Diamond Multimedia Reports Results for the Fourth
Quarter and Year Ended December 31, 1998
PR Newswire - January 28, 1999 17:25
SAN JOSE, Calif., Jan. 28 /PRNewswire/ -- Diamond Multimedia Systems, Inc. (Nasdaq: DIMD),
a leader in PC multimedia and Internet connectivity, today reported financial results for the fourth
quarter and the year ended December 31, 1998.
Excluding the effects of the previously announced charges related to a company-wide cost reduction
and restructuring initiative and a tax benefit resulting from a favorable tax ruling, net revenues were
$163.7 million, compared to net revenues of $185.9 million for the fourth quarter of 1997. Net
income for the quarter, excluding the one-time charges, was $5.1 million, or $0.15 per share,
compared to net income of $7.0 million, or $0.20 per share, for the fourth quarter of 1997.
"As we announced in November, we took several cost reduction and channel inventory management
actions during the quarter to focus the business on higher margin legacy products and on new more
proprietary product lines," said James M. Walker, senior vice president and chief financial officer.
"Those actions resulted in restructuring charges, consisting primarily of aggressive price reductions on
a number of discontinued products in the channel, returns of other discontinued products from the
channel, full reserves for gross margin on any current product in excess of four weeks supply in the
channel and costs associated with a reduction in force. In addition, we received a favorable tax ruling
in Germany that resulted in a reduction in our tax liability of approximately $8.7 million, which was
taken to income in the fourth quarter. Because most of the restructuring charges came from pricing
and product returns, the primary impact was a reduction in revenues of about $37 million. The net
charge to earnings, including the benefit of the favorable tax ruling, was about $22 million. However,
if you look at our on-going operations (see table below for effect of the charges and the tax benefit on
various line items of the statement of operations), the benefits of the actions we took are evident:
gross margin from current products was about 25%, channel inventory on legacy product is much
lower, channel inventory on current products is six weeks or less, DSO is down from last quarter and
inventory turns have increased."
Including the effect of the charges and the tax benefit, net revenue was $126.8 million for the quarter,
and the company had a net loss of $17.0 million, or $0.48 per share. For the year, including the effect
of the charges and the tax benefit, net revenues for 1998 were $608.6 million, compared to $443.3
million for 1997. Net loss for 1998 was $39.5 million, or $1.13 per share, compared to a net loss of
$45.6 million, or $1.33 per share, in 1997.
A summary of the effect of the charges and the tax benefit on the statement of operations for the
fourth quarter is shown in the following chart. In accordance with current guidelines from the SEC,
the charges and the tax benefit have been included in various line items as appropriate.
P & L Prior Effect of P & L After
To Charges, Charges, Tax Charges,
($ in millions) Tax Benefit Benefit Tax Benefit
Net Revenues 163.7 (36.9) 126.8
Cost of Sales 121.2 1.4 122.6
Gross Margin 42.5 (38.3) 4.2
Operating Expenses 34.4 4.1 38.5
Other Expense 0.8 1.6 2.4
Operating Income 7.3 (43.9) (36.7)
Tax Provision 2.2 (13.2) (11.0)
One-Time Tax Benefit 0.0 (8.7) (8.7)
Profit (Loss) After Tax 5.1 (22.1) (17.0)
EPS $0.15 ($0.63) ($0.48)
"With the fourth quarter restructuring actions now behind us, we believe we have dealt with certain
aspects of our business that were not working for us", said William J. Schroeder, president and chief
executive officer. "We took those actions to improve our focus on what we believe is essential to our
go-forward strategy:
1. To support only a limited number of leading architectures in PC graphics, video and audio.
2. To transition our analog modem business toward higher bandwidth broadband modems (e.g.,
DSL).
3. To drive the product and market development of selected emerging
technologies where we can establish higher margin, more defensible
market franchises in the digital home, e.g., digital music on the
Internet and home networking.
"We are pleased with the early success we are experiencing with Rio, our Internet music player, and
HomeFree, our line of home networking products. We expect to continue that momentum with the
introduction of our new internet audio portal site, RioPort.com, announced today. We also believe
that our remaining core graphics, audio and modem businesses are benefiting from our narrower
focus on a few leading architecture suppliers. With current strength in both our emerging and
remaining core businesses, we expect to have a strong first quarter. In addition, with several new
products scheduled to be released during the second quarter, including our new line of NT
workstation graphics based on the IBM UNIX workstation architecture, we believe that we can
maintain this momentum through the balance of the year."
About Diamond Multimedia
Diamond Multimedia is a leader in PC multimedia and Internet connectivity, providing advanced
products that enable desktop computer users to create, access and experience compelling new media
content from their PC's and through the Internet. Products include the Rio series of Internet audio
appliances; the Stealth and Viper(R) series of video accelerators; the Monster series of 3D gaming
accelerators; the Fire series of professional graphics accelerators; the Supra(R) series of modems;
and the HomeFree line of home networking products. Diamond's common stock is traded on the
Nasdaq Stock Market under the symbol DIMD, and its web site address is www.diamondmm.com.
The Company's Internet audio portal is www.RioPort.com.
The above statements concerning future results, the going forward strategy, the strength of our
emerging and core product lines in the first quarter, the introduction of new products in the second
quarter and our momentum through the year, constitute forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are
subject to a number of risks and uncertainties, which could cause actual results to differ materially
from those projected. Among the factors that could cause actual results to differ materially are the
following: business conditions and growth in the graphics and multimedia accelerator market, the
modem market, the Internet music market, the home networking market and the general economy,
the volume and timing of orders received during the period, the timing of new product introductions
by the Company and its competitors, product line maturation, competitive factors, such as rival
chipset designs and pricing pressures, the availability of third-party components products at
reasonable prices, inventory risks due to shifts in market demand and/or price erosion of purchased
components, changes in product mix, distribution channels, and costs associated with the
development, manufacture and market introduction of new products.
Additional risks are detailed in the Company's filings with the Securities and Exchange Commission,
including its reports on Form 10-K filed on March 24, 1998 and the most recent 10-Q filed on
November 14, 1998. The Company may, from time to time, make additional written and oral
forward-looking statements, including statements contained in the Company's filings with the
Securities and Exchange Commission and its reports to shareholders. The Company does not
undertake to update any forward-looking statement that may be made from time to time by or on
behalf of the Company. Readers should carefully review the risk factors described in the documents
the Company files from time to time with the Securities and Exchange Commission.
Diamond Multimedia Systems, Inc.
Consolidated Statement of Operations
(unaudited; in thousands, except per share amounts)
Three Months Ended Twelve Months Ended
December 31st December 31st
1998 1997 1998 1997
Net sales $126,838 $185,868 $608,581 $443,281
Cost of sales 122,622 144,719 541,894 387,486
Gross profit 4,216 41,149 66,687 55,795
Research & development 7,528 6,765 29,923 24,886
Selling, general and
administrative 27,521 24,127 97,657 85,684
Amortization of
intangibles 1,855 175 2,587 3,006
Write-off of intangibles -- -- -- 9,938
Restructuring expenses 1,555 -- 2,939 --
Total operating expenses38,459 31,067 133,105 123,514
Loss from operations (34,243) 10,082 (66,418) (67,719)
Interest income
(expense), net (204) 270 277 1,696
Other income (expense),
net (2,259) 90 (2,716) 873
Loss before provision
(benefit)
for income taxes (36,706) 10,442 (68,857) (65,150)
Current income tax
provision (benefit) (11,012) 3,434 (20,657) (19,545)
Deferred income tax
provision (benefit) (8,711) -- (8,711) --
Net Loss ($16,983) $7,008 ($39,489) ($45,605)
Shares used in per share
calculation:
Basic 35,057 34,298 34,955 34,322
Diluted 35,626 35,626 34,955 34,322
Net Loss per share:
Basic $(0.48) $0.20 $(1.13) $(1.33)
Diluted $(0.48) $0.20 $(1.13) $(1.33)
Diamond Multimedia Systems, Inc.
Consolidated Condensed Balance Sheets
(unaudited; in thousands)
December 31, 1998 December 31, 1997
Current Assets:
Cash and short-term investments $36,072 $90,065
Accounts receivable, net 94,027 98,777
Inventories, net 48,892 78,647
Prepaid expenses and other current assets 13,041 6,350
Income taxes receivable 9,735 24,929
Deferred taxes 50,071 14,679
Total Current Assets 251,837 313,447
Property, Plant and Equipment, net 27,288 15,216
Other assets 1,415 3,616
Goodwill and other intangibles, net 26,369 5,275
Total Assets $306,910 $337,554
Current liabilities:
Current portion of long-term debt $45,516 $36,455
Trade accounts payable and other
accrued liabilities 97,706 116,431
Deferred income on shipments to
distributors 7,200
Income taxes payable 8,568 2,274
Total current liabilities 158,990 155,160
Long-term debt, net of current portion 1,549 1,873
Total liabilities 160,540 157,033
Stockholders' equity 146,370 180,521
$306,910 $337,554
SOURCE Diamond Multimedia Systems, Inc.
/CONTACT: James M. Walker, Sr. VP, CFO, 408-325-7333, or Ken Wirt, VP
Marketing, 408-325-7376, both of Diamond Multimedia; or general information,
Lise Needham, or analysts, Renee Sarrail, both of The Financial Relations
Board, 415-986-1591/
(DIMD) |
