Achieves Record Revenue; Predicts Lower Revenue in Second Quarter SANTA CLARA, Calif., May 20 /PRNewswire/ -- NeoMagic Corporation (Nasdaq: NMGC) today reported that net sales for the first quarter of fiscal 2000 were $72.4 million, an increase of 52% compared to net sales of $47.7 million for the first quarter of fiscal 1999, and a slight increase compared to $72.0 million for the fourth quarter of fiscal 1999. Net income for the first quarter of fiscal 2000, before one-time charges, was $8.6 million, or $0.34 per diluted share, compared to net income of $6.7 million, or $0.26 per diluted share in the first quarter of fiscal 1999, and net income of $9.0 million, or $0.34 per diluted share in the fourth quarter of fiscal 1999. One-time charges during the quarter were $5.3 million, related to NeoMagic's acquisition of the Optical Drive Storage Group from Mitel Semiconductor, and the acquisition of ACL from Robomatix, both of which were concluded during the quarter, to provide advanced analog mixed-signal and array-processing technologies as part of the company's strategic initiative into consumer electronics. After these charges, net income in the first quarter of fiscal 2000 was $3.3 million, or $0.13 per diluted share. Prakash Agarwal, president and CEO, said, "The results which we achieved for the first quarter were very much in line with our expectations, and we are pleased with the financial results which we have reported. However, now we are predicting lower revenue and profit in our second quarter." First Quarter Business Highlights During the month of April 1999, NeoMagic shipped the fifteen millionth multimedia accelerator using its MagicWare(TM) embedded DRAM technology. NeoMagic was able to identify 57 new notebook PC models during the first quarter. The company's MagicGraph(R)128 and MagicMedia(TM)256 product families provided the multimedia capabilities for 32 of these 57 machines, including products from leading companies such as Acer, Dell, Fujitsu, Gateway, Hewlett-Packard, IBM, Panasonic, Sony and Toshiba. In April, NeoMagic and Infineon (formerly Siemens Semiconductor), announced the signing of a multi-year agreement under which Infineon will manufacture semiconductor wafers as a supplier to NeoMagic using advanced 0.24 to 0.20 micron fabrication technology. NeoMagic anticipates volume production of its products at Infineon to begin in the fourth fiscal quarter. First Quarter Financial Review Following are key operational ratios for the first quarter, expressed as a percentage of overall sales: First Quarter Gross Margins 37% R&D Expense 13.5% Selling, General and Admin. Expense 7.2% Operating Income (before one-time charge) 16.3% Operating Income (after one-time charge) 8.9% Selected first quarter financial ratios are as follows: Current Ratio 3.3 Accounts Receivable Days Outstanding 32 Inventory Turns (Q1 annualized) 9.4 Revenue per Employee (Q1 annualized) $1.05 million Forward Looking Expectations The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. Demand from the company's customers is concentrating heavily into its current leading product, the MagicMedia256AV. The company expects to incur added costs to expand and expedite production, but does not expect to be able to add capacity on this component fast enough to meet demand. Concurrently, the company now expects its newest 3D graphics products will take longer than anticipated to reach production. Until resolved, these issues are expected to adversely impact revenues, gross margins, and overall profitability going forward. For the second quarter of fiscal 2000, the Company's current expectations are: * Revenue of approximately $60 million * Gross margin percentage of approximately 30% of revenue * Operating Expenses of approximately 25-26% of revenue * The tax rate to remain at an effective rate of 30%. According to Mr. Agarwal, "We are focused on resolving the capacity constraints on our current products, and bringing our new 3D products to production. We will also continue to invest in R&D efforts for the DVD and digital camera markets. We have some difficult issues ahead of us, but I am confident that we will resolve those issues." The above statements are forward-looking and include the Company's expectations for the notebook market, general business and economic conditions, and future projections for NeoMagic. These statements reflect current intentions and expectations. However, actual events and results could vary significantly based on a variety of factors including, but not limited to: general seasonal business conditions, competition, success in the development and ramping of new products in a timely and cost effective manner; manufacturing subcontractors' abilities to make adequate and timely deliveries, insufficient, excess or obsolete inventory, foreign exchange rate fluctuations or customer acceptance of NeoMagic's new products. Additional risk factors are listed in NeoMagic's Fiscal Year 1999 Form 10-K. NOTE: NeoMagic, MagicGraph, and the NeoMagic circle logo are registered trademarks of NeoMagic Corporation. MagicWare and MagicMedia are trademarks of NeoMagic Corporation. All other trademarks are the property of their respective owners. NeoMagic disclaims any proprietary interest in the marks and names of others. NEOMAGIC CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) Three Months Ended April 30, April 30, 1999 1998 Net sales $72,397 $47,738 Cost of sales 45,609 27,510 Gross margin 26,788 20,228 Operating expenses: Research and development 9,773 6,252 Sales, general and administrative 5,246 4,356 In-Process Research and Development 5,348 -- Total operating expenses 20,367 10,608 Income from operations 6,421 9,620 Interest income and other 784 975 Interest expense (252) (324) Income before income taxes 6,953 10,271 Provision for income taxes 3,692 3,595 Net income $3,261 $6,676 Basic net income per share $.13 $.29 Diluted net income per share $.13 $.26 Weighted common shares outstanding 24,476 23,295 Weighted common shares outstanding assuming dilution 25,636 26,098 NEOMAGIC CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) April 30, January 31, 1999 1999 ASSETS Current assets: Cash and cash equivalents $35,100 $ 36,631 Short-term investments 42,298 56,097 Accounts receivable, net 25,144 19,363 Inventory 19,512 19,046 Other current assets 3,058 2,681 Total current assets 125,112 133,818 Property, plant and equipment, net 11,846 8,335 Deferred tax asset 1,034 1,034 Other assets 7,383 1,187 Total assets $145,375 $144,374 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable 25,425 31,296 Compensation and related benefits 2,906 4,046 Income taxes 4,245 3,059 Other accruals 4,969 1,876 Obligations under capital leases 611 702 Total current liabilities 38,156 40,979 Commitments and contingencies Stockholders' equity: Common stock 25 25 Additional paid-in-capital 67,661 67,286 Notes receivable from stockholders (554) (554) Deferred compensation (1,575) (1,764) Retained earnings 41,662 38,402 Total stockholders' equity 107,219 103,395 Total liabilities and stockholders' equity $145,375 $144,374  