-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O2S/MYncGNPeN9mbQvEV8s2wUhnR9Odm+wBHZGT79i8mjqHDjuqxG3doco0HSi7Z ac7aZZb/orUJONA2dc1yiA== 0000855109-01-500034.txt : 20010621 0000855109-01-500034.hdr.sgml : 20010621 ACCESSION NUMBER: 0000855109-01-500034 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991002 FILED AS OF DATE: 20010620 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXABYTE CORP /DE/ CENTRAL INDEX KEY: 0000855109 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 840988566 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-18033 FILM NUMBER: 1663657 BUSINESS ADDRESS: STREET 1: 1685 38TH ST CITY: BOULDER STATE: CO ZIP: 80301 BUSINESS PHONE: 3034424333 MAIL ADDRESS: STREET 1: 1685 38TH ST CITY: BOULDER STATE: CO ZIP: 80307 10-Q/A 1 eq99q3a.txt 1 - ----------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q/A (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 2, 1999 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 8, 1999, there were 22,753,911 shares outstanding of the Registrant's Common Stock (par value $0.001 per share). - ----------------------------------------------------------------------------- 2 EXABYTE CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS PART I. FINANCIAL INFORMATION (Unaudited) Page Item 1. Financial Statements Consolidated Balance Sheets -- October 2, 1999 and January 2, 1999 (Unaudited).......... 3 Consolidated Statements of Operations -- Three and Nine Months Ended October 2, 1999 and October 3, 1998 (Unaudited).................... 4-5 Consolidated Statements of Cash Flows -- Nine Months Ended October 2, 1999 and October 3, 1998 (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......................................... 12-20 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................... 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings....................................... 20 Item 6. Exhibits and Reports on Form 8-K........................ 21 3 PART I Item 1. Financial Statements EXABYTE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) (Unaudited)
October 2, January 2, 1999 1999 (Restated) -------- -------- ASSETS Current assets: Cash and cash equivalents.................... $ 29,655 $ 56,571 Short-term investments....................... 11,804 14,145 Accounts receivable, less allowance for doubtful accounts and reserves for customer returns and credits of $7,953 and $7,830, respectively....................... 30,601 38,014 Inventories, net............................. 24,949 26,997 Deferred income taxes........................ - 14,213 Other current assets......................... 5,156 5,692 -------- -------- Total current assets.................... 102,165 155,632 Property and equipment, net....................... 26,090 28,396 Deferred income taxes............................. - 22,732 Other assets...................................... 1,168 1,076 -------- -------- $129,423 $207,836 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................. $ 13,010 $ 16,032 Accruals and other liabilities............... 15,602 14,002 Accrued income taxes......................... 2,267 2,370 Current portion of long-term obligations..... 2,615 1,699 -------- -------- Total current liabilities............... 33,494 34,103 Long-term obligations............................. 5,795 7,461 Stockholders' equity: Preferred stock, $.001 par value; 14,000 shares authorized; no shares issued..................................... -- -- Common stock, $.001 par value; 50,000 shares authorized; 22,756 and 22,647 shares issued and outstanding, respectively....... 67,072 66,716 Treasury stock, at cost, 455 shares.......... (2,742) (2,742) Retained earnings............................ 25,804 102,298 -------- -------- Total stockholders' equity.............. 90,134 166,272 -------- -------- $129,423 $207,836 ======== ========
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 ---------------------- October 2, October 3, 1999 1998 -------- -------- Net sales.................................... $ 53,041 $ 72,805 Cost of goods sold........................... 45,755 51,639 -------- -------- Gross profit................................. 7,286 21,166 Operating expenses: Selling, general and administrative..... 15,973 13,723 Research and development................ 9,658 7,880 -------- -------- Loss from operations......................... (18,345) (437) Other income, net............................ 900 949 -------- -------- Income (loss) before income taxes............ (17,445) 512 Provision for income taxes................... (58) (174) -------- -------- Net income (loss)............................ $(17,503) $ 338 ======== ======== Basic net income (loss) per share............ $ (0.78) $ 0.02 ======== ======== Common shares used in the calculation of basic net income (loss) per share....... 22,300 22,340 ======== ======== Diluted net income (loss) per share.......... $ (0.78) $ 0.02 ======== ======== Common and potential common shares used in the calculation of diluted net income (loss) per share........................ 22,300 22,346 ======== ========
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 ---------------------- October 2, October 3, 1999 1998 (Restated) -------- -------- Net sales.................................... $164,210 $223,309 Cost of goods sold........................... 135,066 157,946 -------- -------- Gross profit................................. 29,144 65,363 Operating expenses: Selling, general and administrative..... 43,701 41,642 Research and development................ 26,132 21,088 -------- -------- Income (loss) from operations................ (40,689) 2,633 Other income, net............................ 1,264 1,182 -------- -------- Income (loss) before income taxes............ (39,425) 3,815 (Provision) benefit for income taxes......... (37,069) (1,297) -------- -------- Net income (loss)............................ $(76,494) $ 2,518 ======== ======== Basic net income (loss) per share............ $ (3.44) $ 0.11 ======== ======== Common shares used in the calculation of basic net income (loss) per share....... 22,234 22,338 ======== ======== Diluted net income (loss) per share.......... $ (3.44) $ 0.11 ======== ======== Common and potential common shares used in the calculation of diluted net income (loss) per share........................ 22,234 22,493 ======== ========
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 ---------------------- October 2, October 3, 1999 1998 --------- --------- Cash flows from operating activities: Cash received from customers.............. $171,310 $220,192 Cash paid to suppliers and employees...... (190,474) (202,964) Interest received......................... 2,113 1,614 Interest paid............................. (380) (465) Income taxes paid......................... (209) (728) Income tax refund received................ 572 11,606 Net cash provided (used) by -------- -------- operating activities............... (17,068) 29,255 -------- -------- Cash flows from investing activities: Sale (Purchase) of short-term investments, net........................ 2,341 (11,030) Capital expenditures...................... (8,725) (6,234) Net cash used by -------- -------- investing activities............... (6,384) (17,264) -------- -------- Cash flows from financing activities: Net proceeds from issuance of common stock............................ 356 499 Purchase of treasury stock................ -- (2,332) Principal payments under long-term obligations............................. (3,820) (763) Net cash used by financing -------- -------- activities......................... (3,464) (2,596) -------- -------- Net increase (decrease) in cash and cash equivalents............................... (26,916) 9,395 Cash and cash equivalents at beginning of period................................. 56,571 47,014 -------- -------- Cash and cash equivalents at end of period................................. $ 29,655 $ 56,409 ======== ========
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 ---------------------- October 2, October 3, 1999 1998 (Restated) --------- --------- Reconciliation of net income (loss) to net cash provided (used) by operating activities: Net income (loss)......................... $(76,494) $ 2,518 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation, amortization and other............................. 12,012 12,490 Deferred income tax provision (benefit). 36,945 (2,666) Provision for losses and reserves on accounts receivable................ 4,939 6,802 Change in assets and liabilities: Accounts receivable....................... 2,474 (10,931) Inventories, net.......................... 2,048 14,615 Income tax receivable..................... 589 13,130 Other current assets...................... 1,146 2,440 Other assets.............................. (129) 220 Accounts payable.......................... (3,022) 1,340 Accrued liabilities....................... 1,600 (13,137) Accrued income taxes...................... (103) 1,711 Other long-term obligations............... 927 723 -------- -------- Net cash provided (used) by operating activities................ $(17,068) $ 29,255 ======== ======== Supplemental schedule of non-cash investing and financing activities: Note payable issued to purchase property and equipment................. $ 2,143 $ 1,102 Capital lease obligations................. -- 904
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 2, 1999, the consolidated statements of operations for the three and nine months ended October 2, 1999 and October 3, 1998, as well as the consolidated statements of cash flows for the nine months ended October 2, 1999 and October 3, 1998, 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 2, 1999 annual report to stockholders heretofore filed with the Commission as Part II to the Company's Annual Report on Form 10-K. The results of operations for interim periods presented are not necessarily indicative of the operating results for the full year. Note 2--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 3--INVENTORIES Inventories, net of reserves for excess quantities and obsolescence, consist of the following: (In thousands) October 2, January 2, 1999 1999 -------- -------- Raw materials and component parts............ $ 13,616 $ 16,851 Work-in-process.............................. 1,710 1,931 Finished goods............................... 9,623 8,215 -------- -------- $ 24,949 $ 26,997 ======== ======== 9 Note 4--ACCRUED LIABILITIES Accrued liabilities consist of the following: (In thousands) October 2, January 2, 1999 1999 -------- -------- Wages and employee benefits.................. $ 8,062 $ 6,047 Warranty and other related costs............. 4,572 4,650 Other........................................ 2,968 3,305 -------- -------- $ 15,602 $ 14,002 ======== ======== Note 5--BASIC AND DILUTED EARNINGS PER SHARE The calculation of basic and diluted earnings per share ("EPS") is as follows: (In thousands, except per share data)
Three Months Ended Nine Months Ended -------------------- -------------------- October 2, October 3, October 2, October 3, 1999 1998 1999 1998 -------- -------- -------- -------- Basic EPS computation: Net income (loss)........................ $(17,503) $ 338 $(76,494) $ 2,518 ======== ======== ======== ======== Common shares outstanding................ 22,300 22,340 22,234 22,338 ======== ======== ======== ======== Basic EPS................................ $ (0.78) $ 0.02 $ (3.44) $ 0.11 ======== ======== ======== ======== Diluted EPS computation: Net income (loss)........................ $(17,503) $ 338 $(76,494) $ 2,518 ======== ======== ======== ======== Shares: Common shares outstanding............ 22,300 22,340 22,234 22,338 Dilutive stock options............... -- 6 -- 155 -------- -------- -------- -------- 22,300 22,346 22,234 22,493 ======== ======== ======== ======== Diluted EPS.............................. $ (0.78) $ 0.02 $ (3.44) $ 0.11 ======== ======== ======== ========
Excluded from potential common share calculations for the third quarter of 1999 and 1998 were 4,147,000 and 3,939,000 options to purchase shares of common stock, 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. Impacting year-to-date share calculations for 1999 10 and 1998 was the second quarter exclusion of 4,564,000 and 2,882,000 options to purchase common stock, respectively, and the first quarter exclusion of 4,811,000 and 4,109,000 options to purchase common stock, respectively, for this same reason. In addition, for the third, second and first quarters of 1999, options to purchase 204,000, 34,000 and 36,000 shares of common stock, respectively, were excluded from the diluted EPS 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 1,000 for both the quarter and year-to-date periods. Note 6 -- RESTRUCTURING During the third quarter of 1999, management determined that the division of the Company into three operating segments was no longer appropriate due to the amount of overhead required to maintain this structure. The Company incurred $2,446,000 in pre-tax restructuring charges to combine its three operating segments under common management. These costs included severance, outplacement and benefits for the resulting workforce reduction of approximately 143 employees. All areas of the Company were impacted by the workforce reduction. Approximately $664,000 of these costs were included in cost of sales, $1,454,000 were included in selling, general and administrative costs and $328,000 were included in research and development costs. Severance and related costs of $1,238,000 were paid in cash during the third quarter of 1999. The remaining severance and related cost accruals are expected to be paid during the first half of 2000. The following table summarized the activity related to the 1999 restructuring reserve: Severance and Related --------------------- (In thousands) Restructuring charges ........................................$ 2,446 Cash payments ................................................$(1,238) ------- Balance, October 2, 1999 .....................................$ 1,208 ====== Note 7 -- 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, commensurate with the restructuring the Company 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. 11 Note 8--RECLASSIFICATIONS Certain reclassifications have been made to historical information to correspond to the 1999 financial statement presentation. Note 9 - INCOME TAXES As of the second quarter of 1999, the Company recorded a deferred tax valuation allowance equal to 100% of total deferred tax assets. Management considered a number of factors, including the Company's cumulative operating losses over the prior three years, short-term projected losses due to the impact of delays in the release of the M2(tm) product, as well as certain offsetting positive factors. Management concluded that a valuation allowance was required for 100% of the total deferred tax assets as it is more likely than not that the deferred tax assets will not be realized. Note 10 -- RESTATEMENT The 1999 consolidated financial statements presented herein have been restated to reflect the recording of a full valuation allowance on deferred tax assets as of July 3, 1999. The company originally recorded a partial valuation allowance on its deferred tax assets as of July 3, 1999 due to the significant deterioration in operating results incurred in the quarter then ended. Based on a re-evaluation of the situation subsequent to the issuance of the 1999 financial statements, the Company has increased that partial valuation allowance to a full valuations allowance resulting in increase to income tax expense in the second quarter of 1999 and for the year 1999 of $38,620,000, as well as a decrease in other assets on the October 2, 1999 balance sheet. This restatement had no effect on the Company's net cash flows from operating, investing or financing activities. The third quarter 1999 financial statements have been restated below. As Originally Reported Restated -------------------------- (In thousands, except per share data) Statement of Operations Data for the nine months ended October 2, 1999: Provision) benefit for income taxes...... $ 1,551 $(37,069) Net Loss................................. (37,874) (76,494) Basic and diluted net loss per share..... (1.70) (3.44) Balance Sheet Data as of October 2, 1999: Deferred income taxes (current).......... $ 14,076 $ -- Total current assets..................... 116,241 102,165 Deferred income taxes (noncurrent)....... 24,503 -- Accrued income taxes..................... 2,226 2,267 Retained earnings........................ 64,424 25,804 Total stockholders' equity............... 128,754 90,134 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 1998 Form 10-K, filed April 1, 1999("1998 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. PRODUCT DEVELOPMENT / MAMMOTH-2 Exabyte participates in an industry that is subject to rapid technological change. The Company believes that its future success will depend on its ability to apply and extend its technology and further develop reliable tape subsystems and robotic tape libraries with competitive price performance and quality characteristics. Accordingly, Exabyte's ability to compete successfully depends on continued enhancements to its existing products and the timely development of new products that meet the changing needs of users. The Company has experienced delays from time to time meeting internal product development schedules. In the future, the Company may encounter difficulties that could delay or prevent future product development. The Company is currently developing Mammoth-2, the second generation of Exabyte's original Mammoth drive. Worldwide shipment of Mammoth-2 to customers is expected to begin in December of 1999. There can be no assurance that Mammoth-2 or any other announced product or unannounced product in development will be successfully developed, made commercially available on a timely basis or achieve market acceptance. Any inability or delay of the Company to timely develop and manufacture this product would have a material adverse impact on its sales, as well as the sale of Mammoth tape drives and would have a material adverse effect on the Company's results of operations. 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. 13 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"). An inventory of all critical systems has been completed. Systems upgrades, which are Year 2000 compliant, have been completed or are planned during 1999 in response to normal business needs. The Company has encountered delays in scheduling of testing and the replacement of some computer equipment, including equipment used in the Company's manufacturing process. The Company has developed a plan to place Exabyte back on schedule, however, there is no assurance that the replacement of equipment, or the testing of systems can be completed on a timely basis. In addition, the Company could incur significant costs in implementing the revised plan. It is anticipated that such costs will not exceed $500,000. *The completion of the revised portions of the plan is continuning into the fourth quarter of 1999. The testing of these systems is scheduled to be completed during the fourth quarter 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. The Company's subsidiaries have also encountered delays in completing testing and replacement. Such testing and replacement is now scheduled to be completed during the fourth 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 the revised 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 upgrades fail to be Year 2000 compliant, the Company may be unable to conduct business or manufacture its products after January 1, 2000, 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 addressing the Year 2000 readiness of its suppliers and customers, as well as each of their respective suppliers, to address their Year 2000 readiness in a timely manner. Letters have been sent to critical suppliers for information to assess their readiness. Additionally, the Company has become a member company of the High Tech Consortium Year 2000 and Beyond, L.L.C. ("HTC") (see their website at http://www.hightech2000.com). The HTC member companies have developed and are using a process for determining the Year 2000 readiness of suppliers and are sharing information on all supply chain information and contingency planning concerning Year 2000 issues. *The Company anticipates that these efforts will continue throughout 1999.* However, there is no assurance that all critical suppliers will be assessed for year 2000 readiness or will respond to the letters sent. Further, there can be no assurance that such suppliers will not encounter year 2000 problems that cause them to delay manufacturing or shipments of key components to Exabyte despite appearance of year 2000 readiness. 14 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, with the exception of the costs that could be associated with the revised plan, 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 or its key suppliers be unsuccessful in its efforts to become Year 2000 compliant. *The Company anticipates that its contingency planning will continue through the fourth quarter of 1999. 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. Furthermore, until the Company has completed and implemented its contingency plan, it has no way of quantifying such costs of implementation. *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, third-party 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 product 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.* YEAR 2000 CUSTOMER DEPENDENCE Many of the Company's customers and end-users of Exabyte products are currently completing testing of their existing business products (including the Company's products) for Year 2000 compliance.*Because of the nature of the Year 2000 problem, as well as the complexity and costs associated with such testing procedures, it is possible that some of these customers and/or end-users will not purchase additional products (including the Company's products) following the completion of their Year 2000 testing until after the fourth quarter of 1999. Should this occur, Exabyte may experience a substantial shortfall in the sale of its products during the latter part of 1999, which could have a material adverse effect on the Company's results of operations.* 15 RESULTS OF OPERATIONS The following table sets forth unaudited operating results for the three and nine month periods ended October 2, 1999 and October 3, 1998 as a percentage of sales in each of these periods. This data has been derived from the unaudited consolidated financial statements.
Three Months Ended Nine Months Ended -------------------- -------------------- October 2, October 3, October 2, October 3, 1999 1998 1999 1998 -------- -------- -------- -------- Net sales.................................... 100.0% 100.0% 100.0% 100.0% Cost of goods sold........................... 86.3 70.9 82.3 70.7 ----- ----- ----- ----- Gross profit................................. 13.7 29.1 17.7 29.3 Operating expenses: Selling, general and administrative........ 30.1 18.9 26.6 18.7 Research and development................... 18.2 10.8 15.9 9.4 ----- ----- ----- ----- Income (loss) from operations................ (34.6) (0.6) (24.8) 1.2 Other income, net............................ 1.7 1.3 0.8 0.5 ----- ----- ----- ----- Income (loss) before income taxes............ (32.9) 0.7 (24.0) 1.7 (Provision) benefit for income taxes......... (0.1) (0.2) (22.6) (0.6) ----- ----- ----- ----- Net income (loss)............................ (33.0)% 0.5% (46.6)% 1.1% ===== ===== ===== =====
NET SALES Net sales during the third quarter and first nine months of 1999 decreased to $53.0 million and $164.2 million, respectively from $72.8 million and $223.3 million, respectively for the same periods in the previous year. These absolute dollar decreases represent a 27.2% decrease for the quarterly periods and a 26.5% decrease for the nine month periods. DLTtape(TM) library sales increased in the third quarter and year-to date periods of 1999 over the comparable periods in 1998. Reserves for sales programs during these same periods decreased in 1999 over 1998, having a positive impact on net sales. These increases in net sales were offset by decreases in sales of all other products for the third quarter and year-to-date periods of 1999 over the comparable periods in 1998. Sales of DLTtape(TM) libraries increased to $4.5 million and $11.2 million, respectively, for the third quarter and first nine months of 1999 compared to $3.7 million and $8.2 million for the same periods in 1998. For these same periods, reserves for sales programs decreased to $1.6 million and $5.5 million, respectively, in 1999 from $3.6 million and $9.0 million, respectively, in 1998. 16 Net sales of the following products decreased in the third quarter and first nine months of 1999, respectively, compared to the same periods in 1998, respectively: combined Mammoth and Mammoth-LT sales decreased to $13.6 million and $47.4 million, respectively, from $16.7 million and $48.4 million, respectively. Sales of 8mm libraries decreased to $8.7 million and $20.6 million, respectively from $10.4 million and $34.4 million, respectively. Media sales decreased to $14.9 million and $48.2 million, respectively from $19.8 million and $51.5 million, respectively. Eliant(TM) 820 drive sales decreased to $9.1 million and $30.0 million, respectively, from $11.7 million and $41.5 million, respectively. Service revenue decreased to $3.7 million and $11.7 million, respectively, from $4.4 million and $14.8 million. Other end of life product sales (primarily the 8505XL and 8700) decreased to $0.2 million and $0.6 million, respectively, from $9.8 million and $33.4 million, respectively. The following table presents the Company's sales by product as a percentage of total net sales for the thrid quarter and first nine months of 1999 and 1998: PRODUCT MIX TABLE (As a percentage of net sales)
Three Months Ended Nine Months Ended -------------------- -------------------- October 2, October 3, October 2, October 3, 1999 1998 1999 1998 -------- -------- -------- -------- 8mm drives: Mammoth, Mammoth LT and Eliant(TM)820................................. 42.9% 39.0% 47.1% 40.3% Libraries: 10h, 210, 220, 440, 480, X200, EZ17, 17D, 18D, 230D and 690D............................ 24.9 19.3 19.4 19.1 Other end-of-life drives and libraries............... 0.4 13.3 0.3 14.9 Media................................................ 28.0 27.2 29.4 23.1 Service, spares and other............................ 6.9 6.2 7.1 6.7 Sales allowances..................................... (3.1) (5.0) (3.3) (4.1) ----- ----- ----- ----- 100.0% 100.0% 100.0% 100.0% ===== ===== ===== =====
17 The following table presents the Company's sales to different customer types as a percentage of total net sales for the third quarter and first nine months of 1999 and 1998: CUSTOMER MIX TABLE (As a percentage of net sales)
Three Months Ended Nine Months Ended -------------------- -------------------- October 2, October 3, October 2, October 3, 1999 1998 1999 1998 --------- -------- --------- -------- Customer Type: - ------------------ OEM.......................................... 36.5% 48.2% 40.9% 47.0% Reseller..................................... 58.7 47.6 54.5 48.9 End-user and other........................... 4.8 4.2 4.6 4.1 ----- ----- ----- ----- 100.0% 100.0% 100.0% 100.0% ===== ===== ===== =====
We believe sales shifted from OEMS to reseller customers as a result of our efforts to develop the reseller channel during 1999.The following table summarizes sales to major customers: SALES TO MAJOR CUSTOMERS (As a percentage of net sales)
Three Months Ended Nine Months Ended -------------------- -------------------- October 2, October 3, October 2, October 3, 1999 1998 1999 1998 --------- --------- --------- --------- Customer: - ---------- OEM A........................................ 15.5% 16.1% 16.3% 13.9% Reseller B................................... 15.4 14.4 12.9 13.3 OEM C........................................ (x) (x) 11.3 11.1 Reseller D................................... 10.0 (x) (x) (x) OEM E........................................ (x) 12.8 (x) (x)
(x) Sales to this customer did not meet or exceed 10% of total sales in this period. 18 No other customers accounted for 10% or more of sales in any of these periods. *Since these and other major customers also sell competing products and continually review new technologies, there can be no assurance that sales to these or any other customers will continue to represent the same portion of the Company's future revenue.* GROSS MARGIN The gross margin percentages for the third quarter and first nine months of 1999 were 13.7% and 17.8%, respectively. Without restructuring charges, these margins were 15.0% and 18.2%, respectively. These percentages decreased from gross margin percentages for the same periods in 1998 of 29.1% and 29.3%, respectively. Margins were negatively impacted by lower net sales which are tied to a relatively fixed manufacturing cost structure. During the first nine months of 1999, the Company had significantly more plant capacity than was being utilized at current manufacturing volumes. Additionally, product margins were negatively impacted by lower pricing as certain products approach end of life status. OPERATING EXPENSES Selling, general and administrative expenses for the third quarter and first nine months of 1999 increased as a percentage of net sales to 30.1% and 26.6%, respectively, from 18.9% and 18.7%, respectively, for the same periods in the previous year. Without restructuring charges, these expenses for the third quarter and first nine months of 1999 were 27.4% and 25.7%, respectively. In absolute dollars, these increases without restructuring charges were $798,000 for the quarterly periods and $606,000 for the year to date period. The increase in absolute dollars was comprised principally of salaries and related costs and travel expenses. This increase in absolute dollars was one of the primary factors which resulted in the Company's decision to restructure operations to decrease required headcount. Research and development expenses increased to 18.2% and 15.9%, respectively, for the third quarter and first nine months of 1999 compared to 10.8% and 9.4%, respectively for the same periods in the previous year. Without restructuring charges, these percentages for 1999 were 17.6% and 15.7%, respectively. In absolute dollars, these increases without restructuring charges were $1.4 million for the quarterly periods and $4.7 million for the year to date period. Spending has increased in the 1999 periods to support the planned release of certain announced products during 1999. In addition, the Company has contracted with a third party for the development of technology related to future generation tape products. Under this contract, the Company incurred $806,000 and $1.4 million of engineering expense, respectively, in the third quarter and first nine months of 1999. OTHER INCOME, NET Other income, net consists primarily of interest income and expenses, foreign currency remeasurement and transaction gains and losses, and other miscellaneous items. Other income for the third quarter of 1999 decreased to $900,000 from $949,000 for the same period in 1998. For first nine months of 1999, other income increased to $1.3 million from $1.2 million for the same period in 1998. These fluctuations were the result of increased interest income and unfavorable remeasurement and transaction gains/losses impacts in 1999 over 1998. 19 Net foreign exchange (gains)/losses related to remeasurements of foreign subsidiary accounts to U.S. dollars were $(425,000) and $(55,000) for the third quarter and first nine months of 1999, respectively, compared to $(158,000) and $0, respectively, for the same periods in 1998. Net foreign exchange (gains)/losses related to foreign currency transactions were $(97,000) and $372,000 for the third quarter and first nine months of 1999, respectively, compared to $(192,000) and $139,000, respectively, for the same periods in 1998. TAXES The provision for income taxes for the third quarter and first nine months of 1999 was 0.3% and 93.9%, respectively, of pretax income. The provision for both comparable periods in 1998 was 34.0%. As of the second quarter of 1999, the Company recorded a deferred tax valuation allowance equal to 100% of total deferred tax assets. Management considered a number of factors, including the Company's cumulative operating losses over the prior three years, short-term projected losses due to the impact of delays in the release of the M2(tm) product, as well as certain offsetting positive factors. Management concluded that a valuation allowance was required for 100% of the total deferred tax assets as it is more likely than not that the deferred tax assets will not be realized. For additional information, see Note 10 of Notes to Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES During the first nine months of 1999, the Company expended $17.1 million of cash for operating activities, expended $8.7 million for capital equipment, expended $3.8 million on long-term obligations and received $356,000 for the insuance of common stock to company employees. Together, these activities resulted in a net decrease in the combined balance of cash and short-term investments of $26.9 million to a quarter-ending balance of $41.5 million. The Company's working capital decreased to $68.7 million at October 2, 1999 from $121.5 million at January 2, 1999. The Company renegotiated a $7.5 million bank line of credit which expires May 15, 2000. This line of credit is secured by a $7,500,000 investment with the lender and as a result, covenants from the previous line of credit have been eliminated. Use of the invested funds is not legally restricted. On November 2, 1999 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%. 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. *The Company anticipates that it will renew this line at comparable terms upon its expiration.* *The Company anticipates that its cash balance will continue to decline through the fourth quarter of 1999. 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 2000.* 20 RESTRUCTURING CHARGES During the third quarter of 1999, management determined that the division of the Company into three operating segments was no longer appropriate due to the amount of overhead required to maintain this structure. The Company incurred $2,446,000 in pre-tax restructuring charges to combine its three operating segments under common management. These costs included severance, outplacement and benefits for the resulting workforce reduction of approximately 143 employees. All areas of the Company were impacted by the workforce reduction. We believe this restructuring resulted in annual savings of $11.0 million. These savings included decreased payroll and fringe benefits, as well as, savings on building rent, utilities and taxes. Expected payroll savings were a result of reductions in workforce and open positions that were not filled as a result of this restructuring. Approximately $664,000 of these costs were included in cost of sales, $1,454,000 were included in selling, general and administrative costs and $328,000 were included in research and devlopment costs. *At October 2, 1999, $1.2 mllion of severance and related accruals remain and are expected to be paid during the first half of 2000.* The following table summarizes the activity related to the 1999 restructuring reserve: Severance and Related --------------------- (In thousands) Restructuring charges....................... $ 2,446 Cash payments............................... $(1,238) -------- Balance, October 2, 1999.................... $ 1,208 ======== Additional information concerning the restructuring is incorporated by reference from Item 1, "Notes to Consolidated Financial Statements," under the caption, "Note 6 -- Restructuring". NEW ACCOUNTING PRONOUNCEMENT Information concerning new accounting pronouncements is incorporated by reference from Item 1, "Notes to Consolidated Financial Statements," under the caption, Note 2--"New Accounting Pronouncement." MARKET RISK The Company, from time to time, enters into foreign currency forward contracts in anticipation of movements in the dollar/yen exchange rate to hedge the purchase of certain inventory components from Japanese manufacturers. Contracts are established with a maturity date within six months of the purchase date. To be considered a hedge, contracts must be established for future purchases denominated in yen. In circumstances where the timing of hedged purchases is deferred, the contract maturity dates are extended to cover the deferred payment. At October 2, 1999, there were no contracts outstanding. 21 Item 3. Quantitative and Qualitative Disclosures About Market Risk Information concerning the Company's market risk is incorporated by reference from Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the caption, "Market Risk". PART II. Item 1. Legal Proceedings On June 18, 1999, Ecrix Corporation filed a Complaint in the United States District Court for the District of Colorado seeking judgment declaring seven patents owned by Exabyte to be invalid or not infringed by certain tape drive products manufactured by Ecrix. Although Exabyte engaged in settlement discussions both before and after June 18, 1999, Ecrix rejected Exabyte's settlement offers. Therefore, on October 7, 1999, Exabyte filed an Answer and Counterclaim asserting infringement by Ecrix of eight patents. In response, Ecrix filed an Amended Complaint, which was effectively filed October 21, 1999, asserting additional antitrust claims under the Sherman Act and Colorado Antitrust Act, as well as claims of patent misuse, estoppel, unfair competition under Section 43(a) of the Lanham Act and common law, violation of Colorado Consumer Protection Act, and tortious interference. Exabyte will respond to Ecrix's Amended Complaint by November 19, 1999. A Scheduling Conference is scheduled to take place with the Court on November 18, 1999. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit Index Exhibit Number Description ------- ----------- 27.0 Financial Data Schedule-Part I Exhibit (b) Reports on Form 8-K: There were no reports on Form 8-K for the three month period ended October 2, 1999. 22 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EXABYTE CORPORATION Registrant Date June 19, 2001 By /s/ Stephen F. Smith ----------------------- ----------------------------------- Stephen F. Smith Vice President, Chief Financial Officer, General Counsel & Secretary (Principal Financial and Accounting Officer) EX-27 2 eq99q2afds.xfd
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF OCTOBER 2, 1999 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS Jan-01-2000 Oct-02-1999 29,655 11,804 38,554 7,953 24,949 102,165 126,035 99,945 129,423 33,453 0 0 0 23 90,111 129,423 164,210 164,210 135,066 135,066 0 (35) 380 (39,425) (1,551) 37,874 0 0 0 (37,874) (1.7) (1.7)
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