Iomega Announces Additional Actions to Improve Profitability; Company Anticipates Third-Quarter Loss Including Charges and an Increase in its Tax Valuation Allowance - Company Financial Information

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

Iomega Corporation Monday announced a series of actions designed to accelerate the Company's return to profitability and enhance shareholder value.

The actions are the result of the Company's recent reviews of product lines and development efforts and are expected to result in a pre-tax restructuring charge ranging from $25 million to $30 million, of which approximately $15 million is non-cash. A significant portion of this charge, approximately $20 million, is expected to be recorded in the third quarter ended September 26, 1999 and the remainder is expected to be recorded in the fourth quarter, ending December 31, 1999.

In addition, in light of cumulative losses incurred by Iomega in 1998 and 1999, including those expected to be incurred in the third quarter of 1999, the Company said it expects to increase the valuation allowance for its deferred tax assets. This increase in the valuation allowance of the deferred tax assets is anticipated to be approximately $50 million and will be recorded in the third quarter of 1999 as a non-cash expense.

The actions announced Monday follow those taken by the Company in the second quarter and are intended to accelerate Iomega's goal of achieving profitability, including profitability for each of its product platforms, Zip, ZipCD, Jaz and Clik!. These actions include:

-- Consolidating Iomega's worldwide media manufacturing, including cessation of production in Avranches, France, -- Refocusing the Company's Clik! product platform from the Clik! Mobile Bundle to the newer Clik! platform, the Clik! PC Card Drive, and

-- Consolidating leasehold facilities in Utah and Colorado.

The Company indicated that it expects the actions described above to affect approximately 140 employees, most of whom are located outside the United States.

"The actions we're announcing Monday are more than just cost cutting measures," said David Dunn, Iomega's chairman and CEO. "Based on our recent business reviews we are allocating resources to our most promising products and believe we are building a foundation for achieving sustained profitability and growth. I continue to have great enthusiasm for the value of Iomega's products and software solutions."

Based on preliminary analysis to date and excluding the restructuring charge and the increase in the valuation allowance for its deferred tax assets described above, Iomega also said that it expects a pre-tax loss for the quarter ended September 26, 1999 of approximately $5 million on revenues expected to be slightly higher than the $349 million reported in the second quarter of 1999. The expected third quarter pre-tax loss of approximately $5 million, while excluding the restructuring charge and increase in valuation allowance, does include pre-tax, non-cash charges not directly related to the restructuring actions above of approximately $12 million. These other charges are expected to be recorded in order to reflect current estimates of the net realizable value of inventory, equipment, and other assets.

In addition, Iomega said that it has not borrowed any funds under its $150 million Senior Secured Credit Facility during 1999 and that its cash balances are expected to increase from $89 million at the end of the second quarter to over $130 million at the end of the third quarter. The Company said it has initiated discussions with its lenders regarding amendments to its Credit Facility, including a reduction in the amount of the Credit Facility and a reduction in certain financial covenants, in order to more appropriately reflect Iomega's reduced financing needs and its expected net loss for the third quarter of 1999.

The Company normally announces its quarterly results on the third Thursday following the close of the quarter. Accordingly, the Company plans to announce third quarter results on Thursday, October 14, 1999 after the close of the market. Iomega cautioned that the amount of restructuring and other charges, the increase in the valuation allowance for its deferred tax assets, its actual third quarter results, cash balances at the end of the third quarter, and the amount of restructuring charges to be recorded in the fourth quarter could be higher or lower than the amounts indicated above.

Iomega Corporation manufactures and markets the award-winning Zip, Jaz and Clik! drives and disks and markets ZipCD drives and discs that help people to organize, manage, create, exchange and share their important information. Used in homes, businesses, government, education and by creative professionals everywhere, Iomega storage solutions are the enabling technologies preferred by millions. The Company can be reached at 1-800-MY-STUFF (800-697-8833), or on the Web at http://www.iomega.com.