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Proc-Type: 2001,MIC-CLEAR
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CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Forms S-8 (Nos. 33-33414 and 33-42182) of Exabyte Corporation of our report dated January 20, 2000, except for Note 12 which is
as of February 2, 2001, appearing in Exhibit 99.1 of this Form 8-K. /s/ PricewaterhouseCoopers LLP Denver, Colorado REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Exabyte Corporation In our opinion, the consolidated financial statements listed in the index appearing under Item 7 on page 2, present fairly in all material respects, the financial position of Exabyte Corporation and its subsidiaries at January 1, 2000 and January
2, 1999, and the results of their operations and their cash flows for each of the three years in the period ended January 1, 2000, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial
statement schedule listed in the index also appearing under Item 7 on page 2 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial
statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits
of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Due to substantial operating losses incurred in 2000 and the resulting liquidity constraints, the Company has recently engaged in an evaluation of strategic alternatives available to it. The Company will continue to incur net operating cash outflows in
the near term to accomplish its long term business objectives. Management's progress to date and future plans regarding these matters are discussed more fully in Note 12 to the consolidated financial statements. /s/ PricewaterhouseCoopers LLP Denver, Colorado EXABYTE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) January 1, January 2, ASSETS Current assets: Cash and cash equivalents $ 25,610 $ 56,571 Short-term investments 7,039 14,145 Accounts receivable, net 37,163 38,014 Inventories, net 26,805 26,997 Income tax receivable 1,431 2,563 Deferred income taxes 8,136 9,637 Other current assets 3,496 3,129 Total current assets 109,680 151,056 Property and equipment, net 24,708 28,396 Deferred income taxes 30,484 27,308 Other assets 1,024 1,076 Total long-term assets 56,216 56,780 $165,896 $207,836 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 23,327 $ 16,032 Accrued liabilities 13,815 14,002 Accrued income taxes 1,877 2,370 Current portion of long-term obligations 2,931 1,699 Total current liabilities 41,950 34,103 Long-term obligations 6,570 7,461 Commitments and contingencies(Notes 7 and 11) Stockholders' equity: Preferred stock, $.001 par value; 14,000 shares Common stock, $.001 par value; 50,000 shares Capital in excess of par value 67,584 66,693 Treasury stock, at cost, 455 and 455 shares (2,742) (2,742) Retained earnings 52,511 102,298 Total stockholders' equity 117,376 166,272 $165,896 $207,836 The accompanying notes are an integral part of the consolidated financial statements. EXABYTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Fiscal Years Ended January 1, January 2, January 3, Net sales $222,827 $286,505 $335,684 Cost of goods sold 182,875 207,604 288,053 Gross profit 39,952 78,901 47,631 Operating expenses: Selling, general and administrative 56,650 56,978 59,211 Research and development 35,725 29,888 40,909 Loss from operations (52,423) (7,965) (52,489) Other income (expense), net 1,235 1,816 (634) Loss before income taxes (51,188) (6,149) (53,123) Benefit for income taxes 1,401 3,382 22,312 Net loss $(49,787) $ (2,767) $(30,811) Basic net loss per share $(2.24) $ (0.12) $ (1.38) Common shares used in the calculation of Diluted net loss per share $ (2.24) $ (0.12) $ (1.38) Common and potential common shares used The accompanying notes are an integral part of the consolidated financial statements. EXABYTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands, except per share data) Common Stock Treasury Stock Capital in Excess Balance, December 28, 1996 22,184 $22 (15) $(9) $64,124 $135,876 Common stock options exercised Common stock issued pursuant Tax effect of disqualifying Stock compensation expense 119 Net loss for the year (30,811) Balance, January 3, 1998 22,466 22 (15) (9) 65,718 105,065 Common stock options exercised Common stock issued pursuant Tax effect of disqualifying Purchases of treasury stock (440) (2,733) Net loss for the year (2,767) Balance, January 2, 1999 22,647 23 (455) (2,742) 66,693 102,298 Common stock options exercised Common stock issued pursuant Net loss for the year (49,787) Balance, January 1, 2000 22,886 $23 (455) $(2,742) $67,584 $ 52,511 The accompanying notes are an integral part of the consolidated financial statements. EXABYTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Fiscal Years Ended January 1, January 2, January 3, Cash flows from operating activities: Cash received from customers $223,624 $291,422 $350,833 Cash paid to suppliers and employees (249,910) (269,301) (359,975) Interest received 2,628 2,314 2,216 Interest paid (477) (607) (637) Income taxes paid (297) (1,093) (1,732) Income tax refund received 663 11,771 3,020 Net cash (used) provided by operating activities (23,769) 34,506 (6,275) Cash flows from investing activities: Sale (purchase) of short-term investments, net 7,106 (12,675) 19,130 Capital expenditures (11,002) (9,414) (11,810) Cash (used) provided by investing activities (3,896) (22,089) 7,320 Cash flows from financing activities: Proceeds from issuance of common stock 891 948 1,311 Purchase of treasury stock -- (2,733) -- Principal payments on long-term obligations (4,187) (1,075) (1,565) Net cash used by financing activities (3,296) (2,860) (254) Net (decrease) increase in cash and cash equivalents (30,961) 9,557 791 Cash and cash equivalents at beginning of year 56,571 47,014 46,223 Cash and cash equivalents at end of year $25,610 $56,571 $ 47, 014 The accompanying notes are an integral part of the consolidated financial statements. EXABYTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Fiscal Years Ended January 1, 2000 January 2, 1999 January 3, 1998 Reconciliation of net loss to net cash (used) Net loss $(49,787) $ (2,767) $(30,811) Adjustments to reconcile net loss to net Depreciation, amortization and other 15,647 16,619 19,742 Write-down of assets -- 1,961 6,054 Deferred income tax benefit (1,674) (7,367) (5,351) Provision for losses and reserves on Provision for inventory write-downs 15,236 Stock compensation expense 119 Change in assets and liabilities: Accounts receivable (5,815) (4,958) 351 Inventories, net 192 17,554 (4,022) Income tax receivable 1,132 13,310 (15,873) Other current assets 804 1,566 (1,484) Other assets 15 (43) (171) Accounts payable 7,295 2,040 (4,923) Accrued liabilities (187) (11,944) 1,028 Accrued income taxes (493) 1,353 201 Other long-term obligations 2,436 (1,339) (857) Net cash (used) provided by Supplemental schedule of non-cash investing Notes payable issued to purchase property Income tax benefit of disqualifying dispositions Capital lease obligations -- 904 137 The accompanying notes are an integral part of the consolidated financial statements. EXABYTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Exabyte Corporation (the "Company") was incorporated on June 5, 1985 under the laws of the state of Delaware. Exabyte designs, manufactures and markets a full range of 8mm tape drives as well as 8mm and DLTtape(TM) robotic tape libraries. Exabyte
also provides its own brand of recording media, software utilities and worldwide service and customer support. The Company reports its results of operations on the basis of a fiscal year of 52 or 53 weeks ending on the Saturday closest to December 31.
There were 52 weeks in 1999 and 1998. There were 53 weeks in 1997. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. Revenue Recognition Sales are recognized upon shipment of products to customers. Revenue from sales to certain resellers is subject to agreements allowing certain rights of return and price protection on unsold merchandise held by those resellers. Accordingly,
reserves for estimated future returns and for price protection are provided in the period of the sale. Foreign Currency Translation The U.S. dollar is the functional currency of the consolidated corporation including its subsidiaries. For the Company's foreign subsidiaries, monetary assets and liabilities are translated into U.S. dollars using the exchange rates in effect at
the balance sheet date and non-monetary assets are translated at historical rates. Results of operations are translated using the average exchange rates during the period. Foreign exchange gains and losses related to these translations which are included
in the consolidated statements of operations were not material in any year presented. The Company enters into transactions that are denominated in foreign currencies. These transactions are translated at the prevailing spot rate upon payment and recorded in the operating account to which the payment relates. Foreign Currency Forward Contracts The Company, from time to time, enters into foreign currency forward contracts in anticipation of movements in the dollar/yen exchange rate which it uses to hedge the purchase of certain inventory components from Japanese manufacturers. The Company
does not enter into these contracts for trading purposes. At January 1, 2000 and January 2, 1999 there were no contracts outstanding. Contracts are established with a maturity date within six months of the purchase date. Hedged inventory transactions are
included in the Statement of Cash Flows as operating activities. Transaction gains or losses due to exchange rate movements are recorded upon settlement of the transaction, deferred into inventory, and recognized in income as the underlying inventory is
sold. Fair Value of Financial Instruments The carrying amount of cash and cash equivalents, short-term investments, accounts receivable, accounts payable, accrued liabilities and the current portion of long-term obligations in the consolidated financial statements approximate fair value
because of the short-term maturity of these instruments. The fair value of long-term obligations for notes payable and capital leases was estimated by discounting the future cash flows using market interest rates and does not differ significantly from
that reflected in the consolidated financial statements. Concentration of Credit Risk The Company's customers include original equipment manufacturers ("OEMs"), resellers and end users. Financial instruments which potentially subject the Company to concentrations of credit risk are primarily accounts receivable, cash equivalents and
short-term investments. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. At January 1, 2000 and January 2, 1999, one customer accounted for approximately 21%
and 16%, respectively, of net accounts receivable. Another customer accounted for 15% and 16%, respectively, of net accounts receivable at January 1, 2000 and January 2. For these same periods, a third customer accounted for 10% and 17%, respectively, of
net accounts receivable. No other customers accounted for 10% or more of net accounts receivable at year end for the two years presented. Accounts receivable are summarized as follows: January 1, January 2, (In thousands) Accounts receivable $45,018 $45,844 Less: reserves and allowance $37,163 $38,014 Cash Equivalents and Short-Term Investments The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Such cash equivalents aggregated $18,797,000 and $45,136,000 at January 1, 2000 and January 2, 1999, respectively.
The Company invests in held-to-maturity debt securities which are recorded at amortized cost. These include corporate bonds, government bonds and certificates of deposit. At January 1, 2000 these investments had maturity dates of eleven months or less.
There were no unrealized gains or losses on such investments for the three years then ended. Inventories Inventories are stated at the lower of cost or market, cost being determined by the first-in, first-out method, and include material, labor and manufacturing overhead. Inventories, net of $9,569,000 and $8,426,000 in total reserves for 1999 and
1998, respectively, consist of the following: January 1, January 2, (In thousands) Raw materials and component parts $15,694 $16,851 Work-in-process 1,874 1,931 Finished goods 9,237 8,215 $26,805 $26,997 Depreciation and Amortization Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the respective depreciable assets. Software, computers, furniture and machinery/equipment are depreciated over
three years. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the asset or the lease term (three to twelve years). Maintenance and repairs are expensed as incurred and improvements are capitalized. The
Company continually evaluates long-lived assets, based on fair values or undiscounted cash flows, whichever is more readily determinable, whenever significant events or changes in circumstances occur which indicate the carrying amount may not be recoverable
. Warranty Costs A provision for estimated future costs which may be incurred under the Company's various product warranties is recorded when products are shipped. Advertising Costs Advertising costs are expensed as incurred. Research and Development Costs Software development costs for certain projects are capitalized from the time technological feasibility is established to the time the resulting software product is first shipped. Capitalized software costs are stated at the lower of cost or net
realizable value. There were no capitalized software costs at January 1, 2000. At January 2, 1999 there were $37,000 in capitalized software costs. These items are recorded as other noncurrent assets. During 1999 and 1998, certain capitalized software
development efforts were determined to be impaired, and $37,000 and $403,000 in costs, respectively, were written off. All other research and development costs are expensed as incurred. 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: (In thousands, except per share data) 1999 1998 1997 Basic and diluted EPS computation: Net loss $(49,787) $ (2,767) $(30,811) Common shares outstanding 22,256 22,285 22,326 Basic and diluted EPS $ (2.24) $ (0.12) $ (1.38) In all years presented, basic shares equal diluted shares because inclusion of potential common shares would be antidilutive. Options to purchase 2,941,000, 2,742,000 and 3,204,000 shares of common stock were excluded from dilutive stock option calculations for 1999, 1998 and 1997, 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. In addition, for 1999, 1998 and 1997, options to purchase 1,099,000, 1,102,000 and 494,000 shares of common stock, respectively, were excluded from the diluted computation above because of their antidilutive effect on net loss per share. Inclusion of
these shares would have resulted in additional dilutive stock options outstanding of 45,000, 117,000 and 97,000, respectively. Since January 1, 2000, the Company has issued 1,446,000 stock options with an exercise price between $7.81 and $8.00, which could have a dilutive effect on diluted net income per common share. Use of Estimates The Company has prepared these financial statements in conformity with generally accepted accounting principles which require the use of management's estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities, as well as the reported amounts of revenue and expenses. Accordingly, actual results could differ from the estimates used. Reclassifications Certain reclassifications have been made to historical information to correspond to the 1999 financial statement presentation. New Accounting Pronouncement In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 prescribes accounting for changes in the
fair value of derivatives. In July 1999, the FASB delayed the implementation date of this standard to all fiscal quarters of all fiscal years beginning after June 15, 2000. This delay was published as Statement of Financial Accounting Standards No. 137
("SFAS 137"). The Company is in the process of assessing the effects of application of this statement, and believes it will not have a material impact on the Company's consolidated results of operations. Application may result in the recognition of
components of comprehensive income which are discussed in Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." NOTE 2 - PROPERTY AND EQUIPMENT Property and equipment consist of the following: January 1, January 2, (In thousands) Equipment and furniture $108,056 $100,432 Equipment under capital leases 1,826 2,384 Leasehold improvements 17,572 16,507 Less: accumulated depreciation and amortization (102,746) (90,927) $ 24,708 $ 28,396 Depreciation expense was $15,583,000, $16,619,000 and $19,503,000 in 1999, 1998 and 1997, respectively. Accumulated amortization of equipment under capital leases was $1,446,000 and $1,657,000 at January 1, 2000 and January 2, 1999, respectively.
Amortization of equipment under capital leases is included in depreciation expense. In 1997, the Company incurred restructuring charges which included fixed asset write-downs (see Note 10). NOTE 3 - ACCRUED LIABILITIES Accrued liabilities consist of the following: January 1, January 2, (In thousands) Wages and employee benefits $ 6,083 $ 6,047 Warranty and related costs, current portion 3,536 4,650 Other 4,196 3,305 $13,815 $14,002 NOTE 4 - DEBT Line of Credit The Company maintains a $7,500,000 bank line of credit which expires August 1, 2000. This line of credit is secured by $7,500,000 in marketable securities held by an affiliate of the lender. The line of credit has no financial covenants. Use of the
invested funds is not legally restricted. On January 1, 2000, the amount available under the line was $7,500,000 and no borrowings were outstanding. Borrowings made under the agreement bear interest at the lower of the bank's prime rate or LIBOR + 2%. 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 1,100,000 and decreases by DM 100,000 in August of
each year until it is fully depleted. Long-Term Obligations In 1999 and 1998, the Company entered into notes payable for $2,092,000 and $1,102,000, respectively to finance the purchase of certain equipment, computer software and services. The 1999 note payable requires quarterly installments of interest
(7.2%) and principal through April 2001. The 1998 note payable requires monthly installments of interest (7.7%) and principal through January 2001 and is collateralized by the respective equipment. The Company has also entered into capital lease obligations related to the acquisition of certain equipment. Other long-term obligations include the long-term portion of estimated warranty obligations and deferred revenue on extended warranty contracts. The following represents future payments pursuant to these obligations as of January 1, 2000: Capital (in thousands) 2000 $1,565 $383 $1,113 $3,061 2001 331 148 2,633 3,112 2002 -- 4 3,441 3,445 2003 -- -- 35 35 2004 -- -- -- -- Thereafter -- -- -- -- 1,896 535 7,222 9,653 Less: amount representing interest (92) (60) -- (152) Present value of payments 1,804 475 7,222 9,501 Less: current portion (1,478) (340) (1,113) (2,931) $326 $135 $6,109 $6,570 Interest expense aggregated $477,000, $607,000 and $637,000 in 1999, 1998 and 1997, respectively. NOTE 5 - CAPITAL STOCK AND STOCK COMPENSATION PLANS At January 1, 2000, the Company had three stock-based compensation plans. The Company applies APB Opinion 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for options granted at fair
market value under its fixed stock option plans and its stock purchase plan. Had compensation cost for the Company's three stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent
with the method of FASB Statement 123, the Company's pro forma results of operations and pro forma net loss per share would have been as follows: (In thousands, except per share data) 1999 1998 1997 Net loss: As reported $(49,787) $(2,767) $(30,811) Pro forma $(51,938) $(5,929) $(34,953) Basic and diluted net loss per share: As reported $(2.24) $(0.12) $(1.38) Pro forma $(2.33) $(0.27) $(1.57) In all years presented, basic loss per share equals diluted loss per share because inclusion of potential common shares would be antidilutive. Fixed Stock Option Plans Under the Incentive Stock Plan, the Company may grant options to its employees and directors for up to 9,500,000 shares of common stock. Under the 1997 Non-Officer Stock Option Plan, the Company may grant options to its employees (who are not
officers or directors) for up to 2,750,000 shares of common stock. Under both plans, options are granted at an exercise price not less than the fair market value of the stock on the date of grant. The options vest over periods up to 50 months and expire
10 years after the date of grant, except in the event of the termination or death of the employee, whereupon vested shares must be exercised within 90 days or six months, respectively, or they are canceled. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: 1999 1998 1997 Estimated dividends none none none Expected volatility 57% 57% 55% Risk-free interest rate 4.7%-6.6% 4.4%-5.9% 5.6%-6.9% Expected life from vest date (years) 0.28 0.29 0.29 A summary of the status of the Company's fixed stock option plans as of January 1, 2000, January 2, 1999 and January 3, 1998, and changes during the years then ended is presented as follows: 1999 1998 1997 Shares Weighted-Avg. Shares Weighted-Avg. Shares Weighted-Avg. Outstanding at Granted 1,462 5.30 1,326 7.09 1,190 12.51 Exercised (33) 6.16 (19) 5.07 (143) 1.65 Forfeited (1,233) 10.76 (1,161) 14.82 (967) 16.58 Outstanding at end Options exercisable Weighted-average The following table summarizes information about fixed stock options outstanding at January 1, 2000: Options Outstanding Options Exercisable Number Weighted-Avg. Weighted-Avg. Number Weighted-Avg. $3.97 - 5.50 1,033 9.2 years $ 5.19 173 $ 5.50 6.88 - 12.38 1,115 7.5 years 7.33 554 7.78 12.63 - 15.88 1,099 5.9 years 13.61 892 13.75 16.13 - 35.63 793 3.2 years 21.44 775 21.52 4,040 6.7 years $11.26 2,394 $14.29 Employee Stock Purchase Plan Under the Employee Stock Purchase Plan, the Company is authorized to issue up to 1,000,000 shares of common stock to its full-time employees, nearly all of whom are eligible to participate. The Company currently has 9,000 shares available for issue
under this plan. As a result, more shares must be authorized in order to fulfill any future issuances, including those for the purchase period from January 1, 2000 to June 30, 2000. Under the terms of the plan, employees may elect to have up to 15% of
their gross salaries withheld by payroll deduction to purchase the Company's common stock. The purchase price of the stock is 85% of the lower of market price at the beginning or end of each six-month participation period. Under the plan, employees
purchased 206,000, 162,000 and 139,000 shares in 1999, 1998 and 1997, respectively. The fair value of each stock purchase plan grant is estimated on the date of grant using the Black-Scholes model with the following assumptions: 1999 1998 1997 Estimated dividends none none none Expected volatility 57% 57% 55% Risk-free interest rate 4.7%-4.9% 4.7%-5.4% 5.3%-5.6% Expected life (years) 0.5 0.5 0.5 Weighted-average fair value of Stockholder Rights Plan The Board of Directors adopted on January 24, 1991 and amended on August 23, 1995 a Stockholder Rights Plan ("Rights Plan") in which preferred stock purchase rights were distributed as a dividend at the rate of one right for each share of Exabyte
common stock held as of February 15, 1991. The Rights Plan is designed to deter coercive or unfair takeover tactics and to prevent an acquiring entity from gaining control of the Company without offering a fair price to all of the Company's stockholders. Each right will entitle the holders of the Company's common stock to purchase one one-hundredth of a share of preferred stock at an exercise price of $75, subject to adjustment in certain cases to prevent dilution. The rights are evidenced by the
common stock certificates and are not exercisable or transferable apart from the common stock until the earlier of ten days after the date on which a person or group has acquired beneficial ownership of 15% or more of the common stock (an "Acquiring
Entity") or ten business days after the public announcement of the commencement of a tender or exchange offer that would result in the Acquiring Entity owning 15% or more of the common stock. Further, the rights generally entitle each right holder (except
the Acquiring Entity) to purchase that number of shares of the Company's common stock which equals the exercise price of the right divided by one-half of the current market price of the common stock if any person becomes the beneficial owner of 15% or
more of the common stock. If an Acquiring Entity purchases at least 15% of the Company's common stock, but has not acquired 50%, the Board of Directors may exchange the rights (except those of the Acquiring Entity) for one share of common stock per right.
In addition, under certain circumstances, if the Company is involved in a merger or other business combination in which the Company is not the surviving corporation, the rights entitle the holder to buy common stock of the Acquiring Entity with a market
value of twice the exercise price of each right. The Company is generally entitled to redeem the rights for $.01 per right at any time until ten days following a public announcement that a 15% stock position has been acquired and in certain other circumstances. The rights, which do not have voting
rights, will expire on February 15, 2001, unless redeemed or exchanged earlier by the Company pursuant to the Rights Plan. NOTE 6 - INCOME TAXES Pretax loss is subject to tax in the following jurisdictions: 1999 1998 1997 (In thousands) Domestic $(48,681) $ (5,374) $(50,899) Foreign (2,507) (775) (2,224) $(51,188) $ (6,149) $(53,123) The provision for (benefit from) income taxes consists of the following: 1999 1998 1997 (In thousands) Current: Federal $ -- $ 2,443 $15,607 State -- 1,428 (1,535) Foreign 344 114 182 Deferred: Federal (1,857) (6,180) (4,988) State (63) (1,187) (364) Foreign 175 -- -- $(1,401) $(3,382) $(22,312) Total income tax benefit differs from the amount computed by applying the U.S. federal income tax rate of 35% to loss before income taxes for the following reasons: 1999 1998 1997 (In thousands) U.S. federal income tax at statutory rate $(17,916) $ (2,152) $(18,593) State income taxes, net of federal benefit (1,084) (63) (1,362) Valuation allowance 17,529 -- -- Research and development credits (1,000) (1,500) (1,500) Tax exempt interest (9) (397) (465) Prior year filing effects -- 364 (1,210) Foreign taxes in excess of 35% 1,396 376 904 Other (317) (10) (86) $ (1,401) $ (3,382) $(22,312) Deferred tax assets are attributable to the following: January 1, January 2, (In thousands) Current assets: Warranty reserve $ 2,681 $ 2,507 Bad debt and revenue reserves 2,772 2,634 Inventory reserves 4,009 2,931 Other 2,367 1,565 11,829 9,637 Less valuation allowance (3,693) -- $ 8,136 $ 9,637 Noncurrent assets: Property and equipment $ 4,375 $ 4,939 Net operating loss carryforwards: Domestic 31,672 13,925 Foreign 2,000 2,175 Credit carryforwards 4,517 5,152 Goodwill 928 1,017 Other 828 100 44,320 27,308 Less valuation allowance (13,836) -- $30,484 $27,308 At January 1, 2000, the Company has a deferred tax valuation reserve equal to 31.2% of total deferred tax assets. Management believes that based on the available evidence, both positive and negative, it is more likely than not that currently recorded
deferred tax assets ($38,620,000 at January 1, 2000) will be fully realized. The Company had recorded changes in the estimates of deferred tax assets on a monthly basis through the first quarter of 1999 without any reserve. During the second quarter of 1999, the Company concluded that is was no longer appropriate to record
additional tax benefits for its continuing losses based on operating losses in the current and preceding periods as well as the projected impact of delays in the release of the M2(TM) product. At that time, management determined that a valuation allowance
was required for a portion of the deferred tax assets. Management's analysis of the deferred tax assets at January 1, 2000 included analysis of historical results, projections of future operating results, and an assessment of the market conditions that
have and are expected to affect the Company in the future. The carryforward periods on net operating losses and tax credit carryforwards were also considered. The Company will continue to assess the need for deferred tax valuation reserves on existing
assets in the future, and should projected results fall short of expectations, an additional valuation allowance may be required. In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", deferred tax assets are recorded as current or noncurrent based on the classification of the financial statement component to which they relate.
Also, the valuation allowance has been prorated between current and noncurrent deferred tax assets. At January 1, 2000, domestic net operating loss carryforwards of $75,539,000, which expire between 2018 and 2019, are available to offset future taxable income. Utilization of $6,025,000 of the carryforwards is subject to an annual limitation of
$670,000 through 2005. Foreign net operating loss carryforwards may be carried forward indefinitely. In addition, the Company has unused research and development credits of $3,405,000 which expire between 2012 and 2019 and alternative minimum tax credits
of $1,113,000 which may be carried forward indefinitely. NOTE 7 - LEASE COMMITMENTS The Company leases its office, production and sales facilities under various operating lease arrangements. Most of the leases contain various provisions for rental adjustments including, in certain cases, a provision based on increases in the
Consumer Price Index. In addition, most of the leases require the Company to pay property taxes, insurance and normal maintenance costs. The Company has sublet certain of these leased spaces to third parties. The Company also leases certain equipment
under operating leases. Future minimum lease payments under non-cancelable operating lease arrangements are as follows: Gross Amount Sublease Net Amount (In thousands) 2000 $ 5,601 $382 $ 5,219 2001 4,947 94 4,853 2002 4,577 10 4,567 2003 3,683 -- 3,683 2004 2,163 -- 2,163 Thereafter 258 -- 258 $21,229 $486 $20,743 Rent expense aggregated $5,917,000, $5,971,000 and $5,906,000 in 1999, 1998 and 1997, respectively. NOTE 8 - EMPLOYEE BENEFIT PLAN The Company maintains a qualified Section 401(k) Savings Plan which allows eligible employees to contribute up to 15% of their salaries on a pre-tax basis. Company contributions to the plan are discretionary. The Company recorded as expense
matching contributions totaling $761,000, $917,000 and $920,000 in 1999, 1998 and 1997, respectively. Company contributions are fully vested after six years of employment. NOTE 9 - SEGMENT INFORMATION In 1998, the Company adopted Statement of Financial Accounting Standards No. 131 "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"). At the time, the Company was organized on a divisional basis by product lines. Each
product line was engineered, manufactured and marketed in one of three different operating segments. Certain other costs including administrative, sales, technical support and corporate marketing were not allocated to the segments and were considered
corporate costs. During the third quarter of 1999, the Company underwent a restructuring (see Note 10) and as a result collapsed the three separate operating segments into one. Currently, all operations of the Company are considered one operating segment. Therefore, no segment disclosures have been presented. The Company will continue to review the internal reporting structure for future changes that could result in
disclosure of segments under SFAS 131. The following table details revenues from external customers by geographic area: Revenues form External Customers 1999 1998 1997 (In thousands) United States $147,149 $201,973 $229,200 Europe/Middle East 56,435 63,797 74,695 Pacific Rim 14,715 17,020 25,085 Other 4,528 3,715 6,704 $222,827 $286,505 $335,684 Foreign revenue is based on the country in which the customer is located. The following table details long-lived asset information by geographic area: Long-lived Assets January 1, January 2, January 3, (In thousands) United States $18,281 $22,021 $26,308 Scotland 3,703 3,429 5,278 Germany 3,132 3,313 4,035 Pacific Rim 331 430 522 Other 285 279 445 $25,732 $29,472 $36,588 The following table summarizes sales to major customers: Net Sales % of Total Net Sales 1999 1998 1997 1999 1998 1997 (In thousands) OEM A $33,790 $43,405 $56,015 15.2% 15.2% 16.7% Reseller B 29,967 36,138 33,292 13.5 12.6 (x) OEM C 24,400 31,505 44,581 11.0 11.0 13.3 (x) Sales to this customer did not meet or exceed 10% of total sales in this period. No other customers accounted for 10% or more of sales in any of these periods. NOTE 10 - RESTRUCTURING During the third quarter of 1999 the Company incurred $2,446,000 in pre-tax charges related to a restructuring which simplified the Company's structure by combining the Company's three operating segments under common management. These charges were
related to workforce reductions including severance, outplacement and benefits. Severance and related costs of $2,154,000 were paid in cash during 1999. At January 1, 2000, $292,000 of severance and related cost accruals remain and are expected to be paid
during the first half of 2000. 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 markets and establish a more competitive cost structure in those
markets. These charges include workforce reduction costs of $3,123,000, inventory write-downs of $16,890,000, non-cancelable supplier/customer commitments of $7,794,000 and asset write-downs of $7,140,000. At January 1, 2000 all costs of this
restructuring have been settled or paid except for certain future lease commitments totaling $61,000. NOTE 11 - CONTINGENCIES The Company is, from time to time, subjected to certain claims, assertions or litigation by outside parties as part of its ongoing business operations. The outcomes of any such contingencies are not expected to have a material adverse impact on the
financial condition or results of the operations of the Company. NOTE 12 - SUBSEQUENT EVENTS; LIQUIDITY Since January 1, 2000, the Company has continued to incur operating losses and, for the year ended December 30, 2000, incurred a net loss of $79.9 million, which included an addition to its deferred tax valuation allowance of $37.2 million. These
losses, particularly those incurred in the fourth quarter of 2000, were attributed to continued revenue shortfalls from plan, primarily in drives and media, resulting in a build-up of inventories and creating liquidity constraints on the Company. Further,
as of December 30, 2000, the Company had only $7.2 million of remaining borrowing capacity under its $20 million secured line of credit, which expires on May 16, 2003. As a result of the above, the Company is currently reassessing its business and investigating various strategic alternatives that would result in increased liquidity. These alternatives may include one or more of the following: - sale of all or part of the Company's operating assets, off-balance sheet assets and/or intangibles; - restructuring of current operations; - additional equity infusions; - modification of the existing bank line of credit; or - strategic alliance, acquisition or merger. The Company has engaged an investment banker to assist in this process and will continue to explore these and other options that would provide additional capital for longer-term objectives and operating needs. The Company cannot assure that it will accomplish such strategic actions or financing actions and if it is unable to do so, it may not be able to achieve its currently contemplated business objectives, or the timing in reaching those objectives may be
delayed. EXABYTE CORPORATION AND SUBSIDIARIES Schedule II - Valuation and Qualifying Accounts and Reserves (In thousands) Col. A Col. B Col. C Col. D Col. E Col. F Balance at Beginning of Period Charged to Costs and Expenses Charged to Other Accounts Balance at End of Period Year Ended January 3, 1998: Allowance for doubtful accounts $ 1,519 $ 310 $ -- $ (813) (1) $ 1,016 Reserves for sales programs 5,796 -- 14,176 (13,242) (2) 6,730 Inventory valuation reserves 7,950 21,038 -- (10,120) (3) 18,868 $15,265 $21,348 $14,176 $(24,175) $26,614 Year Ended January 2, 1999: Allowance for doubtful accounts $ 1,016 (713) -- 330 (1) 633 Reserves for sales programs 6,730 -- 9,234 (8,767) (2) 7,197 Inventory valuation reserves 18,868 (1,752) -- (8,690) (3) 8,426 $26,614 $(2,465) $ 9,234 $(17,127) $16,256 Year Ended January 1, 2000: Allowance for doubtful accounts $ 633 $ (430) $ -- $ 442 (1) $ 645 Reserves for sales programs 7,197 -- 7,097 (7,084) (2) 7,210 Inventory valuation reserves 8,426 3,612 -- (2,469) (3) 9,569 $16,256 $ 3,182 $ 7,097 $ (9,111) $17,424 (1) Accounts written off, net of recoveries. (2) Net credits issued to customers for sales programs. (3) Use of inventory reserves against inventory. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 February 2, 2001 Date of Report (Date of earliest event reported) EXABYTE CORPORATION (Exact name of registrant as specified in its charter) Delaware 0-18033 84-0988566 (State or other jurisdiction of incorporation) (Commission File Number) (IRS Employer Identification No.)
PricewaterhouseCoopers LLP
February 2, 2001
PricewaterhouseCoopers LLP
January 20, 2000, except for Note 12 which is as of February 2, 2001
2000
1999
authorized; no shares issued and outstanding
- --
- --
authorized; 22,886 and 22,647 shares issued
23
23
2000
1999
1998
basic net loss per share
22,256
22,285
22,326
in the calculation of diluted net loss per
share
22,256
22,285
22,326
Shares
Amount
Shares
Amount
of Par Value
Retained
Earnings
($.10 to $15.13 per share)
143
236
to the Employee Stock
Purchase Plan ($5.47 and
$10.89 per share)
139
1,075
dispositions of common stock
164
($.50 to $9.00 per share)
19
94
to the Employee Stock
Purchase Plan ($4.68 and
$5.95 per share)
162
1
853
dispositions of common
stock
28
($1.00 to $6.81 per share)
33
202
to the Employee Stock
Purchase Plan($3.30 and
$3.40 per share)
206
689
2000
1999
1998
provided by operating activities:
cash (used) provided by operating activities:
accounts receivable
6,666
8,521
14,486
operating activities
$(23,769)
$ 34,506
$ (6,275)
and financing activities:
and equipment and services
$ 2,092
$ 1,102
$ 626
of common stock
- --
28
164
2000
1999
for non-collection
(7,855)
(7,830)
2000
1999
2000
1999
2000
1999
Notes
Payable
Lease
Obligations
Other
Total
(000s)
Exercise Price
(000s)
Exercise Price
(000s)
Exercise Price
beginning of year
3,844
$13.32
3,698
$15.98
3,618
$16.71
of year
4,040
$11.26
3,844
$13.32
3,698
$15.98
at year-end
2,394
$14.29
2,215
$15.97
2,103
$17.63
fair value of options
granted during the
year
$ 2.12
$ 2.86
$ 4.91
Range of
Exercise Prices
Outstanding
(000's)
Remaining
Contractual Life
Exercise
Price
Exercisable
(000's)
Exercise
Price
purchase rights granted
$1.49
$2.34
$4.14
2000
1999
2000
1999
1998
Description
Deduction
1685 38th Street
Boulder, Colorado 80301
(Address of principal executive offices)
(303) 442-4333
Registrant's telephone number, including area code
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events
Amendment to Audit Report
The report of PricewaterhouseCoopers LLP on Exabyte Corporation's fiscal 1999 consolidated financial statements was amended on February 2, 2001 to add an emphasis of a matter paragraph regarding Exabyte Corporation's liquidity constraints. The amended report and consolidated financial statements are included herein as Item 7.
Item 7. Financial Statements and Exhibits
Exhibit |
Description |
99.1 |
Consolidated Financial Statements as follows: |
|
- Report of Independent Accountants |
|
- Consolidated Balance Sheets - January 1, 2000 and January 2, 1999 |
|
- Consolidated Statements of Operations - for the years ended January 1, 2000, January 2, 1999 and January 3, 1998 |
|
- Consolidated Statements of Changes in Stockholders' Equity - for the years ended January 1, 2000, January 2, 1999 and January 3, 1998 |
|
- Consolidated Statements of Cash Flows - for the years ended January 1, 2000, January 2, 1999 and January 3, 1998 |
|
- Notes to Consolidated Financial Statements |
99.2 |
Financial Statement Schedule |
|
- Schedule II - Valuation and Qualifying Accounts and Reserves - for the years ended January 1, 2000, January 2, 1999 and January 3, 1998 |
99.3 |
Consent of PricewaterhouseCoopers LLP |
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 hereto duly authorized.
|
|
|
|
EXABYTE CORPORATION |
|
|
|
|
(Registrant) |
|
|
|
|
|
Date |
February 2, 2001 |
|
By |
/s/ Stephen F. Smith |
|
|
|
|
Stephen F. Smith |
|
|
|
|
Vice President, Chief Financial Officer, General Counsel & Secretary (Principal Financial and Accounting Officer) |