PMC-Sierra, Inc. (Nasdaq:PMCS), a leading provider of high-speed
broadband communications and storage semiconductors, today reported
results for the third quarter ended September 28, 2008. Net
revenues in the third quarter of 2008 were $139.4 million, an
increase of 19% compared with net revenues in the third quarter of
2007 of $117.5 million. The Company reported net revenues of $139.8
million in the second quarter of 2008. Net income in the third
quarter of 2008 on a GAAP basis was $16.2 million (GAAP diluted
earnings per share of $0.07) compared with a GAAP net loss in the
third quarter of 2007 of $5.9 million (GAAP net loss per share of
$0.03). The Company reported GAAP net income of $137.2 million
(GAAP diluted earnings per share of $0.61) in the second quarter of
2008. The GAAP net income in the second quarter of this year
includes $124.3 million related to an adjustment to the accrual for
unrecognized tax benefits, which was disclosed in the prior
quarter�s earnings results. Non-GAAP net income in the third
quarter was $29.2 million (non-GAAP diluted earnings per share of
$0.13), an increase of 53% compared with non-GAAP net income in the
third quarter last year of $19.1 million (non-GAAP diluted earnings
per share of $0.09). The Company reported non-GAAP net income of
$29.7 million (non-GAAP diluted earnings per share of $0.13) in the
second quarter of 2008. The non-GAAP net income for the third
quarter of 2008 also excludes the following items: (i) $5.4 million
in stock-based compensation expense; (ii) $9.8 million amortization
of purchased intangible assets; (iii) $0.3 million net reversal of
restructuring accruals relating to facilities; (iv) $0.4 million
recovery of investment loss; (v) $0.8 million net foreign exchange
gain on the Company�s net foreign tax liabilities; and (vi) $0.8
million net income tax recovery relating to $0.7 million tax
adjustments based on completed filings and assessments received
from tax authorities, $0.4 million income tax effect related to the
non-GAAP adjustments above and $0.3 million interest relating to
unrecognized tax benefits. 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 third
quarter, we experienced solid growth in our WAN infrastructure
business primarily due to strength in Asian telecom network
build-outs,� said Greg Lang, president and chief executive officer
of PMC-Sierra. �We believe that we are well positioned in the WAN
infrastructure, enterprise storage, and FTTH markets where we see
new product cycle opportunities occurring over the next two years.�
The Company made the following product announcements in Q3 2008: We
announced the availability of the industry�s most highly integrated
GPON devices for Fiber to the Home deployments. PMC�s
second-generation solutions include a GPON ONT, a GPON Residential
Gateway and a four-port GPON OLT. These devices feature PMC�s
GigaPASS� architecture, which is already deployed today in more
than six million PON devices. All of the new devices have proven
interoperability with a wide-range of commercial GPON systems. We
added four new multi-band devices to our WiZIRD� family of highly
integrated WiMAX RF IC solutions for Broadband Wireless Subscriber
equipment. These new devices enable WiMAX system designers to
leverage a single radio design to provide CPE and Network Interface
Cards for all popular broadband wireless radio bands, including:
450-928 MHz; 2.3-2.7 GHz; 2.7-2.9 GHz; 3.3-3.8 GHz; and 4.9-5.95
GHz. Third Quarter 2008 Conference Call Management will review the
third quarter 2008 results and provide guidance for the fourth
quarter of 2008 during a conference call at 1:30 p.m. Pacific
Time/4:30 p.m. Eastern Time on October 16, 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 416-640-5925
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 9483920. A replay
of the webcast will be available for five business days. Fourth
Quarter 2008 Conference Call PMC-Sierra is planning on releasing
its results for the fourth quarter of 2008 on January 22, 2009. A
conference call will be held on the day of the release to review
the quarter and provide an outlook for the first quarter of 2009.
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, WiZIRD, GigaPASS 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 Nine Months Ended
Sept. 28, Jun. 29, Sept. 30, Sept. 28, Sept. 30, 2008 2008 2007
2008 2007 � Net revenues $ 139,356 $ 139,839 $ 117,455 $ 404,235 $
325,812 Cost of revenues � 47,373 � � 49,073 � � � 39,871 � �
139,752 � � 115,092 � Gross profit 91,983 90,766 77,584 264,483
210,720 � � Other costs and expenses: Research and development
39,688 39,995 35,557 116,993 121,716 Selling, general and
administrative 23,565 24,180 24,124 71,954 75,993 Amortization of
purchased intangible assets 9,836 9,836 9,836 29,508 29,507
Restructuring costs and other charges � (259 ) � 157 � � 1,564 � �
785 � � 12,244 � Income (loss) from operations 19,153 16,598 6,503
45,243 (28,740 ) � Other income (expense): Interest income, net
1,481 1,387 2,728 5,102 7,037 Foreign exchange gain (loss) 873
(1,066 ) (7,052 ) 2,965 (15,975 ) Amortization of debt issue costs
(137 ) (136 ) (242 ) (480 ) (726 ) Gain on repurchase of senior
convertible notes, net - - - 1,351 - Recovery on investment loss �
400 � � - � � - � � 400 � � - � Income (loss) before recovery of
(provision for) income taxes 21,770 16,783 1,937 54,581 (38,404 ) �
Recovery of (provision for) income taxes � (5,548 ) � 120,397 � � �
(7,877 ) � 76,163 � � (5,619 ) Net income (loss) $ 16,222 � $
137,180 � � $ (5,940 ) $ 130,744 � $ (44,023 ) � Net income (loss)
per common share - basic $ 0.07 $ 0.62 $ (0.03 ) $ 0.59 $ (0.20 )
Net income (loss) per common share - diluted $ 0.07 $ 0.61 $ (0.03
) $ 0.58 $ (0.20 ) � � Shares used in per share calculation - basic
222,335 221,008 216,837 221,091 215,469 Shares used in per share
calculation - diluted 225,803 224,984 216,837 223,573 215,469 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 Nine Months
Ended Sept. 28, Jun. 29, Sept. 30, Sept. 28, Sept. 30, 2008 (1)
2008 (2) 2007 (3) 2008 (4) 2007 (5) � GAAP net income (loss) $
16,222 $ 137,180 $ (5,940 ) $ 130,744 $ (44,023 ) � Included in
cost of revenues: Stock-based compensation 233 410 298 958 1,347 �
Included in other costs and expenses: Stock-based compensation
5,124 6,946 7,812 18,761 25,824 Reversal of accrual for
employee-related taxes - - - - (2,212 ) Amortization of intangible
assets 9,836 9,836 9,836 29,508 29,507 Restructuring costs and
other charges (259 ) 157 1,564 785 12,244 � Included in other
income (expense): Gain on repurchase of senior convertible notes,
net - - - (1,351 ) - Recovery of investment loss (400 ) - - (400 )
- Foreign exchange (gain) loss on foreign tax liabilities (784 )
765 6,789 (3,624 ) 16,074 � Included in provision for income taxes:
(Recovery of) provision for income tax matters � (752 ) � (125,584
) � (1,231 ) � (92,928 ) � (7,872 ) Non-GAAP net income $ 29,220 �
$ 29,710 � $ 19,128 � $ 82,453 � $ 30,889 � � Non-GAAP net income
per share - basic $ 0.13 $ 0.13 $ 0.09 $ 0.37 $ 0.14 Non-GAAP net
income per share - diluted $ 0.13 $ 0.13 $ 0.09 $ 0.37 $ 0.14 � �
Shares used to calculate non-GAAP net income per share - basic
222,335 221,008 216,837 221,091 215,469 Shares used to calculate
non-GAAP net income per share - diluted 225,803 224,984 219,345
223,573 217,602 � Non-GAAP adjustments (1) $5.4 million stock based
compensation expense; $9.8 million amortization of purchased
intangible assets; $0.3 million net reversal of restructuring
accruals relating to facilities; $0.4 million recovery of
investment loss; $0.8 million net foreign exchange gain on the
Company's net foreign tax liabilities; and $0.8 million net income
tax recovery relating to $0.7 million tax adjustments based on
completed filings and assessments received from tax authorities,
$0.4 million income tax effect related to the non-GAAP adjustments
above and $0.3 million interest relating to unrecognized tax
benefits. � (2) $7.4 million stock based compensation expense; $9.8
million amortization of purchased intangible assets; $0.2 million
in restructuring related to severance; $0.8 million net foreign
exchange loss on the Company's net foreign tax liabilities and cash
held for settlement of these liabilities; and $125.6 million net
income tax recovery relating to $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.
� (3) $8.1 million stock-based compensation expense; $9.8 million
amortization of purchased intangible assets; $1.6 million
restructuring, including $1.2 million for severance and $0.4
million for excess facilities; $6.8 million net foreign exchange
loss on the Company's net foreign tax liabilities; and $1.2 million
income tax effect related to the non-GAAP adjustments above. � (4)
$19.7 million stock based compensation expense; $29.5 million
amortization of purchased intangible assets; $0.8 million in
restructuring, including $0.5 million related to severance and $0.3
million for excess facilities; $1.4 million net gain on the
repurchase of senior convertible notes; $0.4 recovery on investment
loss; $3.6 million net foreign exchange gain on the Company's net
foreign tax liabilities and cash held for settlement of these
liabilities; and $92.9 million net income tax recovery relating to
$91.3 million related to the net adjustment to accrual for
unrecognized tax benefits and $1.6 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) $27.2
million stock based compensation expense; $2.2 million reversal of
a payroll tax accrual in a foreign jurisdiction; $29.5 million
amortization of purchased intangible assets; $12.2 million
restructuring costs including $9.3 million for severance, $2.4
million for excess facilities, and $0.5 million for contract
termination and asset impairment charges; $16.1 million net foreign
exchange loss on the Company's net foreign tax liabilities; and
$7.9 million income tax effect related to the non-GAAP adjustments
above. PMC-Sierra, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (in
thousands) (unaudited) � � � September 28, December 30, 2008 2007 �
ASSETS: Current assets: Cash and cash equivalents $ 226,520 (1 ) $
364,922 Short-term investments 104,401 (1 ) - Accounts receivable,
net 46,218 39,362 Inventories, net 38,361 34,246 Prepaid expenses
and other current assets 11,862 16,229 Deferred tax assets 8,094 37
Income tax receivable � 167 � � 2,365 � Total current assets
435,623 457,161 � Goodwill 396,144 398,418 Intangible assets, net
165,435 187,126 Investment securities 19,317 (1 ) - Property and
equipment, net 17,287 18,725 Investments and other assets 5,886
10,747 Deposits for wafer fabrication capacity 5,145 5,145 Deferred
tax assets � 1,394 � � 54,676 � $ 1,046,231 � $ 1,131,998 � �
LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts
payable $ 27,340 $ 24,011 Accrued liabilities 54,229 53,617
Deferred income taxes 2,042 2,787 Liability for unrecognized tax
benefit 28,582 71,586 Accrued restructuring costs 6,940 10,911
Deferred income � 13,962 � � 13,674 � Total current liabilities
133,095 176,586 � Long-term obligations 503 958 2.25% senior
convertible notes due October 15, 2025 127,000 225,000 Deferred
income taxes 16,608 23,023 Liability for unrecognized tax benefit
5,685 107,764 � 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 1,431,428 1,395,183
Accumulated other comprehensive income (loss) (863 ) 1,437
Accumulated deficit � (669,880 ) � (800,624 ) Total stockholders'
equity � 760,685 � � 595,996 � $ 1,046,231 � $ 1,131,998 � � (1) As
at September 28, 2008, the Company has a total of $271,866 invested
in shares of the Reserve International Liquidity Fund, Ltd. and
Reserve Primary Fund (the "Funds"). A portion of these shares have
been reclassified from cash and cash equivalents to short-term
investments and investment securities due to the redemption delays
announced by the Funds, based on the maturity dates of the
underlying securities of the Funds. PMC-Sierra, Inc. CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) �
� Nine Months Ended September 28, September 30, 2008 2007 � Cash
flows from operating activities: Net income (loss) $ 130,744 $
(44,023 ) Adjustments to reconcile net income (loss) to net cash
provided by operating activities: Stock-based compensation 19,719
27,172 Depreciation and amortization 41,268 42,606 Foreign exchange
gain on tax liability, net (3,311 ) 16,075 Gain on repurchase of
senior convertible notes, net (1,351 ) - (Gain) loss on disposal of
property and equipment (32 ) 496 Changes in operating assets and
liabilities: Accounts receivable (6,856 ) (4,137 ) Inventories
(3,938 ) 3,655 Prepaid expenses and other current assets 4,972 462
Accounts payable and accrued liabilities (22,069 ) 5,700 Deferred
income taxes and income taxes payable (79,457 ) 10,277 Accrued
restructuring costs (3,971 ) 223 Deferred income � 288 � � 2,154 �
Net cash provided by operating activities � 76,006 � � 60,660 � �
Cash flows from investing activities: Purchases of property and
equipment (5,406 ) (5,781 ) Purchases of intangible assets (5,645 )
(7,112 ) Purchase of short-term investments and investment
securities � (123,718 ) � - � Net cash used in investing activities
� (134,769 ) � (12,893 ) � Cash flows from financing activity:
Repurchase of senior convertible notes (95,491 ) - Proceeds from
issuance of common stock � 16,510 � � 20,150 � Net cash provided by
(used in) financing activity � (78,981 ) � 20,150 � � Effect of
exchange rate changes on cash and cash equivalents (658 ) 1,170 Net
(decrease) increase in cash and cash equivalents (138,402 ) 69,087
Cash and cash equivalents, beginning of the period � 364,922 � �
258,914 � Cash and cash equivalents, end of the period $ 226,520 �
$ 328,001 �
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