Creative Computers, Inc. Achieves Record Fourth Quarter Sales of $222 Million and Reports Strong eCOST.com Growth.Business Editors &High-Tech high-tech also hi-tech adj. Informal Of, relating to, or resembling high technology. high-tech Adjective same as hi-tech Adj. 1. Writers Announces Intensified in·ten·si·fy v. in·ten·si·fied, in·ten·si·fy·ing, in·ten·si·fies v.tr. 1. To make intense or more intense: Focus on 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 Ventures and Launches New Subsidiary eLinux.com TORRANCE Torrance, industrial and residential city (1990 pop. 133,107), Los Angeles co., SW Calif.; inc. 1921. It has large aircraft and electronics industries. Among its many manufactures are aircraft, electronics, communications equipment, aluminum products, steel, and , Calif.--(BUSINESS WIRE)--Jan. 25, 2000 Creative Computers, Inc. (Nasdaq:MALL): Highlights: -- Reports Q4 sales of $222 million -- a 33% increase from fourth quarter of 1998 -- Internet revenues increase 398% to $60 million, 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" business-to-business  This article or section needs copy editing for grammar, style, cohesion, tone and/or spelling.You can assist by [ editing it] now. sales increase 108% during the fourth quarter of 1999 compared with the previous year -- eCOST.com reports Q4 sales of $27 million -- a 236% sequential growth rate from the third quarter of 1999 -- Company intensifies focus on Internet business ventures -- Announces launch of eLinux.com as a new subsidiary -- Company seeks shareholder approval of name change to IdeaMall Creative Computers, Inc. (Nasdaq:MALL), which is changing its name to IdeaMall (&uot;Creative / IdeaMall&uot;), made several significant new announcements today along with fourth quarter and year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. results that further demonstrate an intensified focus on opportunities on the Internet. Creative / IdeaMall's fourth quarter sales were positively impacted by a four-fold Adj. 1. four-fold - having four units or components; "quadruple rhythm has four beats per measure"; "quadruplex wire" quadruple, quadruplex, quadruplicate, fourfold increase in total Internet revenues, as well as a 108% increase in business-to-business sales over the prior year. Creative / IdeaMall's overall revenues for the fourth quarter increased 33% over the previous year to $222 million. Investments in eCOST.com, Inc. (http://www.eCOST.com), a wholly-owned subsidiary and online multi-category retailer launched in Q2, yielded a 236% sequential increase in sales during the fourth quarter over the third quarter to $27 million. Revenues for the quarter, excluding eCOST.com, increased 17% from the prior year to $195 million. Fourth quarter earnings, excluding eCOST.com, were $0.12 per share. With the invested costs in eCOST.com included, Creative / IdeaMall incurred a loss per share of $0.22. This is a 60% improvement over last year's $0.55 per share fourth quarter loss on total sales of $190 million (including financial results from the company's former subsidiary, uBid.com (Nasdaq:UBID)). Except where noted otherwise, all comparisons are of results from ongoing operations which exclude sales of uBid.com and of the discontinued dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: retail stores that were closed in the first quarter of 1998. Internet and Business to Business Growth During the fourth quarter of 1999, Creative / IdeaMall experienced vigorous growth in Internet and outbound sales within its core operations. Consolidated Internet sales for the quarter rose 398% to $60 million from $12 million last year, an 85% increase from $32 million in the third quarter of 1999. Creative / IdeaMall also achieved significant growth in its outbound business-to-business sales in 1999. Fourth quarter outbound sales grew 108% from a year ago, reflecting significant investments made in Creative / IdeaMall's business-to-business efforts throughout 1999. Aggressive recruiting and training efforts over the course of the year resulted in an increase in sales executives of 60% from last year. Creative / IdeaMall's outbound business market penetration Noun 1. market penetration - the extent to which a product is recognized and bought by customers in a particular market penetration - the act of entering into or through something; "the penetration of upper management by women" was reflected by the rise in average order value witnessed throughout 1999. By year-end, the Company's average order value, excluding eCOST.com, reached $680, a 34% increase over 1998. &uot;We're we're Contraction of we are. we're we are pleased that our results validate To prove something to be sound or logical. Also to certify conformance to a standard. Contrast with "verify," which means to prove something to be correct. For example, data entry validity checking determines whether the data make sense (numbers fall within a range, numeric data our growth strategy, and we've we've Contraction of we have. we've have set aggressive goals for 2000,&uot; remarked Khulusi. &uot;We're becoming even smarter and more creative with how we sell and serve businesses and retail consumers. The result is higher B-to-B See B2B. market share and rapid growth of our Internet businesses without the significant costs to the bottom line experienced by most other Internet businesses.&uot; Scott Klein Klein , Melanie 1882-1960. Austrian-born British psychoanalyst who first introduced play therapy and was the first to use psychoanalysis to treat young children. , President of Creative / IdeaMall, reiterated, saying, &uot;Creative / IdeaMall has begun to realize the benefits of our sales recruiting and training initiatives. The greater technical knowledge and growing maturity of our account executives is helping us grow and maintain our enterprise business customer base. Features like our client access pages provide web-customized reports on pricing, tracking and purchasing.&uot; eCOST.com, Inc. After less than a year in operation, eCOST.com showed significant sequential sales growth in the fourth quarter of 1999, up 236% to $27 million. During the fourth quarter eCOST.com added consumer electronics to its product offerings and was identified by the Nielsen Noun 1. Nielsen - Danish composer (1865-1931) Carl August Nielsen, Carl Nielsen / Net Ratings Service Ratings Service A company, such as Moody's or Standard & Poor's, that rates various debt and preferred stock issues for safety of payment of principal, interest, or dividends. as one of the fastest-growing sites during the November November: see month. - December timeframe. The subsidiary reported a loss for the quarter of $3.6 million or $0.34 per share, primarily due to advertising expenditures to establish the brand. However, as a percentage of sales, eCOST.com operating losses operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. for the quarter declined by 42% to 13.3% of sales from 23.1% of sales in the third quarter of 1999. As a result of higher margins from consumer electronics products, increased freight margin and vendor discounts, gross profit grew for the quarter 612% to $235,000 from $33,000 in the third quarter of 1999. Gross profit as a percentage of sales more than doubled to 0.9% from 0.4% in Q3, exiting the quarter at 1.4%. As eCOST.com expands its product offering, margins are expected to improve on a long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. basis. As a percentage of sales, SG& expenses for the quarter declined 40% to 14.2% from 23.5% in Q3, based on a spending increase of $1.9 million to $3.8 million in the fourth quarter of 1999. Most of the spending increase resulted from increased advertising, credit card fees and customer service personnel. Over time, SG& spending as a percentage of sales is expected to decline as the number of repeat buyers continues to grow. eCOST.com's sales growth was driven by significantly higher customer traffic. Average daily unique visitors A count of how many different people access a Web site. For example, if a user leaves and comes back to the site five times during the measurement period, that person is counted as one unique visitor, but would count as five "user sessions. more than doubled during the quarter from 20,000 per day in the third quarter to 50,000 per day in fourth quarter 1999, exiting the quarter at 70,000 unique visitors per day. Average order size for the quarter increased, approaching $500 as eCOST.com targeted its promotions to encourage larger purchases. &uot;We are pleased that we are able to maintain our high standard of customer service while experiencing phenomenal growth during the holiday season,&uot; said Scott Klein, President of Creative / IdeaMall and Chief Executive Officer of eCOST.com. &uot;We took orders up until the evening of December 23rd, and successfully delivered them before Christmas. As we continue to enhance our product assortment assortment /as·sort·ment/ (ah-sort´ment) the random distribution of nonhomologous chromosomes to daughter cells in metaphase of the first meiotic division. as·sort·ment n. in the coming months, we are confident that buyers will return more often to take advantage of our excellent pricing and service.&uot; &uot;We are excited about the strong quarter-to-quarter performance trend we have witnessed in eCOST.com,&uot; remarked Frank Khulusi, &uot;and continue to carefully examine our long-term growth strategy for that business.&uot; Fourth-Quarter and Twelve-Month Financial Summary During the three months ended December 31, 1999, 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 from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the grew to $222 million, up 33% over the fourth quarter of 1998. The increase in net sales for the quarter is attributable primarily to record Internet and outbound business-to-business revenues. Gross profit for the fourth quarter of 1999 increased by $2.7 million over the fourth quarter of 1998 to $22.3 million. This increase resulted primarily from outbound business-to-business sales growth. Gross profit margin 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. for the fourth quarter decreased to 10.1% compared to a fourth quarter 1998 gross profit margin of 11.8%, primarily as a result of the lower eCOST.com margin. Gross profit was 11.3%, excluding eCOST.com. SG& for the quarter was $24.0 million, or 10.8% of sales. Excluding SG& expenses for eCOST.com, SG& expenses for the fourth quarter of 1999 increased by 21% to $20.2 million over the fourth quarter of 1998 due largely to investments in the outbound business-to-business sales force. During this same period, SG& expenses as a percentage of net sales, excluding eCOST.com, increased to 10.3%, versus 10.0% during fourth quarter 1998. Income from continuing operations during the fourth quarter 1999 resulted in a loss of $2.3 million, or $0.22 per share, compared with income from continuing operations in the fourth quarter of 1998 totaling $1.5 million, or $0.14 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share. This decrease occurred as a result of a $3.6 million loss incurred by eCOST.com during the fourth quarter of 1999. Absent eCOST.com's losses for the quarter, diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of was $0.12. Consolidated net losses during the fourth quarter were $2.3 million or $0.22 per share, which include eCOST.com's loss of $3.6 million, or $0.34 per share. This was an improvement compared to a net loss of $5.6 million or $0.55 per share (which included a loss from discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. ) during the fourth quarter of 1998. During the twelve months ended December 31, 1999, net sales grew to $732 million, up 14% when compared with the twelve months ended December 31, 1998. Enhanced training and expansion of outbound sales force executives in 1999 is expected to yield continued sales increases through 2000. Gross profit for the year ended December 31, 1999, increased by $5.1 million to $79.6 million (excluding closed stores), compared with gross profit of $74.5 million at year end 1998. Gross profit as a percentage of net sales for the year ended December 31, 1999, was 10.9%, down from 11.9% in the prior year. The Company's gross profit margin in 1999 was negatively affected by eCOST.com and other factors including outbound sales initiatives and fluctuations in key vendor support programs, including price protections, rebates and return policies. SG& expenses for the year ended December 31, 1999, excluding eCOST.com, were 11.1%, a 0.4% improvement over the year prior. Consolidated SG& expenses, including eCOST.com, the spun-off uBid.com, and the closed retail stores, decreased 21% over the fourth quarter and 19% for the year, compared with 1998. Continuing operations yielded a net loss of $4.7 million, or $0.45 per share during 1999, a 47% reduction in losses compared to a net loss from continuing operations of $8.8 million, or $.87 per share in 1998. Income from continuing operations in 1999 was negatively impacted by the Company's $6.2 million investment in eCOST.com. Excluding that investment, Creative / IdeaMall would report income from continuing operations of $1.5 million or $.14 per share for the year ended 1999. Including discontinued operations, consolidated net loss was $10.9 million, or $1.05 per share for the twelve months ended December 31, 1999. This marked a nearly 40% reduction in losses as compared to a consolidated net loss of $17.8 million or $1.75 for the twelve months ended December 31, 1998. The loss for the year ended December 31, 1998, included pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and other write-offs of $17.3 million. Creative / IdeaMall's December 31, 1998, balance sheet, and comparisons thereto there·to adv. 1. To that, this, or it. 2. Archaic In addition to that; furthermore. thereto Adverb Formal 1. to that or it 2. , have been restated to reflect the spin-off The situation that arises when a parent corporation organizes a subsidiary corporation, to which it transfers a portion of its assets in exchange for all of the subsidiary's capital stock, which is subsequently transferred to the parent corporation's shareholders. of uBid.com as if it had taken place as of the date presented. The Company ended the quarter with $24.3 million of cash, up from $6.4 million at December 31, 1998. Receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed increased by $7.2 million from December 31, 1998, on higher business-to-business sales, and inventory was reduced by $1.1 million. Inventory turns for the quarter improved by 15 turns to 29 turns, from 14 turns in 1998. eLinux.com Pursuant to its new strategic focus, the Company also announced today the formation of a new Internet See Web 2.0 and Internet2. venture, eLinux.com. Scheduled for launch in early February 2000, eLinux.com is positioned to become a leading provider serving the escalating demand for Linux-based systems and services. eLinux.com will offer users complete multi-vendor Linux solutions including products, consulting and support services support services Psychology Non-health care-related ancillary services–eg, transportation, financial aid, support groups, homemaker services, respite services, and other services , and community. The company announced further details of this important announcement in a separate press release. Intensified Focus on Internet Ventures and New Corporate Identity Creative / IdeaMall also today announced that it plans to intensify in·ten·si·fy v. in·ten·si·fied, in·ten·si·fy·ing, in·ten·si·fies v.tr. 1. To make intense or more intense: its focus on the Internet and business-to-business markets. The strategy involves the following: -- Focusing its existing core business around three separate business units - PC Mall.com (including MacMall.com), PCM (1) See phase change memory. (2) (Plug Compatible Manufacturer) An organization that makes a computer or electronic device that is compatible with an existing machine. .com Business Solutions and CCIT See ITU. - to better align align (  līn),v to move the teeth into their proper positions to conform to the line of occlusion. these significant businesses on their target markets; -- Exploring new Internet opportunities - as evidenced by the announcement of eLinux.com, launched on the heels of the success of eCOST.com and uBid.com; -- Changing the company name to IdeaMall to better reflect the company's new direction and its ability to transform ideas into new businesses. Creative / IdeaMall seeks to build on its success in launching and building Internet ventures including uBid.com, which was spun-off as an independent public company in June 1999, and eCOST.com, which has grown significantly since its March 1999 inception. Creative / IdeaMall's ability to leverage existing competitive strengths and capabilities enabled these new ventures to accelerate past the start-up Start-up The earliest stage of a new business venture. phase and capture market advantage. &uot;As a result of these changes and exciting new Internet ventures, the company has developed a growing portfolio of Web site properties: eLinux.com, eCOST.com, PCM.com Business Solutions, PCMall.com and MacMall.com,&uot; said Khulusi. In describing the proposed change in corporate identity, Klein stated, &uot;Because of the revolutionary changes taking place in our business, the name Creative Computers no longer captures the essence of our organization. The new name, IdeaMall, should demonstrate to the world that we are an organization dedicated to taking great ideas and turning them into business realities.&uot; Creative Computers, Inc., soon to be renamed IdeaMall (&uot;Creative / IdeaMall&uot;), is focused on the Internet and business-to-business markets. Creative / IdeaMall has a growing portfolio of Web site properties and intends to pursue additional Internet opportunities as they arise and within its strategic focus. The company's current portfolio includes: eLinux.com (http://www.elinux.com) -- a new subsidiary providing products, news, discussion groups, services and support to the Linux community; eCOST.com (http://www.ecost.com) -- a separate subsidiary launched in April 1999 which is a retailer of computer products and electronics and is one of the fastest-growing multi-category Internet retailers; PCM.com Business Solutions -- a leading business-to-business marketer focused on IT sales of servers, desktops and network equipment to businesses with 100 or more employees; PCMall.com (http://www.pcmall.com) -- a leading business-to-business marketer of computers and related products for small businesses with less than 100 employees, and high-end consumers; MacMall.com (http://www.macmall.com) -- a leading marketer of Macintosh computers, peripherals and software to the rapidly-growing Apple community. The company drives traffic to its Web sites and call centers via its distinctive &uot;clicks and catalogs&uot; strategy, outbound telemarketing telemarketing, the practice of selling goods or services to customers by means of the telephone or of surveying consumer preferences in telephone conversations. , and marketing on the Web. Creative / IdeaMall also operates a field sales organization under the name CCIT, which is focused on Fortune 1000 companies. Except for historical information, all of the statements, expectations and assumptions contained in the foregoing are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . The realization of any or all of these expectations is subject to a number of risks and uncertainties and it is possible that the assumptions made by management may not materialize ma·te·ri·al·ize v. ma·te·ri·al·ized, ma·te·ri·al·iz·ing, ma·te·ri·al·iz·es v.tr. 1. To cause to become real or actual: By building the house, we materialized a dream. . There can be no assurances that eLinux.com, the change in corporate strategy, the name change to IdeaMall, the continued growth of eCOST.com, the continued improvement in eCOST.com margin, the continued growth, recruiting and training of outbound business-to-business sales executives, and the continued growth in outbound sales, continued growth of the company's Internet sales, the fourth quarter trends for Apple, Macintosh and PC / Wintel sales will continue or remain successful, will achieve market acceptance or become profitable. In addition to the factors set forth above, other important factors that could cause actual results to differ materially from our expectations include; competition from companies either currently in the market or entering the market; competition from other 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 retail store resellers and price pressures related thereto; uncertainties surrounding sur·round tr.v. sur·round·ed, sur·round·ing, sur·rounds 1. To extend on all sides of simultaneously; encircle. 2. To enclose or confine on all sides so as to bar escape or outside communication. n. the supply of and demand for products manufactured by and compatible with Linux, Apple Computer; our reliance on Apple Computer, 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) , Hewlett-Packard, Compaq and other vendors; and risks due to shifts in market demand and/or price erosion of owned inventory. This list of risk factors is not intended to be exhaustive. Reference should also be made to the risk factors set forth from time to time in the Company's SEC reports, including but not limited to those set forth in the section entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: &uot;Certain Factors Affecting Future Results&uot; in its Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for 1998. Linux is a registered trademark of Linus Torvalds Linus Benedict Torvalds (born December 28 1969 in Helsinki, Finland) is a Finnish software engineer best known for initiating the development of the Linux kernel. .
Creative Computers, Inc.
CONSOLIDATED BALANCE SHEET
(in thousands except share data)
December 31, December 31,
1999 1998
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 24,326 $ 6,442
Accounts receivable, net
of allowance for
doubtful accounts 47,618 40,429
Inventories 38,068 39,158
Prepaid expenses and
other current assets 5,781 5,374
Net assets of uBid
discontinued segment -- 18,633
Income tax refund receivable 177 190
Notes receivable 3,331 --
Deferred income taxes 2,047 5,216
Total current assets 121,348 115,442
Notes receivable -- 3,331
Property, plant and equipment, net 14,569 14,391
Goodwill, net 11,836 12,318
Deferred income taxes 3,738 1,262
Other assets 42 138
$ 151,533 $ 146,882
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 86,609 $ 62,129
Accrued expenses and
other current liabilities 15,894 13,198
Capital leases - current portion 142 116
Notes payable - current portion 6 6
Total current liabilities 102,651 75,449
Capital leases 136 6
Notes payable 148 155
Total liabilities 102,935 75,610
Stockholders' equity:
Common stock, $.001 par value;
15,000,000 shares authorized;
10,404,069 and 10,264,539
shares issued 11 10
Preferred stock, $.001 par value;
5,000,000 shares authorized;
none issued and outstanding -- --
Additional paid-in capital 74,337 86,069
Treasury stock, at cost: 15,000 shares (91) (91)
Retained earnings (accumulated deficit) (25,659) (14,716)
Total stockholders' equity 48,599 71,272
$ 151,533 $ 146,882
Creative Computers, Inc.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited, in thousands except per share data)
For the three For the year ended
months ended
December 31, December 31,
1999 1998 1999 1998
Net sales $221,754 $166,322 $731,955 $642,006
Cost of goods sold 199,437 146,741 652,404 568,309
Retail store
closure inventory
reserves -- -- -- 3,679
Gross profit 22,317 19,581 79,551 70,018
Selling, general
and administrative
expenses 23,974 16,683 83,687 76,812
Expenses related to
retail store closures -- -- -- 6,773
Income (loss) from
operations (1,657) 2,898 (4,136) (13,567)
Interest income
(expense), net 135 (131) 245 (291)
Income (loss) before
income taxes (1,522) 2,767 (3,891) (13,858)
Income tax provision
(benefit) 759 1,277 812 (5,034)
Income (loss) before
discontinued operations (2,281) 1,490 (4,703) (8,824)
Net loss from
discontinued operations (7,123) (6,240) (8,971)
Net income (loss) $ (2,281) $ (5,633) $(10,943) $(17,795)
Earnings (loss) per share
Continuing operations $ (0.22) $ 0.15 $ (0.45) $ (0.87)
Discontinued operations (0.70) (0.60) (0.88)
$ (0.22) $ (0.55) $ (1.05) $ (1.75)
Diluted earnings
(loss) per share
Continuing operations $ (0.22) $ 0.15 $ (0.45) $ (0.87)
Discontinued operations (0.70) (0.60) (0.88)
$ (0.22) $ (0.55) $ (1.05) $ (1.75)
Basic weighted average
number of shares
outstanding 10,403 10,250 10,383 10,176
Diluted weighted average
number of shares
outstanding 10,403 10,250 10,383 10,176
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