1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 27, 1997
OR
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _________ to _________.
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 November 3, 1997, there were 22,380,689 shares outstanding of the
Registrant's Common Stock (par value $0.001 per share).
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2
EXABYTE CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Balance Sheets --
September 27, 1997 and December 28, 1996......... 3
Consolidated Statements of Operations --
Three and Nine Months Ended September 27, 1997
and September 28, 1996 (Unaudited)............... 4-5
Consolidated Statements of Cash Flows --
Nine Months Ended September 27, 1997 and
September 28, 1996 (Unaudited)................... 6-7
Notes to Consolidated Financial Statements
(Unaudited)...................................... 8-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations....................................... 10-15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 16-30
3
PART I Item 1. Financial Statements
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (In thousands)
September 27, December 28,
1997 1996
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................. $ 43,642 $ 46,223
Short-term investments.................... 4,000 20,600
Accounts receivable, less allowance
for doubtful accounts and customer
returns and credits of $7,397 and
$7,315, respectively.................... 54,062 56,414
Inventories, net.......................... 50,628 55,765
Deferred income taxes..................... 15,134 14,172
Income tax refund receivable.............. 13,954 --
Other current assets...................... 3,492 3,211
-------- --------
Total current assets................. 184,912 196,385
Property and equipment, net.................... 40,388 45,187
Deferred income taxes.......................... 8,228 10,055
Other assets................................... 2,083 4,499
-------- --------
$235,611 $256,126
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $16,264 $18,916
Accrued liabilities....................... 25,791 31,900
Accrued income taxes...................... 2,050 1,007
Current portion of long-term obligations.. 786 832
-------- --------
Total current liabilities............ 44,891 52,655
Long-term obligations.......................... 2,979 3,458
-------- --------
Total liabilities.................... 47,870 56,113
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; 22,372 and 22,184 shares
issued and outstanding, respectively.... 22 22
Capital in excess of par value............ 65,071 64,124
Treasury stock, at cost, 15 shares
outstanding for both periods............. (9) (9)
Retained earnings......................... 122,657 135,876
-------- --------
Total stockholders' equity........... 187,741 200,013
-------- --------
$235,611 $256,126
======== ========
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
----------------------
Sept. 27, Sept. 28,
1997 1996
------- -------
Net sales.................................... $78,474 $92,741
Cost of goods sold........................... 79,643 66,079
------- -------
Gross profit................................. (1,169) 26,662
Operating expenses:
Selling, general and administrative..... 15,612 11,921
Research and development................ 10,463 9,248
------- -------
Income (loss) from operations................ (27,244) 5,493
Other income, net............................ 38 293
------- -------
Income (loss) before income taxes............ (27,206) 5,786
Provision (benefit) for income taxes......... (11,914) 2,083
------- -------
Net income (loss)............................ $(15,292) $ 3,703
======= =======
Net income (loss) per share.................. $(0.68) $0.17
======= =======
Common and common equivalent shares used
in the calculation of net income (loss)
per share............................... 22,356 22,302
======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
5
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Nine Months Ended
----------------------
Sept. 27, Sept. 28,
1997 1996
------- -------
Net sales.................................... $261,043 $277,023
Cost of goods sold........................... 213,281 199,998
------- -------
Gross profit................................. 47,762 77,025
Operating expenses:
Selling, general and administrative..... 43,434 34,063
Research and development................ 28,702 27,420
------- -------
Income (loss) from operations................ (24,374) 15,542
Other income, net............................ 309 1,126
------- -------
Income (loss) before income taxes............ (24,065) 16,668
Provision (benefit) for income taxes......... (10,847) 6,000
------- -------
Net income (loss)............................ $(13,218) $ 10,668
======= =======
Net income (loss) per share.................. $(0.59) $0.48
======= =======
Common and common equivalent shares used
in the calculation of net income (loss)
per share............................... 22,308 22,288
======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
6
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
----------------------
Sept. 27, Sept. 28,
1997 1996
-------- --------
Cash flows from operating activities:
Cash received from customers............ $263,842 $269,773
Cash paid to suppliers and employees.... (272,948) (265,324)
Interest received....................... 1,655 2,161
Interest paid........................... (469) (393)
Income taxes paid....................... (1,509) (2,609)
Income tax refund received.............. 432 4,160
Net cash provided (used) by -------- --------
operating activities............. (8,997) 7,768
-------- --------
Cash flows from investing activities:
Sale of short-term
investments, net...................... 16,600 21,800
Capital expenditures.................... (9,765) (12,704)
Net cash provided by -------- --------
investing activities............. 6,835 9,096
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of
common stock.......................... 824 3,826
Principal payments under long-term
obligations........................... (1,243) (698)
Net cash provided (used) by -------- --------
financing activities............. (419) 3,128
-------- --------
Net increase (decrease) in cash and cash
equivalents............................. (2,581) 19,992
Cash and cash equivalents at beginning
of period............................... 46,223 40,137
-------- --------
Cash and cash equivalents at end
of period............................... $ 43,642 $ 60,129
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
7
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
----------------------
Sept. 27, Sept. 28,
1997 1996
---------- ---------
Reconciliation of net income (loss) to net cash
provided (used) by operating activities:
Net income (loss)......................... $(13,218) $10,668
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation, amortization
and other............................. 17,445 12,200
Deferred income tax provision........... 865 1,726
Provision for losses and reserves
on accounts receivable................ 10,720 6,867
Change in assets and liabilities:
Accounts receivable....................... (8,368) (14,552)
Inventories............................... 5,137 (12,323)
Income tax receivable..................... (13,954) --
Other current assets...................... (281) 5,240
Other assets.............................. 252 (1,545)
Accounts payable.......................... (2,652) 4,421
Accrued liabilities....................... (6,109) (3,571)
Accrued income taxes...................... 1,166 (1,363)
-------- -------
Net cash provided (used) by
operating activities................ $ (8,997) $ 7,768
======== =======
Supplemental schedule of non-cash
investing and financing activities:
Income tax benefit of disqualifying
dispositions of common stock............ $ 122 $ 186
Note payable issued to purchase
software licenses....................... 626 --
Capital lease obligations................. 137 --
The accompanying notes are an integral part of the consolidated
financial statements.
8
EXABYTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1--ACCOUNTING PRINCIPLES
The consolidated balance sheet as of September 27, 1997, the consolidated
statements of operations for the three and nine months ended September 27,
1997 and September 28, 1996, as well as the consolidated statements of cash
flows for the nine months ended September 27, 1997 and September 28, 1996,
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 28, 1996
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.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." SFAS No. 128, which is effective for periods
ending after December 15, 1997, requires changes in the computation,
presentation, and disclosure of earnings per share. All prior period
earnings per share data must be restated to conform with the provisions of
SFAS No. 128. The Company will adopt SFAS No. 128 for the year ended
January 3, 1998, but does not expect the new accounting standard to have
a material impact on the Company's reported financial results.
Note 2--INVENTORIES
Inventories consist of the following:
September 27, December 28,
1997 1996
---------- ----------
(In thousands)
Raw materials and component parts............ $33,048 $34,865
Work-in-process.............................. 2,461 2,692
Finished goods............................... 15,119 18,208
------- -------
$50,628 $55,765
======= =======
9
Note 3--ACCRUED LIABILITIES
Accrued liabilities consist of the following:
September 27, December 28,
1997 1996
---------- ---------
(In thousands)
Wages and employee benefits.................. $ 8,320 $ 8,494
Warranty and other related costs............. 10,273 18,373
Other........................................ 7,198 5,033
------- -------
$25,791 $31,900
======= =======
Note 4--NET INCOME (LOSS) PER SHARE
Net income per 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.
In a period in which a loss is realized, only the weighted average number of
common shares is used to compute the loss per share as the inclusion of common
stock equivalents would be antidilutive.
Note 5--RESTRUCTURING
During the third quarter of 1997, the Company incurred $17.9 million in
pre-tax charges related to global restructuring and repositioning. These
special charges resulted from a reduction in the size of the workforce, the
termination of certain development programs, and the phase-out of some
existing product lines. Charges include $16.2 million in inventory-frelated
charges and product repositioning, and $1.7 million related to workforce
reductions.
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This Form 10-Q contains forward-looking statements within the context of
Section 21E of the Securities Exchange Act of 1934, as amended. Each and
every forward-looking statement involves a number of risks and uncertainties,
including those risk factors specifically delineated and described in Part 1,
Item 1 of the Company's 1996 Form 10-K, filed March 20, 1997 ("1996 Form
10-K"). The actual results that the Company achieves may differ materially
from any forward-looking statements due to such risks and uncertainties.
The Company has identified by *bold-face* various sentences within this Form
10-Q which contain such forward-looking statements, and words such as
"believes," "anticipates," "expects," "intends," and similar expressions
are intended to identify forward-looking statements, but are not the
exclusive means of identifying such statements. The Company undertakes no
obligation to revise any forward-looking statements in order to reflect events
or circumstances that may arise after the date of this report.
RESTRUCTURING CHARGES
During the third quarter of 1997, the Company incurred $17.9 million in
pre-tax charges related to global restructuring and repositioning. These
special charges resulted from a reduction in the size of the workforce, the
termination of certain development programs, and the phase-out of some
existing product lines. Charges include $16.2 million in inventory-related
charges and product repositioning, and $1.7 million related to workforce
reductions. These charges reduced earnings per share for the third quarter
and first nine months of 1997 by $0.41 in both periods. Further discussions
of these charges have been included elsewhere in management's discussion and
analysis as deemed necessary.
YEAR 2000 COMPLIANCE
The Company is currently evaluating the risks and costs associated with Year
2000 compliance. The Company is in the early stage of this evaluation and
there can be no assurance that the costs of compliance will not result in a
material charge to the Company.
RESULTS OF OPERATIONS
The following table sets forth unaudited operating results for the three and
nine month periods ended September 27, 1997 and September 28, 1996 as a
percentage of sales in each of these periods. This data has been derived
from the unaudited consolidated financial statements.
11
Three Months Ended
---------------------
Sept. 27, Sept. 28,
1997 1996
------ ------
Net sales.................................... 100.0% 100.0%
Cost of goods sold........................... 101.5 71.3
------ ------
Gross margin................................. (1.5) 28.7
Operating expenses:
Selling, general and administrative........ 19.9 12.8
Research and development................... 13.3 10.0
------ ------
Income (loss) from operations................ (34.7) 5.9
Other income, net............................ 0.0 0.3
------ ------
Income (loss) before income taxes............ (34.7) 6.2
Provision (benefit) for income taxes......... (15.2) 2.2
------ ------
Net income (loss)............................ (19.5)% 4.0%
====== ======
Nine Months Ended
---------------------
Sept. 27, Sept. 28,
1997 1996
------ ------
Net sales.................................... 100.0% 100.0%
Cost of goods sold........................... 81.7 72.2
------ ------
Gross margin................................. 18.3 27.8
Operating expenses:
Selling, general and administrative........ 16.6 12.3
Research and development................... 11.0 9.9
------ ------
Income (loss) from operations................ (9.3) 5.6
Other income, net............................ 0.1 0.4
------ ------
Income (loss) before income taxes............ (9.2) 6.0
Provision (benefit) for income taxes......... (4.1) 2.1
------ ------
Net income (loss)............................ (5.1)% 3.9%
====== ======
12
NET SALES
Net sales for the three and nine month periods ended September 27, 1997 were
$78.5 million and $261.0 million, respectively. Sales for these periods
represented decreases from the same periods in the prior year. Net sales for
the third quarter decreased by 15.3% from $92.7 million for the same period in
1996. Net sales for the year-to-date decreased 5.8% from $277.0 for the same
period in 1996.
During the first nine months of 1997, sales of the Company's half-high drives
and current library products represented 77.9% of revenue. This is a decrease
from 79.2% for the same period in 1996. Sales of minicartridge products
increased to 5.6% of revenue from 5.1% for the same period in the previous
year. Consumables and service revenues increased in absolute dollars and as
a percentage of sales for the first nine months of 1997 compared to the same
period in 1996.
The remainder of sales during the first nine months of 1997 and 1996, along
with a recap of the products described above are listed in the following
table.
PRODUCT MIX TABLE
(As a Percentage of Net Sales)
Nine Months Ended
------------------
Sept. 27, Sept. 28,
1997 1996
------- -------
8mm half-high drives:
8205, 8505, 8700, Eliant(TM) 820
and Mammoth.......................... 58.7% 65.2%
Libraries:
10h, 210, 220, 440, 480 and DLT...... 19.2 14.0
Minicartridge products:
TR-3, TR-4i, Eagle(TM) 96, 2501
and Nest products.................... 5.6 5.1
Other end-of-life drives and libraries. 0.5 1.9
Consumables............................ 14.4 11.1
Service, spares and other.............. 6.5 5.8
Sales allowances....................... (4.9) (3.1)
------ ------
100.0% 100.0%
====== ======
13
In 1997, the Company recharacterized its customer base into the following
categories: original equipment manufacturers ("OEMs"), non-system OEMs
("NSOs"), resellers, retailers and end-users. Previously, the Company had
characterized its customers as OEMs, NSOs, distributors, solution providers
and end-users. All historical amounts presented herein have been
recharacterized to reflect the current classifications.
The customer mix during the third quarter of 1997 shifted to OEMs from NSOs,
resellers and retailers when compared to the same period in 1996. For the
first nine months of 1997, sales shifted to resellers from NSOs, OEMs and
end-users over the same period in the prior year. OEM and reseller customers
represented the majority of sales in the third quarter and first nine months
of both 1997 and 1996. The following table shows the customer mix for the
third quarter and first nine months of 1997 and 1996.
CUSTOMER MIX TABLE
(As a Percentage of Net Sales)
Three Months Ended
------------------
Sept. 27, Sept. 28,
1997 1996
------- -------
Customer Type:
- ------------------
OEM.................................... 46.4% 38.8%
Reseller............................... 46.2 49.3
NSO.................................... 3.2 6.6
Retailer............................... (0.2) 1.3
End-user............................... 4.4 4.0
------ ------
100.0% 100.0%
====== ======
Nine Months Ended
------------------
Sept. 27, Sept. 28,
1997 1996
------- -------
Customer Type:
- ------------------
OEM.................................... 43.0% 44.5%
Reseller............................... 47.6 44.9
NSO.................................... 4.4 6.8
Retailer............................... 0.8 0.4
End-user............................... 4.2 3.4
------ ------
100.0% 100.0%
====== ======
14
During the third quarter and first nine months of 1997, one OEM customer
accounted for 15% and 14% of sales, respectively, compared to 9% and 11%,
respectively for the comparable periods in 1996. For these same periods,
another OEM customer accounted for 12% and 11% of sales, respectively,
compared to 15% and 16%, respectively, for the comparable periods in 1996.
A third OEM customer accounted for 11% and 11% of sales during the third
quarter and first nine months of 1997. 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
Gross margin percentages for the third quarter and first nine months of 1997
decreased to -1.5% and 18.3%, respectively, compared to 28.7% and 27.8%,
respectively, for the comparable periods in 1996. The 1997 margins include
third quarter special charges of $15.7 million which reduced them to the
figures shown from 18.3% and 24.2%, respectively, for the third quarter and
first nine months of 1997. Decreases in gross margin percentages are due to
the impact of start-up manufacturing costs on several new products introduced
in 1997, increased sales of lower margin minicartridge products, and increased
program expenditures directed at the Company's reseller, NSO and retail
customers. These impacts were partially offset by lower warranty costs in
1997 versus 1996 and the impact of a stronger dollar versus the yen, which
reduced the cost of certain Japanese components.
OPERATING EXPENSES
Selling, general and administrative expenses increased as a percentage of
sales to 19.9% and 16.6%, respectively, for the third quarter and first nine
months of 1997 compared to 12.8% and 12.3%, respectively, for the same periods
in 1996. Represented in absolute dollars, the increases for the quarter and
year-to-date are $3.7 million and $9.4 million, respectively. The increases
in spending for the quarter and year-to-date periods are due to increased
marketing expenditures on products released during 1997 and a corporate
branding awareness program. These expenses were also modestly impacted
by the opening of subsidiaries in Singapore and Canada during the latter part
of 1996 and early part of 1997. Additionally, third quarter special charges
increased these expenses for the third quarter and first nine months of 1997
by 1.3% and 0.3%, respectively, as a percentage of revenue.
Research and development expenditures increased to 13.3% and 11.0% of sales,
respectively, for the third quarter and first nine months of 1997 compared to
10.0% and 9.9%, respectively, for the comparable periods in 1996. Represented
in absolute dollars, the increases for the quarter and year-to-date are $1.2
million and $1.3 million, respectively. These increases are due to increased
spending on new product development efforts. Third quarter special charges
increased these expenses for the third quarter and first nine months of 1997
by 2.0% and 0.6%, respectively.
OTHER INCOME (EXPENSE), NET
Other income (expense), net, consists primarily of interest income and
expense, state franchise taxes, foreign currency gains and losses, the
translation impact of the Company's foreign subsidiaries' balance sheets and
other miscellaneous items.
15
TAXES
The provision for income taxes for the first nine months of 1997 was 45.1% of
income before taxes compared to 36.0% for the comparable period in 1996. The
tax rate in the third quarter was positively impacted by the effect of
additional research and experimentation tax credits claimed for the years
1993-1996. *The effective tax rate for fiscal 1997 is expected to be
approximately 45%.*
NET INCOME (LOSS)
Net loss per share was $0.68 and $0.59, respectively, for the third quarter
and first nine months of 1997. This compares to a net income per share of
$0.17 and $0.48, respectively, for the same periods in 1996. The decreases
are due to lower gross margins and higher operating expenses resulting, in
part, from the special charges related to a reduction in the size of the
workforce, the termination of certain development programs, and the phase-out
of some existing product lines. These charges increased the Company's net
loss per share for the third quarter and first nine months of 1997 by $0.41
for each period. Lower revenues were also a factor.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1997, the Company expended $9.0 million of
cash on operating activities, generated $800,000 in proceeds from the sale
of common stock and expended $9.8 million for capital equipment and $1.2
million on long-term obligations. Together, these activities resulted in a
net decrease in the combined balance of cash and short-term investments of
$19.2 million to a quarter-ending balance of $47.6 million. The Company's
working capital decreased to $140.0 million at September 27, 1997 from $143.7
million at December 28, 1996.
The Company has a $7.5 million bank line of credit which expires April 30,
1998. Under this agreement, borrowings under the line are limited to 80%
of eligible accounts receivable plus 25% of eligible inventory (limited to
$3,000,000). On November 3, 1997 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
maintain positive cash flow on a quarterly basis. As a result of the loss
for the quarter and year-to-date, the Company was in technical violation of
this cash flow covenant. This violation was subsequently waived by the
lender.
*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 1998.*
16
PART II.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit
Number Description
------- -----------
**10.1 Incentive Stock Plan, as amended and restated
on January 16, 1997.
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 September 27, 1997.
**Indicates a compensation plan filed pursuant to Item 602(b)(10) of
Regulation S-K.
17
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 November 12, 1997 By /s/ William L. Marriner
----------------------- -----------------------------------
President, Chief Executive Officer
and Chief Financial Officer