CRUS Cirrus Logic Inc

Cirrus Logic Inc. (Nasdaq:CRUS) today announced financial results for the first quarter of fiscal year 2006 which ended June 25, 2005. The company reported first quarter, fiscal year 2006 revenue of $52.8 million compared with $40.4 million in the prior fiscal quarter ended March 25, 2005. The revenue for the first fiscal quarter included $43.7 million related to its core analog, mixed-signal and embedded product integrated circuits (ICs), an increase of 19 percent over the $36.8 million in revenue related to these core products during the prior quarter. First quarter gross margin was 51.7 percent, compared with 53.1 percent in the prior quarter. The gross margin for its core products was 56.3 percent. Combined research and development (R&D) and selling, general and administrative (SG&A) expenses for the quarter were $28.0 million, compared with $25.2 million in the prior quarter. Combined R&D and SG&A expense included approximately $5.4 million for video product line related expenses plus $1.1 million for a contingency related to excess leased office space. Net income in the first fiscal quarter was $26.0 million, or $0.30 per diluted share. In the prior quarter, the company reported a net income of $2.5 million, or $0.03 per diluted share. The first fiscal quarter included a $24.8 million net gain related to a legal settlement. First fiscal quarter net income also included interest income of $1.1 million, a $388,000 gain on the sale of marketable securities and a $302,000 foreign tax benefit. Total cash and marketable securities at the end of the first fiscal quarter were $214.5 million, compared with $179.7 million at the end of the prior fiscal quarter. Inventories were $19.5 million, down 27 percent, or $7.1 million, from the end of the March quarter. "We are pleased to have exceeded our financial expectations for the quarter and to have successfully reduced our inventory levels," said David D. French, president and chief executive officer, Cirrus Logic. "We recently introduced our latest low-power stereo codec for applications such as MP3 players, smart phones and digital camcorders, which demonstrates our commitment to drive revenue growth in one of the hottest-growing market segments. We also anticipate that with the increased focus on our core analog and mixed-signal products, Cirrus Logic is already well on its way to achieving consistent revenue growth and profitability." On June 30, 2005, Cirrus Logic announced the completion of the sale of its digital video product line assets to Magnum Semiconductor in exchange for a non-controlling interest in that company. First fiscal quarter revenue and expenses for the digital video product line were approximately $9.1 million and $11.8 million, respectively. The sale of the digital video product line assets excluded related inventories of $1.6 million and receivables of $5.0 million. "We are encouraged that we have started our fiscal year with strong momentum," said French. "We have an excellent balance sheet with roughly $215 million in cash, no debt and our inventory balances are in line with our expectations. All of these factors help position Cirrus Logic for profitability and growth within its broad, expanding customer base for analog, mixed-signal and embedded products." Outlook and Guidance "After solid growth of 19 percent within our core analog and mixed-signal product lines in the first fiscal quarter, we are forecasting continued growth in the second quarter," said French. "Nevertheless, I remain somewhat cautious in terms of our outlook recognizing that the industry continues to face challenges." Second Quarter FY 06 (ending September 24, 2005): -- Sales for our core products are expected to range between $45 million and $47 million; -- Sales from video products are estimated at $2 million, as we liquidate the remainder of the inventory in this product category; -- Gross margin is anticipated to be between 55 percent and 57 percent for core products -- Gross margin for the final liquidation of inventory is expected to be approximately 15 percent; -- Combined R&D and SG&A expenses are expected to range between $20 million and $22 million; -- The company expects to incur a charge of between $4 million and $5 million as we exit the digital video product line facility in Fremont, California, partially offset by a gain of $1.5 million on the sale of the digital video assets; -- Cash generated from core operations is estimated to be $6 million to $8 million with an additional $6 million to $7 million expected to be generated from the sale of the remaining video product inventory to Magnum Semiconductor and the collection of outstanding receivables associated with the video product line. Conference Call Cirrus Logic management will hold a conference call to discuss these results today, July 20, 2005 at 5:00 p.m. EDT. Those wishing to join should dial 201-689-8044 at approximately 4:50 p.m. EDT. A replay of the call will be available starting one hour after the completion of the call, through Aug. 3, 2005. To access the replay, dial 201-612-7415 (account #: 2445; conference #: 159444). A live and an archived webcast of the conference call will also be available via the company's Web site at www.cirrus.com. Upcoming Conference Cirrus Logic management will be presenting at the Silicon Valley Bank Tech Investors Forum Sept. 7-8, 2005 in San Francisco. Those wishing to listen to the presentation can hear a live and an archived webcast of the event via the company's Web site at www.cirrus.com. Cirrus Logic, Inc. Cirrus Logic develops high-precision, analog and mixed-signal integrated circuits for a broad range of consumer and industrial markets. Building on its diverse analog mixed-signal patent portfolio, Cirrus Logic delivers highly optimized products for consumer and commercial audio, automotive entertainment and industrial applications. The company operates from headquarters in Austin, Texas, with offices in Colorado, Europe, Japan and Asia. More information about Cirrus Logic is available at www.cirrus.com. Safe Harbor Statement Except for historical information contained herein, the matters set forth in this news release, including our estimates of second quarter fiscal year 2006 sales, gross margin, combined research and development and selling, general and administrative expense levels, restructuring and other charges, gain on the sale of the video related assets, and expectations regarding our revenue growth and increased cash position are forward-looking statements. These forward-looking statements are based on our current expectations, estimates and assumptions and are subject to certain risks and uncertainties that could cause actual results to differ materially from our current expectations, estimates and assumptions and the forward-looking statements made in this press release. These risks and uncertainties include, but are not limited to, the following: overall conditions in the semiconductor market; our ability to introduce new products on a timely basis and to deliver products that perform as anticipated; risks associated with international sales and international operations; the results of any potential and pending litigation matters; the level of orders and shipments during the second quarter of fiscal year 2006, as well as customer cancellations of orders, or the failure to place orders consistent with forecasts; pricing pressures; hardware or software deficiencies; our dependence on subcontractors for assembly, manufacturing, packaging and testing functions; our ability to make continued substantial investments in research and development; foreign currency fluctuations; the retention of key employees; the impact of restructuring and other costs, such as work force reductions and facility consolidations; and the risk factors listed in our Form 10-K for the year ended March 26, 2005, and in other filings with the Securities and Exchange Commission. Certain income statement reclassifications have been made to the fiscal year 2005 financial statements to conform to the fiscal year 2006 presentation. These reclassifications had no effect on the results of operations or stockholders' equity. The foregoing information concerning our business outlook represents our outlook as of the date of this news release, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise. Cirrus Logic and Cirrus are trademarks of Cirrus Logic Inc. Summary financial data follows: -0- *T CIRRUS LOGIC, INC. CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (unaudited) (in thousands, except per share data) Quarter Ended ----------------------------- Jun. 25, Mar. 26, Jun. 26, 2005 2005 2004 -------- -------- -------- Net sales $ 52,822 $ 40,415 $ 59,117 Cost of sales 25,522 18,955 27,444 -------- -------- -------- Gross Margin 27,300 21,460 31,673 -------- -------- -------- Gross Margin Percentage 51.7% 53.1% 53.6% Operating expenses: Research and development 13,651 18,270 22,126 Selling, general and administrative 14,301 6,885 12,295 Restructuring and other costs - 485 1,723 Litigation settlement, net (24,758) 242 199 -------- -------- -------- Total operating expenses 3,194 25,882 36,343 -------- -------- -------- Total operating expenses as a percent of revenue 6.0% 64.0% 61.5% Income (loss) from operations 24,106 (4,422) (4,670) Operating income (loss) as a percent of revenue 45.6% (10.9%) (7.9%) Realized gain on marketable equity securities 388 137 669 Interest income, net 1,136 962 696 Other income (expense), net (19) 116 (66) -------- -------- -------- Income (loss) before income taxes 25,611 (3,207) (3,371) Provision (benefit) for income taxes (366) (5,745) 24 -------- -------- -------- Net income (loss) $ 25,977 $ 2,538 $ (3,395) ======== ======== ======== Basic income (loss) per share: $ 0.30 $ 0.03 $ (0.04) Diluted income (loss) per share: $ 0.30 $ 0.03 $ (0.04) Basic weighted average common shares outstanding 85,230 85,124 84,419 Diluted weighted average common shares outstanding 86,183 86,151 84,419 Prepared in accordance with Generally Accepted Accounting Principles CIRRUS LOGIC, INC. NON-GAAP CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (unaudited) (in thousands, except per share data) (not prepared in accordance with GAAP) Quarter Ended ------------------------------ Jun. 25, Mar. 26, Jun. 26, 2005 2005 2004 -------- --------- -------- Net sales $ 43,693 $ 40,415 $ 59,117 Cost of sales 19,089 18,955 27,444 -------- --------- -------- Gross Margin 24,604 21,460 31,673 -------- --------- -------- Gross Margin Percentage 56.3% 53.1% 53.6% Operating expenses: Research and development 10,667 14,851 18,388 Selling, general and administrative 10,782 9,850 12,267 Restructuring and other costs - - - Litigation settlement, net - - - -------- --------- -------- Total operating expenses 21,449 24,701 30,655 -------- --------- -------- Total operating expenses as a percent of revenue 49.1% 61.1% 51.9% Loss from operations 3,155 (3,241) 1,018 Operating income (loss) as a percent of revenue 7.2% (8.0%) 1.7% Realized gain on marketable equity securities - - - Interest income, net 1,136 962 696 Other income (expense), net (19) 116 (66) -------- --------- -------- Income (loss) before income taxes and loss from discontinued operations 4,272 (2,163) 1,648 Provision (benefit) for income taxes (64) 258 24 -------- --------- -------- Net income (loss) $ 4,336 $ (2,421) $ 1,624 ======== ========= ======== Basic and diluted income (loss) per share: $ 0.05 $ (0.03) $ 0.02 Basic and diluted weighted average common shares outstanding 85,230 85,124 84,419 Diluted weighted average common shares outstanding 86,183 85,124 86,456 See notes to Non-GAAP Consolidated Condensed Statement of Operations CIRRUS LOGIC, INC. RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL INFORMATION (unaudited) (in thousands, except per share data) (not prepared in accordance with GAAP) Quarter Ended ---------------------------- Jun. 25, Mar. 26, Jun. 26, 2005 2005 2004 -------- ------- --------- Net sales (Note 1) $ 9,129 $ - $ - Cost of sales (Note 2) 6,433 - - -------- ------- --------- Gross Margin 2,696 - - -------- ------- --------- Operating expenses: Research and development (Note 3) 2,984 3,419 3,738 Selling, general and administrative (Note 4) 3,519 (2,965) 28 Restructuring and other costs (Note 5) - 485 1,723 Litigation settlement, net (Note 6) (24,758) 242 199 -------- ------- --------- Total operating expenses (18,255) 1,181 5,688 -------- ------- --------- Loss from operations 20,951 (1,181) (5,688) Realized gain on marketable equity securities (Note 7) 388 137 669 Interest income, net - - - Other income (expense), net - - - -------- ------- --------- Income (loss) before income taxes and loss from discontinued operations 21,339 (1,044) (5,019) Benefit for income taxes (Note 8) (302) (6,003) - -------- ------- --------- Net income (loss) $ 21,641 $ 4,959 $ (5,019) ======== ======= ========= Basic and diluted income (loss) per share: $ 0.25 $ 0.06 $ (0.06) Basic and diluted weighted average common shares outstanding 85,230 85,124 84,419 Diluted weighted average common shares outstanding 86,183 85,124 86,456 On July 20, 2005 the Company held a conference call with the public to discuss its first quarter fiscal year 2006 financial results. During that call, the Company made reference to non-GAAP financial measures. The above schedule is provided to comply with SEC Regulation G. This table provides the reconciliation between the Consolidated Condensed Statement of Operations on a GAAP and non-GAAP reporting basis. We use these non-GAAP financial numbers to assist us in the management of the Company because we believe that this information provides a more consistent and complete understanding of the underlying results and trends in our business. See notes to Non-GAAP Consolidated Condensed Statement of Operations Notes to Non-GAAP Consolidated Condensed Statement of Operations This non-GAAP presentation reflects the historical financial results adjusted for the following non-recurring or unusual items: (Note 1) Q1 FY'06 - Non-GAAP net sales exclude $9.6 million in revenue related to the video product line, a product line that was sold on June 30, 2005. (Note 2) Q1 FY'06 - Non-GAAP cost of sales exclude $6.4 million in product cost related to the video product line, a product line that was sold on June 30, 2005. (Note 3) Q1 FY'06 - Non-GAAP research and development excludes $2.3 million in video related expenses and $0.7 million related to the amortization of acquired intangibles from our 2002 and 2000 acquisitions. Q4 FY'05 - Non-GAAP research and development excludes $3.4 million related to the amortization of acquired intangibles from our 2002 and 2000 acquisitions. Q1 FY'05 - Non-GAAP research and development excludes $3.8 million related to the amortization of acquisition related intangibles and compensation from our 2002 and 2000 acquisitions. (Note 4) Q1 FY'06 - Non-GAAP selling, general and administrative expense excludes a $2.5 million in video related expenses and $1.1 million in facility related accruals due to losses on new subleases. Q4 FY'05 - Non-GAAP selling, general and administrative expense excludes a $3.0 million benefit from the expiration of a use tax contingency. (Note 5) Q4 FY'05 - Non-GAAP restructuring and other costs excludes a $0.5 million expense related to our announced workforce reduction. Q1 FY'05 - Non-GAAP restructuring and other costs excludes a $1.7 million expense related to facilities consolidation charges. (Note 6) Q1 FY'06 - Non-GAAP litigation settlement, net excludes a $25.0 million benefit from a litigation settlement finalized during the quarter related to Fujitsu, LTD partially offset by $0.2 million in litigation fees related to this settlement. Q4 FY'05 - Non-GAAP litigation settlement, net excludes $0.2 million in legal costs associated with a lawsuit related to a previously exited product line. Q1 FY'05 - Non-GAAP litigation settlement, net excludes $0.2 million in legal costs associated with a lawsuit related to a previously exited product line. (Note 7) Q1 FY'06 - Non-GAAP realized gain on marketable equity securities excludes a $0.4 million benefit from the proceeds related to the sale of an investment in another publicly traded company. Q4 FY'05 - Non-GAAP realized gain on marketable equity securities excludes a $0.1 million benefit from the proceeds related to the sale of an investment in another publicly traded company. Q1 FY'05 - Non-GAAP realized gain on marketable equity securities excludes a $0.7 million benefit from the net proceeds related to the sale of an investment in another publicly traded company. (Note 8) Q1 FY'06 - Non-GAAP benefit for income taxes excludes a $0.3 million income tax benefit resulting from the expiration of foreign statute of limitations for the years in which we had previously recorded potential tax liabilities. Q4 FY'05 - Non-GAAP benefit for income taxes excludes a $6.0 million income tax benefit resulting from the expiration of foreign statute of limitations for the years in which we had previously recorded potential tax liabilities. CIRRUS LOGIC, INC. CONSOLIDATED CONDENSED BALANCE SHEET (in thousands) Jun. 25, Mar. 26, Jun. 26, 2005 2005 2004 --------- --------- --------- ASSETS (unaudited) (unaudited) Current assets Cash and cash equivalents $ 89,938 $ 79,235 $ 168,976 Restricted investments 7,987 7,898 8,159 Marketable securities 100,311 91,559 18,438 Accounts receivable, net 23,457 18,593 27,927 Inventories 19,544 26,649 40,988 Other current assets 11,769 6,600 8,597 --------- --------- --------- Total Current Assets 253,006 230,534 273,085 Long-term marketable securities 16,311 1,021 2,112 Property and equipment, net 15,707 17,572 22,982 Intangibles, net 4,689 10,786 24,929 Other assets 3,210 2,897 2,912 --------- --------- --------- Total Assets $ 292,923 $ 262,810 $ 326,020 ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 14,542 $ 10,546 $ 32,347 Accrued salaries and benefits 8,350 8,164 10,027 Other accrued liabilities 10,824 10,799 18,389 Deferred income on shipments to distributors 7,435 7,935 5,962 Income taxes payable 8,788 9,276 30,124 --------- --------- --------- Total Current Liabilities 49,939 46,720 96,849 Long-term restructuring accrual 3,526 3,678 7,610 Other long-term obligations 8,541 8,675 9,915 Stockholders' equity: Capital stock 876,763 875,687 873,319 Accumulated deficit (644,820) (670,797) (660,804) Accumulated other comprehensive loss (1,026) (1,153) (869) --------- --------- --------- Total Stockholders' Equity 230,917 203,737 211,646 --------- --------- --------- Total Liabilities and Stockholders' Equity $ 292,923 $ 262,810 $ 326,020 ========= ========= ========= Prepared in accordance with Generally Accepted Accounting Principles *T