Rapid Recovery : Storage Technology Corp. Emerges From Chapter 11
Storage Technology Corp. completed a rapid recovery from financial jeopardy Thursday when a federal bankruptcy court approved its reorganization plan, allowing the computer equipment maker to emerge from Chapter 11 protection.
Storage Technology, a Louisville, Colo.-based maker of data storage devices and printers for big, mainframe computers, was granted approval of its reorganization plan 33 months after it sought protection from its creditors and laid off thousands of workers.
Creditors holding $800 million in debt will be paid in full with $132 million in cash, $285 million in notes and the balance in common stock. The new stock issue will leave current shareholders with about 15% of the outstanding shares.
“It’s remarkable that the company has been able to keep its business together--to develop new products, to emerge as a very viable company able to compete in the high-tech computer industry. It is a remarkable feat,” said Bruce Spector of the Los Angeles law firm of Stutman, Treister and Glatt, bankruptcy counsel for Storage Technology.
Spector said he anticipates that distribution to creditors will start before the end of July.
In a press release issued by Storage Technology, the company’s chief executive officer, Ryal Poppa, said: “We are pleased with today’s final court confirmation of the plan. Everyone involved in the reorganization process--our customers, employees, creditors, security holders--share in the credit of this accomplishment. Under the terms of the plan, all approved creditors’ claims will be paid fully through cash, equity and notes.”
Storage Technology found itself in trouble in 1984 because of high development costs for new products outside its main areas of business, high-powered competition from other companies and lagging orders.
In 1984, it reported a loss of $505.5 million, including $419.2 million in the fourth quarter alone.
The company’s final dispute in its bankruptcy case was with the Internal Revenue Service over taxes due; that issue was resolved in January with a ruling by the bankruptcy court that the company owed $22.8 million, instead of the $640 million the IRS sought.
In recent months, the company has announced new profits and products, as well as the hiring of small numbers of new employees. From a peak of 16,200 in 1983, the number of employees fell to 8,100 in 1985; it has since edged up to 8,500.
The company has posted six consecutive profitable quarters, and projects its earnings will grow from $29.3 million on revenue of $806.3 million in 1987 to $128 million on revenue of $1.05 billion in 1989.
However, the company still faces one lawsuit filed on behalf of 266 investors who put $40 million into a Storage Technology research and development partnership, which was set up to develop an optical disk storage system that has since been abandoned.
The partners are seeking $395 million in damages, charging fraud, breach of contract and violation of securities laws. Poppa has described the suit as “financial blackmail” and said he has offered to settle.
