Iomega cuts jobs, hands out cash
The storage product maker announces its plans to cut 200 jobs at the same time that it prepares to dole out a $5-per-share dividend to shareholders.
Executives of San Diego-based Iomega said Thursday that the layoffs were necessary to complete the company's restructuring and to attempt to return to long-term profitability. The announcement came the day the company reported a 30 percent decline in quarterly sales, due mainly to declining sales for the company's Zip PC storage drives and media.
In a conference call with financial analysts, CEO Werner Heid characterized the layoffs as the final "giant step to transform Iomega from a large manufacturing company to a nimble organization" that's focused on new opportunities in the storage industry.
Iomega's Zip drives were once a common addition to PCs, but the appeal of the storage format has waned in recent years as huge hard drives, fast Internet connections and new media such as CD-R have become common.
Iomega has responded by exploring new areas such as recordable DVD discs and enterprise storage. The company is betting much of its future on Removable Rigid Disk (RRD), a new large-capacity removable disk format that it expects to replace tape drives for backing up business data.
Iomega has steadily whittled away at its work force over the last few years, shrinking it from nearly 5,000 employees in 1998 to about 850 at the beginning of this year, according to the company's most recent annual report.
Besides too many employees, Iomega directors decided they had too much cash. The company has accumulated a cash reserve of more than $450 million, much of it socked away for potential acquisitions that never happened.
"We have no real need for this cash in our existing business," David J. Dunn, chairman of Iomega's board, said during the conference call. "Excess cash can be a real distraction and distort decision-making."
Iomega directors decided to take advantage of recent changes in tax laws in order to dispose of most of the cash in a one-time payout of more than $250 million. Shareholders of record as of Sept. 15, 2003, will receive a payout of $5 per share on Oct. 1.
Several tech companies recently began offering dividends for the first time in order to trim cash reserves. Microsoft paid investors a dividend of 16 cents a share earlier this year and may raise the dividend to help it trim a cash hoard fast approaching the $50 billion mark.
Iomega reported net income of $4.4 million, or 9 cents a share, for its second quarter, which ended June 29. But all of that came from $4.6 million in research-related tax credits. Without those, the company had an operating loss of $1.4 million. That compares with a net income of $11.5 million, or 22 cents a share, and an operating income of $16.4 million in the same period a year ago.
Total sales for the quarter were $100.8 million, down from $145.3 million a year ago.