BEAVERTON, OR -- 01/09/08 --
Merix Corporation (NASDAQ: MERX) today
announced consolidated financial results for the fiscal 2008 second quarter
ended December 1, 2007.
The Company reported a loss from continuing operations of $5.0 million or
$0.24 per share on revenue of $97.4 million for the second quarter of
fiscal 2008, which compares to income from continuing operations of $3.0
million or $0.14 per share on revenue of $103.7 million for the second
quarter of fiscal 2007. Included in the second quarter of fiscal 2008 loss
was $1.0 million of severance costs associated with the previously
announced Hong Kong factory closure.
For comparison purposes it's important to note that the Company's 52 week
fiscal year reporting convention results in one additional week of
reporting approximately every five years. As a result, the first quarter
of fiscal 2008 contained 14 weeks compared to the standard 13 weeks.
Second quarter fiscal 2008 revenue declined 6% when compared to the second
quarter of fiscal 2007. The decline was expected and is primarily a result
of the normal cyclical slowdown that has been experienced in the North
American printed circuit board markets over the last 12 months. On a
sequential quarterly 13 week adjusted basis, second quarter revenue grew 5%
when compared to the first quarter of fiscal 2008. North America quarterly
revenue grew 1% on a sequential basis to $52.9 million. Fiscal 2008 second
quarter revenue for Merix Asia was $44.5 million, which was the highest
quarterly rate since its acquisition in September 2005.
"I am pleased with the revenue growth and operating improvement progress we
have seen in our Asian operations," said Michael D. Burger, President and
Chief Executive Officer. "However, I am very disappointed in the revenue
and profit performance in North America. Our North American results fell
below our expectations and were a key contributor to our continued net loss
in the second quarter."
Merix' overall gross margin averaged 11.6% of revenue for the second
quarter of fiscal 2008 compared to 18.1% and 13.0% in the second quarter of
fiscal 2007 and first quarter of fiscal 2008, respectively. The decline in
gross margin when compared to the second quarter of fiscal 2007 was
primarily a result of the lower North American revenue and its impact on
factory fixed cost absorption. The reduction from the first quarter of
fiscal 2008 was a direct result of a 3.1 percentage point decline in North
American gross margin to 12.2% resulting from lower than expected demand
combined with an unfavorable change in the mix of business coming from
several end markets. Partially offsetting the decline in North America
gross margin was a modest sequential quarterly improvement to 10.7% in Asia
gross margins. This improvement was expected and enabled by the successful
completion of the first phase of our Chinese expansion plan that was
completed ahead of schedule as the quarter ended.
"The Asia restructuring and planned profit improvements remain on track,"
commented Mr. Burger. "We have significantly grown our Asia revenues and
have nearly doubled our Asia gross margins over the last 12 months. We
anticipate further improvements in both revenue and margins as we complete
the second phase of our planned expansion over the next 6 to 9 months."
Operating expenses, excluding $1.0 million of severance costs, declined
$0.7 million to $13.5 million in the second quarter of fiscal 2008 when
compared to the second quarter of fiscal 2007 as a result of the initial
actions taken to improve our overall financial model.
"Our financial results fell short of the expectations set earlier in the
quarter," commented Mr. Burger. "I am disappointed in the Company's
overall financial performance and the speed to which we reacted in the
quarter to the changing business environment. As a result, we are taking
immediate action to improve our North American profitability."
This week Merix will begin the elimination of approximately 180 employees
from our North America-based workforce. The reduction will primarily
affect our North American manufacturing operations and to a lesser extent
all other support functions enabling savings in both cost of sales and
operating expenses. The work force reductions combined with other
efficiency improvements are anticipated to reduce our annual cost structure
by approximately $11 million. In addition, we are announcing our intention
to close our Wood Village, Oregon mass lamination operation by March 1,
2008.
Mr. Burger continued, "As I mentioned above, our Chinese expansion has
progressed well and remains ahead of schedule. This expansion gives us the
additional flexibility of closing our Wood Village operation while still
providing our customers with an improved Asian-based solution many of them
are seeking. When complete, the Wood Village closure is anticipated to
reduce our North American fixed cost base by over $7 million annually. In
addition, it appears as though the excellent progress we are making on our
Chinese expansion may enable the full closure of our Hong Kong factory to
occur four to six months earlier than originally anticipated. Assuming the
closure occurs this spring, we anticipate that it will enable the
realization of an additional $1.0 million to $1.5 million of quarterly cost
savings exiting our fourth quarter of fiscal 2008."
Business Outlook
The Company completed the second fiscal quarter of 2008 with $63.7 million
of backlog to be shipped during the third fiscal quarter of 2008. The
third quarter is an inherently difficult period to estimate revenue given
the holiday buying cycles. We currently estimate third quarter revenue to
range from $94 million to $98 million. Net income is more difficult to
predict. We are taking meaningful cost out of the Oregon factory, but we
also appreciate disruption often occurs when there is a large reduction in
force, which can impact output. The third quarter remains a quarter of
transition and as such we anticipate financial results to approximate those
reported in the second fiscal quarter. Our objective is to return the
company to profitability in the first quarter of fiscal 2009 and achieve
our financial model during the second half of fiscal 2009.
Commenting on the outlook, Mr. Burger stated, "The changing demand
environment has delayed our expected return to profitability. However, I
remain optimistic we are on the right path to achieving good financial
returns to our shareholders in all market conditions with the plans and
actions we have communicated to you today."
Conference Call and Webcast Information
Merix will conduct a conference call and live webcast today Wednesday,
January 9, 2008 at 7:00 a.m. Pacific Time. Management will discuss second
quarter fiscal 2008 results, its business outlook for the third quarter and
comment further on the strategic direction of the Company. To access the
webcast, log on to www.merix.com.
A telephone replay will be available from 10:00 am PT on Wednesday, January
9, 2008 until approximately 12:00 am PT on Friday, January 18, 2008 by
calling (706) 645-9291, access code 27522764.
Use of Non-GAAP Financial Measures
The non-GAAP financial measure "Adjusted EBITDA" is disclosed in this press
release. Management believes the disclosure of this non-GAAP financial
measure, when presented in conjunction with the corresponding GAAP
measures; provides useful information to the Company, investors and other
users of the financial statements. Management believes this measure is an
important factor of the Company's business because it reflects financial
performance that is unencumbered by debt service and/or other non-recurring
or unusual items. The EBITDA financial measure is commonly used in the
Company's industry, however, it should not be considered as an alternative
to cash flow from operating activities, as a measure of liquidity or as an
alternative to net income or operating results in accordance with generally
accepted accounting principles. The Company's definition of adjusted
EBITDA may differ from definitions of such financial measures used by other
companies. The Company has provided a reconciliation of both measures to
GAAP financial information in the attached schedules.
About Merix
Merix is a leading manufacturer of technologically advanced, multilayer,
rigid printed circuit boards for use in sophisticated electronic equipment.
Merix provides high-performance materials, quick-turn prototype,
pre-production and volume board production to its customers. Principal
markets served by Merix include communications and networking, computing
and peripherals, industrial and medical, defense and aerospace, and
automotive end markets in the electronics industry. Additional corporate
information is available on the internet at www.merix.com
Forward-Looking Statements
This release contains "forward-looking statements" within the meaning of
the Securities Litigation Reform Act of 1995 relating to the Company's
business operations and prospects, including statements related to
estimates of financial results for the second quarter of fiscal 2008 that
are made pursuant to the safe harbor provisions of the federal securities
laws. These forward-looking statements, which may be identified by the
inclusion of words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates," "goal" and other similar expressions, are
based on current expectations, estimates, assumptions and projections that
are subject to change. Actual results may differ materially from the
forward-looking statements. Many factors, including the following, could
cause actual results to differ materially from the forward-looking
statements: our ability to control or pass through increases in the cost of
raw materials and supplies; changes in customer order levels, product mix
and inventory build-up; lower than expected or delayed sales; ability to
successfully restructure Merix Asia and complete the related capital
expansion; the ability to successfully and timely integrate the operations
of Merix Asia; fluctuations in demand for products and services of the
Company, including quick-turn and premium services; foreign currency risk;
the introduction of new products or technologies by competitors; the
ability to avoid unanticipated costs, including costs relating to product
quality issues and customer warranty claims; pricing and other competitive
pressures in the industry from domestic and global competitors; all other
risks inherent in foreign operations such as increased regulatory
complexity and compliance cost and greater political and economic
instability; our ability to fully utilize our assets and control costs;
our ability to retain or attract employees with sufficient know-how to
conduct our manufacturing processes and maintain or increase our production
output and quality; and other risks listed from time to time in the
Company's filings with the Securities and Exchange Commission or otherwise
disclosed by the Company, including those set forth in the Company's Annual
Report on Form 10-K for the year ended May 26, 2007. Merix Corporation does
not undertake to update any such factors or to publicly announce
developments or events relating to the matters described herein.
MERIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share data, unaudited)
Three Months Ended Six Months Ended
------------------------------ --------------------
December September November December November
1, 2007 1, 2007 25, 2006 1, 2007 25, 2006
--------- --------- --------- --------- ---------
Net Sales $ 97,378 $ 99,430 $ 103,657 $ 196,808 $ 206,636
Cost of Sales 86,128 86,478 84,908 172,606 167,725
--------- --------- --------- --------- ---------
Gross Margin 11,250 12,952 18,749 24,202 38,911
Operating Expenses:
Selling, general
and
administrative 12,841 13,951 13,419 26,792 26,854
Amortization of
identifiable
intangible assets 645 613 761 1,258 1,523
Severance and
impairment
charges 980 241 - 1,221 -
--------- --------- --------- --------- ---------
Total
operating
expenses 14,466 14,805 14,180 29,271 28,377
--------- --------- --------- --------- ---------
Operating Income
(Loss) (3,216) (1,853) 4,569 (5,069) 10,534
Other Income
(Expense):
Interest income 275 294 409 569 744
Interest expense (1,076) (1,096) (1,226) (2,172) (2,989)
Other income
(expense), net (244) (348) (178) (592) (739)
--------- --------- --------- --------- ---------
Total other
expense, net (1,045) (1,150) (995) (2,195) (2,984)
--------- --------- --------- --------- ---------
Income (loss) from
continuing
operations before
income taxes and
minority interests (4,261) (3,003) 3,574 (7,264) 7,550
Income tax expense 546 410 448 956 948
--------- --------- --------- --------- ---------
Income (loss) from
continuing
operations before
minority interests (4,807) (3,413) 3,126 (8,220) 6,602
Minority interests 202 236 175 438 241
--------- --------- --------- --------- ---------
Income (loss) from
continuing
operations (5,009) (3,649) 2,951 (8,658) 6,361
Income (loss) from
discontinued
operations, net of
income tax expense
of $0, $0, $98,
$0, and $98 - - (1,190) - (957)
--------- --------- --------- --------- ---------
Net income (loss) $ (5,009) $ (3,649) $ 1,761 $ (8,658) $ 5,404
========= ========= ========= ========= =========
Diluted income
(loss) per share
from continuing
operations $ (0.24) $ (0.17) $ 0.14 $ (0.41) $ 0.30
Diluted income
(loss) per share
from discontinued
operations - - (0.06) - (0.04)
--------- --------- --------- --------- ---------
Diluted net income
(loss) per share $ (0.24) $ (0.17) $ 0.09 $ (0.41) $ 0.26
========= ========= ========= ========= =========
Shares used in per
share calculations:
Diluted 21,024 20,909 20,760 20,954 25,210
MERIX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
December 1, May 26,
2007 2007
----------- -----------
Assets
Cash and short-term investments $ 16,666 $ 26,200
Accounts receivable, net 78,214 76,825
Inventories, net 26,583 25,231
Assets held for sale 1,223 1,206
Assets of discontinued operations - -
Other current assets 11,291 7,119
----------- -----------
Total current assets 133,977 136,581
Property, plant and equipment, net 107,454 101,264
Goodwill 31,544 31,614
Identifiable intangibles, net 9,913 11,171
Assets of discontinued operations - -
Other assets 5,711 6,227
----------- -----------
Total assets $ 288,599 $ 286,857
=========== ===========
Liabilities and Shareholders' Equity
Current portion of long-term debt $ 2,095 $ 2,532
Accounts payable 55,951 45,918
Other accrued liabilities 17,602 17,713
Income taxes payable 666 352
Liabilities of discontinued operations - -
----------- -----------
Total current liabilities 76,314 66,515
Long-term debt 75,503 75,503
Other long-term liabilities 1,330 1,845
----------- -----------
Total liabilities 153,147 143,863
Minority interest 3,745 4,550
Shareholders’ equity 131,707 138,444
----------- -----------
Total liabilities and shareholders' equity $ 288,599 $ 286,857
=========== ===========
MERIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands, unaudited)
For the Six Months Ended
----------------------
December November
1, 2007 25, 2006
---------- ----------
Cash flows from operating activities:
Net income (loss) $ (8,658) $ 5,404
Net adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation and amortization 11,108 11,976
Other non-cash expense 2,557 2,789
Changes in working capital 1099 (4,530)
---------- ----------
Net cash provided by operating
activities 6,106 15,639
Cash flows from investing activities:
Purchases of property, plant and equipment (12,070) (11,802)
Proceeds from disposal of property, plant and
equipment 23 999
Acquisition of businesses, net of cash acquired
and debt assumed - 75
Net changes in investments 9,025 (5,475)
---------- ----------
Net cash provided by (used in)
investing activities (3,022) (16,203)
Cash flows from financing activities:
Principal payments on long-term borrowings (438) (2,867)
Other financing activities, net (3,155) 1,863
---------- ----------
Net cash provided by (used in)
financing activities (3,593) (1,004)
Effect of exchange rate changes - -
---------- ----------
Increase (decrease) in cash and cash equivalents (509) (1,568)
Cash and cash equivalents:
Beginning of period 17,175 12,280
---------- ----------
End of period $ 16,666 $ 10,712
========== ==========
Merix Corporation
Supplemental Information
Q2 07 Q1 08 Q2 08
--------------- --------------- ---------------
SALES BY END MARKETS (%
of Net Sales)
Communications &
Networking 42% $ 43,754 42% $ 41,777 39% $ 37,575
Computing & Peripherals 16% 16,748 8% 8,013 9% 8,375
Industrial & Medical 8% 7,996 10% 10,323 10% 9,724
Defense & Aerospace 5% 4,843 6% 5,770 7% 6,528
Automotive 17% 17,771 20% 20,208 21% 20,691
Other 12% 12,545 13% 13,339 15% 14,485
---- --------- ---- --------- ---- ---------
Total Sales 100% $ 103,657 100% $ 99,430 100% $ 97,378
---- --------- ---- --------- ---- ---------
SHARE BASED COMPENSATION
Share based compensation
included in:
Cost of goods sold $ 81 $ 82 $ 58
Operating expense 450 678 480
--------- --------- ---------
Total share-based
compensation $ 531 $ 760 $ 538
--------- --------- ---------
DILUTED EARNINGS PER
SHARE CALCULATIONS
Weighted average shares
outstanding 20,384 20,909 21,024
Add: Dilutive stock
options 376 - -
--------- --------- ---------
Shares used in diluted
EPS calculations 20,760 20,909 21,024
Net income from
continuing operations $ 2,951 $ (3,649) $ (5,009)
--------- --------- ---------
Net income used in
diluted EPS
calculations $ 2,951 $ (3,649) $ (5,009)
Diluted net income per
share from continuing
operations $ 0.14 $ (0.17) $ (0.24)
--------- --------- ---------
ADJUSTED EBITDA
RECONCILIATIONS
Net income $ 1,761 $ (3,649) $ (5,009)
Add back items:
Severance charges - 241 980
Interest expense, net
of def'd financing
cost 1,007 843 842
Interest income (409) (294) (275)
Income tax expense 448 410 546
Amortization of
identifiable
intangible assets 761 613 645
Amortization, other 237 25 48
Depreciation 5,008 4,730 4,560
(Income) loss from
discontinued
operations 1,190 - -
--------- --------- ---------
ADJUSTED EBITDA $ 10,003 $ 2,919 $ 2,337
--------- --------- ---------
Merix Investor Relations Contact:
Allen Muhich
Vice President, Finance & Investor Relations
503.716.3667
