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 October 3, 1998
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 9, 1998, there were 22,549,476 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 --
October 3, 1998 and January 3, 1998.............. 3
Consolidated Statements of Operations --
Three and Nine Months Ended October 3, 1998
and September 27, 1997 (Unaudited)............... 4-5
Consolidated Statements of Cash Flows --
Nine Months Ended October 3, 1998 and
and September 27, 1997 (Unaudited)............... 6-7
Notes to Consolidated Financial Statements
(Unaudited)...................................... 8-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations....................................... 12-18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 19-21
3
PART I Item 1. Financial Statements
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)
October 3, January 3,
1998 1998
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................. $ 56,409 $ 47,014
Short-term investments.................... 12,500 1,470
Accounts receivable, less allowance
for doubtful accounts and customer
returns and credits of $8,322 and
$7,746, respectively.................... 45,706 41,577
Inventories, net.......................... 29,936 44,551
Deferred income taxes..................... 13,516 20,678
Income tax refund receivable.............. 2,743 15,873
Other current assets...................... 2,255 4,695
-------- --------
Total current assets................. 163,065 175,858
Property and equipment, net.................... 30,902 35,152
Deferred income taxes.......................... 18,728 8,900
Other assets................................... 1,216 1,436
-------- --------
$213,911 $221,346
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $ 15,332 $13,992
Accruals and other liabilities............ 18,884 32,021
Accrued income taxes...................... 2,755 1,044
Current portion of long-term obligations.. 1,584 519
-------- --------
Total current liabilities............ 38,555 47,576
Long-term obligations.......................... 3,875 2,974
-------- --------
Total liabilities.................... 42,430 50,550
Stockholders' equity: -------- --------
Preferred stock, $.001 par value;
14,000 shares authorized; no shares
issued.................................. -- --
Common stock, $.001 par value; 50,000 shares
authorized; 22,551 and 22,466 shares
issued and outstanding, respectively.... 23 22
Capital in excess of par value............ 66,217 65,718
Treasury stock, at cost, 380 and 15
shares, respectively..................... (2,342) (9)
Retained earnings......................... 107,583 105,065
-------- --------
Total stockholders' equity........... 171,481 170,796
-------- --------
$213,911 $221,346
======== ========
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
----------------------
Oct. 3, Sept. 27,
1998 1997
------ --------
Net sales.................................... $72,805 $ 78,474
Cost of goods sold........................... 51,639 79,643
------- --------
Gross profit (loss).......................... 21,166 (1,169)
Operating expenses:
Selling, general and administrative..... 13,723 15,612
Research and development................ 7,880 10,463
------- --------
Loss from operations......................... (437) (27,244)
Other income, net............................ 949 38
------- --------
Income (loss) before income taxes............ 512 (27,206)
Provision (benefit) for income taxes......... 174 (11,914)
------- --------
Net income (loss)............................ $ 338 $(15,292)
======= ========
Basic net income (loss) per share............ $ 0.02 $ (0.68)
======= ========
Common shares used in the calculation of
basic net income (loss) per share....... 22,340 22,356
======= ========
Diluted net income (loss) per share.......... $ 0.02 $ (0.68)
======= ========
Common and potential common shares used in
the calculation of diluted net income
(loss) per share........................ 22,346 22,356
======= ========
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
-----------------------
Oct. 3, Sept. 27,
1998 1997
-------- --------
Net sales.................................... $223,309 $261,043
Cost of goods sold........................... 157,946 213,281
------- -------
Gross profit................................. 65,363 47,762
Operating expenses:
Selling, general and administrative..... 41,642 43,434
Research and development................ 21,088 28,702
------- -------
Income (loss) from operations................ 2,633 (24,374)
Other income, net............................ 1,182 309
------- -------
Income (loss) before income taxes............ 3,815 (24,065)
Provision (benefit) for income taxes......... 1,297 (10,847)
------- -------
Net income (loss)............................ $ 2,518 $(13,218)
======= =======
Basic net income (loss) per share............ $ 0.11 $(0.59)
======= =======
Common shares used in the calculation of
basic net income (loss) per share....... 22,338 22,308
======= =======
Diluted net income (loss) per share.......... $ 0.11 $ (0.59)
======= =======
Common and potential common shares used
in the calculation of diluted net
income (loss) per share................. 22,493 22,308
======= =======
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
----------------------
Oct. 3, Sept. 27,
1998 1997
-------- --------
Cash flows from operating activities:
Cash received from customers............ $220,192 $263,842
Cash paid to suppliers and employees.... (202,964) (272,948)
Interest received....................... 1,614 1,655
Interest paid........................... (465) (469)
Income taxes paid....................... (728) (1,509)
Income tax refund received.............. 11,606 432
Net cash provided (used) by -------- --------
operating activities............. 29,255 (8,997)
-------- --------
Cash flows from investing activities:
Sale (purchase) of short-term
investments, net...................... (11,030) 16,600
Capital expenditures.................... (6,234) (9,765)
Net cash provided (used) by -------- --------
investing activities............. (17,264) 6,835
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of
common stock.......................... 499 824
Purchase of treasury stock.............. (2,332) --
Principal payments under long-term
obligations........................... (763) (1,243)
Net cash used by financing -------- --------
activities....................... (2,596) (419)
-------- --------
Net increase (decrease) in cash and cash
equivalents............................. 9,395 (2,581)
Cash and cash equivalents at beginning
of period............................... 47,014 46,223
-------- --------
Cash and cash equivalents at end
of period............................... $ 56,409 $ 43,642
======== ========
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
----------------------
Oct. 3, Sept. 27,
1998 1997
---------- ---------
Reconciliation of net income (loss) to net cash
provided (used) by operating activities:
Net income (loss)......................... $ 2,518 $(13,218)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation, amortization
and other............................. 12,490 17,445
Deferred income tax provision........... (2,666) 865
Provision for losses and reserves
on accounts receivable................ 6,802 10,720
Change in assets and liabilities:
Accounts receivable....................... (10,931) (8,368)
Inventories............................... 14,615 5,137
Income tax receivable..................... 13,130 (13,954)
Other current assets...................... 2,440 (281)
Other assets.............................. 220 252
Accounts payable.......................... 1,340 (2,652)
Accruals and other liabilities............ (13,137) (6,109)
Accrued income taxes...................... 1,711 1,166
Other long-term liabilities............... 723 --
-------- -------
Net cash provided (used) by
operating activities................ $29,255 $(8,997)
======== =======
Supplemental schedule of non-cash
investing and financing activities:
Income tax benefit of disqualifying
dispositions of common stock............ $ -- $ 122
Note payable issued to purchase machinery
and equipment or software licenses...... 1,102 626
Capital lease obligations................. 904 137
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 October 3, 1998, the consolidated
statements of operations for the three and nine months ended October 3, 1998
and September 27, 1997, as well as the consolidated statements of cash flows
for the nine months ended October 3, 1998 and September 27, 1997, have been
prepared by Exabyte Corporation (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 the financial statements and
notes thereto included in the Company's January 3, 1998 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 June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). Pursuant to SFAS 130, certain items are required to be
recognized as components of comprehensive income. As the Company does not have
any elements of other comprehensive income, no reporting changes are required.
Also in June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). This statement is effective
for fiscal years beginning after December 15, 1997, but reporting requirements
can be excluded for interim periods during the first year of adoption. SFAS
131 establishes standards for reporting financial and descriptive information
about an enterprise's operating segments in its annual financial statements and
selected segment information in interim financial reports. *Application of
SFAS 131 is not expected to have a material impact on the Company's
consolidated financial position, results of operations or earnings per share
data as currently reported, although the Company's disclosures on business
segments will change.*
Note 2--INVENTORIES
Inventories consist of the following:
October 3, January 3,
1998 1998
---------- ----------
(In thousands)
Raw materials and component parts............ $19,172 $29,266
Work-in-process.............................. 2,123 2,447
Finished goods............................... 8,641 12,838
------- -------
$29,936 $44,551
======= =======
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Note 3--ACCRUED LIABILITIES
Accrued liabilities consist of the following:
October 3, January 3,
1998 1998
---------- ---------
(In thousands)
Wages and employee benefits.................. $ 7,142 $ 7,943
Warranty and other related costs............. 8,934 11,445
Purchase commitments......................... -- 4,528
Other........................................ 2,808 8,105
------- -------
$18,884 $32,021
======= =======
Note 4--NET INCOME (LOSS) PER SHARE
Basic net income (loss) per common share is based on the weighted-average
number of shares of common stock outstanding during each respective period.
Diluted net income (loss) per common share adds to basic weighted shares the
weighted-average number of shares of potential common shares (dilutive stock
options) outstanding during each respective period. Proceeds from the
exercise of the potential common shares 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 incurred, only the
weighted-average number of common shares is used to compute the diluted loss
per share as the inclusion of potential common shares would be antidilutive.
The calculation of basic and diluted earnings per share ("EPS") is as follows:
10
In thousands, except per share data
Three Months Ended Nine Months Ended
---------------------- ----------------------
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
1998 1997 1998 1997
---- ---- ---- ----
Basic EPS computation:
Net income (loss)............ $ 338 $(15,292) $ 2,518 $(13,218)
======== ======= ======= =======
Common shares outstanding.... 22,340 22,356 22,338 22,308
======== ======= ======= =======
Basic EPS.................... $ 0.02 $(0.68) $ 0.11 $(0.59)
======== ======= ======= =======
Diluted EPS computation:
Net income (loss)............ $ 338 $(15,292) $ 2,518 $(13,218)
======== ======= ======= =======
Shares:
Common shares outstanding 22,340 22,356 22,338 22,308
Dilutive stock options... 6 -- 155 --
-------- ------- ------- -------
22,346 22,356 22,493 22,308
======== ======= ======= =======
Diluted EPS.................. $ 0.02 $(0.68) $ 0.11 $(0.59)
======== ======= ======= =======
Excluded from potential common share calculations for the third quarter of
1998 and 1997 were 3,939,000 and 3,637,000 options, respectively, because
their exercise prices were greater than the average fair market value of the
Company's stock for the period, and as such they would be antidilutive.
Since October 3, 1998, the Company issued 75,350 stock options which could
have a dilutive effect on diluted net income per common share in the future.
Additionally, as of November 9, 1998, the Company has repurchased 75,000
shares of common stock since October 3, 1998.
Note 5--RESTRUCTURING
During 1997, the Company incurred $34,947,000 in pre-tax restructuring charges
related to formal decisions by the Company's Board of Directors to exit the
desktop and low-end server market, which included closure of its Eagle(RTM)
division. These decisions were made in order to focus the Company on mid-range
application server markets and establish a more competitive cost structure in
those markets.
The Company incurred $3,123,000 in workforce reduction costs, including
severance, outplacement and benefits.
Inventory write-downs included charges of $16,890,000 relating to excess and
obsolete inventory associated with the decision to exit the desktop and low-end
server markets. Other charges included non-cancelable supplier and customer
commitments of $7,794,000. Asset write-downs of $7,140,000 included $3,075,000
of fixed assets to be scrapped or sold, $3,065,000 of capitalized software
development costs and investment write-downs on projects to be discontinued and
$1,000,000 of lease abandonment costs.
11
At October 3, 1998, the remaining accruals associated with this restructuring
were $1,146,000. Approximately half of these accruals relate to long-term
lease liabilities.
During the second quarter of 1998, the Company concluded negotiations with
several of its former Eagle(RTM) division suppliers. As a result of these
successful negotiations, previously recorded accrued liabilities of
$1,673,000 were no longer required and were reversed to income.
During the third quarter of 1998, the Company successfully sublet certain
Eagle(RTM) facilities at terms more favorable than initially estimated. As
a result, accrued liabilities of $230,000 were no longer required and were
reversed to income.
The following table summarizes the activity in the Company's restructuring
reserves during the first nine months of 1998:
Inventory
(In thousands) Workforce Write-downs Asset
Reduction and Other Write-down Total
--------- ----------- ---------- -------
Balance, January 3, 1998........ $1,447 $ 7,788 $1,000 $10,235
Cash payments................... (1,391) (5,192) (260) (6,843)
Additional charges/
reclassifications........... (47) (1,969) (230) (2,246)
------ ------ ------ -------
Balance, October 3, 1998........ $ 9 $ 627 $ 510 $ 1,146
====== ====== ====== =======
12
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 1997 Form 10-K, filed March 24, 1998("1997 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. Additionally, 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 1997, the Company recorded pre-tax restructuring charges of $34.9
million related to formal decisions by the Company's Board of Directors to exit
the desktop and low-end server market through the closure of its Eagle(RTM)
division. These decisions were made in order to focus the Company on mid-range
application server markets and establish a more competitive cost structure in
those markets. *Remaining vendor commitments are expected to be paid by the
end of 1998.* Remaining lease obligations will be paid through the end of the
respective lease terms which end in February 2002.
YEAR 2000 COMPLIANCE
The phenomenon, known generally as the Year 2000 problem, involves the
potential inability of information or other data-dependent systems to properly
distinguish year references as of the turn of the century. The Company
believes the Year 2000 problem represents a material risk to the Company.
The Company itself is heavily dependent upon the proper functioning of its own
computer or data-dependent systems, including, but not limited to, its systems
in areas such as information, business, financial, operations, manufacturing
and service. Any failure or malfunctioning on the part of these or other
systems could adversely affect the Company in ways that are not currently
known, discernable, quantifiable or otherwise anticipated by the Company.
In mid-1997, Exabyte formed an internal task force to evaluate those areas of
the Company that may be affected by the Year 2000 problem and devised a plan
for the Company to become Year 2000 compliant in a timely manner (the "Plan").
*To date, the Company has executed approximately three-quarters of its Plan and
anticipates completing the remaining portions of the Plan by the end of 1998,
with testing of these systems to occur in the first half of 1999.* In
addition, the Company's subsidiaries are in the process of being incorporated
into the Company's Plan to become Year 2000 compliant. *Exabyte anticipates
that all subsidiaries are or will be Year 2000 compliant by the first quarter
of 1999.*
There can be no assurance that the Company will be able to upgrade any or all
of its, or its subsidiaries', major systems in accordance with the Plan or,
once upgraded, that the systems will be Year 2000 compliant. Should the
Company fail to upgrade such systems in a timely manner, or should those
13
upgrades fail to be Year 2000 compliant, the Company may be unable to conduct
business or manufacture its products, which could cause a material adverse
effect on the Company's results of operations.
The Company's suppliers (particularly sole-source and long lead-time
suppliers) and key customers may be adversely affected by their respective
failure to address the Year 2000 problem. Should any of the Company's
suppliers encounter Year 2000 problems that cause them to delay manufacturing
or shipments of key components to Exabyte, the Company may be forced to delay
or cancel shipments of its products, which would have a material adverse
effect on the Company's results of operations. Additionally, any inability of
Exabyte's key customers to become Year 2000 compliant which would cause them
to delay or cancel substantial purchase orders or delivery of Exabyte's
products would also have a material adverse effect on the Company's results of
operations. The Company is currently working with its suppliers and
customers, as well as each of their respective suppliers, to address their
Year 2000 compliance in a timely manner. *The Company anticipates completion
of this effort by the end of 1998; however, there can be no assurance that any
such effort will be successful.*
Exabyte has incurred to date no incremental material costs associated with its
efforts to become Year 2000 compliant, as the majority of the costs have
occurred as a result of normal upgrade procedures. *Furthermore, the Company
believes that future costs associated with its Year 2000 compliance effort will
not be material.*
Currently, the Company is developing a contingency plan should the Company be
unsuccessful in its efforts to become Year 2000 compliant. *The Company
anticipates that its contingency plan should be finalized by the end of 1998.*
The Company could incur significant material costs related to its contingency
plan. Such material costs are currently unknown but may include costs
associated with creating a buffer stock of the Company's products or other
such measures the Company feels is necessary to maintain operations should
the Company face adverse difficulties relating to the Year 2000 problem.
The Company believes that the tape drives and tape libraries manufactured or
produced by the Company do not use and have not used date data in order to
meet stated functional performance characteristics. The Company further
believes such products accurately process date data (including, but not
limited to, calculating, comparing and sequencing) from, into and between the
twentieth and twenty-first centuries, including leap year calculations,
provided such products operate in accordance with the Company's published
specifications, and further provided that all hardware, software and firmware
used in combination with the Company's products properly exchange date data
with such products. However, there can be no assurance that the Company's
products will function in this manner. Any failure of the Company's products
to perform in accordance with specifications could result in the loss of
critical user data, resulting in claims against the Company for damages arising
from such data loss, which could have a material adverse effect on the
Company's results of operations.
*In addition, Exabyte believes that many companies in the high technology
industry will face significant litigation in the future regarding problems
caused by Year 2000 noncompliance. Because Exabyte operates in the high
technology industry, the Company believes that it may be the subject of such
litigation, which could have a material adverse effect on the Company's
results of operations.*
14
RESULTS OF OPERATIONS
The following table sets forth unaudited operating results for the three and
nine month periods ended October 3, 1998 and September 27, 1997 as a
percentage of sales in each of these periods. This data has been derived
from the unaudited consolidated financial statements.
Three Months Ended
---------------------
Oct. 3, Sept. 27,
1998 1997
------ ------
Net sales.................................... 100.0% 100.0%
Cost of goods sold........................... 70.9 101.5
------ ------
Gross profit (loss).......................... 29.1 (1.5)
Operating expenses:
Selling, general and administrative........ 18.9 19.9
Research and development................... 10.8 13.3
------ ------
Loss from operations......................... (0.6) (34.7)
Other income, net............................ 1.3 0.0
------ ------
Income (loss) before income taxes............ 0.7 (34.7)
Provision (benefit) for income taxes......... 0.2 (15.2)
------ ------
Net income (loss)............................ 0.5% (19.5)%
====== ======
Nine Months Ended
---------------------
Oct. 3, Sept. 27,
1998 1997
------ ------
Net sales.................................... 100.0% 100.0%
Cost of goods sold........................... 70.7 81.7
------ ------
Gross profit................................. 29.3 18.3
Operating expenses:
Selling, general and administrative........ 18.7 16.6
Research and development................... 9.4 11.0
------ ------
Income (loss) from operations................ 1.2 (9.3)
Other income, net............................ 0.5 0.1
------ ------
Income (loss) before income taxes............ 1.7 (9.2)
Provision (benefit) for income taxes......... 0.6 (4.1)
------ ------
Net income (loss)............................ 1.1% (5.1)%
====== ======
15
NET SALES
Net sales for the third quarter and first nine months of 1998 were
$72.8 million and $223.3 million, respectively. These amounts
represent decreases of 7.2% and 14.5%, respectively, from net sales of
$78.5 million and $261.0 million, respectively, for the same periods in
1997. These decreases are mainly the result of decreased sales of 8205/8505
tape drives. Sales of these products decreased to $6.7 million and $22.7
million, respectively, during the third quarter and first nine months of 1998
from $21.6 million and $93.3 million, respectively, for the same periods in
the previous year. In addition, sales of discontinued Eagle(RTM) products
decreased to $477,000 and $2.2 million for the third quarter and first nine
months of 1998 from $4.3 million and $14.5 million for the same periods in
1997. This decrease is partially offset by increases in sales of other current
8mm drives and media. Other current 8mm drives and media represented $50.5
million and $148.9 million of sales, respectively, for the third quarter and
first nine months of 1998 compared to $36.3 million and $97.5 million,
respectively, for the same periods in 1997.
The remainder of sales during the third quarter and first nine months of 1998
and 1997, along with a recap of the products described above are listed in the
following table.
PRODUCT MIX TABLE
(As a Percentage of Net Sales)
Three Months Ended Nine Months Ended
-------------------- -------------------
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
1998 1997 1998 1997
------- ------- ------- -------
8mm drives:
8205, 8505, 8700, Eliant(TM) 820
and Mammoth.......................... 51.4% 58.3% 53.7% 58.7%
Libraries:
10h, 210, 220, 440, 480,18D, 230D,
690D and mirroring solutions......... 19.4 18.9 19.1 19.2
Other end-of-life drives and libraries. 0.9 6.0 1.5 6.1
Media.................................. 27.2 15.4 23.1 14.4
Service, spares and other.............. 6.1 6.6 6.7 6.5
Sales allowances....................... (5.0) (5.2) (4.1) (4.9)
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
Domestic sales accounted for 75.2% and 71.5% of sales, respectively, during
the third quarter and first nine months of 1998. These percentages represent
an increase over domestic sales in the same periods last year of 68.9% and
68.9%, respectively. International sales represented 24.8% and 28.5%,
respectively, for the third quarter and first nine months of 1998 compared to
31.1% and 31.1%, respectively, for the same periods in 1997.
16
The customer mix remained relatively stable in the third quarter and first
nine months of 1998 compared to the same periods in the previous year. The
following table details the sales to different customer types as a percentage
of total net sales:
CUSTOMER MIX TABLE
(As a Percentage of Net Sales)
Three Months Ended Nine Months Ended
------------------ -------------------
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
1998 1997 1998 1997
------- ------- ------- -------
Customer Type:
- - ------------------
OEM.................................... 48.2% 49.6% 47.0% 47.4%
Reseller............................... 47.6 46.2 48.9 47.6
End-user and other..................... 4.2 4.2 4.1 5.0
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
The following table summarizes sales to major customers:
SALES TO MAJOR CUSTOMERS
(As a Percentage of Net Sales)
Three Months Ended Nine Months Ended
------------------ --------------------
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
1998 1997 1998 1997
------- ------- ------- -------
Customer:
- - ----------
OEM A.................................. 16.1% 12.2% 13.9% 11.0%
OEM B.................................. (x) 14.5 11.1 13.6
Reseller C............................. 14.4 11.2 13.3 10.5
OEM D.................................. 12.8 (x) (x) (x)
(x) Sales to this customer in this period were less than 10% of net sales.
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.*
17
GROSS MARGIN
The gross margin percentages for the third quarter and first nine months of
1998 were 29.1% and 29.3%, respectively. These figures increased from
percentages of (1.5)% and 18.3%, respectively, for the comparable periods in
1997. Without restructuring charges, 1997 gross margins were 20.4% and 24.9%,
respectively. Gross margins for the third quarter and year-to-date were
favorably impacted by lower manufacturing expenses which resulted from
headcount and cost reduction efforts during the latter part of 1997. The
year-to-date period was also favorably impacted by the satisfactory settlement
of certain claims from former Eagle(RTM) division vendors.
OPERATING EXPENSES
Selling, general and administrative expenses for the third quarter and first
nine months of 1998 decreased in absolute dollars over the same periods in
1997 by $1.9 million and $1.8 million, respectively. In 1998, these expenses
represented 18.9% and 18.7% of revenues, respectively, for the third quarter
and first nine months. For the same periods in 1997, these expenses represented
19.9% and 16.6% of revenues, respectively. Without restructuring charges,
these expenses for these periods in 1997 were 18.9% and 16.3%, respectively.
The absolute dollar decreases are the result of headcount and cost reduction
efforts during the latter half of 1997 which are offset by increased marketing
expenditures during 1998.
Research and development expenditures for the third quarter and first nine
months of 1998 decreased in absolute dollars over the same periods in 1997 by
$2.6 million and $7.6 million, respectively. In 1998, these expenses
represented 10.8% and 9.4% of revenues, respectively, for the third quarter
and first nine months. For the same periods in 1997, these expenses
represented 13.3% and 11.0% of revenues, respectively. Without restructuring
charges, these expenses were 11.5% and 10.5%, respectively, for these periods
in 1997. Decreases are mainly due to the decision to exit the desktop market
through closure of the Eagle(RTM) division which was made in the latter part
of 1997. Decreases are also the result of headcount and cost reduction efforts
during the latter half of 1997.
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. Other income for the year-to-date period was
$1.2 million in 1998 compared to $309,000 for the same period in 1997. This
increase relates mainly to foreign currency gains and losses.
TAXES
The provision for income taxes for the first nine months of 1998 was 34.0% of
income before taxes compared to 45.1% for the comparable period in 1997. The
tax rate in the third quarter of 1997 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 1998 is expected to be
approximately 34.0%.
18
NET INCOME (LOSS)
Basic net income per share for the third quarter and first nine months of
1998 was $0.02 and $0.11, respectively. In 1997, net loss per share for the
same periods was $0.68 and $0.59, respectively. 1997 losses were due, in
part, to restructuring 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 1997 loss by $0.45
and $0.46 for the quarter and year-to-date, respectively. Net income in 1998
has benefited from headcount and cost reduction efforts related to the 1997
restructuring charges.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1998, the Company generated $29.2 million of
cash from operating activities, generated $500,000 in proceeds from the sale
of common stock, expended $2.3 million to repurchase outstanding shares of
common stock, expended $6.2 million for capital equipment and expended
$800,000 on long-term obligations. Together, these activities resulted in a
net increase in the combined balance of cash and short-term investments of
$20.4 million to a quarter-ending balance of $68.9 million. The Company's
working capital decreased to $124.5 million at October 3, 1998 from $128.3
million at January 3, 1998.
The Company has a $7.5 million bank line of credit which expires May 15,
1999. 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 9, 1998 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. Offsetting the amount available under
the line of credit is a letter of credit which secures certain leasehold
improvements made by the Company's subsidiary in Germany. This letter is
currently for DM 1,200,000 and decreases by DM 100,000 in August of each year
until it is fully depleted.
*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 1999.*
19
PART II.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit
Number Description
------- -----------
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 October 3, 1998.
20
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 17, 1998 By /s/ Stephen F. Smith
----------------------- -----------------------------------
Stephen F. Smith
Vice President, Chief Financial
Officer, General Counsel &
Secretary (Principal Financial
and Accounting Officer)