Company Expects to Significantly Reduce Operating Losses in 2006
Maintains Strong Cash Position of $45 Million MINNEAPOLIS, MN,
March 7, 2006 /PRNewswire-FirstCall/ -- Zomax Incorporated
(NASDAQ:ZOMX) today reported on its operational progress and
financial results for its fourth quarter and full year ended
December 30, 2005. 2005 Operational Highlights -- Added 12
meaningful new customers in 2005 from markets outside of the
traditional PC/OEM channel. -- Began executing flexible supply
chain program management strategy that focuses on higher margin,
value added services for customers. -- Reduced fixed manufacturing
costs by 15% in 2005 vs. 2004 through the consolidation of
facilities and reduction of overhead expenses. -- Improved CD
capacity utilization to mid-70% range from a range of 50% to 60%.
The Company successfully reduced its CD capacity by more than
one-third throughout 2005. -- Reduced SG&A expense run rate by
15% in the second half of 2005 compared with the first half of the
year. -- Improved performance of Ireland subsidiary; operating loss
was reduced from $3.5 million in the first half of 2005 to $0.3
million in the second half of the year excluding restructuring and
impairment charges. -- Increased cash position to $45 million at
December 30, 2005 compared with $44 million at September 30, 2005.
Revenues in the quarter were $44.1 million. Net loss for the fourth
quarter of 2005 was $8.2 million, or $0.25 per share, inclusive of
the items noted below. Consistent with the establishment of a
valuation allowance against the Company's net deferred tax assets
in the third quarter of 2005, net loss and loss per share for the
U.S. and Ireland are no longer tax benefited. Fourth quarter 2004
revenues and net loss were $58.6 million and $1.4 million
respectively on a 14 week quarter versus 2005's 13 week fourth
quarter. The net loss in the fourth quarter of 2005 included a
non-cash charge against fixed assets of $4.3 million, or $0.13 per
share, to record an asset impairment charge for the Company's
Ireland manufacturing operations, consistent with the provisions of
SFAS No. 144. Additionally, charges of $0.8 million, or $0.02 per
share, were recorded arising from the previously announced closure
of the Company's Fremont, California operations which should be
completed, as planned, in the first quarter of 2006. Fourth quarter
2004 results included a charge of $1.0 million, or $0.02 per share,
relating to the Company's now resolved, consolidated class action
lawsuit. "Fourth quarter revenues of $44.1 million were in line
with our guidance for the quarter," said Anthony Angelini,
President and CEO. "Although we continue to experience significant
revenue pressure resulting from reduced content and program changes
in the PC/OEM space, we have successfully brought new customers on
board. In 2005 we began working with 12 meaningful new customers
across several industries including financial services, consumer
products, marketing services and entertainment and educational
software publishing. We believe that these successes, longer term,
will enable us to reduce our reliance on the PC/OEM industry
vertical. We also successfully acquired additional business with
existing customers. "While margins, in the fourth quarter of 2005,
particularly for media replication, remained under significant
pressure, we continued to execute our strategy to more closely
align our facility infrastructure with our revenue outlook,"
continued Mr. Angelini. "Throughout 2005 we worked diligently to
improve our manufacturing efficiencies and eliminated CD production
capacity, consolidated facilities and reduced our overhead expense.
We expect that the benefits of much of this activity, particularly
the closure of our large Fremont, California facility, will become
apparent beginning in the second quarter of 2006. "Our strategy is
to continue to focus on improving margins through increased
operating efficiencies and further reduction of overhead costs,"
said Mr. Angelini. "Over the long term our goal is to grow revenue
by executing on our strategy to transition Zomax into a supply
chain program management company. We believe that this strategy
coupled with our cost reduction initiatives should allow us to
return to profitability. With a more flexibly tailored, less
vertically integrated infrastructure, we believe we can deliver
best-in-class solutions for customers' requirements through our
internal capabilities and strategic partner network. We believe
that our program management model will allow us to profitably scale
our business to meet the growing demands of global companies
looking to improve efficiencies with their supply chain partners.
This model should allow us to lower our fixed costs, reduce our
asset structure and improve our operating margins, while delivering
more flexible service to our clients." Details of Fourth Quarter
and 2005 Financial Results "The net loss in the quarter included an
asset impairment charge for our Ireland manufacturing operations
taken in accordance with GAAP and SFAS 144," added Dick Barnes,
Executive Vice President and CFO. "After two years of cash
operating losses and in spite of significant success in lowering
our cost base, we concluded that it is probable that our Ireland
manufacturing operation will continue to incur cash operating
losses into the foreseeable future. The manufacturing operation in
Ireland retains its strategic value and we are examining
alternatives to realize those benefits. The balance of our Ireland
operations, primarily our customer service contact center,
continues to contribute operating profits. "Beyond this impairment
charge, fourth quarter net loss was impacted by lower than expected
gross margins primarily due to continued pressure in media
replication as well as unanticipated costs incurred to support a
specific customer program," continued Mr. Barnes. "SG&A
expenses of $8.4 million improved sequentially for the third
consecutive quarter, as expected, reflecting the success of our
continuing efforts to streamline overhead and administrative costs.
We incurred $0.8 million of restructuring costs associated with the
previously announced plan to close our California manufacturing
site, with an additional $1.0 million in costs expected to be
incurred in the first quarter of 2006. Finally, we ended the
quarter with $45 million in cash and no debt while repurchasing
$1.4 million of stock, reflecting our continued focus on
conservative cash management." For the fiscal year 2005, Revenues
were $167.0 million compared with $199.4 million in 2004. Net loss
for 2005 was $1.11 per share, including a $0.47 non-cash charge to
establish a deferred tax valuation allowance, a $0.13 non-cash
charge to record an asset impairment against Ireland manufacturing
assets, an $0.11 restructuring charge associated with realignment
of operations and closure of the Company's Fremont facility and a
$0.06 per share benefit from the revaluation of the stock component
of the litigation reserve. Net loss for 2004 was $0.26 per share,
including litigation reserves of $0.18 per share and a gain on sale
of Intraware stock of $0.05 per share. The Company's cash balance
at the end of 2005 was $45 million, up from $44 million at the end
of the third quarter 2005. As expected, the cash balance included
the receipt of an approved tax refund. During the quarter, the
Company repurchased 640,600 shares in the open market at a total
cost of $1.4 million under the previously announced share
repurchase program. Going forward, the Company will continue to
evaluate the execution and timing of this program. Outlook For the
first quarter of 2006, revenue is expected to be in the mid $30
million range, reflecting the continued reduction in content within
the PC/OEM space. Operating loss is expected to be $8 to $9 million
inclusive of restructuring charges to complete the closure of the
Company's Fremont, California location of approximately $1 million,
or $0.03 per share, and non- cash stock option expenses per SFAS
123R of $0.4 million, or $0.01 per share. Operating loss before
these items is expected to be $6.6 million to $7.6 million compared
with an operating loss of $8.4 million on $42.2 million in revenue
in the first quarter of 2005 excluding restructuring charges of
$0.2 million and a $1.8 million benefit from the revaluation of the
stock component of the litigation reserve. Net loss per share in
the first quarter of 2006 is expected to be between $0.25 and $0.28
including restructuring charges and SFAS 123R expenses, or between
$0.21 and $0.24 excluding these charges. In the first quarter of
2005 the Company recorded a loss of $0.13 per share, or $0.15 per
share excluding restructuring charges and the litigation reserve
benefit. Consistent with the establishment of a deferred tax
valuation allowance in the third quarter of 2005, losses in 2006
are no longer tax benefited in the U.S. and Ireland. "Throughout
2006 we will continue to focus on expanding our services and
customers in an effort to partially offset the pressure on our
revenue caused by the content and program changes in the PC/OEM
market," continued Mr. Angelini. "As previously discussed, we don't
expect this trend to subside until late 2006. However, by the end
of the second quarter, we expect to be experiencing the full
benefits of the cost restructuring initiatives we have implemented
to date. Our 2006 priorities are to complete the rationalization of
our cost base and asset infrastructure and to invest in our sales
and marketing efforts to drive revenue growth opportunities.
Despite the continued negative impact of PC/OEM program and content
changes on our overall revenue, we expect to be able to
significantly reduce our operating loss in 2006 as a result of the
various restructuring and expense reduction initiatives that we
have been implementing." Conference Call Zomax will host a
conference call and webcast, today, March 7, 2006 beginning at 4:30
p.m. Central Time, to discuss the Company's fourth quarter and full
year 2005 results, outlook for the first quarter of 2006 and
current corporate developments. To participate in this conference
call, please dial 800-219-6110 for domestic callers or 303-262-2143
for international callers. A replay of the conference call will be
available for seven days by calling 800-405-2236 for domestic
callers or 303-590-3000 for international callers, both using
passcode 11054190#. The conference call will also be available by
webcast. Participants may log on to the webcast conference call by
pre-registering at http://www.zomax.com/ and clicking on the
webcast link. About Zomax Zomax helps companies more efficiently
bring their products and content to market worldwide. Our
comprehensive program management approach helps companies develop,
manage and improve their rapidly changing product and program
supply chains. Zomax's solutions leverage a modular suite of supply
chain services that include project management, data management,
customer contact and e-commerce services, sourcing management,
CD/DVD production, assembly and kitting services, JIT physical and
electronic fulfillment and returns management. Founded in 1993,
Zomax currently operates 11 facilities across the United States,
Canada, Mexico and Ireland. For more information on Zomax, visit
http://www.zomax.com/ or call (866) 553-9393. Use of Non-GAAP
Financial Measures The Company believes the presentation of
operating and net loss information excluding restructuring and
special charges are useful information regarding the underlying
business trends and performance of the Company's ongoing operations
and that period over period comparisons of such operations are
meaningful. Investors should consider these non-GAAP measures in
addition to, and not as a substitute for, financial performance
measures prepared in accordance with GAAP. In addition, these
non-GAAP financial measures may not be the same as similar measures
presented by other companies. Forward-Looking Statements Certain
statements contained in this press release are "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements relate to our
expectations of future performance and events including our
anticipated efforts to reduce reliance on the PC/OEM space; return
to profitability; revenue growth and margin improvement efforts;
our transition into a supply chain program management company and
its impact on operations; costs, timing and savings related to the
closing of the Fremont, California facility and other restructuring
activities; the expected results of operations for the first
quarter of 2006; and the focus in 2006 on rationalizing our cost
base and asset infrastructure and investing in sales and marketing
efforts. These forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause actual
results, performance or achievements to be materially different
from the results, performance or achievements expressed or implied
by the forward-looking statements. We caution that any
forward-looking statements made by us in this release or in other
announcements made by us are qualified by important factors that
could cause actual results to differ materially from those in the
forward-looking statements. These factors include, without
limitation, the changes and volatility in the personal computer
hardware and software industry, particularly with respect to the
demand for CD and DVD media, from which a significant portion of
our revenues are derived; macroeconomic factors that influence the
demand for personal computer hardware and software and the
resulting demand for our services; consolidation among our
customers or competitors, which could cause disruption in our
customer relationships or displacement of us as a services provider
to one or more customers; our ability to make the proper strategic
choices with respect to pursuing profitable growth in our business;
our ability to successfully evolve the business toward becoming a
supply chain program management company, particularly in light of
the changes needed in our infrastructure, personnel, asset base and
customer relationships; increased competition within our industry
and increased pricing pressure from our customers; our dependence
on relatively few customers for a majority of our revenues;
fluctuations in our operating results from quarter-to-quarter,
which are influenced by many factors outside of our control,
including variations in the demand for particular services we offer
or the content included in the products we produce for our
customers; the volatility of polycarbonate prices; our ability to
effect the Fremont, California facility closing and other
restructuring activities as planned; and other risks and
uncertainties, including those identified and discussed in detail
under the caption "Risks and Uncertainties" in Item 1A of our 2005
Form 10-K. We undertake no obligation to update or revise any
forward-looking statements we make in this release due to new
information or future events. Investors are advised to consult any
further disclosures we make on this subject in our filings with the
Securities and Exchange Commission, especially on Forms 10-K, 10-Q
and 8- K, in which we discuss in more detail various important
factors that could cause actual results to differ from expected or
historical results. ZOMAX INCORPORATED Condensed Consolidated
Statements of Operations (Unaudited) (Amounts in thousands, except
per share data) Three Months Ended Twelve Months Ended December
December December December 30, 2005 31, 2004 30, 2005 31, 2004
Revenue $44,123 $58,593 $166,984 $199,428 Cost of revenue 40,327
50,387 153,953 169,031 Gross profit 3,796 8,206 13,031 30,397
Selling, general and administrative expenses 8,374 8,950 37,030
37,183 Restructuring Costs 796 - 3,518 - Litigation reserve
adjustment - 1,020 (2,030) 8,520 Loss on impairment of long-lived
assets 4,318 - 4,318 - Operating (loss) income (9,692) (1,764)
(29,805) (15,306) Gain on sale of available- for-sale securities -
- - 2,770 Other income, net 380 (78) 1,568 502 Earnings (loss)
before income taxes (9,312) (1,842) (28,237) (12,034) Income tax
(benefit) expense (1,128) (481) 7,909 (3,623) Net earnings (loss)
$(8,184) $(1,361) $(36,146) $(8,411) Earnings (loss) per share:
Basic $(0.25) $(0.04) $(1.11) $(0.26) Diluted $(0.25) $(0.04)
$(1.11) $(0.26) Weighted average common shares outstanding:
Weighted average common shares outstanding 32,547 32,516 32,621
32,628 Dilutive effect of stock options - - - - Weighted average
common and diluted shares outstanding 32,547 32,516 32,621 32,628
ZOMAX INCORPORATED Condensed Consolidated Balance Sheets
(Unaudited) (Amounts in thousands) December December ASSETS: 30,
2005 31, 2004 Current Assets: Cash and cash equivalents $45,250
$41,092 Available-for-sale securities - 19,200 Accounts receivable,
net 26,823 36,180 Inventories, net 13,978 14,633 Other current
assets 2,409 12,114 Total current assets 88,460 123,219 Property
and equipment held for use, net 24,504 35,408 Available-for-sale
securities 2,091 3,624 Deferred income taxes - 5,903 Other
Long-Term Assets 117 - $115,172 $168,154 LIABILITIES AND
SHAREHOLDERS' EQUITY: Current liabilities: Accounts payable 14,709
20,710 Accrued expenses 11,538 19,177 Total current liabilities
26,247 39,887 Other Long-Term Liabilities 317 155 Total liabilities
26,564 40,042 Shareholders' equity: Common stock 62,163 62,134
Retained earnings 20,715 56,861 Accumulated other comprehensive
income 5,730 9,117 Total shareholders' equity 88,608 128,112
$115,172 $168,154 DATASOURCE: Zomax Incorporated CONTACT: Company
contacts, Anthony Angelini, President and CEO, +1-763-553-9300, or,
Dick Barnes, EVP and CFO, +1-763-553-9300, both of Zomax
Incorporated; or, Investor-Media contacts, Douglas Sherk, CEO, or,
Jennifer Beugelmans, Senior Vice President, both of EVC Group,
Inc., both at +1-415-896-6820, or, Media contact, Steve DiMattia,
Senior VP of EVC Group, Inc., +1-646-277-8706 Web site:
http://www.zomax.com/
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