CORRECTING and REPLACING Zones Announces Third Quarter of 2003 Results.Business Editors CORRECTION...by Zones, Inc. AUBURN Auburn (ô`bərn). 1 City (1990 pop. 33,830), Lee co., E Ala.; inc. 1839. The city's economy centers around Auburn Univ.; there is some manufacturing. 2 City (1990 pop. 24,309), seat of Androscoggin co. , Wash.--(BUSINESS WIRE)--Nov. 13, 2003 In BW5837 issued Nov. 13, 2003: Please replace the release with the following corrected version: The corrected release reads: ZONES ANNOUNCES THIRD QUARTER OF 2003 RESULTS Zones, Inc. (the "Company," "Zones"(TM)) (Nasdaq: ZONS), a single-source direct marketing reseller An organization that sells hardware and software to the general public. Resellers purchase products from software publishers and hardware manufacturers. of name-brand information technology products, today announced its results for the three month period ended September 30, 2003. Total net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight were $112.7 million in the third quarter of 2003 compared to $102.4 million in the third quarter of 2002. The Company reported net income of $134,000, or $0.01 per share, for the third quarter of 2003 compared with net income of $124,000, or $.01 per share, for the same quarter a year ago. Net sales for the nine months ended September 30, 2003 were $330.4 million compared to $310.0 million for the corresponding period of the prior year. The net loss for the nine months ended September 30, 2003 was $636,000 or $.05 per share compared to net earnings in the first nine months of 2002 of $577,000, or $0.04 per share. Operating Highlights Consolidated outbound out·bound adj. Outward bound; headed away: outbound trains. Adj. 1. outbound - that is going out or leaving; "the departing train"; "an outward journey"; "outward-bound ships" sales to the small to medium sized business ("SMB (1) (Small to Medium-sized Business) Also called "SME" (small to medium-sized enterprise), it refers to companies that are larger than the small office/home office (SOHO), but not huge. "), large customer accounts and the public sector market increased 22.4% to $101.3 million in the third quarter of 2003 compared to $82.8 million in the same period of 2002. The sales to these customers increased as a percent of total net revenue for the three-month period ending September 30, 2003 to 89.8% from 80.8% at September 30, 2002. This shift in sales mix sales mix See product mix. is consistent with the Company's direct model focused on selling into the SMB and large customer markets. Gross profit margins Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. were 11.9% in the third quarter of 2003, up sequentially from 10.9% in the second quarter of 2003 and 10.5% in the third quarter of 2002. Gross profit margins were increased by vendor programs as well as the Company's January 1, 2003 adoption of Emerging Issues Task Force ("EITF EITF Emerging Issues Task Force EITF Edinburgh International Television Festival EITF Europe International Taekwon-Do Federation ") Issue No. 02-16, "Accounting for Consideration Received from a Vendor by a Customer (Including a Reseller of the Vendor's Products)." See Footnote Text that appears at the bottom of a page that adds explanation. It is often used to give credit to the source of information. When accumulated and printed at the end of a document, they are called "endnotes." I below for additional information on EITF 02-16. Gross profit margins as a percent of sales will continue to vary on a quarterly basis due to vendor programs, product mix, pricing strategies There are many ways in which the price of a product can be determined. The following are the foremost strategies that businesses are likely to use. Competition-based pricing Setting the price based upon prices of the similar competitor products. , customer mix, and economic conditions. Total selling, general and administrative expenses as a percent of net sales were 9.9% in the third quarter of 2003, flat compared to the corresponding period of the prior year, but an increase sequentially from 9.1% for the second quarter of 2003. The increase is primarily due to the Company moving its corporate headquarters. These expenses will be mitigated mit·i·gate v. mit·i·gat·ed, mit·i·gat·ing, mit·i·gates v.tr. To moderate (a quality or condition) in force or intensity; alleviate. See Synonyms at relieve. v.intr. To become milder. by lease incentives over the duration of the lease. The Company also incurred charges arising from the going-private proposal for legal and financial advisory fees incurred by the special committee. Asset Management The Company ended the third quarter of 2003 with a cash balance of $1.6 million, a slight decline from the $1.8 million cash at the end of the second quarter of 2003. In addition, the Company continued to utilize its cash position to take advantage of favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. discount terms offered by certain vendors. Consolidated working capital was $18.0 million at September 30, 2003. Net inventory of $12.7 million at September 30, 2003 increased slightly from $12.5 million compared to the balance at June 30, 2003. Inventory turns decreased slightly to 28 times annually. Trade accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying increased to $48.3 million at September 30, 2003 from $48.1 million at June 30, 2003. Days sales outstanding In accountancy, Days Sales Outstanding is a company's average collection period. A low figure indicates that the company collects its outstanding receivables quickly. Typically it is looked at either quarterly or yearly (90 or 365 days). were 49 days at September 30, 2003. Footnote I During the first quarter of 2003, the Company adopted Emerging Issues Task force ("EITF") Issue No. 02-16, "Accounting for Consideration Received from a vendor by a Customer (Including a Reseller of the Vendor's Products)." The income statement classification of EITF 02-16 covers vendor consideration related to agreements entered into, or modified, after January 1, 2003. EITF 02-16 requires that consideration from vendors, such as advertising support funds, be accounted for as a reduction to cost of sales unless certain requirements are met showing that the funds are used for a specific program entirely funded by an individual vendor. If these specific requirements related to individual vendors are met, the consideration is accounted for as a reduction in the related expense category, such as advertising or selling and administrative expense. The Company provides numerous advertising programs to support its vendors, some of these programs relate to multiple vendors while other are performed on behalf of an individual vendor for a specific program. About Zones, Inc. Zones, Inc. and its affiliates are single-source direct marketing resellers of name-brand information technology products to the small to medium sized business market, large and public sector accounts, while supporting their legacy Mac customers through an inbound in·bound 1 adj. Bound inward; incoming: inbound commuter traffic. Adj. 1. inbound call center promoted by circulation of the Mac Zone catalog catalog, descriptive list, on cards or in a book, of the contents of a library. Assurbanipal's library at Nineveh was cataloged on shelves of slate. The first known subject catalog was compiled by Callimachus at the Alexandrian Library in the 3d cent. B.C. and a dedicated website. Zones sells these products through outbound and inbound account executives, specialty print and e-catalogs, and the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the . Zones offers more than 150,000 products from leading manufacturers including 3COM (1) (Computer Output Microfilm) Creating microfilm or microfiche from the computer. A COM machine receives print-image output from the computer either online or via tape or disk and creates a film image of each page. , Adobe adobe (ədō`bē): see rammed earth. adobe Handmade sun-dried bricks formed from a mixture of heavy clay and straw found in arid regions. , Apple, Cisco, Epson, HP, IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries) , Kingston, Microsoft, Sony and Toshiba. Incorporated in 1988, Zones, Inc., is headquartered in Auburn, Washington Auburn is a city of 40,314 (2000) located in the U.S. state of Washington, in King County with some spill-over into Pierce County. Though founded before either Seattle or Tacoma (Seattle metropolitan area) had suburbs, Auburn is now often thought of as a suburb of these two cities. . Buying information is available at http://www.zones.com, or by calling 800-258-2088. The Company's investor relations Investor relations The process by which the corporation communicates with its investors. information can be accessed online at www.zones.com/IR. This press release may contain statements that are forward-looking. These statements are made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provision of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These statements are based on current expectations that are subject to risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. These risk factors include, without limitation, future growth, dependence on revenue of products, vendor support, competition, pressure on margin, variability of operating results, changing methods of distributions, potential disruption disruption /dis·rup·tion/ (dis-rup´shun) a morphologic defect resulting from the extrinsic breakdown of, or interference with, a developmental process. of business, potential increases in postage POSTAGE. The money charged by law for carrying letters, packets and documents by mail. By act of congress of March 3, 1851, Minot's Statute at Large, U. S. 587, it is enacted as follows: 2.-Sec. 1. , shipping, and paper costs, reliance on vendor relationships, state revenue or use tax uncertainties, dependence on personnel, reliance on outsourced distribution, and rapid technological change and inventory obsolescence ob·so·les·cent adj. 1. Being in the process of passing out of use or usefulness; becoming obsolete. 2. Biology Gradually disappearing; imperfectly or only slightly developed. , and other risks and uncertainties detailed in the Company's filings with the SEC.
ZONES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
September 30, December 31,
2003 2002
--------------- ---------------
ASSETS
Current assets
Cash and cash equivalents $ 1,617 $ 9,048
Receivables, net 57,504 45,368
Inventories, net 12,692 11,273
Prepaids 1,185 1,239
Deferred income taxes 2,536 2,514
--------------- ---------------
Total current assets 75,534 69,442
Property and equipment, net 4,527 5,565
Goodwill 4,075 -
Deferred income tax 5,364 4,771
Other assets 261 174
--------------- ---------------
Total assets $ 89,761 $ 79,952
=============== ===============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 42,385 $ 38,453
Accrued liabilities and other 10,754 9,960
Line of credit 3,514 -
Current portion of capital lease
obligations 30 226
Current portion of deferred rent
obligations - 216
Notes payable 833 -
--------------- ---------------
Total current liabilities 57,516 48,855
Notes payable, net of current portion 1,667
Deferred rent 85 -
--------------- ---------------
Total liabilities 59,268 48,855
--------------- ---------------
Commitments and contingencies
Shareholders' equity:
Common stock 39,586 39,554
Accumulated deficit (9,093) (8,457)
--------------- ---------------
Total shareholders' equity 30,493 31,097
--------------- ---------------
Total liabilities &
shareholders' equity $ 89,761 $ 79,952
=============== ===============
ZONES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
For the three For the nine
months months
ended September 30, ended September 30,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net sales $112,697 $102,365 $330,436 $309,984
Cost of sales 99,224 91,595 293,685 277,840
----------- ----------- ----------- -----------
Gross profit 13,473 10,770 36,751 32,144
Selling, general and
administrative
expenses 11,149 10,145 32,238 30,135
Advertising expense 1,856 411 5,308 1,067
----------- ----------- ----------- -----------
Income (loss) from
operations 468 214 (795) 942
----------- ----------- ----------- -----------
Other (income)
expense: 141 3 236 (9)
Income (loss) before
income taxes 327 211 (1,031) 951
Provision (benefit)
for income taxes 193 87 (395) 374
----------- ----------- ----------- -----------
Net income (loss) $ 134 $ 124 $ (636) $ 577
=========== =========== =========== ===========
Basic earnings (loss)
per share $ 0.01 $ 0.01 $ (0.05) $ 0.04
Shares used in
computation of basic
earnings (loss) per
share 13,623 13,594 13,625 13,580
Diluted earnings
(loss) per share $ 0.01 $ 0.01 $ (0.05) $ 0.04
Shares used in
computation of
diluted earnings
(loss) per share 13,721 13,705 13,625 13,659
=========== =========== =========== ===========
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