Elcom International, Inc. Announces Third Quarter Results and Previously Disclosed Restructuring Charge.NORWOOD, Mass.--(BUSINESS WIRE)--Nov. 12, 1998--Elcom International, Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :ELCO ELCO Eastern Lebanon County (school district, Pennsylvania) ELCO El Camino ELCO Electrolytic Capacitor ELCO Early Opening Local Census Office ELCO Electronic Company ), today announced results for the third quarter and nine months ended September 30, 1998, including a previously disclosed restructuring charge restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. . -0-
Highlights:
-- Restructuring of Elcom Systems, Inc., the Company's technology
subsidiary, to serve as a systems integration arm and provide
Elcom's PC remarketing subsidiaries with the capability to
install front-end and back-end Internet-based electronic ordering
and automated procurement systems for their commercial customers.
-- Pre-tax restructuring charge of $12.3 million, or $.45 per share.
-- Net sales for the nine months ended September 30 totaled $576.8
million, compared to $572.8 million in the comparable period last
year.
-- Net sales for the quarter ended September 30 totaled $195.0
million compared to $198.4 million in the third quarter of 1997.
Financial Summary Table
(Unaudited)
(in thousands, except per share amounts)
Quarter Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Net Sales $ 194,993 $ 198,373 $ 576,819 $ 572,809
Gross Profit $ 19,463 $ 24,036 $ 64,203 $ 66,930
Gross Profit
Percentage 10.0% 12.1% 11.1% 11.7%
Operating
Profit (Loss) $ (15,186) $ 5,764 $ (7,931) $ 13,418
Net Income (Loss) $ (15,036) $ 3,412 $ (13,149) $ 7,435
Basic Net Income
(Loss) Per Share $ (.55) $ .13 $ (.48) $ .28
Basic Weighted
Average Shares
Outstanding 27,356 27,017 27,322 26,876
Diluted Net
Income (Loss)
Per Share $ (.55) $ .11 $ (.48) $ .26
Diluted Weighted
Average Shares
Outstanding 27,356 29,481 27,322 28,853
-0- For the quarter ended September 30, 1998, 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 totaled $195 million, compared to the $198 million recorded for the third quarter of 1997, despite a slight increase in 1998 PC unit shipments which were made at lower average unit prices. Including a pre-tax restructuring charge of $12.3 million, the net loss for the quarter was $15.0 million compared to net income of $3.4 million in the comparable 1997 quarter. 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. net loss per share for the third quarter of 1998 amounted to $(.55) compared to diluted net income of $.11 per share in the third quarter of 1997. Excluding the restructuring charge, the Company's operating loss 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. was $2.85 million, including a loss of approximately $1.2 million incurred by Elcom Systems, Inc., the Company's electronic commerce technology subsidiary. Net sales for the first nine months of 1998 totaled $576.8 million, compared to net sales of $572.8 million reported for the first nine months of 1997. The net loss totaled $13.2 million in the first nine months of 1998, including the pre-tax restructuring charge of $12.3 million, versus net income of $7.4 million in the comparable 1997 period. For the first nine months of 1998, the diluted net loss per share amounted to $(.48) compared to diluted net income of $.26 per share in the first nine months of 1997. Robert J. Crowell, Elcom International's Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. stated, "After finalizing the evaluation of our strategic alternatives and subsequently disengaging dis·en·gage v. dis·en·gaged, dis·en·gag·ing, dis·en·gag·es v.tr. 1. To release from something that holds fast, connects, or entangles. See Synonyms at extricate. 2. from our investment bank in September, management made several decisions to reposition the Company and regain momentum in the marketplace as a standalone stand·a·lone adj. Self-contained and usually independently operating: a standalone computer terminal. company. In order to better leverage its available personnel and customer base, the Company decided to restructure the functions of Elcom Systems, Inc. ("ESI (Edge Side Includes) A markup language for Web pages that enables elements of a Web page to be dynamically assembled in servers distributed throughout the Internet. "), its electronic commerce technology subsidiary, to serve as an electronic commerce-oriented systems integration arm of Elcom Services Group ("ESG ESG Enterprise Strategy Group (Veritas) ESG Emergency Shelter Grant (Florida, USA) ESG Expeditionary Strike Group ESG Electronic Service Guide (used in DVB) "), the Company's PC-remarketing and professional services (job) professional services - A department of a supplier providing consultancy and programming manpower for the supplier's products. unit. This 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). 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. and will provide ESG with the capability to install front-end and back-end In their most general meanings, the terms front end and back end refer to the initial and the end stages of a process flow. These terms acquire more special meanings in particular areas. electronic ordering and procurement The fancy word for "purchasing." The procurement department within an organization manages all the major purchases. systems for existing and new customers. These electronic procurement systems will give the Company a distinct and demonstrable de·mon·stra·ble adj. 1. Capable of being demonstrated or proved: demonstrable truths. 2. Obvious or apparent: demonstrable lies. value-add product and services package to differentiate itself going forward in the marketplace." The Company also restructured ESG's government and education sales operations to concentrate on building an education sales force focused on providing Windows and Intel-based ("Wintel") solutions to the education market in the U.S. The Company decided to leverage the experience it has developed in cabling and network integration of classrooms and schools derived from its previous Apple Education Sales Agent relationship, to promote this new division as it focuses on a larger potential market. The Company also consolidated certain of its customer support personnel in the U.S. In conjunction with these restructurings and consolidations, the Company took a pre-tax charge of $12.3 million in the third quarter related to the write down of certain intangible and other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. to estimated realizable values, personnel severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when , and other costs associated with these actions. A substantial majority of these estimated charges are related to intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. and do not involve a current or future outlay of cash. The Company stated that it was also impacted by ongoing reductions in PC average selling prices The average sales price of goods or commodities. Especially used in the retail sector and technology distribution. and changes in manufacturers' product supply policies, including shortening of price protection time frames and/or availability and imposing more stringent product return policies. These changes, which occurred primarily in the U.S., resulted in the Company reducing its inventory levels and consequently, buying less inventory directly from manufacturers and purchasing more product indirectly through distribution channels, which had a negative impact on overall 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. . The Company has reduced its inventory levels from $60 million at December 31, 1997 to $43 million as of September 30, 1998 and continues to evaluate the financial and other benefits of purchasing major products directly versus through distribution. Robert J. Crowell stated further, "I am pleased with the customer reception of PECOS.web, our newest Internet ordering electronic commerce system. Introduced in August, customer usage has been growing steadily. PECOS.web allows customers to efficiently search for and order products from the Company through their Internet browser See Web browser. . The Company also is anticipating the December release of PECOS Procurement Manager ("PECOS.pm"), the Company's new multi-catalog and multi-vendor automated au·to·mate v. au·to·mat·ed, au·to·mat·ing, au·to·mates v.tr. 1. To convert to automatic operation: automate a factory. 2. procurement system, for which the Company already has three licenses and two installations in place. We are very optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op about the potential of PECOS.pm leveraged through our U.S. and U.K. sales personnel." 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 which are reflected in the Company's third quarter operating loss. These costs include upgrading its sales personnel capabilities in the U.S., absorbing one-time costs associated with recently implemented 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. The Company will continue to invest in the marketing plans and infrastructure of its newly restructured electronic commerce-oriented systems integration group which, on a standalone basis, will continue to generate operating losses for the next few quarters. Mr. Crowell continued, "The Company's balance sheet reflects cash and cash equivalents of $20 million and a book value of $98 million. I believe the business-to-business Internet-based electronic commerce software industry is poised for explosive growth beginning in 1999 and our electronic commerce products are positioned to take advantage of that growth. However, the PC remarketing industry remains a difficult and challenging one as manufacturers' policies continue to evolve which impacts management planning. We are beginning to see strengthening in the top line and PC-oriented professional services revenues also are expanding. These are good signs as we emerge from a very difficult period. As "product fulfillment ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. " becomes less profitable as manufacturers policies tighten and competitive pricing pressures continue, we expect to have further changes to our operating model Operating Model is a term that is used in many contexts. In essence an operating model describes how an organization operates across both business and technology domains. The Operating Model describes what is important for the organization. . These changes will include transitioning more customers to our Internet electronic commerce system to help reduce operational costs, as well as other potential changes to our cost structure. Now, with the third quarter restructuring behind us, combined with the new electronic commerce initiatives underway and continuing improvements in our Oracle-based and other internal information systems' efficiency, I am confident that the Company's momentum will continue to build as we enter 1999. In addition, the Company is aggressively soliciting analyst research coverage which, combined with our other initiatives, I believe will also increase the Company's overall visibility. The Company is also in the final stages of selecting an Investor Relations Investor relations The process by which the corporation communicates with its investors. firm with a goal of engaging a firm by year-end to represent the Company's interests." Elcom International, Inc., through two wholly-owned subsidiaries, develops, licenses, and uses client/server and Internet transaction-based software systems which enable the conduct of PC-based interactive electronic commerce over the Internet and telephone networks. Elcom Services Group, the Company's PC remarketing subsidiary, uses the Company's electronic commerce technology to support the marketing of PC products and operates 13 field sales and support offices in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. and 7 in the United Kingdom. Elcom Systems, the Company's technology subsidiary, licenses its PECOS technologies to other companies. Statement Under 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 Except for the historical information contained herein, the matters discussed in this release include forward-looking information. All statements other than statements of historical fact, including, without limitation, those with respect to the Company's objectives, plans and strategies set forth herein and those preceded by or that include the words "believes," "expects," "anticipates," or similar expressions, 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. . Although the Company believes that such forward-looking statements are reasonable, it can give no assurance that the Company's expectations are correct. These forward-looking statements involve a number of risks and uncertainties which could cause the Company's future results of operations to differ materially from those anticipated. Such risks and uncertainties include: availability and terms of appropriate working capital and/or other financing, short-term interest rate fluctuations, customers' acceptance and usage of the Company's electronic commerce software systems, the impact of competitive technology products, professional service providers, and PC product pricing, control of expenses, levels of gross profits, revenue growth, changes in manufacturer's price protection, return and other policies, availability of PC products, overall business conditions, corporate demand for PC products, the success and timing of fully implementing the Company's Oracle-based management information system and problems associated therewith there·with adv. 1. With that, this, or it. 2. In addition to that. 3. Archaic Immediately thereafter. Adv. 1. , risks associated with acquisitions of companies, and the other risks detailed in the Company's 1997 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. and from time to time in the Company's other reports filed with the SEC, 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. The financial data set forth below should be read in conjunction with the Consolidated Financial Statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge and other disclosures contained or to be contained in the Company's Annual Report on Form 10-K for 1997, as well as the Company's quarterly reports on Form 10-Q Form 10-Q See 10-Q. filed with the SEC during 1997 and 1998. The Company intends to file its September 30, 1998 Form 10-Q on November 13, 1998. -0-
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data) (unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Net sales $ 194,993 $ 198,373 $ 576,819 $ 572,809
Cost of sales 175,530 174,337 512,616 505,879
Gross profit 19,463 24,036 64,203 66,930
Expenses:
Selling, general and
administrative 21,837 17,922 58,702 52,597
Research and
development 474 350 1,094 915
Restructuring Charge 12,338 -- 12,338 --
Total expenses 34,649 18,272 72,134 53,512
Operating profit (15,186) 5,764 (7,931) 13,418
(loss)
Interest expense
and other, net (1,921) (1,134) (5,690) (2,667)
Income (loss) before
income taxes (17,107) 4,630 (13,621) 10,751
Provision for
(recovery of)
income taxes (2,071) 1,218 (472) 3,316
Net income (loss) $ (15,036) $ 3,412 $ (13,149) $ 7,435
Diluted net income
(loss) per share $ (.55) $ .11 $ (.48) $ .26
Diluted weighted
average common shares
outstanding 27,356 29,481 27,322 28,853
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands) (unaudited)
September 30, December 31,
1998 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 19,982 $ 33,165
Accounts receivable, net 190,789 180,949
Inventory 42,912 60,437
Prepaids and other current assets 4,846 3,255
Total current assets 258,529 277,806
PROPERTY, EQUIPMENT AND SOFTWARE, NET 15,372 16,450
GOODWILL AND OTHER ASSETS, NET 31,786 37,812
$305,687 $332,068
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit $136,192 $154,714
Other current liabilities 68,558 63,586
Total current liabilities 204,750 218,300
LONG-TERM 2,905 3,465
TOTAL STOCKHOLDERS' EQUITY, NET 98,032 110,303
$305,687 $332,068
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