Media Relations

PeoplePC Second Quarter Results Yield Continued Growth and Positive Gross Margins

7/31/2001 4:49:00 PM

PeoplePC Announces New Marketing Agreement With Ingersoll-Rand

SAN FRANCISCO--(BUSINESS WIRE)--July 31, 2001--PeoplePC, Inc. (Nasdaq:PEOP), the company that makes it easy and affordable to get online, today announced improving financial results for the second quarter ended June 30, 2001. The company also announced a new agreement with Ingersoll-Rand, a leading manufacturer of industrial products, to provide the company's approximately 50,000 active and retired employees with a bundled PC and Internet connectivity program.

PeoplePC reported a better than anticipated positive gross margin of $5.5 million, compared to a loss of $2.7 million in the second quarter of 2000. The substantial improvement in gross margins largely reflects the improved profitability of the company's bundled PC and Internet offering and aggressive efforts to reduce its cost of sales, including the cost to provide Internet access to its members. These cost-cutting measures facilitated the reversal of $6.7 million of previously reserved expenses. Excluding the reversal and a $1.5 million charge to liquidate excess inventory, the company reported a positive gross margin of $.3 million.

The company's net loss for the quarter narrowed to $26.8 million, or $0.24 per basic and diluted share, compared to a loss attributable to common stockholders of $91.5 million, or $2.76 per basic and diluted share, in the second quarter of 2000.

Net revenue for the quarter increased nearly 400% to $42.7 million, compared to $11 million a year earlier. The improvement in net revenue reflects the growth of the PeoplePC member base and increasing product line revenues.

Commenting on the results, Nick Grouf, chairman and chief executive officer, PeoplePC, stated, "We are pleased with the substantial progress PeoplePC has made in the second quarter. We have been aggressively managing the business, as evidenced by our improvement in gross margins, operating costs and net revenues. Despite the slow economic environment, we continue to exceed our targets and move closer to our goal of turning cash-flow breakeven and achieving profitability."

Total PeoplePC membership at the end of the second quarter increased to 551,000 members compared to 162,000 members a year earlier.

During the second quarter, PeoplePC achieved several key milestones, including:

• Secured a marketing agreement with Bertelsmann, Inc., one of the world's largest media companies and corporate parent of BMG Entertainment, to provide 11,000 of their U.S. and Canadian employees with unlimited Internet access at home as part of its subsidized employee benefit program.

• Secured a services agreement with Yahoo! Japan to provide key technology and implementation solutions for its new Internet Broadband (ADSL) services, which will be offered in major Japanese cities.

• Secured a marketing agreement with Powergen, a leading energy company in the UK, to wire its 5,000-plus employees with a home computer and Internet service.

• Entered into a sponsored marketing agreement with the Food Marketing Institute, the largest food retailer and wholesaler trade association, to offer its 3.5 million member company employees the "Wired@Home" program, which includes a bundled PC and unlimited Internet access.

• Launched the roll out of the Cinergy Corp. employee program, enrolling 80% of its employees to date.

• Continued the successful roll out of the Vivendi employee program in France, bringing the current number of PeoplePC/Vivendi members to 84,000.

Business Outlook

Looking ahead, the Company anticipates remaining gross margin positive and continuing to improve operating margins, which will result from a combination of factors, including membership growth, improved pricing of PeoplePC's offerings and better terms with the Company's supply-chain partners.

PeoplePC will be holding a conference call with investors today, July 31, 2001 at 5:00 p.m. EDT. A live webcast of the conference call will be available on the company's Investor Relations site at http://www.peoplepc.com/.

About PeoplePC

PeoplePC, founded in early 1999, provides a hassle-free and more affordable way to get online so that everyone can have access to and participate in the digital economy. PeoplePC offers its unique end-to-end solution both to individual consumers and to major corporations interested in wiring their workforces and creating deeper relationships with customers through PeoplePC online real estate. A PeoplePC membership comes complete with a new, brand name computer system, Internet access, and high-quality customer support and service. There's also a value-packed, customizable online community that fosters long-term connections with PeoplePC members and ongoing revenue possibilities. PeoplePC offers its services on a global basis, allowing people across the world to reap the rewards of the digital age. For more information, visit http://www.peoplepc.com.

This press release contains forward-looking statements that are subject to the assumptions, risks, and uncertainties discussed below. Actual results may vary from those projected in the forward-looking statements. If the Company's assumptions about the future do not materialize or prove to be incorrect, the Company's results could differ materially from those expressed or implied by such forward-looking statements. A forward-looking statement is any statement that looks to future events, including any projections of earnings, revenues, or other financial items; any statements of plans, strategies and objectives of management for future operations; any statements regarding proposed new products, services or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing.

In addition, the above forward-looking statements depend on assumptions relating to our ability to expand our membership and enter into new enterprise agreements, our ability to provide consumer financing for the purchase of our products and services, the willingness of third party vendors to provide products and services on acceptable terms, our ability to meet our obligations under enterprise agreements, the containment of the costs of providing products and services, the containment of customer acquisition costs, our ability to generate revenues from merchant partners, our ability to generate, through operating revenues or through the proceeds of equity or debt financing, sufficient cash to implement our business plan, competition, international expansion, and other risks described from time to time in PeoplePC's Securities and Exchange Commission periodic reports and filings. The Company assumes no obligation to update these forward-looking statements to reflect events that occur or circumstances that exist after the date on which they were made. Further information on potential factors that could affect these forward looking statements and the company's financial results are included in our filings with the Securities and Exchange Commission, including the company's annual report on Form 10-K filed on April 2, 2001 and the Preliminary Proxy Statement filed on April 17, 2001.

Note to Editors: PeoplePC, PeopleShop, and their respective logos, are among the trademarks and/or service marks of PeoplePC, Inc. in the U.S. and other countries. All other trademarks belong to their respective holders.

                             PEOPLEPC INC
            Unaudited Consolidated Statement of Operations
               (In thousands, except per share amounts)

                          Three months ended      Six Months Ended
                         June 30,    June 30,    June 30,    June 30,
                         --------    --------    --------    --------
                           2001        2000        2001        2000
                         --------    --------    --------    --------
Net Revenues:
Membership revenues
 earned                  $ 40,745    $  8,521    $ 75,251    $ 13,072
Other revenues              1,962       2,527       4,789       5,861
                         --------    --------    --------    --------
Total Net Revenues         42,707      11,048      80,040      18,933

Cost of revenues           37,183      13,783      75,119      24,859
                         --------    --------    --------    --------
Gross profit / (loss)       5,524      (2,735)      4,921      (5,926)

Operating expenses:
Sales and marketing         5,528      44,343      12,530      58,946
General and
 administrative            23,603      13,260      50,384      23,169
Amortization of
 deferred stock
 based compensation           225      13,659       6,027      20,356
Contract cancellation fee   2,876           0       2,876           0
Other operating expense        44           0      (1,829)          0
                         --------    --------    --------    --------
Total operating expenses   32,276      71,262      69,988     102,471
                         --------    --------    --------    --------
Operating loss            (26,752)    (73,997)    (65,067)   (108,397)

Minority interest           1,623           0       4,059           0
Net interest and other     (1,684)        756      (1,992)      1,399
                         --------    --------    --------    --------
Net loss                ($ 26,813)  ($ 73,241)  ($ 63,001)  ($106,998)
                         ========    ========    ========    ========

Dividend related to
 beneficial conversion
 feature of preferred
 stock                                (18,209)                (18,209)
                         --------    --------    --------    --------

Net loss attributable
 to common stockholders             ($ 91,450)              ($125,207)
                         ========    ========    ========    ========

Basic and diluted net
 loss per share
 net loss per share     ($   0.24)  ($   2.76)  ($   0.57)  ($   3.79)
Shares used in computing
 basic and diluted
 net loss per share       110,732      33,169     110,141      33,068


                             PEOPLEPC INC
                      Consolidated Balance Sheet
                            (In thousands)

                                           June 30,
                                             2001     December 31,
                                         (Unaudited)      2000
                                          ---------    ---------
Assets:
Cash, cash equivalents,
 short-term investments
 and restricted cash                      $  28,592    $  88,447
Accounts receivable, net short term          16,757       41,864
Prepaid/Other current assets                  2,570        2,177
Residual asset                                2,161            0
                                          ---------    ---------
Total current assets                         50,080      132,488

Accounts receivable,
 net long-term                                1,880       11,589
Property and equipment, net                   8,213        7,688
Other assets                                  1,109        1,266
                                          ---------    ---------
Total assets                              $  61,282    $ 153,031
                                          =========    =========

Liabilities, Minority
 Interest & Stockholders' Deficit:
Accounts payable                          $  18,630    $  23,745
Borrowings under
 line of credit                                   0        5,176
Deferred revenue - net short term            28,135       19,047
Accruals/Other current liabilities           15,288       39,193
                                          ---------    ---------
Total Current liabilities                    62,053       87,161

Deferred revenue - net long term             21,916       28,121
Other long term liabilities                   1,195            0
                                          ---------    ---------
Total Liabilities                            85,164      115,282

Minority Interest                         $  42,014    $  46,700

Stockholders' deficit                       (65,896)      (8,951)
                                          ---------    ---------
Total liabilities, minority
 interest and stockholders' deficit       $  61,282    $ 153,031
                                          =========    =========

As of June 30, 2001 there were 114,183 shares of common stock issued
and outstanding and 111,151 shares of common stock issued, outstanding
and fully vested.