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October 15, 1998

IOMEGA SHOWS IMPROVEMENT IN Q3; PLEDGES Q4 PROFIT

By CBR Staff Writer

Iomega Corp, the storage products giant that has seen a couple of rough quarters, posted third quarter results which it says show it’s on the road to recovery now that it has right-sized its business. Net loss for the quarter was $14.8m, or $0.06 per share including an acquisition charge of $11.1m. Net of the charge, the loss would have been $0.03, two cents better than the First Call estimate. That loss also includes a $3m after-tax loss from recently-acquired Nomai SA’s ongoing operations and goodwill amortization. The company, which has trimmed staff by about 12% over the summer, says it reduced expenses by $49m compared to the preceding quarter. In addition to a 34% reduction in operating expense, inventories decreased by 30% to $196m. The company asserts that it’s now poised to return to profitability in the fourth quarter. During the quarter it shipped 2.4 million Zip drives, an increase of 39% year-over-year, and Zip disk unit shipments increased 30 percent. Zip revenue of $279m was flat, while Jaz revenue decreased 25% to $95m in the third quarter of 1997, but Iomega says profitability for the product improved from the second quarter. Revenue for the Ditto product line decreased 50% to $13m. While total drive unit shipments showed a year over year increase, revenue declined in all geographies due to price reductions on all product lines during the quarter. As a result of that and a shift toward a higher mix of OEM Zip drive shipments, gross margins declined to $88 million, or 22.4% from 32.5% in the year-ago quarter. The company finished the quarter with cash and short-term investments of $46m, compared to $68m as of the end of the June quarter. Cash flow for the quarter was negative $21m before the $45m cost of acquiring Nomai. Iomega expects to generate positive cash flow in the fourth quarter, but still anticipates being cash flow negative for the year. Nine-month net loss was $73.3m on revenue that was flat year-over-year at $1.19bn, compared to net income of $79.2m, or $0.29 per share, last year. Nine-month results also include a restructuring charge of $9.4m.

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