PMC-Sierra, Inc. (Nasdaq:PMCS): -- � Q2 Net Revenues: � $ 139.8
million -- Q2 Non-GAAP Net Income: $ 29.7 million or $0.13 per
share (diluted) -- Q2 GAAP Net Income: � $ 137.2 million or $0.61
per share (diluted) PMC-Sierra, Inc. (Nasdaq:PMCS), a leading
provider of high-speed broadband communications and storage
semiconductors, today reported results for the second quarter ended
June 29, 2008. Net revenues in the second quarter of 2008 were
$139.8 million, an increase of 33.6% compared with the second
quarter of 2007 and 11.8% higher than the $125.0 million in the
first quarter of 2008. Net income in the second quarter of 2008 on
a GAAP basis was $137.2 million (GAAP diluted earnings per share of
$0.61) compared with a GAAP net loss in the first quarter of 2008
of $22.7 million (GAAP basic and diluted loss per share of $0.10).
Non-GAAP net income in the second quarter of 2008 was $29.7 million
(non-GAAP diluted earnings per share of $0.13) compared with
non-GAAP net income of $23.5 million (non-GAAP diluted earnings per
share of $0.11) in the first quarter of 2008. Non-GAAP net income
in the second quarter of 2008 excludes $124.3 million related to an
adjustment to the accrual for unrecognized tax benefits. During the
second quarter, the Company reached a settlement on several ongoing
foreign tax matters related to prior years for amounts less than
had been accrued as unrecognized tax benefits. As part of the
settlement, the Company agreed to a cash payment of $18.0 million
and utilized $38.1 million in investment tax credits. The non-GAAP
net income for the second quarter of 2008 also excludes the
following items: (i) $7.4 million in stock-based compensation
expense; (ii) $9.8 million amortization of purchased intangible
assets; (iii) $0.1 million in restructuring related to severance;
(iv) $0.8 million foreign exchange loss on the Company�s liability
for unrecognized tax benefits; and (v) $1.3 million income tax
effect of these non-GAAP adjustments. 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 second quarter, we experienced strong demand for our fiber to
the home products in Asia as well as growth in our wireline
infrastructure products,� said Greg Lang, president and chief
executive officer of PMC-Sierra. �We are very focused on product
execution in the second half of the year to further penetrate the
enterprise storage and communications markets.� The Company made
the following product announcements in Q2 2008: PMC-Sierra
announced the industry�s first demonstration of 10Gbit/s IEEE
802.3av EPON for next-generation fiber to the home deployments. The
demonstration, which includes the PAS8001 for 10G Optical Line
Terminals and the PAS9001 for 10G Optical Network Units, was
conducted at OptiNet China, in Beijing. The reference designs
integrate all the functionality required from an OLT and ONU
running at 10Gbit/s and leverage our market-leading EPON
capabilities while reducing our OEM customers� time to market. We
announced successful interoperability between PMC-Sierra�s
end-to-end 6Gbit/s SAS chipsets and Hitachi Global Storage
Technologies� 6Gbit/s SAS prototype hard disk drives (HDDs) and
Seagate Technology�s early development 6Gbit/s SAS HDDs. 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 6Gbit/s SAS/SATA enterprise storage systems
and server RAID. Second Quarter 2008 Conference Call Management
will review the second quarter 2008 results and provide guidance
for the third quarter of 2008 during a conference call at 1:30 p.m.
Pacific Time/4:30 p.m. Eastern Time on July 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 416-642-5212
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 9648731. A replay
of the webcast will be available for five business days. Third
Quarter 2008 Conference Call PMC-Sierra is planning on releasing
its results for the third quarter of 2008 on October 16, 2008. A
conference call will be held on the day of the release to review
the quarter and provide an outlook for the fourth 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-Sierra� 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 PMC-SIERRA are
registered trademarks of PMC-Sierra, Inc. in the United States and
other countries. PMCS 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 � Six Months Ended June
29, � March 30, � July 1, June 29, � July 1, 2008 2008 2007 2008
2007 � Net revenues $ 139,839 $ 125,040 $ 104,692 $ 264,879 $
208,357 Cost of revenues � 49,073 � � 43,306 � � 37,650 � � 92,379
� � 75,221 � Gross profit 90,766 81,734 67,042 172,500 133,136 �
Other costs and expenses: Research and development 39,995 37,310
41,635 77,305 86,159 Selling, general and administrative 24,180
24,209 25,171 48,389 51,869 Amortization of purchased intangible
assets 9,836 9,836 9,836 19,672 19,671 Restructuring costs and
other charges � 157 � � 887 � � 3,786 � � 1,044 � � 10,680 � Income
(loss) from operations 16,598 9,492 (13,386 ) 26,090 (35,243 ) �
Other income (expense): Interest income, net 1,387 2,234 2,472
3,621 4,309 Foreign exchange gain (loss) (1,066 ) 3,158 (7,926 )
2,092 (8,922 ) Amortization of debt issue costs (136 ) (207 ) (242
) (343 ) (484 ) Gain on repurchase of Senior convertible notes, net
� - � � 1,351 � � - � � 1,351 � � - � Income (loss) before recovery
of (provision for) income taxes 16,783 16,028 (19,082 ) 32,811
(40,340 ) � Recovery of (provision for) income taxes � 120,397 � �
(38,686 ) � (3,177 ) � 81,711 � � 2,258 � Net income (loss) $
137,180 � $ (22,658 ) $ (22,259 ) $ 114,522 � $ (38,082 ) � Net
income (loss) per common share - basic $ 0.62 $ (0.10 ) $ (0.10 ) $
0.52 $ (0.18 ) Net income (loss) per common share - diluted $ 0.61
$ (0.10 ) $ (0.10 ) $ 0.51 $ (0.18 ) � � Shares used in per share
calculation - basic 221,008 219,931 215,688 220,470 214,785 Shares
used in per share calculation - diluted 224,984 219,931 215,688
222,966 214,785 As a supplement to the Company�s condensed
consolidated financial statements presented in accordance with
generally accepted accounting principles ("GAAP"), the Company
provides additional non-GAAP measures for net income and net income
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 income (loss) to Non-GAAP net income (in
thousands, except for per share amounts) (unaudited) � Three Months
Ended Six Months Ended June 29, March 30, July 1, June 29, July 1,
2008 (1) 2008 (2) 2007 (3) 2008 (4) 2007 (5) � GAAP net income
(loss) $ 137,180 $ (22,658 ) $ (22,259 ) $ 114,522 $ (38,082 ) �
Included in cost of revenues: Stock-based compensation 410 315 532
725 1,049 Included in other costs and expenses: Stock-based
compensation 6,946 6,691 9,112 13,637 18,012 Reversal of accrual
for employee-related taxes - - (2,212 ) - (2,212 ) Amortization of
intangible assets 9,836 9,836 9,836 19,672 19,671 Restructuring
costs and other charges 157 887 3,786 1,044 10,680 � Included in
other income (expense): Gain on repurchase of Senior convertible
notes, net - (1,351 ) - (1,351 ) - Foreign exchange (gain) loss on
foreign tax liabilities 765 (3,605 ) 8,307 (2,840 ) 9,286 �
Included in provision for income taxes: Recovery of prior year
income taxes - - - - (4,000 ) Settlement of (provision for) foreign
tax matters (124,274 ) 32,583 - (91,691 ) - Income tax effect of
non-GAAP items above � (1,310 ) � 825 � � 261 � � (485 ) � (2,641 )
Non-GAAP net income $ 29,710 � $ 23,523 � $ 7,363 � $ 53,233 � $
11,763 � � Non-GAAP net income per share - basic $ 0.13 $ 0.11 $
0.03 $ 0.24 $ 0.05 Non-GAAP net income per share - diluted $ 0.13 $
0.11 $ 0.03 $ 0.24 $ 0.05 � � Shares used to calculate non-GAAP net
income per share - basic 221,008 219,931 215,688 220,470 214,785
Shares used to calculate non-GAAP net income per share - diluted
224,984 220,948 218,077 222,966 216,731 � Non-GAAP adjustments �
(1) $7.4 million stock based compensation expense; $9.8 million
amortization of purchased intangible assets; $0.1 million in
restructuring related to severance; $0.8 million foreign exchange
loss on the Company�s liability for unrecognized tax benefits;
$124.3 million related to an adjustment to the accrual for
unrecognized tax benefits; and $1.3 million income tax effect
related to the non-GAAP adjustments above. During the second
quarter, the Company reached a settlement on several ongoing
foreign tax matters related to prior years for amounts less than
had been accrued as unrecognized tax benefits. As part of the
settlement, the Company agreed to a cash payment of $18.0 million
and utilized $38.1 million in investment tax credits. � (2) $7.0
million stock-based compensation expense; $9.8 million amortization
of purchased intangible assets; $0.9 million restructuring,
including $0.3 million for severance and $0.6 million for excess
facilities; $1.4 million net gain on the repurchase of Senior
convertible notes; $3.6 million foreign exchange gain on a foreign
tax liability and related cash held for settlement of this
liability; $30.3 million related to FIN 48 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 effect related to the non-GAAP adjustments
above. � (3) $9.6 million stock based compensation expense; $2.2
million reversal of a payroll tax accrual in a foreign
jurisdiction; $9.8 million amortization of purchased intangible
assets; $3.8 million in restructuring, including $3.6 million
related to severance, and $0.2 million related to asset
write-downs; $8.3 million foreign exchange loss on foreign tax
liabilities and related cash held for settlement of this liability;
and $0.3 million income tax effect of the non-GAAP adjustments
above. � (4) $14.4 million stock-based compensation expense; $19.7
million amortization of purchased intangible assets; $1.0 million
restructuring including $0.4 million for severance and $0.6 million
for excess facilities; $1.4 million net gain on the repurchase of
Senior convertible notes; $2.8 million foreign exchange gain on
foreign tax liabilities and cash held for settlement of this
liability; $91.7 million related to the net adjustment to the
accrual for unrecognized tax benefits; and $0.5 million income tax
effect related to the non-GAAP adjustments above. During the second
quarter, the Company reached a settlement on several ongoing
foreign tax matters related to prior years for amounts less than
had been accrued as unrecognized tax benefits. As part of the
settlement, the Company agreed to a cash payment of $18.0 million
and utilized $38.1 million in investment tax credits. � (5) $19.1
million stock-based compensation expense; $2.2 million reversal of
a payroll tax accrual in a foreign jurisdiction; $19.7 million
amortization of purchased intangible assets; $10.7 million
restructuring costs including, $8.1 million additional severance,
$0.6 million writedown of assets and $2.0 million provision for
excess facilities; $9.3 million foreign exchange loss on liability
for unrecognized tax benefits; $4.0 million additional recovery of
prior years� income taxes; and $2.6 million income tax effect of
non-GAAP adjustments. PMC-Sierra, Inc. CONDENSED CONSOLIDATED
BALANCE SHEETS (in thousands) (unaudited) � � June 29, December 30,
2008 2007 � ASSETS: Current assets: Cash and cash equivalents $
322,274 $ 364,922 Accounts receivable, net 45,042 39,362
Inventories, net 37,895 34,246 Prepaid expenses and other current
assets 18,143 16,266 Income tax receivable � - � � 2,365 � Total
current assets 423,354 457,161 � Goodwill 396,144 398,418
Intangible assets, net 174,520 187,126 Property and equipment, net
17,329 18,725 Investments and other assets 6,455 10,747 Deposits
for wafer fabrication capacity 5,145 5,145 Deferred tax assets �
9,655 � � 54,676 � $ 1,032,602 � $ 1,131,998 � � LIABILITIES AND
STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable $
21,344 $ 24,011 Accrued liabilities 57,391 53,617 Income taxes
payable 18,857 - Deferred income taxes 2,042 2,787 Liability for
unrecognized tax benefit 27,286 71,586 Accrued restructuring costs
8,450 10,911 Deferred income � 14,465 � � 13,674 � Total current
liabilities 149,835 176,586 � Long-term obligations 503 958 2.25%
Senior convertible notes due October 15, 2025 127,000 225,000
Deferred income taxes 15,992 23,023 Liability for unrecognized tax
benefit 5,753 107,764 � PMC special shares convertible into 2,045
(2007 - 2,065) shares of common stock 2,655 2,671 � � Stockholders'
equity Common stock and additional paid in capital 1,417,620
1,395,183 Accumulated other comprehensive income (loss) (654 )
1,437 Accumulated deficit � (686,102 ) � (800,624 ) Total
stockholders' equity � 730,864 � � 595,996 � $ 1,032,602 � $
1,131,998 � PMC-Sierra, Inc. CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (in thousands) (unaudited) � � Six Months Ended � June
29, July 1, 2008 2007 � Cash flows from operating activities: Net
income (loss) $ 114,522 $ (38,082 ) Adjustments to reconcile net
income (loss) to net cash provided by operating activities:
Stock-based compensation 14,362 19,062 Depreciation and
amortization 27,597 29,068 Foreign exchange (gain) loss on tax
liability, net (2,527 ) 9,286 Gain on repurchase of Senior
convertible notes, net (1,351 ) - (Gain) loss on disposal of
property and equipment (32 ) 490 Changes in operating assets and
liabilities: Accounts receivable (5,680 ) 438 Inventories (3,472 )
5,994 Prepaid expenses and other current assets 895 478 Accounts
payable and accrued liabilities (6,101 ) 410 Deferred income taxes
and income taxes payable (83,402 ) 2,269 Accrued restructuring
costs (2,461 ) 2,406 Deferred income � 791 � � 4,127 � Net cash
provided by operating activities � 53,141 � � 35,946 � � Cash flows
from investing activities: Purchases of property and equipment
(3,369 ) (4,436 ) Purchases of intangible assets � (4,330 ) �
(5,759 ) Net cash used in investing activities � (7,699 ) � (10,195
) � Cash flows from financing activity: Repurchase of Senior
convertible notes (95,491 ) - Proceeds from issuance of common
stock � 8,059 � � 13,609 � Net cash provided by (used in) financing
activity � (87,432 ) � 13,609 � � Effect of exchange rate changes
on cash and cash equivalents (658 ) - Net (decrease) increase in
cash and cash equivalents (42,648 ) 39,360 Cash and cash
equivalents, beginning of the period � 364,922 � � 258,914 � Cash
and cash equivalents, end of the period $ 322,274 � $ 298,274 �
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