<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 30, 1994
( ) 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: 0-12046
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MICROPOLIS CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 95-3093858
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21211 Nordhoff Street, Chatsworth, California 91311
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (818) 709-3300
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
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(Title of class)
6% Convertible Subordinated Debentures due 2012
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(Title of class)
Indicate by check mark whether 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 twelve months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K (X).
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 3, 1995 was approximately $83,338,551.
The number of shares outstanding of registrant's common stock as of March
3,1995: 15,326,630.
Documents Incorporated by Reference:
-----------------------------------
Parts of the Proxy Statement for Registrant's 1995 Annual Meeting of
Stockholders (the "1995 Proxy Statement") are incorporated by reference to Part
III of this Form 10-K Report.
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MICROPOLIS CORPORATION
ANNUAL REPORT ON FORM 10-K
December 30, 1994
TABLE OF CONTENTS
PART I
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Page
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Item 1. Business........................................... 3
Item 2. Properties......................................... 9
Item 3. Legal Proceedings.................................. 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.............................. 10
Item 6. Selected Financial Data............................ 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 10
Item 8. Financial Statements and Supplementary Data........ 10
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............. 10
PART III
Item 10. Directors and Executive Officers of the Registrant. 11
Item 11. Executive Compensation............................. 12
Item 12. Security Ownership of Certain Beneficial Owners
and Management. ................................ 12
Item 13. Certain Relationships and Related Transactions..... 12
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................. 13
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PART I
ITEM 1. BUSINESS
-----------------
Micropolis Corporation was incorporated in California in December 1976. In
April 1987, the Company was reincorporated in Delaware. Unless the context
otherwise indicates, the terms "Micropolis" and "Company" refer to Micropolis
Corporation and its consolidated subsidiaries.
Micropolis is a leading designer and manufacturer of SuperCapacity disk
drives, information storage subsystems and video systems. The Company's disk
drives are exclusively in the 3 1/2-inch and 5 1/4-inch form factors, with
capacities ranging in 1994 from 1 Gigabyte ("GB") to 9 GB. The Company also
offers storage subsystem products that incorporate certain of the disk drives
described below, known as the Raidion and Microdisk. In addition, in 1994 the
Company introduced a line of video servers which provide video-on-demand for up
to 64 individual users.
The Company sells its products directly to original equipment manufacturers
("OEMs") and systems integrators and through independent distributors and value
added resellers ("VARs") for resale to end users. The Company's OEM customers
include Auspex Systems, Inc., Hewlett-Packard Company, Electronic Data Systems
and Stratus Computer. The Company's distribution customers include Tech Data
Corporation, Ingram Micro Corporation, Avnet EMG, Alliance Peripheral Systems,
Bell Microproducts, Inc., Megabyte EDV, and Insight Direct, Inc.
RECENT DEVELOPMENTS
-------------------
During the first quarter of 1995 the Company experienced a steep drop in
revenues as a result of sharply lower orders for the Company's 4 and 9 GB drives
in the distribution channel than had been previously anticipated by the Company.
In addition, the Company experienced a component problem, and other technical
issues, which effectively shut down production of its 2 GB Taurus drive for most
of the quarter. As a result, cash will decrease substantially from the levels
reported as of December 30, 1994 and losses will be incurred in the first and
second quarters of 1995.
Several measures have been taken to stabilize the situation. Shipments of a 2
GB Capricorn drive have been initiated. To address the problems affecting
production of the Taurus 2, the Company has assembled an engineering team in
Singapore to identify the root causes of the component and technical issues. The
technical solutions are in the process of being validated, and the validation is
expected to be completed early in the second quarter of 1995. To stimulate end
user customer demand through the distribution channel for the 4 and 9 GB drives,
the Company has initiated significant sales promotion activity.
To reduce operating expenses and improve near term cash flow, the Company has
initiated cost savings measures by cutting certain programs and other costs
which are not essential to near term plans. These measures include a work force
reduction as discussed under "Employees" below. The Company has also received a
commitment for a 2 year extension of its asset-based line of credit.
Availability under the line is a function of the level of eligible accounts
receivable. The Company's liquidity is discussed further under "Liquidity and
Capital Resources" in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on Page 4 of the 1994 Annual Report, filed
as Exhibit 13.1 hereto.
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PRODUCTS
--------
The Company's product lines focus on three main markets: SuperCapacity disk
drives, storage subsystems and video systems.
SuperCapacity Disk Drives
The core of the Company's product offerings consists of high-performance,
high-capacity Winchester disk drives used in mission critical, network file
server and multimedia applications. In 1994, these disk drives comprised 88% of
the Company's total revenues.
The Company's drives are primarily available with the industry standard SCSI
(Small Computer Serial Interface) interface. The Company is in the process of
developing a new line of SSA (Serial SCSI Architecture) drives which are
expected to be available in 1995. SSA drives enable significantly enhanced
connectivity when compared to the SCSI interface. In addition, the Company sells
disk drives that have been optimized for specific market niches. Included among
these drives are the Company's "AV" drives, where the internal firmware has been
modified to make these drives uniquely appropriate to large block data types,
such as audio and video files.
During 1993 and 1994, the Company developed a new line of disk drive products
that is code-named "Javelin." This series of products encompasses the Taurus 2,
a 3 1/2-inch, 1 inch high, 2 GB drive with a rotational speed of 7200 rpm; the
Capricorn 4, a 3 1/2-inch, full-height, 4.3 GB drive with a rotational speed of
7200 rpm, and the Scorpio 9, a 5 1/4-inch, full-height, 9 GB drive with a
rotational speed of 5400 rpm. Increased rotational speeds enable the drive to
demonstrate faster access times and otherwise increased performance. The Javelin
series of disk drives is characterized by a high degree of commonality in
technology. These drives possess a greater degree of integration of hardware and
software features across all three platforms than in previous models. The
Javelin series, which began shipping in the third quarter of 1994, represented
18% of the Company's 1994 total revenues.
The majority of the Company's revenues during 1994 related to products
developed prior to 1994, including the Taurus 1, a 3 1/2-inch, 1 inch high, 1 GB
drive; the Model 2217, a 3 1/2-inch full-height, 1.7 GB drive; and the Model
1936, a 5 1/4-inch, full-height, 3 GB drive, all with rotational speeds of 5400
rpm. The above products, including additional older generation products,
represented 69% of total revenues in 1994.
Storage Subsystems
The Company's storage subsystem products consist of the Raidion line of
fault-tolerant disk arrays, and the Microdisk. The Raidion line encompasses a
software-based array known as the Model LS (featuring 5 1/4-inch drives) and the
Model LT (featuring 3 1/2-inch drives); and a hardware-based array which
incorporates a proprietary disk array controller known as Gandiva. The software-
based Raidion products have been optimized for use on the Novell Netware and IBM
OS/2 operating systems. The hardware-based Raidion has been optimized to work
with a greater number of operating systems, including Netware, OS/2, Microsoft
Windows NT, Apple Macintosh and UNIX. The Microdisk product consists of an
external storage device in a modular housing. The subsystems described above
accounted for 9% of total revenues in 1994.
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Video Systems
During 1993 and 1994, the Company developed a line of video servers. The
initial server was introduced in early 1994. These servers, dubbed the AV
Server 100 and 200, enable 32 and 64 users, respectively, to view as many as 60
full length movies with VCR-like functionality. During 1994, sales of these
servers were made primarily to the hospitality industry and represented 3% of
total revenues. Sales of these servers are expected to decline in the first
half of 1995, as the Company's major end customer, now under new management,
determines how best to exploit its significant technology lead.
PRODUCT DEVELOPMENT
-------------------
Micropolis' approach to product development is best characterized as being
market driven, using a technology strategy that incorporates the latest reliably
available components and software. Being market driven means that Micropolis'
engineers work closely with its sales force and with its customers to determine
the appropriate prioritization of new product development efforts, as well as to
establish product specifications. In general, this approach is designed to
reduce time to market with products which have a broader set of potential
customers.
The technology strategy utilizes a basic set of mechanics and develops that
set of mechanics from its initial capacity to higher capacities by expanding the
electronic and head/media technology. For example, the Company's Aquarius 2
Series 1.7 GB, full-height 3 1/2-inch drive began with an 8-disk, 16-head
mechanical assembly. That same basic set of mechanics is still being employed
today in the newer 10 platter, 4.3 GB drive known as the Model 3243.
In 1994, the Company began the development of a new line of drives, known as
the "Tomahawk" series. The Company anticipates that these drives, featuring MR
(Magneto-Resistive) head technology that doubles previous capacities, could
become available in late 1995.
The disk drive business is characterized by rapidly changing technology and
user needs which require the continual development and introduction of new
products. Although the Company believes its strategy of focus and
specialization in the high-performance segment of the market, and an increased
emphasis on time to market, improves the rate of new product introduction, no
assurance can be given that the Company will be able to complete successfully
the design or introduction of its new products in a cost-effective and timely
manner, or that such products will perform to specifications. The introduction
of new products also requires the Company to manage its inventory carefully to
minimize inventory obsolescence. The failure to achieve any of these objectives
could have a material adverse effect on the Company's financial position and
results of operations.
Research and development expenses for fiscal 1994, 1993 and 1992 were
$43,648,000, $36,112,000 and $27,868,000, respectively. The Company
anticipates its 1995 research and development expenses will be somewhat less
than those of 1994. The Company will continue to focus on the introduction of
new 5 1/4-inch and 3 1/2-inch SuperCapacity drives, storage subsystems and video
systems products; however, it plans to discontinue funding of Tulip Memory
Systems and a digital disk recorder program and has made other expense cuts in
the engineering area.
MANUFACTURING
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The Company's manufacturing strategy is to rely principally on outside
vendors to supply high-level subassemblies and component parts, in contrast to
certain of its principal competitors, which are substantially vertically
integrated. The Company's manufacturing operations consist primarily of the
assembly of Head Positioner Assemblies ("HPAs") and the final assembly and
testing of disk drives. Micropolis maintains two principal manufacturing sites,
both located in Southeast Asia. The labor-intensive manufacture of HPAs takes
place in the Company's Bangkok
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facility, which was established in 1988. The Company's Singapore facility
established in 1986 accounts for substantially all final production and test of
the Company's disk drives. In addition, Micropolis maintains a pilot production
line at its Chatsworth, California headquarters. This line is employed to
assemble new products used in evaluation testing by its customers prior to their
transfer to the offshore operations. During 1994, Micropolis manufactured
approximately 379,000 disk drives. The Company believes that its current
facilities are adequate for its near-term production requirements.
Micropolis has made a substantial investment in automating disk drive
production at its Singapore facility. The Company believes that its investment
in automation will result in both quality and process yield improvements. A
team of experienced production automation engineers, located in Singapore,
focuses on identifying processes where automation can be particularly useful and
developing new procedures with a goal of long-term savings.
Continued improvement in manufacturing process capabilities and reduced
materials and manufacturing costs are critical factors affecting the Company's
financial position and results of operations. The Company continues to change
the manufacturing processes for many of its products and must carefully manage
the transfer of production of its newer products to its overseas operations.
There can be no assurance that such changes and transfers will be implemented in
a cost-effective and timely manner. During 1995, the Company plans to increase
its production of its Javelin class drives. In late 1995, the Company plans to
introduce the successors to the current Javelin class, known as Tomahawk, which
employ magneto-resistive head technology that doubles present capacities. Delays
or problems encountered in any of the foregoing could have a material adverse
effect on the Company's financial position and results of operations. In
addition, if for any reason the Company were to have a prolonged interruption in
any of its manufacturing facilities, the Company's financial position and
results of operations could be materially adversely affected.
A component problem, and other technical issues effectively shut down
production of the Company's Taurus 2, 2 GB 3 1/2-inch drive for most of the
first quarter of 1995. To address this situation, the Company has assembled an
engineering team in Singapore to identify the root causes of the component and
technical issues. The technical solutions are in the process of being validated,
and the validation is expected to be completed early in the second quarter of
1995.
The Company's manufacturing process requires high volumes of high quality
components. Several of the critical components used in the Company's disk
drives are available only from single or limited sources. The Company has had
and continues to have difficulties in obtaining certain components, and there
can be no assurance that such difficulties will not occur in the future. A
prolonged interruption or reduction in supply of quality components, rework
costs associated with defective components or the inability to obtain continued
reduction in component prices would adversely affect the Company's financial
position and results of operations and could damage customer relationships.
MARKETING
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The Company's direct sales force sells Micropolis disk drives to OEMs,
distributors and VARs. The Company maintains eight domestic sales offices. In
1994, approximately 21% of total sales were made to OEMs, with the remainder to
independent distributors and VARs. International operations are an important
element of the Company's sales mix. In 1994, export sales (sales to customers
outside of North America) comprised approximately 31% of total sales. The
Company maintains a European sales network of five offices, with wholly-owned
subsidiaries operating in Germany, England, France, Sweden and Italy. These
offices support sales in Europe to both U.S.
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and European-based OEMs and European-based independent distributors. The
Company has expanded its sales and marketing efforts in the Asia/Pacific region
with four offices: Japan, Taiwan, Australia and Singapore. In addition, the
Company maintains a service and support operation in England.
No customers accounted for more than 10% of total sales during 1994 or 1993.
Digital Equipment Corporation accounted for 17.6% of sales in 1992. No other
customer accounted for more than 10% of total sales during any of such years.
The Company generally warrants its products against defects for periods from
one to five years. The Company provides for estimated future product warranty
costs when products are shipped. In addition, the Company generally grants
trade credit to its customers, typically on net 30 day terms. Historically, the
Company has not experienced significant bad debt write-offs. The Company also
has policies and/or contractual agreements which allow distributors to receive
price protection credit under certain circumstances when the Company lowers its
sales prices. In addition, the Company permits customers to return products
under certain circumstances. The Company makes a provision for the estimated
amount of price protection credits and for product returns that may occur under
these programs and contracts in the period of sale.
The Company's products are sold principally through the Company's own sales
force, which has offices in Chatsworth, San Jose and Irvine, California; Roswell
and Lawrenceville, Georgia; Salem, New Hampshire; Branford, Connecticut; North
Potomac, Maryland; Des Plaines, Illinois; Plano, Texas; Charlottesville,
Virginia; Larkspur, Colorado; Reading, England; Munich, Germany; Massy, France;
Milan, Italy; Jarfalla, Sweden; Singapore; Tokyo, Japan; Taipei, Taiwan; and N.
Sydney, Australia. In addition, members of senior management, together with
engineering, operations and marketing executives, participate actively in sales
to major OEM customers. Independent distributors are also used in the United
States and for certain markets abroad.
Direct shipments from Chatsworth and Singapore are denominated in United
States dollars; sales by the European subsidiaries, except Germany, are
denominated in local currency. Although export sales are subject to certain
restrictions, including approval by the Office of Export Administration of the
United States Department of Commerce, such restrictions have not limited such
sales.
BACKLOG AND VARIABILITY OF DEMAND
---------------------------------
The Company's order backlog at February 3, 1995 was approximately $25.5
million compared with approximately $19.4 million at February 1, 1994. The
increase in backlog was primarily attributable to orders and backlog for the
Company's Javelin class drives offset partially by a decline in orders for the
Company's 3.6 GB 5 1/4-inch drives.
Backlog includes orders for which a delivery schedule has been specified by
the customer and which the Company has agreed to ship within six months. Lead
time for the release of purchase orders varies from month to month. For this
reason and because changes in delivery schedules and cancellation of orders
occur, the Company's backlog on a particular date may not be representative of
future sales. The Company's customers place orders based on their own internal
forecasts. If demand falls below forecast, the customer may cancel or
reschedule shipments previously ordered from the Company, a process that may be
exacerbated by customers' inventory management practices. Accordingly, the
Company may, at any time and with limited notice, experience a significant
downturn in demand for its products. The Company's expectations of future net
sales are based largely on its own estimate of future demand and not on firm
customer orders. The Company's net sales may also be affected by its
distributors' decisions as to the quantity of the Company's products to be
maintained in their inventories. The Company's expenditures are based in part
on management's estimate of future sales. If orders and net sales do
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not meet expectations, the Company generally will not be able to reduce expenses
commensurately in the near term and therefore profitability would be adversely
affected.
During the first quarter of 1995, the Company faced an unanticipated
shortfall in the demand in the distribution channel for its Capricorn 4 and
Scorpio 9 disk drives. As a result, the Company now expects that its sales in
the first and second quarters of 1995 will be down substantially from the levels
recorded in the fourth quarter of 1994.
COMPETITION
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The disk drive industry is intensely competitive and characterized by
significant price erosion over the life of a product. The Company believes that
being first to market with new products is a critical element in the achievement
of desired gross margins. Being first to market provides initial price
advantages to the Company and the opportunity to accelerate learning and cost
reduction curves due to increased production volumes.
During 1993 and 1994, the Company experienced significant price erosion
related to several of its products as a result of increased competition. Such
pricing pressures negatively impacted the Company's operating results for 1993
and 1994.
The Company's competition includes other independent domestic disk drive
manufacturers, the disk drive divisions of both domestic and foreign (primarily
Japanese) computer systems manufacturers and the captive disk drive
manufacturing operations of some of its customers. The Company's principal
competitors in the market for high-performance Winchester drives currently are
Seagate Technology, Quantum Corporation, Fujitsu Corporation and Conner
Peripheral Inc. In addition, the Company is experiencing increased competition
from computer manufacturers such as International Business Machines and Hewlett
Packard Company. In the high-performance market in which the Company competes,
the principal dimensions of competition are generally data storage capacity,
data transfer rate, average access time, form factor, timely delivery in
quantity, reliability and price. Virtually all of the Company's competitors are
much larger in size and have access to greater financial and other resources
than the Company. The Company believes that its future success hinges on its
ability to bring cost and feature-competitive products to market on a timely
basis.
EMPLOYEES
---------
As of February 3, 1995, the Company employed approximately 2,320 persons,
including 452 in Engineering, 131 in Quality Assurance and Control, 1,489 in
Manufacturing and Operations, 95 in Marketing and 153 in General Management and
Administration. Competition for highly skilled employees is intense. The
Company believes that its future success will depend on its continued ability to
attract and retain qualified employees. None of the Company's employees is
represented by a labor union, and the Company has experienced no work stoppages.
The Company believes that its employee relations are good.
During March 1995, the Company announced and completed an 11% reduction in
its workforces in the United States and Europe to reduce operating expenses and
improve near term cash flow.
BUSINESS SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS
--------------------------------------------------
The Company's operations are conducted within a single business segment. The
information relating to foreign and domestic operations is incorporated by
reference to page 16 of the 1994 Annual Report, filed as Exhibit 13.1 hereto.
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ITEM 2. PROPERTIES
-------------------
The Company's principal executive and engineering offices and limited
domestic manufacturing operations are located in Chatsworth, California,
comprising a total of approximately 186,000 square feet. Of these facilities,
one building with approximately 58,000 square feet is owned, and one building
with approximately 128,000 square feet is leased at an annual rental of
approximately $982,000 subject to annual change based on the Consumer Price
Index. The original term of this 1988 lease was five years, with three five-
year renewal options. In May 1993, the Company renewed the lease for an
additional five years. Micropolis also leases on a month-to-month basis, a
small amount of storage and parking space in Chatsworth.
In Singapore, the Company leases approximately 56,000 square feet on three
floors of one building, and an additional 12,000 square feet on another floor of
the same building. The space is used in the Company's manufacturing operations.
These leases, which provide for an annual rental of $791,000 and $150,000,
respectively, expire in April 1996. The Company leases an additional 134,600
square feet for manufacturing on five floors of an adjacent building at an
annual rental of approximately $1,743,000. This lease expires in April 1996.
During December 1994, the Company began construction of a 302,000 usable
square foot manufacturing facility in Singapore. The new facility is expected
to be completed in 1996, at which time the Company's operations in Singapore
will move from their current leased facilities to the new factory. The Company
has obtained financing to fund the expenditures associated with the construction
of the building. A thirty-year ground lease for the new facility provides for
lease payments of approximately $616,000 annually.
Micropolis owns a building with approximately 37,000 square feet in Bangkok,
Thailand which is used for manufacturing Head Positioner Assemblies and other
disk drive sub-assemblies. In addition, the Company leases approximately 20,400
square feet in two separate locations adjacent to the main manufacturing site.
These leases, which extend for one year each, expire in August of 1995, and both
are currently being renegotiated.
Micropolis also leases sales offices in San Jose and Irvine, California;
Roswell, Georgia; Salem, New Hampshire; Branford, Connecticut; Des Plaines,
Illinois; Plano, Texas; Charlottesville, Virginia; Larkspur, Colorado; Reading,
England; Munich, Germany; Massy, France; Milan, Italy; Jarfalla, Sweden;
Singapore; Tokyo, Japan; Taipei, Taiwan; and N. Sydney, Australia.
The Company believes that its current facilities are well maintained and are
adequate for its near-term production requirements. The Company is presently at
approximately 50% of capacity.
ITEM 3. LEGAL PROCEEDINGS
--------------------------
The Company is involved in routine legal matters and contingencies in the
ordinary course of business which management believes will not have a material
effect upon the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Not Applicable
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
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STOCKHOLDER MATTERS
-------------------
The information required by this Item is incorporated by reference to
Page 17 of the 1994 Annual Report, filed as Exhibit 13.1 hereto.
ITEM 6. SELECTED FINANCIAL DATA
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The information required by this Item is incorporated by reference to
Page 1 of the 1994 Annual Report, filed as Exhibit 13.1 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
The information required by this Item is incorporated by reference to
Pages 2-4 of the 1994 Annual Report, filed as Exhibit 13.1 hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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The information required by this Item is incorporated by reference to
Pages 5-18 of the 1994 Annual Report, filed as Exhibit 13.1 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
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ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
Not Applicable
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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The information concerning Directors required by this Item is
incorporated by reference from Pages 2-3 of the 1995 Proxy Statement.
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
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Served as
Name Age Position officer since
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Stuart P. Mabon 57 President, Chairman 1976
of the Board of Directors
Taroon C. Kamdar 49 President - Asia/Pacific Division 1991
and General Manager,
Storage Systems Division
Ericson M. Dunstan 62 Senior Vice President - 1976
Corporate Engineering
Barbara V. Scherer 39 Senior Vice President - Finance, 1988
Chief Financial Officer and Treasurer
Nigel Macleod 40 Vice President - Engineering 1992
Donald McDonell 48 Vice President - Sales 1992
Ralph R. McLaughlin 42 Vice President - Quality 1993
Howard E. Robinson, Jr. 51 Vice President - Materials 1993
Holly Sacks 45 Vice President - Marketing 1993
</TABLE>
MR. MABON has been President and Chairman of the Company since its
organization in December 1976.
MR. KAMDAR joined Micropolis in November 1991 as Senior Vice President,
General Manager of the Storage Systems Division and in December 1992 was
promoted to Executive Vice President - Storage Systems Division. In April 1993,
Mr. Kamdar was promoted to President, Asia/Pacific Division. For more than five
years prior to joining Micropolis, Mr. Kamdar held various executive positions
at Maxtor Corporation including Senior Vice President, Marketing, Sales and
Business Development.
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DR. DUNSTAN is Senior Vice President - Corporate Engineering and Secretary,
and has served as an officer of the Company since December 1976.
MS. SCHERER joined Micropolis in November 1987 as Treasury Director, and
became Treasurer in October 1988. In November 1989, she became Vice President
and Treasurer and in March 1995, was promoted to Senior Vice President - Finance
and Chief Financial Officer. She was previously employed by the Boston
Consulting Group from May 1985 to November 1987.
MR. MACLEOD joined Micropolis in August 1992 as Vice President - Engineering.
Prior to joining Micropolis, Mr. Macleod held various executive positions with
Rodime Corporation.
MR. MCDONELL joined Micropolis in August 1986 as Director of Distribution and
Retail Marketing and became Director of Resale-Marketing in November 1986. In
December 1991, he became Director of Sales - Western Region and in January 1993,
was promoted to Vice President - Sales, Storage Systems Division.
MR. MCLAUGHLIN joined Micropolis in May 1993 as Vice President - Quality
Control. He was previously employed by Silicon Graphics Computer Systems from
August 1987 to July 1992 as Director of Corporate Quality Assurance and
Manufacturing Engineering.
MR. ROBINSON joined Micropolis in June 1993 as Vice President - Materials. He
held various executive positions in Conner Peripherals, Inc. from September 1992
to June 1993, Hughes, Robinson & Associates Management Consulting from October
1991 to August 1992, and Maxfactor Corporation from April 1988 to September
1991.
MS. SACKS joined Micropolis in January 1992 as Director of Marketing, Storage
Systems Division and in 1993 was promoted to Vice President - Marketing, Storage
Systems Division. She held various management positions in Xerox Corporation
from February 1990 to December 1992 and Genicom Corporation from September 1988
to February 1990.
Officers serve at the discretion of the Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
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The information required by this Item is incorporated by reference
from Pages 6-9 of the 1995 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
-------- ---------------------------------------------------
MANAGEMENT
----------
The information required by this Item is incorporated by reference
from Pages 4-5 of the 1995 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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The information required by this Item is incorporated by reference
from Pages 7-8 of the 1995 Proxy Statement.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
-------------------------------------------------------
FORM 8-K
--------
(a) The following documents are filed as a part of this Report:
1. Financial Statements. The following Consolidated Financial
Statements of Micropolis Corporation and Report of Independent
Auditors are incorporated by reference in Item 8:
Consolidated Balance Sheets -- December 30, 1994 and December 31,
1993.
Consolidated Statements of Operations -- Years Ended December 30,
1994, December 31, 1993 and December 25, 1992.
Consolidated Statements of Shareholders' Equity -- Years Ended
December 30, 1994, December 31, 1993 and December 25, 1992.
Consolidated Statements of Cash Flows -- Years Ended December 30,
1994, December 31, 1993 and December 25, 1992.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
2. Financial Statement Schedules. The following consolidated
financial statement schedule of Micropolis Corporation is filed as
part of the Report and should be read in conjunction with the
Consolidated Financial Statements of Micropolis Corporation:
SCHEDULE PAGE
-------- ----
II Valuation and Qualifying Accounts S-2
Schedules not listed above have been omitted because they are not
applicable or are not required or the information to be set forth
therein is included in the Consolidated Financial Statements or notes
thereto.
3. Exhibits:
INCORPORATED BY REFERENCE
-------------------------
3.1 Certificate of Incorporation (1)
3.2 By-Laws, as amended to date (2)
4.1 Indenture, dated March 15, 1987, between
Micropolis Corporation and First Interstate
Bank of California as trustee, relating to
$75,000,000 principal amount of 6% Convertible
Subordinated Debentures due 2012 (3)
4.2 Rights Agreement dated as of May 1989 between the
Company and First Interstate Bank of California (4)
-13-
<PAGE>
10.15 *Micropolis Corporation Employees' Stock Purchase Plan
(5)
10.19 *Micropolis Corporation Employee Savings and Retirement
Plan (6)
10.20 *Form of Indemnification Agreement between the Company
and each of its directors and officers (7)
10.21 *Executive and Key Employees' Stock Option Plan, dated
October 1987 (1)
10.22 *Directors' Stock Option Plan, dated October 1987 (1)
10.23 *Form of Incentive Stock Option Agreement for Executive
and Key Employees' Stock Option Plan, dated October
1987 (1)
10.24 *Form of Non-Qualified Stock Option Agreement for
Executive and Key Employees' Stock Option Plan, dated
October 1987 (1)
10.26 *Form of Stock Option Agreement for Directors' Stock
Option Plan, dated October 1987 (1)
10.30 *Offer letter agreement between Micropolis Corporation
and Robert G. Wallstrom (8)
10.31 *First Amendment to Micropolis Corporation Employee
Savings and Retirement Plan (8)
10.32 *Second Amendment to Micropolis Corporation Employee
Savings and Retirement Plan (8)
10.33 *Third Amendment to the Micropolis Corporation Employee
Savings and Retirement Plan (8)
10.34 *Fourth Amendment to Micropolis Corporation Employee
Savings and Retirement Plan (8)
10.35 Loan Agreement between the Company and CIT Group
Business Credit (8)
10.37 *Severance Agreement between Micropolis Corporation and
Taroon Kamdar (9)
10.38 *Severance Agreement between Micropolis Corporation and
Robert Ganter
10.39 *Severance Agreement between Micropolis Corporation and
Nigel Macleod (10)
-----------------------------------------
*Management contract or compensatory plan or arrangement required to
be filed as an Exhibit to this Form 10-K Report pursuant to Item 14 (c).
-14-
<PAGE>
10.40 *Summary of Stock Appreciation Bonus Plan (10)
10.41 *Summary of Storage System Division Bonus Plan (10)
10.42 *Summary of Key Performance Bonus Plan (10)
10.43 *Severance Agreement between Micropolis Corporation and
Joel Appelbaum (11)
10.44 *Amendment to the Micropolis Corporation Employee Stock
Purchase Plan. (12)
10.45 *Amended and Restated Stock Option Plan for Independent
Directors of Micropolis Corporation. (12)
10.46 *Stock Option Plan for Executive and Key Employees of
Micropolis Corporation, as amended. (12)
FILED HEREWITH
--------------
13.1 Annual Report to Shareholders
21 Subsidiaries of Registrant
23 Consent of Independent Auditors (See Exhibit 23)
27 Article 5 Financial Data Schedule for 1994 10-K
---------------------------------------------
(1) Incorporated by reference to Exhibits 3.1, 10.21,
10.22, 10.23, 10.24 and 10.26, respectively, filed
in the Company's Annual Report on Form 10-K,
for the fiscal year ended December 25, 1987.
(2) Incorporated by reference to Exhibit 3.2 filed in the
Company's Annual Report on Form 10-K for the
fiscal year ended December 30, 1988
(3) Incorporated by reference to Exhibit 4.1 of the
Company's Registration Statement on Form S-3
No. 33-12374.
(4) Incorporated by reference to Exhibit I filed in the
Company's Form 8-K Report dated June 2, 1989.
(5) Incorporated by reference to Exhibit 4.3 of the
Company's Registration Statement on Form S-8
No. 2-90423.
-----------------------------------------
*Management contract or compensatory plan or arrangement required to
be filed as an Exhibit to this Form 10-K Report pursuant to Item 14 (c).
-15-
<PAGE>
(6) Incorporated by reference to Exhibits 10.18 and
10.19 respectively, filed in the Company's Annual
Report on Form 10-K for the fiscal year ended
December 27, 1985.
(7) Incorporated by reference to Exhibit D of the
Company's Proxy Statement for the 1987 Annual
Meeting of Shareholders.
(8) Incorporated by reference to Exhibits 10.30, 10.31,
10.32, 10.33 and 10.34, respectively, filed in the
Company's Annual Report on Form 10-K for the
fiscal year ended December 28, 1990.
(9) Incorporated by reference to Exhibits 10.36 and
10.37, respectively, filed in the Company's
Annual Report on Form 10-K for the fiscal year
ended December 27, 1991.
(10) Incorporated by reference to Exhibits 10.39, 10.40,
10.41 and 10.42, respectively, filed in the Company's
Annual Report on Form 10-K for the fiscal year ended
December 26, 1992.
(11) Incorporated by reference to Exhibit 10.43 filed in the
Company's Quarterly Report on Form 10-Q for the
quarterly period ended April 1, 1994.
(12) Incorporated by reference to Exhibits 10.44, 10.45 and
10.46, respectively, filed in the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
July 1, 1994.
(b) No reports on Form 8-K were filed by the Registrant during the fourth
quarter ended December 30, 1994.
(c) Those exhibits, and the index thereto, required to be filed by Item 601
of Regulation S-K are attached hereto or incorporated by reference
herein.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MICROPOLIS CORPORATION
Dated: March 29, 1995 By: Barbara V. Scherer
-------------------------------------
Barbara V. Scherer
Senior Vice President - Finance,
Chief Financial Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Stuart P. Mabon President and Chairman of March 29, 1995
------------------- the Board (Chief Executive
Stuart P. Mabon Officer)
Barbara V. Scherer Senior Vice President - Finance, March 29, 1995
--------------------- Chief Financial Officer and
Barbara V. Scherer Treasurer
(Principal Financial Officer)
Lee N. Hilbert Corporate Controller March 29, 1995
-------------- (Principal Accounting Officer)
Lee N. Hilbert
Ericson M. Dunstan Senior Vice President- March 29, 1995
-------------------- Corporate Engineering, Director
Ericson M. Dunstan
Chriss W. Street Director March 29, 1995
-----------------
Chriss W. Street
Theodore J. Smith Director March 29, 1995
---------------------
Theodore J. Smith
</TABLE>
S-1
<PAGE>
MICROPOLIS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 30, 1994, DECEMBER 31, 1993
AND DECEMBER 25, 1992
<TABLE>
<CAPTION>
Balance Additions Balance at
beginning charged to end of
of year expenses Deductions* year
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1994:
-----
Allowance for doubtful $1,375,000 $5,736,000 $2,650,000 $4,455,000
accounts, customer returns
and price protection
1993:
-----
Allowance for doubtful $1,390,000 $ 323,000 $ 338,000 $1,375,000
accounts, customer returns
and price protection
1992:
-----
Allowance for doubtful $1,460,000 $ 671,000 $ 741,000 $1,390,000
accounts, customer returns
and price protection
</TABLE>
*Write-offs against reserves
S-2
<PAGE>
MICROPOLIS CORPORATION
INDEX TO EXHIBITS
(ITEM 14 (C)
13.1 Annual Report to Shareholders
21 Subsidiaries of Registrant
23 Consent of Independent Auditors
27 Article 5 Financial Data Schedule for 1994 10-K
<PAGE>
EXHIBIT 13.1
MICROPOLIS CORPORATION
ANNUAL REPORT TO SHAREHOLDERS
Selected Consolidated Financial Data
<TABLE>
<CAPTION>
===========================================================================================================
Fiscal Year Ended
December 30, December 31, December 25, December 27, December 28,
1994 1993 1992 1991 1990
-----------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of operations data
Net sales $346,314 $382,926 $396,579 $350,875 $380,572
Cost of sales 286,856 315,436 306,482 285,555 315,785
-----------------------------------------------------------------------------------------------------------
Gross profit 59,458 67,490 90,097 65,320 64,787
Operating expenses:
Research and development 43,648 36,112 27,868 24,065 20,342
Selling, general and
administrative 43,500 41,906 38,656 33,258 29,348
Restructuring charge -- 5,496 -- -- --
-----------------------------------------------------------------------------------------------------------
Total operating expenses 87,148 83,514 66,524 57,323 49,690
-----------------------------------------------------------------------------------------------------------
Income (loss) from operations (27,690) (16,024) 23,573 7,997 15,097
Other expense, net 2,985 3,888 2,683 3,504 6,452
-----------------------------------------------------------------------------------------------------------
Income (loss) before income
taxes (30,675) (19,912) 20,890 4,493 8,645
Provision for income taxes -- 4 1,333 150 719
-----------------------------------------------------------------------------------------------------------
Net income (loss)(1) $(30,675) $(19,916) $ 19,557 $ 4,343 $ 7,926
===========================================================================================================
Earnings (loss) per share(1) $ (2.03) $ (1.34) $ 1.33 $ .32 $ .68
===========================================================================================================
Weighted average common and
common equivalent shares
outstanding 15,100 14,835 14,720 13,674 11,626
===========================================================================================================
Balance sheet data
Working capital $121,022 $144,423 $163,394 $141,850 $101,628
Total assets 233,915 250,429 259,624 244,909 217,165
Long term debt (6% Convertible
Subordinated Debentures
due 2012) 75,000 75,000 75,000 75,000 75,000
Shareholders' equity 89,630 118,356 136,257 114,629 80,139
===========================================================================================================
</TABLE>
(1) Income from the Company's Singapore and Thailand operations is exempt
from income taxes in those countries through 2004 (previously August 1999)
and December 1993, respectively. The effects on net income (loss) and
earnings (loss) per share of the income tax exemptions in Singapore and
Thailand as compared to income taxes at the maximum statutory rates were
approximately $7,401 and $.49 in fiscal 1994, $4,800 and $.33 in fiscal
1993, $12,879 and $.87 in fiscal 1992, $11,047 and $.81 in fiscal 1991 and
$9,984 and $.86 in fiscal 1990, respectively. However, the aforementioned
aggregate and per share effects are not necessarily indicative of the
Company's consolidated incremental tax liability in the absence of such tax
holidays either historically or upon termination of holiday status in 2004
and 1993 (see Notes 1 and 2 to the Company's Consolidated Financial
Statements). The expiration of the tax holiday in Thailand did not have a
material effect on the results of operations in 1994.
================================================================================
1
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Fiscal 1994 Compared to Fiscal 1993
Net sales decreased by 10.5% to $346.3 million in 1994 as compared to $382.9
million in 1993. OEM revenues declined substantially in 1994 as a result of a
decrease in shipments in the Company's 5-1/4-inch 3600 rpm drives and the
3-1/2-inch 5400 rpm 1 gigabyte (GB) drives. The decline in OEM sales was only
partially offset by increases in the Company's Storage Systems Division (SSD)
and Video Systems Division. The increase in SSD sales was primarily the result
of an increase in shipments of the 3-1/2-inch, 1 inch high 1 GB drive, 1.7 GB
full height drives and storage subsystems. The increase in the Video Systems
Division, which had no sales in 1993, came primarily in the second half of 1994
and related to shipments of the AV Server 100. Lower AV Server sales are
expected in the first quarter of 1995, as the Company's major end customer, now
under new management, determines how to best exploit its significant technology
lead. Backlog as of December 30, 1994 was $27.8 million, as compared to $29.2
million as of December 31, 1993.
Cost of sales as a percentage of sales was 82.8% in 1994, comparable to the
82.4% in 1993, resulting in gross margins of 17.2% (17.6% in 1993). Gross
margins in the first three quarters of 1994 were adversely impacted by
competitive pricing on the 1 GB, 1 inch high 3-1/2-inch drives. Margins
increased substantially in the fourth quarter, to 26.5%, as a result of the
increased shipments of the Company's Javelin class SuperCapacity drives and
storage and video subsystems.
Research and development as a percentage of sales increased to 12.6% in 1994
as compared to 9.4% in 1993. The increase in spending of $7.5 million relates
to increased research and development for high capacity 3-1/2-inch and
5-1/4-inch drives, subsystem products and development of new disk substrates at
Tulip Memory Systems.
Selling, general and administrative expense increased to 12.6% in 1994 as
compared to 10.9% in 1993. The increase in spending of $1.6 million relates
primarily to increased sales and marketing costs in the Company's Storage
Systems Division.
Interest expense was $5.1 million (1.5% of sales) in 1994 which is
comparable to 1993. Interest income was $2.1 million in 1994 as compared to
$2.3 million in 1993.
As a result of the above, the loss before income taxes was $30.7 million in
1994 versus a loss of $19.9 million in 1993. The Company provided for no income
tax in 1994 versus $4,000 provided in 1993. The Company's income tax provision
benefits from a tax holiday afforded the Company's Singapore operation, which
remain in effect through August 2004 (previously 1999). The effect on net
income and earnings per share of the income tax exemptions in Singapore as
compared to income taxes at the maximum statutory rates for 1994 and 1993, was
approximately $7.4 million and $.49 and $4.8 million and $.33, respectively.
Net loss was $30.7 million in 1994, as compared to net loss of $19.9 million in
1993.
During the first quarter of 1995, the Company faced an unanticipated shortfall
in the demand in the distribution channel for its Capricorn 4 and Scorpio 9 disk
drives. In addition, manufacturing issues relating to the Taurus 2 drive will
adversely affect the sales of this drive in the first quarter. As a result, the
Company now expects that its sales in the first and second quarters of 1995 will
be down substantially from the levels recorded in the fourth quarter of 1994.
The Company has initiated a number of programs to address this situation.
2
<PAGE>
Fiscal 1993 Compared to Fiscal 1992
Net sales decreased 3.4% to $382.9 million in the fifty-three week year
ended 1993, as compared to $396.6 million for the fifty-two week year ended
1992. The decrease in revenues was primarily attributable to a decrease in
shipments of the Company's 1.6 gigabyte (GB) and below 5-1/4-inch drives,
offset in part by an increase in shipments of the Company's 3-1/2-inch drives.
In addition, the Company experienced significant price erosion for all of its
drives during 1993. OEM revenues decreased by 12.4% in 1993 as compared to
1992, partially offset by a 9.5% increase in sales made by Storage Systems
Division. Backlog as of December 31, 1993 was $29.2 million as compared to
$38.5 million at December 25, 1992. The decline in backlog was primarily
attributable to the OEM channel for 5-1/4-inch products with rotational speeds
of 3600 rpm.
Cost of sales as a percent of sales increased to 82.4% as compared to 77.3%
in 1992, resulting in gross margins of 17.6% in 1993 as compared to 22.7% in
1992. The decline in gross margins in 1993 was primarily attributable to
significant price erosion for the Company's drives combined with a higher mix
of 3-1/2-inch drives which carried lower margin than the 5-1/4-inch drives.
Research and development as a percent of sales increased to 9.4% in 1993 as
compared to 7% in 1992. The increase in spending of $8.2 million related to the
additional spending on 5-1/4-inch drives with capacities greater than 3.6 GB,
and high capacity 3-1/2-inch products.
Selling, general and administrative expenses as a percent of sales was 10.9%
in 1993 as compared to 9.7% in 1992. The increase in spending of $3.2 million
related to additional spending on the Company's management information systems,
and increased marketing and advertising expenses to support the increased sales
volume in the Storage Systems Division.
In the third quarter of 1993, the Company recorded a restructuring charge of
$5.5 million. This charge related primarily to separation costs recognized in
connection with a reduction in workforce and a write-down of certain assets
which were no longer in use due to changes in the Company's production
requirements and new product specifications.
Interest expense was $5.1 million (1.3% of sales) in 1993, which was
comparable to 1992. Interest income was $2.3 million in 1993, as compared to
$2.4 million in 1992.
Other expenses of $1.1 million in 1993 represented losses recorded in
connection with an investment in a start-up company.
As a result of the above, the loss before income taxes was $19.9 million in
1993 versus income of $20.9 million in 1992. The income tax provision was
$4,000 in 1993 as compared to $1.3 million in 1992. The decrease in income
taxes was primarily attributable to current year operating losses and in 1992
the Company's net operating loss carryforward for state income tax purposes was
not available for use, but was available in 1993. The Company's income tax
provision benefits from tax holidays afforded the Company's Singapore and
Thailand operations, effective through August 2004 and December 1993,
respectively. The effect on net income and earnings per share of the income tax
exemptions in Singapore and Thailand, as compared to income taxes at the
maximum statutory rates for 1993 and 1992, was approximately $4.8 million and
$.33 and $12.9 million and $.87, respectively. In the first quarter of 1993,
the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes." The adoption of SFAS 109 did not have a
material effect on the Company's financial position or results of operations.
Net loss was $19.9 million in 1993, as compared to net income of $19.6 million
in 1992.
3
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments decreased to $63.2 million
at December 30, 1994 as compared to $86.8 million at December 31, 1993. Net
cash used in operations of $5.8 million was primarily the result of the
operating losses, offset by a decrease in inventories and an increase in
accounts payable and accrued liabilities. Net cash used in investing
activities, net of changes in short-term investments, was $19.4 million.
The Company's capital expenditures were $19.7 million in 1994. Capital
expenditures were primarily for equipment and tooling to support new products.
The Company announced in the fourth quarter of 1994 its intention to build a
new manufacturing facility in Singapore to replace the current leased facility.
The new facility is expected to be completed in 1996. The Company has obtained
financing to fund the expenditures associated with the construction of the
building. (See note 7 to the financial statements.) The Company anticipates
that its capital spending in 1995, excluding the new facility, will be
comparable to 1994.
In addition to the credit facility associated with the construction of the
new plant, the Company has a $33 million credit facility. The availability
under the facility is a function of the level of eligible receivables, and
borrowings are secured by substantially all of the Company's assets.
The Company anticipates a substantial decrease in cash in early 1995 as a
result of lower than expected revenues and operating losses. While the Company
believes it has sufficient liquidity to meet its short term financial needs,
should second quarter revenues prove to be significantly lower than curently
anticipated, the Company may require additional financing. While the Company
believes such financing could be obtained from its present lenders or other
sources if needed, there can be no assurance as to the terms on which it would
be available, if at all.
4
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
=====================================================================================
Fiscal Year Ended
-------------------------------------------------------------------------------------
December 30, December 31, December 25,
1994 1993 1992
-------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net sales $346,314 $382,926 $396,579
Cost of sales 286,856 315,436 306,482
-------------------------------------------------------------------------------------
Gross profit 59,458 67,490 90,097
Operating expenses:
Research and development 43,648 36,112 27,868
Selling, general and administrative 43,500 41,906 38,656
Restructuring charge -- 5,496 --
-------------------------------------------------------------------------------------
Total operating expenses 87,148 83,514 66,524
-------------------------------------------------------------------------------------
Income (loss) from operations (27,690) (16,024) 23,573
-------------------------------------------------------------------------------------
Interest income 2,090 2,335 2,426
Interest expense (5,075) (5,093) (5,109)
Other expense -- (1,130) --
-------------------------------------------------------------------------------------
Income (loss) before income taxes (30,675) (19,912) 20,890
-------------------------------------------------------------------------------------
Provision for income taxes -- 4 1,333
-------------------------------------------------------------------------------------
Net income (loss) $(30,675) $(19,916) $19,557
=====================================================================================
Earnings (loss) per share $(2.03) $(1.34) $1.33
=====================================================================================
Weighted average common and common
equivalent shares outstanding 15,100 14,835 14,720
=====================================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
========================================================================================
December 30, December 31,
1994 1993
----------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C>
Assets
Current assets:
Cash, cash equivalents and short-term
investments $63,216 $86,782
Accounts receivable, less allowance for
doubtful accounts and customer returns
of $4,455 ($1,375 in 1993) 61,724 48,231
Inventories 56,746 59,677
Other current assets 6,405 4,389
----------------------------------------------------------------------------------------
Total current assets 188,091 199,079
Property, plant and equipment, at cost:
Land 1,675 1,675
Buildings and improvements 22,246 23,096
Machinery and equipment 85,479 73,806
Construction in progress 3,524 3,872
----------------------------------------------------------------------------------------
112,924 102,449
Less accumulated depreciation and amortization 68,672 53,969
----------------------------------------------------------------------------------------
44,252 48,480
Other assets 1,572 2,870
----------------------------------------------------------------------------------------
$233,915 $250,429
========================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $46,388 $36,959
Other accrued liabilities 20,681 17,697
----------------------------------------------------------------------------------------
Total current liabilities 67,069 54,656
6% Convertible Subordinated Debentures due 2012 75,000 75,000
Deferred income taxes 2,216 2,417
Commitments and contingencies
Shareholders' equity:
Preferred stock, $1.00 par value; 2,000,000 shares
authorized, none issued -- --
Common stock, $1.00 par value, 50,000,000 shares
authorized; 15,266,440 shares issued and
outstanding (14,888,125 in 1993) 15,266 14,888
Additional paid-in capital 108,863 107,292
----------------------------------------------------------------------------------------
Accumulated deficit (34,499) (3,824)
----------------------------------------------------------------------------------------
Total shareholders' equity 89,630 118,356
----------------------------------------------------------------------------------------
$233,915 $250,429
========================================================================================
</TABLE>
See accompanying notes.
6
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
=====================================================================================
Fiscal Year Ended
-------------------------------------------------------------------------------------
December 30, December 31, December 25,
1994 1993 1992
-------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(30,675) $(19,916) $ 19,557
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 23,932 25,364 21,963
Deferred income taxes (201) (3,000) --
(Gain) loss on disposition of
property, plant and equipment (182) 54 (20)
Increase (decrease) from changes in:
Accounts receivable (13,493) 1,760 979
Inventories 2,931 5,934 8,523
Other current assets (2,016) (896) 397
Accounts payable and other accrued
liabilities 12,644 12,240 (1,492)
Other assets 1,226 (432) (561)
-------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities (5,834) 21,108 49,346
-------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of unoccupied
building -- -- 3,109
Proceeds from sale of equipment 254 57 83
Additions to property, plant and
equipment (19,704) (22,766) (21,044)
Net change in short-term investments 12,186 1,826 (39,508)
-------------------------------------------------------------------------------------
Net cash used in investing activities (7,264) (20,883) (57,360)
-------------------------------------------------------------------------------------
Cash flows from financing activities:
Decrease in notes payable -- -- (4,916)
Proceeds from sale of common stock, net 1,949 2,015 2,071
Payment on capital lease obligation (231) (534) (505)
-------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 1,718 1,481 (3,350)
-------------------------------------------------------------------------------------
Net increase (decrease) in cash and
equivalents (11,380) 1,706 (11,364)
Cash and equivalents at beginning of
period 49,100 47,394 58,758
-------------------------------------------------------------------------------------
Cash and equivalents at end of period 37,720 49,100 47,394
Short term investments 25,496 37,682 39,508
-------------------------------------------------------------------------------------
Total cash, cash equivalents and
short-term investments $ 63,216 $ 86,782 $ 86,902
=====================================================================================
Supplemental cash flow information:
Interest payments $ 5,076 $ 4,821 $ 5,052
Tax payments $ 2,964 $ 278 $ 1,311
=====================================================================================
</TABLE>
See accompanying notes.
7
<PAGE>
Consolidated Statements of Shareholders' Equity
For the three years ended December 30, 1994
<TABLE>
<CAPTION>
================================================================================================================
Number Additional Retained
of common Common paid-in earnings
shares stock capital (deficit) Total
----------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balances at December 27, 1991 14,219 $14,219 $103,875 $ (3,465) $114,629
Common stock sold for cash 313 313 1,758 -- 2,071
Net Income -- -- -- 19,557 19,557
----------------------------------------------------------------------------------------------------------------
Balances at December 25, 1992 14,532 14,532 105,633 16,092 136,257
Common stock sold for cash 356 356 1,659 -- 2,015
Net Loss -- -- -- (19,916) (19,916)
----------------------------------------------------------------------------------------------------------------
Balances at December 31, 1993 14,888 14,888 107,292 (3,824) 118,356
Common stock sold for cash 378 378 1,571 -- 1,949
Net Loss -- -- -- (30,675) (30,675)
----------------------------------------------------------------------------------------------------------------
Balances at December 30, 1994 15,266 $15,266 $108,863 $(34,499) $ 89,630
================================================================================================================
</TABLE>
See accompanying notes.
8
<PAGE>
Notes to Consolidated Financial Statements
For the three years ended December 30, 1994
1. Summary of
significant
accounting policies
and business
information
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Intercompany accounts and transactions have been
eliminated. Fiscal years 1994 and 1992 were fifty-two week years versus a
fifty-three week 1993.
SALES
Micropolis is a leading designer and manufacturer of SuperCapacity(TM) disk
drives, information storage and video systems. Its products are sold to OEMs
and system integrators and through distributors and VARs. Sales, most of which
are denominated in U.S. dollars, are recorded upon shipment. No customer
accounted for more than 10% of total sales during 1994 and 1993 and sales to
the largest customer amounted to 17.6% in 1992. No other customer accounted for
more than 10% of total sales during 1992. The Company performs ongoing credit
evaluations of its customers' financial condition, and generally requires no
collateral from its customers.
FOREIGN EXCHANGE CONTRACTS
The functional currency of the Company's Singapore and Thailand subsidiaries
is the U.S. dollar. The Company enters into foreign exchange contracts to
minimize the effects of foreign currency fluctuations related to certain known
local expenditures for operations and for the new facility being constructed in
Singapore discussed in note 7. These foreign exchange contracts hedged
approximately $19.9 million and $5.6 million of transaction exposures as of
December 30, 1994 and December 31, 1993, respectively.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. Short-term investments consist
primarily of commercial paper, certificates of deposit, and U.S. government
agency securities. These investments generally mature within six months and are
carried at cost which approximates fair values.
INVENTORIES
Inventories are stated at the lower of standard cost, which approximates
first-in, first-out, or market.
<TABLE>
<CAPTION>
============================================================================
Dec. 30, Dec. 31,
1994 1993
----------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Raw materials and purchased parts $18,634 $18,776
Work-in-process 20,771 22,245
Finished goods 17,341 18,656
----------------------------------------------------------------------------
$56,746 $59,677
============================================================================
</TABLE>
9
<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided on the straight-line method over
the estimated useful life of the assets or term of related lease, whichever is
shorter; for buildings and improvements, 10 to 30 years; machinery and
equipment, 3 to 5 years.
PRODUCT WARRANTY
The Company warrants its products against defect for periods varying from
one to five years and provides for estimated future product warranty costs when
products are shipped.
OTHER ACCRUED LIABILITIES
Other accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
============================================================================
Dec. 30, Dec. 31,
1994 1993
----------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Accrued salaries and wages $5,622 $4,936
Accrued warranty 8,614 5,553
Income taxes payable 243 3,206
Other 6,202 4,002
----------------------------------------------------------------------------
$20,681 $17,697
============================================================================
</TABLE>
RESTRUCTURING CHARGE
In the third quarter of 1993, the Company recorded a restructuring charge of
$5.5 million. This charge related primarily to separation costs recognized in
connection with a reduction in workforce and a write-down of certain assets
which were no longer in use due to changes in the Company's production
requirements and new product specifications. All related expenditures were
completed in fiscal year 1994.
INCOME TAXES
The Company applies an asset and liability approach in accounting for income
taxes. Federal taxes are not provided currently on undistributed foreign
earnings since it is the Company's intention that these earnings be reinvested
indefinitely in such subsidiaries, or remitted in a manner which will not
result in a Federal tax liability.
PER SHARE INFORMATION
Earnings per share is computed by dividing net income by the weighted
average number of shares of common stock and applicable common stock
equivalents outstanding during the period. Primary and fully diluted earnings
per share are the same.
10
<PAGE>
===============================================================================
2. Income taxes
The provision (credit) for income taxes is composed of the following:
<TABLE>
<CAPTION>
===============================================================================
Fiscal Year Ended
-------------------------------------------------------------------------------
Deferred
Liability Method Method
Dec. 30, Dec. 31, Dec. 25,
1994 1993 1992
-------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current
Federal $ -- $(105) $ --
State (52) 73 1,169
Foreign 52 36 164
-------------------------------------------------------------------------------
Total $ -- $ 4 $1,333
===============================================================================
</TABLE>
Deferred income taxes result from differences in the timing of the
recognition of expense and income items for tax and financial statement
purposes. During 1993 $3,000,000 was reclassified from deferred income taxes to
current income taxes payable for payments during 1994 for years covering 1986
through 1990.
Deferred tax assets and liabilities are comprised of the following at
December 30, 1994:
<TABLE>
<CAPTION>
===============================================================================
Dec. 30, Dec. 31,
1994 1993
-------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Deferred tax asset:
Reserves not currently tax deductible $ 4,639 $ 2,160
Other 862 501
State income taxes -- 888
Excess of book over tax depreciation 1,798 2,002
Net operating loss 31,996 17,230
Income tax credits 7,514 4,300
-------------------------------------------------------------------------------
Total before valuation allowance 46,809 27,081
Valuation allowance (45,248) (26,850)
-------------------------------------------------------------------------------
1,561 231
-------------------------------------------------------------------------------
Deferred tax liability:
Reserves not currently tax deductible (2,216) (2,417)
State income taxes (1,327) --
Other (234) (231)
-------------------------------------------------------------------------------
(3,777) (2,648)
-------------------------------------------------------------------------------
Deferred tax liability, net $ (2,216) $ (2,417)
===============================================================================
</TABLE>
The Company has determined a valuation allowance is required for the
deferred tax assets due to the uncertainty of ultimately realizing certain tax
benefits. The change in the valuation allowance was a result of current year
losses and settlement of prior year tax audits.
11
<PAGE>
The following table reconciles the provision for income taxes to the
statutory federal income tax rate of 35% in 1994 and 1993, and 34% in 1992:
<TABLE>
<CAPTION>
===============================================================================
1994 1993 1992
-------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Tax expense at statutory rate $(10,736) $(6,969) $ 7,103
Increases (decreases) related to:
Losses without current income
tax benefit 13,267 1,510 1,535
State income tax expense
(benefit) net of federal
income tax (34) 48 772
Foreign operations (10,234) (5,090) (13,517)
Repatriation of foreign
earnings 7,700 10,500 5,440
Other, net 37 5 --
-------------------------------------------------------------------------------
$ 0 $ 4 $ 1,333
===============================================================================
</TABLE>
Income from the Company's Singapore and Thailand subsidiaries is exempt from
income taxes in those countries through August 2004 (previously 1999) and
December 1993, respectively. Income from these operations for the periods under
exemption was $27,411,000 in 1994, $17,182,000 in 1993 and $40,620,000 in 1992.
At December 30, 1994, foreign earnings of $76,599,000 have been retained
indefinitely by subsidiary companies for reinvestment, on which no additional
U.S. tax has been provided. If repatriated, additional taxes of approximately
$24,634,000 on these earnings, net of available foreign tax credit
carryforwards, would be due. The Company repatriated $22,201,000 in 1994,
$30,000,000 in 1993 and $16,000,000 in 1992 from foreign subsidiaries by means
of special dividends, which were offset by the Company's 1994, 1993 and 1992
domestic losses. A net operating loss of approximately $76,338,000 is available
to be carried forward to the years 2004-2009. General business tax credit
carryforwards of approximately $7,145,000, expiring between 2000 and 2008, are
also available to reduce future federal income taxes.
===============================================================================
12
<PAGE>
===============================================================================
3. Credit facility
agreement
In March of 1992, the Company entered into a $33 million credit facility
agreement. The availability under the facility is primarily a function of the
level of eligible accounts receivable and is secured by substantially all of
the Company's assets. The amount available under the facility as of December
30, 1994 was $20.8 million (of which $2.8 million is reserved for outstanding
standby letters of credit). The agreement has a term of three years, and
requires specified levels of operating profits, working capital and tangible
net worth. The borrowings under this agreement bear interest at the prime rate
plus 1%. A fee of .5% is payable on the unused portion of the credit line. As
of December 30, 1994, there were no amounts outstanding under the facility. The
Company anticipates that it will renew its credit facility agreement during the
first quarter of 1995.
===============================================================================
4. Lease commitments
Minimum annual lease commitments at December 30, 1994 under noncancellable
operating leases, principally for operating facilities, are payable as follows:
<TABLE>
<CAPTION>
===============================================================================
(In thousands)
<S> <C>
1995 $4,133
1996 2,519
1997 2,023
1998 1,367
1999 1,008
Thereafter 18,351
-------------------------------------------------------------------------------
Total future minimum lease payments $29,401
===============================================================================
</TABLE>
Included in minimum annual lease commitments is a thirty-year ground lease
for the new facility being constructed in Singapore as discussed in note 7.
Rent expense amounted to $4,182,000 in 1994, $4,643,000 in 1993 and
$4,173,000 in 1992.
===============================================================================
5. 6% Convertible
Subordinated
Debentures
due 2012
In March 1987, the Company issued $75,000,000 principal amount of 6%
Convertible Subordinated Debentures due 2012. The Debentures are convertible
into common stock at a price of $48.50 at any time prior to redemption or
maturity. (1,546,000 shares of common stock have been reserved for issuance
upon conversion). Mandatory annual sinking fund payments of 5% of the aggregate
principal amount of the Debentures issued will be made on each March 15,
commencing March 15, 1997. Mandatory annual sinking fund payments through 1999
are $3,750,000 in 1997, 1998 and 1999. Debentures converted to common stock or
reacquired or otherwise redeemed by the Company may be used to reduce the
amount of any sinking fund payment. The Debentures may be redeemed early, at
the Company's option, upon the payment of a premium. The fair market value of
these debentures, which are traded on the over-the-counter market, was
approximately $46.5 million at December 30, 1994.
Interest on the debentures is payable semi-annually on March 15 and
September 15. Interest expense amounted to $4,500,000 in 1994, 1993 and 1992.
===============================================================================
13
<PAGE>
===============================================================================
6. Capital stock
Under the Company's various stock option plans, options may be granted at
prices equal to fair market value at the date of grant. Options for key
employees and officers generally become exercisable in equal annual amounts
over five years commencing one year from the date of grant, and expire five
years from the date of grant. Options for directors are exercisable over three
years. At December 30, 1994, there were options for 692,771 shares available
for future option grants. There are currently 431 employees participating in
the various plans. Expiration dates for all options range from 1995 to 1999.
A summary of certain information with respect to options under the Plans
follows:
<TABLE>
<CAPTION>
===============================================================================
Fiscal Years Ended
-------------------------------------------------------------------------------
Dec. 30, Dec. 31, Dec. 25,
1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding, beginning
of year 1,316,970 1,160,444 1,227,223
Options granted 476,500 552,000 284,900
Options exercised (166,750) (176,326) (219,124)
Weighted average exercise price $4.50 $5.72 $5.97
Options cancelled (361,250) (219,148) (132,555)
-------------------------------------------------------------------------------
Options outstanding, end of year 1,265,470 1,316,970 1,160,444
-------------------------------------------------------------------------------
Weighted average price $7.15 $7.15 $6.83
-------------------------------------------------------------------------------
Exercisable 381,241 458,638 387,103
===============================================================================
</TABLE>
The Company also has an employee stock purchase plan under Section 423 of
the Internal Revenue Code, with 1,400,000 shares of common stock authorized to
be issued. All full time employees are eligible to participate through payroll
deductions of up to 10% of their compensation. Participants may, at their
option, purchase common stock from the Company at the lower of 85% of the fair
market value of the common stock at either the beginning or end of each one
year option period. During 1994, 207,845 shares were issued pursuant to this
plan at a price of $5.66. During 1993, 178,898 shares were issued pursuant to
this plan at a price of $5.42, and in 1992, 93,872 shares were issued pursuant
to this plan at prices ranging from $6.69 to $8.29 per share. As of December
30, 1994, 525,943 shares were available for issuance under this plan.
The Board of Directors of the Company declared a dividend distribution of
one Right for each share of common stock of the Company outstanding at the
close of business on June 2, 1989. When exercisable, each Right entitles the
registered holder to purchase from the Company one share of common stock at a
price of $40.00 per share, subject to adjustment. Initially, the Rights attach
to all outstanding shares of common stock, and no separate Rights Certificates
will be distributed. The Rights will become exercisable and will detach from
the common stock in the event any individual or group acquires 20% or more of
the Company's common stock, or announces a tender or exchange offer which, if
consummated, would result in that person or group owning at least 30% of the
Company's common stock. If an individual or group acquires 20% or more of the
Company's common stock (except pursuant to certain cash tender offers for all
of the Company's common stock), each Right will entitle the holder of a Right,
other than Rights that are or were acquired or beneficially owned by the 20%
stockholder (which rights will thereafter be void) to purchase, at the Right's
then current exercise price, the Company's common stock in an amount having a
market value equal to twice the exercise price. Similarly, with certain
exceptions, if the Company merges or consolidates with or sells 20% or more of
its assets or earning power to another person, each Right then will entitle the
holder to purchase, at the Right's then current exercise price, the stock of
the acquiring company in an amount having a market value equal to twice the
exercise price. The Rights do not have voting or dividend rights, and, until
they become exercisable, have no dilutive effect on the earnings of the
Company. The Company may redeem the rights at $0.01 per Right at any time on or
prior to the tenth day after acquisition by a person or group of 20% or more of
the Company's outstanding common stock. The Rights will expire on May 18, 1999,
unless earlier redeemed.
===============================================================================
14
<PAGE>
7. Commitments and Contingencies
In the third quarter of 1992, the Company purchased an equity interest of
approximately 27% in Tulip Memory Systems, Inc. (TMS), a start-up company
formed to develop substrates which are to be used in the manufacture of
computer disk drives. During 1994, the Company increased its ownership to
approximately 60%, pending anticipated outside investment. Operating expenses
attributable to TMS are included in the financial results of the Company. In
connection with its original investment, Micropolis agreed to guarantee the
obligations of TMS to pay the acquisition cost of equipment. As of December 30,
1994 the Company's guaranty obligation under the agreement was $2.0 million.
During the fourth quarter of 1994, the Company entered into agreements to
construct a 302,000 usable square foot facility in Singapore for a cost of
approximately $28 million. Development plans call for completion in June 1996,
at which time the Company's operations in Singapore will move from their
current leased facilities to the new factory. The Company has entered into a
$27.5 million loan facility agreement with a bank for financing the factory.
The facility consists of an $11 million term loan (Term Loan 1) and a $16.5
million loan (Term Loan 2). Term Loan 1 is due 7 years after the initial draw,
bears interest at the Singapore Interbank Offered Rate (SIBOR) plus 0.65% and
is collateralized by a standby letter of credit from another bank. The standby
letter of credit is secured by a pledge of $12.2 million of the Company's short
term investments and bears a fee of 1% per year. Term Loan 2 is payable
semi-annually over 7 years beginning one year from the initial draw, bears
interest at SIBOR plus 1.5%, and is collateralized by the new factory. No
borrowings were outstanding under this facility as of December 30, 1994.
At December 30, 1994, the Company also had letters of credit outstanding
totaling approximately $6 million, which guarantee various trade activities.
These letters of credit are secured by pledges of cash.
In addition, the Company is involved in routine legal matters and
contingencies in the ordinary course of business which management believes will
not have a material effect upon the Company's financial position.
15
<PAGE>
===============================================================================
8. Geographic
information
The following summarizes the Company's sales, income (loss) before income taxes,
and assets by geographic area. The sales described below represent the
geographic origination of such sales. Export sales (sales with destinations
outside of North America), were approximately 31% of sales in 1994, 30% in 1993
and 31% in 1992.
<TABLE>
<CAPTION>
===============================================================================
Fiscal Years Ended
-------------------------------------------------------------------------------
1994 1993 1992
(In thousands)
<S> <C> <C> <C>
Customer sales:
Domestic $ 63,892 $128,781 $171,554
Foreign 282,422 254,145 225,025
Affiliate sales:
Domestic 49,851 55,006 52,283
Foreign 178,881 234,477 271,968
Eliminations (228,732) (289,483) (324,251)
-------------------------------------------------------------------------------
$346,314 $382,926 $396,579
===============================================================================
Income (loss) before income taxes:
Domestic $(58,609) $(34,425) $(19,357)
Foreign 27,934 14,513 40,247
-------------------------------------------------------------------------------
$(30,675) $(19,912) $ 20,890
===============================================================================
Assets:
Domestic $ 66,063 $ 74,520 $ 86,897
Foreign 167,852 175,909 172,727
-------------------------------------------------------------------------------
$233,915 $250,429 $259,624
===============================================================================
</TABLE>
Sales to affiliates are at arms-length prices.
16
<PAGE>
===============================================================================
9. Comparative
quarterly
financial
summary
(unaudited)
<TABLE>
<CAPTION>
===============================================================================
Quarters
--------------------------------------------------------------
Fiscal 1994 First Second Third Fourth Year
-------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $83,658 $75,761 $79,285 $107,610 $346,314
Gross profit 12,296 7,245 11,446 28,471 59,458
Income (loss)
before income
taxes (9,760) (14,793) (10,948) 4,826 (30,675)
Net income (loss) (9,760) (14,793) (10,948) 4,826 (30,675)
Earnings (loss)
per share (.65) (.99) (.72) .31 (2.03)
Price range per
share 4-7/8-8-3/8 5-1/4-7-7/8 5-3/8-7-1/4 6-1/8-9-1/2
===============================================================================
<CAPTION>
Quarters
--------------------------------------------------------------
Fiscal 1993 First Second Third Fourth Year
-------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net sales $94,558 $107,519 $90,478 $90,371 $382,926
Gross profit 20,966 17,841 13,917 14,766 67,490
Income (loss)
before income
taxes 1,471 (2,569) (12,879) (5,935) (19,912)
Net income (loss) 1,457 (2,517) (12,898) (5,958) (19,916)
Earnings (loss)
per share .10 (.17) (.87) (.40) (1.34)
Price range per
share 9-3/8-6-5/8 7-7/8-6 8-6 8-6-1/8
===============================================================================
</TABLE>
The price range per share, reflected in the above tables, sets forth the
highest and lowest closing prices in each fiscal quarter dur ing 1994 and 1993,
as reported by NASDAQ National Market System. No dividends have been declared by
the Company during the five-year period ended December 30, 1994. Under the terms
of the Company's $33 million loan agreement, it is prohibited from declaring or
paying dividends without the prior consent of the lender. At December 30, 1994,
there were 661 record holders of the Company's common stock.
17
<PAGE>
Report of
Ernst & Young LLP,
Independent
Auditors
The Board of Directors and Shareholders
Micropolis Corporation
We have audited the accompanying consolidated balance sheets of Micropolis
Corporation as of December 30, 1994 and December 31, 1993, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 30, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Micropolis
Corporation at December 30, 1994 and December 31, 1993, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 30, 1994, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Los Angeles, California
January 19, 1995
18
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
MICROPOLIS, INC.
c/o Professional Corporate Service Group, Inc.
Post Office Box 3627
Christiansted
St. Croix, U.S. Virgin Islands 00820
MICROPOLIS GMBH
Behringstrasse 10
8033 Planegg bei Munchen
West Germany
MICROPOLIS LIMITED
c/o Roy West Trust Corporation (Cayman) Limited
Post Office Box 707
Grand Cayman
British West Indies
MICROPOLIS LTD.
4 Worton Drive
Worton Grange
Reading, Berkshire
RG2 ODW
England
MICROPOLIS S.A.R.L.
2 Rue du Buisson aux Fraises
Z.I. de la Bonde
91300 Massy
France
MICROPOLIS A.B. - SCANDINAVIA
Aprilvagen 3
17540 Jarfalla
Sweden
MICROPOLIS CORPORATION (THAILAND) LTD. MICROPOLIS JAPAN LIMITED
733/1-8 Moo 8, Phaholyothin Road Madre Matsuda Bldg. 3F-312
Kookot, Lumlookkar 4-13 Kioi-cho, Chiyoda-ku
Pathumthani 12130 Thailand Tokyo, Japan 102
MICROPOLIS CORPORATION - TAIWAN BRANCH MICROPOLIS AUSTRALIA PTY. LIMITED
Room 1111, 11F, No. 333 Level 21, 201 Miller Street
Keelung Road, Sec. 1 North Sydney, NSW
Taipei, Taiwan, R.O.C. 2060 Australia
MICROPOLIS S.R.L. MICROPOLIS BV
Via G. Stephenson 43A % Executive Management Trustmij BV
20157 Milan De Boelelaan 14
Italy 1083 HJ Amsterdam
The Netherlands
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Micropolis Corporation of our report dated January 19, 1995, included in the
1994 Annual Report to Shareholders of Micropolis Corporation.
Our audits also included the financial statement schedule of Micropolis
Corporation listed in item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Forms S-8 Nos. 2-86334, 2-90423, 2-96906, 33-4569, 33-22619, 33-29469, 33-
42454, 33-44456, 33-50204, 33-64706, 33-53313 and 33-55737) pertaining to the
Stock Option Plan for Executive and Key Employees of Micropolis Corporation, as
amended, Employees' Stock Option Plan, as amended, the Stock Option Plan for
Directors of Micropolis Corporation, as amended, and Employee Stock Purchase
Plan of Micropolis Corporation and in the related Prospectuses of our report
dated January 19, 1995, with respect to the consolidated financial statements
and schedule of Micropolis Corporation included in the Annual Report (Form 10-K)
for the year ended December 30, 1994.
ERNST & YOUNG LLP
Los Angeles, California
March 30, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF MICROPOLIS
CORPORATION AS OF AND FOR THE YEAR ENDED DECEMBER 30, 1994 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-30-1994
<PERIOD-END> DEC-30-1994
<CASH> 63,216
<SECURITIES> 0
<RECEIVABLES> 66,179
<ALLOWANCES> 4,455
<INVENTORY> 56,746
<CURRENT-ASSETS> 188,091
<PP&E> 112,924
<DEPRECIATION> 68,672
<TOTAL-ASSETS> 233,915
<CURRENT-LIABILITIES> 67,069
<BONDS> 75,000
<COMMON> 15,266
0
0
<OTHER-SE> 89,630
<TOTAL-LIABILITY-AND-EQUITY> 233,915
<SALES> 346,314
<TOTAL-REVENUES> 346,314
<CGS> 286,856
<TOTAL-COSTS> 286,856
<OTHER-EXPENSES> 87,148
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,090
<INCOME-PRETAX> (30,675)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30,675)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,675)
<EPS-PRIMARY> (2.03)
<EPS-DILUTED> (2.03)
</TABLE>
