OVERLAND STORAGE OVERLAND STORAGE, INC. 2004 ANNUAL REPORT Overland Storage, Inc. 4820 Overland Avenue San Diego, California 92123 USA Tel: 858-571-5555 Fax: 858-571-0982 www.overlandstorage.com 2004 ANNUAL REPORT C ORPORATE I NFORMATION BOARD OF DIRECTORS CORPORATE MANAGEMENT WORLDWIDE LOCATIONS SHAREHOLDER INFORMATION Christopher P. Calisi Christopher P. Calisi* Overland Storage, Inc. ANNUAL MEETING President and President and 4820 Overland Avenue The annual meeting will be Chief Executive Officer Chief Executive Officer San Diego, California 92123 USA held at 9:00 a.m. on Monday, Overland Storage, Inc. Toll free: 800-729-8725 November 15th at Director since 2001 Chester Baffa* Tel: 858-571-5555 Overland Storage, Inc. Vice President Fax: 858-571-0982 4820 Overland Avenue Robert A. Degan Worldwide Sales and E-mail: [email protected] San Diego, California Private Investor Customer Support www.overlandstorage.com Director since 2000 STOCK INFORMATION Diane N. Gallo* Overland Storage (Europe) Ltd. Overland’s Common Stock is Scott McClendon Vice President EMEA Office traded on the NASDAQ National Chairman Human Resources Overland House, Ashville Way Market under the symbol “OVRL.” Overland Storage, Inc. Wokingham, Berkshire Director since 1991 W. Michael Gawarecki* RG41 2PL, England TRANSFER AGENT AND REGISTRAR Vice President Tel: +44 (0)118-9898000 Wells Fargo Shareowner Services John Mutch Operations Fax: +44 (0)118-9891897 161 North Concord Exchange President and E-mail: [email protected] South St. Paul, Minnesota 55075 Chief Executive Officer Andreas Hellriegel Tel: 800-468-9716 Peregrine Systems, Inc. Vice President Overland Storage SARL Director since 2003 EMEA Sales Southern Europe Office INDEPENDENT ACCOUNTANTS 13 Rue Camille Desmoulins PricewaterhouseCoopers LLP Michael Norkus Christie Huff 92441 Issy les Moulineaux Cedex, France Suite 2900 President Vice President Tel: +33 (0)1 58 04 25 50 750 B Street Alliance Consulting Group Worldwide Marketing Fax: +33 (0) 1 58 04 26 36 San Diego, California 92101 Optimal results often stem from partnerships. The best partnerships Director since 2004 E-mail: [email protected] Michael Kerman* CORPORATE COUNSEL Peter Preuss Vice President and Overland Storage GmbH Sheppard Mullin evolve from complementary entities. Flavorful food from salt and President Chief Strategy Officer Central Europe Office Richter & Hampton LLP Preuss Foundation Humboldtstrasse 12 12544 High Bluff Drive pepper. Musical harmony from black and white piano keys. Classic Director since 1998 Vernon A. LoForti* 85609 Dornach, Germany Suite 300 Vice President, Tel: +49 89-94490-214 San Diego, California 92130 television from Lucy and Ricky. Innovative backup and recovery John A. Shane Chief Financial Officer and Fax: +49 89-94490-414 President Secretary E-mail: [email protected] INTELLECTUAL PROPERTY COUNSEL Palmer Service Corporation Knobbe Martens solutions from tape and disk-based technologies. Today, Overland Director since 1992 John E. G. Matze* Overland Storage, Inc. Olson & Bear LLP Vice President, Singapore Rep Office 550 West C Street Storage’s tape and disk-based products — working in tandem — are Chief Technology Officer and Level 44, Suntec Tower 3 Suite 1200 General Manager 8 Temasek Boulevard San Diego, California 92101 beginning to change the way IT professionals manage data protection. Diskware Business Unit Singapore, 038988 Tel: +65 6866-3848 INVESTOR INFORMATION Morrie Nelson Fax: +65 6866-3838 Overland’s filings with the Securities Vice President E-mail: [email protected] and Exchange Commission are Americas Sales available, free of charge, upon request to the Investor Relations Robert J. Scroop* Department or through Overland’s C ONTENTS Vice President and web site. They are also available General Manager through the SEC’s EDGAR site on Automation Business Unit the internet at http://www.sec.gov or through links to the Company’s 1SELECTED FINANCIAL HIGHLIGHTS home page. 2LETTER FROM THE PRESIDENT AND CHIEF EXECUTIVE OFFICER For additional information: 4LETTER FROM THE CHIEF FINANCIAL OFFICER Cynthia A. Bond Director of Corporate Communications 5AGUIDE TO TAPE AND DISK-TO-DISK TERMINOLOGY Tel: 858-571-5555 ext. 4269 E-mail: [email protected] 8COMPLEMENTARY DATA PROTECTION: STRENGTHENING THE SUM OF ALL PARTS * Executive Officer of Overland Storage, Inc. under Section 16 of the Securities and Exchange Act of 1934. 14 TAPE AUTOMATION: PLAYING A ROLE IN EVERYDAY DATA PROTECTION SOLUTIONS The following trademarks are owned by Overland Storage, Inc.: AutomationPAC, BackPAC, CompliancePAC, Ditto, EnterpriseXpress, GUTS Guaranteed Up Time, LibraryPro, LibraryXpress, Liveswap, LoaderXpress, MiniLibraryXpress, Multi-SitePAC, NEO SERIES, Overland, Overland logo, Overland Storage, PowerLoader, ProtectionPAC, REO SERIES, REO Softkey, REO 100, REO 1000, REO 4000, REO 9000, SANPiper, ServiceXpress, SmartScale Storage, VR2, Web TLC, XchangeNow, XpressChannel. All other brand names or trademarks 20 DISK-TO-DISK: DRIVING DATA PROTECTION THROUGH SOFTWARE INNOVATION appearing in this publication are the property of their respective owners. 24 FORM 10-K Important Notice: Overland’s Annual Report on Form 10-K for the year ended June 30, 2004 is enclosed herewith and contains additional information about the Company’s busi- ness, including its financial statements and constitutes an integral part of this 2004 Annual Report to Shareholders. This Annual Report contains certain statements of a forward- looking nature relating to future events or the future performance of the Company. Prospective investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider various factors identified in the Form 10-K, including the Designed and produced by GKM, Inc., Del Mar, California www.gkminc.com Designed and produced matters set forth therein under the caption “Risk Factors,” which could cause actual results to differ materially from those indicated by such forward-looking statements. S ELECTED F INANCIAL H IGHLIGHTS (in thousands, except for per share data) AT OR FOR YEARS ENDED JUNE 30, 2004 2003 2002 2001 2000 Income Statement Data Net revenue $ 238,139 $ 195,881 $ 163,380 $ 155,696 $ 122,979 Gross profit 64,654 54,018 42,445 39,034 30,519 Income from operations 15,598 10,310 6,516 3,699 2,811 Income before income taxes 16,199 10,193 6,839 4,017 3,416 Net income 10,625 6,682 4,493 2,494 2,067 Net income per share (1) Basic $ 0.79 $ 0.59 $ 0.42 $ 0.24 $ 0.20 Diluted $ 0.74 $ 0.54 $ 0.40 $ 0.23 $ 0.19 Balance Sheet Data Cash, cash equivalents and short-term investments $ 69,657 $ 55,020 $ 26,884 $ 10,844 $ 15,774 Working capital 103,107 84,326 54,463 46,999 43,257 Total assets 144,026 130,922 81,003 70,171 71,383 Long-term debt, inclusive of current portion — 3,957 4,655 — — Shareholders’ equity 113,514 93,264 59,266 51,679 47,497 (1) See Note 1 of Notes to Consolidated Financial Statements for an explanation of shares used in computing net income per share. REVENUE NET INCOME EARNINGS PER SHARE (IN MILLIONS OF DOLLARS) (IN MILLIONS OF DOLLARS) DILUTED (IN DOLLARS) 238.1 10.6 0.74 195.9 163.4 6.7 0.54 155.7 0.40 122.9 4.5 0.23 2.5 2.1 0.19 00 01 02 03 04 00 01 02 03 04 00 01 02 03 04 OVERLAND STORAGE, INC. | 2004 ANNUAL REPORT Page 1 D EAR S HAREHOLDERS tape business. According to the Enterprise Storage Group (ESG), Overland has already become the By any measure, FY2004 was the best year in the leader in the iSCSI disk-to-disk market, shipping company’s history. more units and terabytes with its REO 4000™ than We achieved record results for annual revenue, any other company. net income and earnings per share. Revenue for the Ensuring business continuity is a necessity. fiscal year increased 22 percent to $238.1 million Clearly, customer needs are shifting regarding the from $195.9 million last year. Net income for the best approach to ensure that continuity. Compliance year grew 59 percent to $10.6 million, or $0.74 with Sarbanes-Oxley, disaster recovery initiatives, cents per diluted share, from $6.7 million, or $0.54 compressed time windows to protect growing per diluted share, in the prior year. amounts of data and other factors challenge the These accomplishments contribute to our strategy of IT managers for backup and recovery. growing excitement and reflect our vision to build Overland into a leader in the data protection T HE N EW F OUNDATION FOR market over the next five years. The achievements B ACKUP AND R ECOVERY of fiscal 2004 demonstrate that our actions are As a result, IT managers stand at a critical juncture producing the right results, and that we under- to implement a new and effective backup and recovery stand the opportunities ahead. strategy. We believe Overland solves their challenges. During an uncertain economy and in a tremen- Tape libraries and disk-based appliances — playing dously competitive market, we thrived in our core complementary roles — form the new foundation tape library business while successfully expanding for backup and recovery. into the disk-to-disk (D2D) backup and recovery Tape is not going away and will continue to provide market. Overland remains the market leader in a fundamental component for cost-effective data mid-range tape automation libraries, and we aug- storage, and we will continue to launch market-leading mented that position with the successful introduction products. With the NEO 8000, we expanded our of the NEO® 8000 tape library. Stemming from the addressable market to the high-end library for data acquisition of Okapi Software in late fiscal 2003, center environments and delivered the lowest we achieved remarkable success in the D2D market priced, high storage-density product in this sector. with the REO SERIES™ product family.