<PAGE> 1
Filed pursuant to Rule 424(b)(4)
File No. 333-21915
PROSPECTUS
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1,525,000 Shares
[LOGO]
Common Stock
Of the 1,525,000 shares of Common Stock offered hereby, 1,500,000 shares
are being sold by Advanced Digital Information Corporation (the "Company") and
25,000 shares are being sold by the Selling Shareholder. The Company will not
receive any of the proceeds from the sale of shares by the Selling Shareholder.
See "Principal and Selling Shareholders."
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol ADIC. On March 11, 1997, the last reported sale price of the Common
Stock was $17.75 per share. See "Price Range of Common Stock."
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THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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================================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDER
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<S> <C> <C> <C> <C>
Per Share.............. $17.00 $0.98 $16.02 $16.02
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Total(3)............... $25,925,000 $1,494,500 $24,030,000 $400,500
================================================================================================
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $300,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 228,750 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Company will be
$29,813,750, $1,718,675 and $27,694,575, respectively. See "Underwriting."
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The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about March 17, 1997, at the office of the agent of Hambrecht
& Quist LLC in New York, New York.
HAMBRECHT & QUIST DAIN BOSWORTH
INCORPORATED
March 12, 1997
<PAGE> 2
INSIDE FRONT COVER
GRAPHIC ENTITLED "CLIENT/SERVER BACKUP FOR WINDOWS NT, NETWARE, AND UNIX
NETWORKS," DEPICTING IN DIAGRAMS USE OF THE COMPANY'S TAPE LIBRARY PRODUCTS IN A
DISTRIBUTED BACKUP AND CENTRALIZED BACKUP CLIENT/SERVER ENVIRONMENT.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ STOCK MARKET IN ACCORDANCE
WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
------------------------
ADIC(TM), VLS(TM) and Scalar(R) are trademarks of the Company. DLT(TM) is a
trademark of Quantum Corporation. This Prospectus also contains other trademarks
and trade names, which are the property of their respective holders.
2
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Two-page Gatefold entitled "Protecting Data Worldwide" including
narrative descriptions of a cross-section of Company clients in seven industry
segments and their use of the Company's products.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. The Common Stock offered hereby involves
a high degree of risk. See "Risk Factors." Except as otherwise noted, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option. See "Underwriting."
THE COMPANY
Advanced Digital Information Corporation ("ADIC" or the "Company") is a
leading provider of automated tape libraries and standalone tape drives used to
back up and archive electronic data in client/server network computing
environments. The Company integrates proprietary electro-mechanical robotics,
electronics hardware and firmware with technologically advanced tape drives
manufactured by third parties to provide highly automated data storage
protection. When used with third-party storage management software, the
Company's products can perform sophisticated backup and archiving of electronic
data residing across a network of PCs, workstations and servers with minimal
human intervention. The Company's product family operates in both PC-based
(Windows NT and Novell NetWare) and UNIX environments and provides data storage
capacity ranging from four gigabytes to over three terabytes.
As organizations shift their core business processes to network computing
environments and as data-intensive software applications continue to
proliferate, the data stored on client/server networks is growing in both volume
and value. These trends have driven the rapidly growing market for data backup
and archiving solutions for protection of an organization's critical data. To
address this market, ADIC offers what it believes is the industry's broadest
range of automated tape library and standalone tape drive products for the
client/server network marketplace with end-user list prices ranging from
approximately $2,000 to over $75,000. The Company's broad product family
provides both end users and channel partners with "one-stop shopping" for
products, service and support. The Company's strategy is to work closely with
leading tape drive and storage management software developers and rapidly
develop products incorporating state-of-the-art technologies. The Company
currently offers automated tape libraries based on DLT, 4mm/DAT and 8mm magnetic
tape drive technologies. The Company also maintains product compatibility with
over 50 storage management software applications.
The Company deploys an extensive sales, marketing and technical support
infrastructure to address the market for client/server network storage
peripherals. The Company's end users range in size from large multinational
companies to small businesses and are geographically dispersed with 36.0% of net
sales in fiscal 1996 derived from outside the United States. The Company
leverages multiple distribution channels, including domestic and international
distributors, value-added resellers ("VARs") and original equipment
manufacturers ("OEMs"). In particular, the Company believes that its
distribution relationships and brand name recognition position it well to take
advantage of the growth of PC-based client/server computing environments,
including those based on Windows NT.
The Company was incorporated under the laws of the state of Washington in
August 1984 and was acquired by Interpoint Corporation ("Interpoint") in
February 1994. In October 1996, Interpoint distributed all the shares of the
Company's Common Stock to Interpoint shareholders and ADIC became an independent
publicly traded company (the "Distribution"). Interpoint was subsequently
acquired by Crane Co. See Note 1 of Notes to Consolidated Financial Statements.
The Company's executive offices are located at 10201 Willows Road, Redmond,
Washington 98052, and its telephone number is (206) 881-8004.
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THE OFFERING
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<S> <C>
Common Stock offered by the Company................. 1,500,000 shares
Common Stock offered by the Selling Shareholder..... 25,000 shares
Common Stock to be outstanding after the offering... 9,659,176 shares(1)
Use of proceeds..................................... Working capital and other general
corporate purposes
Nasdaq National Market symbol....................... ADIC
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED OCTOBER 31, ENDED JANUARY 31,
----------------------------------- ---------------------
1994(2) 1995(2) 1996(2) 1996(2) 1997
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<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales............................................. $20,083 $31,716 $58,957 $10,606 $20,069
Gross profit.......................................... 6,588 9,609 17,070 2,994 5,971
Operating profit (loss)............................... (39) 511 5,682 544 2,292
Net income (loss)..................................... $ (42) $ 292 $ 3,430 $ 292 $ 1,661
Pro forma average number of common and common
equivalent shares outstanding(3).................... 8,010 8,274
Pro forma net income per share(3)..................... $ 0.04 $ 0.41
Average number of common and common equivalent shares
outstanding......................................... 8,350
Net income per share.................................. $ 0.20
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<TABLE>
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QUARTER ENDED
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FISCAL 1996(2) FISCAL 1997
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JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1996 1996 1996 1996 1997
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<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales............................................. $10,606 $13,779 $15,186 $19,386 $20,069
Gross profit.......................................... 2,994 3,735 4,253 6,088 5,971
Operating profit...................................... 544 1,203 1,554 2,381 2,292
Net income............................................ $ 292 $ 716 $ 933 $ 1,489 $ 1,661
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, 1997
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ACTUAL AS ADJUSTED(4)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................................. $ 6,796 $ 30,526
Working capital........................................................................... 27,185 50,915
Total assets.............................................................................. 37,492 61,222
Long-term debt............................................................................ -- --
Total shareholders' equity................................................................ 29,105 52,835
</TABLE>
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(1) Based on the number of shares outstanding as of January 31, 1997. Excludes
(i) 691,408 shares of Common Stock issuable as of January 31, 1997 upon the
exercise of outstanding options at a weighted average exercise price of
$8.52 per share and (ii) 252,500 shares of Common Stock reserved for future
issuance as of January 31, 1997 under the Company's 1996 Stock Option Plan
(the "1996 Plan"). See "Capitalization" and Note 6 of Notes to Consolidated
Financial Statements.
(2) Reflects the Company's results of operations as a wholly owned subsidiary of
Interpoint, except for the period subsequent to October 15, 1996. The
Company was acquired by Interpoint in February 1994 in a transaction
accounted for as a pooling of interests. Results of operations for periods
prior to October 15, 1996 include allocations of corporate expenses and
interest expense on intercompany borrowings.
(3) Unaudited pro forma net income per share for the fiscal year ended October
31, 1995 is calculated based on the number of shares of Interpoint common
stock outstanding at June 30, 1996, plus the incremental shares outstanding,
as calculated under the treasury stock method, based on the number of ADIC
stock options outstanding as a result of the Distribution. Unaudited pro
forma net income per share for the fiscal year ended October 31, 1996 is
calculated based on the number of shares of ADIC Common Stock outstanding at
October 31, 1996, plus the incremental shares outstanding, as calculated
under the treasury stock method, at the same date.
(4) Adjusted to reflect the sale of the 1,500,000 shares of Common Stock offered
by the Company hereby at the public offering price of $17.00 per share and
the receipt of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
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<PAGE> 6
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. The following risk factors
should be considered carefully in addition to the other information in this
Prospectus before purchasing the shares of Common Stock offered hereby.
Potential Fluctuations in Quarterly Results; Seasonality. The Company's
quarterly operating results have varied in the past, and may vary significantly
in the future, depending on factors such as increased competition and pricing
pressure, timing of new product announcements and releases by the Company and
its competitors, shifts in product or channel mix, the rate of growth in the
data storage market, market acceptance of new and enhanced versions of the
Company's products, timing and levels of operating expenses, size and timing of
significant customer orders, gain or loss of significant customers or
distributors, currency fluctuations, personnel changes and economic conditions
in general. Any unfavorable change in these or other factors could have a
material adverse effect on the Company's results of operations for a particular
quarter.
In particular, quarterly revenue and operating results depend on the volume
and timing of orders received during the quarter. A significant majority of the
Company's revenue in each quarter results from orders during that quarter. The
Company historically has operated with little order backlog and, due to the
nature of its business, does not anticipate that it will have significant
backlog in the future. The Company's operating expense levels are, in the short
term, largely fixed and are based, in part, on expectations regarding future
revenue. Thus, if the Company's revenue falls below its expectations, the
Company's results of operations could be disproportionately affected. Because of
the relatively large dollar size of orders from the Company's distributors,
delay in the placing of a small number of orders could have a significant impact
on the Company's results of operations for a particular period. See "-- Customer
Concentration."
The Company's quarterly revenue and results of operations have been and may
continue to be affected by seasonal trends, which often result in lower revenue
in the first quarter of each fiscal year compared to the fourth quarter of the
previous year, due to customer purchasing and budgetary practices and the
Company's sales commission and budgetary structure. There can be no assurance
that seasonal trends in customer purchasing will not materially adversely affect
the Company's results of operations in future quarters. Consequently, operating
results in any period should not be considered indicative of the results to be
expected for any future period. There can be no assurance that the Company's
revenue will increase, that its recent levels of quarterly revenue and net
income will be sustained, or that the Company will achieve profitability in any
future period. In addition, it is likely that in some future quarter the
Company's results of operations will be below the expectations of public market
analysts and investors. In such event, the price of the Common Stock would
likely be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Selected Quarterly
Information."
Increasing Competition and Potentially Declining Prices. The market for
network data storage peripherals in general, and automated tape libraries in
particular, is intensely competitive, fragmented and characterized by rapidly
changing technology and evolving standards. Competitors vary in size and in the
scope and breadth of the products they offer. As the Company offers a broad
range of automated tape library and complementary products, it tends to have a
large number of competitors which differ depending on the particular product
format and performance level. With respect to 4mm/DAT products, the Company
believes it competes with Hewlett-Packard Company ("Hewlett-Packard"), Seagate,
Sony Electronics Inc. ("Sony") and Spectra Logic. With respect to DLT products,
the Company believes ATL Products, Inc., Breece Hill, Overland Data, Qualstar,
Quantum Corporation ("Quantum") and StorageTek comprise its competition. With
respect to 8mm products, the Company believes its competition is represented by
Exabyte, Qualstar, Spectra Logic and StorageTek. Since there are relatively low
barriers to entry into the automated tape library market, the Company
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<PAGE> 7
anticipates increased competition from other sources, ranging from emerging to
established companies, including large system OEMs. Many of the Company's
competitors have substantially greater financial and other resources, larger
research and development staffs, and more experience and capabilities in
manufacturing, marketing and distributing products than the Company. The
Company's competitors may develop new technologies and products that are more
effective than the Company's products. In addition, competitive products may be
manufactured and marketed more successfully than the Company's products. Such
developments could render the Company's products less competitive or obsolete,
and could have a material adverse effect on the Company's business, financial
condition and ability to market the Company's products as currently
contemplated. The Company believes the primary competitive factors in the market
for network data storage products are performance, reliability, breadth of
product line, distribution strength, product availability and price, as well as
customer issues, including technical and sales support.
The markets for the Company's products are characterized by significant
price competition, and the Company anticipates that its products will face
increasing price pressure. This pressure could result in significant price
erosion, reduced gross profit margins and loss of market share, which could have
a material adverse effect on the Company's business, financial condition and
results of operations.
Product Concentration. The Company derived a significant majority of its
revenue in fiscal 1996 and the three months ended January 31, 1997 from the sale
of its DLT-related products, including associated media, and the Company expects
to continue to derive a substantial portion of its revenue from these products
for the foreseeable future. As a result, the Company's future operating results
are significantly dependent upon continued market acceptance of such products.
There can be no assurance that the Company will successfully develop new
products utilizing DLT technology or that such products will find market
acceptance or meet customer expectations or that other technologies will not
replace, in whole or in part, DLT technology. The Company's DLT products may be
rendered obsolete by future technical advances by the Company's competitors or
by certain of its suppliers, distributors or resellers. The failure of the
Company to maintain and enhance the capabilities of its current DLT products or
to introduce new products successfully into the market could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "-- Technological Changes and Dependence on New Product
Development" and "Business -- Products."
Dependence on Certain Suppliers. The Company does not possess proprietary
data storage drive technology and, consequently, depends on a limited number of
third-party manufacturers for the drives that are incorporated into its
products. These suppliers include Quantum, Sony and Hewlett-Packard. In some
cases, these manufacturers are sole source providers of the drive technology and
competitors of the Company in that they market their own tape library products.
In particular, Quantum is the sole supplier of DLT drives and the primary
supplier of DLT media, both of which have been subject to allocation by Quantum.
As a result, the Company's requirement for DLT drives and media may not be met.
The Company's other suppliers have, in the past, and may, in the future, be
unable to ensure that the Company's supply needs will be adequately met. The
Company does not have any long-term contracts with any of its significant
suppliers, and if these suppliers were to decide to pursue the tape library
market aggressively, they could cease supplying tape drives and media directly
to the Company. Thus, there can be no assurance that the Company will be able to
obtain adequate supplies of tape drives and media at acceptable prices, if at
all. The partial or complete loss of certain of these sources could result in
significant lost revenue, added costs and production delays or otherwise have a
material adverse effect on the Company's business, financial condition, results
of operations and customer relationships. See "Business -- Manufacturing."
Technological Changes and Dependence on New Product Development. The
market for the Company's products is characterized by rapidly changing
technology and evolving industry standards and is highly competitive with
respect to timely innovation. The introduction of new products embodying new or
alternative technology, including optical disk, RAID or DVD storage systems, or
the emergence of new industry standards could render existing products obsolete
or unmarketable. The Company's
6
<PAGE> 8
future success will depend on its ability to anticipate changes in technology,
to gain access to such technology for incorporation into the Company's products
and to develop new and enhanced products on a timely and cost-effective basis.
In particular, the Company must be able to maintain compatibility of its
products with significant future drive technologies and relies on producers of
such drive technologies to achieve and sustain market acceptance of such
technologies. Development schedules for high-technology products are subject to
uncertainty, and there can be no assurance that the Company will be able to meet
its product development schedules. If the Company is unable for technological or
other reasons to develop products in a timely manner or if the products or
product enhancements that it develops do not achieve market acceptance, the
Company's business will be materially adversely affected. Additionally, there
can be no assurance that the Company will be able to develop new products in
response to product introductions by competitors, including both automated tape
libraries and other sequential or random access mass storage devices that may be
developed in the future, which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Research and Development."
Dependence on Growth in the Network Data Storage Market; Computer Market
Generally. Substantially all of the Company's business is in the network data
storage market, which is still a rapidly evolving market. The Company's future
financial performance will depend in large part on continued growth in the
number of organizations adopting network data storage solutions for their
client/server computing environments. There can be no assurance that the market
for network data storage will continue to grow. If the network data storage
market fails to grow or grows more slowly than the Company currently
anticipates, the Company's business, financial condition and results of
operations would be materially adversely affected. During recent years, segments
of the computer industry have experienced significant economic downturns
characterized by decreased product demand, production overcapacity, price
erosion, work slowdowns and layoffs. The Company's operations may in the future
experience substantial fluctuations from period to period as a consequence of
such industry patterns. There can be no assurance that such factors will not
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Industry."
Customer Concentration. The majority of the Company's end users purchase
the Company's products from VARs that, in turn, purchase the Company's products
from large distributors such as Access Graphics Inc. ("Access Graphics"),
Gates/FA Distributing Inc., GBC Distributing Inc., Ingram Micro Incorporated
("Ingram Micro"), Tech Data Corporation ("Tech Data") and Tenex Data Corp.
("Tenex"). Ingram Micro and Tech Data represented 22.6% and 21.4%, respectively,
of the Company's net sales for the fiscal year ended October 31, 1996, and 23.0%
and 15.6%, respectively, of the Company's net sales for the three months ended
January 31, 1997. The Company has no long-term contracts with any of its
significant customers or distributors, and sales are generally made pursuant to
purchase orders. The Company's distributors carry competing product lines. There
can be no assurance that distributors will continue to purchase the Company's
products or be able to market them effectively. The Company allows distributors
to return unsold products, generally within certain limitations. The reduction,
delay or cancellation of orders or the return of a significant amount of
products by one or more of its major distributors or customers, the loss of one
or more of such distributors or customers, or any financial difficulties of such
distributors or customers resulting in their inability to pay amounts owing to
the Company could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Sales and
Marketing."
Management of Growth. The Company is currently undergoing a period of
rapid growth, and there can be no assurance that such growth, if sustained, can
be managed successfully. This growth has resulted in, and may possibly create in
the future, additional capacity requirements, new and increased responsibilities
for management personnel, and added pressures on the Company's operating and
financial systems. There can be no assurance that the Company's facilities,
personnel and operating and financial systems will be sufficient to manage and
sustain its current or future growth. The
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Company's ability to manage any future growth effectively and accomplish its
overall goals will depend on its ability to hire and retain qualified
management, sales and technical personnel. See
"-- Dependence on Key Employees (Team Members)" and "Business -- Employees (Team
Members)" and "-- Facilities."
International Operations. Net sales to customers outside the United States
accounted for approximately 36.0% of net sales in fiscal 1996 and 37.2% of net
sales in the three months ended January 31, 1997. The Company expects that
international sales will continue to represent a significant portion of the
Company's net sales. Sales to customers outside the United States are subject to
a number of risks, including the imposition of governmental controls, the need
to comply with a wide variety of foreign and U.S. export laws, political and
economic instability, trade restrictions, changes in tariffs and taxes, longer
payment cycles typically associated with international sales, and the greater
difficulty of administering business overseas. Furthermore, although the Company
endeavors to meet standards established by foreign regulatory bodies, there can
be no assurance that the Company will be able to comply with changes in foreign
standards in the future. The inability of the Company to design products to
comply with foreign standards could have a material adverse effect on the
Company's business, financial condition and results of operations. Most of the
Company's international sales are denominated in U.S. dollars and fluctuations
in the value of foreign currencies relative to the U.S. dollar could therefore
make the Company's products less price competitive. A portion of the Company's
international sales are denominated in foreign currencies. Consequently, a
decrease in the value of a relevant foreign currency in relation to the U.S.
dollar after establishing prices and before receipt of payment by the Company
would have an adverse effect on the Company's results of operations. Further,
the expenses of ADIC Europe SARL, the Company's wholly owned subsidiary ("ADIC
Europe"), are denominated in French francs. The Company currently engages in
only limited foreign currency hedging transactions, and is therefore exposed to
some level of currency risk. In addition, the laws of certain foreign countries
may not protect the Company's intellectual property to the same extent as do the
laws of the United States. See "Business -- Sales and Marketing."
Dependence on Key Employees (Team Members). The Company's future success
depends in large part on its ability to retain certain key executives and other
personnel, some of whom have been instrumental in establishing and maintaining
strategic relationships with certain of the Company's suppliers and customers.
The Company does not have any employment agreements with its domestic Team
Members and maintains no key person insurance. The Company's growth and future
success will depend in large part on its continuing ability to hire, motivate
and retain highly qualified management, technical, sales and marketing Team
Members. Competition for such personnel is intense, and there can be no
assurance that the Company will be able to retain its existing personnel or
attract additional qualified personnel in the future. See "Business -- Employees
(Team Members)" and "Management."
Proprietary Technology. The Company's ability to compete effectively
depends in part on its ability to develop and maintain proprietary aspects of
its technology. The Company currently holds two U.S. patents and has
applications for additional patents pending. There can be no assurance, however,
that any future patents will be granted or that any patents will be valid or
provide meaningful protection for the Company's product innovations. The Company
also relies on a combination of copyright, trademark, trade secret and other
intellectual property laws to protect its proprietary rights. Such rights,
however, may not preclude competitors from developing products that are
substantially equivalent or superior to the Company's products. In addition,
many aspects of the Company's products are not subject to intellectual property
protection.
While the Company is not currently engaged in any intellectual property
litigation or proceedings, there can be no assurance that it will not become so
involved in the future. An adverse outcome in litigation or similar proceedings
could subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from others or require the Company to cease
marketing or using certain products, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
If the Company is required to seek licenses under patents or proprietary rights
of others, there can be no assurance that any required licenses would be made
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available on terms acceptable to the Company, if at all. In addition, the cost
of responding to an intellectual property litigation claim, in terms of legal
fees and expenses and the diversion of management resources, whether or not the
claim is valid, could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Proprietary
Rights."
Warranty Exposure. The Company generally provides a two-year warranty on
its products, with the exception of the tapes and the tape drives used in its
products but manufactured by a third party. The Company passes on to the
customer the manufacturer's warranty with respect to these tapes and tape
drives. In the past, the Company has incurred higher warranty expenses relating
to new products than it typically incurs with established products. The Company
establishes allowances for the estimated liability associated with product
warranties, but there can be no assurance that such allowances will be adequate
or that the Company will not incur substantial warranty expenses in the future
with respect to new or established products. See "Business -- Customer Service
and Support."
Risk of Product Defects; Product Liability. Complex products similar to
those sold by the Company may contain defects or experience failures, especially
when first introduced or when enhancements are added. The Company has in the
past discovered defects in its products and may experience delays or lost
revenue to correct any defects that may be discovered in the future. There can
be no assurance that errors will not be found in new products after commencement
of commercial shipments, and that such errors will not result in lost market
share or reduced customer acceptance of new Company products. Any such
occurrence could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's products are
typically used to store data critical to organizations and, as a result, the
sale of products by the Company may entail the risk of product liability claims.
A successful product liability claim brought against the Company could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Broad Management Discretion Over Use of Proceeds. The primary purpose of
this offering is to increase the Company's equity capital. The anticipated net
proceeds to the Company from this offering have not been designated for specific
uses and management of the Company will have broad discretion with respect to
the use of such funds. Accordingly, there can be no assurance that such funds
will be invested in a manner satisfactory to shareholders or in a manner that
results in a significant return on investment. If appropriate opportunities
present themselves, the Company may acquire businesses, products or technology
that it believes are strategic, although it currently has no understandings,
commitments or agreements with respect to any material acquisition. There can be
no assurance that the Company will be able to identify, negotiate or finance
such acquisitions successfully, or to integrate such acquisitions with its
current business. The process of integrating an acquired business, product or
technology into the Company may result in unforeseen operating difficulties and
expenditures, and may absorb significant management attention that would
otherwise be available for ongoing development of the Company's business.
Moreover, there can be no assurance that the anticipated benefits of any
acquisition will be realized. Acquisitions could result in potentially dilutive
issuances of equity securities, the incurrence of debt and contingent
liabilities and amortization expenses related to goodwill and other intangible
assets, which could materially adversely affect the Company's business,
financial condition and results of operations. See "Use of Proceeds."
Certain Antitakeover Considerations. The Company's Board of Directors (the
"Board of Directors") has the authority, without any action by the shareholders,
to issue up to 2,000,000 shares of Preferred Stock and to fix the rights and
preferences of such shares. In addition, the Company has adopted a shareholder
rights plan (the "Shareholder Rights Plan") involving the issuance of preferred
stock purchase rights designed to protect the Company's shareholders from
abusive takeover tactics by causing substantial dilution to a person or group
that attempts to acquire the Company on terms not approved by the Board of
Directors. Certain provisions in the Company's Restated Articles of
Incorporation, Restated Bylaws and the Shareholder Rights Plan, as well as
Washington law, and the ability of the Board of Directors to issue Preferred
Stock, may have the effect of delaying, deferring or preventing a change in
control of the Company, may discourage bids for the Common Stock at a
9
<PAGE> 11
premium over the market price of the Common Stock and may adversely affect the
market price, and the voting and other rights of the holders, of Common Stock.
Limited Trading History; Possible Volatility of Stock Price. The market
price of the Common Stock has experienced fluctuations since it commenced
trading in October 1996. There can be no assurance that the market price of the
Common Stock will not fluctuate significantly. Announcements concerning the
Company or its competitors, quarterly variations in operating results, the
introduction of new technology or products or changes in product pricing
policies by the Company or its competitors, changes in earnings estimates by
analysts or changes in accounting policies, among other factors, could cause the
market price of the Common Stock to fluctuate substantially. In addition, stock
markets have experienced extreme price and volume volatility in recent years.
This volatility has had a substantial effect on the market prices of securities
of many smaller public companies for reasons frequently unrelated or
disproportionate to the operating performance of the specific companies. These
broad market fluctuations may adversely affect the market price of the Common
Stock. See "Price Range of Common Stock."
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered by the Company hereby at the public offering price of
$17.00 per share are estimated to be approximately $23,730,000 (approximately
$27,395,000 if the Underwriters' over-allotment option is exercised in full).
The Company will not receive any proceeds from the sale of Common Stock by the
Selling Shareholder. See "Principal and Selling Shareholders." The Company
expects to use the net proceeds for working capital and other general corporate
purposes. The Company may, when and if the opportunity arises, use an
unspecified portion of the net proceeds to acquire businesses, products or
technologies that it believes are strategic. From time to time, in the ordinary
course of business, the Company evaluates potential acquisitions of such
businesses, products or technologies. However, the Company currently has no
understandings, commitments or agreements with respect to any material
acquisition, and there can be no assurance that any acquisition will be made.
Pending such uses, the net proceeds will be invested principally in money market
funds or other short-term, interest-bearing, investment grade securities.
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company commenced trading publicly on the Nasdaq
National Market on October 17, 1996 and is traded under the symbol ADIC. The
following table sets forth, for the periods indicated, the high and low daily
closing prices for the Common Stock:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED OCTOBER 31, 1996
Fourth Quarter (beginning October 17, 1996).................... $14.25 $10.13
FISCAL YEAR ENDING OCTOBER 31, 1997
First Quarter.................................................. 22.00 10.25
Second Quarter (through March 11, 1997)........................ 21.94 16.38
</TABLE>
On March 11, 1997, the last reported sale price for the Common Stock on the
Nasdaq National Market was $17.75 per share. As of January 31, 1997, there were
approximately 300 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends on the Common Stock and does
not expect to pay any cash dividends on the Common Stock in the foreseeable
future. The Company currently intends to reinvest earnings, if any, on the
continued development and operation of its business. Any payment of cash
dividends would depend on the Company's pattern of growth, profitability,
financial condition and such other factors as the Board of Directors may deem
relevant.
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
January 31, 1997 (i) on an actual basis and (ii) as adjusted to give effect to
the sale of the 1,500,000 shares of Common Stock offered by the Company hereby
at the public offering price of $17.00 per share and the receipt of the
estimated net proceeds therefrom. This table should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 31, 1997
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Shareholders' equity:
Preferred Stock, no par value; 2,000,000 shares authorized, none
issued and outstanding.......................................... $ -- $ --
Common Stock, no par value; 40,000,000 shares authorized; 8,159,176
shares issued and outstanding actual; 9,659,176 shares issued
and outstanding as adjusted(1).................................. 21,555 45,285
Retained earnings.................................................. 7,642 7,642
Cumulative translation adjustment.................................. (92) (92)
------- ------
Total shareholders' equity.................................... 29,105 52,835
------- -------
Total capitalization....................................... $29,105 $52,835
======= =======
</TABLE>
- ---------------
(1) Excludes (i) 691,408 shares of Common Stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $8.52 per share
and (ii) 252,500 shares of Common Stock reserved for future issuance under
the 1996 Plan. See Note 6 of Notes to Consolidated Financial Statements.
12
<PAGE> 14
SELECTED FINANCIAL DATA
The following selected financial data of the Company are derived from the
Company's historical financial statements and notes thereto. For the
approximately three-year period from November 1, 1993 to October 15, 1996, the
selected consolidated financial data relate to the operations of the Company as
part of Interpoint. For the two years ended September 30, 1993 and the period
subsequent to October 15, 1996, the selected financial data relate to the
operation of the Company as an independent company. Consolidated balance sheets
at October 31, 1995 and 1996 and the related consolidated statements of
operations and of cash flows for the three years ended October 31, 1996 and
notes thereto appear elsewhere in this Prospectus. The selected financial data
for the three months ended January 31, 1996 and 1997 have been derived from
unaudited consolidated financial statements appearing elsewhere in this
Prospectus which, in the opinion of the Company's management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's financial position and results of operations
for the interim periods presented. The results for interim periods are not
necessarily indicative of the results that may be expected for the full fiscal
year.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
SEPTEMBER 30, YEARS ENDED OCTOBER 31, ENDED JANUARY 31,
----------------- ------------------------------ -----------------
1992 1993(1) 1994(1)(2) 1995 1996 1996 1997
------- ------- ---------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $12,837 $17,108 $ 20,083 $31,716 $58,957 $10,606 $20,069
Cost of sales...................................... 8,831 10,775 13,495 22,107 41,887 7,612 14,098
------- ------- ------- ------- ------- ------- -------
Gross profit..................................... 4,006 6,333 6,588 9,609 17,070 2,994 5,971
Operating expenses:
Selling and administrative....................... 2,219 3,796 5,000 8,001 9,846 2,149 3,047
Research and development......................... 631 879 1,037 1,097 1,542 301 632
Acquisition expense.............................. -- -- 590 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Operating profit (loss)............................ 1,156 1,658 (39) 511 5,682 544 2,292
Other income (expense)............................. (170) (65) (102) (296) (394) (111) 254
------- ------- ------- ------- ------- ------- -------
Income (loss) before provision (benefit) for income
taxes............................................ 986 1,593 (141) 215 5,288 433 2,546
Provision (benefit) for income taxes............. 22 308 (99) (77) 1,858 141 885
------- ------- ------- ------- ------- ------- -------
Net income (loss).................................. $ 964 $ 1,285 $ (42) $ 292 $ 3,430 $ 292 $ 1,661
======= ======= ======= ======= ======= ======= =======
Pro forma average number of common and common
equivalent shares outstanding (unaudited)(3)..... 8,010 8,274
======= =======
Pro forma net income per share (unaudited)(3)...... $ 0.04 $ 0.41
======= =======
Average number of common and common equivalent
shares outstanding............................... 8,350
=======
Net income per share............................... $ 0.20
=======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 31,
------------------ -------------------------------- JANUARY 31,
1992 1993 1994(1)(2) 1995 1996 1997
------- ------- ---------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................... $ 2,080 $ 3,004 $ 4,156 $ 7,249 $24,596 $ 27,185
Total assets....................................... 3,958 5,895 8,710 13,943 36,710 37,492
Long-term and intercompany debt, excluding current
portion.......................................... 916 672 2,358 5,434 -- --
Total shareholders' equity......................... 1,524 2,808 3,027 3,387 26,387 29,105
</TABLE>
- ---------------
(1) In order to conform the Company's fiscal year to Interpoint's fiscal year
upon the merger of the Company into Interpoint in February 1994, in a
transaction accounted for as a pooling of interests, the Company's financial
statements for the month of October 1993 are not included in either the
fiscal year ended September 30, 1993 or the fiscal year ended October 31,
1994.
(2) In February 1994, the Company incurred $590,000 in acquisition-related
expenses associated with its acquisition by Interpoint. Also, in June 1994,
the Company acquired its wholly owned subsidiary, ADIC Europe, in a
transaction accounted for as a purchase.
(3) Unaudited pro forma net income per share for the fiscal year ended October
31, 1995 is calculated based on the number of shares of Interpoint common
stock outstanding at June 30, 1996, plus the incremental shares outstanding,
as calculated under the treasury stock method, based on the number of ADIC
stock options outstanding as a result of the Distribution. Unaudited pro
forma net income per share for the fiscal year ended October 31, 1996 is
calculated based on the number of shares of ADIC Common Stock outstanding at
October 31, 1996, plus the incremental shares outstanding, as calculated
under the treasury stock method, at the same date.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus. The discussion in this
Prospectus contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The Company's actual results could differ
materially from those discussed here. The cautionary statements made in this
Prospectus should be read as being applicable to all forward-looking statements
wherever they appear in this Prospectus. Factors that could cause or contribute
to such differences include those discussed in "Risk Factors," as well as those
discussed elsewhere herein. The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements that may
be required to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
OVERVIEW
The Company was incorporated in 1984 to develop data backup and storage
subsystems for computer systems, and introduced its first product that same
year. The Company's initial products used a variety of data storage technologies
and media supplied by third parties, including large-capacity hard disks. In
1988, with the objective of increasing the proprietary features of its product
line, the Company introduced a random access automatic tape changer, the
LANbacker. Building on the proprietary electro-mechanical robotics and firmware
incorporated into the LANbacker, in November 1991 the Company introduced a data
backup tape changer product utilizing 4mm/DAT technology, the first product in
its automated tape library family. Subsequently, the Company has pursued a
strategy of offering the market a full range of automated tape library products
through development of new library platforms that incorporate DLT, 4mm/DAT and
8mm magnetic tape drive technologies. In addition to automated tape libraries,
the Company also markets tape products such as standalone tape drives and tape
media in order to offer its customers a complete line of tape products for their
backup and archiving needs.
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
--------------------------------------------------
THREE MONTHS
ENDED
YEARS ENDED OCTOBER 31, JANUARY 31,
---------------------------- -----------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 67.2 69.7 71.0 71.8 70.2
----- ----- ----- ----- -----
Gross profit............................ 32.8 30.3 29.0 28.2 29.8
Operating expenses:
Selling and administrative.............. 24.9 25.2 16.7 20.3 15.3
Research and development................ 5.2 3.5 2.6 2.8 3.1
Acquisition expense..................... 2.9 -- -- -- --
----- ----- ----- ----- -----
Operating profit (loss)................... (0.2) 1.6 9.7 5.1 11.4
Other income (expense).................... (0.5) (0.9) (0.7) (1.0) 1.3
----- ----- ----- ----- -----
Income (loss) before provision (benefit)
for income taxes........................ (0.7) 0.7 9.0 4.1 12.7
Provision (benefit) for income taxes.... (0.5) (0.2) 3.2 1.3 4.4
----- ----- ----- ----- -----
Net income (loss)......................... (0.2)% 0.9% 5.8% 2.8% 8.3%
===== ===== ===== ===== =====
</TABLE>
14
<PAGE> 16
THREE MONTHS ENDED JANUARY 31, 1996 AND 1997
Net Sales. Net sales for the three months ended January 31, 1997 increased
89.2% to $20.1 million from $10.6 million for the same period in fiscal 1996.
The increase in net sales was primarily due to strong unit sales volume of the
Company's new DLT-based products, particularly the VLS DLT and Scalar automated
tape libraries, the DS9000 series standalone tape drives and DLT media. The
Company does not expect that its net sales will continue to grow at the
year-to-year rate experienced in recent quarters. Sales outside the United
States were $7.5 million or 37.2% of net sales for the three months ended
January 31, 1997 compared to $4.9 million or 46.1% of net sales for the same
period in fiscal 1996. Such sales are typically made in U.S. dollars but may
also be made in foreign currencies. The Company takes appropriate actions to
minimize exposure to fluctuations in foreign currency exchange rates.
Gross Profit. Gross profit was $6.0 million or 29.8% of net sales for the
three months ended January 31, 1997 compared to $3.0 million or 28.2% of net
sales for the same period in fiscal 1996. Gross profit margin for the current
three-month period was higher than the same period in fiscal 1996 due to a shift
in product mix toward higher-margin Scalar libraries and product cost reduction
efforts, offset in part by a general shift in product mix toward DLT products,
which have a higher per-unit tape drive cost than products incorporating 4mm/DAT
and 8mm drives, and related media. Gross profit margins are dependent on a
number of factors, including customer and product mix, price competition and
tape drive costs. There can be no assurance that the Company can improve upon or
maintain the current gross margin levels, given that tape drives purchased from
third-party suppliers are a significant component of the Company's product
costs.
Selling and Administrative Expenses. Selling and administrative expenses
were $3.0 million or 15.3% of net sales for the three months ended January 31,
1997 compared to $2.1 million or 20.3% of net sales for the same period in
fiscal 1996. Selling and administrative expenses for the three months ended
January 31, 1997 decreased significantly as a percentage of net sales as
increased net sales reflected the benefits of the Company's significant
investments in sales and marketing resources in prior fiscal periods. Net sales
volume in the three-month period increased 89.2%, compared to a corresponding
41.8% increase in selling and administrative expenses. The dollar increase in
selling and administrative expenses in the three months ended January 31, 1997
over the comparable period in fiscal 1996 was primarily due to increased sales
commissions, additions to sales and marketing staff, and increased
administrative overhead. The Company does not expect selling and administrative
expenses as a percentage of net sales to decline significantly from the levels
experienced in the three months ended January 31, 1997.
Research and Development Expenses. Research and development expenses were
$632,000 or 3.1% of net sales for the three months ended January 31, 1997
compared to $301,000 or 2.8% of net sales for the same period in fiscal 1996.
Actual dollar spending during the current three-month period was higher than the
same period in fiscal 1996 due to increases in development expenses for the new
Scalar 218 series and other product development expenses, and additions to
research and engineering staff.
Other Income (Expense). Other income for the three months ended January
31, 1997 was $254,000 compared to an expense of $111,000 for the same period in
fiscal 1996. As a result of Interpoint's forgiving all intercompany loans to
ADIC and contributing cash to ADIC in October 1996, the Company realized
$115,000 of interest income in the three months ended January 31, 1997, rather
than $129,000 of interest expense incurred in the same period in fiscal 1996.
Net foreign currency translation gains increased approximately $120,000 between
the comparison periods. Foreign currency translation gains or losses arise as a
result of the operation of ADIC Europe, the functional currency of which is
French francs. ADIC Europe buys products from ADIC in U.S. dollars and resells a
significant majority of such products in U.S. dollars. However, because francs
are used as the functional accounting currency, all monetary assets and
liabilities are translated into francs on ADIC Europe's financial statements. To
the extent that these monetary assets and liabilities do not fully offset each
15
<PAGE> 17
other and the franc-to-U.S.-dollar exchange rate changes, transaction gains or
losses may result. For large sales denominated in other currencies, the Company
attempts to implement appropriate hedging strategies.
Provision (Benefit) for Income Taxes. Income tax expense for the three
months ended January 31, 1997 was $885,000 compared to $141,000 for the same
period in fiscal 1996. The Company believes that the 34.8% effective tax rate
reflected in its most recent results, which includes taxes paid in various
federal, state and international jurisdictions, is generally indicative of the
Company's effective tax rate in future periods.
Inflation. The Company believes inflation has not had a material effect on
its operations for these periods.
FISCAL YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996
Net Sales. Net sales increased 85.9% to $59.0 million in fiscal 1996 from
$31.7 million in fiscal 1995. The increase resulted primarily from strong sales
volume in the Company's DLT-based products, which were introduced beginning late
in fiscal 1995, and related media. Net sales of older products, including
certain 4mm/DAT and 8mm tape libraries, decreased somewhat in fiscal 1996.
Several times during fiscal 1996 the Company reduced its end-user list prices on
selected products. Net sales increased by 57.9% to $31.7 million in fiscal 1995
from $20.1 million in fiscal 1994. The increase in net sales was primarily due
to strong worldwide market acceptance of the Company's automated tape libraries
and standalone tape drive products. In addition, a portion of the growth from
fiscal 1994 to fiscal 1995 reflects a full year of operations of ADIC Europe,
which was acquired in June 1994. Sales outside the United States were $21.2
million or 36.0% of net sales in fiscal 1996 compared to $14.9 million or 47.1%
of net sales in fiscal 1995 and $5.5 million or 27.4% of net sales in fiscal
1994.
Gross Profit. Gross profit increased to $17.1 million in fiscal 1996 from
$9.6 million in fiscal 1995. Gross profit as a percentage of net sales decreased
to 29.0% in fiscal 1996 from 30.3% in fiscal 1995 due to the shift in product
mix to DLT-based products, which have a higher per-unit tape drive cost than
products incorporating 4mm/DAT or 8mm drives. The cost of direct material
comprised a substantial majority of cost of sales in both fiscal 1995 and fiscal
1996, with the most significant cost item being the cost of tape drives
purchased from third parties. Gross profit margin decreased from 32.8% in fiscal
1994 to 30.3% in fiscal 1995 due to the introduction of DLT-based products and
an increase in the percentage of net sales derived from lower-margin,
non-library products by ADIC Europe.
Selling and Administrative Expenses. Selling and administrative expenses
totaled $9.8 million or 16.7% of net sales in fiscal 1996 compared to $8.0
million or 25.2% of net sales in fiscal 1995, and $5.0 million or 24.9% of net
sales in fiscal 1994. This increased dollar spending reflected a strategic
decision to increase the Company's investments in sales and marketing subsequent
to Interpoint's acquisition of the Company in February 1994. These investments
include costs of European sales activities acquired in the purchase of ADIC
Europe and the addition of experienced sales and marketing personnel in the
United States. These expenses decreased as a percentage of net sales in fiscal
1996 compared to fiscal 1995 as the Company was able to leverage its investment
in these resources with larger sales volume. While these expenses were
relatively constant as a percentage of net sales in fiscal 1994 and fiscal 1995,
actual dollar spending increased in fiscal 1995 due to additional costs incurred
in connection with increased sales and marketing staff and the full-year impact
of the ADIC Europe acquisition.
Research and Development Expenses. Research and development expenses
totaled $1.5 million or 2.6% of net sales in fiscal 1996 compared to $1.1
million or 3.5% of net sales in fiscal 1995, and $1.0 million, or 5.2% of net
sales in fiscal 1994. The increase in dollar spending in fiscal 1996 was due to
increases in development expenses for the Company's VLS DLT and Scalar DLT
products, and to additions to research and engineering staff.
16
<PAGE> 18
Acquisition Expense. The Company incurred a $590,000 acquisition-related
expense during fiscal 1994 as a result of Interpoint's acquisition of the
Company, which was accounted for as a pooling of interests.
Other Expense. Other expense was $394,000 in fiscal 1996 compared to
$296,000 in fiscal 1995 and $102,000 in fiscal 1994. Interest expense increased
by $231,000 from fiscal 1995 to fiscal 1996 because of increased borrowings from
Interpoint, which were forgiven prior to the effective date of the Distribution.
Offsetting these expenses in fiscal 1996 were gains from foreign currency
transactions of $114,000. Expense increases from fiscal 1994 to fiscal 1995 were
due to increased interest expense arising from intercompany borrowings to
support additional working capital requirements resulting from higher net sales.
Provision (Benefit) for Income Taxes. The provision for income taxes for
fiscal 1996 was $1.9 million, which represented an effective tax rate of 35.1%
of pre-tax income in fiscal 1996, compared to a benefit for income taxes of
$77,000 in fiscal 1995 and $99,000 in fiscal 1994. The benefits for income taxes
in fiscal 1994 and fiscal 1995 were the result of the recognition of a net
operating loss carryforward at ADIC Europe. The net operating loss carryforward
existed when ADIC Europe was acquired in June 1994; however, a valuation
allowance was provided for this item due to the uncertainty regarding the
Company's ability to utilize this carryforward. Consequently, income taxes on
earnings in fiscal 1994 and 1995 of ADIC Europe were offset by a reduction of
this valuation allowance. At October 31, 1995, the valuation allowance
associated with the remaining unused carryforward also was eliminated. In
addition, certain federal tax credits reduced the effective tax rate in both
years.
SELECTED QUARTERLY INFORMATION
The following table presents selected financial information for the
quarters indicated. This information was derived from unaudited consolidated
financial statements that were prepared on a basis consistent with the Company's
audited consolidated financial statements included elsewhere in this Prospectus
and, in the opinion of management, reflects all normal recurring adjustments
necessary to present the information fairly. The operating results for any
quarter are not necessarily indicative of the results to be expected for any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------
FISCAL
FISCAL 1995 FISCAL 1996 1997
----------------------------------------- ----------------------------------------- --------
JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $ 5,823 $ 6,676 $ 8,470 $10,747 $10,606 $13,779 $15,186 $19,386 $20,069
Cost of sales.................. 3,726 4,460 6,043 7,878 7,612 10,044 10,933 13,298 14,098
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit................. 2,097 2,216 2,427 2,869 2,994 3,735 4,253 6,088 5,971
Operating expenses:
Selling and administrative.... 1,822 1,966 1,907 2,306 2,149 2,173 2,311 3,213 3,047
Research and development...... 264 184 271 378 301 359 388 494 632
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating profit............... 11 66 249 185 544 1,203 1,554 2,381 2,292
Other income (expense)......... (61) (51) (58) (126) (111) (130) (128) (25) 254
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before provision
(benefit) for income taxes... (50) 15 191 59 433 1,073 1,426 2,356 2,546
Provision (benefit) for
income taxes............... (28) 18 (4) (63) 141 357 493 867 885
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).............. $ (22) $ (3) $ 195 $ 122 $ 292 $ 716 $ 933 $ 1,489 $ 1,661
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
17
<PAGE> 19
The following table sets forth certain statements of operations data as a
percentage of net sales for the quarters indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
------------------------------------------------------------------------------------------------
FISCAL
FISCAL 1995 FISCAL 1996 1997
----------------------------------------- ----------------------------------------- --------
JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................. 64.0 66.8 71.3 73.3 71.8 72.9 72.0 68.6 70.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit................. 36.0 33.2 28.7 26.7 28.2 27.1 28.0 31.4 29.8
Operating expenses:
Selling and administrative... 31.3 29.4 22.5 21.5 20.3 15.8 15.2 16.6 15.3
Research and development..... 4.5 2.8 3.2 3.5 2.8 2.6 2.6 2.5 3.1
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating profit............... 0.2 1.0 3.0 1.7 5.1 8.7 10.2 12.3 11.4
Other income (expense)......... (1.1) (0.8) (0.7) (1.2) (1.0) (0.9) (0.8) (0.1) 1.3
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before provision
(benefit) for income taxes... (0.9) 0.2 2.3 0.5 4.1 7.8 9.4 12.2 12.7
Provision (benefit) for
income taxes............... (0.5) 0.3 0.0 (0.6) 1.3 2.6 3.3 4.5 4.4
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss).............. (0.4)% (0.1)% 2.3% 1.1% 2.8% 5.2% 6.1% 7.7% 8.3%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The Company's operating results over the nine quarters ended January 31,
1997 reflect generally increasing net sales, excluding the first quarters of
fiscal 1995 and 1996. The sequential drop in net sales in those quarters and the
diminished sequential growth of net sales in the first quarter of fiscal 1997,
when compared to their respective previous fourth quarters, reflect a
traditional seasonal pattern in the Company's operating results.
The Company's quarterly operating results have varied in the past, and may
vary significantly in the future, depending on factors such as increased
competition and pricing pressure, timing of new product announcements and
releases by the Company and its competitors, shifts in product or channel mix,
the rate of growth in the data storage market, market acceptance of new and
enhanced versions of the Company's products, timing and levels of operating
expenses, size and timing of significant customer orders, gain or loss of
significant customers or distributors, currency fluctuations, personnel changes
and economic conditions in general. Any unfavorable change in these or other
factors could have a material adverse effect on the Company's results of
operations for a particular quarter. See "Risk Factors -- Potential Fluctuations
in Quarterly Results; Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
From February 1994 when the Company was acquired by Interpoint until the
Distribution, the Company financed its growth through loans from Interpoint. The
net increases in the amounts of such loans in fiscal 1994, 1995 and 1996 were
$2.4 million, $3.1 million and $4.2 million, respectively. Prior to the
Distribution, Interpoint made a contribution to the working capital of the
Company through the cancellation of all $9.6 million of Company indebtedness to
Interpoint. Interpoint also contributed an additional $10.0 million in cash to
the working capital of the Company at the time of the Distribution, which cash
has funded the Company's growth since October 1996. In the first three months of
fiscal 1997, the Company realized $1.2 million due to the exercise of stock
options by Team Members, including tax benefits of $891,000.
The Company's operating activities used cash of $1.7 million in fiscal
1994, $1.9 million in fiscal 1995, $3.5 million in fiscal 1996 and $4.5 million
in the first three months of fiscal 1997. In fiscal 1994, such cash was
primarily used to fund a $1.7 million increase in accounts receivable. In fiscal
1995, such cash was primarily used to fund a $2.6 million increase in
inventories and a $1.7 million increase in accounts receivables, offset in part
by a $1.4 million increase in accounts payable. In fiscal 1996, such cash was
primarily used to fund a $7.0 million increase in accounts receivable and a $5.6
million
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<PAGE> 20
increase in inventories, offset in part by a $4.5 million increase in accounts
payable and net income of $3.4 million. In the first three months of fiscal
1997, such cash was primarily used to fund a $2.4 million increase in accounts
receivable, a $2.2 million increase in inventories and a $1.8 million decrease
in accounts payable, offset in part by net income of $1.7 million.
The Company also used cash in the amount of $494,000 to acquire the
Company's European sales subsidiary in 1994 and cash in the amounts of $451,000,
$757,000, $911,000 and $324,000 to acquire property, plant and equipment in
fiscal 1994, 1995 and 1996 and the first three months of fiscal 1997,
respectively.
At January 31, 1997, the Company had cash and cash equivalents of $6.8
million. As of that date, the Company also had a $10.0 million bank line of
credit that expires at the end of fiscal 1998, all of which was available. Any
borrowings under this line of credit would bear interest at the bank's prime
rate or adjusted LIBOR rate. The Company has no material commitments other than
annual rental commitments of $411,000 to $465,000 over each of the next five
fiscal years under noncancellable operating leases for the Company's facilities.
In addition, while the Company does not expect revenue to continue to grow
indefinitely at rates comparable to those of the last several years as the
market for its products matures, if revenue were to continue to grow at such
rates the Company would require substantial cash to finance its working capital
(especially accounts receivable and inventories).
The Company believes that its existing cash and cash equivalents and bank
line of credit, together with the net proceeds from this offering, will be
sufficient to fund its working capital and capital expenditure needs for at
least the next 12 months. Thereafter, if the cash generated from operations is
insufficient to meet the Company's requirements, the Company may be required to
sell additional equity or debt securities or obtain additional credit
facilities. The sale of additional equity or convertible debt securities could
result in additional dilution to the Company's shareholders. There can be no
assurance that such additional financing, if required, would be obtained on
acceptable terms, if at all. The Company may also utilize cash to acquire or
invest in businesses, products or technologies that it believes are strategic.
From time to time, in the ordinary course of business, the Company evaluates
potential acquisitions of such businesses, products or technologies. However,
the Company has no present understandings, commitments or agreements with
respect to any material acquisition of other businesses, products or
technologies.
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<PAGE> 21
BUSINESS
The Company is a leading provider of automated tape libraries and
standalone tape drives used to back up and archive electronic data in
client/server network computing environments. The Company integrates proprietary
electro-mechanical robotics, electronics hardware and firmware with
technologically advanced tape drives manufactured by third parties to provide
highly automated data storage protection. When used with third-party storage
management software, the Company's products can perform sophisticated backup and
archiving of electronic data residing across a network of PCs, workstations and
servers with minimal human intervention. The Company's product family operates
in both PC-based (Windows NT and Novell NetWare) and UNIX environments and
provides data storage capacity ranging from four gigabytes to over three
terabytes.
The Company's customers are located worldwide and range in size from large
multinational companies to small businesses. The Company markets its products in
North America, Europe and the Asia Pacific region through multiple distribution
channels, including distributors, VARs and OEMs. For fiscal 1996 and the three
months ended January 31, 1997, 36.0% and 37.2%, respectively of the Company's
net sales were derived from outside the United States. The Company supports
these channels and its end users with a combination of regional field sales,
systems engineering and technical support personnel, as well as third-party
on-site service organizations.
INDUSTRY
CLIENT/SERVER NETWORK DATA BACKUP MARKET
The Company believes that multiple trends continue to foster growth of the
data storage segment of the client/server network computing environment.
Personal computer and workstation microprocessors continue to achieve
substantial increases in performance, both absolute and relative to their cost.
Enabled by this increased processing power and the increasing sophistication of
both network operating systems and relational databases, organizations are
migrating core business processes (such as financial transaction processing,
materials requirements planning, document imaging and management, engineering
drawings and customer databases) from manual processes or mainframes to
lower-cost client/server computer networks. In addition, the advent of the
Internet, electronic mail and groupware continue to foster further client/server
network computing growth. The combination of these trends is driving a
proliferation of client/server network computing.
Each of the trends outlined above is driving an increase not only in the
installed base of networks, but also in the data storage requirements of these
networks. The data stored on client/server networks is growing both in volume
and in value. As an organization migrates its core processes to client/server
computer networks, the electronic data stored on these networks, such as a
customer or patient database, a set of engineering drawings or a record of
financial transactions, becomes an increasingly vital asset. The opportunity
cost of data loss has become extraordinarily high, with potentially large and
long-term negative impacts on an organization. Data loss can result from a wide
variety of causes, including human error, equipment failure, database
corruption, computer viruses and man-made or natural disasters. Systematic and
cost-effective backup and archiving of data stored on client/server networks is
essential to protecting one of an organization's most important assets. The
combination of these trends, coupled with increasingly data-intensive software
applications, is driving an increase in demand for data storage and a growing
need for data backup and archiving in client/server network computing
environments.
AUTOMATED TAPE LIBRARIES
The Company believes automated tape libraries, which operate in conjunction
with storage management software and incorporate magnetic tape drive technology,
provide the best systematic and cost-effective backup solution for client/server
networks. These products provide client/server
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networks with software-controlled access to multiple magnetic tape cartridges
for storage and retrieval of digitally stored data. The backups occur
automatically and minimize human intervention. Automated tape libraries, housing
these tapes and one or more tape drives, utilize an electro-mechanical robotic
mechanism to manipulate the tape cartridges, loading and unloading specific tape
cartridges into and out of the tape drive or drives as directed by the storage
management software.
Automated tape libraries efficiently systematize the network backup process
through a number of features. An automated tape library, directed by storage
management software, can perform sophisticated backups of a network's data
without human intervention, automatically backing up specific network data to
specific tapes at specific times. This process operates in a "lights out" mode,
backing up the network at any time, thereby eliminating the need for system
administrator staffing when the network is backed up, generally at night. Access
to multiple tape cartridges enables the library to automatically store much more
data than a standalone drive, eliminating the need for a system administrator to
swap tapes in order to back up all the data. Unlike a typical hard disk drive,
magnetic tape drives utilize removable cartridges containing a robust medium.
Therefore, data backed up by an automatic tape library can be reliably stored
offsite as an element of a disaster recovery scheme.
Within the library, tape cartridges are typically organized in magazines.
In some cases, these tape magazines are removable, easing storage and offsite
transfer of the tapes. A library with multiple tape drives can back up data with
all drives simultaneously, significantly speeding up the backup process. Some
larger libraries feature a barcode system which, in conjunction with the storage
management software, can catalog each tape, further enhancing the management of
the data. Libraries often feature key lock access to the tapes, providing
security protection for the data by preventing undesired human access. Some
libraries feature a software and password-controlled access feature which allows
for controlled addition or removal of selected cartridges without providing open
access to all tapes housed within the library or taking the library off-line.
Backup and archival storage needs differ somewhat from the demands of other
storage applications, such as online data storage, with overall capacity and
data transfer rate being more important than the speed of data access and
retrieval. As a result of relatively high transfer rates, high capacity and low
cost per gigabyte, tape drive technologies are used for backup or archival
purposes in a large proportion of client/server networks in commercial and
government organizations. The Company believes that, assuming continued
investment by tape drive manufacturers, magnetic tape drives will continue to be
a cost-effective solution for data backup and archival purposes in terms of cost
per unit of data storage. Automated tape libraries leverage the
cost-effectiveness of magnetic tape drives by automating the access to multiple
data cartridges by each tape drive, decreasing further the dollar-per-gigabyte
of storage cost relative to other technologies. According to a December 1995
independent study by Dataquest Incorporated, the market for automated tape
libraries for client/server network computing environments (DLT, 4mm/DAT and
8mm) was approximately $300 million in 1995, and is projected to grow at an
annual compound growth rate of approximately 32% to over $900 million in 1999.
ADIC STRATEGY
The Company's goal is to continue expanding its position as a market leader
in providing automated tape libraries and complementary products to the
client/server network marketplace. Key components of the Company's strategy
include:
Offer a Full Range of Library Products. The Company believes it currently
offers the most complete range of automated tape library and standalone drive
products available for the client/server network marketplace. Available storage
capacities range from four gigabytes to over three terabytes. Although different
types and sizes of client/server networks require different levels of tape
library capacity and performance, the Company's broad product family provides
both end users and channel partners with "one-stop-shopping" for products,
service and support. By offering standalone drive products in addition to
libraries, the Company is able to further enhance the breadth of its product
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line, familiarizing customers with entry-level backup and archiving data storage
needs with its brand name and products and providing them with migration and
upgrade paths to the Company's other products. In addition, the Company's broad
product line allows it to purchase tape drives in large volumes, which may
enhance its ability to negotiate with key magnetic tape drive suppliers.
Offer Products in Multiple Drive Technologies. The Company offers
automated tape libraries based on each of the magnetic tape drive technologies,
including DLT, 4mm/DAT and 8mm, and maintains compatibility with a wide variety
of storage management software platforms. The Company's strategy is to work
closely with leading tape drive manufacturers in order to rapidly develop
products incorporating state-of-the-art technologies. The Company's strategy of
developing products based on multiple drive technologies allows the Company to
reduce its dependence on any single tape drive technology, as well as offer
products which target the specific technology needs of different market
segments. In addition, the Company's products are compatible with over 50
storage management software applications.
Leverage Technology Across Products. The Company is able to leverage
nearly a decade of automated tape library research and development across a
number of products. The Company has launched six generations of products and is
currently developing products featuring the seventh generation of its
technology. Successive products and product line extensions build on an existing
foundation of technology and knowledge, including operating systems software,
electronic hardware and electro-mechanical hardware. Leveraging its existing
technology to build a broad product line enables the Company to decrease both
the time-to-market and development costs of new products. In addition, this
strategy enhances manufacturing leverage and flexibility, as the Company is able
to share common parts, manufacturing resources and suppliers across a wide range
of products.
Further Develop Brand Name and Strong Worldwide Distribution Channels. The
Company has established and continues to develop strong distribution channels in
the North American, European and Pacific Rim markets. The Company has numerous
long-standing relationships with national distributors and resellers that have
experience in offering the Company's line of products. These distribution
channels enable the Company to cost-effectively offer its broad range of branded
products to multiple market segments and provide an immediate outlet for new
products as they are developed. In addition, the Company believes that as a
result of its investment in advertising, promotion and brand development, it
will develop brand recognition and customer loyalty, increasing the level of
recurring business from its customers. In particular, the Company believes that
its distribution relationships and brand name recognition position it well to
take advantage of the growth of PC-based client/server networks, including those
based on Windows NT. As appropriate, the Company intends to pursue additional
channel partnerships to address untapped or underpenetrated market segments.
Offer Broad Technical Support. The Company views customer service and
support as strategically important elements of its business. During the sales
process, the Company's sales force and systems engineers provide technical
recommendations to its channel partners and end users. After the sale, the
Company provides 24-hour-a-day technical support. The Company's technical
support staff, which is knowledgeable about storage management software and
systems, is able to address customer inquiries beyond the automated tape library
hardware level. In situations where problems are beyond the scope of the
Company's technical support staff, systems engineers can be made available for
telephone or on-site consultation. The Company also offers customers various
levels of on-site service programs through third-party providers. Finally, the
Company offers a comprehensive training program to resellers and end users.
Develop or Acquire Related Specialized Storage Products. The Company
believes that growth of the client/server network data storage market will
create opportunities for it to expand its product offerings. The Company intends
to continue to seek out related market niches which leverage its strengths. The
Company has over a decade of research and development experience in
client/server network data storage and believes this experience may be applied
beyond automated tape libraries to other specialized storage products. In
addition, the Company believes its distribution channels can be
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used to distribute related data storage products to end users. New, related
storage products could originate from internal research and development or
through acquisitions.
PRODUCTS
The Company's principal products, automated tape libraries, combine
proprietary electro-mechanical robotics, electronic hardware and firmware with
industry standard, technologically advanced tape drives manufactured by third
parties. The automated tape libraries are housed in a desktop, rackmount or
floor-standing enclosure. When operated in conjunction with third-party storage
management software, the Company's libraries provide a complete solution for
systematically and cost-effectively automating data storage backup and archiving
in client/server network computing environments.
The Company offers a family of automated tape libraries and standalone tape
drive products with different data storage capacity and data transfer rate
characteristics. In addition to automated tape library and standalone tape drive
products, the Company supplies its channels and end users with a range of
supplemental products, including tape cartridge media, tape magazines, rackmount
kits and cables. See "Risk Factors -- Product Concentration."
The Company's products vary by tape technology, number of tape drives and
number of tape cartridges. New library product development is driven by two
sources, the identification of new market opportunities and the availability of
new tape drive technologies. The identification of new market opportunities
results from ongoing work by the Company's sales, marketing and product
management organizations to identify new products to fulfill customer and
marketplace needs. In addition, the Company maintains close relationships with
tape drive manufacturers in order to stay abreast of technology developments.
The table below summarizes the configurations and performance of the Company's
current automated tape library product line.
CURRENT ADIC PRODUCTS
<TABLE>
<CAPTION>
DATA STORAGE DATA TRANSFER
PRODUCT TAPE NUMBER OF NUMBER OF TAPE CAPACITY RATE
OR PRODUCT LINE TECHNOLOGY TAPE DRIVES CARTRIDGES (GB)(1) (MB/MIN)(1)
- --------------- ---------- ----------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
DATa 8000 4mm/DAT 1 1 8 44-90
SDX 300 SDX 1 1 50 360
DS9000 DLT 1 1 20-70 150-600
800E 4mm/DAT 1 8 64 90
1200 4mm/DAT 1 12 96 44-90
VLS-4 4mm/DAT 1-2 15 120 44-180
VLS-8 8mm 1-2 11 154 60-120
VLS DLT DLT 1 7 210-490 150-600
Scalar 218 DLT 2 18 540-1260 300-1200
Scalar 224 DLT 2 24 720-1680 300-1200
Scalar 448 DLT 2-4 48 1440-3360 300-2400
Scalar 458 DLT 2-4 58(2) 1440-3360 300-2400
</TABLE>
- ---------------
(1) Both capacity and transfer rate values assume 2:1 data compression.
Attainment of these capacities and rates depends on system software and
hardware performance in addition to library performance. Data storage
capacity and data transfer rate ranges for a specific library model are a
function of different drive models.
(2) Ten of the 58 tape cartridges in the Scalar 458 are provided by the
import/export feature and are not counted in calculating capacity.
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<PAGE> 25
The Company's products range in end-user list price from under $2,000 for a
DATa 8000 to over $75,000 for a Scalar 458 with four of the most advanced DLT
drives (the DLT 7000). In certain configurations, both the VLS and Scalar series
products can be purchased in lower-cost configurations and upgraded in the
future as the customer's performance needs grow.
DATa 8000 Series. The DATa 8000 series is the Company's line of standalone
4mm/DAT drives for use in the smallest backup applications. The DATa 8000 series
includes the DATa 8000E, which offers a transfer speed of 90 megabytes per
minute, compressed.
SDX 300 Series. The SDX 300 series is the Company's new standalone 8mm
tape drive product that features recently introduced SDX technology from Sony.
DS9000 Series. The DS9000 series is the Company's line of standalone DLT
drives for more demanding backup applications. Several of the DS9000 series
models feature a differentiating user-friendly display which displays
information regarding drive status and performance.
800E. The 800E is the Company's recently introduced entry-level library,
an autoloader featuring one 4mm/DAT tape drive and up to eight tape cartridges.
1200 Series. The 1200 series features one 4mm/DAT tape drive and up to 12
tape cartridges. The 1200 series is available with either a Hewlett-Packard tape
drive or one of two performance levels of Sony tape drives. Introduced in 1992,
the 1200 series is the Company's longest established library.
VLS Series. The VLS series is available in DLT, 4mm/DAT and 8mm drive
versions. The VLS series features a display and an advanced keypad for ease of
user operation. The 4mm/DAT and 8mm products are available in versions with two
drives or with one drive upgradeable to two. As with the 1200 series, the VLS
4mm/DAT product is available with a Hewlett-Packard tape drive or one of two
performance levels of Sony tape drives. Also, the VLS DLT product is available
with three performance levels of DLT drives (the 2000xt, 4000 and 7000).
Scalar Series. The Scalar 224, 448 and 458, the Company's fifth generation
of automated libraries, represent the high end of the Scalar product line. These
Scalar units utilize DLT drive technology, and are available in three different
levels of drive performance (the 2000xt, 4000 and 7000), with up to four drives
and a 58 tape cartridge capacity. Fully configured, the Scalar 458 can store
over three terabytes of data. Available features include a bar code system, a
tape import/export mechanism and rack-mount or free-standing configurations.
Critical subassemblies are field replaceable to minimize downtime and enhance
serviceability. Additionally, the Scalar 224, 448 and 458 feature upgradability
from the lowest-cost base model to the fully featured model.
The Scalar 218 is the Company's sixth generation and most recently launched
library. The Company believes that it is the highest capacity desktop library
available, with a maximum capacity of 1.26 terabytes, using two DLT drives and
18 tape cartridges. The Scalar 218 received a Windows NT Magazine UNIX/Windows
NT Technology award in October 1996.
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The Company's broad product offerings enable it to address a wide range of
backup storage needs within the client/server network environment. The chart
below arrays a subset of the Company's library products, excluding Scalar
libraries configured with the highest performing DLT tape drives (the DLT 7000),
on the critical performance dimensions of data storage capacity and data
transfer rate. The full performance range of the Company's Scalar libraries is
listed in the table above entitled "Current ADIC Products."
[GRAPHICS INDICATING CERTAIN CRITICAL PERFORMANCE
DIMENSION OF THE COMPANY'S PRODUCTS]
<TABLE>
<CAPTION>
Rated Capacity Transfer Rate
Product (GB) (MB/Min)
- ------- -------------- --------------
<S> <C> <C>
1200 96 44
VLS-4 120 88
VLS-8 154 120
VLS DLT300 210 150
VLS DLT400 280 180
VLS DLT700 490 600
Scalar 218 (2000xt) 540 300
Scalar 224 (2000xt) 720 300
Scalar 218 (4000) 720 360
Scalar 224 (4000) 960 360
Scalar 448/458 (2000xt) 1440 600
Scalar 448/458 (4000) 1920 720
</TABLE>
STORAGE MANAGEMENT SOFTWARE
The majority of the Company's products are installed on client/server
computer networks in conjunction with storage management software. Currently,
over 50 different storage management software packages support one or more of
the Company's products. On Microsoft Windows NT and Novell NetWare platforms,
these packages include products from Cheyenne Software, Legato Systems, Network
Integrity, Seagate Software (Arcada and Palindrome) and STAC. On UNIX platforms,
these packages include products from Cheyenne Software, IBM ADSM, Legato
Systems, OpenVision Technologies, Spectra Logic (Alexandria) and VERITAS
Software.
The Company works closely with storage management software companies in a
number of ways. It periodically engages in discussions with developers at these
companies regarding the marketplace, end-user needs and potential solutions to
these needs combining the Company's products and the company's storage
management software. The Company partners with storage management software
companies to offer promotional product bundles, offering customers a special
price on the combination of a Company product and a storage management software
product. In addition, the Company's field sales force strives to maintain
relationships with its counterparts from each of the storage management software
companies and frequently participates in joint sales calls and seminars. The
Company also maintains technical relationships with developers at these
companies, in most cases providing Company products for their use in developing
software for these products. The Company's systems engineering lab has many
storage management software products running in-house in order to perform
ongoing compatibility testing.
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<PAGE> 27
SALES AND MARKETING
The Company's strategy is to deploy a comprehensive sales, marketing and
support infrastructure to address the market for client/server network storage
peripherals both domestically and internationally. The Company relies on
multiple distribution channels to reach end users ranging in size from small
businesses to large multinational corporations. The Company's channels include
distributors, VARs and OEMs. The Company supports these channels with a field
sales force operating out of regional offices in the following locations:
Atlanta, Dallas, London, Los Angeles, Munich, New York, Paris, San Francisco,
Toronto and Redmond, Washington.
RESELLERS
North American Distributors. The Company sells its products to large
regional and national distributors that in turn resell the Company's products to
national, regional or local VARs with expertise in integrating network solutions
for end users. The Company provides support for these VARs through its
authorized reseller programs. In the case of larger, more complex sales
situations, the Company's field sales force may work in conjunction with a VAR
to support the sale. The Company currently has relationships with six major
North American distributors -- Access Graphics, Gates/FA, GBC Distributing Inc.,
Ingram Micro, Tech Data and Tenex. Ingram Micro and Tech Data represented 22.6%
and 21.4%, respectively, of the Company's net sales for the fiscal year ended
October 31, 1996, and 23.0% and 15.6%, respectively, of the Company's net sales
for the three months ended January 31, 1997. See "Risk Factors -- Customer
Concentration."
International Distributors. Similar to North America, the Company also has
relationships with a number of large regional and national distributors
internationally. International sales represented 36.0% of net sales in fiscal
1996 and 37.2% of net sales in the three months ended January 31, 1997, the
majority of which, in each period, occurred in Europe. The Company believes that
international markets represent an attractive growth opportunity and intends to
expand the scope of its international sales efforts in part by continuing to
actively pursue additional international distributors and resellers. See "Risk
Factors -- International Operations."
Premier VAR Program. The Company has direct sales relationships with
approximately 25 "Premier VARs" throughout North America and Europe. These
Premier VARs are typically larger VARs specializing in data storage and network
solutions for client/server networks. Premier VARs assume increased levels of
responsibility for sales and support, although they are still occasionally
assisted by the Company's field sales force in certain large, complex sales
situations.
OEMS
The Company sells its products to several companies under a private label
or OEM relationship. These companies resell the products under their own brand
name, sometimes after enhancing the products technically to target a specific
market, performance or application niche. Private labelers and OEMs assume
responsibility for product sales, service and support. These relationships
enable the Company to reach end-user market niches not served by its other
reseller distribution channels. Although not a key component to its strategy,
the Company maintains ongoing discussions with private labelers and OEMs,
including leading systems suppliers, regarding opportunities with the Company's
products. Sales of the Company's products through OEM channels were not material
in fiscal 1996 or the three months ended January 31, 1997.
CORPORATE SALES
The Company maintains corporate sales relationships with a number of large
national and multinational companies, including financial institutions,
telecommunications companies, large industrial corporations and professional
service firms. In these sales situations, the Company typically works with the
company's central information services organization to assess data storage
backup needs, and then recommends a solution incorporating the Company's
products. The successful culmination of this
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<PAGE> 28
recommendation may be the establishment of a corporate standard, including a
selection of the Company's products. Once this standard is established,
organizations throughout the company can purchase the Company's products to meet
their needs.
CORPORATE MARKETING
The Company supports its channel sales and field sales force efforts with a
broad array of marketing programs designed to build the Company's brand name,
attract additional resellers and generate end-user demand. Resellers are
provided with a full range of marketing materials, including product
specification literature and application notes. The Company advertises in key
network systems publications and participates in national and regional
tradeshows both domestically and internationally. The Company's World Wide Web
page features a comprehensive collection of marketing information, including
product specification sheets, product user manuals and application notes. The
Company's field sales force conducts seminars targeting end users, often with a
sales representative from one of the storage management software companies. The
Company also conducts sales and technical training classes for its resellers.
The Company periodically engages in various promotional activities for resellers
and end users, including product-specific rebates, bundling its products with
selected storage management software and certificates for free tape drive
cleaning cartridges.
In addition to the activities outlined above, the Company's marketing
organization, specifically its product management team, is responsible for
initiating development of new products and product line extensions. In order to
create the Company's product development plan, the product management team
combines its assessment of end-user needs, channel requirements, technology
developments and competitive factors with input from the Company's engineering,
sales and manufacturing organizations.
CUSTOMER SERVICE AND SUPPORT
The Company views customer service and support as strategically important
elements of its business. The Company's customer service and support effort
consists of five components.
Technical Support. The Company maintains an internal technical support
organization. Technical support personnel are available to all customers at no
charge via telephone, facsimile and Internet electronic mail to answer questions
and solve problems relating to the Company's products. Technical support
personnel are not only trained with respect to the Company's products, but also
experienced with storage management and network operating system software.
Products with problems not resolved via telephone support may be returned to the
Company for repair or replacement during the warranty period. For a nominal fee,
customers may choose to receive a "hot swap" exchange unit that will be shipped
via express mail within 24 hours.
Systems Engineering. The Company also maintains a staff of systems
engineers who provide both pre- and post-sales support to resellers and end
users. Systems engineers typically become involved in more complex
problem-solving situations involving interactions between the Company's
products, the storage management software, the network server hardware and the
network operating system. Systems engineers work with resellers and end users
both over the telephone and on-site.
On-Site Service. The Company contracts with third-party service providers
to offer on-site service for its products. A wide variety of programs is
available, up to and including 24-hour-a-day, seven-day-a-week on-site service.
Training. The Company offers a comprehensive training program to resellers
and end users. Training classes are conducted at the Company's headquarters and
on-site at reseller and end-user locations worldwide.
Warranty. For Company products, parts and labor are generally covered by a
two-year warranty. With respect to tape drives and related media used in the
Company's products but manufactured by a
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<PAGE> 29
third party, the Company passes on to the customer the manufacturer's warranty
on such tape drives and related media provided by the manufacturer. See "Risk
Factors -- Warranty Exposure."
RESEARCH AND DEVELOPMENT
The Company's research and development team has developed six product
generations of automated tape library products. The Company's research and
development efforts rely on the integration of multiple engineering disciplines
to generate products that competitively meet market needs in a timely fashion.
Successful development of automated tape libraries requires the melding of
firmware design, electro-mechanical design, electronic design and engineering
packaging into a single, integrated product. Product success also relies on the
engineering team's thorough knowledge of each of the different tape drive
technologies and SCSI protocol. See "Risk Factors -- Technological Changes and
Dependence on New Product Development."
The Company's new product development is frequently stimulated by the
availability of an enhanced or new tape drive technology. As they compete in the
marketplace, tape drive manufacturers continually invest in research and
development to gain performance leadership either by offering increasingly
enhanced versions of their current drive products or by introducing an entirely
new drive technology. The Company benefits from these industry developments by
utilizing these new tape drive technologies in its products. If a new drive is
an enhanced version of one already incorporated in one or more of the Company's
products, the Company's time and dollar investment to incorporate the new drive
can be quite small, with the focus being on verification testing. With new tape
drive technology introductions, the level of effort required to develop a
corresponding product depends somewhat on the form factors of the drive and
media. In cases where the form factors match a drive technology currently
supported, the time and investment required can again be quite low. When the
form factors differ, the time and investment requirements can grow
substantially, and may require development of a new product altogether. Given
the importance of relationships with tape drive manufacturers to the Company's
success, the Company strives to, and believes it does, maintain close
relationships on both a management and a technical level with several tape drive
manufacturers. These relationships at times provide early warning of new tape
drive technologies and assist the Company in reducing the time-to-market for new
product development.
The Company also identifies and defines new products based on the more
traditional identification of a market need which the Company believes it can
successfully fill. The Company's sales, marketing, product development and
engineering organizations all contribute to this identification process. With
these product development efforts, time and investment requirements tend to be
significant, in terms of both engineering and tooling for manufacturing.
However, the Company has found that it has been able to leverage its previous
engineering investments into new products. For example, the firmware, or
operating system, of the fifth-generation Scalar library product is based on
successive generations of the operating system developed for the Company's first
library. Similarly, the Company's engineers have been able to leverage its
electro-mechanical and electronic hardware designs from previous products into
next-generation designs. In some cases, entire subassemblies are transferable,
leveraging not only engineering time but also tooling investments, materials
purchasing, inventory stocking and manufacturing.
The Company's research and development expenses were $1.0 million, $1.1
million and $1.5 million in fiscal 1994, 1995 and 1996, respectively, and
$632,000 for the three months ended January 31, 1997. The Company anticipates
making comparable or increased investments in research and development efforts
in the future.
MANUFACTURING
The Company's manufacturing processes, which are ISO 9001 certified, entail
manufacturing electro-mechanical robotic devices, integrating into them
third-party tape drives, and performing testing on the completed device. The
Company's manufacturing strategy is to perform product
28
<PAGE> 30
assembly, integration and testing, leaving component and piece part
manufacturing to its supplier partners. The Company works closely with a group
of regional, national and international suppliers to obtain quality parts and
components meeting its specifications. Though the Company's designs are
proprietary, the various components are available off the shelf or are
manufactured using standard, readily available techniques, limiting supplier
base risk and easing volume increases. Inventory planning and management is
coordinated closely with suppliers and customers to match the Company's
production to market demand. Product orders are confirmed and, in most cases,
shipped to the customer within one week. The Company fills orders as they are
received and therefore believes that its backlog levels are not indicative of
future sales.
COMPETITION
The market for network data storage peripherals in general, and automated
tape libraries in particular, is intensely competitive, fragmented and
characterized by rapidly changing technology and evolving standards. Competitors
vary in size and in the scope and breadth of the products they offer. As the
Company offers a broad range of automated tape library and complementary
products, it tends to have a large number of competitors which differ depending
on the particular product format and performance level. With respect to 4mm/DAT
products, the Company believes it competes with Hewlett-Packard, Seagate, Sony
and Spectra Logic. With respect to DLT products, the Company believes ATL
Products, Inc., Breece Hill, Overland Data, Qualstar, Quantum and StorageTek
comprise its competition. With respect to 8mm products, the Company believes its
competition is represented by Exabyte, Qualstar, Spectra Logic and StorageTek.
Since there are relatively low barriers to entry into the automated tape library
market, the Company anticipates increased competition from other sources,
ranging from emerging to established companies, including large system OEMs.
Many of the Company's competitors have substantially greater financial and other
resources, larger research and development staffs and more experience and
capabilities in manufacturing, marketing and distributing products than the
Company. The Company's competitors may develop new technologies and products
that are more effective than the Company's products. In addition, competitive
products may be manufactured and marketed more successfully than the Company's
products. Such developments could render the Company's products less competitive
or obsolete, and could have a material adverse effect on the Company's business,
financial condition and ability to market the Company's products as currently
contemplated. The Company believes the primary competitive factors in the market
for network data storage products are performance, reliability, breadth of
product line, distribution strength, product availability and price, as well as
customer issues, including technical and sales support. The Company believes
that it is currently well positioned in its markets along these multiple
dimensions and is focused on maintaining its competitive strengths. See "Risk
Factors -- Increasing Competition and Potentially Declining Prices."
PROPRIETARY RIGHTS
Although the Company relies predominantly on its full product line, strong
channel structure and nearly a decade of library development experience to
compete in its marketplace, it has or is pursuing patents on various design
elements of its automated tape library products. There can be no assurance,
however, that pending patent applications will ultimately issue as patents or,
if patents do issue, that the claims allowed will be sufficiently broad to
protect the Company's proprietary rights. In addition, there can be no assurance
that issued patents or pending applications will not be challenged or
circumvented by competitors, or that the rights granted thereunder will provide
competitive advantages to the Company.
The Company relies on a combination of patent and trademark laws, trade
secrecy, confidentiality procedures and contractual provisions to protect its
intellectual property rights. There can be no assurance that these procedures
will be successful, that the Company would have adequate remedies for any breach
or that the Company's trade secrets and know-how will not otherwise become known
to or independently developed by competitors. See "Risk Factors -- Proprietary
Technology."
29
<PAGE> 31
LEGAL PROCEEDINGS
The Company has no legal proceedings of a material nature underway.
EMPLOYEES (TEAM MEMBERS)
As of January 31, 1997, the Company had 154 full-time Team Members,
including 43 in sales and marketing, 22 in research and development, systems
engineering and technical support, 72 in manufacturing and operations, and 17 in
finance, general administration and management. None of the Company's Team
Members is covered by collective bargaining agreements, and management believes
its relationship with Team Members is good.
The Company's success depends in large part on its ability to attract and
retain key Team Members. Competition among network data storage peripheral
companies for highly skilled technical and management personnel is intense.
There can be no assurance that the Company will be successful in retaining its
existing Team Members, or in attracting additional qualified Team Members. See
"Risk Factors -- Dependence on Key Employees (Team Members)."
FACILITIES
The Company currently leases a 41,000-square-foot facility in Redmond,
Washington, under a lease which expires in 2005. This facility currently houses
the executive offices of the Company, as well as its marketing, sales, customer
support, research and development, systems engineering and manufacturing
organizations. The Company currently leases office space in the United States
and Canada for its seven regional sales offices and in London, England and
Paris, France for the sales, marketing and customer support organizations
serving Europe, the Middle East and Africa. The Company believes its existing
facilities are adequate to support its business needs for at least the next 12
months.
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<PAGE> 32
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages are set
forth in the following table.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- ---- -------------------------------------------------------------
<S> <C> <C>
Peter H. van Oppen....... 44 Chairman of the Board, President and Chief Executive Officer
Charles H. Stonecipher... 35 Senior Vice President and Chief Operating Officer
Michel R. Grosbost....... 50 President and General Manager, ADIC Europe
William C. Britts........ 37 Vice President, Sales and Marketing
Barry W. Brugman......... 51 Vice President, Operations and Finance
Leslie S. Rock........... 39 Treasurer and Chief Accounting Officer
Nathan H. Searle......... 49 Vice President, Engineering
Christopher T.
Bayley(1).............. 58 Director
Walter P. Kistler(2)..... 77 Director
Russell F. McNeill(2).... 85 Director
John W. Stanton(1)....... 41 Director
Walter F. Walker(1)(2)... 42 Director
</TABLE>
- ---------------
(1) Member of the Compensation and Stock Option Committee.
(2) Member of the Audit Committee.
The Board of Directors is divided into three classes. Each director serves
for a three-year term and one class is elected each year by the Company's
shareholders. Directors hold office until their terms expire and their
successors are elected and qualified. Executive officers of the Company are
appointed by, and serve at the direction of, the Board of Directors. There are
no family relationships between any of the directors or executive officers of
the Company.
Peter H. van Oppen. Mr. van Oppen has served as Chairman of the Board,
President and Chief Executive Officer of ADIC since its acquisition by
Interpoint in 1994. In 1996, he was elected to serve as a Director of ADIC for a
term expiring at ADIC's annual meeting of shareholders (the "Annual Meeting") in
1999. He has served as a Director of ADIC since 1986. He served as Chairman of
the Board of Directors of Interpoint from 1995 until its acquisition by Crane
Co. in October 1996. He also served as President and Chief Executive Officer of
Interpoint from 1989 until its acquisition by Crane Co. in October 1996, as
President and Chief Operating Officer of Interpoint from 1987 to 1989, and as
Executive Vice President for Finance and Operations of Interpoint from 1985 to
1987. Prior to 1985, Mr. van Oppen worked as a Consulting Manager at Price
Waterhouse LLP and at Bain & Company in Boston and London. He has additional
experience in medical electronics and venture capital. Mr. van Oppen also serves
as a Director of Seattle FilmWorks, Inc. He holds a B.A. from Whitman College
and an M.B.A. from Harvard Business School, where he was a Baker Scholar.
Charles H. Stonecipher. Mr. Stonecipher has served as Senior Vice
President and Chief Operating Officer of ADIC since 1995. Prior to this, he
served as Vice President, Finance and Administration and Chief Financial Officer
of Interpoint from 1994 to 1995. Prior to joining Interpoint, Mr. Stonecipher
worked as a Manager at Bain & Company in San Francisco from 1989 to 1994.
Previously, he worked as an engineer at The Boeing Company. He holds B.S. and
M.S. degrees in Mechanical Engineering from Stanford University, where he was
graduated Phi Beta Kappa, and an M.B.A. from Harvard Business School.
Michel R. Grosbost. Mr. Grosbost has served as President and General
Manager, ADIC Europe since 1994. From 1988 to 1994, Mr. Grosbost served in
various general management positions with Gigatape and GigaTrend Europe SARL,
predecessor to ADIC Europe. From 1985 to 1988, Mr. Grosbost
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<PAGE> 33
served as Vice President, International, with Intertechnique. He holds an
advanced degree in electrical engineering from the University of Grenoble,
France.
William C. Britts. Mr. Britts has served as Vice President, Sales and
Marketing of ADIC since 1995. He has also served as its Director of Marketing
since 1995. For seven years prior to joining ADIC, Mr. Britts served in a number
of marketing and sales positions with Raychem Corporation and its subsidiary,
Elo TouchSystems. He holds B.S. and M.S. degrees in Mechanical Engineering from
Virginia Polytechnic Institute and an M.B.A. from Harvard Business School.
Barry W. Brugman. Mr. Brugman has served as Vice President, Operations and
Finance of ADIC since 1994. He previously served as Vice President and General
Manager of the Custom Hybrids Division of Interpoint from 1993 to 1994, Vice
President of Operations of Interpoint from 1992 to 1993, and Vice President of
Marketing of the Custom Hybrids Division of Interpoint from 1989 to 1992. He
holds a B.S. in Electrical Engineering from U.C.L.A. and an M.B.A. from the
University of Washington, where he was valedictorian.
Leslie S. Rock. Ms. Rock has served as Treasurer and Chief Accounting
Officer of ADIC since January 1997. Ms. Rock served as Treasurer and Secretary
of Interpoint from 1994 until its acquisition by Crane Co. in October 1996 and
was a consultant to Crane Co. from October 1996 until January 1997. She served
as Interpoint's Vice President, Finance from 1989 to 1994, as its Chief
Financial Officer from 1987 to 1994, and as its Controller from 1986 to 1994.
Prior to 1986, she was an audit manager at KPMG Peat Marwick. She holds a B.A.
in Accounting from California State University, Fullerton, and is a certified
public accountant.
Nathan H. Searle. Mr. Searle has served as Vice President, Engineering of
ADIC since 1988. From 1986 to 1988, Mr. Searle served as Vice President of IQ
Technologies Inc. Mr. Searle co-founded Output Technology Corporation and served
as its Vice President, Engineering, from 1984 to 1985. He holds a B.S. in
Electrical Engineering from California Polytechnic University.
Christopher T. Bayley. Mr. Bayley has served as a Director of ADIC since
1996, and his current term expires at the Annual Meeting in 2000. He served as a
Director of Interpoint from 1987 until its acquisition by Crane Co. in October
1996. He has served as Chairman of Dylan Bay Companies since 1995 and of New
Pacific Partners (a Seattle and Hong Kong-based investment bank) since 1992. He
served as President and Chief Executive Officer of Glacier Park Company (real
estate development), and as Senior Vice President, Corporate Affairs of
Burlington Resources Inc. (oil and gas exploration and production company) from
1985 to 1992 and 1989 to 1992, respectively. He is also a Director of The
Commerce Bank, Lawyer Selection Advisors and a member of the Board of Trustees
of Scenic America, the International Music Festival of Seattle and the E. B.
Dunn Historic Garden Trust. He holds an A.B. in History from Harvard University
and a J.D. from Harvard Law School.
Walter P. Kistler. Mr. Kistler was elected in 1996 to serve as a Director
of ADIC for a term expiring at the Annual Meeting in 1998. He served as a
Director of ADIC for 11 years prior to its acquisition by Interpoint in 1994 and
as a Director of Interpoint from 1972 until its acquisition by Crane Co. in
October 1996. Mr. Kistler has served as Chairman of the Board of Kistler
Aerospace Corporation since 1993. Mr. Kistler has served as Chairman Emeritus of
the Interpoint Board of Directors since 1987, and as its Chairman from 1974 to
1987. Mr. Kistler also served as Chairman of Kistler-Morse Corporation
(electronic equipment manufacturer) from 1972 to 1995. He studied at the
University of Geneva and holds an M.S. in Physics from the Federal Institute of
Technology in Zurich, Switzerland.
Russell F. McNeill. Mr. McNeill has served as a Director of ADIC since
1996, and his current term expires at the Annual Meeting in 2000. He served as a
Director of Interpoint from 1977 until its acquisition by Crane Co. in October
1996. Mr. McNeill served as Secretary Emeritus of Interpoint from 1992 until its
acquisition by Crane Co. in October 1996 and as its Secretary from 1977 to 1992.
He is the former President of Old National Bank of Washington, and serves as
Trustee Emeritus for Whitman College. He holds a B.A. in Mathematics and Physics
from Whitman College.
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<PAGE> 34
John W. Stanton. Mr. Stanton was elected in 1996 to serve as a Director of
ADIC for a term expiring at the Annual Meeting in 1999. He also served as a
Director of ADIC for five years prior to its acquisition by Interpoint in 1994,
and as a Director of Interpoint from 1988 until its acquisition by Crane Co. in
October 1996. Mr. Stanton has served as Chairman of the Board and Chief
Executive Officer of Western Wireless Corporation and its predecessor companies
since 1992. Prior to this, he served as a Director of McCaw Cellular
Communications, Inc. from 1987 to 1994, serving as Vice Chairman from 1988 to
1991. Mr. Stanton also serves as a Director of SmarTone Inc., a Hong Kong
wireless communications company, and as a Trustee of Whitman College. He holds a
B.A. in Political Science from Whitman College and an M.B.A. from Harvard
Business School.
Walter F. Walker. Mr. Walker was elected in 1996 to serve as a Director of
ADIC for a term expiring at the Annual Meeting in 1998. He served as a Director
of Interpoint from 1995 until its acquisition by Crane Co. in October 1996. Mr.
Walker has served as President of the Seattle Supersonics National Basketball
Association basketball team (a subsidiary of Ackerley Communications, Inc.)
since 1994. Prior to this, he served as President, Walker Capital (a money
management firm) from March 1994 to September 1994 and as Vice President,
Goldman Sachs & Co. (an investment banking firm) from 1987 to 1994. Mr. Walker
also serves as a Director of Redhook Ale Brewery, Incorporated and Gargoyles
Inc. (eyeware manufacturer). He holds a B.A. in Psychology from the University
of Virginia and an M.B.A. from Stanford University.
33
<PAGE> 35
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
January 31, 1997 by (i) each person known by the Company to beneficially own
more than 5% of the Common Stock, (ii) each director of the Company, (iii) each
of the Company's Chief Executive Officer and the five other most highly
compensated executive officers of the Company for the fiscal year ended October
31, 1996, (iv) all directors and executive officers of the Company as a group,
and (v) the Selling Shareholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED
OFFERING(1) NUMBER OF AFTER OFFERING(1)(2)
--------------------- SHARES ---------------------
NAME AND ADDRESS NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- -------------------------------------------- --------- ------- ------------- --------- -------
<S> <C> <C> <C> <C> <C>
John W. Stanton(3).......................... 481,464 5.9% -- 481,464 5.0%
10201 Willows Road
Redmond, WA 98052
Walter P. Kistler(3)(4)..................... 328,900 4.0 25,000 303,900 3.1
Peter H. van Oppen(5)....................... 124,974 1.5 -- 124,974 1.3
Nathan H. Searle(6)......................... 54,300 * -- 54,300 *
Christopher T. Bayley(3)(7)................. 49,000 * -- 49,000 *
Barry W. Brugman(8)......................... 39,050 * -- 39,050 *
Michel R. Grosbost(9)....................... 25,000 * -- 25,000 *
Walter F. Walker(10)........................ 18,750 * -- 18,750 *
Charles H. Stonecipher(11).................. 9,000 * -- 9,000 *
Russell F. McNeill(12)...................... 8,800 * -- 8,800 *
William C. Britts(13)....................... 2,000 * -- 2,000 *
All directors and executive officers as a
group (12 persons)(14).................... 1,149,238 13.8 25,000 1,124,238 11.5
</TABLE>
- ---------------
* Represents holdings of less than 1%.
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of Common Stock subject to options that are currently exercisable or
exercisable within 60 days of January 31, 1997 are deemed to be outstanding
and to be beneficially owned by the person holding such options for the
purpose of computing the percentage
ownership of such person, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
(2) Assuming that the Underwriters' over-allotment option to purchase up to
228,750 shares from the Company is not exercised.
(3) Includes 13,000 shares subject to issuance upon exercise of options that
are currently exercisable or exercisable within 60 days of January 31,
1997.
(4) Includes 250,000 shares owned by Foundation for the Future (the "Selling
Shareholder"), of which Mr. Kistler is a trustee. Foundation for the Future
is selling 25,000 shares of the Common Stock offered hereby.
(5) Does not include 5,300 shares that are held in trust for Mr. van Oppen's
minor children or 3,000 shares that are held in a trust (of which Mr. van
Oppen is a trustee) for the benefit of certain minor relatives of Mr. van
Oppen, as to which he disclaims beneficial ownership. Includes 20,000
shares subject to issuance upon exercise of options that are currently
exercisable or exercisable within 60 days of January 31, 1997. Does not
include 120,000 shares subject to issuance upon exercise of options that
are not exercisable until more than 60 days after January 31, 1997.
(6) Includes 28,300 shares subject to issuance upon exercise of options that
are currently exercisable or exercisable within 60 days of January 31,
1997. Does not include 30,200 shares subject to issuance upon exercise of
options that are not exercisable until more than 60 days after January 31,
1997.
(7) Includes 4,000 shares owned by Mr. Bayley's spouse.
(8) Includes 22,600 shares subject to issuance upon exercise of options that
are currently exercisable or exercisable within 60 days of January 31,
1997. Does not include 25,000 shares subject to issuance upon exercise of
options that are not exercisable until more than 60 days after January 31,
1997.
(9) Includes 11,000 shares subject to issuance upon exercise of options that
are currently exercisable or exercisable within 60 days of January 31,
1997. Does not include 55,500 shares subject to issuance upon exercise of
options that are not exercisable until more than 60 days after January 31,
1997.
(10) Includes 3,750 shares subject to issuance upon exercise of options that are
currently exercisable or exercisable within 60 days of January 31, 1997.
Does not include 8,250 shares subject to issuance upon exercise of options
that are not exercisable until more than 60 days after January 31, 1997.
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<PAGE> 36
(11) Includes 7,000 shares subject to issuance upon exercise of options that are
currently exercisable or exercisable within 60 days of January 31, 1997.
Does not include 118,000 shares subject to issuance upon exercise of
options that are not exercisable until more than 60 days after January 31,
1997.
(12) Represents shares subject to issuance upon exercise of options that are
currently exercisable or exercisable within 60 days of January 31, 1997.
(13) Represents shares subject to issuance upon exercise of options that are
currently exercisable or exercisable within 60 days of January 31, 1997.
Does not include 35,000 shares subject to issuance upon exercise of options
that are not exercisable until more than 60 days after January 31, 1997.
(14) Includes 142,450 shares subject to issuance upon exercise of options and
250,000 shares owned by Foundation for the Future, of which Mr. Kistler is
a trustee. Does not include 5,300 shares that are held in trust for Mr. van
Oppen's minor children or 3,000 shares that are held in a trust (as to
which Mr. van Oppen is a trustee) for the benefit of certain minor
relatives of Mr. van Oppen, as to which he disclaims beneficial ownership.
35
<PAGE> 37
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their representatives, Hambrecht & Quist LLC
and Dain Bosworth Incorporated (collectively, the "Representatives"), have
severally agreed to purchase from the Company and the Selling Shareholder the
following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
-------------------------------------------------------- ---------
<S> <C>
Hambrecht & Quist LLC................................... 435,000
Dain Bosworth Incorporated.............................. 435,000
Alex. Brown & Sons Incorporated......................... 75,000
Montgomery Securities................................... 75,000
Oppenheimer & Co., Inc.................................. 75,000
PaineWebber Incorporated................................ 75,000
Smith Barney Inc........................................ 75,000
Adams, Harkness & Hill, Inc............................. 35,000
Jefferies & Company, Inc................................ 35,000
Needham & Company, Inc.................................. 35,000
Pennsylvania Merchant Group Ltd......................... 35,000
Piper Jaffray Inc....................................... 35,000
Ragen MacKenzie Incorporated............................ 35,000
SoundView Financial Group, Inc.......................... 35,000
Sutro & Co. Incorporated................................ 35,000
---------
Total................................................... 1,525,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent accountants. The nature of the Underwriters' obligations is such
that they are committed to purchase all shares of Common Stock offered hereby if
any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $0.54 per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $0.10 per share to certain other dealers. After the
public offering of the shares, the offering price and other selling terms may be
changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 228,750
additional shares of Common Stock at the public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the number of shares of Common Stock offered hereby. The
Company will be obligated, pursuant to the option, to sell such shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of this offering without notice. The Underwriters reserve the right
to reject any order for the purchase of shares in whole or in part.
36
<PAGE> 38
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"), and to contribute to
payments the Underwriters may be required to make in respect thereof.
The Company and certain shareholders of the Company, including the
Company's executive officers and directors, who will own in the aggregate
1,124,238 shares of Common Stock after this offering (including shares of Common
Stock issuable upon the exercise of certain outstanding options), have agreed
that they will not, without the prior written consent of Hambrecht & Quist LLC,
offer, sell or otherwise dispose of any shares of Common Stock or options to
acquire shares of Common Stock owned by them during the 90-day period following
the date of this Prospectus.
In general, the rules of the Securities and Exchange Commission (the
"Commission") will prohibit the Underwriters from making a market in the
Company's Common Stock during the "cooling-off" period immediately preceding the
commencement of sales in this offering. The Commission has, however, adopted
exemptions from these rules that permit passive market making under certain
conditions. These rules permit an Underwriter to continue to make a market
subject to the conditions, among others, that its bid not exceed the highest bid
by a market maker not connected with this offering and that its net purchases on
any one trading day not exceed prescribed limits. Pursuant to these exemptions,
certain Underwriters, selling group members (if any) or their respective
affiliates intend to engage in passive market making in the Common Stock during
the "cooling-off" period.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids or effecting syndicate covering
transactions. A stabilizing bid means the placing of any bid or effecting of any
purchase for the purpose of pegging, fixing or maintaining the price of the
Common Stock. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the offering. Such transactions may
be effected on the Nasdaq Stock Market, in the over-the-counter market or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Perkins Coie, Seattle, Washington. Certain legal matters relating to
this offering will be passed upon for the Underwriters by Fenwick & West LLP,
Palo Alto, California.
EXPERTS
The consolidated financial statements of the Company as of October 31, 1995
and 1996, and for each of the three years in the period ended October 31, 1996
included in this Prospectus have been so included in reliance upon the report of
Price Waterhouse LLP, independent accountants, given on authority of said firm
as experts in auditing and accounting.
37
<PAGE> 39
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Commission. Such reports, proxy and information statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission located at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such materials can be obtained upon written request from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a web site
(http:/www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants such as the Company which file
electronically with the Commission. The Company's Common Stock is traded on the
Nasdaq National Market.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits, the "Registration Statement")
under the Securities Act. This Prospectus does not contain all the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 0-21103)
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1996; and
2. The description of the Common Stock and the Company's preferred
stock purchase rights contained in the Company's Registration Statement on
Form 10, as amended, effective as of September 10, 1996, including any
amendment or report filed for the purpose of updating such description.
All other documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of this offering shall be deemed to be incorporated by
reference in this Prospectus and to be part hereof from the date of filing such
documents.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any or all of the documents which are incorporated herein by
reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Requests should be
directed to the Company, 10201 Willows Road, Redmond, Washington 98052,
Attention: Secretary, telephone: (206) 881-8004.
Any statement contained in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified shall not be deemed to
constitute a part of this Prospectus except as so modified, and any statement so
superseded shall not be deemed to constitute part of this Prospectus.
38
<PAGE> 40
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets as of October 31, 1995, October 31, 1996 and January 31,
1997 (unaudited).................................................................... F-3
Consolidated Statements of Operations for each of the three years ended October 31,
1996 and for the three-months ended January 31, 1996 and 1997 (unaudited)........... F-4
Consolidated Statements of Changes in Shareholders' Equity for each of the three years
ended October 31, 1996 and for the three-months ended January 31, 1997
(unaudited)......................................................................... F-5
Consolidated Statements of Cash Flows for each of the three years ended October 31,
1996 and for the three-months ended January 31, 1996 and 1997 (unaudited)........... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of
Advanced Digital Information Corporation
In our opinion, the consolidated financial statements listed in the index
to consolidated financial statements on page F-1 present fairly, in all material
respects, the financial position of Advanced Digital Information Corporation and
its subsidiary at October 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended October 31,
1996, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As described in Footnote 1, Advanced Digital Information Corporation was a
wholly owned subsidiary of Interpoint Corporation prior to October 15, 1996.
Price Waterhouse LLP
Seattle, Washington
November 27, 1996
F-2
<PAGE> 42
ADVANCED DIGITAL INFORMATION CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------- JANUARY 31,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 623,838 $10,436,783 $ 6,795,914
Accounts receivable, net of allowances of $53,000,
$187,000 and $210,000, respectively............ 5,816,171 12,789,415 15,084,623
Inventories, net.................................. 5,383,931 10,935,520 12,982,015
Prepaid expenses and other........................ 227,449 282,183 234,274
Deferred income taxes............................. 319,657 474,456 474,456
----------- ----------- -----------
Total current assets........................... 12,371,046 34,918,357 35,571,282
----------- ----------- -----------
Property, plant and equipment, at cost:
Machinery and equipment........................... 1,933,090 2,713,682 2,886,131
Office equipment.................................. 329,686 350,700 355,983
Leasehold improvements............................ 148,193 357,282 353,959
----------- ----------- -----------
2,410,969 3,421,664 3,596,073
Less: accumulated depreciation and amortization... (1,234,245) (1,855,457) (1,905,148)
----------- ----------- -----------
Net property, plant and equipment.............. 1,176,724 1,566,207 1,690,925
----------- ----------- -----------
Deferred income taxes............................... 46,009 10,370 10,370
----------- ----------- -----------
Other assets........................................ 349,251 214,739 219,102
----------- ----------- -----------
$13,943,030 $36,709,673 $37,491,679
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 3,937,194 $ 8,460,723 $ 6,576,105
Accrued liabilities............................... 980,725 1,608,132 1,484,133
Income taxes payable.............................. 204,024 253,716 326,375
----------- ----------- -----------
Total current liabilities...................... 5,121,943 10,322,571 8,386,613
----------- ----------- -----------
Loan from Interpoint................................ 5,434,309 -- --
----------- ----------- -----------
Commitments (Note 9)................................ -- -- --
Shareholders' equity:
Preferred stock, no par value; 2,000,000 shares
authorized; none issued and outstanding........ -- -- --
Common stock, no par value; 40,000,000 shares
authorized, 8,001,992 and 8,159,176 shares
issued and outstanding at October 31, 1996 and
January 31, 1997, respectively................. 701,752 20,329,806 21,555,340
Retained earnings................................. 2,551,707 5,981,906 7,642,444
Cumulative translation adjustment................. 133,319 75,390 (92,718)
----------- ----------- -----------
Total shareholders' equity..................... 3,386,778 26,387,102 29,105,066
----------- ----------- -----------
$13,943,030 $36,709,673 $37,491,679
=========== =========== ===========
</TABLE>
See the accompanying notes to these consolidated financial statements.
F-3
<PAGE> 43
ADVANCED DIGITAL INFORMATION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31, THREE MONTHS ENDED JANUARY 31,
------------------------------------------- ------------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales...................... $20,083,275 $31,716,372 $58,956,993 $10,606,380 $20,068,602
Cost of sales.................. 13,495,286 22,107,341 41,886,619 7,611,970 14,097,140
----------- ----------- ----------- ----------- -----------
Gross profit................. 6,587,989 9,609,031 17,070,374 2,994,410 5,971,462
----------- ----------- ----------- ----------- -----------
Operating expenses:
Selling and administrative... 5,000,139 8,001,290 9,846,324 2,149,530 3,047,461
Research and development..... 1,037,255 1,097,090 1,541,647 300,926 632,015
Acquisition expense.......... 590,000 -- -- -- --
----------- ----------- ----------- ----------- -----------
6,627,394 9,098,380 11,387,971 2,450,456 3,679,476
----------- ----------- ----------- ----------- -----------
Operating profit (loss)........ (39,405) 510,651 5,682,403 543,954 2,291,986
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income (expense).... (133,787) (277,451) (508,492) (128,789) 115,483
Foreign currency transaction
gains (losses)............ 31,568 (18,476) 113,821 18,032 138,231
----------- ----------- ----------- ----------- -----------
(102,219) (295,927) (394,671) (110,757) 253,714
----------- ----------- ----------- ----------- -----------
Income (loss) before provision
(benefit) for income taxes... (141,624) 214,724 5,287,732 433,197 2,545,700
----------- ----------- ----------- ----------- -----------
Provision (benefit) for income
taxes:
Current...................... (183,832) 176,422 1,981,631 141,381 885,162
Deferred..................... 84,491 (254,104) (124,098) -- --
----------- ----------- ----------- ----------- -----------
(99,341) (77,682) 1,857,533 141,381 885,162
----------- ----------- ----------- ----------- -----------
Net income (loss).............. $ (42,283) $ 292,406 $ 3,430,199 $ 291,816 $ 1,660,538
=========== =========== =========== =========== ===========
Pro forma average number of
common and common equivalent
shares outstanding
(unaudited).................. 8,010,000 8,274,000
=========== ===========
Pro forma net income per share
(unaudited).................. $ .04 $ .41
=========== ===========
Average number of common and
common equivalent shares
outstanding (unaudited)...... 8,350,000
===========
Net income per share
(unaudited).................. $ .20
===========
</TABLE>
See the accompanying notes to these consolidated financial statements.
F-4
<PAGE> 44
ADVANCED DIGITAL INFORMATION CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND THREE MONTHS ENDED JANUARY 31,
1997
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
------------------------ RETAINED TRANSLATION
SHARES AMOUNT EARNINGS ADJUSTMENT TOTAL
---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1993....... 2,436,900 $ 613,752 $2,194,399 $ 2,808,151
Net income October 31, 1993....... 107,185 107,185
Shares canceled in business
combination.................... (2,436,900)
Shares issued in business
combination.................... 1,000
Contribution of capital from
Interpoint..................... 88,000 88,000
Net loss.......................... (42,283) (42,283)
Foreign currency translation
adjustment..................... $ 66,391 66,391
---------- ----------- ---------- -------- -----------
Balance at October 31, 1994......... 1,000 701,752 2,259,301 66,391 3,027,444
Net income........................ 292,406 292,406
Foreign currency translation
adjustment..................... 66,928 66,928
---------- ----------- ---------- -------- -----------
Balance at October 31, 1995......... 1,000 701,752 2,551,707 133,319 3,386,778
Stock dividend to Interpoint...... 8,000,992
Contribution of capital from
Interpoint..................... 19,628,054 19,628,054
Net income........................ 3,430,199 3,430,199
Foreign currency translation
adjustment..................... (57,929) (57,929)
---------- ----------- ---------- -------- -----------
Balance at October 31, 1996......... 8,001,992 20,329,806 5,981,906 75,390 26,387,102
Exercise of stock options,
including tax benefit of
$891,000 (unaudited)........... 157,184 1,225,534 1,225,534
Net income (unaudited)............ 1,660,538 1,660,538
Foreign currency translation
adjustment (unaudited)......... (168,108) (168,108)
---------- ----------- ---------- -------- -----------
Balance at January 31, 1997
(unaudited)....................... 8,159,176 $21,555,340 $7,642,444 $(92,718) $29,105,066
========== =========== ========== ======== ===========
</TABLE>
See the accompanying notes to these consolidated financial statements.
F-5
<PAGE> 45
ADVANCED DIGITAL INFORMATION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED OCTOBER 31, JANUARY 31,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................... $ (42,283) $ 292,406 $ 3,430,199 $ 291,816 $ 1,660,538
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization......... 331,153 483,739 607,479 126,655 172,330
Deferred taxes........................ 84,491 (254,104) (124,098) -- --
Assets retired........................ (1,591) 2,156 -- -- --
Change in assets and liabilities:
Accounts receivable................... (1,731,167) (1,662,846) (6,999,440) 45,169 (2,370,560)
Inventories........................... (151,951) (2,563,452) (5,603,131) (1,300,583) (2,155,499)
Prepaid expenses and other............ 68,461 (39,788) (60,355) (48,587) 42,178
Income taxes receivable............... (161,344) 161,344 -- -- --
Other assets.......................... (15,958) (59,474) 24,221 (80,564) (20,132)
Accounts payable...................... 472,649 1,418,558 4,544,059 (233,682) (1,838,213)
Accrued liabilities................... (111,775) 122,416 649,061 69,299 (79,145)
Income taxes payable.................. (441,703) 204,024 49,692 154,732 78,411
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities..... (1,701,018) (1,895,021) (3,482,313) (975,745) (4,510,092)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and
equipment............................. (450,702) (756,935) (910,718) (269,302) (324,338)
Acquisition of ADIC Europe, net of cash
acquired.............................. (493,553) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities..... (944,255) (756,935) (910,718) (269,302) (324,338)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution from Interpoint,
net of loans forgiven................. -- -- 10,000,000 -- --
Repayments of long-term debt............ (778,999) -- -- -- --
Net increase in loans from Interpoint... 2,357,891 3,076,418 4,218,366 938,072 --
Proceeds from issuance of common stock
for stock options, including tax
benefit............................... -- -- -- -- 1,225,534
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities.............................. 1,578,892 3,076,418 14,218,366 938,072 1,225,534
----------- ----------- ----------- ----------- -----------
Effect of exchange rate changes on cash... 4,607 15,391 (12,390) (17,213) (31,973)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash........... (1,061,774) 439,853 9,812,945 (324,188) (3,640,869)
Cash and cash equivalents at beginning of
period.................................. 1,080,708 183,985 623,838 623,838 10,436,783
Adjustment to conform fiscal year of ADIC
(see Note 1)............................ 165,051 -- -- -- --
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period.................................. $ 183,985 $ 623,838 $10,436,783 $ 299,650 $ 6,795,914
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (received) during the period
for:
Interest................................ $ 142,027 $ 277,451 $ 508,492 $ 128,789 $ (115,483)
Income taxes............................ $ 419,215 $ (147,746) $ 404,668 $ -- $ 177,440
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Loans from Interpoint Corporation, in the amount of $9,628,054, were forgiven in
October 1996, just prior to the spin-off.
See the accompanying notes to these consolidated financial statements.
F-6
<PAGE> 46
ADVANCED DIGITAL INFORMATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Advanced Digital Information Corporation ("ADIC" or the "Company"),
including its wholly owned subsidiary ADIC Europe SARL ("ADE"), designs,
manufactures and markets automated high performance data storage products used
to file or archive electronic data in conjunction with integrated computer
systems, including local area networks, workstations and other microcomputer
systems. The Company sells its products on an international basis to original
equipment manufacturers ("OEMs"), resellers and end users.
On February 11, 1994, the Company was acquired by Interpoint Corporation
("Interpoint") pursuant to an Agreement and Plan of Merger dated October 29,
1993, in which the Company was merged into a wholly owned subsidiary of
Interpoint. According to the terms of the merger agreement, each outstanding
share of common stock of ADIC was converted into .55 shares of Interpoint common
stock. A total of 1,340,255 shares of Interpoint common stock were issued to
ADIC shareholders. The acquisition was accounted for as a pooling-of-interests
in accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations."
In order to conform ADIC's previous year end of September 30 to
Interpoint's year end, ADIC's operations for the month of October 1993 were not
included in either fiscal year 1993 or fiscal year 1994. ADIC's net income from
October 1993 has increased retained earnings. Results of this month were as
follows:
<TABLE>
<S> <C>
Net sales........................................................ $1,826,744
Gross profit..................................................... 673,861
Income before provision for income taxes......................... 162,402
Net income....................................................... 107,185
</TABLE>
On October 15, 1996, Interpoint distributed to its shareholders all of the
outstanding shares of ADIC (the "Distribution"). The Distribution was made in
connection with, and was a condition precedent to, the merger (the "Merger") of
Interpoint with a wholly owned subsidiary of Crane Co., a Delaware corporation.
Prior to the Merger, Interpoint made a contribution to the working capital of
ADIC through the cancellation of all intercompany indebtedness of ADIC and ADE
to Interpoint, transferred certain other assets to ADIC, including its ownership
of ADE, and contributed additional cash to ADIC for working capital of $10
million. Total capital contributions were $19,628,054.
The consolidated financial statements for all periods prior to October 15,
1996 reflect the results of operations, financial position, and cash flows of
ADIC as a wholly-owned subsidiary of Interpoint and may not be indicative of
actual results of operations and financial position of the Company under other
ownership.
As further described in Note 12, on June 17, 1994, the Company completed
the purchase of the assets and liabilities of ADE, a manufacturer and integrator
of tape storage products for the computer network and workstation markets.
The consolidated statements of operations reflect certain expense items
incurred by Interpoint which were allocated to the Company on a basis which
management believes represents a reasonable allocation of such costs to present
ADIC as a stand-alone company. These allocations consist primarily of corporate
expenses such as executive and other compensation and interest expense on
intercompany borrowings. Compensation has been allocated based on an estimate of
Interpoint personnel time dedicated to the operations and management of ADIC.
Interest expense has been allocated based on
F-7
<PAGE> 47
ADVANCED DIGITAL INFORMATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interpoint's borrowing rate and actual intercompany borrowings. A summary of
these allocations is as follows:
<TABLE>
<CAPTION>
CORPORATE INTEREST
YEAR ENDED: EXPENSES EXPENSE
------------------------------------------------------- --------- --------
<S> <C> <C>
October 31, 1994....................................... $ 109,233 $ 77,915
======== ========
October 31, 1995....................................... $ 175,400 $279,279
======== ========
October 31, 1996....................................... $ 177,292 $528,524
======== ========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The financial statements consolidate the accounts of ADIC and its wholly
owned subsidiary ADE. All intercompany transactions have been eliminated.
Earnings per share
Given the Company's historical capital structure as a wholly owned
subsidiary of Interpoint, historical earnings per share amounts are not
presented in the consolidated financial statements for fiscal 1994, 1995 and
1996 and the three months ended January 31, 1996, as they are not considered to
be meaningful. For the three months ended January 31, 1997, primary earnings per
share is computed by dividing net income available to common shareholders by the
weighted average number of shares outstanding plus the common stock equivalents
attributable to dilutive stock options during the period. Fully diluted earnings
per share do not differ materially from primary earnings per share.
Unaudited pro forma earnings per share
In connection with the spin-off of ADIC by Interpoint as previously
described, Interpoint shareholders received one share of ADIC common stock for
each share of Interpoint stock held. Additionally, Interpoint stock options held
by ADIC Team Members and Directors were converted in part to cash and in part to
ADIC stock options.
Unaudited pro forma net income per share for the year ended October 31,
1996 is based on the number of shares of ADIC stock outstanding at October 31,
1996, plus the incremental shares outstanding, as calculated under the treasury
stock method, at the same date. At October 31, 1995, it is calculated based on
the number of shares of Interpoint stock outstanding at June 30, 1996, plus the
incremental shares outstanding, as calculated under the treasury stock method,
of the ADIC stock options outstanding as a result of the spin-off.
Cash and cash equivalents
The Company considers short-term investments with maturities from the date
of purchase of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
F-8
<PAGE> 48
ADVANCED DIGITAL INFORMATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, plant and equipment
Property, plant and equipment is recorded at cost. Depreciation and
amortization are computed on the straight-line method over the estimated useful
lives of the assets as follows: machinery and equipment and office equipment, 3
to 10 years; leasehold improvements, the life of the lease.
Income taxes
Provision for income taxes has been recorded in accordance with Statement
of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting for Income
Taxes." Under the liability method of FAS 109, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using enacted tax rates and
laws that will be in effect when the differences are expected to be recovered or
settled.
Commencing February 12, 1994 through October 15, 1996, the Company's
operations have been included in consolidated income tax returns filed by
Interpoint. Income taxes in the accompanying consolidated financial statements
have been computed assuming the Company filed separate income tax returns
worldwide. Deferred taxes result primarily from the use of accelerated
depreciation for tax purposes and from the timing of tax deductions for
allowances and accrued expenses.
Foreign currency translations
The financial statements of ADE have been translated into U.S. dollars in
accordance with FASB Statement No. 52 "Foreign Currency Translation." Under the
provisions of this Statement, all assets and liabilities in the balance sheets
of ADE, whose functional currency is the French franc, are translated at
year-end exchange rates, and translation gains and losses are accumulated in a
separate component of shareholders' equity.
Foreign currency transaction gains and losses are a result of the effect of
exchange rate changes on transactions denominated in currencies other than the
functional currency, including U.S. dollars. Gains and losses on those foreign
currency transactions are included in determining net income or loss for the
period in which exchange rates change. The effect of exchange rate fluctuations
on the results of operations is minimized by the offsetting nature of ADE
foreign currency transactions.
Concentration of credit risk
The Company sells products to a wide variety of industries on a worldwide
basis. In countries or industries where the Company is exposed to material
credit risk, sufficient collateral, including cash deposits and/or letters of
credit, is required prior to the completion of a transaction. The Company does
not believe there is a material credit risk beyond that provided in the
consolidated financial statements in the ordinary course of business.
The Company sells a significant portion of its products through third-party
resellers and, as a result, experiences individually significant annual sales
volumes with major distributors.
F-9
<PAGE> 49
ADVANCED DIGITAL INFORMATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues from major customers approximate the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED OCTOBER 31, JANUARY 31,
----------------------------------------- ---------------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Customer A.................. $3,791,000 $5,151,000 $12,610,000 $ 1,682,000 $ 3,139,000
Customer B.................. 2,563,000 4,329,000 13,315,000 1,923,000 4,608,000
% OF REVENUES
Customer A.................. 19% 17% 21% 16% 16%
Customer B.................. 13% 14% 23% 18% 23%
</TABLE>
Revenue recognition
Revenue from product sales is recorded by the Company when products are
shipped to customers. Certain distributors have the right, on a quarterly basis,
to return products according to a stock rotation policy. Typically, the value of
the products returned cannot exceed 15% of the previous quarter's purchases, the
returns must be accompanied by offsetting orders of commensurate value, and the
products returned must be new and in sealed cartons. The Company accrues a
provision for the estimated sales returns, allowances and discounts in the
period the products are shipped to customers.
Warranty
For standard Company products parts and labor are covered under warranty
for two years. With respect to drives and tapes used in the Company's products
but manufactured by a third party, the Company passes on to the customer the
warranty on such drives and tapes provided by the manufacturer.
Research and development costs
Research and development costs are expensed as incurred.
Stock-based compensation
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation," which is effective for
fiscal years beginning after December 15, 1995. Under the provisions of this
Statement, stock-based compensation expense is measured using either the
intrinsic-value method as prescribed by Accounting Principles Board Opinion No.
25 or the fair value method described in Statement No. 123. Companies choosing
the intrinsic-value method will be required to disclose the pro forma impact of
the fair value method on net income and earnings per share. The Company plans to
implement the Statement in fiscal 1997 using the intrinsic-value method;
accordingly, there will be no effect of adopting the Statement on the Company's
financial position and results of operations.
Interim results
In the opinion of management, the interim consolidated financial statements
and related data included herein present fairly the consolidated balance sheet,
consolidated statements of operations, changes in shareholders' equity, and of
cash flows as of and for the periods presented, and reflect all normal recurring
adjustments which, in the opinion of management, are necessary for the fair
presentation of the results for the interim periods. The interim results of
operations are not necessarily indicative of results to be expected for a full
year. The consolidated balance sheet at January 31, 1997 is
F-10
<PAGE> 50
ADVANCED DIGITAL INFORMATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
unaudited as are the consolidated statements of operations and of cash flows for
the three-month periods ended January 31, 1996 and 1997 and the consolidated
statement of changes in shareholders' equity for the three months ended January
31, 1997.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Estimates that are particularly susceptible to significant change in the
near term are the adequacy of the allowances for sales returns and warranty
costs.
3. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31, JANUARY 31,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Finished goods............................... $ 2,887,267 $ 4,688,604 $ 5,637,898
Work-in-process.............................. 885,397 1,503,691 2,321,514
Raw materials................................ 1,883,020 5,602,312 6,071,681
---------- ----------- ----------
5,655,684 11,794,607 14,031,093
Allowance for inventory obsolescence......... (271,753) (859,087) (1,049,078)
---------- ----------- ----------
$ 5,383,931 $10,935,520 $12,982,015
========== =========== ==========
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31, JANUARY 31,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll and related liabilities...... $ 631,420 $ 1,057,472 $ 817,802
Allowance for warranty returns............... 74,454 354,557 339,324
Other........................................ 274,851 196,103 327,007
---------- -------- ----------
$ 980,725 $ 1,608,132 $ 1,484,133
========== ======== ==========
</TABLE>
5. CREDIT AGREEMENT
ADIC has a $10 million unsecured line of credit with a bank expiring
October 31, 1998. All of this line was available at October 31, 1996 and January
31, 1997. Borrowings against the line of credit will bear interest at the bank's
prime rate or adjusted LIBOR rate.
6. CAPITAL STOCK AND STOCK OPTIONS
At October 31, 1996, the Company had two stock option plans. The 1996
Transition Plan comprises the stock options held by ADIC Team Members and
Directors which were converted in connection with the spin-off. There are
476,092 options issued under this plan at exercise prices ranging from $.4397 to
$5.2328. Some of these options were granted by ADIC prior to its acquisition in
February
F-11
<PAGE> 51
ADVANCED DIGITAL INFORMATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1994 and were converted to options to purchase shares of Interpoint common stock
at that time. No further options may be issued under this plan.
In addition, 625,000 shares are reserved under the Company's Stock Option
Plan for Team Members, directors, officers, consultants, agents, advisors and
independent contractors of the Company. Terms of both plans require the option
price to be equal to the fair market value on the date of grant. Options may be
exercisable for all or part of the shares as determined by the option and the
majority of the options issued under these plans expire five years from the date
of grant.
<TABLE>
<CAPTION>
OUTSTANDING
OPTIONS PRICE
----------- --------------
<S> <C> <C>
Balance at October 31, 1995............................. -- $ --
Options converted in spin-off from Interpoint......... 476,092 .4397-5.2328
Options granted....................................... 368,500 10.75-13.25
------- ------------
Balance at October 31, 1996............................. 844,592 .4397-13.25
Options exercised (unaudited)......................... (157,184) 1.1011-3.8696
Options granted (unaudited)........................... 4,000 11.00-13.50
------- ------------
Balance at January 31, 1997 (unaudited)................. 691,408 $ .4397-13.50
=======
</TABLE>
In July 1996, the Board of Directors adopted a Shareholder Rights Plan (the
"Rights Plan") in which preferred stock purchase rights were distributed as a
dividend at the rate of one right for each share of ADIC common stock. The
Rights Plan is designed to deter coercive takeover tactics and ensure that the
Board of Directors can adequately protect the interests of the shareholders in
the event of a takeover attempt.
7. FEDERAL INCOME TAXES
Income (loss) before provision (benefit) for income taxes was taxed under
the following jurisdictions:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-------------------------------------
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Current income tax:
U.S. Federal................................. $(188,832) $ 166,422 $ 1,881,631
State and local.............................. 5,000 10,000 100,000
-------- ---------- ------------
Total current................................ (183,832) 176,422 1,981,631
-------- ---------- ------------
Deferred income tax:
U.S. Federal................................. 16,908 (97,456) (267,260)
Foreign...................................... 67,583 (156,648) 143,162
-------- ---------- ------------
Total deferred............................... 84,491 (254,104) (124,098)
-------- ---------- ------------
Total provision (benefit) for income taxes..... $ (99,341) $ (77,682) $ 1,857,533
======== ========== ============
</TABLE>
F-12
<PAGE> 52
ADVANCED DIGITAL INFORMATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income tax differs from the amount computed by
applying the statutory federal income tax rate to income (loss) before provision
(benefit) for income taxes for the following reasons:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------------
1994 1995 1996
-------- --------- -----------
<S> <C> <C> <C>
Federal income tax at statutory rate of 34%..... $(48,152) $ 73,006 $ 1,797,829
Utilization of net operating loss
carryforward/removal of valuation allowance... (61,373) (139,326) --
Tax credits..................................... (21,255) (44,874) (1,000)
Nondeductible acquisition expenses.............. 20,740 -- --
Activity of foreign subsidiaries................ -- 17,848 (35,344)
State income taxes.............................. 5,000 10,000 100,000
Other........................................... 5,699 5,664 (3,952)
-------- ---------- ------------
$(99,341) $ (77,682) $ 1,857,533
======== ========== ============
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at October 31, 1995 and 1996
are:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31,
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Inventory reserves......................................... $ 188,326 $ 297,951
Team Member benefits, primarily compensated absences....... 34,217 25,081
Warranty reserves.......................................... 20,400 67,671
Net operating loss carryforwards........................... 97,114 --
Plant and equipment, excess of book depreciation over tax
depreciation............................................ -- 10,370
Other...................................................... 30,586 83,753
-------- --------
Gross deferred tax assets.......................... 370,643 484,826
-------- --------
Deferred tax liabilities:
Plant and equipment, excess of tax depreciation over book
depreciation............................................ 4,977 --
-------- --------
Gross deferred tax liabilities..................... 4,977 --
-------- --------
Net deferred tax asset............................. $ 365,666 $ 484,826
======== ========
</TABLE>
Deferred U.S. income taxes are not provided for the earnings of the
Company's foreign subsidiary because the Company expects those earnings will be
permanently reinvested. Net pretax operating results from the foreign subsidiary
are income of $379,000 and $407,000 for fiscal 1994 and 1996, respectively, and
losses of $51,000 for 1995.
8. PROFIT INCENTIVE AND BONUS PLANS
In fiscal 1995 and 1996, the Company's Team Members participated in
Interpoint's noncontributory profit incentive plan for key Team Members and a
noncontributory profit-sharing plan for all regular full-time domestic Team
Members. These plans are generally based upon pretax profits.
The profit incentive plan allows the Board of Directors to provide between
5% and 35% of participating Team Members' salaries, after a set minimum
profitability is achieved, for distribution to
F-13
<PAGE> 53
ADVANCED DIGITAL INFORMATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the plan's participants. The profit sharing plan provides that 15% of pretax
profits will be contributed to the plan, up to a maximum of one month's pay.
Prior to 1995, ADIC Team Members had a separate plan based on certain ADIC
financial performance criteria. Profit incentive and profit sharing expenses
related to ADIC team members have been reflected in these consolidated financial
statements. Contributions to the plans were $123,000 and $433,000 for the years
ended October 31, 1995 and 1996. There were no contributions during the year
ended October 31, 1994. Contributions for three months ended January 1996 and
1997 (unaudited) were $103,000 and $190,000, respectively.
9. COMMITMENTS
The Company leases production and operating facilities in Redmond,
Washington. Sales offices are leased at various sites in the United States and
Europe.
Minimum annual rental commitments at October 31, 1996, for noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER 31, AMOUNT
------------------------------------------------------------------ --------
<S> <C>
1997........................................................ $460,000
1998........................................................ $464,000
1999........................................................ $411,000
2000........................................................ $432,000
2001........................................................ $465,000
</TABLE>
Rent expense aggregated $258,000 in fiscal 1994, $253,000 in fiscal 1995
and $400,000 in fiscal 1996. Rent expense for the three months ended January 31,
1996 and 1997 (unaudited) aggregated $76,000 and $116,000, respectively.
10. RELATED PARTY TRANSACTIONS
The Company leases its facility located in Redmond, Washington from K-M
Properties, a general partnership of which Walter P. Kistler, a director, is a
partner. The lease began in September 1995. Rent payments for fiscal 1995 and
1996 were $49,647 and $300,862, respectively, and for the three months ended
January 31, 1996 and 1997 were $69,840 and $88,791 (unaudited), respectively.
11. GEOGRAPHIC SEGMENT INFORMATION
Major operations outside the United States are comprised of a subsidiary in
France. Certain information regarding operations in this geographic segment is
presented in the table below. Transfers between geographic segments are made at
arm's-length prices consistent with rules and regulations of governing tax
authorities. The profit on these transfers is not recognized until sales are
made to non-affiliated customers.
Excluded from U.S. net sales are transfers from the U.S. to ADE of
$376,000, $2,925,000 and $6,404,000 in 1994, 1995 and 1996, respectively.
Included in U.S. sales are export sales to unaffiliated customers of $2,006,000,
$2,495,000 and $4,666,000 in 1994, 1995 and 1996, respectively.
F-14
<PAGE> 54
ADVANCED DIGITAL INFORMATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total international sales were $5,508,000, $14,930,000 and $21,216,000 in
fiscal 1994, 1995 and 1996, respectively.
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31, OCTOBER 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
United States................................. $16,581,272 $19,281,763 $42,406,762
Europe........................................ 3,502,003 12,434,609 16,550,231
----------- ----------- -----------
$20,083,275 $31,716,372 $58,956,993
=========== =========== ===========
Operating profit (loss):
United States................................. $ (428,280) $ 432,601 $ 5,209,722
Europe........................................ 388,875 78,050 472,681
----------- ----------- -----------
$ (39,405) $ 510,651 $ 5,682,403
=========== =========== ===========
Identifiable assets:
United States................................. $ 5,726,646 $ 8,930,769 $31,797,515
Europe........................................ 2,983,200 5,012,261 4,912,158
----------- ----------- -----------
$ 8,709,846 $13,943,030 $36,709,673
=========== =========== ===========
</TABLE>
12. ACQUISITION OF ADIC EUROPE SARL
On June 17, 1994, the Company completed the acquisition of substantially
all of the assets and the liabilities of ADE, formerly known as GigaTrend Europe
SARL, a manufacturer and integrator of tape storage products for the computer
network and workstation markets. The acquisition was accounted for by the
purchase method of accounting in accordance with Accounting Principles Board
Opinion No. 16, "Business Combinations" and, accordingly, the operating results
from ADE product sales have been included in the Company's consolidated
operating results since the date of acquisition. The purchase price of the
acquisition was $628,000 and was comprised of cash and the Company's product
totaling $540,000, plus stock of $88,000. The purchase price was funded through
a capital contribution and intercompany debt from Interpoint. The fair value of
the net assets acquired approximated the purchase price and, accordingly, no
goodwill was recorded. The fair value of assets acquired, net of cash, was
$1,826,000, and liabilities assumed were $1,244,000.
Net sales and operating income relating to ADE products for the period from
June 17, 1994 through October 31, 1994 (post-acquisition) amounted to $3,502,003
and $311,700, respectively.
The following summary (unaudited), prepared on a pro forma basis, combines
the consolidated results of operations for the year ended October 31, 1994 as if
ADE had been acquired at November 1, 1993, after including the impact of certain
adjustments.
<TABLE>
<S> <C>
Net sales..................................................... $22,833,000
Net loss...................................................... $ (435,000)
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire period
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from
consolidated operations.
F-15
<PAGE> 55
(This Page Intentionally Left Blank)
<PAGE> 56
Inside Back Cover
Graphic entitled "A Broad Range of Backup Solutions" displaying in bar graph
format the data storage capacity of three categories of the Company's products.
<PAGE> 57
============================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE SELLING SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD
BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 11
Price Range of Common Stock........... 11
Dividend Policy....................... 11
Capitalization........................ 12
Selected Financial Data............... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 20
Management............................ 31
Principal and Selling Shareholders.... 34
Underwriting.......................... 36
Legal Matters......................... 37
Experts............................... 37
Available Information................. 38
Incorporation of Certain Documents by
Reference........................... 38
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
============================================================
============================================================
1,525,000 SHARES
LOGO
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
HAMBRECHT & QUIST
DAIN BOSWORTH
INCORPORATED
MARCH 12, 1997
============================================================
