Olicom Reports Second Quarter 1999 Results; Net Loss of $89.6 Million; Substantial Charges and Write-Downs - Company Financial Information

Edge: Work-Group Computing Report, Oct 11, 1999

Olicom A/S (Nasdaq NMS:OLCMF) ("Olicom" or "the Company") has announced second quarter net sales of $8.7 million. Net loss for the quarter was $89.6 million, equivalent to a loss per share of $5.01. These results were heavily impacted by much lower than expected end-user demand, particularly in the US, which had a very negative effect on sales into the channel towards the end of the quarter. In addition, substantial charges and write-downs were made in connection with the disposal of the Company's activities and its restructuring process.

-- As previously announced, subsequent to the end of the quarter, the Company sold its Token-Ring activities to Madge Networks, N.V., and Intel Corporation acquired Olicom's development group and purchased certain intellectual property and assets.

-- Per Larsen, executive vice president of global sales and marketing, and other executives will be leaving the Company. Olicom's senior management now comprises Niels Christian Furu, president and chief executive officer, and Lars Larsen, executive vice president and chief financial officer.

-- Negotiations continue on the sale of the Company's equity position in Digianswer A/S. Conditional on the closing of this transaction, the board of directors expects that the Company's equity at the year end will be in the range of $12-18 million.

Results of Operations As a consequence of the special charges to inventory and extremely low sales, a gross loss of $39.2 million was recorded for the second quarter of 1999, compared to a gross profit of $32.1 million for the second quarter of 1998.

The loss per share in the second quarter of 1999 was $5.01 on 17.9 million shares outstanding, compared with a profit of $0.28 per share reported for the second quarter of 1998 on 17.8 million shares outstanding.

Investments in affiliated companies, at June 30, 1999, were zero, due to the consolidation of Digianswer into the Company's accounts.

On June 30, 1999, the Company had cash and cash equivalents of $6.1 million, a decrease of 72.6 percent from that recorded at December 31, 1998. This decrease was primarily a result of the loss from the operating activities recorded during the period. On September 30, 1999, the Company expects to have cash and cash equivalents in the range of $8-9 million (which amount does not reflect any proceeds that may be received from the sale of the Company's shareholding in Digianswer).

Olicom's headcount at June 30, 1999 was 576 compared to 831 at the end of the second quarter of 1998 (608 at March 31,1999). On October 1, 1999, the Company expects to have less than 100 employees. As various obligations to Madge terminate, the number of employees will decrease further.

Disposal of Activities and Restructuring Process In a press release issued on September 19, it was announced that the Company had decided to dispose of its assets and activities one by one. These disposals, and Olicom's restructuring process, have resulted in very substantial charges and write-downs in the second quarter of 1999:

-- Sales in the second quarter were significantly impacted by further reductions of inventory in the channel.

-- The Company has incurred special charges related to its inventory of $34.9 million.

-- Restructuring charges amounted to $19.8 million, primarily as a consequence of the Company's decision to expense certain goodwill related to the acquisition of the former CrossComm and to write off related fixed assets.

-- Deferred income tax, at June 30, 1999, was zero, as the Company has decided to expense this item.

The income from the sale of Olicom's Token-Ring business to Madge, announced on August 31, has not been incorporated into the second quarter and first half 1999 results. Likewise, the effect of the Intel transaction, announced on September 19, also is not incorporated in the current results. The transaction with Intel comprises an up-front cash payment and certain future payments currently in escrow. These payments are due to be released later in 1999 and 2000, conditional on the fulfillment of certain terms of the contract between Intel and Olicom.

Gains from the Madge and Intel transactions will be off-set by write-downs and charges in the third and fourth quarter.

On June 30, 1999, purchased intangibles had decreased by $5.6 million, or 77.9 percent. This decrease was primarily due to the Company's decision to write down certain goodwill related to the acquisition of the former CrossComm.

Reduced Organization As a consequence of Olicom's sale of its core Token-Ring business to Madge Networks and the acquisition by Intel of Olicom's development group, the Company's present focus is on the fulfillment of product delivery and associated warranty and service obligations. This will primarily be achieved through various agreements with both Madge and Intel and a warranty and support agreement with VITAL Network Services, as well as with Olicom's other business partners and service providers.

Given the much lower level of activity, Per Larsen, executive vice president of global sales and marketing and other executives, will be leaving the Company. Ted Simmonds, previously director of finance and administration at Olicom, Inc., has been promoted to president of Olicom, Inc. Olicom's senior management now comprises Niels Christian Furu, president and chief executive officer, and Lars Larsen, executive vice president and chief financial officer. In connection with the announced asset sales, and the restructuring activities, the Company will relocate its headquarters to Nybrovej 110, DK-2800 Lyngby, Denmark, a facility adjacent to its present headquarters, and will close various US and international offices.