Company: ENCAD

SAN DIEGO -- ENCAD, Inc.(Nasdaq: ENCD - news) today reported results for the third quarter ended September 30, 2000.

Including approximately $3.1 million in one-time severance costs and litigation settlement expenses, as well as income tax expense of $2.0 million, ENCAD reported a net loss of $10,439,000, or $.88 per share, on sales of $18,285,000 for the third quarter of 2000.This compares to net income of $690,000, or $.06 per share, on sales of $27,022,000 for the third quarter of 1999.

The decline in third quarter 2000 sales, as compared to the same quarter last year, was due largely to the impact on unit sales and selling prices of the Company's current product offerings caused by its introduction of a major new product.ENCAD introduced its highly productive, next-generation wide-format inkjet printer, the eight-color NovaJet® 850, at the Seybold Show in San Francisco in September, typically the strongest month in the third quarter.The NovaJet 850 is scheduled to ship this week.

OEM sales totaled 15% of total sales, compared to 20% in the same quarter last year.Sales of ENCAD's Quality Imaging Supplies(TM) products totaled 49% of total sales, compared to 31% in the third quarter of 1999.International sales represented 60% of total sales, compared to 69% in the third quarter of last year.

Lower average selling prices, product sales mix and unabsorbed manufacturing overhead resulted in a lower gross margin of 32% for the third quarter of 2000, compared to 44% in the third quarter of 1999.Both cost of sales and operating expenses were affected by severance costs recorded in the third quarter due primarily to recent senior management reductions at the Company.Research and development expenses also included a one-time charge related to the abandonment of a product development project.Without the one-time severance costs and one-time R&D charge, total third quarter 2000 operating expenses would have been essentially flat relative to the third quarter of last year.

Had ENCAD used its calculated effective tax rate, instead of recording an income tax expense, it would have recorded an income tax benefit of approximately $3.2 million on the third quarter loss.Based upon the Company's history of prior earnings and its current estimates for future years, the Company deemed that this benefit, as well as previously recorded income tax benefits, may not be realized.Consequently, the deferred tax asset valuation allowance, which provides for future tax benefits that may not be realized, was increased.This resulted in a net income tax expense of $2.0 million for the third quarter.

The litigation settlement recorded during the third quarter of 2000 reflects management's estimate of the costs related to a probable settlement by ENCAD in a lawsuit brought against the Company in 1998.Final settlement of the lawsuit is subject to finalizing a settlement agreement, and to approval by the U.S.District Court in Colorado and class members.

Commenting on the settlement of the lawsuit, Terry E.Vandewarker, president and chief executive officer of ENCAD stated, ``While ENCAD continues to believe the allegations of the lawsuit are without merit, we are pursuing settlement of the case in order to avoid the costs of continued litigation, and to allow us to focus our resources fully on our operating plans and on taking care of our customers.''

At the end of the third quarter of 2000, ENCAD's cash, cash equivalents and short-term investments increased to $18,505,000, compared to $15,457,000 at the end of the second quarter of 2000.This increase was due primarily to improved collections by the Company.Accounts receivable at the end of the third quarter totaled $13,331,000 compared to $23,094,000 at the end of the second quarter.Days sales outstanding (DSOs) stood at 92 at the end of the third quarter of 2000, compared to 93 at the same time last year.Annualized inventory turns were 3.4 times versus 4.7 times in the third quarter of 1999.There were 378 employees at the end of the third quarter, down from 419 at the end of the second quarter of 2000.

``Third quarter 2000 sales were adversely impacted by the market's anticipation of new product announcements by the industry, including ENCAD's new NovaJet 850,'' stated Vandewarker.``At the same time, however, due partially to low channel inventory levels, we are optimistic about potential near-term demand for the NovaJet 850.With its 8-head print engine and multiple ENCAD Octachrome(TM) ink sets, the system gives the print-for-pay market the power to tackle more types of print jobs than ever before.The NovaJet 850 compares very favorably with competitive offerings, and has been extremely well-received by resellers and customers who have seen the product's performance and high-quality output.In fact, the system won an Editors' ''Hot Pick`` Award at Seybold.

``During the remainder of the year,'' added Vandewarker, ``we plan to aggressively market our new NovaJet 850, further improve our operating efficiencies, and continue to execute our strategy in both the Graphic Arts and CAD markets with the goal of improving ENCAD's long-term performance.We believe in the strength of our current product offering and in our ability to continue to be an innovative product leader in our industry.We have strengthened our North American channel to get closer to our end-user customers and to manage our business more effectively.''

Outlook For Fourth Quarter 2000
Commenting on the Company's outlook for the remainder of 2000, Vandewarker added, ``While we are disappointed with the results of the third quarter of 2000, we are managing our business with the objective of enhancing shareholder value over the longer term.We consider the level of sales in the third quarter of 2000 to be an aberration, and, subject to favorable market acceptance of our new NovaJet 850, we anticipate fourth-quarter sales to return to a level which should enable us to return to profitability.While gross margins are expected to increase over the third quarter of 2000, we anticipate that they will be below historical levels because of competitive pricing for the NovaJet 850 and reduced prices for older generation products.Operating expenses are expected to benefit from reduced payroll and other employee related expenses resulting from a lower headcount, including the recent reduction in senior management, as well as from additional cost savings currently being pursued by the Company.''

Future Disclosure Policy
In accordance with the Company's previously stated intent to focus internally on managing its business for longer term value creation, and to ensure compliance under the new Regulation Fair Disclosure recently adopted by the SEC, ENCAD will limit future material announcements to news releases and will no longer be conducting regularly scheduled quarterly conference calls, commencing immediately.As a result, the Company will not be conducting the third quarter conference call originally scheduled for 1:45 p.m.on Thursday October 19, 2000.Conference calls may be conducted on a periodic basis in the future as warranted by corporate events and developments.

About ENCAD, Inc.
ENCAD, Inc., a leading innovator in digital image printing technology, offers a broad line of wide-format color printers, software utilities and scientifically matched inks and media.ENCAD's products produce superior color images quickly and cost-effectively, and are designed to increase user productivity in a variety of applications including graphic arts, fine art, sign-making, textiles, photographic enlargement and CAD.The Company's products are sold and serviced in more than 67 countries through a worldwide network of distributors and value-added resellers.For more information about ENCAD, call 1-888-4ENCDIR or visit our home page at www.encad.com.

This release may contain forward-looking statements and expectations of ENCAD, Inc.Any forward-looking statements represent only the Company's current expectations, and specific factors could cause actual results to differ materially from such expectations.These factors include, but are not limited to, its ability to successfully launch the NovaJet 850 and other products, its ability to achieve improved operating efficiencies and/or profitability, its ability to settle the pending lawsuit, global economic factors, competitive initiatives, unexpected delays in product releases or future feature implementation, unfavorable market acceptance of new products, potential changes in the outlook for certain market segments, less than expected penetration of targeted markets, and continued availability of single-source components.Please review the information presented in conjunction with ENCAD's most recent Annual Report, Form 10-K, Forms 10Q and other publicly available information, including information filed periodically with the Securities and Exchange Commission, copies of which are available from ENCAD.The Company undertakes no responsibility to update any such statements to reflect changes in circumstances.

ENCAD, NovaJet, Quality Imaging Supplies and Octachrome are registered trademarks of ENCAD, Inc.

    Consolidated Statements of Operations
    (In thousands, except per share data)

                                       Quarter ended September 30,
    (Unaudited)                       2000                      1999

    Net sales                 $18,285       100.0%     $27,022       100.0%
    Cost of sales              12,422        67.9%      15,102        55.9%
    Gross profit                5,863        32.1%      11,920        44.1%
    Operating expenses:
      Marketing and selling     6,533        35.7%       5,963        22.1%
      Research and development  3,277        18.0%       2,614         9.7%
      General and
       administrative           3,395        18.6%       2,350         8.7%
        Total operating
         expenses              13,205        72.3%      10,927        40.5%
    (Loss)/income from
     operations                (7,342)     (40.2%)         993         3.6%
    Other Income                  195         1.1%          --         0.0%
    Litigation settlement      (1,500)      (8.2%)          --         0.0%
    Interest income/(expense)
     - net                        243         1.3%         (28)      (0.1%)
    (Loss)/income before
     income taxes              (8,404)     (46.0%)         965         3.5%
    Provision for income
     taxes                      2,035        11.1%         275         1.0%
    Net (loss)/income        $(10,439)     (57.1%)        $690         2.5%

    Net (loss)/income per
     share - basic              $(.88)                    $.06
    Net (loss)/income per
     share - diluted            $(.88)                    $.06

    Shares used in per
     share calculation
     - basic                   11,846                   11,736
    Shares used in per
     share calculation
     - diluted                 11,846                   12,087


    Consolidated Balance Sheets
    (In thousands)
                           September 30,             December 31,
                                2000                     1999
    Assets:
    Cash, cash equivalents
     and short-term
     investments              $18,505                   $3,953
    Accounts receivable        13,331                   30,546
    Inventories                15,590                   11,992
    Property - net              7,176                   14,264
    Other assets                5,499                    7,724
      Total assets            $60,101                  $68,479
    Liabilities and
     stockholders' equity:
    Current liabilities       $15,291                  $15,972
    Other liabilities           6,441                    1,263
    Stockholders' equity       38,369                   51,244
      Total liabilities
       and stockholders'
       equity                 $60,101                  $68,479



    Consolidated Statements ofOperations
    (In thousands, except per share data)

                                     Nine months ended September 30,
    (Unaudited)                       2000                     1999

    Net sales                 $67,775       100.0%     $85,257       100.0%
    Cost of sales              41,325        61.0%      48,129        56.5%
    Gross profit               26,450        39.0%      37,128        43.5%
    Operating expenses:
      Marketing and selling    19,612        29.0%      17,338        20.4%
      Research and development  8,831        13.0%       8,874        10.4%
      General and
       administrative           9,654        14.2%       7,963         9.3%
        Total operating
         expenses              38,097        56.2%      34,175        40.1%
    (Loss)/income from
     operations               (11,647)     (17.2%)       2,953         3.4%
    Other income                  520         0.8%          --         0.0%
    Litigation settlement      (1,500)      (2.2%)          --         0.0%
    Interest income/(expense)     543         0.8%        (197)      (0.2%)
    (Loss)/income before
     income taxes             (12,084)     (17.8%)       2,756         3.2%
    Provision for income
     taxes                      1,062         1.6%         910         1.0%
    Net (loss)/income        $(13,146)     (19.4%)      $1,846         2.2%

    Net (loss)/income per
     share - basic             $(1.11)                    $.16
    Net (loss)/income per
     share - diluted           $(1.11)                    $.16

    Shares used in per
     share calculation
     - basic                   11,813                   11,689
    Shares used in per
     share calculation
     - diluted                 11,813                   11,892