Back to GetFilings.com

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Or

Commission file number 0-21103

ADVANCED DIGITAL INFORMATION CORPORATION

11431 Willows Road N.E.
P.O. Box 97057
Redmond, Washington 98073-9757

(425) 881-8004

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Yes x No 

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)

     Yes x No 

     The total shares of common stock without par value outstanding at the end of the quarter reported is 62,801,220.

Table of Contents

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

Advanced Digital Information Corporation
Consolidated Balance Sheets
(In thousands, except for share data)

See the accompanying notes to these consolidated financial statements.

1

Table of Contents

Advanced Digital Information Corporation

Consolidated Statements of Operations

(In thousands, except for per share data)

See the accompanying notes to these consolidated financial statements.

2

Table of Contents

Advanced Digital Information Corporation
Consolidated Statements of Cash Flows
(In thousands)

See the accompanying notes to these consolidated financial statements.

3

Table of Contents

Advanced Digital Information Corporation

Consolidated Statements of Changes in Shareholders’ Equity

Nine months ended July 31, 2003

(In thousands)

See the accompanying notes to these consolidated financial statements.

4

Table of Contents

Advanced Digital Information Corporation

Notes to Interim Consolidated Financial Statements

July 31, 2003

Note 1. Basis of presentation

     The accompanying consolidated financial statements are unaudited and include the accounts of the Company and its subsidiaries. All significant intercompany transactions, balances and profits have been eliminated in consolidation. Certain prior period balances have been adjusted or reclassified to conform to current period presentation. These reclassifications have no effect on net income (loss), shareholders’ equity or cash flows as previously presented.

     The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended October 31, 2002. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. In our opinion all normal recurring adjustments which are necessary for the fair presentation of the results for the interim periods are reflected herein. Operating results for the three and nine month periods ended July 31, 2003 are not necessarily indicative of results to be expected for a full year.

Note 2. Stock-based compensation plans

     Stock-based compensation plans are accounted for using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. No stock-based compensation cost is reflected in net income (loss), as all stock options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Had compensation cost for the plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” our net income (loss) and basic and diluted net income (loss) per share would have been reduced to the pro forma amounts indicated below:

5

Table of Contents

Advanced Digital Information Corporation

Notes to Interim Consolidated Financial Statements (Continued)

July 31, 2003

     The options granted during the nine months ended July 31, 2002 and 2003 expire after five and ten years, respectively. The value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions for options granted during the periods presented:

6

Table of Contents

Advanced Digital Information Corporation

Notes to Interim Consolidated Financial Statements (Continued)

July 31, 2003

Note 3. Earnings per share

     The following table sets forth the computation of basic and diluted net income (loss) per share for the three and nine months ended July 31, 2002 and 2003:

Note 4. Inventories

     Inventories are comprised of the following:

7

Table of Contents

Advanced Digital Information Corporation

Notes to Interim Consolidated Financial Statements (Continued)

July 31, 2003

Note 5. Investments in marketable securities and other investments

     At July 31, 2003, the cost basis of the marketable securities we held was $24,120,000 and the fair value was $24,125,000. The difference between the cost basis and fair value of $5,000, net of taxes of $2,000 is recorded as an unrealized investment gain. At July 31, 2003, the fair value of marketable securities comprised equity securities of $138,000 and debt securities of $23,987,000. The equity securities consist of stock in a U.S. company that operates in an area within our strategic focus. The debt securities consist of investment-grade government and commercial securities purchased in accordance with our cash management policy to generate a higher yield than cash equivalents. Consistent with our investment policy, investment maturities do not exceed 24 months at the date of purchase. The objectives of our cash management policy are safety and preservation of funds, liquidity sufficient to meet cash flow requirements and attainment of a market rate of return. During the three months ended July 31, 2003, we sold a portion of our marketable securities and realized gains of $818,000. No marketable securities were sold during the three months ended July 31, 2002. During the nine month periods ended July 31, 2002 and 2003, sales of marketable securities resulted in gains of $3,657,000 and $1,455,000, respectively.

     From time to time, we make other strategic investments that are accounted for under the cost method. In November 2002, one of these investments was converted to cash and marketable equity securities with a combined value of $8,351,000, and we recorded a gain on securities transactions of $651,000. In December 2002 and May 2003, we received additional shares of marketable equity securities under an earnout provision and recorded additional gains on securities transactions of $124,000 and $158,000, respectively.

     During the nine month period ended July 31, 2002 we received cash of $287,000 related to the sale of derivative financial instruments on certain marketable equity securities held by us. We recognized a gain on securities transactions of $38,000 and $4,560,000, respectively, during the three and nine month periods ended July 31, 2002 to reflect the change in the fair value of the related liability during the period plus the cash received on sales of derivatives during the period.

Note 6. Intangible and other assets

     On November 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” which requires us to discontinue amortization of goodwill. As required by SFAS 142, intangible assets that do not meet the criteria for recognition apart from goodwill must be reclassified. In applying these criteria, we transferred net assembled workforce from intangible assets to goodwill in the first quarter of fiscal 2003. During the first quarter, we completed the assessment for impairment of goodwill required upon implementation of SFAS 142 and concluded that goodwill was not impaired. We are required to perform goodwill impairment tests on an annual basis or when indicators of impairment exist. We performed our annual goodwill impairment test in the third quarter of fiscal 2003 and concluded that goodwill was not impaired. There can be no assurance that future goodwill impairment tests will not result in a charge to earnings.

8

Table of Contents

Advanced Digital Information Corporation

Notes to Interim Consolidated Financial Statements (Continued)

July 31, 2003

     The following table presents net income (loss) and net income (loss) per share for the three and nine months ended July 31, 2002 and 2003 on a pro forma basis as if SFAS 142 had been adopted on November 1, 2001:

     Intangible and other assets consists of the following:

9

Table of Contents

Advanced Digital Information Corporation

Notes to Interim Consolidated Financial Statements (Continued)

July 31, 2003

     During the three and nine month periods ended July 31, 2003, we recorded intangible amortization expense of $141,000 and $477,000, respectively. During the comparable periods in fiscal 2002, intangible amortization expense was $331,000 and $984,000, respectively. Total expected future amortization related to intangible assets is provided in the following table:

Note 7. Guarantees

     In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of the guarantee. In addition, FIN 45 requires disclosures about the guarantees that a company has issued, including a rollforward of the company’s product warranty liabilities. We are required to apply the recognition provisions of FIN 45 prospectively to any guarantees issued after December 31, 2002. The disclosure provisions of FIN 45 were effective for us beginning in first quarter of fiscal 2003 and are included below. The provisions of FIN 45 have not had a significant impact on our financial position or results of operations.

     For our products, parts and labor are covered under warranty for periods between three months and three years. A provision for labor costs related to warranty expense is recorded when revenue is recognized. We hold service parts for maintenance that are used to service our warranties and extended service contracts. The cost of these parts is amortized over their estimated useful lives, which range from three to seven years. With respect to drives and tapes used in our products but manufactured by a third party, we provide to the customer a warranty on such drives and tapes that is substantially equivalent to the warranty provided by the manufacturer.

     Changes in our accrued warranty balance for the nine months ended July 31, 2003 are as follows:

10

Table of Contents

Advanced Digital Information Corporation

Notes to Interim Consolidated Financial Statements (Continued)

July 31, 2003

Note 8. Recent accounting pronouncements

     In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based compensation. It also amends the disclosure provisions of that statement. The disclosure provisions of this statement are effective for us beginning in the second quarter of fiscal 2003, and the required disclosures are included in Note 2. We do not currently have plans to change to the fair value method of accounting for our stock-based compensation, but we will reassess our plans during the fourth quarter of fiscal 2003 to determine whether we will change to the fair value method during fiscal 2004.