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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
October 25, 2000
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Date of Report (Date of earliest event reported)
EMACHINES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 000-29715 94-3311182
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(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
14350 Myford Road, Suite 100
Irvine, California 92606
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(Address of principal executive offices)
(714) 481-2828
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(Registrant's telephone number, including area code)
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Item 5. Other Events
On October 25, 2000, eMachines, Inc., a Delaware corporation, issued a
press release announcing its earnings for the quarter ending September 30, 2000.
The press release is attached as Exhibit A to this Current Report.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EMACHINES, INC.
Date: October 30, 2000 By: /s/ Allan Mouw
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Name: Allan Mouw
Title: Vice President, Business &
Legal Affairs and Secretary
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EXHIBIT A
EMACHINES ANNOUNCES THIRD QUARTER RESULTS
Results Indicate Progress on Key Initiatives
and are Consistent with Expectations
IRVINE, CA - October 25, 2000 - eMachines, Inc. (NASDAQ: EEEE), today
reported revenues of $175.0 million for the third quarter ended September 30,
2000, compared to the $155.9 million recorded in the third quarter of 1999. Net
loss from operations for the third quarter, before amortization of intangible
assets and non-cash stock-based compensation and accretion of manditorily-
redeemable preferred stock to redemption value was $6.1 million or a loss of
$0.04 per share, compared to a loss of $2.9 million or $0.04 per share in the
year-earlier period.
eMachines continues to maintain a strong liquidity position with $223
million in cash and short-term investments, compared to $206 million in the
second quarter of 2000, and is essentially debt-free. eMachines is achieving
steady market share growth, is increasing brand development through vital
retailer relationships and has improved production resources to position the
company for its next expansion phase.
Highlights of the Quarter
Results of the third quarter of 2000 are significant in that they reflect a
12 percent increase in revenue and 9 percent increase in unit shipments year-
over-year in a weakened retail marketplace with no major new demand stimulus
such as last year's $400 rebates from multi-year Internet service contracts.
Part of eMachines' revenue increase during the third quarter resulted from
a new distribution and marketing program with Dixons Group, the preeminent PC
retailer in the UK and Europe. In less than one quarter of operations, the
program with Dixons is now fully launched in 1100 retail locations in England,
Scotland and Ireland and results have exceeded expectations.
eMachines made significant progress on key initiatives in the third quarter
including the initial implementation of a modified supply chain "just-in-time"
production model. Through deployment of local resources for the completion of
sub-assembled PCs imported from Asia, eMachines has reduced the supply chain
vulnerabilities that were responsible for the significant inventory write downs
experienced by the company in the second quarter, and will enable eMachines to
rapidly respond to inventory requirements caused by changing market conditions.
In the fourth quarter, eMachines expects to dedicate approximately 10 percent of
its mix to local assembly.
"This quarter, we celebrated two important milestones for the company-
eMachines' two-year anniversary and shipment of the three millionth PC since
inception," said Stephen A. Dukker, president and chief executive officer of
eMachines, Inc. "In this short period of time, we've created the third largest
retail PC brand in North America and maintained a strong market share position.
Most importantly, eMachines created a new low price range to remove the barriers
to PC ownership and opened up Internet opportunities for numerous people who
might not have been able to afford either their first or second computers for
the home."
PC Revenues
PC hardware revenues accounted for $172.2 million in sales in the third
quarter of 2000 compared to $155.3 million in the year earlier period. We
experienced a slightly lower gross margin for the quarter primarily as a result
of the final liquidation of remaining oversupply in inventory from the second
quarter of 2000. The
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company expects to return to normal gross margins in the fourth quarter as the
liquidation process has been completed.
Unit shipments during the third quarter of 2000 were 408,000 units, an
increase of 9 percent from the third quarter of 1999, and an increase of 25
percent over the second quarter of 2000 which was impacted by the weaknesses in
retail PC sales as well as the general retail market. The average gross selling
price in the third quarter of 2000 (before returns and allowances) was $508, an
increase of 3 percent from $492 in the third quarter of 1999.
According to PC Data, eMachines' US retail market share in the under $1000
segment increased in the third quarter of 2000 to 17.6 percent from 15.7 percent
in the third quarter of 1999 demonstrating the continued growth and success of
eMachines' PC products in the US retail channel.
This month, eMachines announced the MSN Companion by eMachines, the
company's initial entry into the Internet appliance market. Available this month
from selected Wal-Mart stores, Circuit City, Office Depot, MicroCenter and
Cyberian Outpost, the MSN Companion by eMachines is designed for consumers who
want an easy, affordable solution for sending and receiving e-mail and to surf
the Internet without the complexities of a full PC. eMachines is the first to
implement a design using a full-sized screen and keyboard providing comfort and
flexibility to those who plan to use this product as their primary Internet
access device.
Internet Revenues
Internet-related revenues for the third quarter of 2000 were $2.8 million
at a gross margin of 86 percent, compared to $611,000 in the third quarter of
1999. Internet revenues were slightly reduced on a per unit basis in the third
quarter principally as a result of eMachines' decision to enter into an
agreement to acquire its Internet technology partner, iWare, developer of
eMachines' eWare surfing assistant. With this acquisition, eMachines will own
the Internet surfing assistant software and operations technologies and the
long-term recurring revenue streams in lieu of the distribution fees previously
forecast.
The third quarter of 2000 was the first period that eMachines saw
significant performance in customer utilization of the eKeys(TM) on its Internet
keyboards now broadly distributed on more than 900,000 PCs since the first
quarter of 2000. During the third quarter, eMachines crossed the milestone of
one million Web site deliveries (initial clicks) generated from consumers'
eKey(TM) activity in a single month, with click action continuing to increase in
excess of the rate of PC unit shipments. For example, overall clicks increased
1,112 percent from Q2 2000 to Q3 2000 compared to a 19 percent increase in unit
shipments with Internet keyboards during the same period. Recurring revenues,
including clicks, bounties and revenue sharing, increased 333 percent from the
second quarter of 2000 to the third quarter. Of the $2.8 million third quarter
Internet revenues, recurring revenues represented 21 percent of the total as
compared to 4 percent in the second quarter.
Q4 Outlook
"The weaknesses in the PC market as well as general retail that we
commented on in the second quarter has materialized and is affecting a broader
segment of the economy," said Dukker. "Although we are pleased with our
performance in the third quarter, the recent sales and earnings warnings
announced by our component suppliers, competitors and retail partners, along
with market research data which confirms a general PC market decline in the US
retail channel in excess of 10% exiting Q3 and deepening into the beginning of
Q4 to 20 percent, we believe that eMachines' Q4 sales may be impacted. It is
prudent for us to reduce production to be consistent with a market wide 20%
decrease (year-over-year) in anticipated selling volumes. Our just-in-time
production resources will allow us to capture upsides if and when they
materialize in the quarter."
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About eMachines, Inc.
eMachines, Inc. (NASDAQ:EEEE) is a leading provider of Internet-enhanced,
low-cost, high-value, personal computers, and of Internet advertising, portal
and software distribution services. Founded in September 1998, eMachines began
selling its low-cost 'eTower' desktop computers in November 1998. In June 1999,
eMachines sold the third highest number of PCs through retailers in the United
States, according to leading market research organizations, and has maintained
the number three market share position since that time. Since inception,
eMachines has shipped more than 3 million PCs through leading national
retailers, catalog and online merchandisers. Approximately one of every two
eMachines consumers is a first-time PC owner, providing the company's
advertising partners with a unique opportunity to introduce themselves to new
online consumers before many of them have developed strong Internet brand
loyalties. The company's Web site is located at http://www.e4me.com.
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This press release contains forward-looking statements relating to future
events and results that are based on eMachines, Inc.'s current expectations.
These statements relate to the outlook and prospects for eMachines and the
markets in which it operates. These statements involve risks and uncertainties
including, without limitation, the level of demand for eMachines' products and
services, eMachines' and its suppliers' ability to timely develop, deliver, and
support new and existing products and services, eMachines' ability to manage
inventory, the cost and availability of key product components, eMachines'
ability to successfully develop and market its Internet-based services, consumer
and advertiser acceptance of such services, competitive pressures relating to
price reductions, new product introductions by third parties, and technological
innovations, and overall market conditions, including demand for computers,
Internet access devices and Internet services. Consequently, actual events and
results in future periods may differ materially from those currently expected.
Additional information regarding the factors that may affect eMachines' future
performance is included in the public reports that eMachines files with the
Securities and Exchange Commission.
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eMachines, Inc.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except share information)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
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Sept 30, 2000 Sept 30, 1999 Sept 30, 2000 Sept 30, 1999
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<S> <C> <C> <C> <C>
Net revenues:
Hardware............................................... $ 172,181 $ 155,282 $ 539,861 $ 506,595
Internet............................................... 2,845 611 9,481 611
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Net revenues.................................... 175,026 155,893 549,342 507,206
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Cost of revenues:
Hardware............................................... 167,125 150,119 558,637 488,909
Internet............................................... 408 - 1,247 -
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Cost of revenues................................ 167,533 150,119 559,884 488,909
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Gross profit (loss).................................... 7,493 5,774 (10,542) 18,297
Operating expenses:
Sales and marketing (includes $22, $1,126, $66 and
$1,142 of non-cash stock-based compensation,
respectively).......................................... 4,854 3,823 15,599 9,356
Product development.................................... 641 - 1,885 -
Customer service and technical support................. 4,061 3,245 14,290 5,767
General and administrative (includes $69, $55, $207
and $179 of non-cash stock-based compensation,
respectively).......................................... 7,275 2,627 19,068 6,044
Amortization of intangible assets...................... 11,962 - 37,152 -
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Total operating expenses........................ 28,793 9,695 87,994 21,167
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Loss from operations............................................ (21,300) (3,921) (98,536) (2,870)
Interest income (expense), net.................................. 3,195 (113) 9,000 (5,073)
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Net loss........................................................ (18,105) (4,034) (89,536) (7,943)
Accretion of mandatorily redeemable preferred stock to
redemption value................................................ - (1,181) (2,346) (1,181)
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Net loss attributable to common stockholders.................... $ (18,105) $ (5,215) $ (91,882) $ (9,124)
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Net loss per share attributable to common stockholders:
Basis and diluted...................................... $ (0.12) $ (0.07) $ (0.72) $ (0.14)
Shares used in computing loss:
Basis and diluted...................................... 145,529,503 77,600,00 126,998,335 65,878,388
Supplementary information:
Reconciliation from net loss attributable to common
stockholders to loss before amortization of
intangible assets, non-cash stock-based compensation
and accretion of mandatorily redeemable preferred
stock to redemption value:
Net loss attributable to common stockholders........... $ [18,105) $ (4,034) $ (91,882) $ (7,943)
Amortization of intangible assets...................... 11,962 - 37,152 -
Non-cash stock-based compensation...................... 91 1,181 273 1,321
Accretion of mandatorily redeemable preferred stock to
redemption value....................................... - 1,181 2,346 1,181
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Loss before amortization of intangible assets, non-cash
stock-based compensation and accretion of mandatorily
redeemable preferred stock to redemption value........ $ (6,052) $ (2,853) $ (52,111) $ (6,622)
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Loss per share before amortization of intangible assets,
non-cash stock-based compensation and accretion
of mandatorily redeemable preferred stock to
redemption value:
Basis and diluted...................................... $ (0.04) $ (0.04) $ (0.41) $ (0.10)
Shares used in computing loss:
Basis and diluted...................................... 145,529,503 77,600,000 126,998,335 65,878,388
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eMachines, Inc.
Unaudited Condensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
(in thousands, except share information)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
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ASSETS
Current assets:
Cash and cash equivalents......................................... $ 187,696 $ 114,823
Restricted cash................................................... 16,561 -
Short-term investments............................................ 18,316 19,897
Accounts receivable, less allowances ($4,782 and $2,160 at
September 30, 2000 and December 31, 1999, respectively)..... 113,498 123,726
Inventories....................................................... 109,446 65,260
Prepaid and other current assets.................................. 4,771 3,992
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Total current assets........................................ 450,288 327,698
Property and equipment, net................................................ 2,931 1,827
Intangible assets.......................................................... 109,675 -
Other assets............................................................... 9,810 2,188
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$ 572,704 $ 331,713
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Trade payables-related party...................................... $ 119,744 $ 131,935
Accounts payable.................................................. 2,135 12,939
Accrued rebates................................................... 30,672 22,803
Accrued expenses and other current liabilities.................... 49,049 19,855
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Total current liabilities................................... 201,600 187,532
Deferred revenue - noncurrent portion...................................... 1,539 1,343
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Subordinated notes payable to stockholders................................. 560 560
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Redeemable convertible preferred stock - Series A; $.01 par value; no
shares authorized, issued and outstanding at September 30, 2000;
25,000,000 shares authorized; 24,279,369 shares outstanding at
December 31, 1999................................................. 150,014
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Stockholders' equity (deficiency):
Preferred stock, $.01 par value; 35,000,000 shares authorized; no
shares issued and outstanding...............................
Commonstock, $.0000125 par value; 350,000,000 shares authorized;
145,596,396 and 78,019,538 shares outstanding at
September 30, 2000 and December 31, 1999, respectively...... 2 1
Additional paid-in capital........................................ 475,559 6,582
Unearned stock compensation....................................... (1,276) (1,550)
Notes receivable from stockholders................................ (500) (500)
Accumulated deficit............................................... (104,780) (12,269)
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Total stockholders' equity (deficiency)..................... 369,005 (7,736)
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$ 572,704 $ 331,713
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