10-Q/A 1 eq00q2a.htm <SUBMISSION>

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 1
to
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 July 1, 2000

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.______________________________________________________________

 

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. [X] Yes [ ] No

As of August 8, 2000, there were 23,044,899 shares outstanding of the Registrant's Common Stock (par value $0.001 per share).

 

 

 

 

 

 

 

EXABYTE CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Page

 

 

Item 1. Financial Statements (Unaudited)

 

 

 

Consolidated Balance Sheets--July 1, 2000 and January 1, 2000 (Unaudited)

3

 

 

Consolidated Statements of Operations--Three and Six Months Ended July 1, 2000 and July 3, 1999 (Unaudited)


4-5

 

 

Consolidated Statements of Cash Flows--Six Months Ended July 1, 2000 and July 3, 1999 (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


11-17

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

18

 

 

PART II. OTHER INFORMATION

 

 

 

Item 6. Exhibits and Reports on Form 8-K

18-20

 

PART I Item 1. Financial Statements

EXABYTE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share data)

 

July 1,
2000
(Restated)


January 1,
2000

ASSETS

 

 

Current assets:

 

 

     Cash and cash equivalents

$ 12,447 

$25,610

     Short-term investments

90 

7,039

     Accounts receivable, less allowance for doubtful accounts
          and reserves for customer returns and credits of $6,054
          and $7,855, respectively



25,543 



37,163

     Inventories, net

30,918 

26,805

     Other current assets

4,770 

4,927

               Total current assets

    73,768

101,544

Property and equipment, net

23,558 

24,708

Other assets

1,588 

1,024

 

$98,914 

$127,276

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

Current liabilities:

 

 

     Accounts payable

$ 15,503 

$ 23,327

     Accruals and other liabilities

13,592 

13,815

     Accrued income taxes

2,399 

1,877

     Current portion of long-term obligations

2,793 

2,931

               Total current liabilities

34,287 

41,950

Long-term obligations

8,335 

6,570

Stockholders' equity:

 

 

     Preferred stock, $.001 par value; 14,000 shares authorized;
          no shares issued

-- 

-- 

     Common stock, $.001 par value; 50,000 shares authorized;
          23,045 and 22,886 shares issued, respectively


23 


23 

     Capital in excess of par value

68,337 

67,584 

     Treasury stock, at cost, 455 shares

(2,742)

(2,742)

     Retained earnings (deficit)

(9,326)

13,891 

               Total stockholders' equity

56,292 

78,756 

 

$98,914 

$127,276 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

 

Three Months Ended

 

July 1,
2000

July 3,
1999

 

 

 

Net sales

$51,314 

$48,519 

Cost of goods sold

38,028 

42,200 

 

 

 

Gross profit

13,286 

6,319 

 

 

 

Operating expenses:

 

 

     Selling, general and administrative

13,801 

14,478 

     Research and development

9,366 

8,690 

 

 

 

Loss from operations

(9,881)

(16,849) 

Other income, net

393 

172  

 

 

 

Loss before income taxes

(9,488)

(16,677) 

 

 

 

Provision for income taxes

(149)

(38,814) 

 

 

 

Net loss

$(9,637)

$(55,491)

 

 

 

 

 

 

Basic and diluted net loss per share

$(0.43)

$(2.50) 

 

 

 

Common shares used in the calculation of basic and diluted net
     loss per share


22,505 


22,210 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

 

Six Months Ended

 

July 1,
2000

July 3,
1999

 

 

 

Net sales

$100,890 

$111,169 

Cost of goods sold

77,391 

89,311 

 

 

 

Gross profit

23,499 

21,858 

 

 

 

Operating expenses:

 

 

     Selling, general and administrative

27,237 

27,728 

     Research and development

19,726 

16,474 

 

 

 

Loss from operations

(23,464)

(22,344) 

Other income, net

438 

364  

 

 

 

Loss before income taxes

(23,026)

(21,980) 

 

 

 

(Provision for) benefit from income taxes

(191)

(37,011)

 

 

 

Net loss

$(23,217)

$(58,991)

 

 

 

 

 

 

Basic and diluted net loss per share

$(1.03)

$(2.66) 

 

 

 

Common shares used in the calculation of basic and diluted net
     loss per share


22,480 


22,201 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

Six Months Ended

 

July 1,
2000

July 3,
1999

 

 

 

Cash flows from operating activities:

 

 

     Cash received from customers

$112,434 

$122,677 

     Cash paid to suppliers and employees

(127,906)

(132,282)

     Interest received

718 

1,462 

     Interest paid

(196)

(277)

     Income taxes paid

(106)

(153)

     Income tax refund received

149 

526

          Net cash used by operating activities

(14,907)

(8,047)

 

 

 

Cash flows from investing activities:

 

 

     Purchase of short-term investments

(2,051)

(30,020)

     Maturities/sales of short-term investments

9,000 

22,423 

     Capital expenditures

(5,006)

(6,573)

          Net cash provided (used) by investing activities

1,943 

(14,170)

 

 

 

Cash flows from financing activities:

 

 

     Net proceeds from issuance of common stock

753 

356  

     Principal payments under long-term obligations

(952)

(3,400) 

          Net cash used by financing activities

(199)

(3,044) 

 

 

 

Net decrease in cash and cash equivalents

(13,163)

(25,261)

Cash and cash equivalents at beginning of period

25,610 

56,571 

 

 

 

Cash and cash equivalents at end of period

$12,447 

$31,310 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

EXABYTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

Six Months Ended

 

July 1,
2000

July 3,
1999

 

 

 

Reconciliation of net loss to net cash used by operating activities:

 

 

     Net loss

$(23,217)

$(58,991) 

     Adjustments to reconcile net loss to net cash used by
          operating activities:

 

 

     Depreciation, amortization and other

6,734  

8,066 

     Deferred income tax benefit provision

--  

36,945 

     Provision for losses and reserves on accounts receivable

1,925  

3,309 

 

 

 

Change in assets and liabilities:

 

 

     Accounts receivable

9,695  

7,871 

     Inventories, net

(4,113) 

(2,468)

     Income tax receivable

(186) 

543 

     Other current assets

443  

547 

     Other assets

(564) 

148 

     Accounts payable

(7,824) 

(3,558)

     Accrued liabilities

(223) 

(560)

     Accrued income taxes

422  

(105)

     Other long-term obligations

2,001  

206 

 

 

 

          Net cash used by operating activities

$(14,907) 

$(8,047)

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

          Capital lease obligations

$599  

$ - -

              Note payable issued to purchase property and equipment

 - -   

 2,143

 

The accompanying notes are an integral part of the consolidated financial statements.

 

EXABYTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1--ACCOUNTING PRINCIPLES

The consolidated balance sheet as of July 1, 2000, the consolidated statements of operations for the three and six months ended July 1, 2000 and July 3, 1999, as well as the consolidated statements of cash flows for the six months ended July 1, 2000 and July 3, 1999, 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 1, 2000 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--INVENTORIES

Inventories, net of reserves for excess quantities and obsolescence, consist of the following:

(In thousands)

 

July 1,
2000

January 1,
2000

 

 

 

 

 

 

Raw materials and component parts

$20,068 

$15,694 

Work-in-process

1,448 

1,874 

Finished goods

9,402 

9,237 

 

$30,918 

$26,805 

 

Note 3--ACCRUED LIABILITIES

Accrued liabilities consist of the following:

(In thousands)

 

July 1,
2000

January 1,
2000

 

 

 

 

 

 

Wages and employee benefits

$5,687 

$6,083

Warranty and other related costs

2,097 

3,536

Other

5,808 

4,196

 

$13,592 

$13,815 

 

Note 4--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

Six Months Ended

 

July 1,
2000

July 3,
1999

July 1,
2000

July 3,
1999

 

 

 

 

 

Basic and diluted EPS computation:

 

 

 

 

     Net loss

$( 9,636)

$(55,491)

$(23,217)

$(58,991)

 

 

 

 

 

     Common shares outstanding

22,505

22,210

22,480

22,201

 

 

 

 

 

     Basic and diluted EPS

$ (0.43)

$ (2.50)

$ (1.03)

$ (2.66)

 

Options to purchase 4,999,000 and 4,564,000 shares of common stock were excluded from dilutive stock option calculations for the second quarter of 2000 and 1999, 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 anti-dilutive. Impacting year-to-date share calculations for 2000 and 1999 was the first quarter exclusion of 2,032,000 and 4,811,000 options to purchase common stock, respectively, for this same reason.

For the second and first quarters of 2000, additional options to purchase 294,000 and 3,339,000 shares of common stock, respectively, were excluded from the diluted computation above because of their anti-dilutive effect on net loss per share. For the second and first quarters of 1999, options to purchase 34,000 and 36,000 were excluded, respectively, for this same reason. Inclusion of these shares would have resulted in additional dilutive stock options outstanding in 2000 of 31,000 for the quarter and 304,000 for the year-to-date. For 1999, inclusion would have resulted in additional dilutive stock options outstanding of 1,100 for the second quarter and 1,700 for the year-to-date period.

Note 5--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 $2,154,000 were paid in cash during 1999. The remaining severance and related costs accruals were 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

(2,154)

Balance, January 1, 2000

  292 

Cash payments

  (292)

Balance July 1, 2000

$ -- 

 

Note 6--RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board 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 is discussed in Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income".

In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") governing revenue recognition. Implementation of SAB 101 has been delayed until the fourth quarter of fiscal years beginning after December 15, 1999. The Company believes that, once effective, this bulletin is expected to have no effect on the Company's consolidated results of operations.

NOTE 7 - 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™ 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 8 - RESTATEMENT

The 2000 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 increased that partial valuation allowance to a full valuation allowance resulting in an 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 July 1, 2000 balance sheet. This restatement had no effect on the Company's net cash flows from operating, investing or financing activities. The 2000 financial statements have been restated below.

 


As Originally
Reported


Restated

 

  (In thousands, except per share data)

Balance Sheet Data as of July 1, 2000:

 

 

   Deferred income taxes (current)

             $ 7,150

$--

   Total current assets

              80,918

73,768

   Deferred income taxes (noncurrent)

              31,370

--

   Accrued income taxes

               2,216

2,399 

   Retained earnings (deficit)

              29,294

(9,326)

   Total stockholders' equity

              94,912

56,292 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This Form 10-Q contains forward-looking statements allowed under Section 21E of the Securities Exchange Act of 1934. Our actual results may differ materially from these forward-looking statements because our business and operations are continually exposed to risks and uncertainties, including those listed in Part 1, Item 1 of our 1999 Form 10-K, filed with the SEC on April 6, 2000. We indentify forward-looking statements in this document by bold face. We also use words such as "believes, " "anticipates," "expects," "intends" and other similar expressions to help identify forward-looking statements. Keep in mind, however, that these methods are not the only way to identify forward-looking statements. Additionally, we may not revise forward-looking statements.

 

RESULTS OF OPERATIONS

The following table sets forth our operating results as a percentage of sales for each period presented.

 

Three Months Ended

Six Months Ended

 

July 1,
2000

July 3,
1999

July 1,
2000

July 3,
1999

 

 

 

 

 

Net sales

100.0%

100.0%

100.0%

100.0% 

Cost of goods sold

74.1   

87.0   

76.7  

80.3    

 

 

 

 

 

Gross profit

25.9   

13.0   

23.3  

19.7    

Operating expenses:

 

 

 

 

     Selling, general and administrative

26.9   

29.8   

27.0  

25.0    

     Research and development

18.3   

17.9   

19.6  

14.8    

 

 

 

 

 

Loss from operations

(19.3)  

(34.7)  

(23.3) 

(20.1)   

Other income, net

0.8   

0.3   

0.4  

0.3    

 

 

 

 

 

Loss before income taxes

(18.5)  

(34.4)  

(22.9)  

(19.8)   

(Provision for) benefit from income taxes

(0.3)  

(80.0)  

(0.1)  

(33.3)   

 

 

 

 

 

Net loss

(18.8)%

(114.4)%

(23.0)%

(53.1)%

 

NET SALES

Our products are marketed primarily through two sales channels, original equipment manufacturers ("OEMs") and resellers. OEM customers incorporate Exabyte products as part of their own systems. We work closely with them during early product development stages to help ensure our products will readily integrate into their systems. Reseller channel customers purchase our products for resale. In addition, they may provide their own value-added products/services to their customers. We support authorized key account reseller channel customers by providing marketing and technical support directly to them and their consumers.

Our net sales increased by 5.8% to $51.3 million in the second quarter of 2000 from $48.5 million for the second quarter of 1999. In comparing net sales in the second quarter of 2000 to the second quarter of 1999, there were several significant differences:

     -     Sales of older generation 8mm tape drives (Eliant™820, Mammoth-LT and Mammoth) decreased by $9.4 million, primarily in the OEM channel.

     -     Sales of current 8mm library products increased by $8.9 million. During 2000, both unit sales and average unit prices increased as sales shifted to libraries containing Mammoth-2 drives.

     -     Sales of Mammoth-2 tape drives were $1.6 million in 2000 with no comparable amount in 1999. Backward-read compatible Mammoth-2 drives started shipping late in the second quarter of 2000.

     -     Sales allowances decreased by $2.7 million, having a positive impact on net sales. This decrease resulted from (1) a general reduction in the number of marketing program offerings and (2) the expiration and cancellation of previously committed marketing funds, totaling $1.2 million. The majority of this impact was non-recurring.

Our net sales decreased by 9.2% to $100.9 million in the first six months of 2000 from $111.2 million for the first six months of 1999. Significant differences between the two periods include the following, some of which are discussed above for the quarterly comparison:

     -     Sales of older generation 8mm tape drives decreased by $22.2 million, primarily in the OEM channel.

     -     Sales of current 8mm library products increased by $12.2 million. During 2000, many of these libraries contain Mammoth-2 tape drives.

     -     Sales of Mammoth-2 tape drives were $9.5 million in 2000 with no comparable amount in 1999. Backward-read compatible Mammoth-2 drives started shipping late in the second quarter of 2000 . We anticipate Mammoth-2 drive shipments will increase throughout the remainder of 2000 as OEM adoptions of the product continue.

     -     Sales of tape media decreased by $8.3 million. This decrease is due to strong media sales during the first quarter 1999 as media constraints were resolved and media backlog orders were filled.

     -     Sales allowances decreased by $1.7 million, having a positive impact on net sales.

The following tables present our revenue by product in absolute dollars and as a percentage of sales for each period presented:

PRODUCT MIX TABLES

Dollars in thousands:

 

Three Months Ended

Six Months Ended

 

July 1, 2000

July 3, 1999

July 1, 2000

July 3, 1999

 

 

 

 

 

8mm drives:

 

 

 

 

     Eliant™820, Mammoth- LT,
          Mammoth and Mammoth-2


$18,641 


$26,434 


$41,955 


$54,650 

8mm libraries:

 

 

 

 

     EZ17™, 220, X80 and X200

12,547 

3,660 

23,824 

11,624 

DLTtape™ Libraries:

 

 

 

 

     17D, 230D and 690D

2,612 

2,048 

4,185 

4,597 

Media

12,155 

12,269 

25,012 

33,346 

Service, spares and other

3,709 

3,533 

7,705 

8,033 

End-of-life drives and libraries(x)

1,367 

3,012 

367 

2,741 

Sales allowances

283 

(2,437)

(2,158)

(3,822)

 

$51,314 

$48,519 

$100,890 

$111,169 

 

As a percentage of net sales:

 

Three Months Ended

Six Months Ended

 

July 1, 2000

July 3, 1999

July 1, 2000

July 3, 1999

 

 

 

 

 

8mm drives:

 

 

 

 

     Eliant™820, Mammoth LT,
          Mammoth and Mammoth-2

36.3%

54.5%

41.6%

49.2%

8mm libraries:

 

 

 

 

     EZ17™, 220, X80 and X200

24.5   

7.5   

23.6  

10.5   

DLTtape™ Libraries:

5.0   

4.2   

4.1  

4.1   

     17D, 230D and 690D

 

 

 

 

Media

23.7   

25.3   

24.8  

30.0   

Service, spares and other

7.2   

7.3   

7.6  

7.2   

End-of-life drives and libraries(x)

2.7   

6.2   

0.4  

2.5   

Sales allowances

0.6   

(5.0)  

(2.1) 

(3.5)  

 

100.0%

100.0%

100.0%

100.0%

 

(x) Prior year percentages reflect current year classifications of end-of-life products.

 

The following table details our sales to different customer types as a percentage of total net sales for the periods presented:

CUSTOMER MIX TABLE

(As a percentage of net sales)

 

Three Months Ended

Six Months Ended

 

July 1, 2000

July 3, 1999

July 1, 2000

July 3, 1999

 

 

 

 

 

Customer Type:

 

 

 

 

 

 

 

 

 

OEM

32.4% 

46.3% 

30.5% 

43.0% 

Reseller

62.7   

48.4   

64.8   

52.5   

End-user and other

4.9   

5.3   

4.7   

4.5   

 

100.0% 

100.0% 

100.0% 

100.0% 

 

We believe sales shifted from OEMs to reseller customers as a result of the release of our M2™ drive in late 1999, which has not yet been qualified by OEMs.

The following table summarizes customers who accounted for 10% or more of our sales in the periods presented:

SALES TO MAJOR CUSTOMERS

(As a percentage of net sales)

 

Three Months Ended

Six Months Ended

 

July 1, 2000

July 3, 1999

July 1, 2000

July 3, 1999

 

 

 

 

 

Customer:

 

 

 

 

 

 

 

 

 

Reseller A

15.6%

(x) 

16.0%

11.8%

Reseller B

10.6   

(x) 

12.5   

(x)  

OEM C

11.3   

18.9  

11.1   

16.7   

OEM D

10.8   

14.8  

(x)   

12.6   

 

(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. We cannot guarantee that sales to these or any other customers will continue to represent the same percentage of our revenues in future periods. Our customers also sell competing products and continually review new technologies, which causes our sales volumes to vary from period to period.

COST OF SALES AND GROSS MARGIN

Our cost of sales includes the actual cost of all materials, labor and overhead incurred in the manufacturing and service processes, as well as certain other related costs. Other related costs include primarily warranty accruals and inventory reserves. Our cost of sales decreased to $38.0 million for the second quarter of 2000 from $42.2 million for the same period in 1999. These costs decreased to $77.4 million for the first six months of 2000 from $89.3 million for the same period in 1999. Corresponding with these decreases in costs, our gross margin percentages increased to 25.9% in the second quarter of 2000 from 13.0% during the second quarter of 1999. Our gross margin percentage increased to 23.3% in the first six months of 2000 from 19.7% during the first six months of 1999. The primary factor positively impacting gross margins was the margin contribution of certain recently released Mammoth-2 drives and libraries. Additionally, there were reductions in inventory reserves as the result of product life cycles.

OPERATING EXPENSES

Selling, general and administrative expenses decreased to $13.8 million in the second quarter of 2000 from $14.5 million for the same period in 1999. These expenses decreased to $27.2 million for the first six months of 2000 from $27.7 million for the first six months of 1999. The decreases are the combination of several factors which include:

     -     A decrease in 2000 salaries and travel expenses for the quarterly and year-to-date periods resulting from headcount reductions in 2000 over 1999.

     -     During the latter part of 1999 and throughout the first six months of 2000, we were involved in patent litigation against Ecrix Corporation. We had claimed that they infringed on a number of our patents and were in the middle of pre-trial discovery when we settled the case. We received a combination of cash, a note receivable and Ecrix preferred stock. The settlement included $450,000 for reimbursement of legal expenses that had been incurred mainly in the first and second quarters of 2000. The recovery offset the expenses of the second quarter of 2000 compared to the same period of 1999, bringing year-to-date expenses for 2000 back in line with 1999 expenses.

     -     An increase in 2000 advertising expenses for the quarter and year-to-date periods for the introduction of the Mammoth-2 drive and related automation products.

Research and development expenses increased to $9.4 million in the second quarter of 2000 from $8.7 million for the same period in 1999. These expenses increased to $19.7 million for the first six months of 2000 from $16.5 million for the first six months of 1999. Spending increased in the quarterly and year-to-date periods to support ongoing engineering of the Mammoth-2 product, investments in new automation products and development of Mammoth-3, which is currently expected to begin shipping in late 2001. Investments in automation products included the integration of Mammoth-2 drives, as well as the development of a new family of mid-sized libraries that will incorporate Mammothtape™, DLT tape™, LTO® (Ultrium®) and AIT technologies. DLTtape™ drives are produced by Quantum. LTO® (Ultrium®) Drives are produced by the LTO Consortium (Hewlett Packard, Seagate and IBM). AIT is produced by Sony. This new family of mid-sized libraries is currently expected to begin shipping in the second half of 2000.

OTHER INCOME (EXPENSE), NET

Other income (expense), net consists primarily of interest income and expenses, foreign currency remeasurement and transaction gains and losses and other miscellaneous items. Other income for the second quarter of 2000 was $393,000 compared to $172,000 for the same period in 1999. Other income for the first six months of 2000 was $438,000 compared to $364,000 for the same period in 1999. This change is the result of the recovery of a previously written-off note receivable of $450,000 which was offset by decreased interest income due to lower invested cash balances.

TAXES

The provision for income taxes for the second quarter of 2000 was 1.6% of income before taxes compared to 1.2% in the second quarter of 1999. The provision for income taxes for the first six months of 2000 was 0.8% before taxes compared to 168.4% for the same period in 1999. As of the second quarter of 1999, the Company recorded a deferred tax valuation equal to 100% of total deferred tax assets. Management considered a number of factors, including the Company's cumulative operating losses due to the impact of delays in the rease of the M2ä 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 8 of Notes to Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

During the first six months of 2000, we expended $14.9 million of cash for operating activities, expended $5.0 million for capital equipment, expended $952,000 on long-term obligations and received $753,000 from the sale of common stock to company employees. Together, these activities decreased our cash and short-term investments by $20.1 million to a quarter-ending balance of $12.5 million. Our working capital decreased to $39.5 million at July 1, 2000 from $59.6 million at January 1, 2000.

In May 2000, we entered into a new bank line of credit agreement with Congress Financial Corporation, a subsidiary of First Union Bank Corporation. This agreement expires in May 2003. This agreement allows borrowings up to the lesser of 80% of eligible accounts receivable or $20.0 million. Eligible accounts receivable excludes invoices greater than 60 days past due, some foreign receivables and other items identified in the agreement. The amount available under the line on July 1, 2000 was approximately $14.4 million. Collateral for this agreement includes accounts receivable and inventory, as well as certain intangible assets. The line includes a commitment fee of $150,000 and an unused line of credit fee of .375% per annum assessed on the amount by which $16,000,000 exceeds our average daily principle balance.

This agreement requires that we maintain minimum levels of tangible net worth and certain other covenants. Additionally, we cannot pay dividends without prior bank approval. The agreement contains certain acceleration clauses that may cause any outstanding balance to become due in the event of default. Default includes failure to maintain required covenants and other events described in the agreement. On August 8, 2000, no borrowings were outstanding and we were in compliance with covenants.

We must pay interest on any borrowings under this agreement at the lower of the bank's prime rate + .5% or "LIBOR" + 2.5%. Offsetting the amount available under the line of credit is a series of letters of credit, which collateralize certain leasehold improvements made by our subsidiary in Germany. This letter is currently for DM 1,000,000 and decreases by DM 100,000 in August of each year until it is fully depleted.

We anticipate that our cash balance will continue to decline through 2000 and that borrowings under the line of credit may occur during 2000. We are continually exploring other sources of equity infusion for ourselves and our subsidiary, CreekPath Systems, Inc. We believe that our existing sources of liquidity and funds to be generated from operations will fund our anticipated working capital and other cash requirements through fiscal 2000.

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 development costs.

The following table summarizes the activity related to the 1999 restructuring reserve:

 

Severance and Related

(In thousands)

 

 

 

Restructuring charges

$  2,446

Cash payments

$(2,154)

Balance, January 1, 2000

$    292 

Cash payments

$  (292)

Balance July 1, 2000

$     --   

 

RECENT ACCOUNTING PRONOUNCEMENTS

Information concerning recent accounting pronouncements is incorporated by reference from Item 1, "Notes to Consolidated Financial Statements," under the caption, "Note 6--Recent Accounting Pronouncement."

 

MARKET RISK

We may occasionally enter 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. We establish contracts with maturity dates within six months of the purchase date. Contracts must be established for future purchases denominated in yen to be considered a hedge. In circumstances where the timing of hedged purchases is deferred, contract maturity dates are extended to cover the deferred purchases. There were no contracts outstanding at July 1, 2000.

 

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 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 July 1, 2000.

 

 

SIGNATURES

 

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)