1
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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 March 30, 1996
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 May 8, 1996, there were 21,921,361 shares outstanding of the
Registrant's Common Stock (par value $0.001 per share).
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EXABYTE CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Balance Sheets --
March 30, 1996 and December 30, 1995............. 3
Consolidated Statements of Operations --
Three Months Ended March 30, 1996 and
April 1, 1995 (Unaudited)........................ 4
Consolidated Statements of Cash Flows --
Three Months Ended March 30, 1996 and
April 1, 1995 (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....................................... 9-13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................... 14-16
3
PART I Item 1. Financial Statements
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS March 30, December 30,
1996 1995
-------- --------
Current assets:
Cash and cash equivalents................. $63,452 $40,137
Short-term investments.................... 12,600 28,800
Accounts receivable, less allowance
for doubtful accounts and customer
returns and credits of $5,554 and
$6,832, respectively.................... 58,224 56,785
Inventories, net.......................... 45,593 44,169
Deferred income taxes..................... 18,082 17,595
Other current assets...................... 5,828 9,446
-------- --------
Total current assets................. 203,779 196,932
Property and equipment, net.................... 43,590 42,972
Deferred income taxes.......................... 7,829 7,703
Other assets................................... 2,295 2,729
-------- --------
$257,493 $250,336
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $22,239 $21,840
Accrued liabilities....................... 34,309 32,945
Accrued income taxes...................... 6,257 4,104
Current portion of long-term obligations.. 949 900
-------- --------
Total current liabilities............ 63,754 59,789
Long-term obligations.......................... 3,940 4,181
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Total liabilities.................... 67,694 63,970
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; 21,840 and 21,827
shares issued and outstanding,
respectively............................ 22 22
Capital in excess of par value............ 59,240 59,102
Treasury stock, at cost, 15 shares
outstanding for both periods............. (9) (9)
Retained earnings......................... 130,546 127,251
-------- --------
Total stockholders' equity........... 189,799 186,366
-------- --------
$257,493 $250,336
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
4
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended
----------------------
March 30, April 1,
1996 1995
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Net sales.................................... $93,818 $96,193
Cost of goods sold........................... 68,277 66,444
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Gross profit................................. 25,541 29,749
Operating expenses:
Selling, general and administrative..... 10,509 10,660
Research and development................ 10,029 8,857
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Income from operations....................... 5,003 10,232
Other income, net............................ 144 1,444
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Income before income taxes................... 5,147 11,676
Provision for income taxes................... 1,853 4,203
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Net income................................... $3,294 $7,473
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Net income per share......................... $0.15 $0.34
======= =======
Common and common
equivalent shares used in the
calculation of net income
per share 22,089 22,135
======= =======
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)
Three Months Ended
----------------------
March 30, April 1,
1996 1995
-------- --------
Cash flows from operating activities:
Cash received from customers............ $92,532 $99,925
Cash paid to suppliers and employees.... (85,494) (94,063)
Interest received....................... 729 1,006
Interest paid........................... (127) (38)
Income taxes paid....................... (313) (1,607)
Income tax refund received.............. 4,160 --
Net cash provided by -------- --------
operating activities............. 11,487 5,223
-------- --------
Cash flows from investing activities:
Sale of short-term
investments, net...................... 16,200 32,027
Capital expenditures.................... (4,320) (5,982)
Net cash provided by -------- --------
investing activities............. 11,880 26,045
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of
common stock.......................... 140 169
Principal payments under long-term
obligations........................... (192) (49)
Net cash provided (used) by -------- --------
financing activities............. (52) 120
-------- --------
Net increase in cash and cash
equivalents............................. 23,315 31,388
Cash and cash equivalents at beginning
of period............................... 40,137 46,233
-------- --------
Cash and cash equivalents at end
of period............................... $63,452 $77,621
======== ========
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)
Three Months Ended
----------------------
March 30, April 1,
1996 1995
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Reconciliation of net income to net cash
provided by operating activities:
Net income................................ $ 3,294 $ 7,473
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, amortization
and other............................. 3,702 2,958
Deferred income tax provision........... (613) (81)
Provision for losses and reserves
on accounts receivable................ 1,139 730
Change in assets and liabilities:
Accounts receivable....................... (2,578) 2,719
Inventories............................... (1,424) (19,900)
Other current assets...................... (542) (614)
Income tax receivable..................... 4,160 --
Other assets.............................. 433 (84)
Accounts payable.......................... 399 8,415
Accrued liabilities....................... 1,364 929
Accrued income taxes...................... 2,153 2,678
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Net cash provided by
operating activities............... $11,487 $5,223
======= =======
Supplemental schedule of non-cash
investing and financing activities:
Transfer of inventories to
property and equipment.................. $ -- $ 682
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 March 30 1996, the consolidated
statements of operations for the three months ended March 30, 1996 and
April 1, 1995, as well as the consolidated statements of cash flows for the
three months ended March 30, 1996 and April 1, 1995, 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 30, 1995
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:
March 30, December 30,
1996 1995
-------- ----------
(In thousands)
Raw materials and component parts............ $26,314 $24,932
Work-in-process.............................. 2,719 2,033
Finished goods............................... 16,560 17,204
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$45,593 $44,169
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Note 3--ACCRUED LIABILITIES
Accrued liabilities consist of the following:
March 30, December 30,
1996 1995
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(In thousands)
Wages and employee benefits.................. $ 6,675 $ 5,603
Warranty and other related costs............. 23,362 20,068
Loss on purchase commitments................. 1,526 4,212
Other........................................ 2,746 3,062
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$34,309 $32,945
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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 Part 1, Item 1
of the Company's 1995 Form 10-K, filed March 22, 1996 ("1995 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 began commercial shipment of the
Mammoth product in the first quarter. The Mammoth product incorporates a
mechanical deck manufactured by the Company. The Company's manufacturing
experience in the past has been largely limited to the assembly and testing
of purchased components, and the Company has had limited experience in other
phases of manufacturing. In particular, the Company has had only limited
experience in the manufacture of mechanical decks and certain critical
components of the deck assembly, including the head scanner assemblies, and
there can be no assurance that the Company will be able to manufacture the
Mammoth product in commercial quantities at a commercially acceptable cost.
Any inability of the Company to manufacture the Mammoth product and components
in the required volumes would have a material adverse effect on the Company's
competitive position and on its results of operations. The Company's ability
to successfully introduce the Mammoth product is also dependent upon the
availability of advanced tape media which is currently solely sourced from
Sony. For these and other factors relating to the introduction, manufacture
and sale of the Mammoth product, which factors could have a material adverse
effect on the Company's results of operations, see the 1995 Form 10-K.
Sony Competitive 8mm Offering: Sony announced on May 14, 1996 the introduction
of a competitive 8mm product offering. The Company believes that the Sony
introduction represents the first 8mm offering by a competitor. Sony's
competitive position may also adversely affect the Company's ability to procure
8mm mechanical decks and tape media at required volumes and competitive prices
although the Company believes that no such adverse effect has been experienced
to date. For a fuller discussion of these and other factors, which could have
a material adverse effect on the Company's competitive position and on its
results of operations, see the 1995 Form 10-K.
RESULTS OF OPERATIONS
The following table sets forth unaudited operating results for the three
month periods ended March 30, 1996 and April 1, 1995 as a percentage
of sales in each of these periods. This data has been derived from the
unaudited consolidated financial statements.
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Three Months Ended
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March 30, April 1,
1996 1995
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Net sales.................................... 100.0% 100.0%
Cost of goods sold........................... 72.8 69.1
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Gross margin................................. 27.2 30.9
Operating expenses:
Selling, general and administrative........ 11.2 11.1
Research and development................... 10.7 9.2
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Income from operations....................... 5.3 10.6
Other income, net............................ 0.2 1.5
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Income before income taxes................... 5.5 12.1
Provision for income taxes................... 2.0 4.3
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Net income................................... 3.5% 7.8%
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NET SALES
Net sales for the three month period ended March 30, 1996 of $93.8 million
represented a decrease over the corresponding period in 1995 of 2%. This
sales decrease was the result of lower shipments of 8mm full-high drive and
library products. Partially offsetting this decrease was an increase in the
shipments of 8mm half-high drive and library and quarter-inch products.
Consumable sales and service revenues also grew.
During the first three months of 1996, sales of the Company's half-high
products continued to increase as customer demand shifted from the Company's
full-high products. This shift was evident in both drives and libraries and
is expected to continue through the end of 1996 when the last full-high
products are projected to ship.
Sales of half-high drives and half-high libraries increased to 63.0% and
12.9%, respectively, of sales during the first quarter of 1996 from 54.8% and
11.9%, respectively, for the same period during 1995. Sales of the Company's
full-high drives and full-high libraries decreased to 1.7% and 0.1%,
respectively, for the first three months of 1996 compared to 6.9% and 4.2%,
respectively, for the same period during 1995. The remainder of sales during
the first three months of 1996 and 1995, along with a recap of the products
described above are listed in the following table.
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PRODUCT MIX TABLE
(As a Percentage of Net Sales)
Three Months Ended
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March 30, April 1,
1996 1995
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8mm half-high drives:
EXB-8205, 8505, 8700 and Mammoth..... 63.0% 54.8%
8mm full-high drives:
EXB-8200 and 8500.................... 1.7 6.9
8mm half-high libraries:
EXB-10h, 210, 440 and 480............ 12.9 11.9
8mm full-high libraries:
EXB-10, 10i, 10e, 60 and 120......... 0.1 4.2
4mm products:
EXB-4200............................. 3.2 6.0
Quarter-inch products:
TR3, EXB-1500 and 2501............... 3.4 1.9
Consumables............................ 10.9 9.5
Service, spares and other.............. 6.5 6.3
Sales allowances....................... (1.7) (1.5)
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100.0% 100.0%
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In 1996 the Company recharacterized its customer base into the following
categories: original equipment manufacturers ("OEM's"), non-system OEM's
("NSO's"), solution providers, distributors and end-users. Previously, the
Company had characterized its customers as OEM's, distributors, and
value-added resellers ("VAR's"). All historical amounts presented herein
have been recharacterized to reflect the current classifications.
The customer mix during the first quarter of 1996 shifted to OEM's and
distributors from solution providers, NSO's and end-users. Sales to OEM's
during the first quarter of 1996 represented 48.6% of total sales compared to
44.0% of sales for the comparable period in 1995. Distributors accounted
for 39.6% of sales during the first quarter of 1996 compared to 35.8% for
the comparable period in 1995. Sales to solution providers and NSO's
decreased to 2.1% and 6.7% of sales, respectively during the first quarter
of 1996 compared to 5.7% and 10.7%, respectively for the comparable period
in 1995. The following table shows the customer mix for the first quarter of
1996 and 1995.
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CUSTOMER MIX TABLE
(As a Percentage of Net Sales)
Three Months Ended
------------------
March 30, April 1,
1996 1995
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Customer Type:
- ------------------
OEM.................................... 48.6% 44.0%
Distributor............................ 39.6 35.8
NSO.................................... 6.7 10.7
Solution provider...................... 2.1 5.7
End-user............................... 3.0 3.8
------ ------
100.0% 100.0%
====== ======
During the first quarter of 1996, one OEM customer accounted for 18% of sales
compared to 17% of sales for the same period in 1995. Another OEM customer
accounted for 12% of sales in the first quarter of 1996. No other customers
accounted for 10% or more of sales in any of these periods. Since these and
other major customers also sell competing products and continually review
new technologies, there can be no assurance that sales to these or any other
customers will continue to represent the same portion of the Company's future
revenue.
GROSS MARGIN
The Company's gross margin percentage decreased to 27.2% for the first quarter
of 1996 compared to 30.9% for the first quarter of 1995. This decrease can be
attributed to lower margins on the EXB-8505 and media, as well as increased
warranty costs. The lower margins on the EXB-8505 are due to lower pricing.
Price erosion is a continuing factor for the Company due to the competitive
nature of the storage peripherals business. Increased warranty costs are
related to the EXB-4200, EXB-8500 and EXB-2501 products.
OPERATING EXPENSES
Selling, general and administrative expenses increased slightly as a
percentage of sales to 11.2% for the first quarter of 1996 compared
to 11.1% for the same period in 1995, but decreased in absolute dollars,
primarily as a result of decreased advertising costs. Other principal
components of these sales-related costs include salaries and benefits,
sales commissions and promotions expenses.
Research and development expenditures increased to 10.7% of sales for the
first quarter of 1996 compared to 9.2% for the same period in 1995. This
increase can be attributed to increased development cost for recently and
newly released 8mm products.
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OTHER INCOME, NET
Other income (expense), net, consists primarily of interest income and expense,
state franchise taxes, foreign currency gains and losses and other
miscellaneous items.
TAXES
The provision for income taxes for the first three months of 1996 was
36.0% of income before taxes and was consistent with the comparable
period in 1995. The Company's annual provision for income taxes may be lower
if proposed changes in the tax law are passed which extend the research and
development credit beyond July 1995.
NET INCOME
Net income per share decreased to $0.15 in the first quarter of 1996 compared
to $0.34 in the first quarter of 1995. This decrease was primarily the
result of lower sales.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1996, the Company generated $11.5 million of
cash from operating activities, generated $140,000 in proceeds from the sale
of common stock and expended $4.3 million for capital equipment and $192,000
on long-term obligations. Together, these activities resulted in a
net increase in the combined balance of cash and short-term investments of
$7.1 million to a quarter-ending balance of $76.1 million. The Company's
working capital increased to $140.0 million at March 30, 1996 from $137.1
million at December 30, 1995.
The Company has a $7.5 million bank line of credit which expires April 30,
1997, with borrowings under the line limited to 80% of eligible accounts
receivable plus 25% of eligible inventory (limited to $3,000,000). On May 6,
1996 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. 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 1996.
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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 March 30, 1996
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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 May 15, 1996 By William L. Marriner
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Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)