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Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
10-Q
Quarterly Report Pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934
For the quarter ended July 1, 1995
Commission File No. 0-18033
EXABYTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-0988566
(State of Incorporation) (I.R.S. Employer Identification No.)
1685 38th Street
Boulder, Colorado 80301
(Address of principal executive offices, including zip code)
(303) 442-4333
(Registrant's Telephone Number, including area code)
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 ninety days.
Yes /X/ No / /
As of August 9, 1995, there were 21,754,609 shares outstanding of the
Registrant's Common Stock (par value $0.001 per share).
2
EXABYTE CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Balance Sheets --
July 1, 1995 and December 31, 1994 .............. 3
Consolidated Statements of Operations --
Three and Six Months Ended July 1, 1995 and
July 2, 1994 (Unaudited)......................... 4
Consolidated Statements of Cash Flows --
Six Months Ended July 1, 1995 and
July 2, 1994 (Unaudited)......................... 5-6
Notes to Consolidated Financial Statements
(Unaudited)....................................... 7-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations....................................... 9-14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 15-17
3
PART I Item 1. Financial Statements
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS July 1, December 31,
1995 1994
-------- --------
Current assets:
Cash and cash equivalents................. $59,035 $46,233
Short-term investments.................... 2,057 34,111
Accounts receivable, less allowance
for doubtful accounts and customer
returns and credits of $5,313 and
$4,454, respectively.................... 68,255 64,940
Inventories............................... 64,493 48,236
Deferred income taxes..................... 8,507 7,329
Other current assets...................... 4,633 2,750
-------- --------
Total current assets................. 206,980 203,599
Property and equipment, net.................... 36,142 29,166
Deferred income taxes.......................... 6,458 6,458
Other assets................................... 4,436 3,542
-------- --------
$254,016 $242,765
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $18,726 $20,459
Accrued liabilities....................... 23,307 21,345
Accrued income taxes...................... 3,857 3,600
Current portion of long-term obligations.. 473 217
-------- --------
Total current liabilities............ 46,363 45,621
Long-term obligations.......................... 873 237
-------- --------
Total liabilities.................... 47,236 45,858
Stockholders' equity: -------- --------
Preferred stock, $.001 par value;
14,000 shares authorized; no shares
issued and outstanding.................. -- --
Common stock, $.001 par value; 50,000
shares authorized; 21,731 and 21,657
shares issued and outstanding,
respectively............................ 22 22
Capital in excess of par value............ 57,918 57,208
Treasury stock, at cost, 15 shares
outstanding for both periods............. (9) (9)
Retained earnings......................... 148,849 139,686
-------- --------
Total stockholders' equity 206,780 196,907
-------- --------
$254,016 $242,765
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
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EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
------- -------- -------- --------
Net sales.................................... $96,983 $92,681 $193,177 $179,575
Cost of goods sold........................... 73,728 62,863 140,173 122,388
------- ------- -------- --------
Gross profit................................. 23,255 29,818 53,004 57,187
Operating expenses:
Selling, general and administrative..... 11,951 10,552 22,611 19,963
Research and development................ 9,237 8,133 18,094 15,750
------- ------- -------- --------
Income from operations....................... 2,067 11,133 12,299 21,474
Other income, net............................ 140 485 1,584 1,113
------- ------- -------- --------
Income before income taxes................... 2,207 11,618 $13,883 $22,587
Provision for income taxes................... 517 4,182 4,720 8,131
------- ------- -------- --------
Net income................................... $1,690 $7,436 $9,163 $14,456
======= ======= ======== ========
Net income per share......................... $0.08 $0.34 $0.42 $0.66
======= ======= ======== ========
Common and common
equivalent shares used in the
calculation of net income
per share 21,924 21,828 22,030 21,860
======= ======= ======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
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EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
-----------------------
July 1, July 2,
1995 1994
-------- --------
Cash flows from operating activities:
Cash received from customers............ $190,224 $174,871
Cash paid to suppliers and employees.... (193,447) (148,020)
Interest received....................... 1,850 1,095
Interest paid........................... (98) (75)
Income taxes paid....................... (5,641) (10,414)
Net cash provided (used) by -------- --------
operating activities............. (7,112) 17,457
-------- --------
Cash flows from investing activities:
Sale (purchase) of short-term
investments, net...................... 32,053 (19,800)
Capital expenditures.................... (12,687) (7,517)
Net cash provided (used) by -------- --------
investing activities............. 19,366 (27,317)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of
common stock.......................... 710 2,134
Principal payments of long-term
obligations........................... (162) (162)
Net cash provided by -------- --------
financing activities............. 548 1,972
-------- --------
Net increase (decrease) in cash and cash
equivalents............................. 12,802 (7,888)
Cash and cash equivalents at beginning
of period............................... 46,233 44,995
-------- --------
Cash and cash equivalents at end
of period............................... $59,035 $37,107
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
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EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
------------------
July 1, July 2,
1995 1994
-------- --------
Reconciliation of net income to net cash
provided by operating activities:
Net income................................ $ 9,163 $14,456
Adjustments to reconcile net income to
net cash provided(used) by operating
activities:
Depreciation, amortization
and other............................. 7,379 7,482
Deferred income tax provision........... (1,178) (2,384)
Provision for losses and reserves
on accounts receivable................ 3,624 2,160
Change in assets and liabilities:
Accounts receivable....................... (6,939) (7,402)
Inventories............................... (17,485) 77
Other current assets...................... (1,883) (1,889)
Other assets.............................. (279) (79)
Accounts payable.......................... (1,733) 2,140
Accrued liabilities....................... 1,962 2,795
Accrued income taxes...................... 257 101
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Net cash provided(used) by operating
activities............................ $(7,112) $17,457
======= =======
Supplemental schedule of non-cash
investing and financing activities:
Transfer of inventories to
property and equipment.................. $ 1,228 $ 1,677
Disposal of fully depreciated
property and equipment.................. 581 689
Note payable used to finance
software licenses....................... 1,055 --
The accompanying notes are an integral part of the consolidated
financial statements.
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EXABYTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1--ACCOUNTING PRINCIPLES
The consolidated balance sheet as of July 1, 1995, the consolidated statements
of operations for the three and six months ended July 1, 1995 and July 2,
1994, as well as the consolidated statements of cash flows for the six months
ended July 1, 1995 and July 2, 1994, have been prepared by the Company
without an audit. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments necessary for a fair presentation
thereof, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
consolidated financial statements be read in conjunction with financial
statements and notes thereto included in the Company's December 31, 1994
annual report to stockholders heretofore filed with the Commission as Part
II to the Company's Annual Report on Form 10-K. The results of operations
for interim periods presented are not necessarily indicative of the operating
results for the full year.
Note 2--INVENTORIES
Inventories consist of the following:
July 1, December 31,
1995 1994
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(In thousands)
Raw materials and component parts............ $30,891 $34,125
Work-in-process.............................. 2,603 1,914
Finished goods............................... 30,999 12,197
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$64,493 $48,236
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Note 3--ACCRUED LIABILITIES
Accrued liabilities consist of the following:
July 1, December 31,
1995 1994
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(In thousands)
Wages and employee benefits.................. $ 7,108 $ 7,917
Warranty and other related costs............. 13,430 11,839
Other........................................ 2,769 1,589
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$23,307 $21,345
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Note 4--NET INCOME PER SHARE
Net income per common share is based on the weighted average number of shares
of common stock and common stock equivalents (dilutive stock options)
outstanding during each respective period. Proceeds from the exercise of the
dilutive stock options are assumed to be used to repurchase outstanding shares
of the Company's common stock at the average fair market value during the
period.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
High technology companies, such as Exabyte, are subject to numerous risks and
uncertainties. The risk factors and information set forth in Item 1 to the
Company's 1994 Form 10-K, filed March 17, 1995 ("1994 Form 10-K"), as
modified herein, should be carefully considered in the evaluation of the
Company, its business and its investment value.
Product Development; Mammoth: The Company has produced early evaluation units
of its announced Mammoth product and currently expects, subject to the
conditions and qualifications provided in the 1994 Form 10-K, limited
commercial availability of the Mammoth product by the end of 1995. The
foregoing description is a forward-looking statement and is subject to risk.
See "1994 Form 10-K--Item 1--Risk Factors--Product Development; Mammoth" and
"--Item 1--Business Strategy and Products."
Dependence On Key Vendors; Sony: The Company and Sony Corporation ("Sony")
are currently renegotiating certain terms and conditions of their agreement
for the supply by Sony to the Company of the 8mm mechanical tape deck.
Among the items under renegotiation are product pricing and the possible
elimination of provisions relating to the sharing of certain foreign
exchange currency risks. See "1994 Form 10-K--Item 1--Risk Factors--
Dependence On Key Vendors; Sony" and "--Risk Factors--Risks Related to
Foreign Sourcing."
Product Discontinuance: The Company withdrew the previously-announced
EXB-2502 and EXB-2502c products based upon quarter-inch technology. The
Company has also ceased development of the previously-announced EXB-4402 and
EXB-4402c products based upon 4mm technology. See "1994 Form 10-K--Item 1--
Business Strategy and Products."
Inventory Obsolescence: The Company wrote off in the first quarter certain
inventories associated with the EXB-2502 and EXB-2502c that were deemed to be
obsolete as a result of the withdrawal of these products. In the second
quarter, the Company sold certain excess component inventories at a loss and
incurred cancellation charges related to the quarter-inch products. The
Company continues to assess any further financial risks associated with the
discontinuance of quarter-inch and 4mm products as well as of the end-of-life
line of 5 1/4 inch full-high tape subsystems and related libraries. In
addition, the Company continually evaluates the finished goods,
work-in-process and raw material inventory, whether currently owned by the
Company or committed to be purchased by the Company, related to both
discontinued and existing products. There can be no assurance that such
evaluations will not result in the determination by the Company that such
inventory will be deemed to be excess to the Company's requirements or
otherwise obsolete. Any such determination would result in a write-off and
such write-off could have a material adverse effect on the Company's results
of operations. In addition, there can be no assurance that the Company will
not sell discontinued or existing products at a price below the cost of
manufacturing such products and thereby adversely affect the Company's
overall gross margin which could have a material adverse effect on the
Company's results of operations.
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Third Party Proprietary Rights: The Company is currently in discussion with
IBM regarding the extent, if any, of the Company's financial obligations under
the Company's license from IBM of IBM's IDRC, a data compression algorithm.
IBM may assert that the Company has a payment obligation under such license in
excess of the amount the Company has reserved for such obligation. While it
is the Company's position with IBM that it has no payment obligation
materially in excess of the amount reserved by the Company, there can be no
assurance that the Company's position will ultimately prevail, in which case
there could be a payment obligation by the Company which could have a material
adverse effect on the Company's results of operations. See "1994 Form 10-K--
Item 1--Risk Factors--Third Party Proprietary Rights."
RESULTS OF OPERATIONS
The following table sets forth unaudited operating results for the three
and six month periods ended July 1, 1995 and July 2, 1994 as a percentage
of sales in each of these periods. This data has been derived from the
unaudited consolidated financial statements.
Three Months Ended Six Months Ended
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July 1, July 2, July 1, July 2,
1995 1994 1995 1994
------ ------ ------ ------
Net sales.................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........................... 76.0 67.8 72.6 68.2
------ ------ ------ ------
Gross margin................................. 24.0 32.2 27.4 31.8
Operating expenses:
Selling, general and administrative........ 12.3 11.4 11.7 11.1
Research and development................... 9.5 8.8 9.4 8.7
------ ------ ------ ------
Income from operations....................... 2.2 12.0 6.3 12.0
Other income, net............................ 0.1 0.5 0.8 0.6
------ ------ ------ ------
Income before income taxes................... 2.3 12.5 7.1 12.6
Provision for income taxes................... 0.6 4.5 2.4 4.5
------ ------ ------ ------
Net income................................... 1.7% 8.0% 4.7% 8.1%
====== ====== ====== ======
NET SALES
Net sales for the three and six month periods ended July 1, 1995 of $97.0
million and $193.2 million, respectively, represented an increase over the
corresponding periods in 1994 of 4.6% and 7.6%, respectively. These sales
increases were the result of increased shipments of 8mm half-high drives and
libraries, 4mm drives and quarter-inch drives. Consumable sales and service
revenues also grew. Partially offsetting these increases was a reduction in
the shipments of 8mm full-high drives and libraries as well as decreases in
the average selling prices of most products.
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During the first six months of 1995, sales of the Company's full-high
products have decreased as customer demand shifts toward the Company's
half-high products. This shift is evident in both drives and libraries.
It is expected to continue, especially as the full-high products reach
their end-of-life phase. Sales of the Company's full-high drives, the
EXB-8200 and EXB-8500, decreased to 1.0% and 4.3%, respectively, for the
first six months of 1995 compared to 7.7% and 18.1%, respectively, for the
same period during 1994. Demand for drives has shifted to the half-high
EXB-8205 and EXB-8505, whose sales increased to 4.0% and 47.3% of sales,
respectively, during the first six months of 1995 from 3.2% and 38.5%,
respectively, for the same period during 1994. Sales of the full-high
library products, the EXB-10, EXB-10i, EXB-10e, EXB-60 and EXB-120
decreased to 3.2% of sales during the first six months of 1995, compared
to 7.9% for the same period in the prior year. Sales of libraries have
shifted to the half-high EXB-10h, EXB-210, EXB-440 and EXB-480, whose
sales represented 11.9% of sales during the first half of 1995 compared to
0.6% for the same period in the prior year. The remainder of sales during
the first six months of 1995 and 1994, along with a recap of the products
described above are listed in the following table.
PRODUCT MIX TABLE
(As a Percentage of Net Sales)
Six Months Ended
------------------
July 1, July 2,
1995 1994
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8mm products:
------------
EXB-8200.......................... 1.0% 7.7%
EXB-8500.......................... 4.3 18.1
EXB-8205.......................... 4.0 3.2
EXB-8505.......................... 47.3 38.5
Stand-alone subsystems
(for above products)............ 6.4 6.0
EXB-10, 10i, 10e, 60 and 120...... 3.2 7.9
EXB-10h, 210, 440 and 480......... 11.9 0.6
4mm and quarter-inch cartridge products:
----------------------------------------
EXB-4200.......................... 6.2 4.1
EXB-2501 and EXB-1500............. 2.2 1.3
Consumables............................ 9.4 8.6
Service, spares and other.............. 5.7 5.4
Sales allowances....................... (1.6) (1.4)
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100.0% 100.0%
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The customer mix during the second quarter and first six months of 1995
shifted from original equipment manufacturers ("OEMs") and value added
resellers ("VARs") to distributors and end-users. OEM customers accounted
for 42% and 41% of sales, respectively, during the second quarter and first
six months of 1995 compared to 46% and 41%, respectively, of sales for the
comparable periods in 1994. VARs accounted for 13% and 16%, respectively,
of sales during the second quarter and first half of 1995 compared to 22% and
24%, respectively, for the comparable periods in 1994. Sales to distributors
increased to 40% and 39% of sales, respectively, for the second quarter and
first six months of 1995 compared to 30% and 33%, respectively, for the
comparable periods in 1994. Sales to end-users increased to 5% and 4%,
respectively, of sales during the second quarter and first half of 1995
compared to 2% and 2%, respectively, for the comparable periods in 1994.
This shift in customer mix was primarily the result of greater sales to
existing distributor and end-user accounts.
For both the second quarter and first six months of 1995, one OEM customer
accounted for 16% of sales compared to 26% and 21% of sales, respectively, for
the same periods in 1994. No other customers accounted for 10% or more of
sales in any of these periods. Since this and other major customers also
sell competing products and continually review new technologies, there can
be no assurance that sales to this or any other customers will continue to
represent the same portion of the Company's future revenue.
GROSS MARGIN
Gross margin percentages for the second quarter and first six months of
1995 decreased to 24.0% and 27.4%, respectively, compared to 32.2% and
31.8% for the same periods in 1994. Gross margins were affected by a
number of factors during the second quarter and first six months of 1995.
A decline in the value of the dollar versus the yen resulted in
significantly higher dollar costs for Japanese components in several
products. The change in relative customer mix from higher margin VARs to
lower margin OEMs affected the margin adversely, as did a shift in product
mix to lower margin 4mm and quarter-inch drives and new entry-level 4mm and
8mm libraries. Additionally, full-high products were sold at reduced prices.
In an effort to reduce levels of quarter-inch inventories, excess component
inventories were sold at a loss and cancellation charges were incurred.
The Company currently expects continued price erosion in all of its products
due to the competitive nature of the storage peripherals business.
OPERATING EXPENSES
Selling, general and administrative expenses increased as a percentage of
sales to 12.3% and 11.7%, respectively, for the second quarter and first
six months of 1995 compared to 11.4% and 11.1%, respectively, for the same
periods in 1994. In absolute dollars, these expenses for the second quarter
and first six months of 1995 increased $1.4 million and $2.6 million,
respectively, over the same periods in the previous year. Increases are
primarily the result of overall growth in our European sales operations
and increased promotional activities.
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Research and development expenditures increased to 9.5% and 9.4% of sales,
respectively, for the second quarter and first six months of 1995 compared
to 8.8% and 8.7%, respectively, for the comparable periods in 1994. In
absolute dollars these expenses for the second quarter and first six months
of 1995 increased $1.1 million and $2.3 million, respectively, over the same
periods in the previous year. Increases can be attributed to the acquisition
of an engineering subsidiary, Exabyte Magnetics GmbH, in October of 1994,
increased expenditures related to the Mammoth product and an increased focus
on providing software solutions to our customers.
Both selling, general and administrative and research and development
expenditures were modestly impacted by shutdown and severance costs related
to closure and consolidation of facilities in Ann Arbor, Michigan, San Jose,
California, and Lenexa, Kansas.
OTHER INCOME (EXPENSE), NET
Other income (expense), net, consists primarily of interest income, royalty
income, interest expense, royalty expense, state franchise taxes, foreign
currency revaluation gains and losses and other miscellaneous items.
TAXES
The provision for income taxes for the first six months of 1995 decreased to
34.0% of income before taxes from 36.0% in the prior year. The Company
currently expects the effective tax rate for 1995 to be approximately 34.0%
NET INCOME
Net income per share decreased to $0.08 and $0.42, respectively, for the
second quarter and first six months of 1995 compared to $0.34 and $0.66,
respectively, for the same periods in 1994. This decrease was primarily
the result of lower gross margins and higher operating expenses.
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LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1995, the Company expended $7.1 million of
cash on operating activities, generated $710,000 in proceeds from the sale
of common stock, expended $162,000 on long-term obligations and
$12.7 million for capital equipment. Together, these activities resulted in
a net decrease in the combined balance of cash and short-term investments of
$19.3 million to a quarter-ending balance of $61.1 million. The Company's
working capital increased to $160.6 million on July 1, 1995 from $158.0
million on December 31, 1994.
The Company has a $7.5 million bank line of credit which expires April 30,
1996, with borrowings under the line limited to 80% of eligible accounts
receivable plus 25% of eligible inventory (limited to $3,000,000). On July 1,
1995 the amount available under the line was $7.5 million and no borrowings
were outstanding. Borrowings under the line of credit bear interest at the
lower of the bank's prime rate or LIBOR + 2%. The ability to borrow under
this line of credit is dependent upon the Company's adherence to a set of
financial covenants, including the need to be profitable on a quarterly basis.
The Company is currently in compliance with all such covenants.
The Company believes its existing sources of liquidity and funds expected to
be generated from operations will provide adequate cash to fund the Company's
anticipated working capital and other cash requirements through fiscal 1995.
15
PART II.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit
Number Description
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27.0 Financial Data Schedule
(b) Reports on Form 8-K: There were no reports on Form 8-K for the
three month period ended July 1, 1995.
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SIGNATURES
Pursuant to the requirements 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.
EXABYTE CORPORATION
Registrant
Date: August 11, 1995 By: William L. Marriner
----------------------- ------------------------
Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)