PMCS (MM)

PMC-Sierra, Inc. (Nasdaq:PMCS): -- � Q1 Net Revenues: � $125.0 million -- Q1 GAAP Net Loss: $(22.7) million or $(0.10) per share (fully diluted) -- Q1 Non-GAAP Net Income: $23.5 million or $0.11 per share (fully diluted) PMC-Sierra, Inc. (Nasdaq:PMCS), a leading provider of high-speed broadband communications and storage semiconductors, today reported results for the first quarter ending March 30, 2008. Net revenues in the first quarter of 2008 were $125.0 million, which is 21% higher than the first quarter of 2007 and a slight increase compared with $123.6 million in the fourth quarter of 2007. Net loss in the first quarter of 2008 on a GAAP basis was $22.7 million (GAAP basic and diluted loss per share of $0.10) compared with a GAAP net loss in the fourth quarter of 2007 of $5.1 million (GAAP basic and diluted loss per share of $0.02). Non-GAAP net income in the first quarter of 2008 was $23.5 million (non-GAAP diluted earnings per share of $0.11) compared with non-GAAP net income of $20.1 million (non-GAAP diluted earnings per share of $0.09) in the fourth quarter of 2007. Non-GAAP net income in the first quarter of 2008 excludes the following items: (i) $7 million in stock-based compensation expense; (ii) $9.8 million amortization of purchased intangible assets; (iii) $0.9 million in restructuring costs; (iv) $3.6 million foreign exchange gain relating to an income tax liability in a foreign jurisdiction; (v) $1.4 million gain on repurchase of senior convertible notes, net; and (vi) $30.3 million relating to FIN48 items arising in prior years and related interest, $2.3 million tax impact related to repatriation of earnings from a foreign jurisdiction, and $0.8 million income tax provision related to the non-GAAP adjustments above. For a full reconciliation of GAAP net income to non-GAAP net income, please refer to the schedule included with this release. The Company believes the additional non-GAAP measures are useful to investors for the purpose of financial analysis. Management uses the non-GAAP measures internally to evaluate its in-period operating performance before gains, losses and other charges that are considered by management to be outside of the Company�s core operating results. In addition, the measures are used to plan for the Company�s future periods. However, non-GAAP measures are neither stated in accordance with, nor are they a substitute for, GAAP measures. �In the first quarter, we experienced strong demand for our fiber to the home, enterprise storage, and laser printer products,� said Bob Bailey, chairman and chief executive officer of PMC-Sierra. �We believe that the overall business environment has improved in Asia, and PMC-Sierra is gaining market share in a number of key target markets.� During the first quarter of 2008, the Company repurchased $98.0 million of its outstanding 2.25% senior convertible notes (due October 2025) in the open market. Following the repurchase, a total of $127.0 million of senior convertible notes are outstanding on the Company�s balance sheet at the end of the first quarter of 2008. On April 2, 2008, the Company announced the appointment of Greg Lang as president and chief executive officer. The position will become effective immediately upon the resignation of Robert Bailey as the Company�s president and chief executive officer following the filing of the Company�s first quarter 2008 Form 10-Q, which will be on or before May 9, 2008. The Company�s Board of Directors also elected Mr. Lang to serve as a director effective as of the next meeting of the Board. Mr. Bailey will continue as PMC-Sierra�s Chairman of the Board. Prior to his appointment at PMC-Sierra, Mr. Lang was president and CEO at Integrated Device Technology, Inc. since 2001. Before that, Mr. Lang spent 15 years at Intel and was vice president and general manager of the Platform Networking Group. The Company made the following product announcements in Q1 2008: PMC-Sierra announced a multi-year joint development agreement with IBM for RAID technology. The companies expect this agreement to accelerate the development of innovative RAID chipset and software solutions for 6Gbit/s next-generation enterprise server and storage systems. We introduced a new family of controller-based encryption solutions for secure enterprise storage. The Tachyon� QE8e+ for Fibre Channel and the SPCe 8x6G for SAS/SATA both feature PMC-Sierra�s StorCladTM encryption technology that significantly improves system performance, cost and manageability compared to currently available data security solutions. We announced the availability of complete 10G EPON reference designs for Optical Line Terminals (OLTs) and Optical Network Units (ONTs). The PAS8001 OLT and PAS9001 ONU reference designs leverage PMC-Sierra�s market-leading EPON capabilities and integrate all the functionality to enable 10Gbit/s IEEE 802.3av EPON. At Storage Networking World Spring, we announced the SXP 24x6GSec and SXP 36x6GSec SAS-2 expander embedded switches that significantly improve performance, manageability and security in enterprise storage applications. PMC-Sierra now provides the first end-to-end chipset solutions for 6Gb/s SAS/SATA enterprise storage systems and server RAID. First Quarter 2008 Conference Call Management will review the first quarter 2008 results and provide guidance for the second quarter of 2008 during a conference call at 1:45 p.m. Pacific Time/4:45 p.m. Eastern Time on April 17, 2008. The conference call webcast will be accessible under the Financial Events and Calendar section at http://investor.pmc-sierra.com/. To listen to the conference call live by telephone, dial 416-642-5213 approximately ten minutes before the start time. A telephone playback will be available after the completion of the call and can be accessed at 647-436-0148 using the access code 4313465. A replay of the webcast will be available for five business days. Second Quarter 2008 Conference Call PMC-Sierra is planning on releasing its results for the second quarter of 2008 on July 17th. A conference call will be held on the day of the release to review the quarter and provide an outlook for the third quarter of 2008. Safe Harbor Statement PMC-Sierra�s forward-looking statements are subject to risks and uncertainties. Actual results may differ from these projections. The Company�s SEC filings describe more fully the risks associated with the Company�s business including PMC-Sierra�s limited revenue visibility due to variable customer demands, market segment growth or decline, orders with short delivery lead times, customer concentration, and other items such as foreign exchange rates. The Company does not undertake any obligation to update the forward-looking statements. About PMC-Sierra PMC-SierraTM is a leading provider of broadband communications and storage semiconductors for metro, access, fiber to the home, wireless infrastructure, storage, laser printers, and fiber access gateway equipment. PMC-Sierra offers worldwide technical and sales support, including a network of offices throughout North America, Europe, Israel and Asia. The company is publicly traded on the NASDAQ Stock Market under the PMCS symbol. For more information, visit www.pmc-sierra.com. � Copyright PMC-Sierra, Inc. 2008. All rights reserved. PMC and Tachyon are registered trademarks of PMC-Sierra, Inc. in the United States and other countries. PMC-SIERRA, PMCS, StorClad and �Enabling connectivity. Empowering people.� are trademarks of PMC-Sierra, Inc. Other product and company names mentioned herein may be trademarks of their respective owners. PMC-Sierra, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except for per share amounts) (unaudited) � Three Months Ended March 30, � December 30, � April 1, 2008 2007 2007 � Net revenues $ 125,040 $ 123,569 $ 103,665 Cost of revenues � 43,306 � � 43,205 � � 37,571 � Gross profit 81,734 80,364 66,094 � � Other costs and expenses: Research and development 37,310 37,418 44,524 Selling, general and administrative 24,209 24,493 26,698 Amortization of purchased intangible assets 9,836 9,836 9,835 Restructuring costs and other charges � 887 � � 2,593 � � 6,894 � Income (loss) from operations 9,492 6,024 (21,857 ) � Other income (expense): Interest income, net 2,234 2,877 1,837 Foreign exchange gain (loss) 3,158 (2,511 ) (996 ) Amortization of debt issue costs (207 ) (242 ) (242 ) Gain on repurchase of Senior convertible notes, net � 1,351 � � - � � - � Income (loss) before provision for income taxes 16,028 6,148 (21,258 ) � (Provision for) recovery of income taxes � (38,686 ) � (11,229 ) � 5,435 � Net loss $ (22,658 ) $ (5,081 ) $ (15,823 ) � Net loss per common share - basic and diluted $ (0.10 ) $ (0.02 ) $ (0.07 ) � Shares used in per share calculation - basic and diluted 219,931 218,912 213,881 As a supplement to the Company's condensed consolidated statement of operations presented on a generally accepted accounting principles (GAAP) basis, the Company provides additional non-GAAP measures for net income (loss) and net income (loss) per share in its press release. � A non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The Company believes that the additional non-GAAP measures are useful to investors for the purpose of financial analysis. Management uses these measures internally to evaluate the Company's in-period operating performance before gains, losses and other charges that are considered by management to be outside of the Company's core operating results. In addition, the measures are used for planning and forecasting of the Company's future periods. However, non-GAAP measures are not in accordance with, nor are they a substitute for, GAAP measures. Other companies may use different non-GAAP measures and presentation of results. � � PMC-Sierra, Inc. Reconciliation of GAAP net loss to Non-GAAP net income (in thousands, except for per share amounts) (unaudited) � � � � � � � � Three Months Ended Three Months Ended March 30, 2008 April 1, 2007 Reported Non-GAAP Items Non-GAAP Reported Non-GAAP Items Non-GAAP � Net revenues $ 125,040 - $ 125,040 $ 103,665 � - $ 103,665 � Cost of revenues � 43,306 � � (315 ) (1) � 42,991 � � 37,571 � � (517 ) (1) � 37,054 � � Gross profit 81,734 315 82,049 66,094 517 66,611 � Operating expenses: Research and development 37,310 (3,162 ) (1) 34,148 44,524 (4,267 ) (1) 40,257 Selling, general and administrative 24,209 (3,529 ) (1) 20,680 26,698 (4,633 ) (1) 22,065 Amortization of purchased intangible assets 9,836 (9,836 ) (2) - 9,835 � � � (9,835 ) (2) - Restructuring costs and other charges � 887 � � (887 ) (3) � - � � 6,894 � � (6,894 ) (7) � - � � Income (loss) from operations 9,492 17,729 27,221 (21,857 ) 26,146 4,289 � Other income (expense): Interest income, net 2,234 - 2,234 1,837 - 1,837 Foreign exchange gain (loss) 3,158 (3,605 ) (4) (447 ) (996 ) 979 (4) (17 ) Amortization of debt issue costs (207 ) - (207 ) (242 ) - (242 ) Gain on repurchase of Senior convertible notes, net � 1,351 � � (1,351 ) (5) � - � � - � � - � � - � � Income (loss) before provision for income taxes 16,028 12,773 28,801 (21,258 ) 27,125 5,867 � (Provision for) recovery of income taxes � (38,686 ) � 33,408 � (6) � (5,278 ) � 5,435 � � (6,902 ) (8) � (1,467 ) Net (loss) income $ (22,658 ) $ 46,181 � $ 23,523 � $ (15,823 ) $ 20,223 � $ 4,400 � � Net (loss) income per common share - basic $ (0.10 ) $ 0.11 $ (0.07 ) $ 0.02 Net (loss) income per common share - diluted $ (0.10 ) $ 0.11 $ (0.07 ) $ 0.02 � Shares used in per share calculation - basic 219,931 219,931 213,881 � 213,881 Shares used in per share calculation - diluted 219,931 220,948 213,881 215,385 � Non-GAAP adjustments include: (1) Stock based compensation of $7 million (Q1'07 - $9.4 million). (2) $9.8 million amortization of intangible assets purchased from Passave, Inc. and the Avago Storage Semiconductor Business. (3) $0.9 million restructuring costs including $0.3 million for severance and $0.6 million for excess facilities. (4) Foreign exchange gain of $3.6 million (Q1'07 - foreign exchange loss of $1 million) on an income tax liability in a foreign jurisdiction and related cash held for future settlement of this liability. (5) $3.3 million gain on repurchase of Senior convertible notes, net of $1.9 million write-off of related debt issue costs. (6) $30.3 million relating to FIN48 items arising in prior years and related interest, $2.3 million tax impact related to repatriation of earnings from a foreign jurisdiction, and $0.8 million income tax provision related to the non-GAAP adjustments above. (7) $6.9 million restructuring costs including $4.5 million severance, $0.4 million write-down of assets and $2 million provision for excess facilities. (8) $4 million income tax recovery relating to prior years and $2.9 million income tax effect relating to these non-GAAP adjustments. PMC-Sierra, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) � � March 30, December 30, 2008 2007 � ASSETS: Current assets: Cash and cash equivalents $ 285,624 $ 364,922 Accounts receivable, net 45,670 39,362 Inventories, net 35,876 34,246 Prepaid expenses and other current assets 15,161 16,266 Income tax receivable � - � � 2,365 � Total current assets 382,331 457,161 � Goodwill 396,144 398,418 Intangible assets, net 185,713 187,126 Property and equipment, net 17,820 18,725 Investments and other assets 7,871 10,747 Deposits for wafer fabrication capacity 5,145 5,145 Deferred tax assets � 52,541 � � 54,676 � $ 1,047,565 � $ 1,131,998 � � LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable $ 21,041 $ 24,011 Accrued liabilities 55,189 53,617 Income taxes payable 421 - Deferred income taxes 2,042 2,787 Liability for unrecognized tax benefit 76,777 71,586 Accrued restructuring costs 9,693 10,911 Deferred income � 17,373 � � 13,674 � Total current liabilities 182,536 176,586 � Long-term obligations 1,232 958 2.25% Senior convertible notes due October 15, 2025 127,000 225,000 Deferred income taxes 24,001 23,023 Liability for unrecognized tax benefit 127,870 107,764 � PMC special shares convertible into 2,065 (2007 - 2,065) shares of common stock 2,671 2,671 � Stockholders' equity Common stock and additional paid in capital 1,406,080 1,395,183 Accumulated other comprehensive income (loss) (543 ) 1,437 Accumulated deficit � (823,282 ) � (800,624 ) Total stockholders' equity � 582,255 � � 595,996 � $ 1,047,565 � $ 1,131,998 � PMC-Sierra, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) � � Three Months Ended March 30, April 1, 2008 2007 � Cash flows from operating activities: Net loss $ (22,658 ) $ (15,823 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Stock-based compensation 7,006 9,418 Depreciation and amortization 13,157 14,965 Foreign exchange (gain) loss on tax liability, net (3,605 ) 979 Gain on repurchase of Senior convertible notes, net (1,351 ) - (Gain) loss on disposal of property (32 ) 484 Changes in operating assets and liabilities: Accounts receivable (6,308 ) (1,627 ) Inventories (1,630 ) 3,904 Prepaid expenses and other current assets 711 1,159 Accounts payable and accrued liabilities (7,464 ) (47 ) Deferred taxes and income taxes payable 38,556 (1,615 ) Accrued restructuring costs (1,218 ) 4,357 Deferred income � 3,699 � � 1,682 � Net cash provided by operating activities � 18,863 � � 17,836 � � Cash flows from investing activities: Purchases of property and equipment (1,467 ) (2,257 ) Proceeds from sale of property and equipment 32 - Purchase of intangible assets � (4,155 ) � (1,388 ) Net cash used in investing activities � (5,590 ) � (3,645 ) � Cash flows from financing activity: Repurchase of Senior convertible notes (95,491 ) - Proceeds from issuance of common stock � 3,891 � � 7,596 � Net cash provided by (used in) financing activity � (91,600 ) � 7,596 � � Effect of exchange rate changes on cash and cash equivalents (971 ) - Net (decrease) increase in cash and cash equivalents (78,327 ) 21,787 Cash and cash equivalents, beginning of the period � 364,922 � � 258,914 � Cash and cash equivalents, end of the period $ 285,624 � $ 280,701 �