Merix Corporation (NASDAQ:MERX): -- Merix will conduct a conference
call and live webcast on Friday, September 30, 2005, at 5:30 a.m.
PT. To access the webcast, log on to www.merix.com. A replay of the
webcast will be available beginning at 8:30 a.m. PT on September
30, 2005. A phone replay will be available until approximately
midnight on October 7, 2005, by calling 719-457-0820, access code
7191246. Merix Corporation (NASDAQ:MERX) today announced financial
results for the first quarter of fiscal 2006 ended August 27, 2005.
Sales for the first quarter increased 23% to $51.8 million compared
to $42.1 million for the first quarter of fiscal 2005. On a GAAP
basis, the net loss in the first quarter of fiscal 2006 was $545
thousand or $0.03 per share compared to a net loss of $2.0 million
or $0.10 per share in the first quarter of fiscal 2005. Merix'
non-GAAP results improved to income of $872 thousand in the first
quarter of fiscal 2006 compared to a loss of $1.2 million in the
first quarter of fiscal 2005. Non-GAAP income per share for the
quarter was $0.05 per share compared to a non-GAAP loss of $0.06
per share in the same quarter last year. Merix defines its non-GAAP
results as GAAP net income (loss) before a valuation allowance
against deferred taxes, amortization of intangibles, restructuring
and related activities, and legal fees for defense of securities
litigation. Management believes the excluded items are not
representative of underlying trends in the Company's operating
performance and that excluding them provides investors with
additional information to assess the Company's results over
multiple periods and compare the Company's results with the results
of its competitors. See Related Financial Highlights in this
earnings release for a reconciliation of GAAP to non-GAAP results.
Gross margin improved to 14.7% in the first quarter of fiscal 2006
from 10.4% in the first quarter of 2005 and from 12.2% in the
fourth quarter of fiscal 2005. The improvement in gross margin
compared to the first quarter of 2005 was primarily attributable to
a higher margin sales mix from our San Jose operations, which were
acquired in December 2004, cost reduction activities in the first
quarter of fiscal 2006, and higher capacity utilization which
resulted in a lower cost per unit produced. The margin improvement
resulting from these factors was partially offset by lower average
pricing due to mix changes and competitive pressures. The
improvement in gross margin in the first quarter of 2006 compared
to the fourth quarter of fiscal 2005 was primarily the result of
lower costs due to cost reduction actions, productivity
improvements in manufacturing, and increased cost absorption in
inventory resulting from higher levels of ending work-in-process
inventory. Partially offsetting these improvements in gross margin
was lower average pricing compared to the fourth quarter of fiscal
2005. Total operating expense for the first quarter of fiscal 2006
was $8.3 million compared to $6.3 million for the first quarter of
fiscal 2005. Operating expenses in the first quarter of fiscal 2006
included $1.1 million for restructuring and related activities and
also included operating expense related to the San Jose operation.
The charge for restructuring and related activities consisted of
severance for the layoff of approximately 130 people, including
direct, indirect and management positions, and a charge for asset
impairment. Operating expense in the first quarter of fiscal 2005
included a charge of $768 thousand in SG&A expense related to
the abandonment of a business opportunity in Asia. Merix generated
cash from operations of $2.4 million and free cash flow of $910
thousand in the first quarter of fiscal 2006. Cash and short-term
investments were $78.6 million at the end of the quarter. Mark
Hollinger, Chairman and Chief Executive Officer of Merix, stated,
"Our first quarter results were better than expected. Our cost
reduction actions generated positive results more quickly and to a
greater degree than we originally estimated. I am proud of the team
for delivering operational improvements this quarter that both
exceeded our targets and benefited our bottom line. Production
levels and shipment volumes increased this quarter compared to last
quarter, although sales were adversely affected by lower average
pricing. Our quick-turn and premium service orders in the first
quarter of fiscal 2006 comprised 34% of sales compared to 37% of
sales in the fourth quarter of fiscal 2005 and 27% in the first
quarter last year." Business Outlook Merix earlier today announced
the completion of its acquisition of the operations of Eastern
Pacific Circuits Limited (EPC). The purchase price allocation will
be determined by independent appraisal of the assets and
liabilities of the business. The appraisal is expected to be
finalized in the second quarter and will result in the write-up of
inventories, equipment and real estate, and in the recording of
intangible assets, some of which will be amortized to expense. The
operations of EPC will be included in Merix' consolidated results
beginning September 29, 2005. As permitted by regulations of the
Securities and Exchange Commission, Merix will consolidate EPC's
results on a one month lag with those of Merix' U.S. operations.
Accordingly, Merix' second fiscal quarter ending November 26, 2005,
will include the operations of EPC for the period September 29
through October 22. Merix currently expects that sales for EPC for
that 24-day period will be approximately $8.0 million. Earnings
before interest, taxes, depreciation, and amortization (EBITDA) is
expected to be approximately $100 thousand, excluding the impact of
a purchase price adjustment to inventory which will not be
determined until the purchase price allocation is finalized. EPC
results for this 24-day period will be adversely affected by a four
day Chinese holiday which is expected to lower production volumes
resulting in a higher cost per unit. Merix currently expects sales
for its U.S. operations in the second quarter of fiscal 2006 to
range between $52.0 and $54.0 million. EBITDA is expected to range
between $3.8 million and $4.5 million. This guidance reflects a
full quarter of restructuring savings, offset by the adverse effect
of lower average pricing (due primarily to mix) and incremental
costs related to integration and support of global operations.
Combining the above guidance for both the U.S. and Asia operations,
Merix currently expects consolidated results for the second quarter
of fiscal 2006 to include: sales of between $60 and $62 million;
EBITDA of between $3.9 million and $4.6 million; and depreciation
expense of approximately $4.2 million (excluding the impact of
purchase price allocations). In addition, the new bank financing
obtained on September 29 related to the EPC acquisition will result
in net interest expense of approximately $1.1 million in the second
quarter. Excluding the impact of future purchase price allocations
described above, the consolidated non-GAAP loss for the second
quarter of fiscal 2006 is expected to range between $0.05 and $0.02
per share. "We are very excited about our future opportunities to
leverage our velocity, technology and global manufacturing
footprint with our customers. With the EPC acquisition, we have a
global sales and customer service organization to accelerate the
growth of our quick-turn business, with the opportunity to
transition advanced technology volume production to our Oregon
facilities and medium technology to our low cost manufacturing
facilities in Asia. Our strategy for gaining market share continues
to be to support our customers in their system design and
development activities with our engineering and quick-turn service
offering and then facilitate their production ramp as their
products go to market," concluded Hollinger. CFO Retirement Merix
also today announced that Janie S. Brown will retire as Chief
Financial Officer in November 2005. Ms. Brown, who joined Merix in
1995, has served as Chief Financial Officer since August 1998.
Prior to joining Merix, Ms. Brown held various positions, including
audit partner, with Deloitte & Touche LLP. After her
retirement, Ms. Brown will be available to Merix to help ensure a
smooth transition of the Merix financial organization. The search
for Ms. Brown's successor is currently underway. "Janie has made
many great contributions to Merix over the last 10 years and we are
all very sorry to see her leave," said Mark Hollinger. "During the
last year she has been very instrumental in the successful
completion of the Merix San Jose and EPC acquisitions and we very
much appreciate all her efforts and dedication. While we are all
going to miss her counsel, enthusiasm and financial leadership, she
has been considering retirement for sometime. We wish Janie and her
husband the very best in their new life." 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 data communications and
wireless telecommunications, high-end computing, and test and
measurement end markets in the electronics industry. Additional
corporate information is available on the internet at
www.merix.com. 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 2006 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" and other similar
expressions, are based on current expectations, estimates,
assumptions and projections that are subject to change, and 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: changes
in customer order levels, product mix and inventory build-up; lower
than expected or delayed sales; the ability to realize the
anticipated benefits or synergies of the EPC acquisition in a
timely manner or at all; fluctuations in demand for products and
services of the combined company, including quick-turn and premium
services; the introduction of new products or technologies by
competitors; the ability to successfully and timely integrate the
operations of EPC with Merix; the ability to avoid unanticipated
costs; pricing and other competitive pressures in the industry from
domestic and global competitors; foreign currency risk; 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 control or pass through the cost of raw
materials and supplies; 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 28, 2005. Merix Corporation
does not undertake to update any such factors or to publicly
announce developments or events relating to the matters described
herein. -0- *T MERIX CORPORATION CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS (in thousands, except earnings per share data,
unaudited) Three Months Ended ----------------------- August 27,
August 28, 2005 2004 ---------- ----------- Net sales $51,787
$42,130 Cost of sales 44,172 37,737 ---------- ----------- Gross
profit 7,615 4,393 Engineering 1,492 1,801 Selling, general and
administrative 4,875 4,527 Amortization of identifiable intangibles
751 - Restructuring and related activities 1,135 - ----------
----------- Total operating expense 8,253 6,328 Operating loss
(638) (1,935) Interest and other income (expense), net 97 (38)
---------- ----------- Loss before taxes (541) (1,973) Income tax
expense 4 1 ---------- ----------- Net loss $ (545) $(1,974)
========== =========== Net loss per diluted share $ (0.03) $ (0.10)
========== =========== Shares used in per share calculations 19,376
19,113 ========== =========== *T -0- *T MERIX CORPORATION CONDENSED
CONSOLIDATED BALANCE SHEETS (in thousands, unaudited) August 27,
May 28, 2005 2005 ----------- ------------ Assets Cash and
short-term investments $ 78,589 $ 77,685 Accounts receivable, net
35,529 37,338 Inventories 13,627 11,227 Other current assets 2,871
2,451 ----------- ------------ Total current assets 130,616 128,701
Property, plant and equipment, net 84,576 88,132 Goodwill 25,551
25,551 Identifiable intangibles, net 9,003 9,754 Other assets 2,402
1,803 ----------- ------------ Total assets $252,148 $253,941
=========== ============ Liabilities and Shareholders' Equity
Accounts payable $ 17,311 $ 16,957 Other accrued liabilities 4,561
4,773 Accrued compensation 2,973 4,721 Accrued warranty 1,543 1,519
Current portion of long-term debt 1,000 1,000 -----------
------------ Total current liabilities 27,388 28,970 Long-term debt
26,000 26,000 Other long-term liability 976 960 -----------
------------ Total liabilities 54,364 55,930 Shareholders' equity
197,784 198,011 ----------- ------------ Total liabilities and
shareholders' equity $252,148 $253,941 =========== ============ *T
-0- *T MERIX CORPORATION RELATED FINANCIAL HIGHLIGHTS (dollars and
shares in thousands, except EPS)
--------------------------------------------------------------------
Q1 05 Q4 05 Q1 06
---------------------------------------------------------------------
SUMMARY OPERATING RESULTS
--------------------------------------------------------------------
Net Sales 100.0% $42,130 100.0% $51,612 100.0% $51,787 Cost of
Sales 89.6% 37,737 87.8% 45,320 85.3% 44,172 Gross Margin 10.4%
4,393 12.2% 6,292 14.7% 7,615 Engineering Expense 4.3% 1,801 3.5%
1,781 2.9% 1,492 Selling, General & Administrative Expense
10.7% 4,527 10.7% 5,537 9.4% 4,875 Restructuring and Related
Activities 0.0% - 0.0% - 2.2% 1,135 Amortization of Identifiable
Intangibles 0.0% - 1.4% 739 1.5% 751 Total Operating Expense 15.0%
6,328 15.6% 8,057 15.9% 8,253 Operating Loss -4.6% (1,935) -3.4%
(1,765) -1.2% (638) Interest and Other Income (Expense), net -0.1%
(38) 0.1% 62 0.2% 97 Pretax Loss -4.7% (1,973) -3.3% (1,703) -1.0%
(541) Net Loss -4.7% (1,974) -3.3% (1,710) -1.1% (545) Effective
Tax Rate 0.0% 0.0% 0.0% Shares for Diluted EPS 19,113 19,318 19,376
Diluted Income Per Share $ (0.10) $ (0.09) $ (0.03)
--------------------------------------------------------------------
SALES BY END MARKETS (% of Sales)
--------------------------------------------------------------------
Communications 82% $34,522 71% $36,874 73% $37,856 High-End
Computing & Storage 6% 2,569 7% 3,518 6% 3,290 Test &
Measurement 7% 2,750 4% 2,280 5% 2,505 Aviation & Aerospace 1%
577 3% 1,530 4% 1,872 EMSI & Other 4% 1,712 14% 7,410 12% 6,264
---------------------------------------------------------------------
OTHER FINANCIAL DATA
--------------------------------------------------------------------
Cash provided by Operations $(1,110) $ 4,755 $ 2,389 Debt to Total
Capital 0.11 0.12 0.12 EBITDA $ 1,293 $ 2,666 $ 3,732 Capital
Expenditures $ 6,619 $ 1,793 $ 1,479 Depreciation and Amortization
(% of sales) 7.8% $ 3,293 8.7% $ 4,505 8.6% $ 4,469
--------------------------------------------------------------------
NON-GAAP EARNINGS RECONCILIATIONS
--------------------------------------------------------------------
EPS Net EPS Net EPS Net Loss Loss Income (Loss)
-------------------------------------------------- GAAP Net Loss
$(0.10) $(1,974) $(0.09) $(1,710) $(0.03) $ (545) Adjustments:
-Amortization of identifiable intangibles - - 0.04 739 0.04 751
-Legal fees for defense of securities litigation 0.01 175 0.03 550
- - -Restructuring and related activities - - 0.01 230 0.06 1,135
-Adjustment to valuation allowance on deferred tax asset 0.03 630
0.00 67 (0.02) (469)
------------------------------------------------- Non-GAAP Net
Income (Loss) $(0.06) $(1,169) $(0.01) $ (124) $ 0.05 $ 872
------------------------------------------------- GAAP Net Income
$(1,974) $(1,710) $ (545) Add back items: Interest Expense 409 431
437 Interest Income (436) (567) (633) Income Taxes 1 7 4
Amortization 74 841 840 Depreciation 3,219 3,664 3,629
-------------------------------------------------- EBITDA $ 1,293 $
2,666 $ 3,732
---------------------------------------------------------------------
*T
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