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December 29, 1999

Value America to Cut 50% of Staff in Restructuring

By CBR Staff Writer

Internet retailer Value America Inc said Wednesday that it will cut roughly half of its 600 staff and take a fourth-quarter restructuring charge of $5.6m. The job cuts come as part of a plan by the Charlottesville, Virginia-based company to focus its core business on the product areas – computer hardware and office products – which currently generate almost 95% of its revenues. The company said the restructuring is expected to streamline its operations, improve product fulfillment performance and improve customer service. In addition to shedding 47% of its workers, facility consolidations and other cost-saving measures will be carried out.

Value America also said revenue for the 1999 fourth quarter would be approximately 6% to 9% below consensus estimates due to product fulfillment delays and system transition issues that occurred during the implementation of its new IT infrastructure. Despite the top line shortfall, the company still expects to beat earnings estimates, excluding the one-time charge, due to expense management measures implemented during the quarter. Analysts surveyed by First Call were looking for a loss of $1.03 per share for the quarter.

As part of the refocused strategy, Value America will eliminate all non-productive product categories, such as health and beauty aids, books, clothing and housewares, and will instead focus on consumer and business PCs and peripherals, computer software, consumer electronics and office supplies. The company also said that, while it will continue to operate in the consumer market, it also expects to significantly increase its efforts in the business and government markets through a predominantly online marketing strategy.

In addition, the company announced that its two founders, Craig Winn and Rex Scatena, have resigned. Winn, who holds roughly one- third of the company’s outstanding stock, had been chairman and chief executive officer until November, when he was replaced as CEO by then-president Glenda Dorchak. Investors in the company include Paul Allen’s Vulcan Ventures and FDX Corp chairman Frederick Smith.

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