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Monday, November 10, 1997 Friday, Iomega closed at $28 3/16, down $13/16 (-2.80%). THIS WEEKEND'S RECAP: The most engaging news for Iomega message board posters this weekend was the recent stock sale by IOM CEO, Kim Edwards. Many different reasons (and consequences) were batted around the board. Other news tidbits include various Iomega product sightings and a post by ~JunkYard71~ on the whole of the storage sector. Enjoy! INDEX: Use the Search or Find feature of your word processor to locate the article number (Find: 1++, 3++, etc.) - or use AOL's Edit>>Find in Top Window Feature. If Find in Top Window is dimmed, just click on some text, anything, in the IOM Today window and try again.
1++ JunkYard71 discusses the storage sector at large.
Recap written by TMF Weekly; posts
compiled by TMF Weekly. As always, the following posts represent the thoughts of our contributors, not those of The Motley Fool.
And now, the Best of the Board...Started 9:01pm ET 11/5/97. 1+++++++++++++++++++++++++++
Subject: Storage The storage market appears to be in a state of flux, maybe even chaos. Everyone seems to be suffering from falling bottom lines, EPS is being hurt, but the market is growing. I don't know the rate of growth for the fixed drive makers but it should at least keep pace with the overall computer market growth rates, I think estimates are around 18% or so. Fixed drive makers are shipping record numbers of drives and the low-end drives have the storage capacity of last years high-end drives, still, bottom line profits are being squeezed pretty hard. Optical drive makers are hurting at least as bad if not worse. Everyone is cutting prices to compete, is this a classic price war? I think in some ways it may be, but there is a wild card in play. Optical has always been hailed as the real storage solution and it has been predicted for 10 years or more that optical would replace magnetic in the near future. Will it? Ever? I think optical storage has been side swiped and at least for now has been relegated to archive usage's only, at least for the mid-term future. Distribution of software is a kind of archive usage as well (sort of in reverse maybe) Optical was (in 1995) well on it's way to making real headway, there was a lot of excitement for CD/R and CD/RW, even DVD was looking good. I think the market was ready to embrace the write-able CD solutions in a big way, but something derailed the movement. A combination of factors (in optical solutions) added together spelled compromise to the end user, but I think most were actually willing to except the compromises because there were no better solutions at the time. Some of the issues were/are: cost, compatibility, difficulty of the software, limited ability to alter the data once recorded, speed of reading and writing, etc... But still, data was growing fast, fixed drives restricted mobility too much and tape storage (while portable) was and is too restrictive to use as a near-line (removable) alternative. With no other viable alternatives Optical was going to be "it". Optical's big advantage was that it was removable and stored a lot of stuff on one disk, in 1995 removable solutions were limited to 200-250Mb magnetic removable hard drives (Syquest), Bernoulli (Iomega) so Optical stood-out, it stored 500-650Mb per CD, there weren't many other options available. There are an infinite number of uses for removable storage and the world has just begun to explore the possibilities. As an example I like the digital overhead projectors that have the PowerPoint viewer built-in, they accept a disk (zip) so you don't need a computer to give a slide show presentation. These types of digital appliances are destined to be everywhere in a digital world. CD's are not nearly as flexible for these type of applications, the biggest advantage to magnetic storage is the freedom to edit and change what's stored quickly and easily (how do you handle a last minute change to a presentation stored on a CD?), with a CD you just can't do this (yes I know, CD's of tomorrow will be easier, but that promise has been around forever and hasn't yet materialized) Back in the old days (when dinosaurs roamed the earth, circa 1985) and Optical was starting to show it's potential as a cheap alternative it was because magnetic storage was expensive, at least compared to today's cost per MB. Also, Optical was seen as more reliable and durable, back then it wasn't uncommon for a hard drive to just crash on a whim (they don't anymore) and SyQuest removable cartridges were no better (actually they were worse, but back then it was, while not acceptable, tolerated because that's the way it was) we now have huge hard drives, and they can be trusted to work (although backups are still critical) and as can be expected data volumes have swelled to fill them as fast (faster) as they have grown in capacity. With the digital revolution just barely underway I imagine this trend (more digital stuff to store) will continue for a long time but there is also a growing need to move digital stuff around and/or store it separately, give it to others so they can do their editing, of just have the piece of mind of being able to hold it in your hands. Optical was (and somewhat still is, dreams die hard I guess) supposed to fill this role and even displace magnetic storage completely. This won't happen until/unless optical becomes as easy to deal with as magnetic is (Optical's original promise), I don't think that's going to happen anytime soon, especially while the big players continue to go off in different directions on standards. With zips capacity of 100MB it offers the perfect solution to a huge segment of the market, it's almost brainlessly easy to use and it's durable as heck. The Jaz has capacity for the really hard core stuff. Between them I think they offer the nearest thing to a perfect solution possible. Optical has been side swiped and knocked for a loop by Iomega's outside the box solutions and has been relegated to a niche role (which is actually pretty big) as primarily an archive solution, if micro-fiche hasn't been threatened with extinction yet I think optical may be its biggest enemy. As for magnetic storage and huge hard drives, I think the trend to bigger hard drives will level off, there are limits to what humans can deal with and managing a hard drive with zillions of things on it is really pretty untenable. Breaking it up into manageable chunks is a natural tendency that somehow evaded everyone's commonsense as the world chased the bigger is better fallacy. It isn't crystal clear to the marketplace quite yet, but the writing is on the wall. 2+++++++++++++++++++++++++++
Subject: Re: KE according to IR << From: Frank Boccagna No....spoke to IR ....he sold his shares on Monday. Somewhere between 27 1/16 and 28 7/8......hope you got the high for the day Kim....you deserve it. >> << From: Darrell Smith a sell was probably made earlier. the announcement came out today. a sell is rarely done after an announcment but generally occurs before. Edwards still owns 2,052,945 shares, ir said he was buying a second home with the proceeds and diversifying assets >> I wonder about the last statement regarding remaining position. I spent some time wading through the Proxy statements for the past 3 years and calculated the following: (1) KE was probably hoping to clear ~$10million from the sale, but only got about $9.5million (hope he can still afford the house!). (2) If it was an option exercise and sale, he still owns at least 496,695 shares outright, and has options on at least 2,063,000 additional shares of which 1,120,500 are exercisable, and 942,500 are unexercisable. I say "at least" because I don't have any data on possible open market purchases or new options grants since 1/31/97. For those who want the math: (1) Lowest cost options are exercisable at $.341 pre share. 342,000 * $.341 = $116,622 cost to exercise Sale of 342,000 @ $29 5/8 = $10,131,750 Less cost to exercise yields $10,015,128 (before commissions) (Note: sale price chosen to hit my assumption of $10,000,000 cleared.) If reported sale information is correct, then assuming an average sales price of $28/share: 342,000 * (28.00 - .341) = $9,459,378 (before commissions) (2) As of 1/31/97 KE had the following: 496,695 shares owned outright (plus 6,000 additional owned by his wife) 1,462,500 options issued 1/1/94; 1,170,000 exercisable at $.341; 292,500 unexercisable 37,500 options issued 1/31/94; 30,000 exercisable at $.341; 7,500 unexercisable 375,000 options issued 11/26/94; 187,500 exercisable at $.567; 187,500 unexercisable 300,000 options issued 2/18/96; 0 exercisable at $6.29; 300,000 unexercisable (note 1) 150,000 options issued 9/29/96; 0 exercisable at $15.06; 150,000 unexercisable 120,000 restricted shares authorized 1/25/96; 40,000 issued at $.033 on 1/25/97 and included in 496,695 above; 80,000 still locked up (note 1) 75,000 of these options became exercisable on 2/18/97. Totals as of November 7, 1997 (before accounting for announced sale) 2,405,765 options @ avg. price of $2.025 = $4,872,765 total cost to exercise of which 1,462,500 exercisable @ avg. price of $.675 = $987,262 total cost to exercise 942,500 unexercisable @ avg. price of $4.123 = $3,885,502 total cost to exercise If anyone cares to check my math, a word of advice. Be very careful when you account for the stock splits, the proxy statements for the 1995 meeting includes the 5:4 split; the proxy statement for the 1996 meeting includes the 3:1 split; the proxy statement for the 1997 meeting includes the 2:1 split. Ira Smilovitz 3+++++++++++++++++++++++++++
Subject: executive compensation OK Huibs, I'll take a shot at this one. I went digging deep into my tax library to get your answer and I hope this satisfies inquiring minds. Stock options generally are considered performance-based compensation not subject to $1 million limitation on deductibility of compensation. The $1 million limitation provides that the otherwise allowable deduction for compensation paid or accrued with respect to the chief executive officer or the four highest paid officers of a publicly held corporation is generally limited to no more than $1,000,000 per year for tax years after 1993. However, compensation payable solely because of the attainment of one or more performance goals is not subject to the deduction limit and is not taken into account in determining whether other compensation exceeds $1,000,000. Compensation qualifies for the exception for performance-based compensation only if: * It is paid solely on account of the attainment of one or more performance goals; * The performance goals are established by a compensation committee consisting solely of two or more outside directors; * The material terms under which the compensation is to be paid, including the performance goals, are disclosed to and approved by the shareholders in a separate vote prior to payment; and * Prior to payment, the compensation committee certifies that the performance goals and any other material terms were in fact satisfied. I guess what this is saying is, KE is just getting paid for doing a good job. Nothing to worry about if you ask me. 4+++++++++++++++++++++++++++
Subject: Evidence I don't post often but I thought the following info might be interesting. I manage a medium sized GM dealership. GM is installing file servers in all GM Dealerships and the Dealers are hooking up clients to the servers. The system is called GM Access and will be used for most of GM's communications with its dealers. Now for the good part. I just got back from training, given by Learning Tree International, the instructors talked about backing up data on the clients. The only products they talked about were Iomega's Ditto, Zip and Jazz. They even passed around a Ditto and Zip drive. This is more evidence Iomega is becoming the dominant player in storage. 5+++++++++++++++++++++++++++
Subject: Catalog sighting Such an odd place to find reference to Iomega products -- the Levenger's Catalog that arrived today features a leather carrying case in two sizes -- one for jewlery or floppy disks, and a larger one billed as "for toting JAZ and ZIP disks". Neither name carried a TM nor did the copy mention Iomega, but the accompanying photograph showed the leather case with an identifiable Zip disk sticking out of it. For those not familiar with Levenger's, it's billed as "tools for serious readers" and aside from offering bookcase-type stuff, it's also targeted at fountain pen junkies, executive-desk accessories, lots of fine stationery, leather-bound book covers, daytimers, etc. All that "what to buy the boss for Christmas" kind of expensive kitsch. It's a very low-tech catalog. Zip and Jaz turning up in unexpected places :-) 6+++++++++++++++++++++++++++
Subject: Re: Modest Negative << Frankly, I don't see how KE can afford NOT to exercise now that he has raised the cash. There are literally millions of dollars of stock at stake here... no other investment vehicle can offer him the sort of return he can get by merely exercising his options. Talk about LEVERAGE.I think it would be an enormous negative if KE chooses not to exercise >> Most company-issued stock options I am aware of are valid for 10 years. If my company issues me options on 1 million shares of stock exerciseable at today's current price and 1 year from now the stock price has doubled what to I do if I feel the company will continue to thrive and grow? Well, I can spend millions of dollars to acquire the stock so I can say I now own the stock (thereby tying up funds that don't have to be tied up) or I can simply hold the options at absolutely no cost to me until I am ready to cash out and the company pays me the difference in cash between the exercise price and the market price of the stock at time of conversion. Either way you pocket the same amount of money in the end. Not to confuse the issue, if I want the long term capital gain on the exercise I convert to stock 18 months before I want to cash out so I meet the long term holding period. In the writings above I am not in any way attempting to speculate on KE's reason for selling. I am only pointing out that if an employee is holding stock options in a company they work for there is absolutely NO benefit or additional risk in holding the options in lieu of converting to stock. In fact, I believe it is a poor decision to convert if the individual intends to stay invested in the company. Why tie up your money if you don't have to? As far as KE selling: It has been suggested that this sale is lousy timing. If you assume the scenario that for whatever personal reasons (other than the company getting ready to take a dump) KE had decided he had other uses for the funds, would you prefer he sell BEFORE or AFTER "great" news is released? If he sells AFTER great news then maybe he picks up a few more points (as well as raised eyebrows from the SEC). Also, if the sale is AFTER the "great" announcement most investors would most likely interpret this as him attempting to get out at the top (IOW, its all downhill from here). On the other hand IF "great" news is announced AFTER his sale I believe his action becomes a much lesser issue. Just to attempt to make my position on this more clear I am not saying his sale is a prelude to a "great" announcement. What I am saying is IF his sale is followed by a "great" announcement then I, personally, am not as concerned about the sale. But if the "great" announcement is less than great my Pucker Factor goes up a couple of notches. Having said all that, I can tell you, after speaking with him last year at Comdex the man is extremely concerned (if not paranoid) about saying (or doing) anything that might get the company in legal hot water with shareholders. The perception by "the street" that he is less than forthcoming with forward looking statements is further evidence of this. The guy is just plain conservative in these types of matters. We shall see. 7+++++++++++++++++++++++++++
Subject: What does KE selling mean? KE selling stock is certainly not a positive. It is done, actually last Monday according to Investors Relations (IR). Assuming a 2-week black out period from the end of the Conference Call, the first day KE could have sold was 10/30, Thursday. If you figure he wanted to sell before the Iomega web site started the countdown then the last possible day is 11/3. Can one infer that good news is coming out this Thursday? Or at least news Iomega thinks is good and "big" ;-) If KE sold before a "countdown to a letdown" would that be in bad faith? If he sells right after the announcement what does that say about any news released? I think you can endlessly speculate about any silver lining here and come up with nothing. We will know more on Thursday. We have heard before from IR that there are certain windows where officers can sell. If KE wanted to sell this year I think this was his one opportunity. To those questioning the tax consequences there are two things I can think of: 1. If you have to sell to sleep at night then sell. Don't let Uncle Sam turn you into a speculator. 2. If you buy a house you get a lot of new deductions that could offset the capital gains KE will be hit with. KE sold 15% of his possible shares AFAIK. To me, if someone has hundreds of thousands of vested options at pennies and the stock price is $28, that's as good as common shares in a brokerage account. What bank would not loan the money to exercise KE's options? KE had to sell some eventually. The market is very turbulent now and has never valued Iomega logically for any length of time. I think when insiders sell in mulit-billion technology companies its usually never cause for major alarm. The fact that KE has never sold up to this point makes me ponder the implications. I'm not sure I can fully assess the implications until after Comdex, maybe not till after this quarter. Maybe the next few weeks is a good time to assess Iomega as part of your long term portfolio. Some of us are significantly overweighted in IOM due to the multiple splits in 1996. This will be the second time I will think about cashing in some profit. The first was when the Fool Port sold some. At that time I thought the stock was too underpriced to sell ($19). I think $28 is significantly below fair value now also. Maybe KE pondered this too and got tired of waiting for the stock to at least get near its YPEG fair value over the last 15 months. Patrick Keeler _______________________________ End Report. Posts covered through 2:00pm ET 11/9/97. _______________________________
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