-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RQy3uiI5n1p3kBLZ6FV1y5ugXVKKzPVDGS7eGeVdZK70naw20zMdroRjfGbGNPFs /SL97jk8PaUnbrwZhERBkg== 0001047469-98-023785.txt : 19980612 0001047469-98-023785.hdr.sgml : 19980612 ACCESSION NUMBER: 0001047469-98-023785 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980611 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED DIGITAL INFORMATION CORP CENTRAL INDEX KEY: 0000770403 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 911618616 STATE OF INCORPORATION: WA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21103 FILM NUMBER: 98646327 BUSINESS ADDRESS: STREET 1: P O BOX 97057 CITY: REDMOND STATE: WA ZIP: 98073-9757 BUSINESS PHONE: 4258818004 MAIL ADDRESS: STREET 1: P.O. BOX 97057 CITY: REDMOND STATE: WA ZIP: 98073-9757 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 10-Q ---------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission file number 0-21103 ADVANCED DIGITAL INFORMATION CORPORATION Incorporated under the laws I.R.S. Identification of the State of Washington No. 91-1618616 11431 Willows Road P.O. Box 97057 Redmond, Washington 98073-9757 (425) 881-8004 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 The total shares of common stock without par value outstanding at the end of the quarter reported is 9,743,412. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ADVANCED DIGITAL INFORMATION CORPORATION CONSOLIDATED BALANCE SHEETS APRIL 30, 1998 and OCTOBER 31, 1997
APRIL 30, OCTOBER 31, 1998 1997 ----------- ----------- (Unaudited) ASSETS Current assets: Cash and cash equivalents. . . . . . . . . . . . . . . . . $20,327,050 $32,806,822 Marketable securities. . . . . . . . . . . . . . . . . . . 426,811 -- Accounts receivable, net of allowances of $402,000 in 1998 and $324,000 in 1997. . . . . . . . . . 22,415,046 18,078,302 Inventories, net . . . . . . . . . . . . . . . . . . . . . 21,617,162 16,074,787 Prepaid expenses and other . . . . . . . . . . . . . . . . 808,626 714,979 Deferred income taxes. . . . . . . . . . . . . . . . . . . 767,688 767,688 ----------- ----------- Total current assets . . . . . . . . . . . . . . . . . . 66,362,383 68,442,578 ----------- ----------- Property, plant and equipment, at cost: Machinery and equipment. . . . . . . . . . . . . . . . . . 5,259,466 4,366,343 Office equipment . . . . . . . . . . . . . . . . . . . . . 720,474 417,116 Leasehold improvements . . . . . . . . . . . . . . . . . . 427,851 415,493 ----------- ----------- 6,407,791 5,198,952 Less: accumulated depreciation and amortization. . . . . . (2,899,266) (2,689,685) ----------- ----------- Net property, plant and equipment. . . . . . . . . . . . 3,508,525 2,509,267 ----------- ----------- Deferred income taxes. . . . . . . . . . . . . . . . . . . . 89,414 89,414 ----------- ----------- Investment in Crossroads Holding Corp. and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 4,118,035 4,152,634 ----------- ----------- $74,078,357 $75,193,893 ----------- ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . $ 7,000,449 $11,237,131 Accrued liabilities. . . . . . . . . . . . . . . . . . . . 1,843,274 2,594,831 Income taxes payable . . . . . . . . . . . . . . . . . . . 849,772 1,252,324 ----------- ----------- Total current liabilities. . . . . . . . . . . . . . . . 9,693,495 15,084,286 ----------- ----------- Commitments. . . . . . . . . . . . . . . . . . . . . . . . . -- -- Shareholders' equity: Preferred stock, no par value; 2,000,000 shares authorized; none issued and outstanding. . . . . . . . . -- -- Common stock, no par value; 40,000,000 shares authorized, 9,743,412 issued and outstanding (9,699,824 in 1997). . . . . . . . . . . . . . . . . . . 45,915,468 45,808,291 Retained earnings. . . . . . . . . . . . . . . . . . . . . 18,774,308 14,479,104 Cumulative translation adjustment. . . . . . . . . . . . . (304,914) (177,788) ----------- ----------- Total shareholders' equity . . . . . . . . . . . . . . . 64,384,862 60,109,607 ----------- ----------- $ 74,078,357 $ 75,193,893 ----------- ----------- ----------- -----------
See the accompanying notes to these consolidated financial statements. 2 ADVANCED DIGITAL INFORMATION CORPORATION CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS AND SIX MONTHS ENDED APRIL 30, 1998 AND 1997 (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED APRIL 30, APRIL 30, -------------------------- -------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Net sales. . . . . . . . . . . . . . . . . . . . $24,805,894 $22,073,394 $47,671,556 $42,141,996 Cost of sales. . . . . . . . . . . . . . . . . . 17,795,731 15,562,808 33,246,523 29,659,948 ----------- ----------- ----------- ----------- Gross profit . . . . . . . . . . . . . . . . . 7,010,163 6,510,586 14,425,033 12,482,048 ----------- ----------- ----------- ----------- Operating expenses: Selling and administrative . . . . . . . . . . 4,181,621 3,248,266 7,965,340 6,295,727 Research and development . . . . . . . . . . . 627,479 690,949 1,245,078 1,322,964 ----------- ----------- ----------- ----------- 4,809,100 3,939,215 9,210,418 7,618,691 ----------- ----------- ----------- ----------- Operating profit . . . . . . . . . . . . . . . . 2,201,063 2,571,371 5,214,615 4,863,357 ----------- ----------- ----------- ----------- Other income: Interest income. . . . . . . . . . . . . . . . 246,112 260,739 567,280 376,222 Gain on sale of marketable securities. . . . . 247,814 -- 247,814 -- Foreign currency transaction gains, net. . . . 23,738 79,360 263,726 217,591 ----------- ----------- ----------- ----------- 517,664 340,099 1,078,820 593,813 ----------- ----------- ----------- ----------- Income before provision for income taxes . . . . 2,718,727 2,911,470 6,293,435 5,457,170 Provision for income taxes . . . . . . . . . . . 784,813 1,010,935 1,998,231 1,896,097 ----------- ----------- ----------- ----------- Net income . . . . . . . . . . . . . . . . . . . $ 1,933,914 $ 1,900,535 $ 4,295,204 $ 3,561,073 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Basic net income per share . . . . . . . . . . . $ 0.20 $ 0.21 $ 0.44 $ 0.42 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Diluted net income per share . . . . . . . . . . $ 0.20 $ 0.21 $ 0.43 $ 0.41 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
See the accompanying notes to these consolidated financial statements. 3 ADVANCED DIGITAL INFORMATION CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED APRIL 30, 1998 AND 1997 (UNAUDITED)
1998 1997 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 4,295,204 $ 3,561,073 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization. . . . . . . . . . . . . 493,689 246,461 Gain on sale of marketable securities. . . . . . . . . (247,814) -- Change in assets and liabilities: Accounts receivable. . . . . . . . . . . . . . . . . . (4,331,300) (1,697,800) Inventories. . . . . . . . . . . . . . . . . . . . . . (5,637,980) (4,500,446) Prepaid expenses and other . . . . . . . . . . . . . . (95,900) 15,339 Other assets . . . . . . . . . . . . . . . . . . . . . 28,492 47,992 Accounts payable . . . . . . . . . . . . . . . . . . . (4,211,776) (3,322,818) Accrued liabilities. . . . . . . . . . . . . . . . . . (719,888) 337,444 Income taxes payable . . . . . . . . . . . . . . . . . (367,231) 862,023 ------------ ------------ Net cash used in operating activities. . . . . . . . . . . . (10,794,504) (4,450,732) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment . . . . . . . . (1,506,817) (646,425) Investment in marketable securities. . . . . . . . . . . . (1,295,270) -- Proceeds from sale of marketable securities. . . . . . . . 1,116,273 -- ------------ ------------ Net cash used in investing activities. . . . . . . . . . . . (1,685,814) (646,425) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock for stock options, including tax benefit . . . . . . . . . . . . . 107,177 1,296,944 Proceeds from issuance of common stock, net. . . . . . . . -- 23,729,473 ------------ ------------ Net cash provided by financing activities. . . . . . . . . . 107,177 25,026,417 ------------ ------------ Effect of exchange rate changes on cash. . . . . . . . . . . (106,631) (57,356) ------------ ------------ Net (decrease) increase in cash and cash equivalents . . . . (12,479,772) 19,871,904 Cash and cash equivalents at beginning of period . . . . . . 32,806,822 10,436,783 ------------ ------------ Cash and cash equivalents at end of period . . . . . . . . . $ 20,327,050 $ 30,308,687 ------------ ------------ ------------ ------------
See the accompanying notes to these consolidated financial statements. 4 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 1998 (Unaudited) NOTE 1. BASIS OF PRESENTATION The accompanying condensed financial statements are unaudited and should be read in conjunction with the Advanced Digital Information Corporation financial statements included in the Company's Annual Report on Form 10-K for the year ended October 31, 1997. In the opinion of management, all normal recurring adjustments which are necessary for the fair presentation of the results for the interim periods are reflected herein. Operating results for the six-month period ended April 30, 1998, are not necessarily indicative of results to be expected for a full year. NOTE 2. EARNINGS PER SHARE In the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS128") which changed the Company's presentation and calculation of earnings per share. Basic net income per share represents net income divided by the weighted average number of shares outstanding during the period. Diluted net income per share represents net income divided by the weighted average number of shares outstanding including the potentially dilutive impact of stock options. Common stock options are converted using the treasury stock method. Earnings per share for 1997 have been restated to conform to the requirements of FAS 128. The adoption of FAS 128 did not have a material impact on the Company's earnings per share. The following table sets forth the computation of basic and diluted net income per share for the three months and six months ended April 30, 1998 and 1997:
THREE MONTHS ENDED SIX MONTHS ENDED APRIL 30, APRIL 30, ----------------------- ----------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Numerator: Net income. . . . . . . . . . . . . . . . . . . $1,933,914 $1,900,535 $4,295,204 $3,561,073 Denominator: Denominator for basic net income per share - weighted average shares. . . . . . . . . . 9,732,402 8,928,725 9,716,982 8,477,196 Dilutive potential common shares from Team Member (employee) stock options . . . . 176,706 203,182 189,084 201,862 ---------- ---------- ---------- ---------- Denominator for diluted net income per share - adjusted weighted average shares and assumed conversions. . . . . . . . . . . 9,909,108 9,131,907 9,906,066 8,679,058 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Basic net income per share . . . . . . . . . . . . $ 0.20 $ 0.21 $ 0.44 $ 0.42 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Diluted net income per share . . . . . . . . . . . $ 0.20 $ 0.21 $ 0.43 $ 0.41 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
5 NOTE 3. INVENTORIES Inventory is comprised as follows:
April 30, 1998 October 31, 1997 -------------- ---------------- Finished Goods $ 9,530,519 $ 8,231,656 Work-in-process 2,052,818 1,416,067 Raw materials 11,412,822 7,557,748 ----------- ----------- 22,996,159 17,205,471 Allowance for inventory obsolescence (1,378,997) (1,130,684) ----------- ----------- $21,617,162 $16,074,787 ----------- ----------- ----------- -----------
NOTE 4. INVESTMENT IN MARKETABLE SECURITIES In January 1998, the Company began investing in certain equity securities. In accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115") these investments are classified as available-for-sale. Under FAS 115, unrealized holding gains and losses are reflected as a net amount in a separate component of shareholders' equity until realized. For the purpose of computing realized gains and losses, costs are identified on a specific identification basis. There is no significant difference between the cost basis and fair value of these securities at April 30, 1998. During April 1998, the Company sold certain of these securities and realized a gain of $248,000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following discussion and analysis may contain forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The Company's actual results could differ materially from those discussed here. Such risks are detailed in the Company's Annual Report on Form 10-K filed with the SEC in January 1998 and are incorporated herein by reference. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. NET SALES. Net sales for the three months ended April 30, 1998 increased 12% to $24.8 million from $22.0 million for the same period in fiscal 1997. Net sales for the six months ended April 30, 1998 were $47.7 million, an increase of 13% versus the six months ended April 30, 1997. The increase in net sales for the quarter and six months was due to strong unit sales volume of the Company's automated tape libraries, including the Scalar products and reflecting, in part, the introduction of the FastStor products in the final quarter of fiscal 1997. The growth in sales related to library sales was offset by lower sales of standalone tape drives from the comparable quarter of 1997 and price reductions for selected parts. In addition, over the six-month period, certain large distributors, which are significant customers of the Company, have been reducing the amount of inventory that they are holding. This inventory contraction caused net sales to be lower than the Company's expectations. The Company 6 expects that net sales in the third and fourth quarters of the fiscal year will be significantly greater than the amount recorded in the six months ended April 30, 1998. There can be no assurance however that the Company can improve upon the level of net sales due to the risk of increasing competition, the reliance on certain customer and suppliers and other concerns. GROSS PROFIT. Gross profit was $7.0 million or 28% of net sales for the three months ended April 30, 1998 compared to $6.5 million or 29% of net sales for the same period in fiscal 1997. Gross profit as a percentage of sales was 30% for both of the six-month periods ended April 30, 1998 and 1997. While the shift in product mix toward higher-margin libraries and the reduction in sales of the lower-margin standalone products benefited gross margin, this benefit was offset by certain product price reductions and increased overhead costs. Most significant was the effect of product price reductions on certain of the Company's products. These price reductions were related to a reduction in certain tape drive costs. The product price reductions were retroactively applied to inventory owned by certain of the Company's customers, which more than offset the favorable effect of tape drive cost reductions on product shipped during the period. Gross profit margins are dependent on a number of factors, including customer and product mix, price competition and tape drive costs. Product mix changes, including increases in the proportion of standalone and media products sold, could cause a reduction in gross margin while further increases in the proportion of tape library business could contribute to improved margins. There can be no assurance that the Company can improve upon or maintain the current gross margin levels for any of its product lines, in that tape drives purchased from third-party suppliers are a significant component of the Company's product costs. SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses were $4.2 million or 17% of net sales for the three months ended April 30, 1998 compared to $3.2 million or 15% of net sales for the same period in fiscal 1997. The dollar increase in selling and administrative expenses in the three months ended April 30, 1998 over the comparable period in fiscal 1997 was due to increased sales personnel both in the headquarters office and in regional offices throughout the United States and to increase expenditures for advertising and promotion. The Company expects that selling and administrative expenses as a percentage of net sales may decline slightly for the fiscal year ending October 31, 1998 from the levels experienced in the three months ended April 30, 1998. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were $627,000 or 3% of net sales for the three months ended April 30, 1998 compared to $691,000 or 3% of net sales for the same period in fiscal 1997. Research and development expenses in fiscal 1997 reflected the Company's high expenses associated with the FastStor development. The Company expects research and development spending to stay at approximately 3% of net sales throughout fiscal 1998. OTHER INCOME. Interest income for the three months ended April 30, 1998 was $246,000 compared to $261,000 for the same period in fiscal 1997. This decrease is the result of investing in equity securities which reduced the interest bearing balance of cash and cash equivalents as well as increases in working capital requirements which also reduced the amount of cash available for interest bearing investments. The sale of certain equity securities generated the gain on sale of securities of $248,000. Net foreign currency transaction gains decreased approximately $56,000 between the comparison periods. Foreign currency gains or losses arise as a result of the operation of ADIC Europe, the functional currency of which is French francs. ADIC Europe buys products from ADIC in U.S. dollars and resells a significant majority of such products in U.S. dollars. However, because francs are used as the functional accounting currency, all monetary assets and liabilities are translated into francs on ADIC Europe's financial statements. To the extent that these monetary assets and liabilities do not fully offset each other and the franc-to-U.S.-dollar exchange rate changes, transaction gains or losses 7 may result. For large sales denominated in other currencies, the Company attempts to implement appropriate hedging strategies. PROVISION FOR INCOME TAXES. Income tax expense for the three months ended April 30, 1998 was $785,000 compared to $1,011,000 for the same period in fiscal 1997. The tax rate fluctuates in part based upon the taxable or non-taxable nature of the Company's investments. The Company believes that the 32% effective tax rate reflected in its results for the six-month period, which includes taxes paid in various federal, state and international jurisdictions, is generally indicative of the Company's effective tax rate in future periods. YEAR 2000 ISSUE. The Company, like most owners of computer software, will be required to modify portions of its software so that it will function properly in the year 2000. Any of the Company's computer programs that have date sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company is in the planning phase of its year 2000 readiness project and does not, as of yet, have determinable estimates of the costs to be incurred. The Company expects to incur primarily internal staff cost and other expenses related to infrastructure and facilities enhancements necessary to prepare the systems for the year 2000. ADIC believes that its critical internal software is year 2000 compliant and that its complete line of products are year 2000 compliant. The Company expects its year 2000 readiness project to be completed on a timely basis. LIQUIDITY AND CAPITAL RESOURCES The Company's operating activities used $10.8 million of cash in the first six months of fiscal 1998. Such cash was used to fund increases both in inventories and receivables as well as decreases in accounts payable and other accrued liabilities. These changes are partially due to timing of receipt or payment of certain large checks both to our large suppliers and from a specific few large customers. The Company does not believe that the timing of these payments or receipts is indicative of any change in credit or collection risks. Additionally, the Company used funds of $1.5 million to purchase property, plant and equipment, most of which was associated with the move to a new headquarters and manufacturing facility. At April 30, 1998, the Company had cash and cash equivalents of $20.3 million. As of that date, the Company also had a $10.0 million bank line of credit that expires at the end of fiscal 1998. Any borrowings under this line of credit would bear interest at the bank's prime rate or adjusted LIBOR rate. No borrowings have been made under this line of credit. The Company believes that its existing cash and cash equivalents and bank line of credit, together with the results of operations, will be sufficient to fund its working capital and capital expenditure needs for at least the next twelve months. Further, ADIC believes that cash balances are likely to increase over the remainder of the fiscal period. The Company may utilize cash to acquire or invest in businesses, products or technologies that it believes are strategic. From time to time, in the ordinary course of business, the Company evaluates potential acquisitions of such businesses, products or technologies. However, the Company has no present understanding, commitments or agreements with respect to any material acquisition of other businesses, products or technologies. 8 PART II - OTHER INFORMATION Item 1. Legal Proceedings. None Item 2. Changes in Securities. None Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other information. Effective May 26, 1998, long-time board member Walter P. Kistler resigned from the Company's Board of Directors due to his travel schedule and personal priorities. Item 6. Exhibits and Reports on Form 8-K. None 9 SIGNATURES 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. ADVANCED DIGITAL INFORMATION CORPORATION Dated: June 12, 1998 /s/ Peter H. van Oppen ---------------------------------- Peter H. van Oppen, Chairman and Chief Executive Officer Dated: June 12, 1998 /s/ Leslie S. Rock ---------------------------------- Leslie S. Rock, Treasurer and Chief Accounting Officer 10 EX-27 2 EXHIBIT 27
5 1,000 6-MOS OCT-31-1998 NOV-01-1997 APR-30-1998 20,327 427 22,817 402 21,617 66,362 6,408 2,899 74,078 9,693 0 0 0 0 64,385 74,078 47,672 47,672 33,247 33,247 1,245 0 0 6,293 1,998 4,295 0 0 0 4,295 .44 .43
-----END PRIVACY-ENHANCED MESSAGE-----