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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 7, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________ .
COMMISSION FILE NUMBER 0-23418
MTI TECHNOLOGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-3601802
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4905 EAST LA PALMA AVENUE
ANAHEIM, CALIFORNIA 92807
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 970-0300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE
(TITLE OF CLASS)
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant was $28,037,604 on May 16, 2001, based on
the closing sale price of such stock on The Nasdaq National Market. The number
of shares outstanding of Registrant's Common Stock, $0.001 par value, was
32,436,108 on May 16, 2001.
DOCUMENTS INCORPORATED BY REFERENCE:
DOCUMENT FORM 10-K
- -------- ---------
Proxy Statement for 2001 Annual Meeting of Stockholders to III
be held on July 11, 2001
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PART I
ITEM 1. BUSINESS:
INTRODUCTION
MTI Technology Corporation was incorporated in California in March 1981 and
reincorporated in Delaware in October 1992. Our principal executive offices are
located at 4905 East La Palma Avenue, Anaheim, California 92807. Our telephone
number at that location is (714) 970-0300. References in this Form 10-K to "we,"
"our," "us," the "Company" and "MTI" refer to MTI Technology Corporation and its
consolidated subsidiaries.
All references to years refer to our fiscal years ended April 5, 1997,
April 4, 1998, April 3, 1999, April 1, 2000, and April 7, 2001, as applicable,
unless the calendar year is specified. References to dollar amounts are in
thousands, except share and per share data amounts in Management's Discussion
and Analysis of Financial Condition and Results of Operations, unless otherwise
specified. The fiscal year ended April 7, 2001 consisted of 53 weeks. All other
fiscal years consisted of 52 weeks.
OVERVIEW
MTI Technology Corporation is a leading provider of high-availability,
fault-tolerant solutions for the enterprise-storage marketplace. We design,
develop, manufacture, sell and support a complete line of integrated products
and services that provide customers with a full range of hardware, software and
networking components as well as sophisticated professional services, which we
combine into one solution to provide continuous access to online information. We
have historically sold our products and services to Global 2000 companies for
their data center computing environments. During fiscal 2000, the Company's
markets expanded to include e-commerce and Internet Related Businesses (IRBs),
such as content providers, online retailers and web-based advertisers. However,
during fiscal 2001, because of the lack of liquidity and resulting higher risk
of success of the IRBs, the Company experienced a decrease in demand for its
proprietary products from IRBs. The Company elected to pursue sales from Fortune
1000 and Global 2000 customers.
Our solutions are compatible with Sun Solaris, HP-UX, Windows NT, Novell
Netware, IBM AIX, Compaq Tru64 and Linux operating systems, which enable us to
address a broad range of customer applications and markets.
Our customers represent a cross section of industries and governmental
agencies and range from Fortune 500 companies to small businesses. No single
customer accounted for more than 10 percent of total revenue during fiscal years
2001, 2000, and 1999.
OUR MARKET
In the last decade, there has been a dramatic increase in the volume of
data created, stored, processed and accessed throughout business organizations.
In addition, organizations have recognized the increasing value of their
enterprise data as strategic, competitive and often mission-critical assets.
These organizations are demanding rapid and reliable access to this data 24
hours a day, seven days a week. The continued deployment of mission-critical,
client-server applications, combined with the growth of enterprise data, and the
rapid growth in the number of e-commerce and other companies whose businesses
completely rely on such data, has placed significant strain on current storage
architectures. Furthermore, the increased use of open-system computing
environments, which link multiple applications, files, and databases to
networked computers, makes this task increasingly difficult.
OUR SOLUTION
Our enterprise storage solutions are designed to provide our customers with
continuous access to their mission-critical data, while enhancing performance of
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their applications and reducing their information-technology ("IT") staff's
management and support tasks. We provide these benefits to customers through the
delivery of advanced technology, extensive services, and broad support.
Key elements of our solution include:
- a single and unique storage architecture that integrates Storage Area
Network ("SAN") and Network Attached Storage ("NAS") technology and
allows customers to select the best access methodology for each data
set;
- proprietary software applications that enhance the access to, and
security of, an organization's mission-critical data;
- patented input/output ("I/O") architectures that can be tuned to
optimize the performance of a customer's applications and its ability
to access and interact with its data;
- an international support and service organization that assists
customers in determining their data storage needs, designing,
implementing and maintaining their system, and training customer
personnel; and
- our certification for complete interoperability among multiple
operating systems.
We refer to our complete integrated enterprise storage solutions as MTI Data
Services, which are delivered through our principal product line, Vivant.
The Vivant solution is based upon our proprietary Fibre Channel
data-storage servers for SANs and NAS connectivity. Vivant systems include the
necessary networking components to create sophisticated fabric-based
configurations; application software to enable backup, replication, management,
and high availability options; and a service and support offering designed to
ensure that our systems perform to the specifications to which they were
designed.
Our MTI Data Services solution offers our customers the following benefits:
- SANs and NAS combined into a single cost-effective solution;
- scalable network connectivity;
- the ability to tune our system for optimal performance with individual
applications;
- integrated back-up capacity appropriately sized to match online
storage requirements;
- integrated replication for local or remote disaster recovery; and
- centralized software that enables the management of multiple operating
systems from a single control station.
Our integration of technology, services and support into a single unique
storage architecture, is designed to reduce the complexity and cost of building
and managing discrete SANs and NAS systems. This combination also increases the
efficiency of data-storage usage by giving an IT manager the flexibility to
allocate storage across multiple platforms. Furthermore, our cross-platform
interoperability is designed to help to protect a customer's investment in the
event that it chooses to migrate to a new server platform.
OUR PRODUCTS
Our products include storage solutions consisting of RAID storage
subsystems, high-performance storage servers, and high-speed switches for
fibre-channel fabric connections; tape-library systems; and data-management
software.
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Storage Server Products
Our storage server products include our Vivant V-Series product line, which
is designed for use in enterprise-level data centers, and our Vivant S-Series
product line, which is designed for use in departments and divisions of larger
organizations. These products are used primarily with Sun Solaris, HP-UX,
Windows NT, Novell Netware and IBM AIX.
Tape Library Systems
Tape library systems provide a lower-cost, slower-access method of
recording and retrieving large amounts of data, in comparison to magnetic disk
systems. Tape libraries typically are used for recording a secondary backup copy
of the data, thus providing extra data protection. We market and sell tape
library systems that are used primarily with Sun Solaris, HP-UX, Windows NT,
Novell Netware and IBM AIX.
Data Management Software
We developed our data-management software to be employed for the direct
support and management of stored data and data-storage devices. In addition to
our own proprietary software, we market and sell Veritas products to create a
comprehensive, cross-platform approach for enterprise-wide solutions for network
data protection and storage management.
Revenue from server products represented approximately 61%, 74% and 57% of
net product revenue in fiscal years 2001, 2000 and 1999, respectively. Revenues
from tape-library systems represented approximately 32%, 20% and 34% of net
product revenue in fiscal years 2001, 2000 and 1999, respectively. Revenues from
data- management software represented approximately 7%, 6% and 9% of net product
revenue in fiscal years 2001, 2000 and 1999, respectively. See Note 10 of Notes
to Consolidated Financial Statements.
SIGNIFICANT BUSINESS DEVELOPMENTS
Effective February 9, 1996, we entered into an agreement (the "EMC
Agreement") with EMC Corporation ("EMC"), in which we sold to EMC substantially
all of our existing patents, patent applications and related rights. We were
entitled to receive $30,000 over the life of this agreement. The final payment
of $5,000 was received in January, 2001. In addition, we also were to receive
royalty payments in the aggregate of a minimum of $20,000 and up to a maximum of
$30,000 in five annual installments. As part of the maximum $30,000 in
royalties, minimum royalties of $10,000 were to be received in five annual
installments, beginning within thirty days of the first anniversary of the
effective date of the EMC Agreement, and within thirty days of each subsequent
anniversary thereof. As of March, 2001, the Company has received all
installments.
Also, pursuant to the terms of the EMC Agreement, $10,000 of the maximum
$30,000 of royalties will be received in five equal annual installments as a
result of a computer and technology agreement between EMC and IBM announced in
March, 1999. The first two annual installments were received in March, 2000 and
March, 2001.
We also received an irrevocable, non-cancelable, perpetual and royalty-free
license to exploit, market, and sell the technology protected under the
applicable patents. This license will terminate in the event of a change in
control of the Company involving certain acquirers. As part of the EMC
Agreement, MTI and EMC granted to each other a license to exploit, market and
sell the technology associated with each of their respective existing and future
patents arising from any patent applications in existence as of the effective
date of the EMC Agreement for a period of five years, which expired February,
2001. See Note 11 of Notes to Consolidated Financial Statements.
SALES AND MARKETING
In the United States, we primarily market and sell our products directly to
end users through our field sales organization and indirectly through selected
distributors. As of May 5, 2001, our domestic sales organization consisted of
103 people, located in 15 sales offices in 12 states. This sales organization
included a
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technical field support staff of approximately 19 systems consultants, who
provide consulting services and have experience in the management of complex
data and implementing distributed client-server systems. As of May 5, 2001, we
marketed our products internationally through our field sales organization of 42
people, with seven offices located in Germany, France, the United Kingdom and
Ireland, and indirectly through independent distributors. International sales
represented 36%, 28% and 33% of our total revenue in fiscal years 2001, 2000 and
1999, respectively. See Note 10 of Notes to Consolidated Financial Statements.
ORDER BACKLOG
We generally ship products within 30 days after receipt of a purchase
order. Historically, we have had relatively little backlog at any given time and
do not consider backlog to be a significant or important measure of sales for
any future period. As a result, our net product revenue in any given quarter is
dependent upon orders booked and products shipped during that quarter.
CUSTOMER SERVICE AND SUPPORT
The quality and reliability of our products and the continuing support of
these products are important elements of our business. As of May 5, 2001, we
provide direct service for all of our products through a service organization of
182 people, who are located in more than 20 service locations in the United
States and Europe. We currently offer a variety of customer services that
include system and software maintenance of MTI-manufactured products, as well as
other open-system platforms, consulting services, storage-management integration
and training. We offer on-site service response within four hours, 24 hours a
day, seven days per week. We provide our customers with a warranty against
defects in proprietary hardware products for one year. As of April 7, 2001,
approximately 74% of our customers who purchased our products have entered into
post-warranty maintenance contracts with us. Customer service revenue
represented approximately 31%, 22% and 22% of our total revenue in fiscal years
2001, 2000 and 1999, respectively.
PRODUCT DEVELOPMENT
The computer industry is characterized by rapid technological change and is
highly competitive with respect to product innovation and introduction. To
develop the many different technologies that support our product development
strategy, we have assembled several engineering teams with complementary
expertise, consisting of approximately 75 people as of May 7, 2001. During
fiscal years 2001, 2000 and 1999, our research and development spending was
approximately $19,100, $16,000 and $12,800, respectively.
We have two separate primary product development centers: one is located at
our corporate headquarters in Anaheim, California, a second, the RAID Technology
Center, is located in Sunnyvale, California.
MANUFACTURING
Our manufacturing operations are located in our Anaheim facility and in
another facility located in Dublin, Ireland. The Ireland facility manufactures
over 90% of certain high-end product lines sold by us in Europe. Manufacturing
operations consist primarily of final systems integration and reliability
testing and rely principally upon outside production companies for the
fabrication and assembly of circuit boards. These outside production companies
contract with us to produce and assemble products in accordance with our
specifications. This "turnkey" approach to product manufacturing reduces our
capital and employee requirements and allows us to adopt manufacturing
technologies as they emerge.
The principal components used in our products include networking
components, circuit boards, disk drives and chassis. We procure all of our
principal components from outside suppliers and have established manufacturing
relationships with a number of key vendors. We generally use parts and
components available from multiple vendors. However, for our Vivant product
line, we currently purchase disk drives solely from Seagate Technology, Inc.,
chip sets solely from QLogic Corporation, and RAID controllers for the Vivant
"S" series solely from Mylex Corporation. To date, we have been able to obtain
these components and we believe that adequate quantities
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are available for our needs. Disruptions in supply or significant increases in
component costs from these vendors would have an adverse effect on our results
from operations. See "Risk Factors -- We are dependent on limited source
suppliers for principal components used in our products, and disruptions in
supply or significant increases in component costs could materially harm our
business."
COMPETITION
The market for our products is extremely competitive. We have a number of
competitors in various markets, including EMC, Hewlett-Packard Company, Sun
Microsystems, Inc., IBM, Compaq Computer Corporation, and Network Appliance,
Inc., each of which has substantially greater name recognition, engineering,
manufacturing and marketing capabilities, and greater financial and personnel
resources than we have. We expect to experience increased competition from
established and emerging computer storage hardware and management software
companies, particularly Hewlett-Packard, Sun Microsystems, IBM, Compaq and EMC.
The principal elements of competition in our markets include rapid
introduction of new technology, product quality, reliability and performance,
quality of service and support, and responsiveness to customer and market needs.
We believe that we compete favorably with respect to these factors. However,
there can be no assurance that we will be able to compete successfully or that
competition will not have a materially-adverse effect on our results of
operations. See "Risk Factors -- The markets for our products are intensely
competitive which may lead to reduced sales of our products, reduced profits and
reduced market share for our business."
PROPRIETARY RIGHTS
We rely on a combination of patent, copyright, trademark and trade-secret
laws, employee and third-party non-disclosure agreements, and technical measures
to protect our proprietary rights in our products. Although we continue to take
appropriate measures to protect our proprietary rights, there can be no
assurance that these measures will be successful. Also, the laws of certain
foreign countries may not protect our intellectual property to the same extent
as the laws of the United States. See "Risk Factors -- Our intellectual property
is critical to our business and, if we are unable to protect our intellectual
property, the success of our business and our results of operations could be
materially harmed."
Pursuant to the February 9, 1996 EMC Agreement, we sold to EMC
substantially all of our then-existing patents, patent applications, and related
rights. We have an irrevocable, non-cancelable, perpetual and royalty-free
license to exploit, market and sell the technology protected under the patents
sold to EMC. The license we were granted pursuant to the terms and conditions of
that Agreement will terminate in the event of a change of control of the Company
involving certain identified acquirers. As part of the EMC Agreement, MTI and
EMC granted to each other the license to exploit, market and sell the technology
associated with each of their respective existing and future patents arising
from any patent applications in existence as of the effective date of the
agreement for a period of five years, expiring February 2001.
Although we often seek patents on our products, we believe that patents are
of less significance in our industry than other items as innovative skills and
technical expertise, frequency of product enhancements, and timeliness and
quality of the support services that we provide.
EMPLOYEES
As of May 5, 2001 we had 554 full-time employees worldwide, including 7 in
marketing, 144 in sales, 182 in service support, 80 in manufacturing and quality
assurance, 75 in engineering and research and development and 66 in general,
administration, and finance. None of our employees are represented by a labor
union, and we consider our relations with our employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY:
Our corporate offices, including marketing, sales and support,
manufacturing, research and development, and general administration and finance
functions, are
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located in Anaheim, California, in a leased facility consisting of approximately
131,000 square feet. These premises are occupied under a lease agreement that
expires on January 31, 2003. We also have a 21,700-square-foot facility located
in Sunnyvale under a lease agreement that expires on July 31, 2006. We have a
28,500-square-foot facility in Dublin, Ireland, in which we perform assembly and
testing on a limited number of products, for which the lease expires in 2023. In
addition, we have an 18,600 square foot facility in Westmont, Illinois, used for
sales and sales technical support, under a lease expiring on June 30, 2005. We
believe that our existing facilities are adequate for at least the next twelve
months.
We also lease approximately 24 sales and support offices located throughout
the U.S. and Europe.
ITEM 3. LEGAL PROCEEDINGS:
In July through September, 2000, several class action complaints were filed
against the Company and certain officers, alleging violations of the provisions
of the Securities Exchange Act of 1934 and the rules promulgated thereunder. The
plaintiffs in those various cases filed a Consolidated Amended Complaint in the
federal court for the Central District of California on or about December 5,
2000, making similar allegations. This consolidated complaint alleges a class
period from July 22, 1999 to July 27, 2000 and alleges that the defendants were
aware of certain adverse information that they failed to disclose during that
period. On March 27, 2001, the court granted the Company's motion to dismiss the
complaint on the grounds plaintiffs had failed to state a legally-cognizable
claim and had failed to plead the allegations consistently with the requirements
of the Private Securities Litigation Reform Act. The court gave plaintiffs sixty
days to attempt again to file a legally sustainable complaint. Plaintiffs filed
the First Amended Consolidated Complaint on or about May 25, 2001. The Company
believes the lawsuit is without merit and the Company intends to defend the suit
vigorously.
We are also, from time to time, subject to claims and suits arising in the
ordinary course of business. In our opinion, the ultimate resolution of these
matters will not have a materially-adverse effect on our financial position,
results of operations, or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matter was submitted to a vote of MTI's stockholders during the fourth
quarter of fiscal year 2001.
Executive Officers of the Registrant
The following table sets forth the names and ages of all executive officers
of the Registrant as of May 16, 2001. A summary of the background and experience
of each of these individuals is set forth below.
NAME AGE POSITION(S)
- ---- ---- ----------
Thomas P. Raimondi, Jr............ 44 Vice Chairman, President and Chief Executive Officer
Keith C. Clark.................... 48 Senior Vice President and General Manager Europe
Paul W. Emery, II................. 59 Chief Operating Officer
Marc Nussbaum..................... 45 Senior Vice President, Product Development and Chief
Technology Officer
Richard L. Ruskin................. 41 Executive Vice President
Venki Venkataraman................ 52 Senior Vice President, Operations & Services
Dale Wight........................ 49 Chief Financial Officer
Kenneth D. Simpson................ 48 Vice President, Information Technology and Chief
Information Officer
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Thomas P. Raimondi, Jr. was named President and Chief Executive Officer of
the Company in December 1999 and Vice Chairman of the Board of Directors in
April 2001. From July 1998 to December 1999, Mr. Raimondi was the Company's
Chief Operating Officer. Mr. Raimondi served as Senior Vice President and
General Manager from May 1996 until July 1998 and was Vice President, Strategic
Planning, Product Marketing, and Director of Marketing from 1987 until May 1996.
Mr. Raimondi also is a member of the Board of Directors of Caldera Systems, Inc.
Keith C. Clark was named our Senior Vice President and General Manager
Europe in April, 2000. Mr. Clark was our Vice President European Operations from
June, 1994 to April, 2000. Mr. Clark joined the Company in January, 1990 as
European Client Services Manager. Before joining MTI, Mr. Clark served in a
number of senior-management positions within Europe during a ten year period for
System Industries, Inc., a data-storage company in the DEC marketplace.
Paul W. Emery II was named our Chief Operating Officer in July, 2000.
Before joining MTI, from December, 1997 to July, 2000, Mr. Emery was a Chief
Financial Officer and Vice President of Sales and Field Operations of Digital
Generation Systems. He served as Chief Financial Officer and Vice President of
Finance and Marketing for Borland International, a software development and
distribution company, from July, 1996 to December, 1997, and as Chief Financial
Officer for Teradyne, a supplier for automatic test equipment for the
electronics and telecommunications industries.
Marc Nussbaum was named Senior Vice President of Product Development and
Chief Technology Officer in September, 2000. Mr. Nussbaum joined the Company as
a Vice President of Engineering in April, 2000. Before joining MTI, Mr. Nussbaum
served in several capacities for Western Digital Corporation, a semiconductor
and hard disk drive manufacturer, from April, 1981 to January, 1999. His most
recent position with Western Digital was Senior Vice President and Chief
Technical Officer for the advanced business development, technology, and quality
systems division.
Richard L. Ruskin was named Executive Vice President in July, 2000. Mr.
Ruskin was Senior Vice President of European Operations from April, 2000 to
July, 2000 and Senior Vice President of Marketing from September, 1999 to April,
2000. Before that, Mr. Ruskin served in several capacities at MTI since 1988,
including Vice President of U.S. Sales.
Venki Venkataraman was named Senior Vice President of Operations and
Services in September, 2000. Mr. Venkataraman served as Senior Vice President of
Manufacturing from June, 1998 to August, 2000 and as Vice President of
Operations from April, 1996 to June, 1998. Before joining MTI, Mr. Venkataraman
served in several capacities for The Foxboro Company, a division of Siebe PLC,
from August, 1988 to April, 1996. His most recent position with Foxboro was
Manager of Product Development for the systems products division, a post he held
for two years.
Dale Wight was named Chief Financial Officer in February, 2001. Before
joining MTI, Mr. Wight served as an Executive Director of Finance for Informix
Software, Inc., a provider of information-management software, from December,
1999 to September, 2000. Mr. Wight was a Director of Finance at Quantum
Corporation, a supplier of tape drives and DLTtape automation systems for
backing up and archiving business-critical data, from April, 1998 to October,
1999, and Director of Americas Finance of AST Research, Inc., a global
manufacturer and marketer of computers and peripheral equipment, from April,
1996 to December, 1997. Mr. Wight held several managerial positions at Nissan
Motor Corporation U.S.A. from August, 1991 to March, 1996, including Nissan
Division Finance Manager and Finance Manager for the minivan project.
Kenneth D. Simpson was named Vice President, Information Technology and
Chief Information Officer in March, 2001. Before joining MTI, Mr. Simpson was a
Consultant in SAP National Practice for marchFirst, a full-service
information-systems consulting firm, from January, 2000 to March, 2001. Mr.
Simpson served as Director of Information Technology for Digital Generation
Systems, a leading provider of electronic delivery of commercials from the
advertising industry to the broadcast industry, from September, 1998 to
December, 1999. Before joining Digital Generation, Mr. Simpson served as
Director of Information Systems for Tri Valley Growers, a food manufacturing
company, from July, 1995 to September, 1998.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS:
PRINCIPAL MARKET AND PRICES
Our common stock is quoted on the Nasdaq National Market. The following
table sets forth the range of high and low sales prices per share of our common
stock for each quarterly period as reported on The Nasdaq National Market for
the periods indicated. The price of our common stock at the close of business on
May 16, 2001 was $1.560.
SALES PRICES
-------------------
HIGH LOW
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FISCAL YEAR 2000
First Quarter............................................... 16.4375 4.5000
Second Quarter.............................................. 29.6250 14.7500
Third Quarter............................................... 37.5000 14.1250
Fourth Quarter.............................................. 54.3750 23.8125
FISCAL YEAR 2001
First Quarter............................................... 27.6250 6.8130
Second Quarter.............................................. 8.2500 3.5630
Third Quarter............................................... 9.6250 3.0630
Fourth Quarter.............................................. 5.3750 1.6560
NUMBER OF COMMON STOCKHOLDERS
The approximate number of record holders of our common stock as of May 16,
2001 was 335.
DIVIDENDS
We never have declared or paid any dividends. We currently expect to retain
earnings for use in the operation of our business and, therefore, do not
anticipate declaring or paying any cash dividends in the foreseeable future.
Also, the terms of our bank line of credit prohibit us from declaring or paying
any cash dividends.
WARRANTS
No warrants were exercised during fiscal year 2001.
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ITEM 6. SELECTED FINANCIAL DATA:
FISCAL YEAR ENDED
--------------------------------------------------------
APRIL 7, APRIL 1, APRIL 3, APRIL 4, APRIL 5,
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
SELECTED STATEMENT OF OPERATIONS DATA:
Net product revenue........................... $111,820 $177,770 $157,456 $163,707 $120,359
Service revenue............................... 49,870 49,327 44,193 36,304 33,368
-------- -------- -------- -------- --------
Total revenue........................ 161,690 227,097 201,649 200,011 153,727
Product gross profit.......................... 39,291 71,202 50,689 56,747 36,752
Service gross profit.......................... 14,628 18,871 16,276 14,262 13,172
-------- -------- -------- -------- --------
Gross profit.................................. 53,919 90,073 66,965 71,009 49,924
Operating expenses:
Selling, general and administrative......... 66,642 64,506 45,657 40,818 34,437
Research and development.................... 19,095 16,017 12,765 12,475 10,103
-------- -------- -------- -------- --------
Total operating expenses.................... 85,737 80,523 58,422 53,293 44,540
-------- -------- -------- -------- --------
Operating income (loss)..................... (31,818) 9,550 8,543 17,716 5,384
Other income, net............................. 4,258 3,822 3,739 2,557 1,483
Equity in net loss of affiliate............... (4,800) (2,824) -- -- --
Loss on foreign currency transactions......... (552) (323) (669) (237) (499)
-------- -------- -------- -------- --------
Income (loss) before income taxes (32,912) 10,225 11,613 20,036 6,368
Income tax expense (benefit).................. 3,529 (15,095) 1,521 2,020 664
-------- -------- -------- -------- --------
Net income (loss)........................... $(36,441) $ 25,320 $ 10,092 $ 18,016 $ 5,704
======== ======== ======== ======== ========
Net income (loss) per share:
Basic....................................... $ (1.13) $ 0.84 $ 0.35 $ 0.68 $ 0.22
======== ======== ======== ======== ========
Diluted..................................... $ (1.13) $ 0.76 $ 0.34 $ 0.62 $ 0.22
======== ======== ======== ======== ========
Weighted average shares used in per share
computation:
Basic....................................... 32,233 30,268 28,451 26,674 25,638
======== ======== ======== ======== ========
Diluted..................................... 32,233 33,232 29,710 29,112 26,437
======== ======== ======== ======== ========
APRIL 7, APRIL 1, APRIL 3, APRIL 4, APRIL 5,
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 16,320 $ 8,791 $ 7,213 $ 7,768 $ 3,487
Working capital (deficit)..................... 27,514 51,434 29,997 16,711 (12,267)
Total assets.................................. 128,960 180,947 113,778 105,091 83,592
Long-term debt, less current maturities....... 621 -- -- -- 6
Total stockholders' equity.................... 78,750 113,495 54,141 42,146 16,377
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
Certain statements set forth herein are not historical or based on
historical facts and constitute "forward-looking statements" involving known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements,
expressed or implied, by such forward-looking statements. Forward-looking
statements include statements about the Company's revenue, markets, margin, the
effect of accounting changes, attempts to modify its banking facility,
proprietary product sales (including Vivant sales), customers (including
Internet-related businesses, or IRBs and focus on Global 2000 companies),
service and support costs, investment in research and development, foreign
currency hedging activity, dependence on new products, management of growth,
competition, international sales, dependence on suppliers and quarterly
fluctuations. The Company's transition to sales of its proprietary products and
its focus of sales efforts on Global 2000 accounts may not be successful. The
Company may experience a reduction in demand from IRBs greater than that
currently anticipated. The Company may fail to achieve anticipated revenue
levels and efficiencies of operation. Given these uncertainties, investors in
the Company's common stock are cautioned not to place undue reliance on such
forward-looking statements. See "Risk Factors." This discussion and analysis
should be read in conjunction with the Consolidated Financial Statements of the
Company and Notes thereto contained elsewhere in this report.
RESULTS OF OPERATIONS
The following table sets forth selected items from the Consolidated
Statements of Operations as a percentage of total revenue for the periods
indicated, except for product gross profit and service gross profit, which are
expressed as a percentage of the related revenue. This information should be
read in conjunction with the Selected Financial Data and Consolidated Financial
Statements included elsewhere herein:
FISCAL YEAR ENDED
--------------------------------
APRIL 7, APRIL 1, APRIL 3,
2001 2000 1999
-------- -------- --------
Net product revenue....................................... 69.2% 78.3% 78.1%
Service revenue........................................... 30.8 21.7 21.9
----- ----- -----
Total revenue................................... 100.0 100.0 100.0
Product gross profit...................................... 35.1 40.1 32.2
Service gross profit...................................... 29.3 38.3 36.8
----- ----- -----
Gross profit.................................... 33.3 39.7 33.2
Selling, general and administrative....................... 41.2 28.4 22.6
Research and development.................................. 11.8 7.1 6.3
----- ----- -----
Operating income (loss)......................... (19.7) 4.2 4.3
Other income, net......................................... 2.6 1.7 1.8
Equity in net loss of affiliate........................... (3.0) (1.2) --
Loss on foreign currency transactions..................... (0.3) (0.1) (0.3)
Income tax (expense) benefit.............................. (2.2) 6.6 (0.8)
----- ----- -----
Net income (loss)............................... (22.6%) 11.2% 5.0%
===== ===== =====
Net Product Revenue: Net product revenue for fiscal year 2001 decreased
$66.0 million, or 37% from fiscal year 2000. This decrease was primarily because
of decreased revenue of $63.7 million and $2.1 million from server products and
software products, respectively. Server products revenue in fiscal year 2001
from the Vivant product family was $42.7 million, down from $67.7 million in
fiscal 2000.
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We transitioned our sales focus during fiscal 2000 towards our proprietary
products, and away from our third party resale products. As a result of this
transition, we increased our sales efforts with IRBs. However, during fiscal
2001, because of the lack of liquidity and resulting higher risk of success of
the IRBs, we experienced a decrease in demand for our proprietary products from
IRBs. We elected to pursue sales from Fortune 1000 and Global 2000 customers.
These customers typically have a longer procurement cycle, which adversely
affected net product revenue during fiscal year 2001. Moreover, the secondary
effect of the many IRB collapses may affect our ability to grow revenues.
Furthermore, a weakening economy could result in a decreasing demand for the
information-storage systems, software, and services. We continue to refocus our
sales efforts on the Global 2000 "brick and mortar" companies, with which we
have been successful historically. See "Risk Factors -- If there is a decrease
in the demand for our products by Internet-Related Businesses, our business
could materially suffer."
Net product revenue for fiscal year 2000 increased $20.3 million, or 13%
from fiscal year 1999. This increase was primarily because of increased revenue
of $40.8 million from server products, partially offset by decreased revenue
from tape products and software products of $16.8 million and $3.7 million,
respectively. During fiscal year 2000, our focus shifted away from resale of
tape products to the sale of our own proprietary server products. Server
products revenue in fiscal year 2000 from the Vivant product family was $67.7
million, up from nearly no revenue in fiscal year 1999, when we introduced the
Vivant product family.
Service Revenue: Service revenue was $49.9 million for fiscal year 2001, an
increase of $0.5 million, or 1%, from fiscal year 2000. Increased revenue from
maintenance contracts for increased field population was the main cause of this
increase.
Service revenue was $49.3 million for fiscal year 2000, an increase of $5.1
million, or 12%, from fiscal year 1999. This increase was primarily from
increased revenue from maintenance contracts both domestically and in Europe.
Product Gross Profit: Product gross profit was $39.3 million for fiscal
year 2001, a decrease of $31.9 million, or 45%, from fiscal year 2000. The gross
profit percentage of net product sales was 35% for fiscal year 2001 as compared
to 40% for fiscal year 2000. This decrease resulted from a domestic increase in
revenue concentration from back-up products, which historically carry a
significantly lower margin than our proprietary storage products. This decrease
was partly offset by a European increase in revenue concentration from
proprietary products, primarily Vivant. Also, lower operating volumes caused a
significant decrease in our ability to absorb our manufacturing overhead, which
reduced our product gross margin.
Product gross profit for fiscal year 2000 was $71.2 million, an increase of
$20.5 million, or 40%, over fiscal year 1999, and the product gross profit
percentage of net product sales was 40% for fiscal year 2000 as compared to 32%
for fiscal year 1999. The increase in the product gross profit percentage was
mainly from the increase in sales of server products, which historically carry a
higher margin and the impact of the introduction of the Vivant product line.
Service Gross Profit: Service gross profit for fiscal year 2001 decreased
$4.2 million, or 22%, from fiscal year 2000. The gross-profit percentage for
service revenue was 29% in fiscal year 2001, as compared to 38% for fiscal year
2000. The decrease in service-gross profit came mainly because our employment
costs increased as we hired more people to staff anticipated service offerings.
We expected the number of installed Vivant units to increase in fiscal year 2001
over fiscal 2000 levels. During the first nine months of fiscal year 2001, we
hired more service-and-support staff. We are upgrading the skills of our staff
to support the increased volume of proprietary product and service offerings. As
a result, service cost of revenue increased in fiscal year 2001. We believe that
this cost will not continue to increase in fiscal year 2002 because we now have
sufficient field-service staff.
Service gross profit for fiscal year 2000 increased $2.6 million, or 16%,
over fiscal year 1999. The gross-profit percentage for service revenue was 38%
in fiscal year 2000, as compared to 37% in fiscal year 1999. This increase in
gross profit percentage primarily resulted from increased revenue from contracts
without
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corresponding increases in support costs. See "Risk Factors -- We may be unable
to hire, retain and integrate highly skilled personnel needed to sustain our
business."
Selling, General and Administrative Expenses: Selling, general and
administrative expenses in fiscal year 2001 increased $2.1 million, or 3%, over
fiscal year 2000. This increase was because of bad debt expense of $4.3 million,
primarily as a result of internet-related customer non-payments, and a $2.2
million charge to write down goodwill related to the purchase of certain product
lines from RAXCO, Inc. There were other expenses of $.9 million in legal and $.4
million in severance. These increases were partly offset by lower salary,
commission and bonus expense of $5.0 million.
Selling, general and administrative expenses in fiscal year 2000 increased
$18.8 million, or 41%, over fiscal year 1999. This increase and the increase as
a percentage of total revenue were primarily because of increased compensation
and related costs, exclusive of commissions, of $6.1 million resulting from
increased headcount, increased commissions of $5.7 million, increased marketing
efforts of $2.9 million, $0.6 million of severance related costs in fiscal year
2000 and increases in other expenses of $3.5 million.
Research and Development Expenses: Research and development expenses in
fiscal year 2001 increased $3.1 million, or 19%, from fiscal year 2000. This
increase was primarily for increased development costs associated with hiring
more staff to complete expansion of the Vivant product line at the high end and
also to expand our reach to the mid-range. We plan to continue our new product
thrust in fiscal year 2002.
Research and development expenses in fiscal year 2000 increased $3.3
million, or 25%, over fiscal year 1999. This increase came from increased
project costs of $2.0 million, increased salary and related costs of $1.1
million related to increased headcount, and increased other expenses of $0.2
million.
Restructuring: During the fourth quarter of fiscal year 2001, we included a
charge of $0.4 million for severance in operating expenses. Of the charges, $0.3
million was paid during fiscal year 2001 and $0.1 million will be paid during
fiscal year 2002. The restructuring included an aggregate net reduction of the
workforce by 86 employees or 13%. As a result of the restructuring, we expect to
realize quarterly expense savings of $1.3 million beginning in the second
quarter of fiscal 2002.
Other Income, Net: Other income, net in fiscal year 2001 increased $0.4
million, or 11%, over fiscal year 2000. This increase was primarily from
increased interest income and decreased interest expense in fiscal year 2001 as
compared to the prior year. This was a result of increased average cash balance
during the year and eliminated credit line balances.
Other Income, Net, in fiscal year 2000 increased $0.1 million, or 2%, over
fiscal year 1999. Other income, net, was approximately 2% of total revenue in
fiscal years 2000 and 1999.
Equity in Net Loss of Affiliate: Equity in net loss of affiliate represents
our proportionate share of Caldera Systems, Inc.'s ("Caldera") net losses and
amortization of the goodwill related to the investment made in Caldera in August
1999. See Note 4 of Notes to Consolidated Financial Statements.
Income Taxes: We recorded a net tax expense of $3.5 million for fiscal year
2001, as compared to a net tax benefit of $15.1 million in fiscal year 2000. The
increase was primarily because of the recording of a net $9.0 million expense
related to the valuation allowance for deferred-tax assets. The net $9.0 million
tax expense was partly offset by $5.5 million of tax benefit recorded in the
first three quarters of fiscal year 2001. Our management believes that it is
more likely than not that we will realize the benefits of the net deferred tax
asset existing at April 7, 2001 based on projected financial results and
available tax planning strategies, including the realizable value of our Caldera
investment.
We recorded a net tax benefit of $15.1 million in fiscal year 2000. This is
a one-time benefit which is primarily a result of the reversal of valuation
allowances
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held against certain net operating loss carryforwards. The reversal of the
valuation allowance was a result of management's determination that it was more
likely than not that the related deferred tax assets would be realized based on
projected financial results and available tax planning strategies. See Note 7 of
Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $16.3 million and $8.8 million
at April 7, 2001 and April 1, 2000, respectively, which was an increase of $7.5
million. Net operating activities provided cash of $18.2 million in fiscal year
2001, an increase of $16.8 million as compared to fiscal year 2000, primarily
because increased collections decreased accounts receivable by $48.1 million.
This source of cash was partially offset by the use of cash from a net loss
adjusted for non-cash items of $7.5 million; an increase in inventories of $6.6
million, which primarily resulted from a $5.0 million increase in test equipment
for engineering, and a combined decrease in prepaid and other assets, accounts
payable and accrued and other liabilities of $15.9 million. Net investing
activities used cash of $11.8 million to buy capital equipment. The Company
expects to incur approximately $7.6 million of capital expenditures in fiscal
year 2002.
Net cash provided by financing activities was $1.0 million primarily
because of the exercise of stock options, and issuance of treasury shares,
providing cash of $2.5 million, offset by repayment of a note payable to Caldera
of $1.5 million.
The Company entered into a Loan and Security Agreement (the "Loan
Agreement") with Silicon Valley Bank and General Electric Capital Corporation as
of July 22, 1998, and amended July 22, 1999, whereby the Company may borrow up
to $30.0 million under an asset-secured domestic line of credit, limited by the
value of pledged collateral. Effective September 22, 2000, the Company renewed
its agreement with Silicon Valley Bank and General Electric Capital Corporation.
The agreement allows the Company to borrow at a rate equal to the prime rate
plus 1%. Borrowings under the line of credit are subject to certain financial
and operating covenants, including, without limitation, various financial
covenants requiring the Company to maintain a minimum quick ratio, debt-net
worth ratio, tangible net worth, and a maximum net loss, and restricts the
Company from paying any dividends. The term of the agreement is for one year.
As of April 7, 2001, the Company was in default under the Amended Loan
Agreement for failing to comply with certain covenants particularly the quick
ratio and the maximum net loss covenants which were subsequently waived for the
period ended April 7, 2001 pursuant to an agreement among the Company, Silicon
Valley Bank and General Electric Capital Corporation. The quick ratio, the
profitability, and the maximum net loss covenants of the Loan Agreement also
were amended on May 31, 2001. The Company is operating under the waiver and
amended loan agreement. There can be no assurance that the Company will be in
compliance with the new covenants in future periods. The Company's current line
of credit agreement will expire September 22, 2001. The Company has begun
negotiations for a renewal of its existing credit facility and believes the
Company will be able to secure comparable financing prior to the expiration of
the existing credit facility.
No assurance can be given that additional financing will be available or,
if available, will be on terms favorable to the Company. There were no
borrowings outstanding under this agreement at April 7, 2001.
Effective February 9, 1996, the Company entered into an agreement (the "EMC
Agreement") by which we sold to EMC substantially all of the Company's existing
patents, patent applications and related rights. Pursuant to the EMC Agreement,
the Company was entitled to receive $30.0 million over the life of this
agreement, in six equal annual installments of $5.0 million each. As of January
2001, the Company had received all installments. The Company also was to receive
royalty payments in the aggregate of up to a maximum of $30.0 million over the
term of the EMC Agreement. As part of the maximum $30.0 million of royalties,
minimum royalties of $10.0 million were to be received in five annual
installments, beginning within thirty days of the first anniversary of the
effective date of the EMC Agreement, and within thirty days of each subsequent
anniversary thereof. As of March 2001, the Company has received all
installments. Also, pursuant to the terms of the EMC
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Agreement, $10.0 million of the maximum $30.0 million of royalties, will be
received in five equal annual installments as a result of a computer and
technology agreement between EMC and IBM announced in March 1999. The first two
annual installments were received in March 2000 and March 2001.
Management believes that the Company's working capital and future cash flow
from operating activities will be sufficient to meet the Company's operating and
capital expenditure requirements for at least the next twelve months. The
Company may require additional funds to support its working capital requirements
including financing of accounts receivable and inventory, or for other purposes,
and may seek to raise such funds through public or private equity financing,
bank lines of credit or from other sources. No assurance can be given that
additional financing will be available or that, if available, such financing
will be on terms favorable to the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2000, the FASB issued Statement of Financial Accounting Standards
("FAS") No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities--an Amendment of FAS 133" ("FAS 138"). FAS 138 amends the
accounting and reporting standards for certain derivative instruments and
hedging activities. MTI is required to adopt FAS 138 not later than the first
quarter of fiscal year 2002. The Company does not currently believe its adoption
will have a material impact upon the Company's financial position or overall
trends in results of operations and does not believe adoption will result in
significant changes to its financial risk management practices. However, the
impact of adoption on the Company's results of operations is dependent upon the
fair values of the Company's derivatives and related financial instruments at
the date of adoption and may result in more pronounced quarterly fluctuations in
other income and expense.
In September 2000, Statement of Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" was issued. Statement 140 replaces Statement of Financial
Accounting Standards No. 125 and is effective for the Company in the second
quarter of fiscal year 2002. The adoption of SFAS 140 is not expected to have a
material effect upon the Company's financial position or results of operations.
INFLATION AND FOREIGN CURRENCY EXCHANGE
The Company recorded $0.6 million in foreign exchange loss during fiscal
year 2001, which came from European currency exchange rate fluctuations. In
order to minimize the foreign exchange loss, the Company has used hedging
programs, currency forward contracts, currency options and/or other derivative
financial instruments commonly used to reduce financial-market risks, none of
which were outstanding at April 7, 2001. There can be no assurance, however,
that such actions successfully will reduce the Company's exposure to
financial-market risks.
RISK FACTORS
The non-historical information in this Form 10-K constitute forward-looking
statements and involve risks and uncertainties. These statements relate to our
future plans, objectives, expectations and intentions. These statements may be
identified by the use of words such as "believes," "expects," "may," "will,"
"should," "seeks," "anticipates," "intends," "plans" and similar expressions.
Our actual results may differ materially from those discussed in these
statements. The sections entitled "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
contain a discussion of some of the factors that could contribute to those
differences. Factors that could contribute to these differences include those
discussed below and elsewhere in this Form 10-K.
WE ARE EXPOSED TO GENERAL ECONOMIC CONDITIONS
As a result of recent unfavorable economic conditions and of reduced
capital spending, sales in the United States have declined as a percentage of
our total revenue. In particular, sales to IRBs fell during fiscal year 2001. If
the economic conditions in the United States worsen or if a wider or global
economic slowdown
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occurs, we may experience a materially adverse effect upon our business, our
operating results, and our financial condition.
OUR BUSINESS MATERIALLY COULD BE AFFECTED ADVERSELY AS A RESULT OF A WEAKENING
DEMAND IN THE TECHNOLOGY MARKET.
Our profitability depends upon the demand for information storage hardware,
software and services as a whole. A decreasing demand for information-storage
systems, software, and services because of a weakening economy could result in
decreased earnings.
IF THERE IS A DECREASE IN THE DEMAND FOR OUR PRODUCTS BY INTERNET-RELATED
BUSINESSES, OUR BUSINESS COULD MATERIALLY SUFFER.
In fiscal year 2000 we derived a significant portion of our revenue from
the sale of our products to IRBs. Any decrease in the growth of the internet, in
the demand for our products by IRBs or in the financial resources available to
IRBs to purchase our products, could have a materially-adverse effect on our
business, financial condition, and results of operations. During fiscal 2001,
the Company experienced a decrease in demand for its products from IRBs and made
a decision to reduce its sales focus to IRBs. We may experience a reduction in
demand from IRBs greater than that currently anticipated. We continue to refocus
our sales force on penetrating Global 2000 accounts more deeply. However, these
sales efforts may not be successful.
A SIGNIFICANT PORTION OF OUR SALES OCCUR IN THE LAST MONTH OF A GIVEN QUARTER
AND WE OPERATE WITHOUT A SIGNIFICANT BACKLOG OF ORDERS. CONSEQUENTLY, OUR
RESULTS OF OPERATIONS FOR THAT QUARTER MAY NOT MEET OUR EXPECTATIONS.
We have experienced historically a significant portion of our orders, sales
and shipments in the last month or weeks of each quarter. We expect this pattern
to continue, and possibly to increase, in the future. This uneven pattern makes
our ability to forecast revenues, earnings and working capital requirements for
each quarter extremely difficult and uncertain. If we do not receive orders that
we have anticipated or complete shipments within a given quarter, our results of
operations could be harmed materially for that quarter.
Also, we operate without a significant backlog of orders. As a result, our
quarterly sales and operating results in any given quarter are dependent, in
large part, upon the volume and timing of orders booked and products shipped
during that quarter. Accordingly, we may be unable to adjust spending in a
timely manner to compensate for any unanticipated decrease in our orders, sales
or shipments. Therefore, any decline in the demand for our products and
services, in relation to our forecast for any given quarter, could materially
harm our results of operations.
OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD LEAD TO LOSSES BY INVESTORS AND TO
SECURITIES LITIGATION.
The value of your investment in our common stock could be very volatile and
it could decline because of:
- variations between our actual and anticipated earnings;
- the timing and announcement of new products by us or by our competitors;
- services or technological innovations by us or by our competitors;
- failure of our results from operations to meet the expectations of public
market analysts and investors;
- changes in revenue or earnings estimates by the investment community;
- speculation in the press or investment community about our business or
our competitive position;
- the volume of trading in our common stock; and
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- market conditions broadly and the trading price of shares of technology
companies generally.
THE MARKETS FOR OUR PRODUCTS ARE INTENSELY COMPETITIVE WHICH MAY LEAD TO REDUCED
SALES OF OUR PRODUCTS, REDUCED PROFITS, AND REDUCED MARKET SHARE FOR OUR
BUSINESS.
The markets for our products are intensely competitive, and we expect
competition to intensify in the future. If we fail to maintain or enhance our
competitive position, we could experience pricing pressures and reduced sales,
margins, profits and market share, each of which could materially harm our
business. Furthermore, our new products and technologies may depress the sales
of existing products and technologies. We must manage product transitions
successfully so that the introductions of the new products do not adversely
affect our sales of existing products. Our customers' requirements and the
technology available to satisfy those requirements are continually changing.
Therefore, we must be able to respond to these changes in order to remain
competitive. The principal elements of competition in our markets include:
- ability to introduce new technology;
- product quality, reliability and performance;
- quality of service and support; and
- responsiveness to customer and market needs.
We have a number of competitors in various markets, including: EMC,
Hewlett-Packard, Sun Microsystems, IBM, Compaq and Network Appliance, each of
which has substantially greater name recognition, engineering, manufacturing and
marketing capabilities, and greater financial, technological and personnel
resources than we do.
OUR QUARTERLY RESULTS MAY FLUCTUATE FROM PERIOD TO PERIOD. THEREFORE, HISTORICAL
RESULTS MAY NOT BE EITHER INDICATIVE OF FUTURE RESULTS OR HELPFUL IN EVALUATING
THE RESULTS OF OUR BUSINESS.
We have experienced quarterly fluctuations in operating results and we
anticipate that these fluctuations may continue into the future. These
fluctuations have resulted from, and may continue to be caused by, a number of
factors, including:
- changes in demand for our Vivant line of products and services;
- the introduction of new products by our competitors and competitive
pricing pressures;
- the timing of customer orders;
- the timing of the introduction of new products and new versions of our
products;
- shifts in our product mix;
- the timing of sales, marketing, research and development expenditures;
and
- decreases in our gross profit as a percentage of revenues for mature
products.
Accordingly, we believe that quarter-to-quarter comparisons of our operating
results are not necessarily meaningful and that such comparisons cannot be
relied upon as indications of our future performance. We cannot assure you that
we will be profitable on a quarter-to-quarter basis or that our future revenues
and operating results will meet or exceed the expectations of securities
analysts and investors, any of which could cause a significant adverse change in
the trading price of our common stock.
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THE SUCCESS OF OUR BUSINESS DEPENDS UPON OUR ABILITY TO INTRODUCE NEW PRODUCTS
ON A TIMELY BASIS.
We believe that the development and introduction of new, innovative
products with features that respond to our customers' changing demands and
incorporate new technological standards will be critical to our future success.
We may not be able to design and manufacture products that address customer
needs or achieve market acceptance. Any significant delay or failure by us to
design, manufacture and successfully introduce new products could harm our
business materially. Our ability to successfully introduce new products depends
on several factors, including:
- timely completion of product design;
- achievement of acceptable manufacturing yields; and
- market acceptance.
We face additional risks inherent in new product introductions, including:
- competitors' responses to our product introductions;
- pricing pressures from competitors' products;
- difficulties in forecasting customer demand;
- the desire of customers to evaluate new products for longer periods of
time; and
- unanticipated development problems or delays.
These risks may result in unanticipated costs, diversion of management's
attention or the abandonment of the development of a specific product. In
addition, we may not be able to effectively manage the transitions to new
products or new technologies, which could harm our business materially.
OUR SYSTEMS ARE COMPLEX AND MAY CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS
THAT COULD BE DIFFICULT, COSTLY, AND TIME CONSUMING TO REPAIR.
Undetected software or hardware errors frequently occur in networking
products when they are first introduced or as new versions of products are
released. Our systems are complex, and from time to time we may find errors in
our existing, new, or enhanced products. Also, our systems are combined with
products and components made by other vendors, and if errors occur, it may be
difficult to identify the source of the problem. These errors, whether caused by
our or another vendor's products, could:
- adversely affect sales of our products;
- cause us to incur significant warranty and repair costs;
- divert the attention of our engineering personnel from our product
development efforts;
- cause significant customer relations problems;
- harm our competitive position;
- hurt our reputation; and
- cause purchase delays.
Any of these effects could materially harm our business or results of
operations.
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WE ARE DEPENDENT UPON LIMITED SOURCE SUPPLIERS FOR PRINCIPAL COMPONENTS USED IN
OUR PRODUCTS, AND DISRUPTIONS IN SUPPLY OR SIGNIFICANT INCREASES IN COMPONENT
COSTS COULD HARM OUR BUSINESS MATERIALLY.
For our Vivant product line, we currently purchase disk drives solely from
Seagate Technology, Inc., chipsets solely from QLogic Corporation, and RAID
controllers for the Vivant "S" series solely from Mylex Corporation. Disruptions
in supply or significant increases in the component costs from these vendors
could materially harm our business and our results of operations.
WE ORDER COMPONENTS AND MATERIALS BASED UPON ROLLING FORECASTS WHICH COULD CAUSE
US TO OVERESTIMATE OR UNDERESTIMATE OUR ACTUAL REQUIREMENTS. THIS COULD CAUSE US
TO INCREASE OUR COSTS, NEEDLESSLY OR PREVENT US FROM MEETING CUSTOMER DEMAND.
We use rolling forecasts based upon anticipated product orders to determine
our component requirements. Lead times for materials and components that we
order vary significantly and depend upon factors such as specific supplier
requirements, contract terms and current market demand for such components. As a
result, our component requirement forecasts may not be accurate. If we
overestimate our component requirements, we may have excess inventory, which
would increase our costs. If we underestimate our component requirements, we may
have inadequate inventory, which could interrupt our manufacturing and delay
delivery of our products to our customers. Any of these occurrences would affect
unfavorably our business and results of operations.
WE DEPEND UPON OUR KEY PERSONNEL.
We believe that our success is dependent, to a significant extent, upon the
efforts and abilities of our senior-management team, particularly our executive
officers. The loss of the services of our executive officers could harm
materially our business. The failure to retain key members of our
senior-management team, or to implement a succession plan to prepare qualified
individuals to join us upon the loss of a member of our senior-management team,
could harm materially our business.
In addition, a number of the members of our senior management team joined
us recently, as we replaced certain management personnel. Thus, our management
team has had limited time to work together and as a result, may have difficulty
working together to successfully manage our business.
WE ARE SUBJECT TO FINANCIAL AND OPERATING RISKS ASSOCIATED WITH INTERNATIONAL
SALES.
International sales represent a significant portion of our total revenue.
For example, international sales represented 36% of our total sales for fiscal
year 2001. If we are unable to maintain international market demand for our
products, our results of operations could be materially harmed. Our
international business is subject to the financial and operating risks of
conducting business internationally, including:
- unexpected changes in, or impositions of, legislative or regulatory
requirements;
- fluctuating exchange rates, tariffs and other barriers;
- difficulties in staffing and managing foreign subsidiary operations;
- export restrictions;
- greater difficulties in accounts receivable collection and longer payment
cycles;
- potentially adverse tax consequences; and
- potential hostilities and changes in diplomatic and trade relationships.
All of our sales in international markets are priced in the applicable
local currencies and are subject to currency exchange rate fluctuations. We
currently
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enter into foreign currency exchange contracts on a limited basis in an attempt
to minimize foreign currency exposure, which can be costly or limited in their
effectiveness. If we are faced with significant changes in the regulatory and
business climate in our international markets, our business and results from
operations could suffer.
In the future, we may expand our international presence in other markets
which may require significant financial and managerial resources. Also,
expansion into new international markets may involve additional risks, including
uncertainty of market acceptance of our products because of language, cultural
or other barriers, and differences in technologies and computing infrastructures
needed to use our products and services. If our international expansion efforts
do not yield anticipated levels of sales, our business and results from
operations could be harmed materially.
WE HAVE ADOPTED ANTI-TAKEOVER DEFENSES THAT COULD AFFECT THE PRICE OF OUR COMMON
STOCK.
Our restated certificate of incorporation and bylaws contain various
provisions, including notice provisions, provisions for staggered terms of
office of the board of directors, and provisions authorizing us to issue
preferred stock, that may make it more difficult for a third party to acquire,
or may discourage acquisition bids for, our company. Also, the rights of holders
of our common stock may be affected adversely by the rights of holders of any
preferred stock that we may issue in the future that would be senior to the
rights of the holders of our common stock. Furthermore, we are subject to the
provisions of Section 203 of the Delaware General Corporation Law regulating
corporate takeovers. These provisions could also limit the price that investors
might be willing to pay in the future for shares of our common stock.
OUR INTELLECTUAL PROPERTY IS CRITICAL TO OUR BUSINESS AND, IF WE ARE UNABLE TO
PROTECT OUR INTELLECTUAL PROPERTY, THE SUCCESS OF OUR BUSINESS AND OUR RESULTS
FROM OPERATIONS COULD BE HARMED MATERIALLY.
Our intellectual property includes patents, proprietary technology, trade
secrets, copyrights, and trademarks. We rely upon a combination of intellectual
property laws and employee and third-party non-disclosure agreements to protect
our intellectual property rights. Third parties may infringe upon our
intellectual property rights, and we may be unable to detect this unauthorized
usage or to enforce our rights effectively. Any legal action that we may bring
to protect our intellectual property rights could be expensive and distract our
management from day-to-day operations. Further, the laws of some countries in
which we sell our products do not protect our intellectual property rights to
the same extent as do the laws in the United States. Unauthorized usage or
misappropriation of our intellectual property could harm our business
materially.
WE MAY FACE COSTLY DAMAGES OR LITIGATION COSTS IF THIRD PARTIES CLAIM THAT WE
INFRINGE UPON THEIR INTELLECTUAL PROPERTY RIGHTS.
Our business activities may infringe upon the proprietary rights of others,
and other parties may assert infringement claims against us. In addition, in the
future, we may receive communications from other parties asserting that our
intellectual property infringes on their proprietary rights. If we become liable
to any third party for infringing its intellectual property rights, we could be
required to pay substantial damage awards and to develop non-infringing
technology, obtain licenses, or to cease selling the applications that contain
the infringing intellectual property. We could have to redesign our products,
which could be costly and time consuming and could substantially delay product
shipments, assuming that a redesign is feasible. We may be unable to develop
non-infringing technology or to obtain licenses on commercially-reasonable
terms, if at all. Litigation is subject to inherent uncertainties, and any
outcome unfavorable to us could materially harm our business. Furthermore, we
could incur substantial costs in defending against any intellectual-property
litigation, and these costs could increase significantly if any dispute were to
go to trial. Our defense of any litigation, regardless of the merits of the
complaint, likely would be time-consuming, costly, and a distraction to our
management personnel. Adverse publicity related to any intellectual property
litigation also could harm the sale of our products and damage our competitive
position.
20
21
IF WE ARE UNABLE TO COMPLY WITH EVOLVING INDUSTRY STANDARDS AND GOVERNMENT
REGULATIONS, WE MAY BE UNABLE EITHER TO SELL OUR SYSTEMS OR TO BE COMPETITIVE IN
THE MARKETPLACE.
Our systems must comply with current industry standards and government
regulations in the United States and internationally. Any new products and
product enhancements that we introduce in the future also must meet industry
standards and government regulations at the time they are introduced. Failure to
comply with existing or evolving industry standards or to obtain timely domestic
or foreign regulatory approvals could materially harm our business. In addition,
such compliance may be time consuming and costly.
Our systems integrate SAN and NAS technologies into a single storage
architecture. Components of the SAN and NAS must comply with evolving industry
standards. We also depend upon companies that provide other components of the
SAN and NAS to meet these standards. If our vendors or customers do not support
the same industry standards that we do, or if competing standards emerge that we
do not support, market acceptance of our products could suffer.
OUR STOCK OWNERSHIP IS CONCENTRATED IN A SINGLE STOCKHOLDER, AND OTHER
STOCKHOLDERS MAY NOT BE ABLE TO INFLUENCE CORPORATE DECISIONS.
Raymond J. Noorda, our Chairman of the Board, is also the Chairman of the
Board of our largest stockholder, The Canopy Group, Inc. ("Canopy"). Ralph J.
Yarro III, our Director, is also the Director and President and Chief Executive
Officer of Canopy. Canopy beneficially owns approximately 45% of our outstanding
common stock and is able substantially to affect our actions which require
stockholder approval, including the election of the Board of Directors and the
approval of significant corporate transactions. This concentration of ownership
may delay or prevent a change in control of us and will make some transactions
difficult or impossible without Mr. Noorda's or Mr. Yarro's support.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS:
The Company's European operations transact in foreign currencies and may be
exposed to financial-market risk resulting from fluctuations in foreign-currency
exchange rates, particularly the British Pound Sterling and the Euro. The
Company has used and may continue to use hedging programs, currency forward
contracts, currency options and/or other derivative financial instruments
commonly used to reduce financial-market risks, none of which were outstanding
at April 7, 2001. There can be no assurance that such actions will reduce
successfully the Company's exposure to financial-market risks.
The Company maintains a $30.0 million credit line. The interest rate
applied to any debt outstanding under this credit line is equal to the prime
rate plus 1% and is, therefore subject to a certain amount of risk arising from
fluctuations in these rates. However, we believe that a 10% increase in interest
rates would not have a material impact upon the Company's results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
The information required by this Item is incorporated herein by reference
to the consolidated financial statements and supplementary data listed in Item
14(a)(1) and 14(a)(2) of Part IV of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
None.
21
22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
Information with respect to directors of the Company is incorporated by
reference to the information set forth in the Company's 2001 Proxy Statement
under the caption "Directors." Information with respect to the Company's
executive officers is set forth in Part I, above, under the caption "Executive
Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION:
The information set forth under the caption "Compensation of Directors and
Executive Officers and Other Information" in the Company's 2001 Proxy Statement
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The information set forth under the caption "Voting Securities and
Principal Holders Thereof" in the Company's 2001 Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The information set forth under the caption "Certain Transactions and
Related Transactions" in the Company's 2001 Proxy Statement is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K:
The following Consolidated Financial Statements of MTI and the Independent
Auditors' Report are attached hereto beginning on pages F-1 and S-1.
(a)(1) Consolidated Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets as of April 7, 2001 and April 1, 2000
Consolidated Statements of Operations for fiscal years 2001, 2000
and 1999
Consolidated Statements of Stockholders' Equity for fiscal years
2001, 2000 and 1999
Consolidated Statements of Cash Flows for fiscal years 2001, 2000
and 1999
Notes to Consolidated Financial Statements
(2) The following financial statement schedule for fiscal years 2001,
2000 and 1999 is submitted herewith:
Schedule II -- Valuation and Qualifying Accounts (See page 49)
All other schedules are omitted because they are not applicable
or the required information is shown in the Consolidated
Financial Statements or notes thereto.
(3) Exhibits included herewith (numbered in accordance with Item 601 of
Regulation S-K):
22
23
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Restated Certificate of Incorporation of the Company,
incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-1 (No. 33-75180).
3.2 Restated Bylaws, incorporated by reference to Exhibit 10.51 of
the Company's Quarterly Report on Form 10-Q for the quarterly
period ended January 3, 1998.
4.1 Form of Registration Rights Agreement between the Company and
certain Purchasers, and schedule of such Purchasers,
incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-1 (No. 33-75180).
4.2 Registration Rights Agreement among the Company, Dialogic
System Corporation and NFT Ventures, Inc., dated June 15, 1992,
as amended as of April 1, 1993 and as of February 11, 1994,
incorporated by reference to Exhibit 4.2 of the Company's
Registration Statement on Form S-1 (No. 33-75180).
4.3 Registration Rights Agreement between the Company and NFT
Ventures, Inc., dated November 30, 1992, incorporated by
reference to Exhibit 4.3 of the Company's Registration
Statement on Form S-1 (No. 33-75180).
4.4 Registration Rights Agreement between the Company and Dialogic
Systems Corporation, dated November 30, 1992, incorporated by
reference to Exhibit 4.11 of the Company's Registration
Statement on Form S-1 (No. 33-75180).
4.5 Specimen Stock Certificate, incorporated by reference to
Exhibit 4.12 of the Company's Registration Statement on Form
S-1 (No. 33-75180).
4.6 Specimen of the Amended Stock Certificate.
10.1 Triple Net Lease between the Company and Catellus Development
Corporation effective December 20, 1991, incorporated by
reference to Exhibit 10.2 of the Company's Registration
Statement on Form S-1 (No. 33-75180).
10.2 Owner Participation Agreement between the Company, Catellus
Development Corporation and Anaheim Redevelopment Agency, dated
as of January 7, 1992, including exhibits, incorporated by
reference to Exhibit 10.3 of the Company's Registration
Statement on Form S-1 (No. 33-75180).
*10.3 Form of Nonqualified Stock Option Agreement under the Stock
Incentive Plan, incorporated by reference to Exhibit 10.14 of
the Company's Registration Statement on Form S-1 (No.
33-75180).
*10.4 Form of Indemnification Agreement, incorporated by reference to
Exhibit 10.16 of the Company's Registration Statement on Form
S-1 (No. 33-75180).
*10.5 Micro Technology, Inc. Incentive Stock Option Plan -- 1985,
incorporated by reference to Exhibit 10.20 of the Company's
Registration Statement on Form S-1 (No. 33-75180).
*10.6 1987 Incentive Stock Option and Nonqualified Stock Option Plan
of the Company (the "1987 Stock Option Plan"), incorporated by
reference to Exhibit 10.21 of the Company's Registration
Statement on Form S-1 (No. 33-75180).
*10.7 Form of Incentive Common Stock Option Agreement under the 1987
Stock Option Plan, incorporated by reference to Exhibit 10.22
of the Company's Registration Statement on Form S-1 (No.
33-75180).
*10.8 Form of Nonqualified Common Stock Option Agreement under the
1987 Stock Option Plan, incorporated by reference to Exhibit
10.23 of the Company's Registration Statement on Form S-1 (No.
33-75180).
*10.9 Stock Incentive Plan of the Company, incorporated by reference
to Exhibit 10.24 of the Company's Registration Statement on
Form S-1 (No. 33-75180).
23
24
EXHIBIT
NUMBER DESCRIPTION
------- -----------
*10.10 1988 Stock Option Plan, as amended August 12, 1991, of SF2
Corporation, incorporated by reference to Exhibit 10.25 of the
Company's Registration Statement on Form S-1 (No. 33-75180).
10.11 Form of Consultant/Employee Confidentiality Agreement,
incorporated by reference to Exhibit 10.28 of the Company's
Registration Statement on Form S-1 (No. 33-75180).
10.12 Lease between Oak Creek Delaware, Inc., and the Company, dated
December 18, 1993, incorporated by reference to Exhibit 10.29
of the Company's Registration Statement on Form S-1 (No.
33-75180).
*10.13 Form of Incentive Stock Option Agreement under the Stock
Incentive Plan, incorporated by reference to Exhibit 10.30 of
the Company's Registration Statement on Form S-1 (No.
33-75180).
*10.14 MTI Technology Corporation 1994 Employee Stock Purchase Plan,
as amended, incorporated by reference to Exhibit 10.31 of the
Company's Annual Report on Form 10-K for the fiscal year ended
April 2, 1994.
10.15 MTI Technology Corporation Directors' Non-Qualified Stock
Option Plan, incorporated by reference to Exhibit 10.32 of the
Company's Registration Statement on Form S-1 (No. 33-75180).
10.16 Asset Purchase Agreement, dated February 9, 1995, between EMC
Corporation and the Registrant (confidential treatment granted
pursuant to Rule 24b-2), incorporated by reference to Exhibit
10.36 of the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 30, 1995.
10.17 Loan and Security Agreement between the Company and Silicon
Valley Bank and General Electric Capital Corporation, as
Co-Lenders, and Schedules thereto, incorporated by reference to
Exhibit 10.28 of the Company's Quarterly Report on Form 10-Q
for the quarterly period ended July 4, 1998.
*10.18 Severance Agreement dated as of July 15, 1998, between Thomas
P. Raimondi, Jr. and Registrant, incorporated by reference to
Exhibit 10.30 of the Company's Annual Report on Form 10-K for
the fiscal year ended quarterly period ended April 3, 1999.
*10.19 Severance Agreement dated as of July 15, 1998, between Venki
Venkataraman and Registrant, incorporated by reference to
Exhibit 10.33 of the Company's Annual Report on Form 10-K for
the fiscal year ended quarterly period ended April 3, 1999.
*10.20 Severance and Release Agreement dated as of July 7, 2000,
between Dale Boyd and Registrant.
*10.21 Severance and Release Agreement dated as of April 29, 2001,
between Guy M. Cheney and Registrant.
*10.22 Severance and Release Agreement dated as of September 20, 2000,
between Daniel Brown and Registrant.
*10.23 Severance Agreement dated as of July 10, 2000, between Paul W.
Emery, II and Registrant.
*10.24 Severance Agreement dated as of February 7, 2001, between Keith
Clark and Registrant.
*10.25 Severance Agreement dated as of May 30, 2001, between Dale
Wight and Registrant.
*10.26 Severance Agreement dated as of May 30, 2001, between Kenneth
D. Simpson and Registrant.
*10.27 Severance Agreement dated as of May 31, 2001, between Venki
Venkataraman and Registrant.
*10.28 Severance Agreement dated as of May 31, 2001, between
Richard L. Ruskin and Registrant.
24
25
EXHIBIT
NUMBER DESCRIPTION
------- -----------
*10.29 Amendment to the 1996 Stock Incentive Plan, incorporated by
reference to Exhibit 10.29 of the Company's Quarterly Report on
Form 10-Q for the quarterly period ended October 2, 1999.
*10.30 MTI Technology Corporation 2001 Stock Incentive Plan.
*10.31 MTI Technology Corporation 2001 Non-Employee Directors Option
Program.
*10.32 MTI Technology Corporation 2001 Employee Stock Purchase Plan.
10.33 Limited Waiver and Amendment to Loan Documents dated May 31,
2001, between the Company and Silicon Valley Bank and General
Electric Capital Corporation, as Co-Lenders.
21 Subsidiaries of the Company.
23 Consent of KPMG LLP.
24 Power of Attorney (see page 26)
- ---------------
* Management or compensatory plan or arrangement.
(b) Reports on Form 8-K
None.
25
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 11th day of
June 2001.
MTI TECHNOLOGY CORPORATION
By: /s/ THOMAS P. RAIMONDI, JR.
-------------------------------------------
Thomas P. Raimondi, Jr.
(Vice Chairman, President and
Chief Executive Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below, constitutes and appoints Thomas P. Raimondi, Jr. and Dale Wight, jointly
and severally, attorneys-in-fact and agents, each with full power of
substitution, for him in any and all capacities to sign any and all amendments
to this Report, and to file the same, and all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact and
agents, and his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ THOMAS P. RAIMONDI, JR. Vice Chairman, President and June 4, 2001
- ------------------------------------- Chief Executive Officer
(Thomas P. Raimondi, Jr.)
/s/ DALE WIGHT Chief Financial Officer June 4, 2001
- ------------------------------------- (Principal Financial and
(Dale Wight) Accounting Officer)
/s/ RAYMOND J. NOORDA Chairman of the Board June 4, 2001
- -------------------------------------
(Raymond J. Noorda)
/s/ VAL KREIDEL Director June 4, 2001
- -------------------------------------
(Val Kreidel)
/s/ AL MELROSE Director June 4, 2001
- -------------------------------------
(Al Melrose)
/s/ JOHN REPP Director June 4, 2001
- -------------------------------------
(John Repp)
/s/ RALPH J.YARRO, III Director June 4, 2001
- -------------------------------------
(Ralph J. Yarro, III)
/s/ Franz L. Cristiani Director June 4, 2001
- -------------------------------------
(Franz L. Cristiani)
26
27
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report.................................................. 28
Consolidated Balance Sheets as of April 7, 2001 and April 1, 2000............. 29
Consolidated Statements of Operations for the fiscal years ended
April 7, 2001, April 1, 2000 and April 3, 1999.............................. 30
Consolidated Statements of Stockholders' Equity for the fiscal years
ended April 7, 2001, April 1, 2000 and April 3, 1999........................ 31
Consolidated Statements of Cash Flows for the fiscal years ended
April 7, 2001, April 1, 2000 and April 3, 1999.............................. 32
Notes to Consolidated Financial Statements.................................... 33
FINANCIAL STATEMENT SCHEDULE
Schedule II -- Valuation and Qualifying Accounts.............................. 49
27
28
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MTI Technology Corporation:
We have audited the consolidated financial statements of MTI Technology
Corporation and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedule listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MTI
Technology Corporation and subsidiaries as of April 7, 2001 and April 1, 2000,
and the results of their operations and their cash flows for each of the years
in the three-year period ended April 7, 2001, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Orange County, California
May 22, 2001, except as to
the second paragraph of Note 6
which is as of May 31, 2001
28
29
MTI TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
APRIL 7, APRIL 1,
2001 2000
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 16,320 $ 8,791
Accounts receivable, less allowance for doubtful accounts
and sales returns of $10,460 in 2001 and $7,210 in
2000 ........................................................ 21,514 74,289
Inventories .................................................... 29,112 25,515
Deferred income tax benefit .................................... 1,020 1,020
Prepaid expenses and other receivables ......................... 5,615 6,407
--------- ---------
Total current assets ................................... 73,581 116,022
Property, plant and equipment, net ............................... 17,182 14,464
Deferred income tax benefit ...................................... 23,280 26,715
Investment in affiliate .......................................... 9,504 14,304
Intangible assets and goodwill, less accumulated
amortization of $13,191 in 2001 and $9,330 in 2000 ............. 5,184 8,998
Other ............................................................ 229 444
--------- ---------
$ 128,960 $ 180,947
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Leases payable ................................................. $ 127 $ --
Note payable ................................................... -- 1,500
Accounts payable ............................................... 11,042 22,008
Accrued liabilities ............................................ 14,684 20,372
Deferred income ................................................ 20,214 20,708
--------- ---------
Total current liabilities .............................. 46,067 64,588
Leases payable ................................................... 621 --
Other ............................................................ 3,522 2,864
--------- ---------
Total liabilities ...................................... 50,210 67,452
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; authorized 5,000 shares;
issued and outstanding, none ................................ -- --
Common stock, $.001 par value; authorized 80,000 shares;
issued (including treasury shares) and outstanding
32,732 and 32,352 shares in 2001 and 2000,
respectively ................................................ 33 32
Additional paid-in capital ..................................... 135,132 133,007
Accumulated deficit ............................................ (51,050) (14,609)
Less cost of treasury stock (375 and 479 shares in 2001
and 2000, respectively) ..................................... (1,348) (1,745)
Accumulated other comprehensive loss ........................... (4,017) (3,190)
--------- ---------
Total stockholders' equity ............................. 78,750 113,495
--------- ---------
$ 128,960 $ 180,947
========= =========
See accompanying notes to consolidated financial statements.
29
30
MTI TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED APRIL 7, 2001, APRIL 1, 2000 AND APRIL 3, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2001 2000 1999
-------- -------- --------
Net product revenue, including $429 and $4,920 from
related parties in 2001 and 2000, respectively............ $111,820 $177,770 $157,456
Service revenue............................................. 49,870 49,327 44,193
-------- -------- --------
Total revenue..................................... 161,690 227,097 201,649
Product cost of revenue..................................... 72,529 106,568 106,767
Service cost of revenue..................................... 35,242 30,456 27,917
-------- -------- --------
Total cost of revenue............................. 107,771 137,024 134,684
-------- -------- --------
Gross profit...................................... 53,919 90,073 66,965
Operating expenses:
Selling, general and administrative....................... 66,642 64,506 45,657
Research and development.................................. 19,095 16,017 12,765
-------- -------- --------
Total operating expenses.......................... 85,737 80,523 58,422
-------- -------- --------
Operating income (loss)........................... (31,818) 9,550 8,543
Other income (expense):
Equity in net loss of affiliate........................... (4,800) (2,824) --
Interest expense.......................................... (432) (598) (716)
Interest income........................................... 319 110 66
Loss on foreign currency transactions..................... (552) (323) (669)
Other income.............................................. 4,371 4,310 4,389
-------- -------- --------
Income (loss) before income taxes... ....................... (32,912) 10,225 11,613
Income tax expense (benefit).............................. 3,529 (15,095) 1,521
-------- -------- --------
Net income (loss)........................................ $(36,441) $ 25,320 $ 10,092
======== ======== ========
Net income (loss) per share:
Basic..................................................... $ (1.13) $ 0.84 $ 0.35
======== ======== ========
Diluted................................................... $ (1.13) $ 0.76 $ 0.34
======== ======== ========
Weighted average shares used in per share computation:
Basic..................................................... 32,233 30,268 28,451
======== ======== ========
Diluted................................................... 32,233 33,232 29,710
======== ======== ========
See accompanying notes to consolidated financial statements.
30
31
MTI TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED APRIL 7, 2001, APRIL 1, 2000 AND APRIL 3, 1999
(IN THOUSANDS)
ACCUMULATED TOTAL TOTAL
COMMON STOCK ADDITIONAL RETAINED OTHER STOCK- COMPREHENSIVE
--------------- PAID-IN EARNINGS COMPREHENSIVE HOLDERS' INCOME
SHARES AMOUNT CAPITAL (DEFICIT) LOSS EQUITY (LOSS)
------ ------ ---------- --------- ------------- ------------ -------------
Balance at April 4, 1998........ 28,155 29 94,125 (50,021) (1,987) 42,146
Net income...................... -- -- -- 10,092 -- 10,092 $10,092
Foreign currency translation
adjustments................... -- -- -- -- (403) (403) (403)
-------
Comprehensive income for the
year ended April 3, 1999...... $ 9,689
=======
Exercise of stock options
(including income tax benefit
of $988)...................... 392 -- 1,796 -- -- 1,796
Treasury shares issued under
Employee Stock Purchase Plan
and other..................... 90 -- 510 -- -- 510
------ --- -------- -------- ------- --------
Balance at April 3, 1999........ 28,637 29 96,431 (39,929) (2,390) 54,141
Net income...................... -- -- -- 25,320 -- 25,320 $25,320
Foreign currency translation
adjustments................... -- -- -- -- (800) (800) (800)
-------
Comprehensive income for the
year ended April 1, 2000...... $24,520
=======
Sale of stock by affiliate...... -- -- 6,194 -- -- 6,194
Issuance of warrant............. -- -- 1,894 -- -- 1,894
Exercise of stock options and
warrants (including income tax
benefit of $9,941)............ 3,140 3 26,084 -- -- 26,087
Treasury shares issued under
Employee Stock Purchase
Plan.......................... 96 -- 659 -- -- 659
------ --- -------- -------- ------- --------
Balance at April 1, 2000........ 31,873 $32 $131,262 $(14,609) $(3,190) $113,495
Net loss........................ -- -- -- (36,441) -- (36,441) $(36,441)
Foreign currency translation
adjustments................... -- -- -- -- (827) (827) (827)
-------
Comprehensive loss for the
year ended April 7, 2001...... $(37,268)
=======
Exercise of stock options ...... 379 1 2,006 -- -- 2,007
Treasury shares issued under
Employee Stock Purchase
Plan.......................... 105 -- 516 -- -- 516
------ --- -------- -------- ------- --------
Balance at April 7, 2001........ 32,357 $33 $133,784 $(51,050) $(4,017) $ 78,750
====== === ======== ======== ======= ========
See accompanying notes to consolidated financial statements.
31
32
MTI TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED APRIL 7, 2001, APRIL 1, 2000 AND APRIL 3, 1999
(IN THOUSANDS)
2001 2000 1999
-------- -------- ---------
Cash flows from operating activities:
Net income (loss) ........................................... $(36,441) $ 25,320 $ 10,092
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ............................. 10,470 6,932 8,281
Provision for sales returns and losses on accounts
receivable, net ......................................... 4,330 479 434
Provision for inventory obsolescence ...................... 2,825 2,281 2,239
Loss on disposal of fixed assets .......................... 3,016 165 39
Deferred income tax expense (benefit) ..................... 3,435 (17,169) 1,305
Deferred income ........................................... 166 4,433 2,591
Net loss in equity of affiliate ........................... 4,800 2,824 --
Non-cash compensation from issuance of warrant ............ -- 379 --
Changes in assets and liabilities, net of effect of
acquisitions:
Accounts receivable ......................................... 48,014 (22,138) (9,424)
Inventories ................................................. (6,550) (10,923) (451)
Prepaid expenses, other receivables and other assets ........ 1,223 1,399 (2,841)
Accounts payable ............................................ (11,057) 3,283 (1,719)
Accrued and other liabilities ............................... (6,021) 4,118 (2,284)
-------- -------- ---------
Net cash provided by operating activities ................... 18,210 1,383 8,262
-------- -------- ---------
Cash flows from investing activities:
Capital expenditures for property, plant and equipment ...... (11,761) (6,253) (8,148)
Equity investment in affiliate .............................. -- (4,554) --
-------- -------- ---------
Net cash used in investing activities ....................... (11,761) (10,807) (8,148)
-------- -------- ---------
Cash flows from financing activities:
Borrowings under notes payable .............................. -- 80,871 99,543
Proceeds from issuance of common stock, treasury shares
and exercise of options and warrants ...................... 2,523 16,805 1,318
Payment of capital lease .................................... (98) -- --
Repayments of notes payable ................................. (1,500) (86,695) (101,624)
-------- -------- ---------
Net cash provided by (used in) financing activities ....... 925 10,981 (763)
-------- -------- ---------
Effect of exchange rate changes on cash ....................... 155 21 94
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents .......... 7,529 1,578 (555)
Cash at beginning of year ..................................... 8,791 7,213 7,768
-------- -------- ---------
Cash at end of year ........................................... 16,320 $ 8,791 $ 7,213
======== ======== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .................................................. $ 432 $ 599 $ 1,046
Income taxes .............................................. 157 466 1,616
Supplemental schedule of noncash investing and
financing activities:
Income tax benefit from exercise of stock options ........... -- 9,941 988
Note issued in connection with equity investment in
affiliate ................................................. -- 1,500 --
Valuation of warrant issued ................................. -- 1,894 --
Sale of stock by affiliate .................................. -- 6,194 --
Acquisition of leased equipment ............................. 846 -- --
See accompanying notes to consolidated financial statements.
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MTI TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
MTI Technology Corporation and subsidiaries (the "Company" or "MTI"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Fiscal Year
The Company's year-end is the first Saturday following March 31. Fiscal
years 2001, 2000 and 1999 ended on April 7, April 1 and April 3, respectively,
and consisted of 52 weeks except for fiscal year 2001 which consisted of 53
weeks.
Revenue Recognition
Sales of the Company's computer equipment are recorded upon shipment, net
of an allowance for estimated returns, as long as no significant post-delivery
obligations exist and collection of the resulting receivable is probable and the
amount is determinable. Revenue from equipment maintenance contracts is recorded
as deferred income when billed and is recognized as earned over the period in
which the services are provided, primarily straight-line over the term of the
contract. The Company accrues for warranty expense at the time revenue is
recognized and maintains a warranty accrual for the estimated future warranty
obligation based upon the relationship between historical and anticipated
warranty costs and sales volumes. In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements." This Bulletin has subsequent updates: SAB
101A and SAB 101B. The objective of this SAB is to provide further guidance on
revenue-recognition issues in the absence of authoritative literature addressing
a specific arrangement or a specific industry. MTI adopted SAB 101 in the fourth
quarter of fiscal year 2001, which caused no material effect upon MTI's results
of operations or financial position.
The Company applies Statement of Position ("SOP") 97-2, "Software Revenue
Recognition" as amended by SOP 98-9, "Modification of SOP 97-2 with Respect to
Certain Transactions," whereby revenue is recognized from software licenses,
provided there are no significant Company obligations related to the sale and
the resulting receivable is deemed collectible, at the time the software is
shipped, net of an allowance for returns, cancellations and maintenance,
including vendor and post-contract support obligations. Revenue from maintenance
agreements is recognized ratably over the term of the related agreement. Revenue
from consulting and other software-related services is recognized as the
services are rendered.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. There were
$10,179 in cash equivalents at April 7, 2001 and no cash equivalents at April 1,
2000.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market, net of an allowance for obsolete, slow-moving, and unsalable inventory.
The allowance is periodically adjusted, based upon management's review of
inventories on-hand, historical product sales, and forecasts.
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Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives of two
to seven years. Leasehold improvements are amortized using the straight-line
method over the lesser of the useful life of the improvement or the term of the
related lease. Maintenance and repairs are expensed as incurred.
Accounting for Stock Options
The Company accounts for stock options in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. As such, compensation expense is
computed on the date of grant only if the current market price of the underlying
stock exceeded the exercise price. The related expense is recorded over the
vesting period. On April 7, 1996, the Company adopted the disclosure provisions
of Statement of Financial Accounting Standards No. ("Statement") 123,
"Accounting for Stock-Based Compensation."
Use of Estimates
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America, and as such,
include amounts based upon informed estimates and judgements of management.
Actual results could differ from these estimates.
Income Taxes
Under the asset and liability method of Statement 109, "Accounting for
Income Taxes," deferred tax assets and liabilities are determined based on
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse, net of a valuation
allowance for deferred tax assets which are determined to not be more likely
than not realizable. Under Statement 109, the effect on deferred taxes of a
change in tax rates is recognized in operations in the period that includes the
enactment date.
Intangible Assets and Goodwill
The Company amortizes intangible assets, and costs in excess of net assets
acquired (goodwill) related to the Company's business acquisitions, on a
straight-line basis over periods ranging from 7 to 10 years. The Company applies
Statement 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Long-lived assets and certain identifiable
intangibles are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, an
impairment loss is recognized. The amount of impairment, if any, is measured
based on fair value as compared to discounted cash flows. Management regularly
evaluates the continuing recoverability of intangible assets and goodwill based
upon the historical and projected revenue and profitability of the related
acquisitions and continuing benefits of the underlying assets.
Goodwill represents intellectual property rights, access to an installed
customer base and research and development capacity related to the acquisitions
of RAXCO and National Peripherals, Inc. and is being amortized over 10 years. In
the first quarter of fiscal year 2001, the Company recorded an impairment charge
of $2.2 million in accordance with Statement 121 related to unamortized
intangible assets acquired in the purchase of certain product lines from RAXCO,
Inc. As of April 7, 2001, the only remaining goodwill related to the acquisition
of National Peripherals, Inc., with a remaining life of 48 months.
Foreign Currency Translation
The Company follows the principles of Statement 52, "Foreign Currency
Translation," using the local currencies as the functional currencies of its
foreign
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subsidiaries. Accordingly, all assets and liabilities outside the United States
are translated into dollars at the rate of exchange in effect at the balance
sheet date. Income and expense items are translated at the weighted-average
exchange rates prevailing during the period. Net foreign-currency translation
adjustments accumulate as other accumulated comprehensive loss in stockholders'
equity. Net foreign currency transaction exchange losses of $552, $323 and $669
were realized in fiscal years 2001, 2000 and 1999, respectively.
Concentration of Credit Risk and Suppliers
Credit is extended to all customers based on financial condition and,
generally, collateral is not required. Concentrations of credit risk with
respect to trade receivables are limited because of the large number of
customers comprising the Company's customer base and dispersion across many
different industries and geographies.
The Company generally uses parts and components available from multiple
vendors. However, for the Vivant product line, the Company currently purchases
disk drives solely from Seagate Technology, Inc., chipsets solely from Qlogic
Corporation, and RAID controllers for the Vivant "S" series solely from Mylex
Corporation. To date, the Company has been able to obtain supplies of these
parts and believes that adequate quantities are available to meet its needs.
Disruptions in supply or material increases in the cost of these components
would have an adverse effect on the Company's operations.
Sale of Common Stock by Affiliate
At the time a subsidiary or affiliate, accounted for under the equity
method of accounting, sells existing or newly-issued common stock to unrelated
parties at a price in excess of its book value, the Company's policy is to
record its share of the change in the subsidiary's or affiliate's equity
resulting from the sale as an increase to additional paid-in-capital net of the
tax effect.
Net Income (Loss) per Share
Basic earnings per share are computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding
during the period. Diluted earnings per share are computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding during the period increased to include the number of additional
common shares that would have been outstanding if the dilutive potential common
shares had been issued. The dilutive effect of outstanding options and warrants
is reflected in diluted earnings per share by application of the treasury-stock
method.
Fair Value of Financial Instruments
Statement 107, "Disclosure about Fair Value of Financial Instruments,"
requires all entities to disclose the fair value of financial instruments, both
assets and liabilities recognized and not recognized on the balance sheet, for
which it is practicable to estimate fair value. Statement 107 defines fair value
of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties. As of April 7, 2001,
the fair value of all financial instruments approximated their carrying value.
In June 2000, the FASB issued Statement of Financial Accounting Standards
("FAS") No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities--an Amendment of FAS 133" ("FAS 138"). FAS 138 amends the
accounting and reporting standards for certain derivative instruments and
hedging activities. MTI is required to adopt FAS 138 not later than the first
quarter of fiscal year 2002. The Company does not currently believe adoption
will have a material effect on its financial position or overall trends in
results of operations and does not believe adoption will result in significant
changes to its financial risk management practices. However, the effect of
adoption on the Company's results of operations is dependent upon the fair
values of the Company's derivatives and related financial instruments at the
date of adoption and may result in more pronounced quarterly fluctuations in
other income and expense.
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Reclassifications
Certain reclassifications have been made to the fiscal years 2000 and 1999
financial statements to conform to the fiscal year 2001 presentation.
(2) INVENTORIES
Inventories consist of the following:
APRIL 7, APRIL 1,
2001 2000
-------- --------
Raw materials............................................ $ 8,665 $13,408
Work-in-process.......................................... 705 595
Finished goods........................................... 19,742 11,512
------- -------
$29,112 $25,515
======= =======
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, are summarized as follows:
APRIL 7, APRIL 1,
2001 2000
-------- --------
Plant equipment, office furniture and fixtures........... $19,507 $15,252
Computer equipment....................................... 20,886 20,394
Field service spares..................................... 12,793 11,155
Leasehold improvements................................... 3,042 2,361
------- -------
56,228 49,162
Less accumulated depreciation and amortization........... 39,046 34,698
------- -------
$17,182 $14,464
======= =======
(4) INVESTMENT IN AFFILIATE
In August, 1999, the Company purchased 5,333,333 shares of Caldera Systems,
Inc. ("Caldera"), representing approximately 25% of the outstanding capital
stock of Caldera upon completion of the purchase. Caldera develops and markets
software based on the Linux operating system and provides related services. The
Canopy Group, Inc. ("Canopy"), a major stockholder of the Company, owned all the
issued and outstanding shares of Caldera before this transaction. The Chairman
of the Board of Directors of the Company, is the largest shareholder and
Chairman of the Board of Directors of Canopy.
Also, in August, 1999, after the Company's initial investment in Caldera,
the Company's percentage ownership was diluted to approximately 20% as a result
of Canopy exercising a convertible note payable from Caldera. Additionally, on
March 21, 2000, Caldera completed its initial public offering, further diluting
the Company's percentage ownership to approximately 14%. The Company accounts
for our investment in Caldera under the equity method because the Company has
significant influence, but not control, of the operations of Caldera.
The investment in Caldera was $7,598 and included: (a) cash payment of
$3,000, (b) note payable of $3,000 bearing interest at the prime rate plus one
percent per annum and payable in two equal semi-annual payments beginning
February 2000 and (c)
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investment costs of $1,598, including the issuance of a warrant to purchase
150,000 shares of the Company's common stock. In November 1999, the Company
accelerated the first $1,500 payment on the note payable in exchange for the
cancellation of any interest charges on the note payable. In August 2000, the
Company paid off the balance of $1,500. The excess of the Company's investment
in Caldera over the related underlying equity in net assets of $6,931 is being
amortized on a straight-line basis over seven years.
On March 21, 2000, Caldera completed its initial public offering. The
Company recorded its share of the change in the affiliate's equity resulting
from the public offering as an increase to additional paid-in-capital of $6,194,
net of the tax impact of $3,336. At April 1, 2000, after the effect of this
adjustment, the excess of the Company's investment in Caldera over the related
underlying equity in net assets was $2,878.
Effective with the fourth quarter of fiscal year 2000, the Company records
its share of the results of Caldera on a two-month lag to coincide with
Caldera's fiscal reporting as a publicly-traded company. The unaudited financial
information for Caldera is summarized below:
January 31, April 30,
2001 2000
---------- --------
Current assets............................................ $87,613 $94,183
Non-current assets........................................ 9,027 5,244
Current liabilities....................................... (5,563) (3,479)
Non-current liabilities................................... -- --
------- -------
Net assets................................................ $91,077 $95,948
======= =======
April 7, April 1,
2001 2000
-------- -------
Company's equity investment............................... $ 9,504 $14,304
======= =======
TWELVE SIX
MONTHS ENDED MONTHS ENDED
------------ ------------
JANUARY 31, JANUARY 31,
2001 2000
------------ ------------
Total revenue............................................. $ 4,775 $ 1,201
Operating loss............................................ (36,582) (10,891)
Net loss.................................................. (31,253) (10,711)
Company's equity in net loss.............................. (4,800) (2,824)
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(5) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
APRIL 7, APRIL 1,
2001 2000
-------- --------
Salaries and wages....................................... $ 6,039 $ 5,766
Commissions.............................................. 1,247 5,466
Taxes.................................................... 4,426 6,236
Accrued warranty costs................................... 784 792
Other.................................................... 2,188 2,112
------- -------
$14,684 $20,372
======= =======
During the fourth quarter of fiscal year 2001, MTI recorded a charge of
$0.4 million related to severance that were recorded in operating expenses. Of
the charges, $0.3 million was paid during fiscal year 2001 and $0.1 million was
recorded as accrued salaries and will be paid during fiscal year 2002.
(6) DEBT
Credit Agreement and Lines of Credit
The Company entered into a Loan and Security Agreement (the "Loan
Agreement") with Silicon Valley Bank and General Electric Capital Corporation as
of July 22, 1998, and amended July 22, 1999, whereby the Company may borrow up
to $30.0 million under an asset-secured domestic line of credit, limited by the
value of pledged collateral. Effective September 22, 2000, the Company renewed
its agreement with Silicon Valley Bank and General Electric Capital Corporation.
The agreement allows the Company to borrow at a rate equal to the prime rate
plus 1%. Borrowings under the line of credit are subject to certain financial
and operating covenants, including, without limitation, various financial
covenants requiring the Company to maintain a minimum quick ratio, debt-net
worth ratio, tangible net worth, and a maximum net loss, and restricts the
Company from paying any dividends. The term of the agreement is for one year.
As of April 7, 2001, the Company was in default under the Amended Loan
Agreement for failing to comply with certain covenants particularly the quick
ratio and the maximum net loss covenants which were subsequently waived for the
period ended April 7, 2001 pursuant to an agreement among the Company, Silicon
Valley Bank and General Electric Capital Corporation. The quick ratio, the
profitability, and the maximum net loss covenants of the Loan Agreement also
were amended on May 31, 2001. The Company is operating under the waiver and
amended loan agreement. There can be no assurance that the Company will be in
compliance with the new covenants in future periods. The Company's current line
of credit agreement will expire September 22, 2001. The Company has begun
negotiations for a renewal of its existing credit facility and believes the
Company will be able to secure comparable financing prior to the expiration of
the existing credit facility.
No assurance can be given that additional financing will be available or,
if available, will be on terms favorable to the Company. There were no
borrowings outstanding under this agreement at April 7, 2001.
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(7) INCOME TAXES
The components of income (loss) before income taxes are as follows:
FISCAL YEARS ENDED
--------------------------------------
APRIL 7, APRIL 1, APRIL 3,
2001 2000 1999
-------- -------- --------
U.S. ............................... $(31,044) $ 7,833 $ 3,965
Foreign ............................ (1,868) 2,392 7,648
-------- ------- -------
$(32,912) $10,225 $11,613
======== ======= =======
Income tax expense (benefit) consists of the following:
CURRENT DEFERRED TOTAL
------- -------- --------
2001:
Federal............................................ $ -- $ 3,435 $ 3,435
State.............................................. -- -- --
Foreign............................................ 94 -- 94
------ -------- --------
$ 94 $ 3,435 $ 3,529
====== ======== ========
2000:
Federal............................................ $6,452 $(20,841) $(14,389)
State.............................................. 1,459 (2,107) (648)
Foreign............................................ (58) -- (58)
------ -------- --------
$7,853 $(22,948) $(15,095)
====== ======== ========
1999:
Federal............................................ $ (375) $ 1,305 $ 930
State.............................................. 25 -- 25
Foreign............................................ 566 -- 566
------ -------- --------
$ 216 $ 1,305 $ 1,521
====== ======== ========
Reconciliations of the federal statutory tax rate to the effective tax rate are
as follows:
FISCAL YEARS ENDED
--------------------------------
APRIL 7, APRIL 1, APRIL 3,
2001 2000 1999
-------- -------- --------
Federal statutory rate ..................... (35.0)% 35.0% 35.0%
Effect of foreign operations ............... 2.0 6.9 (4.6)
State taxes, net of federal benefit ........ (5.8) (3.8) --
Change in valuation allowance .............. 46.0 (184.6) (20.1)
Non-deductible expenses .................... 2.0 7.4 5.2
Other ...................................... 1.5 (8.5) (2.4)
------ ------ ------
10.7% (147.6)% 13.1%
====== ====== ======
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The change in the valuation allowance shown in the table is net of the
stock option deduction of $1,450 that is included in the deferred tax asset.
This amount will be charged to Additional Paid in Capital when the valuation
allowance is released.
Deferred-tax assets and liabilities result from differences between the
financial-statement carrying amounts and the tax bases of existing assets and
liabilities. The significant components of the deferred-income-tax assets and
deferred-income-tax liabilities are as follows:
2001 2000 1999
------- ------- -------
Tax operating loss carryforwards............................ $26,887 $18,013 $15,436
Tax basis of intangible assets greater than book basis...... 4,185 4,989 5,370
Accrued expenses not deductible for tax purposes............ 2,531 2,249 1,187
Inventory reserves.......................................... 1,661 1,144 885
Book depreciation greater than tax depreciation............. 2,781 2,805 3,185
Recognition of income reported on different methods for tax
purposes than for financial reporting..................... 1,451 (693) 1,982
Other....................................................... 1,648 (772) (444)
------- ------- -------
41,144 27,735 27,601
Less valuation allowance.................................... 16,844 -- 23,641
------- ------- -------
$24,300 $27,735 $ 3,960
======= ======= =======
At April 7, 2001, the Company had federal net operating loss ("NOL")
carryforwards arising from the acquisition of SF2, available to offset future
taxable income of $15,662, subject to alternative minimum tax limitations. These
carryforwards begin to expire in fiscal year 2004. The utilization of these
carryforwards is limited to approximately $1,000 annually, as a result of the
Internal Revenue Code's restrictive change of ownership rules.
At April 7, 2001, the Company had federal NOL carryforwards, exclusive of
the $15,662 SF2 NOL discussed above, of $48,533. These carryforwards expire
through fiscal year 2021.
Management believes that it is more likely than not that the Company will
realize the benefits of the net deferred tax asset existing at April 7, 2001
based upon projected financial results and available tax-planning strategies.
The change in the valuation allowance from fiscal year 2000 to fiscal year 2001
was $16,844 and the change in the valuation allowance from fiscal year 1999 to
fiscal year 2000 was ($23,641).
The Internal Revenue Service ("IRS") is conducting an examination of the
Company's fiscal years 1992 through 1995 federal-income-tax returns. During the
fourth quarter of fiscal year 1999, the Company received notice from the IRS of
proposed adjustments for fiscal years 1992 through 1995. The Company, after
consultation with tax counsel, continues to believe in the propriety of its
positions as set forth in its tax returns and has filed a letter of protest with
the IRS appeals office. The Company believes the ultimate resolution of the
examinations will not result in a material effect on the Company's consolidated
financial position, results of operations, or liquidity.
(8) STOCKHOLDERS' EQUITY
Net Income (Loss) per Share
The following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share amounts):
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2001 2000 1999
------- ------- -------
Numerator:
Net income (loss), basic and diluted................ $(36,441) $25,320 $10,092
======== ======= =======
Denominator:
Denominator for net income (loss) per share,
basic -- weighted-average shares outstanding..... 32,233 30,268 28,451
------- ------- -------
Effect of dilutive securities:
Dilutive options outstanding..................... -- 2,917 1,259
Dilutive warrants outstanding.................... -- 47 --
------- ------- -------
Dilutive potential common shares.................... -- 2,964 1,259
------- ------- -------
Denominator for net income per share,
diluted -- adjusted weighted-average shares...... 32,233 33,232 29,710
======= ======= =======
Net income (loss) per share, basic.................... $ (1.13) $ 0.84 $ 0.35
======= ======= =======
Net income (loss) per share, diluted... .............. $ (1.13) $ 0.76 $ 0.34
======= ======= =======
Options and warrants to purchase 9,560,835 shares of common stock were
outstanding at April 7, 2001, but were not included in the computation of
diluted earnings per share for the year then ended because the effect would be
antidilutive.
Options to purchase 2,864,100 shares of common stock at prices in excess of
$22.95 per share were outstanding at April 1, 2000, but were not included in the
net income per share, diluted computation for the year then ended because the
options' exercise price was greater than the average market price of the common
stock during the period and, therefore, the effect would have been antidilutive.
Options to purchase 2,935,350 shares of common stock at prices in excess of
$7.54 per share were outstanding at April 3, 1999, but were not included in the
net income per share, diluted computation for the year then ended because the
options' exercise price was greater than the average market price of the common
stock during the period, and therefore, the effect would have been antidilutive.
Stock Options
The Company has granted stock options under its 1985 Incentive Stock Option
Plan, its 1987 Incentive Stock Option Plan and Non-Qualified Stock Option Plan,
its 1992 Stock Incentive Plan, and its 1996 Stock Incentive Plan, generally at
prices equal to the estimated fair-market value of the Company's common stock at
date of grant.
The 1992 Stock Incentive Plan provides for the grant by the Company of
stock options, stock bonuses/purchases, and stock-appreciation rights to acquire
up to an aggregate of not more than the greater of 5% of the authorized shares
of the Company's common stock or 15% of the total number of shares outstanding
as of the Company's prior fiscal year-end, with the aggregate number of options
and rights outstanding not to exceed 30% of the then-outstanding common stock of
the Company. The maximum number of shares available in any case under the plan
is 4,079,960.
The 1996 Stock Incentive Plan provides for the grant by the Company of
incentive stock options or non-qualified stock options. The exercise price of
the non-qualified stock options may not be less than 85% of the fair market
value at the date of grant. The maximum number of shares is initially 2,250,000,
increased each January 1 by a number equal to three percent of the number of
shares outstanding as of the immediately preceding December 31. Notwithstanding
the foregoing, the maximum number of incentive stock options is 2,250,000.
The Board of Directors has approved, subject to approval by the
stockholders, the adoption of a 2001 Stock Incentive Plan. A maximum of
4,000,000 shares is
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authorized for issuance under the 2001 Stock Incentive Plan, plus annual
increases of 3%, subject to terms and conditions of the plan. If approved by the
stockholders, the Company will no longer issue options under its prior stock
option plans, although options currently outstanding under such plans shall
remain in effect in accordance with the respective terms of such plans.
Stock Purchase Warrants
At April 7, 2001, a warrant to purchase 150,000 shares of the Company's
common stock at a price of $18.75 per share was outstanding. The warrant was
issued in August, 1999 to an individual affiliated with Canopy in connection
with services provided to the Company and expires in August, 2009. At April 7,
2001, the warrant was fully exercisable.
At April 7, 2001, a warrant to purchase 55,974 shares of the Company's
common stock at a price of $12.00 per share was outstanding. The warrant was
issued in February, 1998 in connection with a French distribution agreement and
expires in February, 2008. At April 7, 2001, the warrant was exercisable to
purchase 42,724 shares of the Company's common stock. The remaining shares
become exercisable ratably through February 2002.
Directors' Non-Qualified Stock Option Plan
On March 31, 1994, the Company adopted the Directors' Non-Qualified Stock
Option Plan (the "Directors' Plan"). A total of 150,000 shares of the Company's
common stock are reserved for issuance under the Directors' Plan. Under the
Directors' Plan, non-qualified options to purchase 10,000 shares were granted to
each non-employee director of the Company upon the closing of the Company's
initial public offering. Non-employee directors appointed to the Board of
Directors after the initial public offering also receive a non-qualified option
to purchase 10,000 shares of common stock. In addition, each non-employee
director who has served as a director for at least one year receives an option
to purchase 2,500 shares of common stock following each annual meeting of
stockholders; provided that he or she continues to be a director of the Company
immediately following each meeting. The exercise price per share of each option
granted under the Director Plan will be the fair-market value of the Company's
common stock on the date the option is granted, except that the initial grants
to directors upon the closing of the Company's initial public offering had an
exercise price per share of $9.00 per share, the price to the public in the
initial public offering. As of April 7, 2001, options to purchase 80,000 shares
of common stock were outstanding, of which 65,000 were exercisable.
Options granted typically vest over a period of four years from the date of
grant. At April 7, 2001 and April 1, 2000, the number of options exercisable was
2,434,000 and 946,000, respectively, and the weighted-average exercise price of
those options was $12.63 and $7.40.
The Board of Directors has approved, subject to approval by the
stockholders, the adoption of the 2001 Non-Employee Directors Option Program.
The Program, if approved by the stockholders, will function as part of the 2001
Stock Incentive Plan described above. If approved by the stockholders, the
Company will no longer issue options under its 1994 Directors' Non-Qualified
Stock Option Plan.
The per-share weighted-average fair value of stock options granted during
fiscal years 2001, 2000 and 1999 was $4.23, $16.85 and $4.11, respectively, on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: 2001 -- expected dividend yield of 0%,
risk-free interest rate of 4.60%, volatility of its stock over the expected life
of the options of 1.4172 and an expected life of five years; 2000 -- expected
dividend yield of 0%, risk-free interest rate of 6.32%, volatility of its stock
over the expected life of the options of 1.0 and an expected life of five years;
1999 -- expected dividend yield of 0%, risk-free interest rate of 5.43%,
volatility of its stock over the expected life of the options of .5 and an
expected life of six years.
The Company applies APB Opinion No. 25 in accounting for its stock-option
plans and, accordingly, no compensation cost has been recognized for its stock
options in the consolidated financial statements, except as noted above. Had the
Company
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43
determined compensation cost based on the fair value at the grant date for its
stock options under Statement 123, the Company's net income (loss) would have
been the pro-forma amounts indicated below:
NET INCOME NET INCOME (LOSS)
(LOSS) PER SHARE, DILUTED
---------- ------------------
As reported:
2001........................................... $(36,441) $(1.13)
2000........................................... $ 25,320 $ 0.76
1999........................................... $ 10,092 $ 0.34
Pro forma:
2001........................................... $(52,579) $(1.63)
2000........................................... $ 12,992 $ 0.37
1999........................................... $ 4,912 $ 0.17
A summary of all stock option transactions follows (in thousands, except per
share data):
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------- --------------
Options outstanding at April 4, 1998.................. 4,578 $ 5.56
Granted............................................... 2,020 7.86
Exercised............................................. (392) 2.06
Canceled.............................................. (254) 8.30
------
Options outstanding at April 3, 1999.................. 5,952 6.51
Granted............................................... 4,424 22.29
Exercised............................................. (3,138) 5.16
Canceled.............................................. (267) 11.95
------
Options outstanding at April 1, 2000.................. 6,971 16.90
Granted............................................... 5,657 4.22
Exercised............................................. (379) 5.26
Canceled.............................................. (2,894) 18.16
------
Options outstanding at April 7, 2001.................. 9,355 $ 9.39
======
A summary of stock options outstanding at April 7, 2001 follows (in thousands,
except per share data):
EXERCISABLE(1)
WEIGHTED --------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE AVERAGE
RANGE OF OPTIONS CONTRACTUAL EXERCISE NUMBER OF EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE OPTIONS PRICE
- ------------------ ----------- ----------- -------- --------- --------
$ 0.0980 - 1.8750 138 3.6 $ 1.71 138 $ 1.71
2.1250 - 2.1250 1,826 10.0 2.12 -- --
2.2500 - 3.6875 908 8.4 3.43 308 3.04
4.1250 - 4.1250 1,466 9.5 4.12 5 4.12
4.3125 - 5.0625 949 8.0 5.02 522 4.99
5.5000 - 8.3125 1,631 8.1 7.16 514 7.90
8.3750 - 19.1250 943 8.0 11.12 379 13.00
22.3750 - 22.3750 47 8.5 22.38 23 22.38
30.0625 - 30.0625 1,226 8.7 30.06 460 30.06
36.8750 - 52.3440 221 8.8 44.00 85 42.57
----- -----
9,355 $ 7.81 2,434 $12.63
===== ====== ===== ======
- ----------
Note:
(1) Options exercisable at April 1, 2000, and April 3, 1999, were 946 and
2,341, respectively.
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44
Employee Stock Purchase Plan
On March 31, 1994, the Company adopted the 1994 Employee Stock Purchase
Plan (the "Purchase Plan") allowing for an aggregate of 500,000 shares of the
Company's common stock. Under the Purchase Plan, the Board may authorize
participation by eligible employees, including officers, in periodic six month
offerings following the commencement of the Purchase Plan. The price of the
Company's common stock purchased under the Purchase Plan will be equal to 85% of
the lower of the fair market value of the Company's common stock at the
commencement date of each offering period or the relevant purchase date. During
fiscal years 2001, 2000 and 1999, 104,781, 95,914 and 90,645 shares of stock,
respectively, were issued pursuant to this plan.
The Board of Directors has approved, subject to approval by the
stockholders, the adoption of a 2001 Employee Stock Purchase Plan. A maximum of
1,200,000 shares of our common stock is authorized for issuance under the 2001
Employee Stock Purchase Plan. If approved by the stockholders, the Company will
no longer issue options under the 1994 Employee Stock Purchase Plan.
(9) COMMITMENTS AND CONTINGENCIES
Leases
The Company leases facilities and certain equipment under non-cancelable
operating leases. Under the lease agreements for facilities, the Company is
required to pay insurance, taxes, utilities and building maintenance and is
subject to certain consumer-price-index adjustments.
Future minimum lease payments at April 7, 2001 under all non-cancelable
operating leases for subsequent fiscal years are as follows:
2002....................................................... $ 4,708
2003....................................................... 4,100
2004....................................................... 2,460
2005....................................................... 2,150
2006....................................................... 1,264
Thereafter................................................. 595
-------
$15,277
=======
Future minimum capital lease payments at April 7, 2001 for subsequent fiscal
years are as follows:
2002....................................................... $ 216
2003....................................................... 214
2004....................................................... 210
2005....................................................... 210
2006....................................................... 79
Thereafter................................................. --
-------
Total minimum lease payments............................... 929
-------
Less: Amount representing interest......................... 181
-------
Present value of minimum lease payments.................... 748
Less: current portion...................................... 127
-------
Capital lease obligations excluding current portion........ $ 621
=======
Rent expense totaled $5,383, $5,782 and $5,422, for fiscal years 2001, 2000
and 1999, respectively.
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45
Litigation
In July through September, 2000, several class-action complaints were filed
against the Company and certain officers (defendants), alleging violations of
the provisions of the Securities Exchange Act of 1934 and the rules promulgated
thereunder. The plaintiffs in those various cases filed a Consolidated Amended
Complaint in the federal court for the Central District of California on or
about December 5, 2000, making similar allegations. This consolidated complaint
alleges a class period from July 22, 1999 to July 27, 2000 and alleges that the
defendants were aware of certain adverse information that they failed to
disclose during that period. On March 27, 2001, the court granted the Company's
motion to dismiss the complaint on the grounds plaintiffs had failed to state a
legally-cognizable claim and had failed to plead the allegations consistently
with the requirements of the Private Securities Litigation Reform Act. The court
gave plaintiffs sixty days to attempt again to file a legally sustainable
complaint. Plaintiffs filed the First Amended Consolidated Complaint on or about
May 25, 2001. The Company believes the lawsuit is without merit and the Company
intends to defend the suit vigorously.
The Company is, from time to time, subject to claims and suits arising in
the ordinary course of business. In the opinion of management, the ultimate
resolution of these matters will not have a materially adverse effect on the
Company's consolidated financial position, results of operations, or liquidity.
(10) BUSINESS SEGMENT AND INTERNATIONAL INFORMATION
The Company is engaged in the design, manufacture, sale, and service of
high-performance storage systems, software, and related products. The Company's
reportable business segments are based upon geographic areas. The Company's
operations are structured to achieve consolidated objectives. As a result,
significant interdependence and overlap exists among the Company's geographic
areas. Accordingly, revenue, operating income and identifiable assets shown for
each geographic area may not be the amounts which would have been reported if
the geographic areas were independent of one another.
Revenue and transfers between geographic areas are generally priced to
recover cost, plus an appropriate mark-up for profit. Operating income is
revenue less cost of revenues and direct operating expenses.
A summary of the Company's operations by geographic area is presented
below:
2001 2000 1999
-------- -------- --------
Revenue:
United States.................................... $110,025 $174,156 $145,185
Europe........................................... 58,052 64,303 66,960
Transfers between areas.......................... (6,387) (11,362) (10,496)
-------- -------- --------
Total revenue............................ $161,690 $227,097 $201,649
======== ======== ========
Operating income (loss):
United States.................................... $(30,977) $ 5,762 $ 136
Europe........................................... (841) 3,788 8,407
-------- -------- --------
Total operating income (loss)............ $(31,818) $ 9,550 $ 8,543
======== ======== ========
Identifiable assets:
United States.................................... 105,170 $146,183 $ 75,830
Europe........................................... 23,790 34,764 37,948
-------- -------- --------
Total assets............................. 128,960 $180,947 $113,778
======== ======== ========
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The Company's revenues by product type and are summarized below:
2001 2000 1999
-------- -------- --------
Server:
Vivant........................................... $ 42,696 $ 67,700 $ 1,000
Other............................................ 25,408 64,093 89,992
Tape libraries..................................... 35,537 35,719 52,550
Tape related software.............................. 8,179 10,258 13,914
Service............................................ 49,870 49,327 44,193
-------- -------- --------
$161,690 $227,097 $201,649
======== ======== ========
No single customer accounted for more than 10% of revenue in fiscal year
2001, 2000, or 1999.
(11) SALE OF PATENTS
Effective February 9, 1996, the Company entered into an agreement (the "EMC
Agreement") by which we sold to EMC substantially all of the Company's existing
patents, patent applications and related rights. Pursuant to the EMC Agreement,
the Company was entitled to receive $30,000 over the life of this agreement, in
six equal annual installments of $5,000 each. As of January 2001, the Company
had received all installments. The Company also would receive royalty payments
in the aggregate of up to a maximum of $30,000 over the term of the EMC
Agreement. As part of the maximum $30,000 of royalties, minimum royalties of
$10,000 would be received in five annual installments, beginning within thirty
days of the first anniversary of the effective date of the EMC Agreement, and
within thirty days of each subsequent anniversary thereof. As of March 2001, the
Company had received all installments. Also, pursuant to the terms of the EMC
Agreement, $10,000 of the maximum $30,000 of royalties, will be received in five
equal annual installments as a result of a computer and technology agreement
between EMC and IBM announced in March, 1999. The first two annual installments
were received in March, 2000 and March, 2001. Included in net product revenue
and other income for fiscal years 2001, 2000 and 1999 are $3,410, $4,348 and
$4,000, and $4,800, $5,000 and $5,000, respectively, related to this agreement.
Included in deferred income at April 7, 2001 and April 1, 2000, are $3,600 and
$3,750, respectively, related to this agreement. In addition, pursuant to the
terms of the EMC Agreement, the Company also received an irrevocable,
non-cancelable, perpetual and royalty-free license to exploit, market, and sell
the technology protected under the applicable patents. Pursuant to the terms and
conditions of the EMC Agreement, this license will terminate in the event of a
change in control of the Company involving certain acquirers. As part of the EMC
Agreement, the Company and EMC granted to each other the license to exploit,
market and sell the technology associated with each of their respective existing
and future patents arising from any patent applications in existence as of the
effective date of the EMC Agreement for a period of five years, which expired in
February 2001.
(12) RELATED-PARTY TRANSACTIONS
In the normal course of business, the Company sold goods and services to a
subsidiary of Canopy. Goods and services sold to the subsidiary of Canopy in
fiscal year 2001 and 2000 were $429 and $4,920, respectively. The Company made
no sales to the subsidiary of Canopy prior to fiscal year 2000. At April 7,
2001, there was $15 due from the subsidiary of Canopy.
(13) EMPLOYEE BENEFITS
The Company maintains an employee savings plan which is intended to qualify
under section 401(k) of the Internal Revenue Code. The Company's contributions
to the plan are determined at the discretion of the Board of Directors. During
fiscal years 2001, 2000 and 1999, the Company contributed $0, $306 and $243,
respectively.
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(14) QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for continuing operations for fiscal
years 2001 and 2000 are as follows:
NET INCOME
NET (LOSS)
INCOME PER SHARE,
TOTAL REVENUES GROSS PROFIT (LOSS) DILUTED
-------------- ------------ -------- ----------
2001:
Fourth quarter............................. $ 34,170 $11,498 $(20,592) $(0.64)
Third quarter.............................. 42,021 12,896 (4,984) (0.15)
Second quarter............................. 47,589 17,335 (2,125) (0.07)
First quarter.............................. 37,910 12,190 (8,740) (0.27)
-------- ------- --------
Total.............................. $161,690 $53,919 $(36,441)
======== ======= ========
2000:
Fourth quarter............................. $ 60,574 $25,093 $ 14,152 $0.41
Third quarter.............................. 58,958 23,341 2,533 0.08
Second quarter............................. 54,325 22,430 5,077 0.16
First quarter.............................. 53,240 19,209 3,558 0.12
-------- ------- --------
Total.............................. $227,097 $90,073 $ 25,320
======== ======= ========
The Company has experienced significant quarterly fluctuations in operating
results and anticipates that these fluctuations may continue into the future.
These fluctuations have been and may continue to be caused by a number of
factors, including: competitive pricing pressures, the timing of customer orders
(a large majority of which have historically been placed in the last month of
each quarter), the timing of the introduction of new products and new versions
of the Company's products, shifts in product mix and the timing of sales and
marketing and research, and development expenditures. Future operating results
may fluctuate as a result of these and other factors, including the Company's
ability to continue to develop innovative products, the introduction of new
products by the Company's competitors and decreases in gross profit margin for
mature products.
The Company recorded a net tax expense of $3,500 for fiscal year 2001, as
compared to a net tax benefit of $15,100 in fiscal year 2000. The increase was
primarily because of the recording of a net $9,000 expense related to the
valuation allowance for deferred-tax assets in the fourth quarter of fiscal year
2001. The net $9,000 tax expense was partly offset by $5,500 of tax benefit
recorded in the first three quarters of fiscal year 2001. Management believes
that it is more likely than not that the Company will realize the benefits of
the net deferred tax asset existing at April 7, 2001 based on projected
financial results and available tax planning strategies, including the
realizable value of our Caldera investment.
In the fourth quarter of fiscal years 2001 and 2000, the Company recognized
$2,000 from royalty revenue resulting from the sale of patents to EMC (see note
11). Based upon the agreement, the Company will receive a minimum of $10,000 of
royalties in five equal annual installments, the first and the second of which
were paid in March 2000 and March 2001. The Company expects to continue to
recognize $2,000 of royalty revenue in the fourth quarter for fiscal years 2002,
2003 and 2004.
The Company has operated historically without a significant backlog of
orders and, as a result, net product revenue in any quarter is dependent upon
orders booked and products shipped during that quarter. A significant portion of
the Company's operating expenses are relatively fixed in nature and planned
expenditures are based primarily upon sales forecasts. If revenue does not meet
the Company's expectations in any given quarter, the adverse effect on the
Company's liquidity and net income may be magnified by the Company's inability
to reduce expenditures quickly enough to compensate for the revenue shortfall.
Further, as is common in the computer industry, the Company historically has
experienced an increase in the number of orders and shipments in the latter part
of each quarter and the Company expects this pattern to continue into the
future. The Company's failure to receive anticipated
47
48
orders or to complete shipments in the latter part of a quarter could have a
materially adverse effect on the Company's results of operations for that
quarter.
Because of all of the foregoing factors, the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and that such comparisons cannot be relied upon as indicators of
future performance. There can be no assurance that the Company will remain
profitable on a quarter-to-quarter basis or that future revenues and operating
results will not be below the expectations of public market analysts and
investors, which could result in a materially adverse effect on the Company's
common stock.
48
49
SCHEDULE II
MTI TECHNOLOGY CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED APRIL 7, 2001, APRIL 1, 2000 AND APRIL 3, 1999
(IN THOUSANDS)
CHARGED TO
BALANCE AT REVENUE, BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES(1) DEDUCTIONS PERIOD
----------- ---------- ----------- ---------- ----------
Year ended April 7, 2001
Allowance for doubtful accounts and sales
returns................................. $7,210 $ 7,580 $(4,330) $10,460
====== ======= ======= ======
Allowance for inventory obsolescence....... $3,530 $ 2,825 $ (988) $5,367
====== ======= ======= ======
Year ended April 1, 2000
Allowance for doubtful accounts and sales
returns................................. $3,250 $ 4,439 $ (479) $7,210
====== ======= ======= ======
Allowance for inventory obsolescence....... $3,249 $ 2,281 $(2,000) $3,530
====== ======= ======= ======
Year ended April 3, 1999
Allowance for doubtful accounts and sales
returns................................. $5,686 $(2,002)(2) $ (434) $3,250
====== ======= ======= ======
Allowance for inventory obsolescence....... $3,037 $ 2,239 $(2,027) $3,249
====== ======= ======= ======
- ---------------
(1) The allowance for sales returns is recorded as a charge to revenue; the
allowance for doubtful accounts is charged to selling, general and
administrative expenses; and the allowance for inventory obsolescence is
charged to product cost of revenue.
(2) Includes amounts related to the recognition of receivables for which
related revenue was not recognized until fiscal year 1999.
49
50
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.6 Specimen of the Amended Stock Certificate.
*10.20 Severance and Release Agreement dated as of July 7, 2000, between
Dale Boyd and Registrant.
*10.21 Severance and Release Agreement dated as of April 29, 2001, between
Guy M. Cheney and Registrant.
*10.22 Severance and Release Agreement dated as of September 20, 2000,
between Daniel Brown and Registrant.
*10.23 Severance Agreement dated as of July 10, 2000, between Paul W. Emery,
II and Registrant.
*10.24 Severance Agreement dated as of February 7, 2001, between Keith Clark
and Registrant.
*10.25 Severance Agreement dated as of May 30, 2001, between Dale Wight and
Registrant.
*10.26 Severance Agreement dated as of May 30, 2001, between Kenneth D.
Simpson and Registrant.
*10.27 Severance Agreement dated as of May 31, 2001, between Venki
Venkataraman and Registrant.
*10.28 Severance Agreement dated as of May 31, 2001, between Richard L.
Ruskin and Registrant.
*10.30 MTI Technology Corporation 2001 Stock Incentive Plan.
*10.31 MTI Technology Corporation 2001 Non-Employee Directors Option
Program.
*10.32 MTI Technology Corporation 2001 Employee Stock Purchase Plan.
10.33 Limited Waiver and Amendment to Loan Documents dated May 31, 2001,
between the Company and Silicon Valley Bank and General Electric
Capital Corporation, as Co-Lenders.
21 Subsidiaries of the Company.
23 Consent of KPMG LLP.
- ---------------
* Management or compensatory plan or arrangement.
50