this article is more detail...its ugly...pls read between the lines
Micron Electronics, Inc. Reports Second Quarter Results
NAMPA, Idaho--(BUSINESS WIRE)--March 16, 1998--Micron Electronics, Inc. (Nasdaq: MUEI - news), a leading direct
vendor of personal computers, today reported its financial results for the second quarter of fiscal 1998 ended February 26,
1998. Net sales for the second quarter of fiscal 1998 were $494.8 million, 3% below net sales of $510.3 million for the second
quarter of fiscal 1997. Net income for the second quarter of fiscal 1998 was $24.8 million, or $0.26 per diluted share. Net
income for the second quarter of fiscal 1998 includes a pre-tax loss of $108.4 million which is more than offset by a $156.2
million pre-tax gain from the sale on February 26, 1998 of 90% of the Company's wholly-owned contract manufacturing
services subsidiary (''MCMS''). Net income in the second quarter of fiscal 1997 was $27.8 million, or $0.30 per diluted share.
For the first six months of fiscal 1998, net sales were $1,053.7 million, 13% higher than net sales for the first six months of the
prior year of $931.3 million. Net income for the first six months of fiscal 1998 was $25.8 million, or $0.27 per diluted share,
compared to net income of $52.7 million, or $0.56 per diluted share, for the corresponding period in fiscal 1997.
In accordance with its expectation as announced in February 1998, the Company incurred significant losses in its PC operation
in the second quarter of fiscal 1998. Selling prices for the Company's notebook products in the second quarter of fiscal 1998
decreased to a level below the Company's cost. In addition, the Company wrote down the value of notebook PC inventories
which the Company purchased as a result of an overly aggressive forecast. In the same announcement, the Company also
disclosed that it had taken several actions to realign its operations to more efficiently and better serve its core markets. These
actions included a consolidation of domestic and international operations and a reassignment of approximately 10% of its
workforce to the Company's parent.
During the quarter, Micron successfully recruited five new executives from leading PC companies, including new president and
chief operating officer Joel Kocher, a former top executive with Dell Computer.
''We have taken decisive actions this quarter to better position Micron Electronics as a formidable competitor in the PC
industry,'' said Joel Kocher. ''While our products have long been recognized for their excellent price-performance
characteristics, our organization needs a clearer focus and an infrastructure that will allow us to serve our core customers in a
more efficient, cost-effective way. While we made progress this quarter, the team still has a lot of work ahead as we continue
to improve the execution of our business model.''
Net sales of PC systems declined in the second quarter of fiscal 1998 compared with the second quarter of the prior fiscal year
primarily as a result of an 11% decrease in average selling prices, partially offset by a 7% increase in unit sales. MCMS' net
sales were relatively flat in the second quarter of fiscal 1998 compared with the second quarter of fiscal 1997. Net sales of
SpecTek semiconductor memory products for the second quarter of fiscal 1998 were 31% lower than sales in the second
quarter of fiscal 1997 due primarily to the decline in selling prices.
The Company's overall gross margin was $4.5 million in the second quarter of fiscal 1998, compared with $91.6 million in the
second quarter of fiscal 1997. This decline reflects a negative gross margin from the Company's PC operations and lower gross
margins from both the MCMS and SpecTek operations.
Selling, general and administrative expenses for the second quarter of fiscal 1998 were $111.1 million compared with $47.5
million in the second quarter of fiscal 1997. This increase includes higher personnel, advertising and other costs associated with
the Company's PC operations. In addition, the operating loss in the second quarter of fiscal 1998 includes a charge of $13.0
million for employee severance costs and other costs to consolidate the Company's domestic and international PC operations.
Certain forward-looking statements contained in this press release are being provided in reliance upon the ''safe harbor''
provisions of the Private Securities Litigation Reform Act of 1995 and are based on current management expectations. Factors
that could cause actual results to differ from results discussed in the forward- looking statements include, but are not limited to,
the following: general economic conditions, competition, overall product demand and shifts in demand, changes in technology,
and other risks disclosed in the Company's filings with the Securities and Exchange Commission.
Micron Electronics, Inc., and its subsidiaries manufacture electronic products and provide services for a wide range of
computing and digital applications. The Company develops, markets, manufactures and supports a full line of award-winning
PC systems and network servers for consumer, business, government and educational use. The Company's SpecTek
semiconductor memory products operation processes and markets various grades of memory products under the SpecTek
brand name. Micron Electronics, Inc. common stock trades on the Nasdaq Stock Market under the symbol MUEI. The
Company is majority owned by Micron Technology, Inc. Product information is available by calling 1-800-515-9197 or via the
Micron Electronics home page on the Internet at www.micronpc.com.
MICRON ELECTRONICS, INC. FINANCIAL SUMMARY
(Tabular amounts in thousands, except per share amounts)
Quarter Ended Six Months Ended
Feb. 26, 1998 Feb. 27, 1997 Feb. 26, 1998 Feb. 27, 1997
Net sales:
PC systems $ 403,044 $ 409,578 $ 862,084 $ 755,485
Contract
manufacturing 71,522 71,377 141,723 123,134
SpecTek memory
products 20,194 29,319 49,843 52,673
Total 494,760 510,274 1,053,650 931,292
Gross margin:
PC systems (6,262) 72,072 52,616 140,102
Contract
manufacturing 7,507 9,401 17,598 15,981
SpecTek memory
products 3,213 10,142 11,458 15,982
Total 4,458 91,615 81,672 172,065
Gross margin
percent:
PC systems (1.6%) 17.6% 6.1% 18.5%
Contract
manufacturing 10.5% 13.2% 12.4% 13.0%
SpecTek memory
products 15.9% 34.6% 23.0% 30.3%
Total 0.9% 18.0% 7.8% 18.5%
Selling, general,
administrative
and other $ 111,134 $ 47,517 $ 185,199 $ 87,343
Research and
development 3,759 1,034 7,341 1,917
Gain on sale
of MCMS
common stock 156,222 - 156,222 -
Interest income,
net 1,989 1,536 4,183 2,806
Income tax
provision 23,011 16,761 23,707 32,960
Net income 24,765 27,839 25,830 52,651
Earnings per
share:
Basic $ 0.26 $ 0.30 $ 0.27 $ 0.57
Diluted 0.26 0.30 0.27 0.56
Number of shares
used in per
share calculation:
Basic 95,622 92,988 95,587 92,726
Diluted 95,735 93,630 95,798 93,274
As of Feb. 26, 1998 As of Aug. 28, 1997
Cash and cash equivalents $ 341,075 $ 183,935
Receivables 151,107 223,476
Inventories 54,986 115,501
Total current assets 599,441 563,148
Property, plant and
equipment, net 144,478 191,536
Total assets 744,911 758,346
Accounts payable and
accrued expenses 266,264 304,608
Current debt 17,048 18,622
Total current liabilities 319,859 359,264
Long-term debt 15,238 20,019
Shareholders' equity 393,038 365,571
A. Periodically, the Company is made aware that technology used by the Company may infringe on intellectual property rights
held by others. The Company has accrued a liability and charged operations for the estimated costs of settlement or
adjudication of asserted and unasserted claims for alleged infringement prior to the balance sheet date. Resolution of these
claims could have a material adverse effect on future results of operations and could require changes in the Company's products
or processes.
During the third quarter of fiscal 1997, the Company began to collect and remit applicable sales or use taxes in nearly all states.
In association therewith, the Company is party to agreements with nearly all states which generally limit the liability of the
Company, if any, for non-remittance of sales and use taxes prior to such agreements' effective dates. Management believes the
resolution of any matters relating to the non-remittance of sales and use taxes will not materially affect the Company's business
and results of operations.
B. On February 26, 1998, the Company completed the sale of 90% of its interest in MCMS, Inc. (''MCMS''), formerly
Micron Custom Manufacturing Services, Inc. and a wholly-owned subsidiary of the Company, for $249.2 million in cash.
Results of operations in the second quarter of fiscal 1998 include a pre-tax gain of $156.2 million, $94.5 million or $0.99 per
diluted share, net of taxes, realized from the sale.
C. Depreciation and amortization for the six months ended February 26, 1998 and February 27, 1997 totaled $21.8 million
and $15.4 million, respectively. Expenditures for property, plant and equipment for the six months ended February 26, 1998
and February 27, 1997 were $44.5 million and $34.3 million, respectively. |
