eMachines Reports First Quarter 2001 Results

Apr 25, 2001, 01:00 ET from eMachines, Inc.

    IRVINE, Calif., April 25 /PRNewswire/ -- eMachines, Inc. (Nasdaq: EEEE),
 today reported revenues of $136.2 million for the first quarter of 2001,
 compared to the $249.8 million recorded in the first quarter of 2000.  Net
 loss for the first quarter of 2001 was $31.1 million, or $0.21 per share,
 compared to a loss of $11.9 million, or $0.13 per share in the year earlier
 period.  Excluding the previously announced charges associated with the
 transition to a new CEO and the restructuring of the Internet business unit,
 and non-cash stock-based compensation and amortization of intangible assets,
 the net loss was $22.1 million or $0.15 per share.  This compares to net
 income of $737,000 or $0.01 per share in the year earlier period, excluding
 non-cash stock-based compensation, amortization of intangible assets, and
 accretion of mandatorily redeemable preferred stock.
     These results reflect the substantial sales discounts and incentives given
 to retailers to enable liquidation of product inventories.  This action was
 required due to the industry-wide oversupply of personal computers experienced
 in the fourth quarter of 2000, and the continued weakness in the retail sector
 and in consumer demand for PCs during the first quarter of 2001.
     eMachines remains substantially debt-free, continues to focus on
 cost-management and improved its cash position at the end of the first quarter
 of 2001 to $155.5 million, including cash, restricted cash and short-term
 investments, from the $112.9 million reported at the end of year 2000.  This
 improvement was achieved in part through sales of year-end inventory and
 collection of year-end receivables.
     "We are disappointed with the costs we have incurred during this inventory
 reduction process, and expect it to be completed early during the second
 quarter.  Nevertheless, we are very pleased with the financial health of our
 balance sheet which will enable us to progress towards our goal of achieving
 robust inventory turns and profitability," said Wayne R. Inouye, President and
 CEO of eMachines, Inc.  "We have begun to restructure our business and focus
 on our core competency of delivering high quality personal computers at an
 affordable price."
 
     PC Revenues
     PC hardware revenues in the first quarter of 2001 declined to
 $134.4 million from $246.4 million in the year earlier period.  Unit shipments
 during the first quarter of 2001 were 287,000 units, a 45 percent decrease
 from the first quarter of 2000.  This result reflects general weakness in the
 consumer market and decreased demand for PCs, compared to a robust PC market
 in the first quarter of 2000 that was stimulated primarily by the launch of
 ISP rebates (up to $400) and strong PC demand as Y2K concerns subsided.
     First quarter cost of hardware revenues exceeded net revenues from sales
 resulting in a negative hardware gross margin of $11.6 million, as a result of
 write-downs of inventory and promotional discounts provided to retailers, such
 as PCs with a monitor bundled at a greatly discounted price.  The average
 gross selling price of PCs (before returns and allowances) was $508 in the
 first quarter of 2001, a 10.2 percent decrease from the average gross selling
 price (before returns and allowances) in the first quarter of 2000.
 
     Internet Revenues
     Internet-related revenues for the first quarter of 2001 decreased to
 $1.8 million compared to $3.4 million in the year earlier period, a 47 percent
 decrease that is consistent with our 45 percent decrease in PC unit shipments
 in the first quarter of 2001.  Recurring Internet revenues have not
 materialized to the extent anticipated primarily due to the continued decline
 of the Internet advertising market.  As a result and as previously announced,
 eMachines has begun to implement its restructuring strategy by eliminating
 resources dedicated to proprietary Internet products, including eWare(TM),
 eKey(TM) and pop-up advertising.
 
     Other Governance Issues
     During the first quarter of 2001, eMachines appointed new members to its
 executive management team.  Wayne R. Inouye joined eMachines as President,
 Chief Executive Officer and a member of the Board of Directors, and Yasuhiro
 Tsubota was appointed a new Board member.  In addition, on April 17, 2001,
 eMachines' Board of Directors appointed Brian Firestone to the position of
 Executive Vice President, Strategy and Business Development.
 
     Business Outlook
     Although the second quarter is traditionally the weakest quarter of the
 year for PC sales, eMachines sees sales for the second quarter consistent with
 the first quarter of 2001.  However, due to continued liquidation of
 inventories, eMachines' net loss should only show slight improvement over the
 first quarter of 2001 (excluding costs associated with the CEO transition and
 the restructuring of the Internet business unit).  During the second quarter,
 eMachines will test market its new direct channel effort through the limited
 launch of an infomercial, the results of which are expected to be neutral for
 the quarter.
     In the second half of 2001, eMachines anticipates continued sales weakness
 in the third quarter and a return to more seasonal levels in the fourth
 quarter.  Sales in the third quarter should show some improvement over the
 prior preceding quarters of 2001, and losses should greatly narrow as
 eMachines implements its strategies to improve inventory turns and reduce
 operating expenses.  eMachines is comfortable with the published earnings
 estimates of a loss of approximately $0.07 per share in the second half of
 2001.
 
     Q1 2001 Conference Call and Webcast
     eMachines will hold its first quarter 2001 conference call and live audio
 Webcast today at 4:30 p.m. Eastern/1:30 p.m. Pacific.  Webcast details are at
 http://www.streetevents.com or http://www.e4me.com/investors.html.
 
     Annual Shareholders Meeting
     eMachines, Inc.'s first Annual Shareholders Meeting will be held on
 Wednesday, June 20, 2001 at 9:00 a.m. at the Hyatt Regency hotel in Irvine,
 California.
 
     About eMachines, Inc.
     eMachines, Inc. (Nasdaq: EEEE) is a leading provider of low-cost,
 high-value personal computers.  Founded in September 1998, eMachines began
 selling its low-cost 'eTower(TM)' desktop computers in November 1998.  In June
 1999, eMachines sold the third highest number of PCs through retailers in the
 United States, according to leading market research organizations, and
 presently holds this number three market share position.  Since inception,
 eMachines has shipped more than 3.7 million PCs through leading national and
 international retailers, catalog and online merchandisers.  Approximately one
 of every two eMachines consumers is a first-time PC buyer, based on owner
 registrations with eMachines.  eMachines' Web site is located at
 http://www.e4me.com.
 
     This press release contains forward-looking statements relating to future
 events and results that are based on eMachines, Inc.'s current expectations.
 These statements relate to the outlook and prospects for eMachines and the
 markets in which it operates.  These statements involve risks and
 uncertainties including, without limitation, the level of demand for
 eMachines' products and services, eMachines' and its suppliers' ability to
 timely develop, deliver, and support new and existing products and services,
 eMachines' ability to manage and liquidate its inventory, reduce operating
 expenses and predict changes in the PC market, the cost and availability of
 key product components, competitive pressures relating to price reductions,
 new product introductions by third parties, technological innovations,
 eMachines' ability to successfully appeal the delisting of its stock, and
 overall market conditions, including demand for computers, Internet access
 devices and Internet services, and eMachines' ability to timely and
 cost-effectively restructure its Internet business unit. Consequently, actual
 events and results in future periods may differ materially from those
 currently expected.  Additional information regarding the factors that may
 affect eMachines' future performance is included in the public reports that
 eMachines files with the Securities and Exchange Commission.
 
 
                                eMachines, Inc.
            Unaudited Condensed Consolidated Statement of Operations
                    (In thousands, except share information)
 
                                               Quarter Ended   Quarter Ended
                                               March 31, 2001  April 1, 2000
     Net revenues:
       Hardware                                   $134,435        $246,443
       Internet                                      1,751           3,397
         Net revenues                              136,186         249,840
 
     Cost of revenues:
       Hardware                                    146,037         234,979
       Internet                                        588             353
         Cost of revenues                          146,625         235,332
 
       Gross profit (loss)                         (10,439)         14,508
 
     Operating expenses:
       Sales and marketing (Note 1.)                 4,330           6,060
       Customer service and technical support        2,456           3,775
       General and administrative (Note 2.)         14,746           5,926
       Amortization of intangible assets             1,461          10,196
         Total operating expenses                   22,993          25,957
 
     Loss from operations                          (33,432)        (11,449)
     Interest and other income, net                  2,342           1,899
     Net loss                                      (31,090)         (9,550)
 
     Accretion of mandatorily redeemable
      preferred stock to redemption value               --          (2,346)
     Net loss attributable to
      common stockholders                         $(31,090)       $(11,896)
 
     Net loss per share attributable
      to common stockholders:
       Basic and diluted                            $(0.21)         $(0.13)
 
     Shares used in computing loss:
       Basic and diluted                       145,473,944      88,216,680
 
     Supplementary information:
 
     Reconciliation from net loss
      attributable to common stockholders
      to income (loss) before amortization
      of intangible assets, non-cash
      stock-based compensation, accretion of
      mandatorily redeemable preferred stock
      to redemption value and CEO transition
      costs and Internet business unit
      restructuring charge:
 
       Net loss attributable to
        common stockholders                       $(31,090)       $(11,896)
       Amortization of intangible assets             1,461          10,196
       Non-cash stock-based compensation                60              91
       Accretion of mandatorily redeemable
        preferred stock to redemption value             --           2,346
       CEO transition costs and Internet
        business unit restructuring charge           7,485              --
       Income (loss) before amortization
        of intangible assets, non-cash stock-based
        compensation, accretion of mandatorily
        redeemable preferred stock to redemption
        value and CEO transition costs and
        Internet business unit
        restructuring charge                      $(22,084)           $737
 
     Income (loss) per share before
      amortization of intangible assets,
      non-cash stock-based compensation,
      accretion of mandatorily redeemable
      preferred stock to redemption value and
      CEO transition costs and Internet
      business unit restructuring charge:
       Basic and diluted                            $(0.15)          $0.01
 
     Shares used in computing income
      (loss) per share:
       Basic                                   145,473,944      88,216,680
       Diluted                                 145,473,944     126,050,426
 
      Note 1: Includes $21 and $22 of non-cash stock-based compensation in 2001
              and 2000, respectively.
      Note 2: Includes $39 and $69 of non-cash stock-based compensation in 2001
              and 2000, respectively and $7,485 for CEO transition costs and
              Internet business unit restructuring charge.
 
 
                                eMachines, Inc.
                Unaudited Condensed Consolidated Balance Sheets
                      March 31, 2001 and December 30, 2000
                    (in thousands, except share information)
 
      March 31, 2001 December 30, 2000
     ASSETS
     Current assets:
       Cash and cash equivalents                  $144,169         $96,883
       Restricted cash                              11,333           9,124
       Short-term investments                           --           6,901
       Accounts receivable, less allowances
        ($4,294 and $6,119 at March 31, 2001
        and December 30, 2000, respectively)        56,424          91,767
       Inventories                                  95,941         163,703
       Prepaid and other current assets              5,843           2,400
 
         Total current assets                      313,710         370,778
 
     Property and equipment, net                     3,070           3,411
     Intangible assets, net                         10,466          11,927
     Other assets                                    4,427           7,921
 
                                                  $331,673        $394,037
 
     LIABILITIES AND STOCKHOLDERS' EQUITY
     Current liabilities:
       Accounts payables-related party             $58,101         $58,862
       Accounts payable                              6,662          25,948
       Accrued rebates                              16,290          34,037
       Accrued royalties payable                    10,234          11,382
       Accrued expenses and other
        current liabilities                         29,215          22,886
 
         Total current liabilities                 120,502         153,115
     Deferred revenue - noncurrent portion           1,247           1,529
 
     Subordinated note payable to stockholder          290             290
 
     Stockholders' equity:
       Preferred stock, $.01 par value;
        35,000,000 shares authorized; no shares
        issued and outstanding
       Common stock, $.0000125 par value;
        350,000,000 shares authorized at March
        31, 2001; 145,477,758 and 145,459,825
        shares outstanding at March 31, 2001
        and December 30, 2000, respectively              2               2
       Additional paid-in capital                  475,631         475,623
       Unearned stock compensation                  (1,193)         (1,253)
       Note receivable from stockholder                 --            (200)
       Accumulated deficit                        (264,806)       (233,716)
       Accumulated other comprehensive loss             --          (1,353)
 
         Total stockholders' equity                209,634         239,103
 
                                                  $331,673        $394,037
 
                     MAKE YOUR OPINION COUNT -  Click Here
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SOURCE eMachines, Inc.
    IRVINE, Calif., April 25 /PRNewswire/ -- eMachines, Inc. (Nasdaq: EEEE),
 today reported revenues of $136.2 million for the first quarter of 2001,
 compared to the $249.8 million recorded in the first quarter of 2000.  Net
 loss for the first quarter of 2001 was $31.1 million, or $0.21 per share,
 compared to a loss of $11.9 million, or $0.13 per share in the year earlier
 period.  Excluding the previously announced charges associated with the
 transition to a new CEO and the restructuring of the Internet business unit,
 and non-cash stock-based compensation and amortization of intangible assets,
 the net loss was $22.1 million or $0.15 per share.  This compares to net
 income of $737,000 or $0.01 per share in the year earlier period, excluding
 non-cash stock-based compensation, amortization of intangible assets, and
 accretion of mandatorily redeemable preferred stock.
     These results reflect the substantial sales discounts and incentives given
 to retailers to enable liquidation of product inventories.  This action was
 required due to the industry-wide oversupply of personal computers experienced
 in the fourth quarter of 2000, and the continued weakness in the retail sector
 and in consumer demand for PCs during the first quarter of 2001.
     eMachines remains substantially debt-free, continues to focus on
 cost-management and improved its cash position at the end of the first quarter
 of 2001 to $155.5 million, including cash, restricted cash and short-term
 investments, from the $112.9 million reported at the end of year 2000.  This
 improvement was achieved in part through sales of year-end inventory and
 collection of year-end receivables.
     "We are disappointed with the costs we have incurred during this inventory
 reduction process, and expect it to be completed early during the second
 quarter.  Nevertheless, we are very pleased with the financial health of our
 balance sheet which will enable us to progress towards our goal of achieving
 robust inventory turns and profitability," said Wayne R. Inouye, President and
 CEO of eMachines, Inc.  "We have begun to restructure our business and focus
 on our core competency of delivering high quality personal computers at an
 affordable price."
 
     PC Revenues
     PC hardware revenues in the first quarter of 2001 declined to
 $134.4 million from $246.4 million in the year earlier period.  Unit shipments
 during the first quarter of 2001 were 287,000 units, a 45 percent decrease
 from the first quarter of 2000.  This result reflects general weakness in the
 consumer market and decreased demand for PCs, compared to a robust PC market
 in the first quarter of 2000 that was stimulated primarily by the launch of
 ISP rebates (up to $400) and strong PC demand as Y2K concerns subsided.
     First quarter cost of hardware revenues exceeded net revenues from sales
 resulting in a negative hardware gross margin of $11.6 million, as a result of
 write-downs of inventory and promotional discounts provided to retailers, such
 as PCs with a monitor bundled at a greatly discounted price.  The average
 gross selling price of PCs (before returns and allowances) was $508 in the
 first quarter of 2001, a 10.2 percent decrease from the average gross selling
 price (before returns and allowances) in the first quarter of 2000.
 
     Internet Revenues
     Internet-related revenues for the first quarter of 2001 decreased to
 $1.8 million compared to $3.4 million in the year earlier period, a 47 percent
 decrease that is consistent with our 45 percent decrease in PC unit shipments
 in the first quarter of 2001.  Recurring Internet revenues have not
 materialized to the extent anticipated primarily due to the continued decline
 of the Internet advertising market.  As a result and as previously announced,
 eMachines has begun to implement its restructuring strategy by eliminating
 resources dedicated to proprietary Internet products, including eWare(TM),
 eKey(TM) and pop-up advertising.
 
     Other Governance Issues
     During the first quarter of 2001, eMachines appointed new members to its
 executive management team.  Wayne R. Inouye joined eMachines as President,
 Chief Executive Officer and a member of the Board of Directors, and Yasuhiro
 Tsubota was appointed a new Board member.  In addition, on April 17, 2001,
 eMachines' Board of Directors appointed Brian Firestone to the position of
 Executive Vice President, Strategy and Business Development.
 
     Business Outlook
     Although the second quarter is traditionally the weakest quarter of the
 year for PC sales, eMachines sees sales for the second quarter consistent with
 the first quarter of 2001.  However, due to continued liquidation of
 inventories, eMachines' net loss should only show slight improvement over the
 first quarter of 2001 (excluding costs associated with the CEO transition and
 the restructuring of the Internet business unit).  During the second quarter,
 eMachines will test market its new direct channel effort through the limited
 launch of an infomercial, the results of which are expected to be neutral for
 the quarter.
     In the second half of 2001, eMachines anticipates continued sales weakness
 in the third quarter and a return to more seasonal levels in the fourth
 quarter.  Sales in the third quarter should show some improvement over the
 prior preceding quarters of 2001, and losses should greatly narrow as
 eMachines implements its strategies to improve inventory turns and reduce
 operating expenses.  eMachines is comfortable with the published earnings
 estimates of a loss of approximately $0.07 per share in the second half of
 2001.
 
     Q1 2001 Conference Call and Webcast
     eMachines will hold its first quarter 2001 conference call and live audio
 Webcast today at 4:30 p.m. Eastern/1:30 p.m. Pacific.  Webcast details are at
 http://www.streetevents.com or http://www.e4me.com/investors.html.
 
     Annual Shareholders Meeting
     eMachines, Inc.'s first Annual Shareholders Meeting will be held on
 Wednesday, June 20, 2001 at 9:00 a.m. at the Hyatt Regency hotel in Irvine,
 California.
 
     About eMachines, Inc.
     eMachines, Inc. (Nasdaq: EEEE) is a leading provider of low-cost,
 high-value personal computers.  Founded in September 1998, eMachines began
 selling its low-cost 'eTower(TM)' desktop computers in November 1998.  In June
 1999, eMachines sold the third highest number of PCs through retailers in the
 United States, according to leading market research organizations, and
 presently holds this number three market share position.  Since inception,
 eMachines has shipped more than 3.7 million PCs through leading national and
 international retailers, catalog and online merchandisers.  Approximately one
 of every two eMachines consumers is a first-time PC buyer, based on owner
 registrations with eMachines.  eMachines' Web site is located at
 http://www.e4me.com.
 
     This press release contains forward-looking statements relating to future
 events and results that are based on eMachines, Inc.'s current expectations.
 These statements relate to the outlook and prospects for eMachines and the
 markets in which it operates.  These statements involve risks and
 uncertainties including, without limitation, the level of demand for
 eMachines' products and services, eMachines' and its suppliers' ability to
 timely develop, deliver, and support new and existing products and services,
 eMachines' ability to manage and liquidate its inventory, reduce operating
 expenses and predict changes in the PC market, the cost and availability of
 key product components, competitive pressures relating to price reductions,
 new product introductions by third parties, technological innovations,
 eMachines' ability to successfully appeal the delisting of its stock, and
 overall market conditions, including demand for computers, Internet access
 devices and Internet services, and eMachines' ability to timely and
 cost-effectively restructure its Internet business unit. Consequently, actual
 events and results in future periods may differ materially from those
 currently expected.  Additional information regarding the factors that may
 affect eMachines' future performance is included in the public reports that
 eMachines files with the Securities and Exchange Commission.
 
 
                                eMachines, Inc.
            Unaudited Condensed Consolidated Statement of Operations
                    (In thousands, except share information)
 
                                               Quarter Ended   Quarter Ended
                                               March 31, 2001  April 1, 2000
     Net revenues:
       Hardware                                   $134,435        $246,443
       Internet                                      1,751           3,397
         Net revenues                              136,186         249,840
 
     Cost of revenues:
       Hardware                                    146,037         234,979
       Internet                                        588             353
         Cost of revenues                          146,625         235,332
 
       Gross profit (loss)                         (10,439)         14,508
 
     Operating expenses:
       Sales and marketing (Note 1.)                 4,330           6,060
       Customer service and technical support        2,456           3,775
       General and administrative (Note 2.)         14,746           5,926
       Amortization of intangible assets             1,461          10,196
         Total operating expenses                   22,993          25,957
 
     Loss from operations                          (33,432)        (11,449)
     Interest and other income, net                  2,342           1,899
     Net loss                                      (31,090)         (9,550)
 
     Accretion of mandatorily redeemable
      preferred stock to redemption value               --          (2,346)
     Net loss attributable to
      common stockholders                         $(31,090)       $(11,896)
 
     Net loss per share attributable
      to common stockholders:
       Basic and diluted                            $(0.21)         $(0.13)
 
     Shares used in computing loss:
       Basic and diluted                       145,473,944      88,216,680
 
     Supplementary information:
 
     Reconciliation from net loss
      attributable to common stockholders
      to income (loss) before amortization
      of intangible assets, non-cash
      stock-based compensation, accretion of
      mandatorily redeemable preferred stock
      to redemption value and CEO transition
      costs and Internet business unit
      restructuring charge:
 
       Net loss attributable to
        common stockholders                       $(31,090)       $(11,896)
       Amortization of intangible assets             1,461          10,196
       Non-cash stock-based compensation                60              91
       Accretion of mandatorily redeemable
        preferred stock to redemption value             --           2,346
       CEO transition costs and Internet
        business unit restructuring charge           7,485              --
       Income (loss) before amortization
        of intangible assets, non-cash stock-based
        compensation, accretion of mandatorily
        redeemable preferred stock to redemption
        value and CEO transition costs and
        Internet business unit
        restructuring charge                      $(22,084)           $737
 
     Income (loss) per share before
      amortization of intangible assets,
      non-cash stock-based compensation,
      accretion of mandatorily redeemable
      preferred stock to redemption value and
      CEO transition costs and Internet
      business unit restructuring charge:
       Basic and diluted                            $(0.15)          $0.01
 
     Shares used in computing income
      (loss) per share:
       Basic                                   145,473,944      88,216,680
       Diluted                                 145,473,944     126,050,426
 
      Note 1: Includes $21 and $22 of non-cash stock-based compensation in 2001
              and 2000, respectively.
      Note 2: Includes $39 and $69 of non-cash stock-based compensation in 2001
              and 2000, respectively and $7,485 for CEO transition costs and
              Internet business unit restructuring charge.
 
 
                                eMachines, Inc.
                Unaudited Condensed Consolidated Balance Sheets
                      March 31, 2001 and December 30, 2000
                    (in thousands, except share information)
 
      March 31, 2001 December 30, 2000
     ASSETS
     Current assets:
       Cash and cash equivalents                  $144,169         $96,883
       Restricted cash                              11,333           9,124
       Short-term investments                           --           6,901
       Accounts receivable, less allowances
        ($4,294 and $6,119 at March 31, 2001
        and December 30, 2000, respectively)        56,424          91,767
       Inventories                                  95,941         163,703
       Prepaid and other current assets              5,843           2,400
 
         Total current assets                      313,710         370,778
 
     Property and equipment, net                     3,070           3,411
     Intangible assets, net                         10,466          11,927
     Other assets                                    4,427           7,921
 
                                                  $331,673        $394,037
 
     LIABILITIES AND STOCKHOLDERS' EQUITY
     Current liabilities:
       Accounts payables-related party             $58,101         $58,862
       Accounts payable                              6,662          25,948
       Accrued rebates                              16,290          34,037
       Accrued royalties payable                    10,234          11,382
       Accrued expenses and other
        current liabilities                         29,215          22,886
 
         Total current liabilities                 120,502         153,115
     Deferred revenue - noncurrent portion           1,247           1,529
 
     Subordinated note payable to stockholder          290             290
 
     Stockholders' equity:
       Preferred stock, $.01 par value;
        35,000,000 shares authorized; no shares
        issued and outstanding
       Common stock, $.0000125 par value;
        350,000,000 shares authorized at March
        31, 2001; 145,477,758 and 145,459,825
        shares outstanding at March 31, 2001
        and December 30, 2000, respectively              2               2
       Additional paid-in capital                  475,631         475,623
       Unearned stock compensation                  (1,193)         (1,253)
       Note receivable from stockholder                 --            (200)
       Accumulated deficit                        (264,806)       (233,716)
       Accumulated other comprehensive loss             --          (1,353)
 
         Total stockholders' equity                209,634         239,103
 
                                                  $331,673        $394,037
 
                     MAKE YOUR OPINION COUNT -  Click Here
                http://tbutton.prnewswire.com/prn/11690X52443588
 
 SOURCE  eMachines, Inc.