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Non-Tech : Any info about Iomega (IOM)?
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To: s. bateh who wrote (56429)6/18/1998 5:56:00 PM
From: Bill Lin  Read Replies (1) of 58324
 
re: violation of Debt covenants

The press release said they had $60mm from the $200mm credit facility.

The loan covenants probably state that IOM will not lose money for more than 2 consecutive quarters (or be cash flow positive),
And maintain a certain cash balance.

Cash from Q1 was $80.5 million. By being cash flow negative of $70 million this quarter, they are in deep trouble. They had AR of $249 million. I'd like to know how they cycled their inventory.

Inventory stood at $313.6 million last quarter and they drew $30 million off the line of credit by the end of Q1.

So, the end of Q2 showed they drew $30 million more from the line of credit.

last quarter SGA totaled $131 million. Assuming $135 million in SGA and a 20% gross margin from $408 million in total revenues, they overspent $53.4 million pretax. Add on top of that 15 million in lay off costs, and you get $68.4 million in pre tax loss, which is close to the $60-70 million in negative cash flow they projected.

So...what is the key?

1) how much jaz1/jaz2 can they sell to dump their inventory?

2) how much inventory can they reduce (Q1 inv of $313mm was more than 1 Q of inventory which equals an inventory turn less than 4.0 -->crappy)

3) how much advertising spending can they reduce in Q3 and Q4? TV ads and radio ads are not doing anything. Channel ads work.

4) Conversion to the 20% GM model (the OEM model) requires SGA to reduce to $60 million from $108 million. Will cuts in ad and workers equal a reduction of $48 million in costs???

5) What is the $23 million R&D budget accomplishing???

6) Are they still proceeding with the Silicon Valley expensive real estate deal? That will burn more cash.

Q3 and Q4 are supposed to be cash flow positive. Don't see how Q3 will be cash flow positive.

Depreciation is $12.88mm per qtr (Q1). Unless they can get rid of inventory and get inventory turns to 9.0 (reduced inventory by 150 million), then Q3 will be cash flow negative.

Cash flow positive does not mean earnings positive. Summer months are very slow selling months. So don't expect revenue to increase much beyond $400mm.

SGA should be reduced by $25mm and ad spending should decrease by $10mm which leaves $18 million in loss before tax.

Interest expense should increase to $3 million for Q2 and $4.5 million for Q3.

IOM in fight for survival here.

At first I thought not too bad, but now, it is pretty serious.

BL
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