Micron Electronics, Inc. Reports Third Quarter Results; Reports Progress in Business Recovery Objectives; Cites Operational Improvements
Business Wire - June 15, 1998 16:39
NAMPA, Idaho--(BUSINESS WIRE)--June 15, 1998--Micron Electronics, Inc. (Nasdaq: MUEI), the third largest direct vendor of personal computers, today announced significant progress in achieving its business recovery objectives as it reported financial results for its third quarter of fiscal 1998 ended May 28, 1998.
Net income for the third quarter of fiscal 1998 was $5.9 million, or $0.06 per diluted share, on net sales of $340.8 million. These results compare to net income of $19.7 million, or $0.20 per diluted share, on net sales of $511.4 million in the third quarter of fiscal 1997.
Net income for the first nine months of fiscal 1998 was $31.8 million, or $0.33 per diluted share, on net sales of $1,394.4 million compared to net income of $72.3 million, or $0.77 per diluted share, on net sales of $1,442.7 million the prior year. The Company's gross margins were 19.2% for the third fiscal quarter compared to 0.9% last quarter and 15.6% for the same quarter last year.
"Over the past quarter, the Company has been steadfast in our goal to improve execution and maximize the inherent business advantages of the direct business model," explained Joel Kocher, President and Chief Operating Officer of the Company. "We have made significant progress in business efficiencies thanks to a sharp reduction in inventory levels and an industry-leading cash conversion cycle. We have reestablished our cost competitiveness and will now turn our attention to driving demand and fueling growth for the Company."
Gross margins in the third quarter of fiscal 1998 were favorably affected by the Company's improved inventory management. "We ended the quarter with PC inventories of $28 million representing 10 days sales which would result in 36 turns per year," said Kocher. "This significant improvement on gross margins demonstrates our ability to execute the direct model more effectively and efficiently." The Company's strong inventory management also helped drive improvements in its cash conversion cycle to negative 9 days.
Substantially all of the Company's gross margin during the third quarter of fiscal 1998 of $65.3 million was attributable to the Company's PC operations. Average selling prices for notebook systems in the third quarter of fiscal 1998 were higher than the prices anticipated in the write-down of such products in the second quarter of fiscal 1998. As a result, the gross margin percentage realized on $48 million of sales of these notebook systems during the third quarter of fiscal 1998 was approximately 34%, thereby having a favorable effect on the Company's total gross margin and net income for the quarter. The Company's gross margin on PC products other than these notebooks was approximately 17% of applicable net sales in the third quarter of fiscal 1998.
Consistent with its cost-competitive objectives, during the third quarter of fiscal 1998, the Company realized cost reductions including a one-time benefit resulting from a net rebate of $4.4 million ($.03 per diluted share, net of taxes) associated with a change of providers of on-site service contracts for the Company's domestic desktop installed base. In addition, net income for fiscal 1998 includes a $94.5 million after-tax gain, or $0.99 per diluted share, from the second quarter sale of 90% of the Company's wholly-owned contract manufacturing services subsidiary. Net sales from the Company's contract manufacturing operation were $82.6 million and $205.7 million in the third quarter of fiscal 1997 and the first nine months of fiscal 1997, respectively, and $141.7 million in fiscal 1998 through the date of sale.
Although the Company improved its gross margin during the quarter, net sales of PC systems in the third quarter of fiscal 1998 were 17% lower compared with the third quarter of the prior fiscal year. The decrease in revenues was primarily a result of a 15% decline in average selling prices combined with a 6% decrease in unit sales over the same period. Other factors impacting third quarter revenues included the Company's efforts to hold PC prices relatively steady despite industry-wide inventory and pricing issues. The Company also went through a major notebook product line transition which limited its notebook offerings during the quarter. This product transition is expected to continue throughout the next fiscal quarter.
Net sales of SpecTek semiconductor memory products for the third quarter of fiscal 1998 were 50% lower than sales in the third quarter of fiscal 1997 due primarily to the decline in selling prices for semiconductor memory products.
Selling, general and administrative expenses of $63.3 million in the third quarter of fiscal 1998 were lower compared to the $91.9 million in the second quarter of fiscal 1998, primarily as a result of the Company's efforts beginning at the end of the second quarter to lower its overall cost structure.
Micron Electronics, Inc. (NASDAQ:MUEI), a recognized industry leader and direct vendor known for its award-winning products and services, develops, manufactures and markets high-performance, competitively priced computing solutions to consumers, small businesses, commercial and public sector buyers. Its superior customer service and toll-free technical support is available to customers 24 hours a day, seven days a week. Micron offers value and convenience through direct sales via the Internet (www.micronpc.com), by phone (1-800-249-1179) or by fax (208-893-7240). SpecTek, a division of Micron Electronics, Inc., processes and markets various grades of DRAM products under the SpecTek brand name. Micron Electronics, Inc. is majority owned by Micron Technology, Inc.
Statements contained in this press release that are not purely historical are forward-looking statements and are being provided in reliance upon the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this release include, without limitation, statements regarding the Company's ability to improve execution and maximize the inherent advantages of the direct business model, plans to drive demand and fuel growth for the Company, and the continuation of product transition into the next fiscal quarter. All forward-looking statements are made as of the date hereof and are based on current management expectations and information available to the Company as of such date. The Company assumes no obligation to update any forward-looking statement. It is important to note that actual results could differ materially from historical results or those contemplated in the forward-looking statements. Factors that could cause actual results to differ materially include various risks and uncertainties such as competitive influences, changes in customer markets, varying costs of operations, 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. FINANCIAL SUMMARY
(Tabular amounts in thousands, except per share amounts)
Quarter Ended Nine Months Ended
May 28, 1998 May 29, 1997 May 28, 1998 May 29, 1997
------------ ------------ ------------ ------------
Net sales:
PC systems $ 317,654 $ 382,321 $ 1,179,738 $ 1,137,806
SpecTek memory
products 23,106 46,508 72,949 99,181
Contract
manufacturing - 82,565 141,723 205,699
----------- ---------- ------------ ------------
Total 340,760 511,394 1,394,410 1,442,686
Gross margin:
PC systems 61,183 55,645 113,799 195,747
SpecTek memory
products 4,120 16,525 15,578 32,507
Contract
manufacturing - 7,412 17,598 23,393
---------- ---------- ------------ ------------
Total 65,303 79,582 146,975 251,647
Gross margin percent:
PC systems 19.3% 14.6% 9.6% 17.2%
SpecTek memory
products 17.8% 35.5% 21.4% 32.8%
Contract
manufacturing n/a 9.0% 12.4% 11.4%
Total 19.2% 15.6% 10.5% 17.4%
Selling, general
and administrative $ 63,259 $ 50,139 $ 227,455 $ 140,038
Research and
development 1,419 1,012 8,760 2,929
Other operating
expenses (income) (4,431) (851) 16,572 (3,407)
Gain on sale of MCMS - - 156,222 -
Interest income, net 4,743 2,679 8,926 5,485
Income tax provision 3,871 12,305 27,578 45,265
Net income 5,928 19,656 31,758 72,307
Earnings per share:
Basic $ 0.06 $ 0.21 $ 0.33 $ 0.77
Diluted 0.06 0.20 0.33 0.77
Number of shares used
in per share
calculation:
Basic 95,672 95,490 95,616 93,647
Diluted 96,099 96,127 95,937 93,714
As of May 28, 1998 As of August 28, 1997
------------------ ---------------------
Cash and cash equivalents $ 289,028 $ 183,935
Liquid investments 51,181 10,068
Receivables 118,645 223,476
Inventories 34,192 115,501
Total current assets 527,255 563,148
Property, plant and
equipment, net 145,090 191,536
Total assets 681,561 758,346
Accounts payable and
accrued expenses 203,098 304,608
Current debt 15,092 18,622
Total current liabilities 255,149 359,264
Long-term debt 13,534 20,019
Shareholders' equity 399,176 365,571
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. 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 first nine months 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 nine months ended May 28, 1998 and May 29, 1997 totaled $29.9 million and $25.2 million, respectively. Expenditures for property, plant and equipment for the nine months ended May 28, 1998 and May 29, 1997 were $51.5 million and $69.3 million, respectively.
CONTACT: Micron Electronics
Steven H. Laney
Investor Relations
208/898-3900
Web site: www.micronpc.com
Fax-on-demand: 800/926-0993
or
Denise Smith
Public Relations
208/893-1111
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