Zomax Announces Fourth Quarter and Full Year 2004 Results
MINNEAPOLIS, MN, March 29, 2005 /PRNewswire-FirstCall/ -- Zomax
Incorporated (NASDAQ:ZOMX), today announced financial results for
the fourth quarter and full year ended December 31, 2004. Revenue
for the fourth quarter was $58.6 million compared with $62.1
million for the fourth quarter of 2003. Revenue for the full year
ended December 31, 2004 was $199.4 million compared with $197.8
million for 2003. Net loss for the fourth quarter of 2004 was $0.04
per share compared with net income of $0.16 per share for the
fourth quarter of 2003. The fourth quarter 2004 results include a
pre-tax loss of approximately $2.0 million, or $0.06 per share,
relating to the Company's operations in Ireland and a pre-tax
charge of $1.0 million, or $0.02 per share, relating to a
previously disclosed settlement offer made in connection with the
Company's pending consolidated class action lawsuit. "Despite a
challenging year, we were able to achieve revenue at the high end
of our expectations for the fourth quarter," said Anthony Angelini,
President and CEO of Zomax. "However, our earnings for the year
were impacted by a number of items including costs related to our
litigation reserves, increased polycarbonate costs, incremental
costs related to our Sarbanes-Oxley compliance program, and the
negative impact of our Irish operations. Excluding the negative
impact of Ireland and the charge related to our settlement offer,
we would have achieved a profitable fourth quarter. We believe we
are making the necessary adjustments to our operating model to
improve our performance." Net loss for the full year 2004 was $0.26
per share compared with a restated net loss of $0.04 per share for
2003. As previously announced, the Company determined the need to
restate its financial statements for the full year 2003 and the
first three quarters of 2004 as a result of accounting
irregularities at the Company's Ireland subsidiary, Zomax Limited.
The Company has finalized the restatements for the first three
quarters of 2004, which were equal to the Company's previously
announced estimates. In each of the first three quarters of 2004,
the restatements negatively impacted the previously reported
results by $0.02 per share. The Company has appointed KPMG to
conduct an independent investigation into the accounting
irregularities and is taking other steps to address this matter.
The net loss for 2004 also includes a pre-tax gain of $2.8 million,
or $0.05 per share, on the sale of a portion of the Company's
investment in Intraware (NASDAQ:ITRA), and pre-tax charges totaling
$8.5 million, or $0.18 per share, to establish reserves for
liabilities that represent the Company's estimate of the minimum
expected probable losses resulting from previously announced
settlement offers made by the Company in connection with the
pending Securities and Exchange Commission investigation and
consolidated class action lawsuit. The Company is currently
forecasting that first quarter revenue will be between $40 and $43
million. Based upon this revenue forecast and the Company's current
operating structure, the Company expects a loss of $0.12 to $0.15
per share. This guidance includes the continued negative impact of
polycarbonate cost increases, performance of the Company's Irish
operations, the impact of lower than normal revenue levels related
to soft first quarter demand, and increased SG&A costs related
to professional and legal fees. The Company plans to provide
additional guidance when it issues its first quarter 2005 results.
"We are very focused on improving the operating results of our
business," continued Mr. Angelini. "Over the next few months, we
will be making changes throughout our organization to improve our
operating model, better aligning our fixed cost structure with our
expected revenue levels which we believe will put us back on a path
toward profitability. These changes will include eliminating excess
capacity, shifting business to lower cost operations and evaluating
additional pricing strategies to address the cost drivers in our
business. We continue to believe in the market opportunities in our
industry and our long-term ability to deliver increased shareholder
value." Conference Call Zomax will host a conference call on
Tuesday, March 29, 2005 beginning at 4:30 p.m. Central Time, to
discuss the matters outlined in this press release. To participate
in this conference call, please dial 800-218-9073 for domestic
callers or 303-262-2131 for international callers. A replay of the
conference call will be available until midnight Tuesday, April 5,
2005 by calling 800-405-2236 for domestic callers or 303-590-3000
for international callers, both using passcode 11026862#. 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. Zomax' solutions enhance the
process of sourcing, production, and fulfillment through a modular
suite of supply chain services. These services include "front-end"
customer contact and e-commerce services, material management,
CD/DVD production, assembly and kitting services, JIT physical and
electronic fulfillment and returns management. Founded in 1993,
Zomax operates 11 facilities across the United States, Canada,
Mexico and Ireland. The Company's Common Stock is traded on the
NASDAQ Stock Market under the symbol "ZOMX". For more information
on Zomax, visit http://www.zomax.com/ or call (866) 553-9393. Use
of Non-GAAP Financial Measures Our financial results as reported in
our Consolidated Statement of Operations are prepared in accordance
with accounting principles generally accepted in the United States
(GAAP). In both 2004 and 2003, these results include certain
significant items which we believe are not indicative of our
results of continuing operations. For purposes of our internal
understanding of business operations, as well as for planning and
forecasting future periods, we exclude from our GAAP results those
items that we believe meet the definition of non-recurring, as
defined by the Securities and Exchange Commission. Accordingly, to
aid investor's understanding of our financial results, we have
presented the information in Table A which reconciles our 2004 and
2003 results as reported in accordance with GAAP to as adjusted
results excluding such items. These items are more fully described
in the notes to Table A. The presentation of these as adjusted
results is not meant to be a substitute for financial results
prepared in accordance with GAAP. Safe Harbor for Forward-Looking
Statements Certain statements in this press release relating to
expected financial results for the first quarter of 2005 and the
ability to achieve sustainable profitability are "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 and involve known and unknown risks,
uncertainties and other factors that may cause our 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 Company's ability to implement certain changes to
its Zomax Ireland operations; 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 pursing profitable growth
in our business; 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; effects of
pending litigation; and other risks and uncertainties, including
those identified and discussed in detail under the caption "Risks
and Uncertainties" in Item 1 of our 2003 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.
Company Contacts: Investor/Media Contact: Anthony Angelini Douglas
Sherk/Chris Toth President and CEO CEO/Vice President Zomax, Inc.
EVC Group, Inc. (763) 553-9300 (415) 896-6820 Rob Rueckl, Chief
Financial Officer Zomax, Inc. (763) 553-9300 ZOMAX INCORPORATED
Consolidated Statements of Operations (Unaudited) (Amounts in
thousands, except per share data) Three Months Ended For the Year
Ended December December December December 31, 2004 26, 2003(1) 31,
2004 26, 2003(1) Revenue $58,593 $62,056 $199,428 $197,816 Cost of
revenue 50,388 44,144 169,031 161,287 Gross profit 8,205 17,912
30,397 36,529 Selling, general and administrative expenses 9,970
11,911 45,704 40,982 Operating (loss) income (1,765) 6,001 (15,307)
(4,453) Gain on sale of available-for-sale securities - - 2,770 -
Other income, net (78) 240 503 257 Earnings (loss) before income
taxes (1,843) 6,241 (12,034) (4,196) Income tax (benefit) expense
(481) 1,083 (3,623) (3,021) Net earnings (loss) $(1,362) $5,158
$(8,411) $(1,175) Earnings (loss) per share: Basic $(0.04) $0.16
$(0.26) $(0.04) Diluted $(0.04) $0.16 $(0.26) $(0.04) Weighted
average common shares outstanding: Weighted average common shares
outstanding 32,516 32,582 32,628 32,621 Dilutive effect of stock
options - 598 - - Weighted average common and diluted shares
outstanding 32,516 33,180 32,628 32,621 (1) We have restated our
2003 consolidated financial statements for misstatements discovered
in our Ireland subsidiary ZOMAX INCORPORATED Table A - Comparative
Non-GAAP Adjustments to 2004 and 2003 Results (Unaudited) Diluted
Earnings Net (Loss) Gross Earnings per Revenue Profit SG&A
(Loss) Share THREE MONTHS ENDED: December 31, 2004: As reported
$58,593 $8,205 $9,970 $(1,362) $(0.04) Provision for litigation
reserves (1) - - (1,020) 600 0.02 As adjusted $58,593 $8,205 $8,950
$(762) $(0.02) Percent of revenue 100.0% 14.0% 15.3% (1.3%)
December 26, 2003 (Restated) (2): As reported $62,056 $17,912
$11,911 $5,158 $0.16 Amount of fourth quarter 2003 royalty benefit
adjustment relating to prior periods (3) - (4,776) - (2,866) (0.09)
Accrued severance costs (4) - - (2,000) 1,200 0.04 As adjusted
$62,056 $13,136 $9,911 $3,492 $0.11 Percent of revenue 100.0% 21.2%
16.0% 5.6% YEAR ENDED: December 31, 2004: As reported $199,428
$30,397 $45,704 $(8,411) $(0.26) Provision for litigation reserves
(5) - - (8,520) 5,834 0.18 As adjusted $199,428 $30,397 $37,184
$(2,577) $(0.08) Percent of revenue 100.0% 15.2% 18.6% (1.3%)
December 26, 2003 (Restated)(2): As reported $197,816 $36,529
$40,982 $(1,175) $(0.04) Amount of 2003 royalty benefit adjustment
relating to prior periods (3) - (2,660) - (1,596) (0.05) Settlement
of customer claim(6) - - (3,000) 1,800 0.06 Accrued severance costs
(4) - - (2,000) 1,200 0.04 As adjusted $197,816 $33,869 $35,982
$229 $0.01 Percent of revenue 100.0% 17.1% 18.2% 0.1% Notes to
Table A: (1) Adjustment represents in increase in litigation
reserves related to minimum expected probable losses that would
result from a previously disclosed settlement offer made in
relation to the Company's pending consolidated class action
lawsuit. A portion of this settlement offer includes the proposed
issuance of 1,500,000 shares of the Company's common stock and has
been valued at the closing market price of $4.11 on December 31,
2004. (2) We have restated our 2003 consolidated financial
statements for misstatements discovered in our Ireland subsidiary.
These adjustments primarily affected cost of revenue. (3) In the
fourth quarter of 2003, we signed a revised royalty agreement which
resulted in a retroactive reduction in unpaid royalties accrued in
2002 and 2003. This adjustment represents the portion of this
retroactive reduction that related to royalties accrued and charged
to cost of revenue in previous periods. (4) Adjustment represents
payments accrued in 2003 in accordance with the terms of a
separation agreement with our former CEO who resigned in December
2003, effective in January 2004. (5) Adjustment represents charges
for litigation reserves related to minimum expected probable losses
that would result from the previously disclosed settlement offers
made in relation to our pending SEC investigation and consolidated
class action lawsuit. (6) Adjustment represents a payment made in
the settlement of a customer claim that alleged unauthorized
reproduction of this customer's software. ZOMAX INCORPORATED
Consolidated Balance Sheets (Unaudited) (Amounts in thousands)
December 31, December 26, 2004 2003(1) ASSETS: Current Assets: Cash
and cash equivalents $41,092 $51,899 Available-for-sale securities
19,200 17,000 Accounts receivable, net 36,180 39,577 Inventories,
net 14,633 12,346 Other current assets 12,114 9,989 Total current
assets 123,219 130,811 Property and equipment, net 35,408 38,582
Available-for-sale securities 3,624 11,646 Deferred income taxes
5,903 - $168,154 $181,039 LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities: Accounts payable 20,710 20,635 Accrued
expenses 19,177 22,036 Total current liabilities 39,887 42,671
Other long-term liabilities 155 - Deferred income taxes - 1,315
Total liabilities 40,042 43,986 Shareholders' equity: Common stock
62,134 62,469 Retained earnings 56,861 65,272 Accumulated other
comprehensive income 9,117 9,312 Total shareholders' equity 128,112
137,053 $168,154 $181,039 (1) We have restated our 2003
consolidated financial statements for misstatements discovered in
our Ireland subsidiary DATASOURCE: Zomax Incorporated CONTACT:
Company, Anthony Angelini, President and CEO, or Rob Rueckl, Chief
Financial Officer, of Zomax, Inc., +1-763-553-9300; or
Investor-Media, Douglas Sherk, CEO, or Chris Toth, Vice President,
of EVC Group, Inc., +1-415-896-6820 Web site: http://www.zomax.com/
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