written off if impaired. The Company
adopted SFAS No. 142 on the first day of the Company's fiscal year 2002. The
Company will complete the initial goodwill impairment test in the first half of
2002. An impairment charge is not currently anticipated to result from the
completion of this impairment test.
7
The following table presents the adjusted net income (loss) and earnings (loss)
per share had SFAS No. 142 been in effect for all periods presented (in
thousands, except per share amounts):
Quarter Ended
---------------------------
03/29/02 03/30/01
----------- -----------
Reported net income (loss) $ 5,957 $ (3,004)
Add back: Goodwill amortization -- 1,457
--------- ---------
Adjusted net income (loss) $ 5,957 $ (1,547)
======== =========
Basic earnings (loss) per common share:
Reported net income (loss) $ 0.06 $ (0.03)
Goodwill amortization -- 0.01
--------- ----------
Adjusted net income (loss) $ 0.06 $ (0.02)
========= =========
Diluted earnings (loss) per common share:
Reported net income (loss) $ 0.06 $ (0.03)
Goodwill amortization -- 0.01
--------- ----------
Adjusted net income (loss) $ 0.06 $ (0.02)
========= =========
NOTE 4 - DEBT AND FINANCING ARRANGEMENTS
The Company had a financing agreement with a bank that provided for the sale of
promissory notes in the principal amount of up to $75,000,000 at any one time.
This agreement expired in January 2002, and all outstanding promissory notes
under the agreement were repaid at that time. The Company has historically
utilized foreign currency forwards embedded in borrowing commitments to hedge
forecasted cash flows associated with revenue denominated in foreign currencies.
The Company is currently using stand-alone foreign currency options and forwards
in an attempt to mitigate the risk that forecasted cash flows associated with
revenue denominated in foreign currencies may be adversely affected by changes
in foreign currency exchange rates.
See the Company's Annual Report on Form 10-K for the year ended December 28,
2001, for additional information regarding the Company's debt and financing
arrangements, and derivative instruments.
NOTE 5 - LITIGATION
In January 1994, Stuff Technology Partners II, a Colorado Limited Partnership
(Stuff), filed suit in Boulder County, Colorado, District Court (the District
Court) against the Company and certain subsidiaries. The suit alleged that the
Company breached a 1990 settlement agreement that had resolved earlier
litigation between the parties concerning an optical disk drive storage
development project entered into in 1981 which was unsuccessful and terminated
in 1985. The suit seeks injunctive relief and damages in the amount of
$2,400,000,000. In December 1995, the District Court granted the Company's
motion for summary judgment and dismissed the complaint. Stuff appealed the
dismissal to the Colorado Court of Appeals (the Court of Appeals). In March
1997, the Court of Appeals reversed the District Court's judgment and remanded
the case to the District Court for further proceedings. In July 1999, the
District Court again dismissed, with prejudice, all of Stuff's material claims
against the Company. In August 1999, Stuff again appealed the dismissal to the
Court of Appeals seeking to overturn the decision of the District Court. In
August 2000, the Court of Appeals remanded the case back to the District Court
for a trial on the factual issues relating to the interpretation of the language
8
embodied in the 1990 settlement agreement. The Company filed a Petition for
Rehearing with the Court of Appeals. In October 2000, the Court of Appeals
denied the Company's Petition for Rehearing. In November 2000, the Company filed
a Petition for Certiorari with the Supreme Court of Colorado (the Supreme
Court). In April 2001, the Supreme Court denied the Company's petition. The case
has been remanded to the District Court for trial. In July 2001, the parties
stipulated to a bifurcated trial by first proceeding with a liability phase and,
if Stuff were to prevail in the liability phase, a damages phase. A trial date
for the first phase has been set for September 16, 2002. The Company continues
to believe that Stuff's claims are wholly without merit and intends to defend
vigorously any further actions arising from this complaint.
The Company also is involved in various other less significant legal actions.
While the Company currently believes that the amount of any ultimate potential
loss would not be material to the Company's financial position, the outcome of
these actions is inherently difficult to predict. In the event of an adverse
outcome, the ultimate potential loss could have a material adverse effect on the
Company's financial position or reported results of operations in a particular
quarter. An unfavorable decision, particularly in patent litigation, could
require material changes in production processes and products or result in the
Company's inability to ship products or components found to have violated
third-party patent rights.
NOTE 6 - OPERATIONS OF BUSINESS SEGMENTS
The Company is organized into two reportable segments based on the definitions
provided in SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information": storage products and storage services. The storage
products segment includes sales of tape and tape automation products, disk
products, and network products. The storage services segment includes
maintenance and consulting services.
The Company does not have any intersegment revenue, and segment operating
performance is evaluated based on gross profit. The aggregate gross profit by
segment equals the consolidated gross profit, and the Company does not allocate
research and product development costs; selling, general, administrative, and
other income and expense; interest income; interest expense; or benefit
(provision) for income taxes to the segments. The revenue and gross profit by
segment is as follows (in thousands of dollars):
Quarter Ended
-------------------------------
03/29/02 03/30/01
---------- ----------
Revenue:
Storage products $282,165 $305,360
Storage services 173,747 163,459
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Total revenue $455,912 $468,819
======= =======
Gross profit:
Storage products $121,349 $131,745
Storage services 74,342 65,525
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Total gross profit $195,691 $197,270
======= =======
9
The following table provides supplemental financial data regarding revenue from
the Company's storage products segment (in thousands of dollars):
Quarter Ended
-------------------------------
03/29/02 03/30/01
---------- ----------
Tape and tape automation products $227,167 $247,437
Disk products 20,035 25,956
Network and other products 34,963 31,967
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Total storage products revenue $282,165 $305,360
======= =======
NOTE 7 - EARNINGS (LOSS) PER COMMON SHARE
The following table presents the calculation of basic and diluted earnings
(loss) per share (in thousands, except per share amounts):
Quarter Ended
--------------------------------
03/29/02 03/30/01
---------- ----------
Net income (loss) $ 5,957 $ (3,004)
======= =======
Weighted average common shares outstanding:
Basic 104,431 102,274
Effect of dilutive common stock
equivalents 3,018 --
------- -------
Diluted 107,449 102,274
======= =======
Earnings (loss) per common share:
Basic $ 0.06 $ (0.03)
Diluted $ 0.06 $ (0.03)
Options to purchase 4,238,371 shares of common stock as of March 29, 2002, were
excluded from the computation of earnings per share because the exercise price
of the options was greater than the average market price of the Company's common
stock, and therefore, the effect would have been antidilutive. Options to
purchase 10,969,742 shares of common stock as of March 30, 2001, were excluded
from the computation of diluted earnings per share because they were
antidilutive as a result of the net loss incurred in that period.
NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 143, "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets." This statement addresses
the accounting for the recognition and measurement of an asset retirement
obligation and its associated asset retirement cost. SFAS No. 143 is effective
for the Company's financial statements for the year ending December 26, 2003.
The adoption of this statement is not currently anticipated to have a material
impact on the Company's financial position or results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement addresses the accounting for
long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired. The Company adopted SFAS No. 144 on the first day of the
10
Company's fiscal year 2002. The adoption of this statement did not have a
material impact on the Company's financial position or results of operations.
NOTE 9 - SECONDARY STORAGE SERVICE AGREEMENT WITH EDS
On March 29, 2002, StorageTek and Electronic Data Systems Corporation (EDS)
entered into a 10-year master secondary storage service agreement. Under the
terms of the agreement, StorageTek will provide secondary storage services for
certain EDS-operated data center sites within the United States. StorageTek will
receive a fee for these services calculated using a monthly base service fee
adjusted for certain increases and decreases in the actual amount of data
stored. The agreement also provides for adjustments to the fees in the event
specified service level metrics are not achieved.
The agreement can be renewed on an annual basis after the expiration of the
initial 10-year term. The agreement can be cancelled by either party upon
certain events, and can be cancelled by EDS for convenience with six months
notice no sooner than two-and-one-half years from the effective date of the
agreement. In the event EDS terminates the agreement for convenience, a
termination fee is payable to StorageTek with the amount of the fee based upon a
declining scale from the effective date.
In connection with this agreement, StorageTek acquired EDS' secondary storage
equipment in these data center sites for a purchase price of $52,200,000 and
assumed certain pre-existing lease obligations of EDS totaling approximately
$6,400,000. The purchase price was paid in April 2002. Upon the expiration or
termination of the agreement, EDS has the option to purchase any secondary
storage equipment owned by StorageTek at the data center sites at a purchase
price equal to the greater of the net book value of the equipment or the fair
market value of the equipment. The purchase price payable to EDS has been
recorded within property, plant, and equipment and accrued liabilities in the
Consolidated Balance Sheet as of March 29, 2002. This preliminary purchase price
allocation is subject to reclassification by the Company when finalized.
11
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 29, 2002
FORWARD-LOOKING STATEMENTS
All assumptions, anticipations, expectations and forecasts contained in the
following discussion regarding the Company, its future products, business plans,
financial results, performance and future events are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. The
Company's actual results may differ materially because of a number of risks and
uncertainties. Some of these risks are detailed below in "Factors That May
Affect Future Results" and elsewhere in this Form 10-Q. Forward-looking
statements can be identified by the use of words such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "intends," "potential," "continue," or the negative of such terms,
or other comparable words. Forward-looking statements also include the
assumptions underlying or relating to any such statements. The forward-looking
statements contained herein represent a good-faith assessment of the Company's
future performance for which management believes there is a reasonable basis.
The Company disclaims any obligation to update the forward-looking statements
contained herein, except as may be otherwise required by law.
CONSOLIDATED STATEMENT OF OPERATIONS DATA
The following table, stated as a percentage of total revenue, presents
Consolidated Statement of Operations information and revenue by segment.
Quarter Ended
---------------------------------
03/29/02 03/30/01
-------- --------
Storage products:
Tape and tape automation products 49.8% 52.8%
Disk products 4.4 5.5
Network and other products 7.7 6.8
----- -----
Total storage products 61.9 65.1
Storage services 38.1 34.9
----- -----
Total revenue 100.0 100.0
Cost of revenue 57.1 57.9
----- -----
Gross profit 42.9 42.1
Research and product development costs 11.9 13.7
Selling, general, administrative, and other
income and expense, net 29.4 29.5
----- -----
Operating profit (loss) 1.6 (1.1)
Interest income (expense), net 0.3 0.1
----- -----
Income (loss) before income taxes 1.9 (1.0)
Benefit (provision) for income taxes (0.6) 0.4
----- -----
Net income (loss) 1.3% (0.6)%
===== =====
12
REVENUE
STORAGE PRODUCTS
The Company's storage products revenue consists of sales of tape and tape
automation products, disk products, and network products for the mainframe and
open-systems markets. The open-systems market consists of products designed to
operate in the UNIX, NT, and other non-MVS operating environments. Storage
product revenue decreased 8% during the first quarter of 2002, compared to the
same period in 2001, primarily due to decreased revenue from tape and tape
automation products.
Tape and Tape Automation Products
Tape and tape automation product revenue decreased 8% during the first quarter
of 2002, compared to the same period in 2001, primarily due to decreased sales
of tape automation products, including the Virtual Storage Manager(R) (VSM). The
decrease is principally related to a reduction in the number of units sold. The
Company believes this decline is primarily attributable to the current economic
conditions and the associated weakness in information technology spending. These
conditions were particularly prevalent in the Europe and Asia Pacific regions
during the first quarter of 2002. The decreases were partially offset by
increased revenue from mainframe and open-systems tape drive and media products.
The ratio of tape drive sales to library sales increased during the quarter. The
Company believes this increase is due to customers more fully utilizing the
capacity of their existing libraries in order to minimize capital expenditures
during the current economic environment.
Disk Products
Disk product revenue decreased 23% during the first quarter of 2002, compared to
the same period in 2001, primarily due to decreased sales of the Shared Virtual
Array(TM) (SVA) family of products. The decrease reflects both a reduction in
the number of units sold and lower average selling prices. Disk revenue
continues to be affected by pricing pressures and intense competition in the
disk market, as well as the worldwide slowdown in customer spending for disk
storage. The Company has not yet received any significant incremental sales
revenue from its new distribution agreement with LSI Logic Storage Systems,
which was announced in January 2002.
Network and Other Products
Network and other product revenue increased 9% during the first quarter of 2002,
compared to the same period in 2001, primarily due to increased sales of storage
area networking (SAN) hardware. This increase was partially offset by decreased
sales of earlier-generation connectivity products.
STORAGE SERVICES
The Company's storage services revenue primarily includes revenue associated
with the maintenance of the Company's and third-party storage products, as well
as integration service revenue associated with storage consulting activities.
Storage services revenue increased 6% during the first quarter of 2002, compared
to the same period in 2001, primarily as a result of Company initiatives
designed to provide end-to-end solutions that improve customer productivity and
system availability.
13
GROSS PROFIT
Gross profit margins increased to 43% for the first quarter of 2002, compared to
42% for the same period in 2001, primarily as a result of improvements in
storage services profit margins. Gross profit margins for the storage products
segment were unchanged at 43% for the first quarter of 2002, compared to the
same period in 2001. Despite lower manufacturing volume in the first quarter of
2002, the Company improved its manufacturing operations and thus mitigated a
portion of the unfavorable variances from lower production volumes. Gross
margins for the storage services segment increased to 43% for the first quarter
of 2002, compared to 40% for the same period in 2001. The increase reflects
benefits from lower spare parts expense associated with maintenance services, as
well as improvements in the service delivery process.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development expenses decreased 15% during the first quarter
of 2002, compared to the same period in 2001, primarily due to engineering
initiatives designed to improve research and development productivity, increase
strategic alignment, and eliminate non-essential spending. The Company continues
to evaluate and prioritize research and product development programs and is
focusing on the core businesses of tape automation, virtual storage, SAN
products, and related services.
SELLING, GENERAL, ADMINISTRATIVE, AND OTHER INCOME AND EXPENSE
Selling, general, administrative, and other income and expense (SG&A) decreased
3% during the first quarter of 2002, compared to the same period in 2001. As a
percentage of revenue, SG&A was largely unchanged from the first quarter of
2001. The Company is continuing its efforts to control discretionary spending
and identify new opportunities to drive increased profitability.
LITIGATION
In January 1994, Stuff Technology Partners II, a Colorado Limited Partnership
(Stuff), filed suit in Boulder County, Colorado, District Court (the District
Court) against the Company and certain subsidiaries. The suit alleged that the
Company breached a 1990 settlement agreement that had resolved earlier
litigation between the parties concerning an optical disk drive storage
development project entered into in 1981 which was unsuccessful and terminated
in 1985. The suit seeks injunctive relief and damages in the amount of $2.4
billion. In December 1995, the District Court granted the Company's motion for
summary judgment and dismissed the complaint. Stuff appealed the dismissal to
the Colorado Court of Appeals (the Court of Appeals). In March 1997, the Court
of Appeals reversed the District Court's judgment and remanded the case to the
District Court for further proceedings. In July 1999, the District Court again
dismissed, with prejudice, all of Stuff's material claims against the Company.
In August 1999, Stuff again appealed the dismissal to the Court of Appeals
seeking to overturn the decision of the District Court. In August 2000, the
Court of Appeals remanded the case back to the District Court for a trial on the
factual issues relating to the interpretation of the language embodied in the
1990 settlement agreement. The Company filed a Petition for Rehearing with the
Court of Appeals. In October 2000, the Court of Appeals denied the Company's
Petition for Rehearing. In November 2000, the Company filed a Petition for
Certiorari with the Supreme Court of Colorado (the Supreme Court). In April
2001, the Supreme Court denied the Company's petition. The case has been
remanded to the District Court for trial. In July 2001, the parties stipulated
to a bifurcated trial by first proceeding with a liability phase and, if Stuff
were to prevail in the liability phase, a damages phase. A trial date for the
14
first phase has been set for September 16, 2002. The Company continues to
believe that Stuff's claims are wholly without merit and intends to defend
vigorously any further actions arising from this complaint.
The Company also is involved in various other less significant legal actions.
While the Company currently believes that the amount of any ultimate potential
loss would not be material to the Company's financial position, the outcome of
these actions is inherently difficult to predict. In the event of an adverse
outcome, the ultimate potential loss could have a material adverse effect on the
Company's financial position or reported results of operations in a particular
quarter. An unfavorable decision, particularly in patent litigation, could
require material changes in production processes and products or result in the
Company's inability to ship products or components found to have violated
third-party patent rights.
INTEREST INCOME AND EXPENSE
Interest income decreased $198,000 during the first quarter of 2002, compared to
the same period in 2001, primarily as a result of lower interest rates. Interest
expense decreased $1.2 million during the first quarter of 2002, compared to the
same period in 2001, primarily due to a decrease in outstanding debt.
INCOME TAXES
The Company's effective tax rate was 32% for the first quarter of 2002, compared
to 34% for the same period in 2001. The decrease in the effective tax rate is
primarily due to the Company's global tax strategies associated with the
Company's manufacturing operations in Puerto Rico.
Statement of Financial Accounting Standards (SFAS) No. 109 requires that
deferred income tax assets be recognized to the extent realization of such
assets is more likely than not. Based on the currently available information,
management has determined that the Company will more likely than not realize
$216.3 million of deferred income tax assets as of March 29, 2002. The Company's
valuation allowance of approximately $20.8 million as of March 29, 2002, relates
principally to net deductible temporary differences, tax credit carryforwards,
and net operating loss carryforwards.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets." This statement addresses the accounting for goodwill and intangible
assets subsequent to their acquisition. SFAS No. 142 requires that goodwill no
longer be amortized. Under SFAS No. 142, goodwill will be tested for impairment
on an annual basis or as necessary and written off if impaired. The Company
adopted SFAS No. 142 on the first day of the Company's fiscal year 2002. The
Company will complete the initial goodwill impairment test in the first half of
2002. An impairment charge is not currently anticipated to result from the
completion of this impairment test. See Note 3 for a discussion of the financial
impact on the Company's results of operations had SFAS No. 142 been in effect
for all periods presented.
In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
143, "Accounting for Obligations Associated with the Retirement of Long-Lived
Assets." This statement addresses the accounting for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. SFAS No. 143 is effective for the Company's financial
statements for the year ending December 26, 2003. The adoption of this statement
15
is not currently anticipated to have a material impact on the Company's
financial position or results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement addresses the accounting for
long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired. The Company adopted SFAS No. 144 on the first day of the
Company's fiscal year 2002. The adoption of this statement did not have a
material impact on the Company's financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
The Company's operating activities provided cash of $120.0 million during the
first quarter of 2002, compared to cash of $58.7 million generated from
operations during the same period in 2001. The increase in cash generated from
operations during the first quarter of 2002, compared to the same period in
2001, was primarily a result of significantly lower purchases of inventory, as
well as other efforts to more effectively manage working capital. Cash used in
investing activities decreased from $19.8 million during the first quarter of
2001 to $18.2 million during the first quarter of 2002, primarily due to
decreased spending on property, plant, and equipment. Cash used in financing
activities increased to $70.8 million during the first quarter of 2002, compared
to $23.1 million during the first quarter of 2001, primarily as a result of the
repayment of borrowings under the Company's credit facilities, partially offset
by increased proceeds from employee stock plans. The Company has continued to
reduce its outstanding debt balance, and its debt-to-capitalization ratio was
less than 1% as of March 29, 2002.
In connection with the secondary storage service agreement with EDS, the Company
paid $52.2 million to EDS in April 2002. See Note 9 for a discussion of the
agreement with EDS.
Sources of Liquidity and Capitalization
The Company has a $150.0 million revolving credit facility (the Revolver) that
expires in October 2004. The interest rates for borrowing under the Revolver are
dependent on the Company's Total Debt to rolling four quarter Earnings Before
Interest Expense, Taxes, Depreciation, and Amortization (EBITDA) ratio and the
term of the outstanding borrowing. The rate ranges from the applicable LIBOR
plus 1.75% to 2.50% or the agent bank's base rate plus 0.00% to 0.50%. The
Company had no outstanding borrowings under the Revolver as of March 29, 2002,
but had outstanding letters of credit for approximately $227,000. The remaining
available credit under the Revolver as of March 29, 2002, was approximately
$149.8 million. The Revolver is secured by the Company's domestic accounts
receivable and domestic inventory, and contains certain financial and other
covenants, including restrictions on the payment of cash dividends on the
Company's common stock.
The Company had a financing agreement with a bank that provided for the sale of
promissory notes in the principal amount of up to $75.0 million at any one time.
This agreement expired in January 2002, and all outstanding promissory notes
under the agreement were repaid at that time.
The Company's cash flows from operations are currently expected to serve as the
principal source of working capital. Cash flows from operations could be
negatively impacted by a decrease in demand for the Company's products and
services as a result of rapid technological changes and other risks described
under "Factors That May Affect Future Results."
16
The Company believes it has adequate working capital and financing capabilities
to meet its anticipated operating and capital requirements for the next 12
months. Over the longer term, the Company may choose to fund these activities
through the issuance of additional debt or equity financing. The issuance of
equity or convertible debt securities could result in dilution to the Company's
stockholders. There can be no assurance that any additional long-term financing,
if required, can be completed on terms that are favorable to the Company.
The Company's debt-to-capitalization ratio decreased from 7% as of December 28,
2001, to less than 1% as of March 29, 2002, primarily because of the repayment
of borrowings under the Company's credit facilities. See "Working Capital,"
above, for discussion of cash sources and uses.
INTERNATIONAL OPERATIONS
International operations accounted for approximately 48% of the Company's
revenue in the first quarter of 2002, compared to 49% in the same period of
2001. The Company also sells products through domestic indirect distribution
channels that have end-user customers located outside the United States. The
Company expects that it will continue to generate a significant portion of its
revenue from international operations. The majority of the Company's
international operations involve transactions denominated in the local
currencies of countries within western Europe, principally Germany, France, and
the United Kingdom; Australia; Canada; Japan; and Korea. An increase in the
exchange value of the U.S. dollar reduces the value of revenue and profits
generated by the Company's international operations. As a result, the Company's
operating and financial results can be materially affected by fluctuations in
foreign currency exchange rates. In an attempt to mitigate the impact of foreign
currency fluctuations, the Company employs a foreign currency hedging program.
See "Market Risk Management" below.
The Company's international business may be affected by changes in demand
resulting from global and localized economic, business, and political
conditions. The Company is subject to the risks of conducting business outside
the United States, including adverse political and economic conditions;
impositions of, or changes in, tariffs, quotas, and legislative or regulatory
requirements; difficulty in obtaining export licenses; potentially adverse
taxes; the burdens of complying with a variety of foreign laws; and other
factors outside the Company's control. The Company expects these risks to
increase in the future as it expands its operations in eastern Europe and Asia.
There can be no assurance that these factors will not have a material adverse
effect on the Company's business or financial results in the future.
MARKET RISK MANAGEMENT
Foreign Currency Exchange Rate Risk
The Company's primary market risk relates to changes in foreign currency
exchange rates. The functional currency for the Company's foreign subsidiaries
is the U.S. dollar. A significant portion of the Company's revenue is generated
by its international operations. As a result, the Company's financial position,
earnings, and cash flows can be materially affected by changes in foreign
currency exchange rates. The Company attempts to mitigate this exposure as part
of its foreign currency hedging program. The primary goal of the Company's
foreign currency hedging program is to reduce the risk of adverse foreign
currency movements on the reported financial results of its non-U.S. dollar
transactions. Factors that could have an impact on the effectiveness of the
Company's hedging program include the accuracy of forecasts and the volatility
of foreign currency markets. All foreign currency derivatives are authorized and
17
executed pursuant to the Company's policies. The Company does not hold or issue
derivatives for trading purposes.
To implement its foreign currency hedging program, the Company uses foreign
currency options and forwards. These derivatives are used to hedge the risk that
forecasted revenue denominated in foreign currencies might be adversely affected
by changes in foreign currency exchange rates. Foreign currency forwards are
also used to reduce the Company's exposure to foreign currency exchange rate
fluctuations in connection with monetary assets and liabilities denominated in
foreign currencies.
A hypothetical 10% adverse movement in foreign exchange rates applied to the
Company's foreign currency exchange rate sensitive instruments held as of March
29, 2002, and as of December 28, 2001, would result in a hypothetical loss of
approximately $53.4 million and $55.6 million, respectively. These hypothetical
losses do not take into consideration the Company's underlying international
operations. The Company anticipates that any hypothetical loss associated with
the Company's foreign currency exchange rate sensitive instruments would be
offset by gains associated with its underlying international operations.
Interest Rate Risk
Changes in interest rates affect interest income earned on the Company's cash
investments, as well as interest expense on short-term borrowings. A
hypothetical 10% adverse movement in interest rates applied to cash investments
and short-term borrowings held as of March 29, 2002, and as of December 28,
2001, would not have a material adverse effect on the Company's financial
position, earnings, or cash flows.
Credit Risk
The Company is exposed to credit risk associated with cash investments, foreign
currency derivatives, and trade receivables. The Company does not believe that
its cash investments and foreign currency derivatives present significant credit
risks, because the counterparties to the instruments consist of major financial
institutions, and the Company manages the notional amount of contracts entered
into with any one counterparty. Substantially all trade receivable balances are
unsecured. The concentration of credit risk with respect to trade receivables is
limited due to the large number of customers in the Company's customer base and
their dispersion across various industries and geographic areas. Although the
Company has a large number of customers who are dispersed across different
industries and geographic areas, a prolonged economic downturn could increase
the Company's exposure to credit risk on its trade receivables. The Company
performs ongoing credit evaluations of its customers and maintains an allowance
for potential credit losses.
FACTORS THAT MAY AFFECT FUTURE RESULTS
New Products and Services
The Company's results of operations and competitive strength depend on its
ability to successfully develop, manufacture, and market innovative new products
and services. Short product life cycles are inherent in the high-technology
market. The Company devotes significant resources to research and product
development projects and must effectively manage the risks inherent in new
product transitions. Developing new technologies, products, and services is
complex and involves various uncertainties. In addition, the Company is still
developing the necessary product modifications and professional services
18
knowledge to successfully implement its SAN solutions in various customer
operating environments. Delays in product development, manufacturing, or in
customer evaluation and purchasing decisions may make product transitions
difficult. The manufacture of new products involves integrating complex designs
and processes, collaborating with sole source suppliers for key components, and
increasing manufacturing capacities to accommodate demand. A design flaw, the
failure to obtain sufficient quantities of key components, or manufacturing
constraints could adversely affect the Company's operating and financial
results. The Company has experienced product development and manufacturing
delays in the past that adversely affected its financial results and competitive
position. There can be no assurance that the Company will be able to
successfully manage the development and introduction of new products and
services in the future.
Emerging Markets
Future revenue growth is partially dependent on successfully developing and
introducing products for two primary emerging markets: the open-systems market
and the SAN market.
The open-systems market includes products designed to operate in the UNIX, NT,
and other non-MVS operating environments. Competition in the open-systems market
is aggressive and is based on functionality, technology, performance,
reliability, quality, system scalability, price, product availability, customer
service, and brand recognition. The open-systems market encompasses a broad
range of customers, including customers outside of the Company's traditional
customer base. Many of the Company's potential customers in the open-systems
market purchase their storage requirements as part of a bundled product, which
may provide a competitive advantage to the Company's rivals. The Company expects
to address these competitive factors through the delivery of storage solutions
that provide customers with superior functionality, performance, and quality.
The Company's customer base continues to shift to the open-systems market, and
there can be no assurance that the Company's strategy will be effective in
expanding its open-systems market sales.
The current and potential market for SAN solutions and technologies is
continually evolving, and is characterized by rapidly changing technology and
standards. New SAN solutions are continually being introduced by major server
and storage providers. Customers may be reluctant to adopt new data storage
standards, and competing standards may emerge that will be preferred by
customers. Because this market is new and standards are still being defined, it
is difficult to predict the potential size of the SAN market or the future rate
of adoption of the Company's SAN solutions.
Competition
In the first quarter of 2002, approximately 81% of the Company's product sales
revenue was derived from sales of tape and tape automation products.
Additionally, a significant portion of the Company's service revenue is derived
from the service of tape and tape automation products. One of the key
competitive advantages that the Company's tape and tape automation products have
over the competition's disk storage products is that the Company's tape and tape
automation products store digitized data at a fraction of the cost of disk
storage. The cost of disk storage continues to decrease at a rapid rate. The
Company must continue to develop and introduce new tape and tape automation
products that reduce the cost of storage at a rate that is similar to the
decline in disk storage costs in order to maintain this competitive advantage.
Strong competition has resulted in price erosion in the past, and the Company
expects this trend to continue. The disk market has recently been subject to
intense price competition. While the Company has unique competitive advantages
19
with respect to its established customer base and a broad range of storage
solution offerings, the Company's ability to compete in the disk market may be
limited by the resources available for the further development of its disk
products, as well as the ability to continue dropping the prices for its disk
offerings to meet its competition.
Price competition for the Company's products and services may have a significant
impact on the Company's gross profit margins. The Company's ability to sustain
or improve total gross margins is significantly dependent on designing,
developing, and manufacturing competitive products, as well as reducing costs
associated with the sourcing of production materials. Storage product gross
margins also may be affected in future periods by inventory reserves and
writedowns resulting from rapid technological changes or delays in gaining
market acceptance for products.
Indirect Channels
The Company continues to develop its indirect distribution channels, including
original equipment manufacturers (OEMs), value-added distributors (VADs),
value-added resellers (VARs), and other distributors. Increasing the Company's
sales through these indirect channels is critical to the Company's successful
expansion into the open-systems marketplace. There can be no assurance that the
Company will be successful in expanding its indirect channel sales. Furthermore,
there can be no assurance that profit margins on indirect channel sales will not
deteriorate due to competitive pressures. Maintenance revenue also may be
adversely affected in future periods to the extent that customers of these
indirect channel partners elect to purchase maintenance services from vendors
other than the Company.
The Company's ability to forecast future demand for its products may be
adversely affected by unforeseen changes in demand from its indirect channel
customers. The Company's worldwide indirect channel sales were adversely
impacted during 2001 by the downturn in the economy. Although there was some
improvement in U.S. indirect channel sales in the first quarter of 2002, the
Company has limited visibility to future indirect channel sales and the future
financial condition of its channel partners. The Company's financial results may
be negatively affected if the financial condition of one or more of these
channel partners weakens or if the current slowdown in customer spending
continues.
Significant Personnel Changes
The Company has experienced significant changes in its executive management team
during the last two years. There can be no assurance that future changes in the
executive management team will not occur, and it may take a period of time
before the new executive management team becomes fully effective.
The future success of the Company depends in large part on its ability to
attract, retain, and motivate highly skilled employees. The Company faces
significant competition for individuals who possess the skills required to
design, develop, manufacture, and market the Company's products and services. An
inability to successfully attract, retain, and motive these employees could have
an adverse effect on future operating results.
Ability to Develop and Protect Intellectual Property Rights
The Company relies heavily on its ability to develop new intellectual property
rights that do not infringe on the rights of others in order to remain
competitive and to develop and manufacture products that are competitive in
terms of technology and cost. There can be no assurance that the Company will
continue to be able to develop such new intellectual property.
20
The Company relies on a combination of U.S. patent, copyright, trademark, and
trade secret laws to protect its intellectual property rights. With respect to
certain of the Company's international operations, the Company files patent and
trademark registration applications with foreign governments. However, many
foreign countries do not have intellectual property laws that are as well
developed as those of the United States. The Company enters into confidentiality
agreements relating to its intellectual property with its employees and
consultants. In addition, the Company includes confidentiality provisions in
license and non-exclusive sales agreements with its customers.
Despite all of the Company's efforts to protect its intellectual property
rights, unauthorized parties may attempt to copy or otherwise obtain or use the
Company's intellectual property. Monitoring the unauthorized use of the
Company's intellectual property rights is difficult, particularly in foreign
countries. There can be no assurance that the Company will be able to protect
its intellectual property rights, particularly in foreign countries.
Sole Source Suppliers
The Company generally uses standard parts and components for its products and
believes that, in most cases, there are a number of alternative, competent
vendors for most of those parts and components. Many nonstandard parts are
obtained from a single source or a limited group of suppliers. However, there
are other vendors who could produce these parts in satisfactory quantities after
a period of prequalification and product ramping. Certain key components and
products are purchased from sole source suppliers that the Company believes are
currently the only manufacturers of the particular components that meet the
Company's qualification requirements and other specifications or for which
alternative sources of supply are not readily available. Imation Corporation is
a sole source supplier for the 9840 and 9940 tape media, and the Company is
dependent on Imation to economically produce large volumes of high-quality tape
media at a cost acceptable to the Company and its customers. IBM was a sole
source supplier for disk drives used in the Company's V960 and VSM products. As
a result of IBM discontinuing the manufacture of these drives, the Company
entered into a final purchase commitment with IBM based on forecasted
requirements. The Company recognized inventory writedowns during 2001 related to
the projected excess inventory levels of IBM disk drives obtained as part of the
final purchase commitment. The Company is currently developing a standard
industry drive interface for its virtual disk and tape products. This project is
in the engineering and development stage. Failure to accurately forecast drive
requirements or changes in the development schedule for the drive interface
could result in additional inventory writedowns, or the inability to meet
customer needs for these products.
Certain suppliers have experienced occasional technical, financial, or other
problems that have delayed deliveries in the past. An unanticipated failure of
any sole source supplier to meet the Company's requirements for an extended
period, or the inability to secure comparable components in a timely manner,
could result in a shortage of key components, longer lead times, and reduced
control over production and delivery schedules. These factors could have a
material adverse effect on revenue and operating results. In the event a sole
source supplier was unable or unwilling to continue to supply components, the
Company would need to identify and qualify other acceptable suppliers. This
process could take an extended period, and no assurance can be given that any
additional source would become available or would be able to satisfy production
requirements on a timely basis or at a price acceptable to the Company.
21
The Company is dependent on a sole subcontractor, Herald Datanetics Ltd. (HDL),
to manufacture a key component used in certain tape products. HDL is located in
the People's Republic of China (PRC). To date, the Company has not experienced
any material problems with HDL. The Company's dependence on HDL is subject to
additional risks beyond those associated with other sole suppliers, including
the lack of a well-established court system or acceptance of the rule of law in
the PRC, the degree to which the PRC permits economic reform policies to
continue, the political relationship between the PRC and the United States, and
broader political and economic factors.
Manufacturing
The Company manufactures a significant portion of its products in facilities
located in Puerto Rico. The Company's ability to manufacture products may be
affected by weather-related risks beyond the control of the Company. If the
Puerto Rico manufacturing facility were affected by weather, the Company may not
have an alternative source to meet the demand for its products without
substantial delays and disruption to its operations. The Company carries
interruption insurance to mitigate some of this risk. There is no assurance that
the Company could obtain sufficient alternate manufacturing sources or repair
the facilities in a timely manner to satisfy the demand for its products.
Failure to fulfill manufacturing demands could adversely affect the Company's
operating and financial results in the future.
From time to time, the Company has experienced delivery delays, increased lead
times in ordering parts and components for its products, and rapid changes in
the demand by customers for certain products. These longer lead times, coupled
with rapid changes in the demand for products, could result in a shortage of
parts and components, reduced control over delivery schedules, and an inability
to fulfill customer orders in a timely manner. The complexities of these issues
increase when the Company transitions to newer technologies and products. These
factors could have a material adverse effect on revenue and operating results.
Earnings Fluctuations
The Company's financial and operating results may fluctuate from quarter to
quarter for a number of reasons. Many of the Company's customers undertake
detailed procedures relating to the evaluation, testing, implementation, and
acceptance of the Company's products. This evaluation process results in a
variable sales cycle and makes it difficult to predict if or when revenue will
be earned. Furthermore, gross margins may be adversely impacted in an effort to
complete the sales cycle.
In the past, the Company's results have followed a seasonal pattern, which
reflects the tendency of customers to make their purchase decisions at the end
of a calendar year. During any fiscal quarter, a disproportionately large
percentage of the total product sales are earned in the last weeks or days of
the quarter. This effect has been compounded by the recent slowdown in the
global economy.
A number of other factors also may cause revenue to fall below expectations,
such as product and technology transitions announced by the Company or its
competitors, delays in the availability of new products, changes in the
purchasing patterns of the Company's customers and distribution partners, or
adverse global economic conditions. The mix of sales among the Company's
business segments and sales concentration in particular geographic regions may
carry different gross profit margins and may cause the Company's operating
margins to fluctuate. These factors make the forecasting of revenue inherently
difficult. Because the Company plans its operating expenses on expected revenue,
a shortfall in revenue may cause earnings to be below expectations in that
period.
22
The Company's ability to generate revenue growth during 2001 and the first
quarter of 2002 was adversely affected by the slowdown in the global economy as
some customers delayed purchase decisions, reevaluated their information
technology spending budgets, and reduced capital expenditures by maximizing the
current capacities of their data storage equipment. In light of this economic
environment, the Company has implemented various cost-saving measures, including
reduced discretionary spending and delayed employee merit increases. There can
be no assurance that a prolonged economic downturn will not have additional
adverse effects on the Company's future revenue or operating results.
Furthermore, there can be no assurance that these measures will be successful or
sufficient to allow the Company to continue to generate improved operating
results in future periods. It is possible that changes in the Company's business
or its industry may necessitate restructuring activities in the future. The
necessity for restructuring activities may result in expenses that adversely
affect reported results of operations in the period the restructuring plan is
adopted and may require incremental cash payments.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required under this Item 3 is included in the section above
entitled "Market Risk Management."
23
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In January 1994, Stuff Technology Partners II, a Colorado Limited Partnership
(Stuff), filed suit in Boulder County, Colorado, District Court (the District
Court) against the Company and certain subsidiaries. The suit alleged that the
Company breached a 1990 settlement agreement that had resolved earlier
litigation between the parties concerning an optical disk drive storage
development project entered into in 1981 which was unsuccessful and terminated
in 1985. The suit seeks injunctive relief and damages in the amount of $2.4
billion. In December 1995, the District Court granted the Company's motion for
summary judgment and dismissed the complaint. Stuff appealed the dismissal to
the Colorado Court of Appeals (the Court of Appeals). In March 1997, the Court
of Appeals reversed the District Court's judgment and remanded the case to the
District Court for further proceedings. In July 1999, the District Court again
dismissed, with prejudice, all of Stuff's material claims against the Company.
In August 1999, Stuff again appealed the dismissal to the Court of Appeals
seeking to overturn the decision of the District Court. In August 2000, the
Court of Appeals remanded the case back to the District Court for a trial on the
factual issues relating to the interpretation of the language embodied in the
1990 settlement agreement. The Company filed a Petition for Rehearing with the
Court of Appeals. In October 2000, the Court of Appeals denied the Company's
Petition for Rehearing. In November 2000, the Company filed a Petition for
Certiorari with the Supreme Court of Colorado (the Supreme Court). In April
2001, the Supreme Court denied the Company's petition. The case has been
remanded to the District Court for trial. In July 2001, the parties stipulated
to a bifurcated trial by first proceeding with a liability phase and, if Stuff
were to prevail in the liability phase, a damages phase. A trial date for the
first phase has been set for September 16, 2002. The Company continues to
believe that Stuff's claims are wholly without merit and intends to defend
vigorously any further actions arising from this complaint.
In December 1999, the Company filed suit in the U.S. District Court for the
Western District of Wisconsin against Cisco Systems, Inc. ("Cisco"), alleging
that Cisco infringed on a certain patent of the Company that Cisco used in its
products. The Company filed an amended complaint on December 30, 1999, in which
the Company alleged that Cisco had infringed on a second patent used in its
products. Cisco filed an answer in January 2000 denying the Company's claims,
alleging that the Company's patents are invalid. In March 2000, the case was
transferred to the U.S. District Court for the Northern District of California.
In February 2002, the Court granted Cisco's motions for summary judgment of
non-infringement. The Company has appealed that decision to the Court of Appeals
for the Federal Circuit.
The Company also is involved in various other less significant legal actions.
While the Company currently believes that the amount of any ultimate potential
loss would not be material to the Company's financial position, the outcome of
these actions is inherently difficult to predict. In the event of an adverse
outcome, the ultimate potential loss could have a material adverse effect on the
Company's financial position or reported results of operations in a particular
quarter. An unfavorable decision, particularly in patent litigation, could
require material changes in production processes and products or result in the
Company's inability to ship products or components found to have violated
third-party patent rights.
24
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The exhibits listed below are filed as part of this Quarterly Report on Form
10-Q or are incorporated by reference into this Quarterly Report on Form 10-Q:
3.1 Restated Certificate of Incorporation of Storage Technology Corporation
dated July 28, 1987 (previously filed as Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 29, 2000,
filed on February 21, 2001, and incorporated herein by reference)
3.2 Certificate of Amendment dated May 22, 1989, to the Restated
Certificate of Incorporation dated July 28, 1987 (previously filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 29, 2000, filed on February 21, 2001, and
incorporated herein by reference)
3.3 Certificate of Second Amendment dated May 28, 1992, to the Restated
Certificate of Incorporation dated July 28, 1987 (previously filed as
Exhibit 3.3 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 29, 2000, filed on February 21, 2001, and
incorporated herein by reference)
3.4 Certificate of Third Amendment dated May 21, 1999, to the Restated
Certificate of Incorporation dated July 28, 1987 (previously filed as
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 25, 1999, filed on August 9, 1999, and
incorporated herein by reference)
3.5 Restated Bylaws of Storage Technology Corporation, as amended through
November 11, 1998 (previously filed as Exhibit 3.1 to the Company's
Current Report on Form 8-K dated November 19, 1998, and incorporated
herein by reference)
4.1 Specimen Certificate of Common Stock, $0.10 par value of Registrant
(previously filed as Exhibit (c)(2) to the Company's Current Report on
Form 8-K dated June 2, 1989, and incorporated herein by reference)
10.1(1) Storage Technology Corporation Amended and Restated 1987 Employee
Stock Purchase Plan, as amended (previously filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 29, 2001, filed on August 9, 2001, and incorporated herein
by reference)
10.2(1) Storage Technology Corporation Amended and Restated 1995 Equity
Participation Plan (previously filed as Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999, filed on March 10, 2000, and incorporated herein by reference)
10.3(1) Storage Technology Corporation Management by Objective Bonus Plan
(previously filed as Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 30, 2001, filed on
May 14, 2001, and incorporated herein by reference)
25
10.4(1) Storage Technology Corporation Amended and Restated Stock Option Plan
for Non-Employee Directors (previously filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 28, 1996, filed on August 12, 1996, and incorporated herein by
reference)
10.5(1) Storage Technology Corporation Flexible Option Plan, dated December
2001 (previously filed as Exhibit 10.5 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 28, 2001, filed on
March 4, 2002 and incorporated herein by reference)
10.6(1) Agreement between the Company and Gary Francis, dated August 19, 1997
(previously filed as Exhibit 10.25 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 26, 1997, filed on March
6, 1998, and incorporated herein by reference)
10.7(1) CEO Employment Agreement, dated July 11, 2000, between the Company
and Patrick J. Martin (previously filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 2000, filed on August 11, 2000, and incorporated herein by
reference)
10.8(1) Severance Agreement, dated as of July 1, 2001, between the Company
and Robert S. Kocol (previously filed as Exhibit 10.9 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 28, 2001, filed on November 8, 2001, and incorporated
herein by reference)
10.9(1) Restricted Stock Award Agreement, dated as of September 27, 2001, by
and between the Company and Robert S. Kocol (previously filed as
Exhibit 10.9 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 28, 2001, filed on March 4, 2002 and
incorporated herein by reference)
10.10(1) Offer Letter, dated May 10, 2001, from the Company to Michael McLay
(previously filed as Exhibit 10.17 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 29, 2001, filed on
August 9, 2001, and incorporate herein by reference)
10.11(1) Offer Letter, dated February 9, 2001, from the Company to Jill F.
Kenney (previously filed as Exhibit 10.19 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 30, 2001,
filed on May 14, 2001, and incorporated herein by reference)
10.12(1) Offer Letter, dated February 9, 2001, from the Company to Roger
Gaston (previously filed as Exhibit 10.20 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 30, 2001,
filed on May 14, 2001, and incorporated herein by reference)
10.13(1) Promissory Note, dated May 11, 2001, from Michael McLay to the
Company, in the principal amount of $390,000 (previously filed as
Exhibit 10.23 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 29, 2001, filed on August 9, 2001, and
incorporated herein by reference)
10.14(1) Promissory Note, dated May 11, 2001, from Michael McLay to the
Company, in the principal amount of $160,000 (previously filed as
Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 29, 2001, filed on August 9, 2001, and
incorporated herein by reference)
26
10.15(1) Form of LEAP Participation Agreement, dated April 30, 2001
(previously filed as Exhibit 10.25 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 29, 2001, filed on
August 9, 2001, and incorporated herein by reference)
10.16(1) Offer Letter, dated July 16, 2001, from the Company to Roy Perry
(previously filed as Exhibit 10.28 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 28, 2001, filed
on November 8, 2001, and incorporated herein by reference)
10.17(1) Offer Letter, dated June 27, 2001, from the Company to Angel Garcia
(previously filed as Exhibit 10.29 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 28, 2001, filed
on November 8, 2001, and incorporated herein by reference)
10.18(1) Letter Agreement, dated July 1, 2001, between the Company and Bruce
Taafe (previously filed as Exhibit 10.30 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 28, 2001,
filed on November 8, 2001, and incorporated herein by reference)
10.19(1) Separation Agreement and Release, dated January 2, 2002, by and
between the Company and Jeffrey Dumas (previously filed as Exhibit
10.19 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 28, 2001, filed on March 4, 2002 and incorporated
herein by reference)
10.20(1) Offer Letter, dated December 10, 2001, between the Company and Thomas
Major (previously filed as Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 28, 2001,
filed on March 4, 2002 and incorporated herein by reference)
10.21(1) Letter Agreement, dated July 31, 2001, between the Company and Pierre
Cousin (previously filed as Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 28, 2001,
filed on March 4, 2002 and incorporated herein by reference)
10.22(1) Separation Agreement, dated March 31, 2001, between the Company and
Gary Anderson (previously filed as Exhibit 10.22 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 28,
2001, filed on March 4, 2002 and incorporated herein by reference)
10.23 Credit Agreement, dated as of October 10, 2001, among the Company,
the several financial institutions thereto, Bank of America, N.A., as
letter of credit issuing bank and sole administrative agent for the
Banks, Key Corporate Capital, Inc. as Documentation Agent, Fleet
National Bank as Syndication Agent, and Banc of America Securities
LLC as sole lead arranger and sole book manager (previously filed as
Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 28, 2001, filed on November 8, 2001,
and incorporated herein by reference)
10.24 Security Agreement, dated as of October 10, 2001, by and among the
Company, Bank of America, N.A., as Collateral Agent for itself and
other Secured Parties referred to therein (previously filed as
Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 28, 2001, filed on November 8, 2001,
and incorporated herein by reference)
27
10.25 Guaranty, dated as of October 10, 2001, by StorageTek Holding
Corporation, in favor of the Banks party to a certain Credit
Agreement and Bank of America, N.A., as Agent and Issuing Bank and
Collateral Agent (previously filed as Exhibit 10.15 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September
28, 2001, filed on November 8, 2001, and incorporated herein by
reference)
10.26 Contingent Multicurrency Note Purchase Commitment Agreement dated as
of December 12, 1996, between the Company and Bank of America
National Trust and Savings Association (filed as Exhibit 10.29 to the
Company's Annual Report on Form 10-K for the year ended December 27,
1996, filed on March 7, 1997, and incorporated herein by reference)
10.27 Second Amendment to Second Amended and Restated Contingent
Multicurrency Note Purchase Commitment Agreement dated November 20,
1998, between Bank of America National Trust and Savings Association
and the Company (filed as Exhibit 10.19 to the Company's Annual
Report on Form 10-K for the year ended December 25, 1998, filed on
March 5, 1999, and incorporated herein by reference)
10.28 Third Amendment to Second Amended and Restated Contingent
Multicurrency Note Purchase Commitment Agreement dated August 13,
1999, between Bank of America National Trust and Savings Association
and the Company (previously filed as Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1999,
filed on March 10, 2000, and incorporated herein by reference)
10.29 Fourth Amendment to Second Amended and Restated Contingent
Multicurrency Note Purchase Commitment Agreement dated January 5,
2000, between the Company and Bank of America, N.A. (previously filed
as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999, filed on March 10, 2000, and
incorporated herein by reference)
10.30 Fifth Amendment to Second Amended and Restated Contingent
Multicurrency Note Purchase Commitment Agreement dated August 15,
2000, between the Company and Bank of America, N.A. (previously filed
as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the
year ended December 29, 2000, filed on February 21, 2001, and
incorporated herein by reference)
10.31 Waiver to Second Amended and Restated Multicurrency Note Purchase
Commitment Agreement, dated as of April 25, 2001, by and between the
Company and Bank of America, N.A. (previously filed as Exhibit 10.22
to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 30, 2001, filed on May 14, 2001, and incorporated
herein by reference)
10.32(1,2) Form of Executive Severance Agreement
10.33(2) Master Service Agreement (MSA), between each of the Company,
Electronic Data Systems Corporation, and EDS Information Services
L.L.C., dated as of April 1, 2002
10.34(2) Authorization Letter #1 pursuant to the MSA, dated April 1, 2002
28
10.35(2) Authorization Letter #2 pursuant to the MSA, dated April 1, 2002
10.36(2) Master Secondary Storage Services Agreement, between the Company and
Electronic Data Systems Corporation, dated March 29, 2002
(b) Reports on Form 8-K.
None.
------------------------------
1 Contract or compensatory plan or arrangement in which directors and/or
officers participate.
2 Indicates exhibit filed with this Quarterly Report on Form 10-Q.
29
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STORAGE TECHNOLOGY CORPORATION
(Registrant)
May 13, 2002 /s/ ROBERT S. KOCOL
--------------------------------- ---------------------------------------
(Date) Robert S. Kocol
Corporate Vice President
and Chief Financial Officer
(Principal Financial Officer)
May 13, 2002 /s/ THOMAS G. ARNOLD
--------------------------------- ---------------------------------------
(Date) Thomas G. Arnold
Vice President and Corporate Controller
(Principal Accounting Officer)
30
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
3.1 Restated Certificate of Incorporation of Storage Technology Corporation
dated July 28, 1987 (previously filed as Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 29, 2000,
filed on February 21, 2001, and incorporated herein by reference)
3.2 Certificate of Amendment dated May 22, 1989, to the Restated
Certificate of Incorporation dated July 28, 1987 (previously filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 29, 2000, filed on February 21, 2001, and
incorporated herein by reference)
3.3 Certificate of Second Amendment dated May 28, 1992, to the Restated
Certificate of Incorporation dated July 28, 1987 (previously filed as
Exhibit 3.3 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 29, 2000, filed on February 21, 2001, and
incorporated herein by reference)
3.4 Certificate of Third Amendment dated May 21, 1999, to the Restated
Certificate of Incorporation dated July 28, 1987 (previously filed as
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 25, 1999, filed on August 9, 1999, and
incorporated herein by reference)
3.5 Restated Bylaws of Storage Technology Corporation, as amended through
November 11, 1998 (previously filed as Exhibit 3.1 to the Company's
Current Report on Form 8-K dated November 19, 1998, and incorporated
herein by reference)
4.1 Specimen Certificate of Common Stock, $0.10 par value of Registrant
(previously filed as Exhibit (c)(2) to the Company's Current Report on
Form 8-K dated June 2, 1989, and incorporated herein by reference)
10.1(1) Storage Technology Corporation Amended and Restated 1987 Employee
Stock Purchase Plan, as amended (previously filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 29, 2001, filed on August 9, 2001, and incorporated herein
by reference)
10.2(1) Storage Technology Corporation Amended and Restated 1995 Equity
Participation Plan (previously filed as Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999, filed on March 10, 2000, and incorporated herein by reference)
10.3(1) Storage Technology Corporation Management by Objective Bonus Plan
(previously filed as Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 30, 2001, filed on
May 14, 2001, and incorporated herein by reference)
10.4(1) Storage Technology Corporation Amended and Restated Stock Option Plan
for Non-Employee Directors (previously filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 28, 1996, filed on August 12, 1996, and incorporated herein by
reference)
31
10.5(1) Storage Technology Corporation Flexible Option Plan, dated December
2001 (previously filed as Exhibit 10.5 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 28, 2001, filed on
March 4, 2002 and incorporated herein by reference)
10.6(1) Agreement between the Company and Gary Francis, dated August 19, 1997
(previously filed as Exhibit 10.25 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 26, 1997, filed on March
6, 1998, and incorporated herein by reference)
10.7(1) CEO Employment Agreement, dated July 11, 2000, between the Company
and Patrick J. Martin (previously filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 2000, filed on August 11, 2000, and incorporated herein by
reference)
10.8(1) Severance Agreement, dated as of July 1, 2001, between the Company
and Robert S. Kocol (previously filed as Exhibit 10.9 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 28, 2001, filed on November 8, 2001, and incorporated
herein by reference)
10.9(1) Restricted Stock Award Agreement, dated as of September 27, 2001, by
and between the Company and Robert S. Kocol (previously filed as
Exhibit 10.9 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 28, 2001, filed on March 4, 2002 and
incorporated herein by reference)
10.10(1) Offer Letter, dated May 10, 2001, from the Company to Michael McLay
(previously filed as Exhibit 10.17 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 29, 2001, filed on
August 9, 2001, and incorporate herein by reference)
10.11(1) Offer Letter, dated February 9, 2001, from the Company to Jill F.
Kenney (previously filed as Exhibit 10.19 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 30, 2001,
filed on May 14, 2001, and incorporated herein by reference)
10.12(1) Offer Letter, dated February 9, 2001, from the Company to Roger
Gaston (previously filed as Exhibit 10.20 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 30, 2001,
filed on May 14, 2001, and incorporated herein by reference)
10.13(1) Promissory Note, dated May 11, 2001, from Michael McLay to the
Company, in the principal amount of $390,000 (previously filed as
Exhibit 10.23 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 29, 2001, filed on August 9, 2001, and
incorporated herein by reference)
10.14(1) Promissory Note, dated May 11, 2001, from Michael McLay to the
Company, in the principal amount of $160,000 (previously filed as
Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 29, 2001, filed on August 9, 2001, and
incorporated herein by reference)
32
10.15(1) Form of LEAP Participation Agreement, dated April 30, 2001
(previously filed as Exhibit 10.25 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 29, 2001, filed on
August 9, 2001, and incorporated herein by reference)
10.16(1) Offer Letter, dated July 16, 2001, from the Company to Roy Perry
(previously filed as Exhibit 10.28 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 28, 2001, filed
on November 8, 2001, and incorporated herein by reference)
10.17(1) Offer Letter, dated June 27, 2001, from the Company to Angel Garcia
(previously filed as Exhibit 10.29 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 28, 2001, filed
on November 8, 2001, and incorporated herein by reference)
10.18(1) Letter Agreement, dated July 1, 2001, between the Company and Bruce
Taafe (previously filed as Exhibit 10.30 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 28, 2001,
filed on November 8, 2001, and incorporated herein by reference)
10.19(1) Separation Agreement and Release, dated January 2, 2002, by and
between the Company and Jeffrey Dumas (previously filed as Exhibit
10.19 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 28, 2001, filed on March 4, 2002 and incorporated
herein by reference)
10.20(1) Offer Letter, dated December 10, 2001, between the Company and Thomas
Major (previously filed as Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 28, 2001,
filed on March 4, 2002 and incorporated herein by reference)
10.21(1) Letter Agreement, dated July 31, 2001, between the Company and Pierre
Cousin (previously filed as Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 28, 2001,
filed on March 4, 2002 and incorporated herein by reference)
10.22(1) Separation Agreement, dated March 31, 2001, between the Company and
Gary Anderson (previously filed as Exhibit 10.22 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 28,
2001, filed on March 4, 2002 and incorporated herein by reference)
10.23 Credit Agreement, dated as of October 10, 2001, among the Company,
the several financial institutions thereto, Bank of America, N.A., as
letter of credit issuing bank and sole administrative agent for the
Banks, Key Corporate Capital, Inc. as Documentation Agent, Fleet
National Bank as Syndication Agent, and Banc of America Securities
LLC as sole lead arranger and sole book manager (previously filed as
Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 28, 2001, filed on November 8, 2001,
and incorporated herein by reference)
10.24 Security Agreement, dated as of October 10, 2001, by and among the
Company, Bank of America, N.A., as Collateral Agent for itself and
other Secured Parties referred to therein (previously filed as
Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 28, 2001, filed on November 8, 2001,
and incorporated herein by reference)
10.25 Guaranty, dated as of October 10, 2001, by StorageTek Holding
Corporation, in favor of the Banks party to a certain Credit
Agreement and Bank of America, N.A., as Agent and Issuing Bank and
33
Collateral Agent (previously filed as Exhibit 10.15 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September
28, 2001, filed on November 8, 2001, and incorporated herein by
reference)
10.26 Contingent Multicurrency Note Purchase Commitment Agreement dated as
of December 12, 1996, between the Company and Bank of America
National Trust and Savings Association (filed as Exhibit 10.29 to the
Company's Annual Report on Form 10-K for the year ended December 27,
1996, filed on March 7, 1997, and incorporated herein by reference)
10.27 Second Amendment to Second Amended and Restated Contingent
Multicurrency Note Purchase Commitment Agreement dated November 20,
1998, between Bank of America National Trust and Savings Association
and the Company (filed as Exhibit 10.19 to the Company's Annual
Report on Form 10-K for the year ended December 25, 1998, filed on
March 5, 1999, and incorporated herein by reference)
10.28 Third Amendment to Second Amended and Restated Contingent
Multicurrency Note Purchase Commitment Agreement dated August 13,
1999, between Bank of America National Trust and Savings Association
and the Company (previously filed as Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1999,
filed on March 10, 2000, and incorporated herein by reference)
10.29 Fourth Amendment to Second Amended and Restated Contingent
Multicurrency Note Purchase Commitment Agreement dated January 5,
2000, between the Company and Bank of America, N.A. (previously filed
as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999, filed on March 10, 2000, and
incorporated herein by reference)
10.30 Fifth Amendment to Second Amended and Restated Contingent
Multicurrency Note Purchase Commitment Agreement dated August 15,
2000, between the Company and Bank of America, N.A. (previously filed
as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the
year ended December 29, 2000, filed on February 21, 2001, and
incorporated herein by reference)
10.31 Waiver to Second Amended and Restated Multicurrency Note Purchase
Commitment Agreement, dated as of April 25, 2001, by and between the
Company and Bank of America, N.A. (previously filed as Exhibit 10.22
to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 30, 2001, filed on May 14, 2001, and incorporated
herein by reference)
10.32(1,2) Form of Executive Severance Agreement
10.33(2) Master Service Agreement (MSA), between each of the Company,
Electronic Data Systems Corporation, and EDS Information Services
L.L.C., dated as of April 1, 2002
10.34(2) Authorization Letter #1 pursuant to the MSA, dated April 1, 2002
10.35(2) Authorization Letter #2 pursuant to the MSA, dated April 1, 2002
34
10.36(2) Master Secondary Storage Services Agreement, between the Company and
Electronic Data Systems Corporation, dated March 29, 2002
------------------------------
1 Contract or compensatory plan or arrangement in which directors and/or
officers participate.
2 Indicates exhibits filed with this Quarterly Report on Form 10-Q.
35