SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 27, 1997
------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------- -------------------
Commission File Number: 0-17932
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Micron Electronics, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1404301
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 E. Karcher Road, Nampa, Idaho 83687
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (208) 898-3434
----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
The number of outstanding shares of the registrant's common stock as of
December 8, 1997 was 95,550,702.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Micron Electronics, Inc.
Statements of Operations
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal quarter ended November 27, 1997 November 28, 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 558,890 $ 421,018
Cost of goods sold 481,676 340,568
--------- ---------
Gross margin 77,214 80,450
Selling, general and administrative 74,065 39,826
Research and development 3,582 883
--------- ---------
Operating income (loss) (433) 39,741
Interest income, net 2,194 1,270
--------- ---------
Income before income taxes 1,761 41,011
Income tax provision 696 16,199
--------- ---------
Net income $ 1,065 $ 24,812
========= =========
Earnings per share $ 0.01 $ 0.27
Number of shares used in per share calculation 95,971 93,002
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Micron Electronics, Inc.
Balance Sheets
(Dollars in thousands, except par value amounts)
<TABLE>
<CAPTION>
As of November 27, 1997 August 28, 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 157,134 $ 183,935
Liquid investments 10,051 10,068
Receivables 257,173 223,476
Inventories 130,654 115,501
Deferred income taxes 27,560 26,240
Other current assets 3,674 3,928
--------- ---------
Total current assets 586,246 563,148
Property, plant and equipment, net 201,051 191,536
Other assets 3,811 3,662
--------- ---------
Total assets $ 791,108 $ 758,346
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 338,284 $ 304,608
Accrued licenses and royalties 32,511 36,034
Current debt 18,815 18,622
--------- ---------
Total current liabilities 389,610 359,264
Long-term debt 18,949 20,019
Deferred income taxes 3,149 86
Other liabilities 13,992 13,406
--------- ---------
Total liabilities 425,700 392,775
--------- ---------
Commitments and contingencies
Common stock, $.01 par value, authorized
150.0 million shares; issued and outstanding
95.6 million and 95.6 million shares
at November 27, 1997 and August 28, 1997,
respectively 956 956
Additional capital 120,140 120,108
Retained earnings 246,190 245,139
Cumulative foreign currency translation
adjustment (1,878) (632)
--------- ---------
Total shareholders' equity 365,408 365,571
--------- ---------
Total liabilities and shareholders' equity $ 791,108 $ 758,346
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Micron Electronics, Inc.
Statements of Cash Flows
(Amounts in thousands)
<TABLE>
<CAPTION>
Fiscal quarter ended November 27, 1997 November 28, 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,065 $ 24,812
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 10,413 7,352
Changes in assets and liabilities:
Receivables (33,697) 20,381
Inventories (15,152) (47,426)
Accounts payable and accrued expenses 33,448 1,111
Accrued licenses and royalties (3,523) 5,806
Deferred income taxes 1,743 10,252
Other 1,419 (628)
--------- ---------
Net cash provided by (used for) operating
activities (4,284) 21,660
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (25,931) (18,912)
Proceeds from sales of property, plant and
equipment 5,798 92
Other (528) -
--------- ---------
Net cash used for investing activities (20,661) (18,820)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 3 4,568
Repayments of debt (1,877) (806)
Proceeds from issuance of common stock 39 23
Purchase and retirement of stock (21) (70)
--------- ---------
Net cash provided by (used for) financing
activities (1,856) 3,715
--------- ---------
Net increase (decrease) in cash and cash
equivalents (26,801) 6,555
Cash and cash equivalents at beginning of
period 183,935 115,839
--------- ---------
Cash and cash equivalents at end of period $ 157,134 $ 122,394
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Micron Electronics, Inc.
Notes to Financial Statements
(Tabular amounts in thousands)
1. Unaudited Interim Financial Statements
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting solely of normal recurring
adjustments) necessary to present fairly the financial position of Micron
Electronics, Inc. and its subsidiaries (collectively, the "Company") and
their results of operations and cash flows.
This report on Form 10-Q for the first fiscal quarter ended November 27,
1997 should be read in conjunction with the Company's Report on Form 10-K
for the fiscal year ended August 28, 1997. Portions of the accompanying
financial statements are derived from the audited year-end financial
statements of the Company dated August 28, 1997. The Company's fiscal year
is a 52 or 53 week period ending on the Thursday closest to August 31.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 supersedes and simplifies the standards for computing
earnings per share previously found in Accounting Principles Board Opinion
No. 15, "Earnings Per Share," and interpretations thereof, and makes them
comparable to international earnings per share standards. This statement
is expected to be adopted by the Company effective in its second quarter of
fiscal 1998. The Company does not expect earnings per share as calculated
under SFAS 128 to be materially different than calculated under the
Company's existing methodology.
2. Receivables
<TABLE>
<CAPTION>
November 27, 1997 August 28, 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Trade receivables $ 254,790 $ 228,220
Receivables from affiliates, net 6,581 4,227
Income taxes recoverable from parent
corporation 1,500 1,377
Other 9,529 4,341
Allowance for doubtful accounts (9,021) (7,556)
Allowance for returns and discounts (6,206) (7,133)
--------- ---------
$ 257,173 $ 223,476
========= =========
</TABLE>
3. Inventories
<TABLE>
<CAPTION>
November 27, 1997 August 28, 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $ 94,274 $ 81,505
Work in progress 14,895 11,601
Finished goods 21,485 22,395
--------- ---------
$ 130,654 $ 115,501
========= =========
</TABLE>
4. Property, Plant and Equipment
<TABLE>
<CAPTION>
November 27, 1997 August 28, 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Land $ 2,925 $ 1,639
Buildings 52,804 44,403
Equipment and software 170,525 167,413
Assets in progress 48,016 42,586
--------- ---------
274,270 256,041
Less accumulated depreciation and amortization (73,219) (64,505)
--------- ---------
$ 201,051 $ 191,536
========= =========
</TABLE>
<PAGE>
Micron Electronics, Inc.
Notes to Financial Statements Continued
(Tabular amounts in thousands)
5. Accounts Payable and Accrued Expenses
<TABLE>
<CAPTION>
November 27, 1997 August 28, 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Trade accounts payable $ 278,340 $ 237,066
Payable to affiliates 16,480 10,971
Salaries, wages and benefits 18,559 26,006
Income taxes payable 425 2,193
Equipment contracts payable 2,039 2,139
Accrued warranty 10,823 12,988
Other 11,618 13,245
--------- ---------
$ 338,284 $ 304,608
========= =========
</TABLE>
6. Debt
<TABLE>
<CAPTION>
November 27, 1997 August 28, 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Notes payable in periodic installments
through September 2001, weighted average
interest rate of 7.42% and 7.52%,
respectively $ 22,993 $ 22,644
Capitalized lease obligations payable in
monthly installments through June 2000,
interest rate of 7.28% and 7.28%,
respectively 5,553 5,881
Amounts outstanding under revolving loan
agreement, due June 1998, variable
interest of .82% and 0.90%, respectively 8,635 9,283
Amounts outstanding under revolving loan
agreement, due May 1998, variable interest
of 7.63% and 7.63%, respectively 583 833
--------- ---------
37,764 38,641
Less current portion (18,815) (18,622)
--------- ---------
$ 18,949 $ 20,019
========= =========
</TABLE>
The Company has an unsecured revolving credit facility, expiring June
2000, with a group of financial institutions which provides for borrowings
of up to $130.0 million. Under the agreement, the Company is subject to
certain financial and other covenants including certain financial ratios
and limitations on the amount of dividends declared or paid by the Company.
On December 12, 1997, certain terms of the agreement were amended. The
Company is eligible to borrow the full amount under the agreement, as
amended. As of November 27, 1997, the Company had no borrowings
outstanding under the facility.
The Company's wholly-owned subsidiary, Micron Electronics Japan K.K., has
an unsecured revolving credit facility with a financial institution,
expiring June 1998, providing for borrowings of up to 1.5 billion Japanese
yen (US$11.8 million at November 27, 1997). As of November 27, 1997, there
was US$8.6 million outstanding under the agreement.
The Company's wholly-owned subsidiary, Micron Custom Manufacturing
Services, Inc. ("CMS"), has a revolving loan agreement with a financial
institution, expiring May 2007, providing for borrowings of up to $15.0
million and subject to certain financial and other covenants. Amounts
outstanding under the agreement are collateralized by certain real
property. Under the terms of the agreement, the amount available to CMS
decreases by $1.0 million per year beginning May 1998. As of November 27,
1997, CMS was eligible to borrow the full amount under the agreement and
had $0.6 million outstanding. See Note 12.
Certain of the Company's notes payable are collateralized by equipment
with a total cost of approximately $44.9 million and accumulated
depreciation of approximately $7.4 million as of November 27, 1997.
Micron Electronics, Inc.
Notes to Financial Statements Continued
(Tabular amounts in thousands)
7. Transactions with Affiliates
<TABLE>
<CAPTION>
For the quarter ended
November 27, 1997 November 28, 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 7,465 $ 4,761
Inventory purchases 17,314 18,382
Component recovery agreement expenses 8,352 5,784
Administrative services and other expenses 268 242
Property, plant and equipment purchases 263 146
Property, plant and equipment sales 5,148 -
Construction management services 101 545
</TABLE>
8. Income Taxes
The effective income tax rate for the three months ended November 27,
1997 was 39.5%, principally reflecting the federal statutory rate and the
net effect of state taxes.
9. Earnings Per Share
Earnings per share is computed using the weighted average number of
common and common equivalent shares outstanding. Common equivalent shares
result from the assumed exercise of outstanding stock options and affect
earnings per share when they have a dilutive effect.
10. Commitments
As of November 27, 1997, the Company had commitments of $31.7 million
for equipment purchases and $1.4 million for construction of buildings. In
addition, the Company is required to make minimum royalty payments under
certain agreements and periodically enters into purchase commitments with
certain suppliers.
11. Contingencies
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 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 or use
taxes prior to the balance sheet date will not have a material adverse
effect on the Company's business and results of operations.
<PAGE>
Micron Electronics, Inc.
Notes to Financial Statements Continued
(Tabular amounts in thousands)
12. Subsequent Event
On December 22, 1997, the Company entered into a definitive agreement
with Cornerstone Equity Investors, IV, L.P., to sell a 90% interest in
the Company's wholly-owned contract manufacturing subsidiary, Micron
Custom Manufacturing Services, Inc. ("CMS"), through a recapitalization
with an estimated transaction value of $271 million and net cash
proceeds, before tax, to the Company of approximately $260 million. Net
assets of the Company's contract manufacturing operation as of November 27,
1997, were approximately $81.4 million. The agreement has been approved
by the boards of directors of the Company and CMS and by Cornerstone
Equity Investors and the closing is subject to certain conditions and
approvals.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion contains trend information and other forward-
looking statements that involve a number of risks and uncertainties. The
Company's actual results could differ materially from the Company's
historical results of operations and those discussed in the forward-looking
statements. Factors that could cause actual results to differ materially
include, but are not limited to, those identified in "Certain Factors."
All quarterly references are to the Company's fiscal periods ended November
27, 1997, August 28, 1997 or November 28, 1996, unless otherwise indicated.
All tabular dollar amounts are stated in thousands.
Overview
Micron Electronics, Inc. and its subsidiaries (collectively, the
"Company") manufacture electronic products and provide services for a wide
range of computer and digital applications. The Company is a leading
provider of PC systems through the direct sales channel in the United
States and develops, markets, manufactures and supports PC systems for
consumer, business and government use. In addition, the Company is a
supplier of multi-processor network servers for enterprise, remote office
and distributed computing environments under the NetFRAME brand name. The
Company's contract manufacturing operation, Micron Custom Manufacturing
Services, Inc. ("CMS"), specializes in the design, assembly and test of
custom complex printed circuit boards, memory modules and system level
products for original equipment manufacturers. The Company's SpecTek
semiconductor memory products operation processes and markets various
grades of memory products under the SpecTek brand name. The Company is
majority owned by Micron Technology, Inc. ("MTI").
On December 22, 1997, the Company entered into a definitive agreement
with Cornerstone Equity Investors, IV, L.P., to sell a 90% interest in
the Company's wholly-owned contract manufacturing subsidiary, CMS,
through a recapitalization with an estimated transaction value of $271
million and net cash proceeds, before tax, to the Company of
approximately $260 million. Net assets of the Company's contract
manufacturing operation as of November 27, 1997, were approximately
$81.4 million. The agreement has been approved by the boards of
directors of the Company and CMS and by Cornerstone Equity Investors
and the closing is subject to certain conditions and approvals.
Results of Operations
Net income for the first quarter of fiscal 1998 was $1.1 million, or
$0.01 per share, on net sales of $558.9 million, compared to net income of
$24.8 million, or $0.27 per share, on net sales of $421.0 million for the
first quarter of fiscal 1997 and net income of $15.0 million, or $0.16 per
share, on net sales of $513.1 million for the fourth quarter of fiscal
1997. Net sales in the first quarter of fiscal 1998 were higher than in
the corresponding period in 1997 primarily as a result of higher level of
sales of PC systems. The Company's overall gross margin percentage
declined from 19.1% in the first quarter of fiscal 1997 and 16.8% in the
fourth quarter of fiscal 1997 to 13.8% in the first quarter of fiscal 1998
primarily as a result of a significantly lower gross margin percentage
realized from sales of PC systems.
Net Sales
The following table summarizes the Company's net sales by product line:
<TABLE>
<CAPTION>
First Quarter
---------------------------------------------
1998 1997
--------------------- ---------------------
Amount % of Sales Amount % of Sales
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
PC systems $ 459,040 82.1% $ 345,907 82.2%
Contract manufacturing 70,201 12.6% 51,757 12.3%
SpecTek memory products 29,649 5.3% 23,354 5.5%
--------- ---------- --------- ----------
Total net sales $ 558,890 100.0% $ 421,018 100.0%
========= ========== ========= ==========
</TABLE>
Personal Computer Systems Net sales of PC systems were higher in the
first quarter of fiscal 1998 compared to the corresponding period in 1997
primarily as a result of a 36% increase in unit sales of PC systems and a
higher level of non-system revenue, partially offset by a decline in the
average selling prices for the Company's PC systems. The growth in unit
sales of PC systems was largely attributable to a higher level of sales to
governmental entities and corporate customers.
Sales to governmental entities, including prime contractors under certain
federal government procurement programs, were 28% of total net sales of PC
systems in the first quarter of fiscal 1998 compared to 27% in the
corresponding period in 1997. Sales to prime contractors under certain
federal government procurement programs were 9% higher in the first quarter
of fiscal 1998 compared to the first quarter of fiscal 1997 and represented
9% of total net sales of PC systems in the first quarter of fiscal 1998.
The level of the Company's governmental sales is dependent on the buying
practices of governmental entities and the Company's participation in
government contracts in the future, of which there can be no assurance. As
a result, the level of such sales may vary from quarter to quarter and a
significant decline could have a material adverse effect on the Company's
business and results of operations.
Unit sales of notebook systems were 12% of total unit sales of PC systems
during the first quarter of fiscal 1998 compared to 8% in the corresponding
period in 1997. Growth in unit sales of notebook products was primarily
attributable to the Company's introduction of a broadened line of notebook
products in fiscal 1997 which targeted the value-priced notebook PC market.
Average selling prices for the Company's desktop and notebook PC systems
declined 10% and 30%, respectively, in the first quarter of fiscal 1998
compared to the first quarter of fiscal 1997 primarily as a result of
intense price competition in the PC industry and the introduction by the
Company over the same period of several value-priced desktop and notebook
products.
Contract Manufacturing Revenues from the Company's contract
manufacturing operation were approximately 36% higher in the first quarter
of fiscal 1998 compared to the first quarter of fiscal 1997 primarily
attributable to a significant increase in production volumes achieved at
all of the Company's contract manufacturing facilities partially offset by
the effect of the continued industry-wide decline in pricing for
semiconductor memory products. Higher production volume was achieved
through the acquisition and utilization of additional manufacturing
equipment and the upgrade of existing equipment at the Company's Idaho and
North Carolina facilities and the December 1996 opening of a facility in
Penang, Malaysia. Contract manufacturing revenues were 17% lower in the
first quarter of fiscal 1998 compared to the fourth quarter of fiscal 1997
primarily due to a shift in product mix to lower-priced memory intensive
products and to the decline in selling prices for semiconductor memory
products.
The Company continues to rely on a relatively small number of customers
for a significant portion of its contract manufacturing business. Revenue
from the Company's top five contract manufacturing customers, including
MTI, in the first quarter of fiscal 1998 was 86% of total contract
manufacturing revenue compared to 66% in the first quarter of fiscal 1997.
Revenue from the Company's largest contract manufacturing customer
represented 29% of the Company's total contract manufacturing revenue in
the first quarter of fiscal 1998, while revenue from the Company's largest
contract manufacturing customer in the first quarter of fiscal 1997
represented 22% of total contract manufacturing revenue. Contract
manufacturing revenue from MTI was 8% of total contract manufacturing
revenue in the first quarter of fiscal 1998 compared to 6% in the first
quarter of fiscal 1997. CMS expects to continue to experience a high
degree of contract manufacturing customer concentration. See ''Certain
Factors Contract Manufacturing Customer Concentration.''
SpecTek Semiconductor Memory Products Net sales of semiconductor memory
products were 27% higher in the first quarter of fiscal 1998 compared to
the first quarter of fiscal 1997 primarily due to a 90% increase in
megabits of memory shipped, partially offset by a 33% decline in average
selling prices. The increase in megabits of memory shipped was primarily
due to the acquisition and utilization of additional test and burn-in
equipment and reduced component test times, both resulting in increased
throughput for substantially all memory products. Net sales of
semiconductor memory products were 23% lower in the first quarter of fiscal
1998 compared to the fourth quarter of fiscal 1997 primarily due to a 26%
decline in average selling prices partially offset by a 5% increase in
megabits of memory shipped. During the first quarter of fiscal 1998, the
Company began to transition production to Synchronous DRAM ("SDRAM")
products. However, net sales of SDRAM memory products during the first
quarter of fiscal 1998 represented less than 1% of total sales
semiconductor memory products. The Company anticipates experiencing
significant downward pressure on prices for future sales of semiconductor
memory products. The Company's SpecTek semiconductor memory products
results of operations are influenced by a number of factors including
pricing for, and availability of, nonstandard semiconductor memory
components. See "Certain Factors SpecTek Semiconductor Memory Products
Operation."
Historically, a substantial majority of the semiconductor components used
in the Company's SpecTek semiconductor memory products operation has been
obtained from MTI. In the first quarter of fiscal 1998, the Company
obtained 62% of its components from MTI, compared to 71% in the first
quarter of fiscal 1997. In the first quarter of fiscal 1998, the SpecTek
semiconductor memory products operation obtained nearly 100% of its
components from three sources, including MTI. Purchases from sources other
than MTI are generally negotiated on a purchase order basis. There can be
no assurance the Company will be able to negotiate future purchases from
sources other than MTI on terms acceptable to the Company. Unless the
Company is able to continue obtaining significant quantities of nonstandard
semiconductor memory components from alternative sources, the Company's
SpecTek semiconductor memory products operation could be limited by the
volume of components supplied by MTI. Any reduction in the availability or
functionality of nonstandard semiconductor memory components from the
Company's suppliers could have a material adverse effect on the Company's
business and results of operations. See "Certain Factors SpecTek
Semiconductor Memory Products Operation Dependence on Component Recovery
Agreement with MTI."
Gross Margin
<TABLE>
<CAPTION>
First Quarter
---------------------------------------------
1998 1997
--------------------- ---------------------
Amount % of Sales Amount % of Sales
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
PC systems $ 58,878 12.8% $ 68,030 19.7%
Contract manufacturing 10,091 14.4% 6,580 12.7%
SpecTek memory products 8,245 27.8% 5,840 25.0%
--------- ---------
Total gross margin $ 77,214 13.8% $ 80,450 19.1%
========= =========
</TABLE>
Personal Computer Systems The gross margin amount provided by the
Company's PC operation in the first quarter of fiscal 1998 was 13% lower
compared to the first quarter of fiscal 1997, despite a 33% increase in net
sales of PC systems. Gross margins in the first quarter of fiscal 1998
were adversely affected by significant losses recognized from disposition
of PC component inventories. In addition, the Company experienced intense
price pressure on its notebook products resulting in a significantly lower
gross margin provided by such products in the first quarter of fiscal 1998
compared to the first quarter of fiscal 1997.
The Company expects to continue experiencing significant pressure on its
gross margins on sales of its PC systems, particularly notebook products,
as a result of intense competition in the PC industry and consumer
expectations of more powerful PC systems at lower prices. In addition, the
Company's gross margin percentage will continue to depend in large part on
its ability to effectively forecast demand and manage its inventories of PC
components. See ''Certain Factors Personal Computer Systems Competition
in the PC Industry'' and ''Certain Factors Personal Computer
Systems Inventory Management.''
Contract Manufacturing The gross margin percentage realized from the
Company's contract manufacturing operation was higher in the first quarter
of fiscal 1998 compared to the first quarter of fiscal 1997 primarily as a
result of an overall increase in the complexity of the printed circuit
board assemblies produced and an increase in revenues derived from services
utilizing consigned inventory components. In addition, an increase in
production volume resulting in a reduction in process costs per unit
favorably affected the Company's contract manufacturing gross margin in the
first quarter of fiscal 1998.
SpecTek Semiconductor Memory Products The gross margin percentage
realized by the Company's SpecTek semiconductor memory products operation
was slightly higher in the first quarter of fiscal 1998 compared to the
first quarter of fiscal 1997 primarily due to lower costs of components,
particularly those obtained from MTI, partially offset by lower average
selling prices. The Company's costs of components obtained from MTI are
generally equal to one-half of the net operating income generated from
sales of such components. See "Certain Factors SpecTek Semiconductor
Memory Products Operation Dependence on Component Recovery Agreement with
MTI."
The gross margin percentage realized by the Company's SpecTek
semiconductor memory products operation was lower in the first quarter of
fiscal 1998 compared to the 32% realized in the fourth quarter of fiscal
1997 primarily due to a 26% decline in the average selling prices in the
first quarter of fiscal 1998 compared to the fourth quarter of fiscal 1997.
The Company expects average selling prices for its SpecTek semiconductor
memory products to continue to decline. As a result, the gross margin for
the Company's SpecTek semiconductor memory products operation could decline
further and adversely affect the Company's business and results of
operations. See "Certain Factors SpecTek Semiconductor Memory Products
Operation Pricing of Semiconductor Memory Products."
Selling, General and Administrative
<TABLE>
<CAPTION>
First Quarter
------------------------------------
1998 % Change 1997
-------- -------- --------
<S> <C> <C> <C>
Selling, general and administrative $ 74,065 86.0% $ 39,826
as a % of net sales 13.3% 9.5%
</TABLE>
Selling, general and administrative (''SG&A'') expenses increased in
absolute dollars and as a percent of net sales in the first quarter of
fiscal 1998 compared to the corresponding period in 1997 primarily due to
higher levels of personnel and advertising costs associated with the
Company's PC operation, an increase in the allowance for doubtful accounts
due to the increase in trade accounts receivable and an increase in
technical and professional fees primarily associated with information
technology consulting services. SG&A expenses in the first quarter of
fiscal 1998 include costs associated with the Company's Japan PC call
center operation opened in the second quarter of fiscal 1997, the Company's
NetFRAME enterprise server operation acquired in the fourth quarter of
fiscal 1997 and $2.7 million for the write-off of software costs from the
abandoned development of a customized sales order entry application.
Research and Development
<TABLE>
<CAPTION>
First Quarter
------------------------------------
1998 % Change 1997
-------- -------- --------
<S> <C> <C> <C>
Research and development $ 3,582 305.7% $ 883
as a % of net sales 0.6% 0.2%
</TABLE>
Research and development expenses were higher in the first quarter of
fiscal 1998 compared to the first quarter of fiscal 1997 primarily as a
result of the development activities associated with the Company's NetFRAME
enterprise server operation.
Income Tax Provision
<TABLE>
<CAPTION>
First Quarter
------------------------------------
1998 % Change 1997
-------- -------- --------
<S> <C> <C> <C>
Income tax provision $ 696 (95.7%) $ 16,199
</TABLE>
The effective income tax rate of 39.5% in the first quarters of fiscal
1998 and 1997 principally reflected the federal statutory rate and the net
effect of state taxes.
Liquidity and Capital Resources
As of November 27, 1997, the Company had cash and equivalents of $157.1
million, representing a decrease of $26.8 million compared to August 28,
1997. Principal sources of liquidity in the first quarter of fiscal 1998
were cash flows from sales of property, plant and equipment of $5.8
million. Principal uses of cash in the first quarter of fiscal 1998 were
property, plant and equipment expenditures of $25.9 million for expansion
and capacity improvements of the Company's manufacturing operations, $4.3
million used for operating activities and repayment of debt of $1.9
million.
The Company has an unsecured revolving credit facility with a group of
financial institutions which provides for borrowings of up to $130.0
million. Under the agreement, the Company is subject to certain financial
and other covenants including certain financial ratios and limitations on
the amount of dividends declared or paid by the Company. On December 12,
1997, certain terms of the agreement were modified. The Company is
eligible to borrow the full amount under the agreement, as amended. As of
November 27, 1997, the Company had no borrowings outstanding under the
facility.
The Company's wholly-owned subsidiary, CMS, has a revolving loan
agreement, expiring May 2007, providing for borrowings of up to $15.0
million. Amounts outstanding under the agreement are collateralized by
certain real property. Under the terms of the agreement, the amount
available to CMS decreases by $1.0 million per year. As of November 27,
1997, there was $0.6 million outstanding under the agreement. The terms of
the agreement limit dividends or other distributions from CMS.
The Company's wholly-owned subsidiary, Micron Electronics Japan K.K., has
an unsecured revolving credit facility with a financial institution,
expiring June 1998, providing for borrowings of up to 1.5 billion Japanese
yen (US$11.8 million at November 27, 1997). As of November 27, 1997, there
was US$8.6 million outstanding under the agreement.
On October 11, 1996, the Company filed a registration statement with the
Securities and Exchange Commission allowing for the issuance from time to
time by the Company of debt and/or equity securities with a value of up to
$75.0 million, of which $51.0 million has been issued.
At November 27, 1997, the Company had commitments of $33.1 million for
capital expenditures for expansion and upgrade of facilities and equipment.
The Company anticipates making capital expenditures in fiscal 1998 in
excess of $100 million. The Company is constructing an approximately
325,000 square foot facility in Nampa, Idaho. This new facility is
expected to provide space for the expansion of the Company's Nampa, Idaho
PC operation and will provide space for possible future expansion.
On December 22, 1997, the Company entered into a definitive agreement
to sell a 90% interest in the Company's wholly-owned contract
manufacturing subsidiary, CMS, through a recapitalization with an
estimated transaction value of $271 million and net cash proceeds,
before tax, to the Company of approximately $260 million. Net assets
of the Company's contract manufacturing operation as of November 27,
1997, were approximately $81.4 million. The closing is subject to certain
conditions and approvals.
The Company expects that its future working capital requirements will
continue to increase. The Company believes that currently available cash
and cash equivalents, cash flows from operations, the Company's current
credit facilities and equipment financings will be sufficient to fund its
operations through fiscal 1998. However, maintaining an adequate level of
working capital through the end of fiscal 1998 and thereafter will depend
in large part on the success of the Company's products in the marketplace
and the Company's ability to control inventory levels, component costs and
other operating expenses. The Company may require additional financing for
growth opportunities, including any internal expansion that the Company may
undertake, expansion and capacity enhancements to additional sites, or
strategic acquisitions or partnerships. There can be no assurance that any
financings will be available on terms acceptable to the Company, if at all.
Certain Factors
In addition to factors discussed elsewhere in this Form 10-Q, the
following are important factors which could cause actual results or events
to differ materially from the historical results of the Company's
operations or those results or events contained in any forward-looking
statements made by or on behalf of the Company.
General
Fluctuations in Operating Results and Stock Price
The Company's past operating results have been, and its future operating
results may be, subject to seasonality and other fluctuations, on a
quarterly and an annual basis, as a result of a wide variety of factors,
including, but not limited to, industry competition, the Company's ability to
accurately forecast demand for its PC products, the Company's ability to
effectively manage inventory levels, fluctuating market pricing for PCs and
semiconductor memory products, fluctuating component costs, changes in
product mix, inventory obsolescence, the timing of new product
introductions by the Company and its competitors, availability and pricing
of the memory components used by the Company's SpecTek semiconductor memory
products operation, the timing of orders from and shipments to OEM
customers, seasonal government purchasing cycles, manufacturing and
production constraints, the effects of product reviews and industry awards,
seasonal cycles common in the PC industry, critical component availability,
and the failure by the Company to successfully integrate the operations of
NetFRAME Systems Incorporated ("NetFRAME"). As a result, the operating
results for any particular period are not necessarily indicative of the
results that may occur in any future period. The trading price of the
common stock of the Company is subject to significant fluctuations due to
general market conditions and financial performance of the Company, MTI and
other companies in the PC industry, announcements of technological
innovations, new commercial products or new strategies by competitors,
component availability and pricing or other factors.
Management
Historically, the Company has experienced rapid revenue growth and an
expansion in the number of its employees, in the breadth and complexity of
its management, operating and financial information systems and in its
geographic scope of operations. This growth has resulted in new and
increased responsibilities for the Company's management and has placed, and
continues to place, significant demands upon the Company's management,
operating and financial information systems, technical support systems and
other resources. The Company continues to consider various expansion
alternatives, including expansion of facilities, acquisition or
establishment of facilities in new geographic regions and certain strategic
relationships. The Company currently is expanding its PC operation
facilities in Nampa, Idaho, opened a Japan PC sales and technical support
call center in the second quarter of fiscal 1997 and acquired the operations
of NetFRAME in the fourth quarter of fiscal 1997. There can be no assurance
that the Company's management resources, operating and financial information
systems, technical support systems and other resources will be adequate to
support the Company's existing or future operations. In addition, the
Company is in the process of identifying operating and application software
challenges related to the year 2000. While the Company expects to resolve
year 2000 compliance issues substantially through normal replacement and
upgrades of software, there can be no assurance that there will not be
interruption of operations or other limitations of system functionality or
that the Company will not incur substantial costs to avoid such
limitations. No provision has been made in the Company's financial
statements for any such liability. Any failure to effectively monitor,
implement or improve the Company's operational, financial, management and
technical support systems could have a material adverse effect on the
Company's business and results of operations.
Intellectual Property Matters
It is common in the electronics industry for patent, trademark and other
intellectual property rights claims to be asserted against companies,
including component suppliers and PC manufacturers. Periodically, the
Company is made aware that technology used by the Company may infringe on
intellectual property rights held by others. The Company evaluates all
such claims and, if necessary and appropriate, seeks to obtain licenses for
the continued use of such technology. 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. The Company would be placed at a
competitive disadvantage if it were unable to obtain such licenses upon
terms at least as favorable as those experienced by the Company's
competitors. The Company has entered into several intellectual property
license agreements, which generally require one-time or periodic royalty
payments and are subject to expiration at various times. The Company is
unable to predict whether any of these license agreements can be obtained
or renewed on terms acceptable to the Company. If the Company or its
suppliers are unable to obtain licenses necessary to use intellectual
property in their products or processes, the Company may be forced to
market products without certain technological features or software,
discontinue sales of certain of its products and/or defend legal actions
taken against it relating to allegedly protected technology. The inability
of the Company to obtain licenses necessary to use certain technology, or
an inability to obtain such licenses on competitive terms, or any
litigation determining that the Company, in the manufacture or sale of its
products, has infringed on the intellectual property rights of third
parties could have a material adverse effect on the Company's business and
results of operations.
The Company, as a majority-owned subsidiary of MTI, is licensed under
certain license agreements between MTI and third parties. The Company
makes payments to MTI relating to certain of such agreements. The
Company's rights under such agreements may be terminated by MTI in the
event that the Company is no longer a majority-owned subsidiary of MTI. In
the event of any such termination, the inability of the Company
independently to obtain such rights on similar terms could have a material
adverse effect on the Company's business and results of operations.
International Operations
During the first quarter of fiscal 1998, 8% of the Company's net sales
were attributable to sales outside the United States compared to 5% for the
corresponding period in 1997. Although the Company's international sales
in fiscal 1997 were adversely affected by a decrease in sales of its PC
systems through distributors in Japan as the Company initiated direct sales
of PC systems through its Japanese call center established in 1997, the
Company believes international sales as a percentage of total sales will
increase in the future, particularly for PC systems and contract
manufacturing services. In marketing its PC systems in foreign countries,
the Company uses either direct selling or indirect selling through
distributors, depending on consumer preferences, local infrastructure,
language and marketing methods. There can be no assurance that the
Company's primary sales and marketing methods through the direct sales
channel in its Japanese call center will result in sales at levels that
meet or exceed past levels of sales in Japan experienced by the Company.
The Company continues to evaluate the benefits and risks associated with
overseas manufacturing for its PC and contract manufacturing operations.
There can be no assurance that the establishment of the Japan operation or
any other international expansion will be successful, and any failure by
the Company to achieve success in international operations could have a
material adverse effect on the Company's business and results of
operations. The Company's international operations are subject to a number
of other risks, including, without limitation, fluctuations in the value of
currencies, export duties, import controls, trade barriers, restrictions on
funds transfer, greater difficulty in accounts receivable collections,
political and economic instability and compliance with foreign laws.
Sale of Interest in Micron Custom Manufacturing Services, Inc.
On December 22, 1997, the Company entered into a definitive agreement
with Cornerstone Equity Investors, IV, L.P., to sell a 90% interest in the
Company's wholly-owned contract manufacturing subsidiary, CMS, through a
recapitalization with an estimated transaction value of $271 million and
net cash proceeds, before tax, to the Company of approximately $260
million. Net assets of the Company's contract manufacturing operation
as of November 27, 1997, were approximately $81.4 million. The agreement
has been approved by the boards of directors of the Company and CMS and by
Cornerstone Equity Investors and the closing is subject to certain
conditions and approvals.
MTI Ownership of Common Stock of the Company
As of November 27, 1997, MTI owned 64% of the Company's outstanding
common stock. In addition, four of the eight directors of the Company are
also directors of MTI, including Steven R. Appleton, Chairman and Chief
Executive Officer of MTI. So long as MTI continues to own a majority of
the outstanding common stock of the Company, MTI will have the ability to
control the outcome of matters requiring shareholder approval, including
the election of directors, and generally will have the ability to control
the management and certain financial and other affairs of the Company.
Termination of certain of the Company's arrangements by MTI or MTI
exercising its control in negotiating arrangements resulting in terms less
favorable to the Company could adversely affect the Company's business and
results of operations. In the event that MTI's ownership of the Company
were to decrease below certain levels, such arrangements may be terminated
by MTI, which could have a material adverse effect on the Company's
business and results of operations. See "Intellectual Property Matters"
and "SpecTek Memory Products Operation Dependence on Component Recovery
Agreement."
As a result of the level of MTI's ownership, only a limited percentage of
common stock of the Company is traded in the public market, which limits
the trading liquidity of the common stock of the Company and may limit the
Company's ability to complete future equity financings. The sale on the
open market of substantial amounts of shares of common stock of the Company
currently held by MTI could adversely affect the prevailing market price of
common stock of the Company. MTI's ability to sell shares of common stock
of the Company, unless registered under the Securities Act of 1933, as
amended (the "Securities Act"), is subject to volume and other restrictions
pursuant to Rule 145 promulgated under the Securities Act.
On October 11, 1996, the Company filed a registration statement with the
Securities and Exchange Commission allowing for the issuance from time to
time by the Company of debt and/or equity securities with a value of up to
$75.0 million, of which $51.0 million has been issued. The registration
statement also allows for an additional $250.0 million of outstanding
common stock of the Company to be sold by certain existing shareholders,
consisting of MTI and certain management employees, of which $212.9 million
has been sold.
Dependence on Key Personnel
The future success of the Company will depend, in part, on its ability to
attract and retain key management, technical and sales and marketing
personnel. The Company attempts to enhance its management and technical
expertise by recruiting qualified individuals who possess desired skill
sets and experience in certain targeted areas. There is competition for
such personnel in the electronics industries, and the Company's inability
to retain employees and attract and retain sufficient additional employees,
particularly in the areas of information technology, engineering and
technical support resources, could have a material adverse effect on the
Company's business and results of operations. The Company does not
currently maintain "key man" life insurance with respect to any of its
employees. There can be no assurance that the Company will not lose key
personnel or that the loss of any key personnel will not have a material
adverse effect on the Company's business and results of operations.
Government Regulation
The Company is subject to a variety of federal, state, local and foreign
laws and regulations, including, but not limited to, Federal Communications
Commission regulations, governmental procurement regulations, import and
export regulations, Federal Trade Commission regulations, securities
regulations, environmental regulations, antitrust regulations, and labor
regulations. Any failure by the Company to comply with such regulations in
the past, present or future could subject the Company to liabilities and/or
the suspension of its operations, which could have a material adverse
effect on the Company's business and results of operations.
Personal Computer Systems
Competition in the PC Industry
The PC industry is highly competitive and has been characterized by
intense pricing pressure, generally low gross margin percentages, rapid
technological advances in hardware and software, frequent introduction of
new products, and rapidly declining component costs. Competition in the PC
industry is based primarily upon brand name recognition, performance,
price, reliability and service and support. As a result of PC industry
standards, the Company and its competitors use many of the same components,
typically from the same set of suppliers, which limits the Company's
ability to technologically and functionally differentiate its products.
The Company's sales of PC systems has historically benefited from increased
name recognition and market acceptance of the Company's PC systems,
primarily resulting from the receipt by the Company of awards from trade
publications recognizing the price and performance characteristics of
Micron brand PC systems and the Company's service and support functions.
The Company competes with a number of PC manufacturers which sell their
products primarily through direct channels, including Dell Computer, Inc.
and Gateway 2000, Inc. The Company also competes with PC manufacturers,
such as Apple Computer, Inc., Compaq Computer Corporation, Hewlett-Packard
Company, International Business Machines Corporation and Toshiba
Corporation among others, which have traditionally sold their products
through national and regional distributors, dealers and value added
resellers, retail stores and direct sales forces. In addition, the Company
expects to face increased competition in the U.S. direct sales market from
foreign PC suppliers and from foreign and domestic suppliers of PC products
that decide to implement, or devote additional resources to, a direct sales
strategy. In order to gain an increased share of the U.S. PC direct sales
market, these competitors may effect a pricing strategy that is more
aggressive than the current pricing in the direct sales market. Many of
the Company's PC competitors have greater brand name recognition, offer
broader product lines, have substantially greater financial, technical,
marketing and other resources than the Company and may benefit from
component volume purchasing and product and process technology license
arrangements that are more favorable in terms of pricing and availability
than the Company's arrangements. The failure of the Company to compete
effectively in the marketplace would have an adverse effect on the
Company's business and results of operations.
The Company believes that the rate of growth in worldwide sales of PC
systems, particularly in the United States, where the Company sells a
substantial majority of its PC systems, has declined and may remain below
the growth rates experienced in recent years. Any general decline in
demand or decline in the rate of increase in demand for PC systems could
increase price competition and could have a material adverse effect on the
Company's business and results of operations.
Inventory Management
The Company's ability to compete successfully in the PC market in the
future will depend in large part on its ability to accurately forecast
demand for its PC products and effectively manage its PC inventories. The
Company's PC operations focus on the direct sale of assemble-to-order PC
systems that feature components incorporating the latest technological
developments in the PC industry. The Company has experienced in the past,
and could experience in the future, excess PC inventories and inventory
obsolescence resulting from, among other things, the Company's accuracy in
forecasting demand for its PC products, the fast pace of
technological developments in the PC industry and the short product life
cycles of PC systems and components. In addition, because high volumes of
quality components are required for the manufacture of the Company's PC
systems, the Company has experienced in the past, and expects to experience
in the future, shortages and other supply constraints of key components.
Such shortages or supply constraints have in the past adversely affected,
and could in the future adversely affect, the Company's ability to ship
products on schedule or at expected gross margins. To be successful in the
future, the Company must accurately forecast demand for its PC products
and obtain adequate, but not excessive, supplies of components to meet actual
demand. The failure of the Company to manage its inventories effectively
could result in excess PC inventories, inventory obsolescence, component
shortages and untimely shipment of products, any of which could have a
material adverse effect on the Company's business and results of
operations.
Dependence on Key Sources of Supply
The Company focuses on providing PC systems that feature components and
software incorporating the latest technological developments in the PC
industry, which components are periodically in short supply and are
available from sole or a limited number of suppliers. As a result, the
Company has experienced in the past, and expects to experience in the
future, shortages in the components used in its PC systems. The
microprocessors used in the Company's PC systems are manufactured
exclusively by Intel and, from time to time, the Company has been unable to
obtain sufficient quantities of certain Intel microprocessors. In
addition, a significant portion of the RAM components used in the Company's
PC systems are supplied by MTI, and the Company generally relies on MTI to
supply the latest memory densities and configurations available. The
Company relies, to a certain extent, upon its suppliers' abilities to
enhance existing products in a timely and cost-effective manner, to develop
new products to meet changing customer needs and to respond to emerging
standards and other technological developments in the PC industry. The
Company's reliance on a limited number of suppliers and on a strategy of
incorporating the latest technological developments into its PC systems
involves several risks, including the possibility of shortages and/or
increases in costs of components and software, and risk of reduced control
over delivery schedules, which could have a material adverse effect on the
Company's business and results of operations.
The Company's TransPort notebook PC systems are currently assembled by
third-party manufacturers. These outsourcing arrangements and any future
outsourcing arrangements that the Company may enter into may reduce the
direct control the Company has over certain components and the assembly of
such products. There can be no assurance that the Company's outsourcing
arrangements will not result in quality problems or affect the Company's
ability to ship such products on a timely basis or the flexibility of the
Company to respond to changing market conditions. Moreover, although
arrangements with such manufacturers may contain provisions for warranty
obligations on the part of such manufacturers, the Company remains
primarily responsible to the consumer for warranty obligations. Any
unanticipated product defect or warranty obligation, whether pursuant to
arrangements with third-party manufacturers or otherwise, could adversely
affect the Company's business and results of operations.
NetFRAME Acquisition
In the fourth quarter of fiscal 1997, the Company acquired all of the
outstanding common stock of NetFRAME. The Company is in the process of
integrating the operations of NetFRAME. There can be no assurance the
integration, reconfiguration or other modification, if any, of NetFRAME
will not have a material adverse affect on the Company's business and
results of operations. In addition, there can be no assurance the Company
will realize the anticipated benefits associated with the acquisition,
including, but not limited to, retention of key personnel, acceptance of
NetFRAME products in the market, increased purchasing power, manufacturing
efficiencies, technology, intellectual property rights, increased market
presence of a broader product offering and economies of providing certain
administrative support functions.
State Taxation
During 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 or use
taxes prior to the balance sheet date will not have a material adverse
effect on the Company's business and results of operations.
Contract Manufacturing
Competition in the Contract Manufacturing Industry
The Company's contract manufacturing operation competes against numerous
domestic and offshore contract manufacturers, including a significant
number of local and regional companies. In addition, the Company competes
against in-house manufacturing capabilities of certain of its existing
customers as well as with certain large computer manufacturers which offer
third-party contract manufacturing services. The Company's contract
manufacturing competitors include, among others, Avex Electronics, Inc.,
Benchmark Electronics, Inc., Celestica Inc., DOVAtron International, Inc.,
Flextronics International, Group Technologies Corporation, Jabil Circuits,
Inc., Sanmina Corporation, SCI Systems, Inc. and Solectron Corporation.
Many of the Company's competitors have substantially greater manufacturing,
technical, financial, personnel, marketing and other resources than the
Company and have manufacturing operations at multiple domestic and overseas
locations.
The Company believes that the significant competitive factors in the
contract manufacturing industry include service, quality, price,
technology, location and the ability to offer flexible delivery schedules
and deliver finished products on an expeditious and timely basis in
accordance with customers' expectations. The Company may be at a
disadvantage as to certain competitive factors when compared to
manufacturers with greater resources than the Company, substantial offshore
facilities or larger domestic facilities. While the Company recently began
operation of its first foreign contract manufacturing facility, there can
be no assurance that the Company's contract manufacturing operation will
compete successfully in the future with regard to these factors. In order
to remain competitive, the Company may be required to expand its contract
manufacturing capacity and may be required to establish additional
international operations. There can be no assurance that the Company will
be successful in expanding its contract manufacturing operation on a timely
and efficient basis, or at all. The failure to do so could have a material
adverse effect on the Company's business and results of operations.
Customer Concentration
Revenue from the Company's top five contract manufacturing customers,
including MTI, in the first quarter of fiscal 1998 was 86% of total
contract manufacturing revenue compared to 66% in the first quarter of
fiscal 1997. Revenue from the Company's largest contract manufacturing
customer represented 29% of the Company's total contract manufacturing
revenue in the first quarter of fiscal 1998, while revenues from the
Company's largest contract manufacturing customer in the first quarter of
fiscal 1997 represented 22% of total contract manufacturing revenue.
Contract manufacturing revenue from MTI was 8% of total contract
manufacturing revenue in 1997 compared to 6% in the first quarter of fiscal
1997. The Company expects to continue to experience a high degree of
contract manufacturing customer concentration.
The Company has no long-term agreements with any of its contract
manufacturing customers. The Company believes that its key contract
manufacturing customers may from time to time materially reduce their
purchases of the Company's contract manufacturing services in the future.
Although the Company has generally in the past been able to replace such
business with increased business from new or existing customers, there can
be no assurance that the Company will obtain sufficient alternative
business on a timely basis, and the failure to obtain such business could
have a material adverse effect on the Company's business and results of
operations.
Fluctuations in OEM Orders
The Company's contract manufacturing customers generally require short
delivery cycles and quick turnaround for contract manufacturing services.
As the Company's OEM customers react to variations in demand for their
products and adjust their purchase orders to the Company, the Company may
be subject to non-cancelable purchase orders with its suppliers and may
recognize losses on write downs of inventories due primarily to the
specialized nature of certain custom components and declines in market
pricing of components. Changes in OEM orders have had an adverse effect on
the Company's contract manufacturing operation in the past and there can be
no assurance that the Company will not experience such adverse effects in
the future.
SpecTek Semiconductor Memory Products Operation
Dependence on Component Recovery Agreement with MTI
Historically, a substantial majority of the components used in the
Company's SpecTek semiconductor memory products operation has been obtained
from MTI. The Company and MTI are parties to a Component Recovery
Agreement, effective as of August 30, 1996 (the "Component Recovery
Agreement"), under which MTI is required to deliver to the Company all of
the nonstandard memory components produced at MTI's semiconductor
manufacturing operations. The Company's cost of such components generally
is determined as one-half of the operating income generated from the
Company's SpecTek sales of semiconductor memory products supplied by MTI.
There can be no assurance that MTI will continue to produce adequate
volumes of nonstandard memory components to maintain the Company's SpecTek
semiconductor memory products operation at existing or historic levels.
The Component Recovery Agreement may be terminated earlier by MTI in the
event that MTI's ownership of the Company falls below 30%. Expiration,
termination or renegotiation of the Component Recovery Agreement could have
a material adverse effect on the Company's business and results of
operations. Changes in MTI's semiconductor manufacturing processes
resulting in improvement of device yields and/or changes in the product mix
or specifications of its memory components, or other changes or events at
MTI adversely affecting its overall manufacturing output, could adversely
affect the volume of nonstandard memory components supplied by MTI.
Many semiconductor memory manufacturers are reluctant to sell nonstandard
memory components because such components could compete with their full
specification memory components for similar applications. In addition,
some manufacturers are concerned that subsequent testing performed by a
recovery operation could reveal proprietary data regarding manufacturing
yields and processes. As a result, there can be no assurance that the
Company will be able to obtain nonstandard memory components from
semiconductor manufacturers in quantities sufficient to meet demand for the
Company's SpecTek products. Any reduction in the availability or
functionality of nonstandard memory components from the Company's suppliers
could have a material adverse effect on the Company's business and results
of operations.
Pricing of Semiconductor Memory Products
Pricing for the Company's SpecTek semiconductor memory products
fluctuates, to a large degree, based on industry-wide pricing for
semiconductor memory products. The Company has experienced significant
declines in the average selling prices of its SpecTek semiconductor memory
products as industry-wide average selling prices for full specification
semiconductor memory products experienced a sharp decline. The Company
believes that such decline in average selling prices of semiconductor
memory products was due primarily to changes in the balance of supply and
demand for these commodity products, and the Company is unable to predict
the impact of semiconductor memory product market dynamics in future
periods. Due to increased market risk associated with holding purchased
memory components in inventory, the Company has experienced in the past,
and may experience in the future, losses from write downs of memory
component inventories in periods of declining prices. Further declines in
pricing for semiconductor memory products would likely result in declines
in average selling prices of the Company's SpecTek semiconductor memory
products, which could have a material adverse effect on the Company's
business and results of operations.
Transition to SDRAM
The semiconductor memory industry is characterized by, among other
things, rapid technological change, frequent product introductions and
enhancements, difficulties experienced in transitioning to new products,
relatively short product life cycles and volatile market conditions.
During the first quarter of fiscal 1998, SpecTek began to transition
production to Synchronous DRAM ("SDRAM") memory products. During periods
of transition from one product to another, the Company's SpecTek
semiconductor memory products operation has experienced in the past,
and may experience in the future, a significant increase in component
test times and corresponding decreases in throughput. Future gross
margins could be adversely affected if the Company is unable to effectivly
transition to these products in a timely fashion.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Shareholders
The Company's 1997 Annual Meeting of Shareholders was held on November
24, 1997 at the Nampa Civic Center. At the meeting, the following items
were submitted to a vote of the shareholders. At the meeting, 95,553,127
shares were entitled to vote.
(a) The following nominees for Directors were elected. Each person
elected as Director will serve until the next meeting of shareholders
or until such person's successor is elected and qualified.
Name of Nominee Votes Cast For Withhold Authority
------------------------- -------------- ------------------
Steven R. Appleton 84,221,703 132,623
Joseph M. Daltoso 84,217,810 136,516
Jerry M. Hess 84,227,587 126,739
Robert A. Lothrop 84,207,085 147,241
T. Erik Oaas 84,233,202 121,124
John R. Simplot 84,113,128 241,198
Gregory D. Stevenson 84,224,849 129,477
Robert F. Subia 84,218,288 136,038
(b) The amendment to the Company's 1995 Stock Option Plan to increase
the number of shares of Common Stock reserved for issuance thereunder
from 5,000,000 to 10,000,000 was approved with 69,480,677 votes in
favor, 4,443,658 votes against, 75,373 abstentions and 10,354,618
broker non-votes.
(c) The ratification of the appointment of Coopers & Lybrand L.L.P. as
independent public accountants of the Company for the fiscal year
ending September 3, 1998 was approved with 84,204,194 votes in favor,
120,184 votes against, 29,948 abstentions and no broker non-votes.
Item 5. Other Information
On December 22, 1997, the Company announced it had entered into a
definitive agreement with Cornerstone Equity Investors, IV, L.P., to sell a
90% interest in the Company's wholly-owned contract manufacturing
subsidiary, CMS, through a recapitalization with an estimated transaction
value of $271 million. Net assets of the Company's contract manufacturing
operation as of November 27, 1997, were approximately $81.4 million. The
transaction is subject to certain conditions and approvals and is expected
to close in the first quarter of calendar 1998. The agreement has been
approved by the boards of directors of the Company and CMS and by
Cornerstone Equity Investors.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following are filed as a part of this report:
Exhibit Description
------- --------------------------------------------------------------
10.46 Amended Credit Agreement
11 Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K:
On September 8, 1997, the Company filed an amendment to the Company's
Current Report on Form 8-K filed August 4, 1997.
On October 1, 1997, the Company filed an amendment to the Company's
Current Report on Form 8-K filed August 4, 1997.
Micron and Micron Electronics are trademarks of the Company, and
NetFRAME, TransPort and SpecTek are registered trademarks of the Company.
All other product names appearing herein are for identification purposes
only and may be trademarks of their respective companies.
<PAGE>
SIGNATURES
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 thereunto duly authorized.
MICRON ELECTRONICS, INC.
-------------------------------------------
(Registrant)
Dated: December 23, 1997
/s/ T. Erik Oaas
-------------------------------------------
T. Erik Oaas, Executive Vice President
Finance, and Chief Financial Officer
(Principal Financial and Accounting
Officer)
EXHIBIT 10.46
CONSENT AND AMENDMENT TO CREDIT AGREEMENT
AND AMENDMENT TO LOAN DOCUMENTS
THIS CONSENT AND AMENDMENT TO CREDIT AGREEMENT AND AMENDMENT
TO LOAN DOCUMENTS (the "Consent and Amendment") is made this 12th
day of December, 1997, by and among BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION, U.S. BANK NATIONAL ASSOCIATION
(successor by merger to United States National Bank of Oregon),
ABN AMRO BANK, N.V., DEUTSCHE BANK AG, NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH, FLEET NATIONAL BANK, KEYBANK NATIONAL
ASSOCIATION, THE BANK OF NOVA SCOTIA and THE SUMITOMO BANK,
LIMITED (each individually a "Lender" and collectively the
"Lenders") BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
and U.S. BANK NATIONAL ASSOCIATION (successor by merger to United
States National Bank of Oregon) as co-agents for Lenders, BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION as administrative
agent for Lenders (the "Agent"), and MICRON ELECTRONICS, INC., a
Minnesota corporation (the "Borrower").
RECITALS
A. Borrower, Lenders and Agent are parties to that certain
Credit Agreement dated as of June 27, 1997 (as the same may be
amended, modified or extended from time to time the "Credit
Agreement") and the related Loan Documents described therein.
B. Since the date of the Credit Agreement, the office of
Agent responsible for Agent's duties under the Credit Agreement
has been changed from its Seattle, Washington office to its San
Francisco, California office.
C. Borrower has expressed to Lenders and Agent its
intention to sell one of its subsidiaries, Micron Custom
Manufacturing Services, Inc. ("Micron Custom") during the second
quarter of its current fiscal year. The sale of Micron Custom,
absent the consent of Agent (with consent of the Majority
Lenders), is prohibited under the terms of Section 7.2 of the
Credit Agreement.
D. Borrower has requested that Agent consent to the sale
of Micron Custom, and that Lenders and Agent make modifications
to certain covenants in the Credit Agreement. Agent and Lenders
are prepared to consent to the sale of Micron Custom and to
modify the Credit Agreement as requested by Borrower on the terms
and conditions set forth herein.
NOW, THEREFORE, the parties agree as follows:
AGREEMENT
1. Definitions. Capitalized terms used herein and not
otherwise defined shall have the meaning given in the Credit
Agreement.
2. Consent to Sale. Subject to the terms and conditions
of this Consent and Amendment, Agent and Lenders hereby consent
to the sale of all or substantially all of the capital stock of
Micron Custom Manufacturing Services, Inc. This consent, when
effective as provided in Section 5 hereof, shall further
constitute a waiver by Agent and Lenders of their respective
rights to exercise remedies under the Credit Agreement in respect
of a breach of Borrower's obligations under Section 7.2 of the
Credit Agreement resulting from such sale.
3. Amendments to Credit Agreement. The Credit Agreement
is amended as follows:
(a) Amendment to Definitions. In Section 1.1,
amendments are made to the definitions, as follows:
(1) Business Day. In the definition of "Business
Day" each reference to "Seattle, Washington" shall be amended to
read "San Francisco, California."
(2) EBITDA. The definition of "EBITDA" is added
to read as follows:
"EBITDA" means, for any period, Borrower's
Net Income (or net loss), excluding any taxes
associated therewith, plus the sum of (i) interest
expense, (ii) income tax expense, (iii) depreciation
expense and (iv) amortization expense, in each case
determined on a consolidated basis in accordance with
GAAP for such period.
(3) Funded Debt. The definition of "Funded Debt"
is added to read as follows:
"Funded Debt" means, as of any date of
determination, the sum of (i) all indebtedness or
liability of Borrower for borrowed money, (ii) all
Capital Leases of Borrower, in each case determined on
a consolidated basis, and (iii) all indebtedness or
liability for borrowed money or for Capital Leases for
which Borrower is directly or contingently liable as
obligor, guarantor, or otherwise, or in respect of
which such person otherwise assures a creditor against
loss.
(4) Notice of Borrowing. In the definition of
"Notice of Borrowing" each reference to "11:00 a.m." shall be
amended to read "10:00 a.m."
(b) Amendments to Section 2.2: Section 2.2 is hereby
amended and restated as follows:
Section 2.2 Borrowing Base Activation. The
occurrence of any of the following events shall
constitute a "Borrowing Base Activation Event"
hereunder: (a) the Funded Debt to EBITDA Ratio, on a
consolidated basis, exceeds 2.00 to 1 as of the end of
any fiscal quarter ending on or after November 27, 1997
and before March 3, 1999 or exceeds 1.50 to 1 as of the
end of any fiscal quarter ending on or after March 3,
1999; or (b) Borrower shall incur on a consolidated
basis, pretax losses for two (2) consecutive fiscal
quarters. Once a Borrowing Base Activation Event shall
have occurred it shall be deemed to be continuing for
all purposes hereunder until Borrower shall have
delivered financial statements in accordance with
Section 6.10 hereof demonstrating that (a) in the case
of fiscal quarters ending on or after November 27, 1997
and before March 3, 1999, as of the last day of the
applicable fiscal quarter, the Funded Debt to EBITDA
Ratio was equal to or less than 2.00 to 1, or, in the
case of fiscal quarters ending on or after March 3,
1999, as of the last day of the applicable fiscal
quarter, the Funded Debt to EBITDA Ratio was equal to
or less than 1.50 to 1, and (b) Borrower had not
incurred (on a consolidated basis) pretax losses for
such fiscal quarter and the immediately preceding
fiscal quarter.
(c) Amendment to Section 2.7: In the second sentence
of subsection 2.7(b) the reference to "11:00 a.m." shall be
amended to read "10:00 a.m." In the fifth sentence of subsection
2.7(b) the words "by telephone (confirmed promptly by telex or
facsimile transmission)" are hereby deleted, and the words "by
telex or facsimile transmission" are substituted in their stead.
(d) Amendment to Section 2.11: In the first sentence
of subsection 2.11(a) the words "Commercial Loan Service Center,
Seattle, Washington" are hereby deleted, and the words "Payment
Office set forth in Schedule 9 attached hereto" are substituted
in their stead.
(e) Amendment to Section 3.2: In the second sentence
of subsection 3.2(a) the words "at least one (1) Business Day"
are hereby deleted, and the words "at least three (3) Business
Days (or such shorter time as Agent may agree to in its sole
discretion)."
(f) Amendment to Section 3.4: In the first sentence
of Section 3.4 the words "Commercial Loan Service Center" are
hereby deleted, and the words "Payment Office set forth in
Schedule 9 attached hereto" are substituted in their stead.
(g) Amendments to Section 6.13: Section 6.13 is
hereby amended and restated as follows:
Section 6.13 Minimum Tangible Net Worth.
Borrower shall maintain on a consolidated basis as of
the end of each fiscal quarter a Tangible Net Worth
equal to or greater than the sum of (a) Two Hundred
Twenty-five Million Dollars ($225,000,000), (b) seventy-
five percent (75%) of Borrower's Net Income for each
fiscal quarter after the fiscal quarter ended November
28, 1996 in which Borrower has a positive Net Income,
and (c) seventy-five percent (75%) of the amount, if
any, by which the shareholders' equity of Borrower has
increased since the fiscal quarter ended November 28,
1996 as a result of the issuance of common stock or the
conversion of debt securities into common stock. In
the event that Borrower sells all or substantially all
of the capital stock of Micron Custom Manufacturing
Services, Inc., the amount set forth in clause (a) of
the preceding sentence shall be adjusted by an amount
such that the difference between the sum of clauses (a)
through (c) of the preceding sentence and the Tangible
Net Worth of Borrower shall be neither increased or
decreased as a result of such sale. Such adjustment
shall be effective as of and after the end of
Borrower's fiscal quarter during which such sale or
other disposal occurred.
(h) Amendments to Section 6.15: Section 6.15 is
hereby amended and restated as follows:
Section 6.15 Maximum Funded Debt to EBITDA Ratio.
Borrower shall maintain as of the last day of any
fiscal quarter, a Funded Debt to EBITDA Ratio of not
more than the ratio set forth below:
For Fiscal
Quarters Ending Maximum Ratio
On or after
November 27, 1997
and before
March 3, 1999 2.00 to 1
On or after
March 3, 1999 1.50 to 1
As used herein, "Funded Debt to EBITDA Ratio" means, as
of any date of determination, the ratio of (a) Funded
Debt of Borrower on a consolidated basis on such day to
(b) EBITDA of Borrower on a consolidated basis for the
period consisting of the four (4) consecutive fiscal
quarters ending on such day. In the event that
Borrower sells all or substantially all of the capital
stock of Micron Custom Manufacturing Services, Inc.,
the EBITDA used to calculate the Funded Debt to EBITDA
Ratio as of and after the last day of the fiscal
quarter during which such sale occurred, shall exclude
any gains or losses attributable to such sale.
(i) Amendments to Section 6.16: Section 6.16 is
hereby amended and restated as follows:
Section 6.16 [INTENTIONALLY BLANK].
(j) Amendments to Section 9.6: The following is here
added to the end of Section 9.6:
If no successor agent has accepted appointment as Agent
by the date which is thirty (30) days following a
retiring Agent's notice of resignation, the retiring
Agent's resignation shall nevertheless thereupon become
effective and the Banks shall perform all of the duties
of the Agent hereunder until such time, if any, as the
Majority Lenders appoint a successor agent as provided
for above.
(k) Amendments to Section 11.5: In the first
sentence of Section 11.5 the words "under its name on the
signature pages hereof" are hereby deleted, and the words "in
Schedule 9 attached hereto" are substituted in their stead.
(l) Addition of Schedule 9: Schedule 9 is hereby
added as set forth in Schedule 9 attached hereto.
4. Amendment to Notes. In Paragraph No. 1 of each Note
the words "Commercial Loan Service Center, Fifth Avenue Plaza
Building, 13th Floor, 800 Fifth Avenue, Seattle, Washington
98104" are hereby deleted, and the words "Payment Office located
at the address set forth in Schedule 9 to the Credit Agreement"
are substituted in their stead.
5. Conditions to Effectiveness. Notwithstanding anything
contained herein to the contrary, this Consent and Amendment
shall not become effective until each of the following conditions
is fully and simultaneously satisfied:
(a) Delivery of Amendment. Borrower, Agent and each
Lender shall have executed and delivered counterparts of this
Consent and Amendment to Agent.
(b) Corporate Authority. Agent shall have received in
form and substance reasonably satisfactory to it a Certificate of
Secretary of Borrower certifying that: (1) the Board of Directors
Resolutions dated March 31, 1997 (the "Board Resolutions") which
were attached to the Certificate of Secretary of Borrower dated
June 27, 1997 delivered to Agent in connection with the execution
and delivery of the Credit Agreement (the "Secretary
Certificate"), have not been amended, annulled, rescinded or
revoked and remain in full force and effect and that there exist
no other resolutions of the Board of Directors of Borrower
relating to the matters set forth in the Board Resolutions;
(2) the Articles of Incorporation and Restated Bylaws which were
attached to the Secretary Certificate have not been modified
since prior to June 27, 1997; (3) no proceeding for the amendment
or modification of or for any other change in the Articles of
Incorporation and Restated Bylaws referred to in clause (2)
hereof or for the merger, consolidation, liquidation or
dissolution of Borrower has been taken since June 27, 1997, and
no such action is pending; and (4) the person who has signed the
Amendment on behalf of Borrower continues to be duly elected to
the office or offices of Borrower set forth opposite their name
on the Secretary Certificate
(c) Representations True; No Default. The
representations of Borrower as set forth in Article 5 of the
Credit Agreement shall be true on and as of the date of this
Consent and Amendment with the same force and effect as if made
on and as of this date. No Event of Default and no event which,
with notice or lapse of time or both, would constitute an Event
of Default, shall have occurred and be continuing or will occur
as a result of the execution of this Consent and Amendment.
6. Representations and Warranties. Borrower hereby
represents and warrants to Lenders and Agent that each of the
representations and warranties set forth in Article 5 of the
Credit Agreement is true and correct in each case as if made on
and as of the date of this Consent and Amendment and Borrower
expressly agrees that it shall be an additional Event of Default
under the Credit Agreement if any representation or warranty made
hereunder shall prove to have been incorrect in any material
respect when made.
7. No Further Amendment. Except as expressly modified by
this Consent and Amendment, the Credit Agreement and the other
Loan Documents shall remain unmodified and in full force and
effect and the parties hereby ratify their respective obligations
thereunder. Without limiting the foregoing, Borrower expressly
reaffirms and ratifies its obligation to pay or reimburse Agent
and Lenders on request for all reasonable expenses, including
legal fees, actually incurred by Agent or such Lender in
connection with the preparation of this Consent and Amendment and
the closing of the transactions contemplated hereby and thereby.
8. Miscellaneous.
(a) Entire Agreement. This Consent and Amendment
comprises the entire agreement of the parties with respect to the
subject matter hereof and supersedes all prior oral or written
agreements, representations or commitments.
(b) Counterparts. This Consent and Amendment may be
executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed
shall be deemed to be an original, and all of which taken
together shall constitute one and the same Consent and Amendment.
(c) Governing Law. This Consent and Amendment and the
other agreements provided for herein and the rights and
obligations of the parties hereto and thereto shall be construed
and interpreted in accordance with the laws of the State of
Washington.
(d) Oral Agreements Not Enforceable.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT, OR TO FOREBEAR FROM ENFORCING REPAYMENT
OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
EXECUTED AND DELIVERED by the duly authorized officers of
the parties as of the date first above written.
BORROWER: MICRON ELECTRONICS, INC.
By /s/ T. Erik Oaas
---------------------------------
Its Executive Vice President, Finance,
Chief Financial Officer
LENDERS: BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By /s/ Michael J. McCutchin
---------------------------------
Its Managing Director
U.S. BANK NATIONAL ASSOCIATION
By /s/ Ross Beaton
---------------------------------
Its Vice President
ABN AMRO BANK, N.V.
By /s/ Lei-Lei Miao
---------------------------------
Its Vice President
By /s/ Chris Sievers
---------------------------------
Its Senior Vice President
DEUTSCHE BANK AG, NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By /s/ Susan L. Pearson
---------------------------------
Its Vice President
By /s/ Andreas Neumeier
---------------------------------
Its Vice President
FLEET NATIONAL BANK
By /s/ Frank H. Benesh
---------------------------------
Its Vice President
KEYBANK NATIONAL ASSOCIATION
By /s/ J. T. Taylor
---------------------------------
Its Assistant Vice President
THE BANK OF NOVA SCOTIA
By /s/ Maarten Van Otterloo
---------------------------------
Its Senior Relationship Manager
THE SUMITOMO BANK, LIMITED
By /s/ Goro Hirai
---------------------------------
Its Joint General Manager
AGENT: BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By /s/ Michael J. McCutchin
---------------------------------
Its Managing Director
CO-AGENTS: BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By /s/ Michael J. McCutchin
---------------------------------
Its Managing Director
U.S. BANK NATIONAL ASSOCIATION
By /s/ Ross Beaton
---------------------------------
Its Vice President
<PAGE>
SCHEDULE 9
OFFSHORE AND DOMESTIC LENDING OFFICES,
ADDRESSES FOR NOTICES
MICRON ELECTRONICS, INC.
Micron Electronics, Inc.
900 East Karcher Road
Nampa, ID 83687
Attention: T. Erik Oaas
Executive Vice President - Finance
and Chief Financial Officer
Telephone: (208) 893-3805
Facsimile: (208) 898-7395
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
Address for Notices of Borrowing and
Notices of Conversion/Continuation:
Bank of America National Trust
and Savings Association
Agency Management Services #5596
1850 Gateway Boulevard, 11th Floor
Concord, CA 94520-3281
Attention: Blanca Vinje
Sr. Associate Agency Officer
Telephone: (510) 675-8432
Facsimile: (510) 675-8500
Notices (other than Notice of Borrowing
and Notices of Conversion/Continuation):
Bank of America National Trust
and Savings Association
Credit Products - High Technology - #3697
555 California Street, 41st Floor
San Francisco, CA 94104-1502
Attention: Michael J. McCutchin
Managing Director
Telephone: (415) 622-4589
Facsimile: (415) 622-2385
Bank of America National Trust
and Savings Association
Credit Products - High Technology - #3697
555 California Street, 41st Floor
San Francisco, CA 94104-1502
Attention: Carl Fye
Telephone: (415) 953-6903
Facsimile: (415) 622-2385
Domestic and Offshore Lending Office:
Bank of America National Trust
and Savings Association
ABA No. 121-000-358
1850 Gateway Boulevard, 4th Floor
Concord, CA 94520
Account No.: 12336-15795
Reference: Micron Electronics, Inc.
U.S. BANK NATIONAL ASSOCIATION
U.S. Bank National Association
Oregon Commercial Banking Division
111 S.W. Fifth Avenue, Suite 400
Portland, OR 97204
Attention: Ross A. Beaton
Treasury Director
Telephone: (503) 275-3660
Facsimile: (503) 275-5795
Attention: Richard Glassman
Telephone: (503) 275-5172
Facsimile: (503) 275-5795
ABN AMRO BANK, N.V.
ABN AMRO Bank, N.V.
600 University Street, Suite 2323
Seattle, WA 98101
Attention: Lee-Lee Miao
Telephone: (206) 587-2330
Facsimile: (206) 682-5641
DEUTSCHE BANK AG
Deutsche Bank AG, New York Branch
and/or Cayman Islands Branch
50 California Street, Suite 1500
San Francisco, CA 94111
Attention: Ross A. Howard
Director
Telephone: (415) 439-5225
Facsimile: (415) 439-5215
FLEET NATIONAL BANK
Fleet National Bank
MA BOF 04 M
75 State Street
Boston, MA 02109
Attention: Frank Benesh
Vice President
Telephone: (617) 346-0617
Facsimile: (617) 346-0568
KEYBANK NATIONAL ASSOCIATION
KeyBank National Association
700 Fifth Avenue, 48th Floor
Seattle, WA 98104
Attention: J.T. Taylor
Assistant Vice President
Telephone: (206) 684-6037
Facsimile: (206) 684-6035
THE BANK OF NOVAL SCOTIA
The Bank of Noval Scotia
580 California Street, Suite 2100
San Francisco, CA 94104
Attention: Maarten Van Otterloo
Telephone: (415) 616-4161
Facsimile: (415) 397-0791
THE SUMITOMO BANK, LIMITED
The Sumitomo Bank, Limited
Credit Control
777 South Figueroa Street, Suite 2600
Los Angeles, CA 90017-3138
Attention: Amy Wong
Telephone: (213) 955-0801
Facsimile: (213) 623-6832
and
The Sumitomo Bank, Limited
1201 Third Avenue, Suite 5320
Seattle, WA 98101
Attention: Bob Granfelt
Vice President
Telephone: (206) 223-4050
Facsimile: (206) 623-8551
EXHIBIT 11
Micron Electronics, Inc.
Computation of Per Share Earnings
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal quarter ended November 27, 1997 November 28, 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
PRIMARY
Weighted average shares outstanding 95,552 92,464
Net effect of dilutive stock options 419 538
-------- --------
Number of shares used in per share calculation 95,971 93,002
======== ========
Net income $ 1,065 $ 24,812
======== ========
Per share earnings $ 0.01 $ 0.27
======== ========
FULLY DILUTED
Weighted average shares outstanding 95,552 92,464
Net effect of dilutive stock options 419 595
-------- --------
Number of shares used in per share calculation 95,971 93,059
======== ========
Net income $ 1,065 $ 24,812
======== ========
Per share earnings $ 0.01 $ 0.27
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-03-1998
<PERIOD-END> NOV-27-1997
<CASH> 157,134
<SECURITIES> 10,051
<RECEIVABLES> 272,400
<ALLOWANCES> 15,227
<INVENTORY> 130,654
<CURRENT-ASSETS> 586,246
<PP&E> 274,270
<DEPRECIATION> 73,219
<TOTAL-ASSETS> 791,108
<CURRENT-LIABILITIES> 389,610
<BONDS> 0
0
0
<COMMON> 956
<OTHER-SE> 364,452
<TOTAL-LIABILITY-AND-EQUITY> 791,108
<SALES> 558,890
<TOTAL-REVENUES> 558,890
<CGS> 481,676
<TOTAL-COSTS> 559,323
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,194)
<INCOME-PRETAX> 1,761
<INCOME-TAX> 696
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,065
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
