IOMEGA Taking steps to cut costs... AT LAST...
G.M. Don't know if this has been posted yet. These are the kind of moves I've been waiting to see IOMEGA make...
June 18 - Iomega Corp. (NYSE:IOM) Thursday announced that it will implement a comprehensive series of cost reductions to improve financial performance.
As a result of implementing these measures, Iomega will record special charges, totaling approximately $5 million to $10 million pre-tax, for the second quarter ending June 27, 1998.
ÿ ÿ ÿ ÿ Based on preliminary results to date, Iomega expects second quarter 1998 revenue to be roughly in line with first quarter 1998 revenue of $408 million. Additionally, it expects a second quarter net loss, excluding special charges, in the range of $25 million to $35 million, or $0.10 to $0.13 per share. The expected loss, resulting from softer than expected aftermarket sales combined with the shift toward lower margin OEM sales, is greater than the company had previously anticipated.
ÿ ÿ ÿ ÿ Iomega expects second quarter Zip(R) drive shipments to the OEM market to be approximately 50 percent of total Zip drive shipments for the second consecutive quarter. Due to this continued success in the OEM market, Iomega is introducing cost cutting measures to bring its business model in line with higher volume, lower margin OEM business. Iomega also expects total Zip drive units shipped to increase approximately 40 percent over second quarter 1997 and about five percent over first quarter 1998.
ÿ ÿ ÿ ÿ "We are disappointed with our financial performance during the quarter," said James E. Sierk, president and chief executive officer, Iomega Corp. "But, we are pleased with the continued acceptance of Zip Built-In(TM) as part of an increasing number of OEM PCs.
ÿ ÿ ÿ ÿ "We are very excited about Compaq's decision to include Zip drives as a standard feature in the majority of its new Presario models. Our goal in taking the actions announced today is to generate cost savings totaling more than $50 million in the second half of this year and show a profit in the fourth quarter. However, we do not anticipate being profitable for the full fiscal year 1998."
ÿ ÿ ÿ ÿ Specific actions Iomega will take include:
Reducing total headcount (including regular and temporary employees) by approximately 600 to 700 employees. Iomega currently employs approximately 5,000 full-time and full-time equivalent employees worldwide.
Accelerating implementation of a "virtual corporation" model, which will shorten the supply chain, reduce inventory, and make Iomega more responsive to its customers.
Implementing Six Sigma initiatives to make substantial product and process quality improvements and reduce cost. "We regret the impact these cost reduction measures will have on a number of our employees," continued Sierk. "Unfortunately, the reality is that we need to adjust our business model in order to become profitable as an OEM supplier of Zip drives and to capitalize on the sale of our higher margin Zip disks. "We are determined to return to profitability as soon as possible and believe the actions that we outlined today will improve our financial performance and increase the return to our stockholders." Iomega's expected loss this quarter could result in non-compliance with certain covenants under its existing $200 million senior credit facility. The company is currently in active discussions with its lenders to address this issue. Currently, Iomega has $60 million in advances outstanding on this facility. Iomega's ability to borrow further under this credit facility will depend on successful renegotiation of certain terms and covenants of the credit line. Iomega expects cash flow to continue to be negative in the second quarter in the range of $60 million to $70 million. The company anticipates, however, being cash flow positive in the second half of the year. Iomega will report final results after the close of market on Thursday, July 16, 1998. Iomega cautioned that its actual second quarter results could be higher or lower since revenue and operating results will be significantly impacted by sales through distribution and retail channels in the remaining two weeks of the quarter. Iomega's revenue recognition policy defers recognition of revenue on estimated excess inventory in the distribution and retail channels. For this purpose, excess inventory is the amount of inventory that exceeds these channels' 30 day requirements as estimated by management. Iomega Corp. manufactures personal read/write storage solutions that help people manage their stuff -- anywhere. Iomega's products provide consumers with what they want, when they want it, at a reasonable price. The company's storage solutions, designed for all types of computer users, include Zip drives and genuine Zip 100 disks; Jaz(R) one- and two-gigabyte drives and disks; and Ditto(TM) tape backup drives and tape cartridges. Whether used in homes, business, government and education, or by creative professionals, all Iomega storage solutions ensure high levels of quality and reliability when using authorized Iomega media products. Iomega products are available through computer retail stores, resellers, major distributors and OEMs. The company can be reached at 800/MY-STUFF (800/697-8833), or on the Web at iomega.com. Additional Iomega press releases can be accessed through the toll-free fax-back line: (888/88-IOMEGA).
ÿ ÿ ÿ ÿ Special Note: The statements in this release related to Iomega's anticipated second quarter sales levels, anticipated second quarter loss, return to profitability in the fourth quarter, improved financial performance, inventory levels and cash flow are forward-looking statements, based upon current management expectations. There are a number of important factors that could cause actual results to differ materially from those suggested or indicated by such forward-looking statements.
ÿ ÿ ÿ ÿ These include, among others, the level of demand and acceptance for Iomega's drive and removable disk products, product sell-through in distribution and retail channels, estimated excess inventory in distribution and retail channels, inventory management, product mix, manufacturing issues, including availability of components that meet Iomega specifications and quality requirements, product shipment delays, actual expenses, the actual amount of special charges, successful reductions in future costs and expenses, successful introduction of new products within target availability time frames, production costs, the outcome of discussions concerning the company's current credit facility, competitive factors and pricing considerations, conditions affecting sales of PCs and PC peripherals generally such as the demand generated by the introduction of Windows 98, general economic conditions, including, without limitation, conditions in the Asia/Pacific and other international regions and conditions affecting the computer industry generally, and other factors identified in Iomega's Annual Report as filed on Form 10-K, March 30, 1998, and most recent quarterly reports filed with the SEC.
ÿ ÿ ÿ ÿ Note to Editors: Iomega, Zip, Jaz, the stylized "i" logo are registered trademarks of, and Clik!, Ditto, Zip Built-In and Buz are trademarks of, Iomega Corp. For maximum reliability, use only genuine Zip 100 disks featuring the genuine Zip 100 symbol in your Zip drive.
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