<PAGE> 1
- -----------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended July 4, 1998
OR
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _________ to _________.
Commission File No. 0-18033
EXABYTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-0988566
(State of Incorporation) (I.R.S. Employer Identification No.)
1685 38th Street
Boulder, Colorado 80301
(Address of principal executive offices, including zip code)
(303) 442-4333
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety days.
Yes /X/ No / /
As of August 14, 1998 there were 22,546,344 shares outstanding of the
Registrant's Common Stock (par value $0.001 per share).
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<PAGE> 2
EXABYTE CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Balance Sheets --
July 4, 1998 and January 3, 1998................. 3
Consolidated Statements of Operations --
Three and Six Months Ended July 4, 1998
and June 28, 1997 (Unaudited).................... 4-5
Consolidated Statements of Cash Flows --
Six Months Ended July 4, 1998 and
June 28, 1997 (Unaudited)........................ 6-7
Notes to Consolidated Financial Statements
(Unaudited)...................................... 8-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations....................................... 12-18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders................................. 19
Item 5. Other Information...................................... 19
Item 6. Exhibits and Reports on Form 8-K....................... 19-21
<PAGE> 3
PART I Item 1. Financial Statements
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)
<TABLE>
<CAPTION>
July 4, January 3,
1998 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 48,841 $ 47,014
Short-term investments.................... 8,400 1,470
Accounts receivable, less allowance
for doubtful accounts and customer
returns and credits of $7,325 and
$7,746, respectively.................... 45,574 41,577
Inventories, net.......................... 39,178 44,551
Deferred income taxes..................... 15,464 20,678
Income tax refund receivable.............. 4,461 15,873
Other current assets...................... 3,212 4,695
-------- --------
Total current assets................. 165,130 175,858
Property and equipment, net.................... 33,319 35,152
Deferred income taxes.......................... 14,256 8,900
Other assets................................... 1,300 1,436
-------- --------
$214,005 $221,346
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $13,579 $13,992
Accruals and other liabilities............ 22,476 33,065
Current portion of long-term obligations.. 1,025 519
-------- --------
Total current liabilities............ 37,080 47,576
Long-term obligations.......................... 4,443 2,974
-------- --------
Total liabilities.................... 41,523 50,550
Stockholders' equity: -------- --------
Preferred stock, $.001 par value;
14,000 shares authorized; no shares
issued and outstanding.................. -- --
Common stock, $.001 par value; 50,000 shares
authorized; 22,549 and 22,466 shares
issued and outstanding, respectively.... 23 22
Capital in excess of par value............ 66,219 65,718
Treasury stock, at cost, 152 and 15 shares
outstanding, respectively................ (1,005) (9)
Retained earnings......................... 107,245 105,065
-------- --------
Total stockholders' equity........... 172,482 170,796
-------- --------
$214,005 $221,346
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 4
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
----------------------
July 4, June 28,
1998 1997
------- -------
<S> <C> <C>
Net sales.................................... $69,754 $97,144
Cost of goods sold........................... 49,404 71,452
------- -------
Gross profit................................. 20,350 25,692
Operating expenses:
Selling, general and administrative..... 14,476 15,083
Research and development................ 6,076 8,894
------- -------
Income (loss) from operations................ (202) 1,715
Other income (expense), net.................. 430 (171)
------- -------
Income before income taxes................... 228 1,544
Provision for income taxes................... (77) (525)
------- -------
Net income................................... $ 151 $ 1,019
======= =======
Basic net income per share .................. $ 0.01 $ 0.05
======= =======
Common shares used in the calculation
of basic net income per share........... 22,332 22,302
======= =======
Diluted net income per share................. $ 0.01 $ 0.05
======= =======
Common and potential common shares
used in the calculation of diluted
net income per share.................... 22,672 22,491
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 5
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
July 4, June 28,
1998 1997
------- -------
<S> <C> <C>
Net sales.................................... $150,504 $182,569
Cost of goods sold........................... 106,307 133,638
------- -------
Gross profit................................. 44,197 48,931
Operating expenses:
Selling, general and administrative..... 27,920 27,822
Research and development................ 13,207 18,239
------- -------
Income from operations....................... 3,070 2,870
Other income, net............................ 233 271
------- -------
Income before income taxes................... 3,303 3,141
Provision for income taxes................... (1,123) (1,068)
------- -------
Net income .................................. $ 2,180 $ 2,073
======= =======
Basic net income per share .................. $ 0.10 $ 0.09
======= =======
Common shares used in the calculation
of basic net income per share........... 22,337 22,283
======= =======
Diluted net income per share................. $ 0.10 $ 0.09
======= =======
Common and potential common shares
used in the calculation of diluted
net income per share.................... 22,566 22,425
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 6
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
July 4, June 28,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers............ $147,310 $174,290
Cash paid to suppliers and employees.... (144,558) (177,951)
Interest received....................... 988 1,167
Interest paid........................... (307) (308)
Income taxes paid....................... (682) (221)
Income tax refund received.............. 11,607 434
Net cash provided (used) by ------- -------
operating activities............. 14,358 (2,589)
------- -------
Cash flows from investing activities:
Sale (purchase) of short-term
investments, net...................... (6,930) 16,600
Capital expenditures.................... (4,545) (7,643)
Net cash provided (used) by -------- --------
investing activities............. (11,475) 8,957
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of
common stock.......................... 502 795
Purchases of treasury stock............. (996) --
Principal payments under long-term
obligations........................... (562) (802)
Net cash used by -------- --------
financing activities............. (1,056) (7)
-------- --------
Net increase in cash and cash
equivalents............................. 1,827 6,361
Cash and cash equivalents at beginning
of period............................... 47,014 46,223
-------- --------
Cash and cash equivalents at end
of period............................... $ 48,841 $ 52,584
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 7
EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
July 4, June 28,
1998 1997
---------- ---------
<S> <C> <C>
Reconciliation of net income to net cash
provided (used) by operating activities:
Net income ............................... $ 2,180 $ 2,073
Adjustments to reconcile net income
to net cash provided (used) by operating
activities:
Depreciation, amortization
and other............................. 8,384 9,810
Deferred income tax provision........... (142) 842
Provision for losses and reserves
on accounts receivable................ 3,864 7,274
Change in assets and liabilities:
Accounts receivable....................... (7,861) (15,768)
Inventories............................... 5,373 (5,610)
Income tax receivable..................... 11,412 --
Other current assets...................... 1,483 (757)
Other assets.............................. 136 482
Accounts payable.......................... (413) 5,359
Accrued liabilities....................... (11,367) (6,733)
Other long-term liabilities............... 531 --
Accrued income taxes...................... 778 439
-------- -------
Net cash provided (used) by
operating activities................ $14,358 $(2,589)
======== =======
Supplemental schedule of non-cash
investing and financing activities:
Note payable issued to purchase
machinery and equipment or
software licenses....................... $ 1,102 $ 626
Capital lease obligations................. 904 92
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> 8
EXABYTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1--ACCOUNTING PRINCIPLES
The consolidated balance sheet as of July 4, 1998, the consolidated
statements of operations for the three and six months ended July 4, 1998 and
June 28,1997, as well as the consolidated statements of cash flows for the six
months ended July 4, 1998 and June 28, 1997, have been prepared by Exabyte
Corporation ("Exabyte" or the "Company") without an audit. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation thereof, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
consolidated financial statements be read in conjunction with financial
statements and notes thereto included in the Company's January 3, 1998 annual
report to stockholders heretofore filed with the Commission as Part II to the
Company's Annual Report on Form 10-K. The results of operations for interim
periods presented are not necessarily indicative of the operating results for
the full year.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). Pursuant to SFAS 130, certain items are required to be
recognized as components of comprehensive income. As the Company does not have
any elements of other comprehensive income, no reporting changes are required.
Also in June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). This statement is effective
for fiscal years beginning after December 15, 1997, but reporting requirements
can be excluded for interim periods during the first year of adoption. SFAS
131 establishes standards for reporting financial and descriptive information
about an enterprise's operating segments in its annual financial statements and
selected segment information in interim financial reports. **Application of
SFAS 131 is not expected to have a material impact on the Company's
consolidated financial position, results of operations or earnings per share
data as currently reported, although the Company's disclosures on business
segments will change.**
<PAGE> 9
Note 2--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
July 4, January 3,
1998 1998
---------- ----------
(In thousands)
<S> <C> <C>
Raw materials and component parts............ $24,032 $29,266
Work-in-process.............................. 1,935 2,447
Finished goods............................... 13,211 12,838
------- -------
$39,178 $44,551
======= =======
</TABLE>
Note 3--ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
July 4, January 3,
1998 1998
---------- ---------
(In thousands)
<S> <C> <C>
Wages and employee benefits.................. $ 6,492 $ 7,943
Warranty and other related costs............. 10,517 11,445
Purchase commitments......................... -- 4,528
Other........................................ 5,467 9,149
------- -------
$22,476 $33,065
======= =======
</TABLE>
Note 4--NET INCOME (LOSS) PER SHARE
Basic net income (loss) per common share is based on the weighted-average
number of shares of common stock outstanding during each respective period.
Diluted net income (loss) per common share adds to basic weighted shares the
weighted-average number of shares of potential common shares (dilutive stock
options) outstanding during each respective period. Proceeds from the
exercise of the potential common shares are assumed to be used to repurchase
outstanding shares of the Company's common stock at the average fair market
value during the period. In a period in which a loss is incurred, only the
weighted-average number of common shares is used to compute the diluted loss
per share as the inclusion of potential common shares would be antidilutive.
The calculation of basic and diluted earnings per share ("EPS") is as follows:
<PAGE> 10
<TABLE>
<CAPTION>
In thousands, except per share data
Three Months Ended Six Months Ended
---------------------- ----------------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic EPS computation:
Net income .................. $ 151 $ 1,019 $ 2,180 $ 2,073
======== ======= ======= =======
Common shares outstanding.... 22,332 22,302 22,337 22,283
======== ======= ======= =======
Basic EPS.................... $ 0.01 $ 0.05 $ 0.10 $ 0.09
======== ======= ======= =======
Diluted EPS computation:
Net income .................. $ 151 $ 1,019 $ 2,180 $ 2,073
======== ======= ======= =======
Shares:
Common shares outstanding 22,332 22,302 22,337 22,283
Dilutive stock options... 340 189 229 142
-------- ------- ------- -------
22,672 22,491 22,566 22,425
======== ======= ======= =======
Diluted EPS.................. $ 0.01 $ 0.05 $ 0.10 $ 0.09
======== ======= ======= =======
</TABLE>
Excluded from dilutive stock option calculations for the second quarter of
1998 and 1997 were 2,882,000 and 2,707,000 options, respectively, because
their exercise prices were greater than the average fair market value of the
Company's stock for the period, and as such they would be antidilutive.
Since July 4, 1998, the Company issued 75,800 stock options which could
have a dilutive effect on diluted net income per common share in the future.
Additionally, the Company has repurchased 37,500 shares of common stock since
July 4, 1998.
Note 5--RESTRUCTURING
During 1997, the Company incurred $34,947,000 in pre-tax restructuring charges
related to formal decisions by the Company's Board of Directors to exit the
desktop and low-end server market, which included closure of its Eagle(RTM)
division. These decisions were made in order to focus the Company on mid-range
application server markets and establish a more competitive cost structure in
those markets.
The Company incurred $3,123,000 in workforce reduction costs, including
severance, outplacement and benefits.
Inventory write-downs included charges of $16,890,000 relating to excess and
obsolete inventory associated with the decision to exit the desktop and low-end
server markets as well as non-cancelable supplier and customer commitments of
$7,794,000. Asset write-downs of $7,140,000 include $3,075,000 of fixed assets
to be scrapped or sold, $3,065,000 of capitalized software development costs
and investment write-downs on projects to be discontinued and $1,000,000 of
lease abandonment costs.
<PAGE> 11
At July 4, 1998, the remaining accruals associated with this restructuring
were $1,647,000. Approximately half of these accruals relate to long-term
lease liabilities.
During the second quarter of 1998, the Company concluded negotiations with
several of its former Eagle(RTM) division suppliers. As a result of these
successful negotiations, previously recorded accrued liabilities of
$1,673,000 were no longer required and were reversed to income.
The following table summarizes the activity in the Company's restructuring
reserves during the first half of 1998:
<TABLE>
<CAPTION> Inventory
(In thousands) Workforce Write-downs Asset
Reduction and Other Write-down Total
--------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Balance, January 3, 1998........ $1,447 $ 7,788 $1,000 $10,235
Cash payments................... (1,391) (4,902) (191) (6,484)
Additional charges/
reclassifications........... (47) (2,057) -- (2,104)
------ ------ ------ -------
Balance, July 4, 1998........... $ 9 $ 829 $ 809 $ 1,647
====== ====== ====== =======
</TABLE>
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This Form 10-Q contains forward-looking statements within the context of
Section 21E of the Securities Exchange Act of 1934, as amended. Each and
every forward-looking statement involves a number of risks and uncertainties,
including those risk factors specifically delineated and described in Part 1,
Item 1 of the Company's 1997 Form 10-K, filed March 24, 1998 ("1997 Form
10-K"). The actual results that the Company achieves may differ materially
from any forward-looking statements due to such risks and uncertainties.
The Company has identified by **bold-face** various sentences within this Form
10-Q which contain such forward-looking statements. Additionally, words such
as "believes," "anticipates," "expects," "intends," and similar expressions
are intended to identify forward-looking statements, but are not the
exclusive means of identifying such statements. The Company undertakes no
obligation to revise any forward-looking statements in order to reflect events
or circumstances that may arise after the date of this report.
RESTRUCTURING CHARGES
During 1997, the Company recorded pre-tax restructuring charges of $34.9
million related to formal decisions by the Company's Board of Directors to exit
the desktop and low-end server market through the closure of its Eagle(RTM)
division. These decisions were made in order to focus the Company on mid-range
application server markets and establish a more competitive cost structure in
those markets. **The remainder of reserves associated with this restructuring
are expected to be paid by the end of 1998.**
The following table summarizes the activity in the Company's restructuring
reserves during the first half of 1998:
<TABLE>
<CAPTION> Inventory
Workforce Write-downs Asset
(In thousands) Reduction and Other Write-down Total
--------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Balance, January 3, 1998........ $1,447 $ 7,788 $1,000 $10,235
Cash payments................... (1,391) (4,902) (191) (6,484)
Additional charges/
reclassifications........... (47) (2,057) -- (2,104)
------ ------ ------ -------
Balance, July 4, 1998........... $ 9 $ 829 $ 809 $ 1,647
====== ======= ====== =======
</TABLE>
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.
<PAGE> 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").
To date, the Company has executed approximately two-thirds of its Plan and
anticipates completing the remaining portions of the Plan by the end of 1998,
with testing of these systems to occur in the first half of 1999. In
addition, the Company's subsidiaries are in the process of being incorporated
into the Company's Plan to become Year 2000 compliant. Exabyte anticipates
that all subsidiaries are or will be Year 2000 compliant by the first quarter
of 1999.
There can be no assurance that the Company will be able to upgrade any or all
of its, or its subsidiaries', major systems in accordance with the Plan or,
once upgraded, that the systems will be Year 2000 compliant. Should the
Company fail to upgrade such systems in a timely manner, or should those
upgrades fail to be Year 2000 compliant, the Company may be unable to conduct
business or manufacture its products, which could cause a material adverse
effect on the Company's results of operations.
The Company's suppliers (particularly sole-source and long lead-time
suppliers) and key customers may be adversely affected by their respective
failure to address the Year 2000 problem. Should any of the Company's
suppliers encounter Year 2000 problems that cause them to delay manufacturing
or shipments of key components to Exabyte, the Company may be forced to delay
or cancel shipments of its products, which would have a material adverse
effect on the Company's results of operations. Additionally, any inability of
Exabyte's key customers to become Year 2000 compliant which would cause them
to delay or cancel substantial purchase orders or delivery of Exabyte's
products would also have a material adverse effect on the Company's results of
operations. The Company is currently working with its suppliers and
customers, as well as each of their respective suppliers, to address their
Year 2000 compliance in a timely manner. The Company anticipates completion
of this effort by the end of 1998; however, there can be no assurance that any
such effort will be successful.
Exabyte has incurred to date no incremental material costs associated with its
efforts to become Year 2000 compliant, as the majority of the costs have
occurred as a result of normal upgrade procedures. Furthermore, the Company
believes that future costs associated with its Year 2000 compliant effort will
not be material.
Currently, the Company does not have a contingency plan in place should the
Company be unsuccessful in its efforts to become Year 2000 compliant.
However, the Company intends to create such a contingency plan by the end of
1998.
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 believes such
products accurately process date data (including, but not limited to,
calculating, comparing and sequencing) from, into and between the twentieth
and twenty-first centuries, including leap year calculations, provided such
products operate in accordance with the Company's published specifications,
and further provided that all hardware, software and firmware used in
combination with the Company's products properly exchange date data with such
products. However, there can be no assurance that the Company's products will
function in this manner. Any failure of the Company's products to perform in
accordance with specifications could result in the loss of critical user data,
resulting in claims against the Company for damages arising from such data
<PAGE> 14
loss, which could have a material adverse affect on the Company's results of
operations. Please refer to the "RISK FACTORS--Product and Quality
Performance" section in the Company's 1997 Form 10-K.
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.
RESULTS OF OPERATIONS
The following table sets forth unaudited operating results for the three and
six month periods ended July 4, 1998 and June 28, 1997 as a percentage of sales
in each of these periods. This data has been derived from the unaudited
consolidated financial statements.
<TABLE>
<CAPTION>
Three Months Ended
---------------------
July 4, June 28,
1998 1997
------ ------
<S> <C> <C>
Net sales.................................... 100.0% 100.0%
Cost of goods sold........................... 70.8 73.6
------ ------
Gross margin................................. 29.2 26.4
Operating expenses:
Selling, general and administrative........ 20.8 15.5
Research and development................... 8.7 9.1
------ ------
Income (loss) from operations................ (0.3) 1.8
Other income (expense), net.................. 0.6 (0.2)
------ ------
Income before income taxes................... 0.3 1.6
Provision for income taxes................... (0.1) (0.6)
------ ------
Net income .................................. 0.2% 1.0%
====== ======
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
Six Months Ended
---------------------
July 4, June 28,
1998 1997
------ -------
<S> <C> <C>
Net sales.................................... 100.0% 100.0%
Cost of goods sold........................... 70.6 73.2
------ ------
Gross margin................................. 29.4 26.8
Operating expenses:
Selling, general and administrative........ 18.6 15.2
Research and development................... 8.8 10.0
------ ------
Income from operations....................... 2.0 1.6
Other income, net............................ 0.2 0.1
------ ------
Income before income taxes................... 2.2 1.7
Provision for income taxes................... (0.8) (0.6)
------ ------
Net income .................................. 1.4% 1.1%
====== ======
</TABLE>
NET SALES
Net sales for the second quarter and first half of 1998 were $69.8 million and
$150.5 million, respectively. These amounts represent decreases of 28.2% and
17.6%, respectively, from net sales of $97.1 million and $182.6 million,
respectively for the same periods in 1997. These decreases are mainly the
result of decreased sales of 8205/8505 tape drives. Sales of these products
decreased to $6.5 million and $16.0 million, respectively, of sales during the
second quarter and first half of 1998 from $32.7 million and $71.7 million,
respectively, for the same periods in the previous year. This decrease is
partially offset by increases in sales of other current 8mm drives. Other 8mm
drives represented $29.7 million and $66.6 million of sales, respectively,
for the second quarter and first half of 1998 compared to $24.8 million and
$35.7 million, respectively, for the same periods in 1997.
The following tables detail the Company's product mix as a percentage of total
net sales for the second quarter and first six months of 1998:
<PAGE> 16
PRODUCT MIX TABLE
(As a Percentage of Net Sales)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ------------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
------- ------- ------ --------
<S> <C> <C> <C> <C>
8mm drives:
8205, 8505, 8700, Eliant(TM) 820
and Mammoth.......................... 52.0% 59.1% 54.9% 58.8%
Libraries:
10h, 210, 220, 440, 480, 18D, 230D
and mirroring solutions.............. 21.6 20.2 19.0 19.3
Media.................................. 21.7 13.2 21.1 14.0
Service, spares and other.............. 6.8 6.1 6.9 6.5
Other end-of-life drives and libraries. 0.1 7.1 1.7 6.2
Sales allowances....................... (2.2) (5.7) (3.6) (4.8)
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
</TABLE>
Domestic sales accounted for 73.2% and 69.7% of sales, respectively, during
the second quarter and first half of 1998. This percentage remained
relatively consistent with 70.6% and 68.9%, respectively, for the same periods
in 1997. International sales represented 26.8% and 30.3%, respectively, for
the second quarter and first half of 1998 compared to 29.4% and 31.1%,
respectively, for the same periods in 1997.
The customer mix also remained relatively stable in the second quarter and
first half of 1998 compared to the same periods in the previous year. The
following table details the sales to different customer types as a percentage
of total net sales:
CUSTOMER MIX TABLE
(As a Percentage of Net Sales)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ --------------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Customer Type:
- ------------------
OEM.................................... 45.3% 45.7% 46.5% 46.5%
Reseller............................... 51.5 49.2 49.5 48.2
End-user and other..................... 3.2 5.1 4.0 5.3
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
</TABLE>
<PAGE> 17
The following table summarizes sales to major customers:
SALES TO MAJOR CUSTOMERS
(As a Percentage of Net Sales)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ --------------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Customer:
- ----------
OEM A.................................. 13.1% 13.7% 12.9% 14.2%
OEM B.................................. 12.9 10.9 12.4 13.2
Reseller C............................. 14.3 11.4 12.8 10.2
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 second quarter and first six months of
1998 were 29.2% and 29.4%, respectively. These figures increased from
percentages of 26.4% and 26.8%, respectively, for the comparable periods in
1997. Gross margins for the second quarter and year-to-date period were
favorably impacted by lower manufacturing expenses which resulted from
headcount and cost reduction efforts during the latter part of 1997, lower
warranty costs due to the result of quality improvement actions and the
satisfactory settlement of certain claims from former Eagle(RTM) division
vendors.
OPERATING EXPENSES
Selling, general and administrative expenses for the second quarter and
first half of 1998 increased as a percentage of sales to 20.8% and 18.6%,
respectively, from 15.5% and 15.2% for the same periods in the previous
year. In absolute dollars, expenses decreased by $600,000 during the second
quarter and increased $100,000 for the first half of 1998 over the same
periods in 1997. These two fluctuations are the result of general decreases
as a result of headcount and cost reduction efforts during the latter half of
1997 which are offset by increased marketing expenditures during 1998.
Research and development expenditures decreased to 8.7% and 8.8% of sales,
respectively, for the second quarter and first half of 1998 compared to 9.1%
and 10.0%, respectively, for the same periods in 1997. In absolute dollars,
these expenses decreased by $2.8 million and $5.0 million, respectively, for
the second quarter and first half of 1998 over the same periods in 1997.
Decreases are mainly due to the decision to exit the desktop market through
closure of the Eagle(RTM) division which was made in the latter part of 1997.
<PAGE> 18
OTHER INCOME (EXPENSE), NET
Other income (expense), net, consists primarily of interest income and
expense, state franchise taxes, foreign currency gains and losses, the
translation impact of the Company's foreign subsidiaries' balance sheets and
other miscellaneous items. Other income for the year-to-date period was
relatively consistent at $233,000 of gain for 1998 and $271,000 of gain for
1997.
TAXES
The provision for income taxes for the second quarter and first half of 1998
and 1997 was 34.0% of income before taxes. **This is also the rate expected
for fiscal 1998.**
NET INCOME
Basic net income per share for the second quarter and first half of 1998 was
$0.01 and $0.10, respectively. In 1997, basic net income per share for the
same periods was $0.05 and $0.09, respectively. The changes in net income
are due to lower revenues offset by higher margins and lower engineering
expenses.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1998, the Company generated $14.4 million of
cash through operating activities, generated $502,000 in proceeds from the
sale of common stock, expended $1.0 million to repurchase outstanding shares
of common stock, expended $4.5 million for capital equipment and expended
$562,000 on long-term obligations. Together, these activities resulted in
a net increase in the combined balance of cash and short-term investments of
$8.8 million to a quarter-ending balance of $57.2 million. The Company's
working capital decreased to $128.1 million at July 4, 1998 from
$128.3 million at January 3, 1998.
The Company has a $7.5 million bank line of credit which expires May 15,
1999. Under this agreement, borrowings under the line are limited to 80%
of eligible accounts receivable plus 25% of eligible inventory (limited to
$3,000,000). On August 17, 1998 the amount available under the line was $7.5
million and no borrowings were outstanding. Borrowings under the line of
credit bear interest at the lower of the bank's prime rate or LIBOR + 2%.
The ability to borrow under this line of credit is dependent upon the
Company's adherence to a set of financial covenants. The Company is currently
in compliance with all such covenants. Offsetting the amount available under
the line of credit is a letter of credit which secures certain leasehold
improvements made by the Company's subsidiary in Germany. This letter is for
DM 1,300,000 and decreases by DM 100,000 in August of each year until it is
fully depleted.
**The Company believes its existing sources of liquidity and funds expected to
be generated from operations will provide adequate cash to fund the Company's
anticipated working capital and other cash requirements through fiscal 1998.**
<PAGE> 19
PART II.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on May 4, 1998,
Mr. Peter D. Behrendt was re-elected and Mr. A. Laurence Jones was elected
for the first time to the Company's Board of Directors for a three-year term.
The vote was as follows:
</TABLE>
<TABLE>
<CAPTION>
Name of Director Total Vote For Total Vote Withheld
- ----------------- -------------- -------------------
<S> <C> <C>
Peter D. Behrendt 18,296,427 324,487
A. Laurence Jones 18,287,158 333,756
</TABLE>
Messrs. Ralph Z. Sorenson and Thomas E. Pardun will continue in office until
the 1999 Annual Meeting of Stockholders. Messrs. Mark W. Perry and William L.
Marriner will continue in office until the 2000 Annual Meeting of Stockholders.
In addition, the following matter was approved:
<TABLE>
<CAPTION>
Total Total Total Vote
Matter Voted On Vote For Vote Against Abstaining
- --------------------------------- -------- ------------ ----------
<S> <C> <C> <C>
Ratification of Price Waterhouse
LLP as the Company's independent
accountants...................... 18,450,646 63,568 106,700
</TABLE>
Item 5. Other Information
Pursuant to the Company's By-laws, stockholders who wish to bring matters or
propose nominees for directors at the Company's 1999 Annual Meeting of
Stockholders must provide specified information to the Company by
December 2, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit
Number Description
------- -----------
27.0 Financial Data Schedule
(b) Reports on Form 8-K: There were no reports on Form 8-K for the
three month period ended July 4, 1998.
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXABYTE CORPORATION
Registrant
Date August 18, 1998 By /s/ Stephen F. Smith
----------------------- -----------------------------------
Stephen F. Smith
Vice President, Chief Financial
Officer, General Counsel &
Secretary (Principal Financial
and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AS OF JULY 4, 1998 AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
JULY 4, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JUL-04-1998
<CASH> 48,841
<SECURITIES> 8,400
<RECEIVABLES> 52,899
<ALLOWANCES> 7,325
<INVENTORY> 39,178
<CURRENT-ASSETS> 165,130
<PP&E> 120,226
<DEPRECIATION> 86,907
<TOTAL-ASSETS> 214,005
<CURRENT-LIABILITIES> 37,080
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 172,459
<TOTAL-LIABILITY-AND-EQUITY> 214,005
<SALES> 150,504
<TOTAL-REVENUES> 150,504
<CGS> 106,307
<TOTAL-COSTS> 106,307
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 417
<INTEREST-EXPENSE> 307
<INCOME-PRETAX> 3,303
<INCOME-TAX> 1,123
<INCOME-CONTINUING> 2,180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,180
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
