Merisel Reports First-Quarter Results - Company Financial Information

Edge: Work-Group Computing Report, May 8, 2000

Merisel Inc. (Nasdaq:MSEL) Thursday announced results for its first quarter ended March 31, 2000.

The company reported a net loss of $13.4 million, or $.17 per share, for the quarter. These results reflect a $1.5 million net gain from the January sale of Merisel's Marlborough, Mass., call center and a $2.8 million charge for litigation-related reserves.

Without the aforementioned non-recurring items, Merisel would have reported a net loss for the quarter of $12.1 million, or $.15 per share. For the same period last year, the company reported a net loss of $20.5 million, or $.26 per share, which included a $21.0 million litigation-related charge.

Consolidated sales for first quarter 2000 declined 7 percent to $1.2 billion from $1.3 billion in first quarter 1999. Sales for North American Distribution declined 14 percent to $905 million from $1.05 billion a year ago, while sales for the Merisel Open Computing Alliance (MOCA) grew 28 percent to $262 million from $205 million in first quarter 1999.

Consolidated first-quarter gross margins were 4.68 percent. This compares with 4.17 percent for fourth quarter 1999 (or 4.79 percent after elimination of higher-than-historical inventory-related provisions) and 5.15 percent for first quarter 1999.

In the first quarter, MOCA had strong sales growth and profitability. MOCA also signed an exclusive outsourcing and product-fulfillment agreement with Stonebridge Technologies Inc. and was established as a separate legal subsidiary of Merisel. The establishment of Merisel Open Computing Alliance Inc. was made effective on April 3, 2000.

"We began this year with a substantial reorganization within Merisel's North American Distribution business and were not able to implement the additional pricing actions needed in the U.S. until late February when our restructuring was completed," said Dwight A. Steffensen, Merisel chairman and chief executive officer.

"Our need to focus on our restructuring during the first half of the quarter, along with the fact that we were the first to take an aggressive public stance on pricing, contributed to an overall decline in first-quarter U.S. sales."

"Sales within our U.S. Commercial segment, our lowest-margin business, declined 31 percent from fourth quarter 1999, and we are currently working to reestablish profitable relationships with our largest customers," continued Steffensen.

"Despite the overall sales decline in the U.S., first-quarter U.S. VAR sales increased 2 percent over the prior quarter, as we intensified our focus on VARs serving the SMB and enterprise markets. And, as a result of our late-February pricing actions, our U.S. business experienced a selling-margin improvement in March of more than 40 basis points over February of this year and more than 80 basis points over December 1999. We have been successful in maintaining these improved selling-margin levels in the second quarter."

"Despite the 14 percent sales decline for North American Distribution, front-end margin dollars increased by 6 percent within this business, and increasing gross-margin dollars remains our priority," added Steffensen.

"In the past two months, the market has followed our lead with similar pricing actions, and pricing has stabilized significantly in the channel. With the completion of our restructuring, I have confidence in the North American leadership team to maintain our current gross-margin levels, grow sales and continue to increase the percentage of our sales to VAR customers, which should collectively result in greatly improved performance."

In addition to the company's focus on supporting value-added resellers, Merisel is actively seeking opportunities to support electronic and virtual businesses with logistics and fulfillment services that minimize costs and streamline order-fulfillment processes.

On April 10, 2000, Merisel entered into a letter of intent with ZMarket.com, the first virtual distributor of consumer products, to become ZMarket.com's premier fulfillment partner. The company expects this partnership to be operational by the end of the second quarter.

"These types of partnerships have distinct benefits for Merisel," said Steffensen. "We've invested heavily in our systems and logistics capabilities, and our intent is to leverage our core competencies to build on our success in the distribution of technology products and expand into e-business fulfillment on a fee-for-service basis."

Merisel is a leading full-line distributor of technology products to resellers throughout North America. The Fortune 500 company supports the growth of its partners with extensive business-development and educational services, expert technical support, flexible financing options, certified configuration services and progressive e-business solutions.

Merisel also offers dedicated support to Sun Microsystems-authorized resellers and consultants through the Merisel Open Computing Alliance Inc. (MOCA). In 1999, the El Segundo-based company generated sales of $5.2 billion. Visit Merisel at www.merisel.com.