IOM Iomega Corp

SAN DIEGO, Oct. 26 /PRNewswire-FirstCall/ -- Iomega Corporation (NYSE:IOM) today reported revenue of $53.6 million and a net profit of $0.9 million, or $0.02 per diluted share, for the quarter ended October 1, 2006. These results included a number of items associated with previously announced corporate restructuring, goodwill impairment and other items which had a net negative impact on pre-tax income of $1.2 million, as detailed below. By comparison, third quarter 2005 revenue was $55.9 million with a net loss of $12.3 million, or ($0.24) per share, which included $6.6 million of restructuring charges and $0.9 million of license and patent fee income. Also by comparison, second quarter 2006 revenue was $40.7 million with a net loss of $10.4 million, or ($0.20) per share, which included $4.3 million in restructuring charges, a $2.3 million goodwill impairment charge, $2.1 million of non-restructuring inventory and supplier claim charges, a $0.5 million charge for uncollectible VAT receivables and a $1.1 million gain from selling certain patents. Pre-tax profit for third quarter 2006 was $1.1 million compared to a third quarter 2005 pre-tax loss of $11.9 million and a second quarter 2006 pre-tax loss of $11.2 million. Excluding the restructuring benefit of $0.2 million, the non-cash goodwill impairment charge of $2.5 million and the $1.1 million benefit from dissolving an inactive European subsidiary, our non-GAAP, adjusted pre-tax profit for third quarter 2006 was $2.2 million. Our third quarter 2006 pre-tax profit compares to a second quarter 2006 non-GAAP pre-tax loss of $2.0 million, excluding $4.3 million of restructuring charges, a $2.3 million goodwill impairment charge, $2.1 million of non- restructuring inventory and supplier claim charges and an accrual of $0.5 million for uncollectible VAT. Third quarter 2006 revenue of $53.6 million decreased by $2.3 million, or 4%, when compared to third quarter 2005. The decrease was primarily due to the expected decrease in the Zip(R) product line of $8.6 million, partially offset by increases in Consumer Storage Solutions and REV(R) product lines. The third quarter 2006 revenue represented an increase of $12.9 million, or 32%, from second quarter 2006, primarily due to increases in the Consumer Storage Solutions and REV product lines. Third quarter 2006 gross margin was 22.8% as compared to third quarter 2005 gross margin of 19.6%. This improvement of 3.2 percentage points is a direct result of our initiatives with the external HDD and REV products along with cost reduction efforts implemented in previous quarters, partially offset by the decrease in Zip product line sales. Second quarter 2006 gross margin was 16.7%. The third quarter 2006 improvement of 6.1 percentage points from second quarter 2006 is a result of incurring $2.1 million of inventory and supplier claim charges in second quarter 2006, which represents 5.2 percentage points, along with previously announced improvements in the HDD supply chain, launching new products in both the HDD and REV 70 product lines and cost savings from our restructuring actions. Third quarter 2006 operating expenses were $12.9 million, which included a $2.5 million non-cash goodwill impairment charge associated with the Zip product line and a $0.2 million benefit from restructuring charge reversals. By comparison, third quarter 2005 operating expenses were $23.4 million, which included $6.6 million in restructuring charges and a $0.9 million benefit from license fee income. Further, second quarter 2006 operating expenses were $18.4 million, which included $4.3 million of restructuring charges and a $2.3 million non-cash, goodwill impairment charge and $1.1 million of income from sales of certain patents. Third quarter 2006 sales of $53.6 million included REV product sales of $11.2 million; Consumer Storage Solutions product sales (consisting of HDD, optical, Mini USB flash and floppy drives) of $30.3 million; Network Storage Solutions (NSS) sales of $4.5 million; Services revenue of $1.3 million; and Zip product sales of $6.2 million. As indicated earlier, these results include three items associated with previously announced restructuring, goodwill impairment and dissolution of an inactive European subsidiary. Although the quarter did not include any restructuring charges, we updated the previously recorded restructuring reserves for currently known factors such as severance and outplacement payments resulting in a benefit of $0.2 million in the current quarter. We recorded an additional non-cash, pre-tax goodwill impairment charge of $2.5 million associated with the Zip product line. Further, we recognized a $1.0 million tax benefit associated with the release of a tax liability for the goodwill timing difference. During the quarter, we dissolved an inactive European subsidiary, in which operations ceased in 1999. This dissolution resulted in a gain of $1.1 million recognized in other income and expenses. During third quarter 2006, the Company's total cash, cash equivalents, and temporary investments decreased by $7.8 million to $69.8 million as of October 1, 2006. The decrease was primarily a result of the acquisition of CSCI, Inc. ($4.3 million), payments associated with the restructuring actions ($1.8 million) and working capital requirements for the implementation of the new lower cost HDD supply chain. "I am pleased with the speed and diligence our team has demonstrated this past quarter which resulted in a more competitive cost structure, a 32% increase in sales over second quarter 2006, entry into the managed services market and, most importantly, a return to profitability," said Jonathan Huberman, CEO of Iomega. "During the third quarter, we launched our new external HDD products and the new supply chain process. Although we did not see a full quarter's benefit of these new products, we are already seeing the increased customer demand and improved gross margins. Similarly, we launched the new 70GB REV Backup Drive and our second generation automation device, the REV Loader 560. We also closed on the previously announced acquisition of CSCI, Inc. and entered the managed services market. Together with our technology partners, Juniper Networks and VeriSign Corporation, Iomega is delivering best-in-class, fully managed Internet security solutions in an affordable manner to our SMB target market," concluded Huberman. Conference Call Information As previously announced, Iomega will host a conference call with simultaneous audio webcast beginning at 4:30 p.m. Eastern Time today to discuss Iomega's third quarter financial results and management's goals. The webcast may be accessed at http://www.iomega.com/ and will be available for replay through the close of business on November 10, 2006. About Iomega Iomega Corporation provides easy-to-use, high value storage solutions to help people protect, secure, capture and share their valuable digital information. OfficeScreen, Iomega's managed security services for SMBs, features industry-leading firewall/VPN, SSL VPN and IPSec bundles that create secure wide area networks that connect remote offices and workers to applications and data at a company's headquarters, while countering security threats from hackers, worms and viruses across a company's entire network. Iomega's award-winning storage products include the Iomega(R) REV(R) platform: the new Iomega REV 70GB Backup Drive, available in various computer interface models for server implementations; and the Iomega REV 35GB Backup Drive, available in several computer interface models for desktop backup and archive applications; as well as REV-based automation products such as new REV Loader 560, which utilizes a REV 70GB Backup Drive and up to eight REV disks. Iomega also offers its Zip(R) 100MB, 250MB and 750MB drives; high-performance Iomega external hard drives, network hard drives and other HDD solutions; and other portable storage products. For small and medium business networks, Iomega NAS servers offer capacities of 160GB to 2TB. Iomega also offers businesses and consumers a comprehensive data recovery services solution for recovering lost data due to hardware failure, file corruption or media damage. The Company can be reached at 1-888-4-IOMEGA (888-446-6342), or on the Web at http://www.iomega.com/. Resellers can visit Iomega at http://www.iomega.com/ipartner. Special Note Regarding Forward-Looking Statements Statements contained in this release regarding increased customer demand and improved gross margins for HDDs, Iomega's return to profitability, and any other statements that are not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are based upon information available to us as of October 26, 2006, and we disclaim any intention or obligation to update any such statements. Actual results could differ materially from current expectations. Factors that could cause or contribute to such differences include losses of key personnel; lower than anticipated sales of our products; any inability or failure to improve REV product sales or improve HDD product gross margins, unexpected technical, manufacturing, or supply issues with our products; our inability to achieve a competitive cost structure; competition; our inability to maintain stringent quality assurance standards and customer satisfaction; difficulties in identifying and completing strategic opportunities to grow our business; manufacturing and inventory issues; difficulties in integrating or growing Iomega's new managed services business; intellectual property disputes; adverse final judgments in litigation; general economic and/or industry-specific conditions including significant changes in the landscape of data storage demand, pricing, or competition; and the other risks and uncertainties identified in the reports filed from time to time by Iomega with the U.S. Securities and Exchange Commission, including Iomega's most recent Annual Report on Form 10-K and quarterly report on Form 10-Q. Copyright(C) 2006 Iomega Corporation. All rights reserved. Iomega, Zip, REV, OfficeScreen, StorCenter, iStorage, Micro Mini, and HotBurn are either registered trademarks or trademarks of Iomega Corporation in the United States and/or other countries. Certain other product names, brand names and company names may be trademarks or designations of their respective owners. Media, please contact: Chris Romoser, Iomega Corporation, (858) 314-7148, Analysts/Investors, please contact: Preston Romm, Iomega Corporation, (858) 314-7188, IOMEGA CORPORATION CONDENSED STATEMENTS OF OPERATIONS - QTD (In thousands, except per share data) (Unaudited) For the Three Months Ended Oct. 1, % of Oct. 2, % of July 2, % of 2006 Sales 2005 Sales 2006 Sales Sales $53,595 100.0% $55,852 100.0% $40,652 100.0% Cost of Sales 41,379 77.2% 44,890 80.4% 33,859 83.3% Gross margin 12,216 22.8% 10,962 19.6% 6,793 16.7% Operating Expenses: Selling, general and administrative 8,657 16.2% 14,529 26.0% 10,357 25.5% Research and development 1,904 3.6% 3,195 5.7% 2,475 6.1% License and patent fee income 0 0.0% (889) (1.6%) (1,085) (2.7%) Goodwill impairment charge 2,513 4.7% 0 0.0% 2,341 5.8% Restructuring charges (reversals) (211) (0.4%) 6,579 11.8% 4,291 10.6% Total operating expenses 12,863 24.0% 23,414 41.9% 18,379 45.2% Operating Loss (647) (1.2%) (12,452) (22.3%) (11,586) (28.5%) Interest and other income and expense, net(1) 1,709 3.2% 599 1.1% 390 1.0% Loss From Continuing Operations Before Income Taxes 1,062 2.0% (11,853) (21.2%) (11,196) (27.5%) Benefit (Provision) for Income Taxes (209) (0.4%) (399) (0.7%) 797 2.0% Net Income (Loss) From Continuing Operations 853 1.6% (12,252) (21.9%) (10,399) (25.6%) Loss From Discontinued ByteTaxi, Inc. Operations (net of taxes) 0 (73) 0 Net Income (Loss) $853 ($12,325) ($10,399) Net Income (Loss) Per Share $0.02 ($0.24) ($0.20) Diluted Income (Loss) Per Share $0.02 ($0.24) ($0.20) Weighted Average Common Shares Outstanding 53,382 51,627 51,658 Weighted Average Common Shares Outstanding - Assuming Dilution 53,389 51,627 51,658 (1) Q3 2006 includes approximately $1.1 million gain associated with the release of various liabilities for a European subsidiary for which operations ceased in 1999. The Company dissolved this entity in the third quarter of 2006. PRODUCT SALES AND OPERATING INCOME (LOSS) - QTD (In thousands) (Unaudited) For the Three Months Ended Oct. 1, % of Oct. 2, % of July 2, % of 2006 Sales 2005 Sales 2006 Sales Sales: Consumer Products: Zip $6,245 11.7% $14,868 26.6% $7,793 19.2% Consumer Storage Solutions (1) 30,317 56.6% 26,049 46.6% 20,150 49.6% Business Products: REV 11,201 20.9% 10,255 18.4% 8,889 21.9% Network Storage Systems (2) 4,473 8.3% 4,336 7.8% 3,395 8.4% Services (3) 1,254 2.3% 124 0.2% 146 0.4% Other Products (4) 105 0.2% 220 0.4% 279 0.7% Total Sales $53,595 $55,852 $40,652 Product Operating Income (Loss): Consumer Products: Zip (5) $767 $3,320 $48 Consumer Storage Solutions (1) (1,744) (6,173) (4,723) Business Products: REV (8) (367) (3,165) (3,759) Network Storage Systems (2) 464 (889) 33 Services (3) (53) 33 125 Other Products (4)(6)(7) 75 1,001 981 Restructuring (charges) reversals 211 (6,579) (4,291) Operating Loss ($647) ($12,452) ($11,586) (1) Consumer Storage Solutions is comprised of hard disk, optical, flash and floppy drives. (2) Includes Network HDD products beginning in Q2 2006 - previously classified in Consumer Storage Solutions. Prior period data has been reclassified for consistency. (3) Includes the System Integration and Managed Services businesses of CSCI, Inc. since August 2006 when acquired. Also includes miscellaneous Iomega services previously classified in Other Products. Prior period amounts have been reclassified for consistency. (4) Other Products is comprised of Jaz and other miscellaneous products. (5) Q2 2006 includes a $2.3 million goodwill impairment charge and Q3 2006 includes a $2.5 million goodwill impairment charge. (6) Q3 2005 includes license income of $0.9 million. (7) Q2 2006 includes $0.8 million of income associated with the sale of old patents. (8) Q2 2006 includes approx. $1.4 million of inventory related charges and NRE commitments. IOMEGA CORPORATION CONDENSED STATEMENTS OF OPERATIONS - YTD (In thousands, except per share data) (Unaudited) For the Nine Months Ended Oct. 1, % of Oct. 2, % of 2006 Sales 2005 Sales Sales $153,328 100.0% $194,476 100.0% Cost of Sales 122,518 79.9% 153,484 78.9% Gross margin 30,810 20.1% 40,992 21.1% Operating Expenses: Selling, general and administrative (1) 31,474 20.5% 48,848 25.1% Research and development 6,946 4.5% 11,153 5.7% License and patent fee income (1,085) (0.7%) (1,301) (0.7%) Goodwill impairment charges 7,935 5.2% 0 0.0% Restructuring charges 4,358 2.8% 6,773 3.5% Total operating expenses 49,628 32.4% 65,473 33.7% Operating Loss (18,818) (12.3%) (24,481) (12.6%) Interest and other income and expense, net (2) 3,113 2.0% (157) (0.1%) Loss From Continuing Operations Before Income Taxes (15,705) (10.2%) (24,638) (12.7%) Benefit for Income Taxes 1,990 1.3% 216 0.1% Loss From Continuing Operations (13,715) (8.9%) (24,422) (12.6%) Loss From Discontinued ByteTaxi, Inc. Operations (net of taxes) 0 (228) Net Loss ($13,715) ($24,650) Loss Per Share ($0.26) ($0.48) Weighted Average Common Shares Outstanding 52,230 51,617 (1) 2006 includes $1.0 million of non-restructuring, severance related costs associated with prior CEO. (2) 2006 includes approximately $1.1 million gain associated with the release of various liabilities for a European subsidiary for which operations ceased in 1999. The Company dissolved this entity in the third quarter of 2006. PRODUCT SALES AND OPERATING INCOME (LOSS) - YTD (In thousands) (Unaudited) For the Nine Months Ended Oct. 1, % of Oct. 2, % of 2006 Sales 2005 Sales Sales: Consumer Products: Zip $25,681 16.7% $51,791 26.6% Consumer Storage Solutions (1) 81,999 53.5% 93,213 47.9% Business Products: REV 30,869 20.1% 33,489 17.2% Network Storage Systems (2) 12,724 8.3% 14,665 7.5% Services (3) 1,515 1.0% 456 0.2% Other Products (4) 540 0.4% 862 0.4% Total Sales $153,328 $194,476 Product Operating Income (Loss): Consumer Products: Zip (5) $1,874 $14,750 Consumer Storage Solutions (1) (11,666) (21,449) Business Products: REV (5,742) (10,556) Network Storage Systems (2) 884 (1,977) Services (3) 174 96 Other Products (4)(7)(8) 1,011 1,428 Non-Restructuring charges (6) (995) 0 Restructuring charges (4,358) (6,773) Operating Loss ($18,818) ($24,481) (1) Consumer Storage Solutions is comprised of hard disk, optical, flash and floppy drives. (2) Includes Network HDD products beginning in Q2 2006 - previously classified in Consumer Storage Solutions. Prior period data has been reclassified for consistency. (3) Includes the System Integration and Managed Services businesses of CSCI, Inc. since August 2006 when acquired. Also includes miscellaneous Iomega services previously classified in Other Products. Prior period amounts have been reclassified for consistency. (4) Other Products is comprised of Jaz and other miscellaneous products. (5) 2006 includes $7.9 million of goodwill impairment charges. (6) Non-restructuring, severance related costs associated with prior CEO and recorded in SG&A in above income statement. (7) 2006 includes $0.8 million of income associated with the sale of old patents. (8) 2005 includes license and patent income of $1.3 million. IOMEGA CORPORATION CONDENSED BALANCE SHEETS (In thousands) (Unaudited) Oct. 1, July 2, Dec. 31, 2006 2006 2005 ASSETS: Cash and cash equivalents $55,315 $58,642 $70,943 Restricted cash 87 87 256 Temporary investments 14,414 18,908 24,800 Total cash 69,816 77,637 95,999 Trade receivables 29,881 14,731 28,853 Inventories 34,803 29,428 27,532 Deferred taxes 5,523 5,523 5,523 Other current assets 3,881 5,008 4,998 Total Current Assets 143,904 132,327 162,905 Property and equipment, net 7,159 6,776 8,311 Intangible and other assets 14,397 6,329 12,453 $165,460 $145,432 $183,669 LIABILITIES AND STOCKHOLDERS' EQUITY: Accounts payable $31,579 $17,274 $35,500 Income taxes payable 832 0 310 Other current liabilities 44,715 46,535 49,751 Total Current Liabilities 77,126 63,809 85,561 Deferred taxes 13,174 15,030 17,152 Stockholders' equity 75,160 66,593 80,956 $165,460 $145,432 $183,669 CONDENSED STATEMENTS OF CASH FLOWS - YTD (In thousands) (Unaudited) For the Nine Months Ended Oct. 1, Oct. 2, 2006 2005 Cash Flows from Operating Activities: Net Loss ($13,715) ($24,650) Revenue and Expense Adjustments (1) 6,843 6,197 (6,872) (18,453) Changes in Assets and Liabilities: Trade receivables 359 3,960 Restricted cash 169 (261) Inventories (6,405) 6,673 Other current assets 1,124 1,768 Accounts payable (4,119) (3,376) Accrued restructuring (874) 742 Other current liabilities and income taxes (4,445) (12,747) Net cash used in operating activities (21,063) (21,694) Cash Flows from Investing Activities: Purchases of property and equipment (1,558) (970) Proceeds from sales of assets 173 745 Initial investment in ByteTaxi (net of $171,000 cash) 0 (44) Purchase of CSCI, Inc. (net of $183,000 cash) (4,339) 0 Sales of temporary investments 24,161 27,464 Purchases of temporary investments (13,425) (35,571) Net change in other assets and other liabilities 7 (678) Net cash provided by (used in) investing activities 5,019 (9,054) Cash Flows from Financing Activities: Payment of debt 0 (139) Proceeds from sales of Common Stock 416 56 Net cash provided by (used in) financing activities 416 (83) Net Decrease in Cash and Cash Equivalents (15,628) (30,831) Cash and Cash Equivalents at Beginning of Period 70,943 103,403 Cash and Cash Equivalents at End of Period $55,315 $72,572 (1) 2006 includes $7.9 million of non-cash, goodwill impairment charges. DATASOURCE: Iomega Corporation CONTACT: Media, Chris Romoser, +1-858-314-7148, , or Analysts/Investors, Preston Romm, +1-858-314-7188, , both of Iomega Corporation Web site: http://www.iomega.com/

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