Elcom International, Inc. Announces Restructuring.

NORWOOD, Mass.--(BUSINESS WIRE)--Oct. 8, 1998--Elcom International, Inc. (NASDAQ:ELCO), today announced that the Company will restructure Elcom Systems, Inc. ("ESI"), its electronic commerce technology subsidiary, into an electronic commerce-oriented systems integration arm of Elcom Services Group ("ESG"), the Company's PC-remarketing and professional services subsidiary. This restructuring is intended to maximize the various leverage factors available from ESG's sales force and substantial customer base in the U.S. and U.K. while concurrently reducing expenses. ESI will provide ESG with the capability to install front-end and back-end electronic ordering and procurement systems which will be marketed to ESG's several thousand customers in the U.S. and U.K. Robert J. Crowell, the Company's Chairman and CEO stated, "The Company decided, in light of market conditions, that ESI cannot support an initial public offering or support itself as a stand-alone entity if it were "spun-off" to stockholders and this restructuring is the best alternative."

In the third quarter, the Company also restructured ESG's government and educational sales operations and consolidated certain of its customer support personnel in the U.S. In conjunction with these restructurings and consolidations, the Company will take a pre-tax charge of approximately $12 million in the third quarter related to the write down of certain intangible and other assets to estimated realizable values, personnel severance, and other costs associated with these actions. A substantial majority of these estimated charges are related to intangible assets and do not involve a current or future outlay of cash. The Board of Directors authorized these steps in conjunction with the Company's recently disclosed decision to continue to build its business on a stand-alone basis.

In order for the Company to position, market, and support its electronic commerce and other initiatives, including expanding its professional services offerings, the Company has taken certain actions and incurred certain costs. These costs include upgrading its sales personnel capabilities in the U.S., absorbing one-time costs associated with recent changes in U.S. manufacturers' product-oriented supply policies, and the costs of residual effects of the Company's Oracle-based management information system implementation in the U.S. Primarily because of these costs and effects, exclusive of the restructuring charges, the Company anticipates reporting an operating loss of approximately $2.5 million for the third quarter, including an expected Elcom Systems loss for the quarter of approximately $1.5 million. Mr. Crowell stated that, "The Company's balance sheet remains solid with good cash availability and a book value of approximately $100 million. With the third quarter restructuring and operating loss behind us and with service revenues increasing steadily, combined with the new electronic commerce initiatives underway and continuing improvements in the Company's Oracle-based and other internal information systems' efficiency, I believe the Company will be well positioned to leverage these initiatives which I feel will increase the Company's overall momentum and I anticipate that the Company will report an operating profit in the fourth quarter."

Mr. Crowell also stated that, "The Company's revenues in the third quarter were approximately $195 million, an increase from last quarter despite all the turmoil in the financial marketplace. We will continue to invest in the marketing plans and professional services infrastructure of our newly formed electronic commerce-oriented systems integration group which, on a stand-alone basis, is anticipated to begin contributing to operating profits by the second or third quarter of next year."

The Company also announced that it intends, from time to time, to repurchase stock under its previously announced stock buy-back program. The Company's internal stock transaction policies preclude executives and other key employees from conducting any stock transactions until the Company reports its third quarter financial results.

Elcom International, Inc. develops, licenses, and uses client/server and Internet transaction-based electronic commerce systems which enable business transactions and information exchanges over the Internet and telephone networks. Elcom Services Group, the Company's PC remarketing subsidiary, operates 14 field sales offices in the United States and 7 in the United Kingdom and uses the Company's electronic commerce technology to support the marketing of PC products and PC-oriented professional services, including automated procurement systems integration.

Statement Under the Private Securities Litigation Reform Act 

Except for the historical information contained in this release, the matters described herein contain forward-looking statements that involve risks and uncertainties which might cause the results of such forward-looking statements to differ materially from those anticipated. Such risks and uncertainties include: the industry's acceptance and usage of electronic commerce software systems, the impact of competitive technology products and service providers, availability of research coverage or quality thereof, PC product availability and pricing levels, control of expenses, levels of gross profits, revenue growth, changes in manufacturer price protection and other policies, overall business conditions, the success and timing of fully implementing the Company's Oracle-based management information system and problems associated therewith, the functionality and market acceptance of PECOS.web and PECOS.pm, availability of appropriate financing, risks associated with acquisitions of companies, and other risks detailed in the Company's Annual Reports on Form 10-K and from time to time in the Company's other SEC reports, including the Company's prospectus included as part of the S-1 Registration Statement declared effective on December 19, 1995 under the Securities Act of 1933.