Merix Corporation (NASDAQ:MERX): -- Merix will conduct a conference
call and live webcast on Tuesday, January 3, 2006, at 2:00 p.m. PT.
To access the webcast, log on to www.merix.com. A replay of the
webcast will be available beginning at 5:00 p.m. PT on January 3,
2006. A phone replay will be available until approximately midnight
on January 10, 2006, by calling 719-457-0820, access code 6561684.
Merix Corporation (NASDAQ:MERX) today announced financial results
for the second quarter of fiscal 2006 ended November 26, 2005.
Sales for the second quarter increased 43% to $61.7 million
compared to $43.2 million for the second quarter of fiscal 2005.
For the second quarter of fiscal 2006, sales for Merix' U.S.
operations were $53.6 million and for Merix Asia were $8.1 million,
which is consistent with the guidance range previously provided by
Merix. On a GAAP basis, the net loss in the second quarter of
fiscal 2006 was $2.3 million or $0.12 per share compared to net
income of $681 thousand or $0.04 per share in the second quarter of
fiscal 2005. On a non-GAAP basis, Merix had income of $530
thousand, or $0.03 per share, in the second quarter of fiscal 2006
compared to non-GAAP income of $443 thousand, or $0.02 per share,
in the second quarter of fiscal 2005. Merix defines its non-GAAP
income (loss) as GAAP net income (loss) before expenses associated
with a valuation allowance against deferred taxes; amortization of
intangibles and purchase accounting adjustments to inventories
resulting from acquisitions; 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. Operating results for the second quarter include
the operations of Merix Asia (formerly Eastern Pacific Circuits
Limited) for 24 days. As permitted by the Securities and Exchange
Commission, Merix consolidated the results of Merix Asia on a one
month lag. Accordingly, Merix' second fiscal quarter ending
November 26, 2005, included the operating results of Merix Asia for
the period September 29 through October 22. The purchase accounting
for the acquisition of Merix Asia included a charge to cost of
goods sold in the second quarter of fiscal 2006 and will also
result in a charge to cost of goods sold in the third quarter of
fiscal 2006. These charges are the result of a $2.8 million
write-up to fair market value of work-in-process and finished goods
inventory, and a write-off of manufacturing supplies inventory
valued at $1.0 million in order to conform to Merix' accounting
policy of expensing manufacturing supplies. As a result of these
purchase accounting entries, $1.7 million of expense was charged to
cost of goods sold in the second quarter. The balance of $2.1
million will be expensed to cost of goods sold in the third quarter
of fiscal 2006. Gross margin was 12.0% in the second quarter of
fiscal 2006 compared to 13.1% in the second quarter of 2005. Gross
margin in the second quarter was adversely affected by the $1.7
million charge associated with Merix Asia purchase accounting
adjustments for inventories, as discussed above. Gross margin for
the U.S. operations increased to 14.9% in the second quarter of
fiscal 2006 compared to 13.1% in the second quarter of fiscal 2005.
This increase in U.S. gross margins was the result of higher levels
of production and cost savings resulting from the restructuring
actions implemented in the first quarter of fiscal 2006, together
with a quarter of higher quick-turn margins generated in San Jose,
partially offset by lower average pricing compared to the prior
year quarter. Total operating expense for the second quarter of
fiscal 2006 was $8.9 million compared to $5.0 million for the
second quarter of fiscal 2005. Operating expenses in the second
quarter of fiscal 2006 increased due to a $575 thousand accrual of
legal fees for defense of the re-filed securities litigation, the
inclusion of operating expense for San Jose operations, and 24 days
of operating expense for our newly acquired Asian operations.
Operating expenses in San Jose and Asia included $827 thousand of
amortization expense related to identifiable intangible assets
recorded in connection with these acquisitions. Adjusted EBITDA,
which excludes $1.7 million expense related to purchase accounting
entries as discussed above, was $5.0 million in the second quarter
of fiscal 2006. Merix generated cash from operations of $3.9
million in the second quarter. Cash and short-term investments were
$39.2 million at the end of the quarter, which was a decrease from
the end of fiscal year 2005 due to the use of cash for the Merix
Asia acquisition. Total debt increased to $112.6 million at the end
of the quarter compared to $27.0 million at the end of fiscal 2005
as a result of incurring additional debt to finance the Merix Asia
acquisition. Increases in other balance sheet accounts are also
principally the result of the Merix Asia acquisition. Mark
Hollinger, Chairman and Chief Executive Officer of Merix, stated,
"We are pleased that our second quarter results were better than we
expected. Merix Asia generated higher levels of adjusted EBITDA
than estimated and our U.S. operations delivered EBITDA at the high
end of our guidance range." Hollinger added, "The acquisition of
Merix Asia was a transforming event that provides Merix with an
international manufacturing presence and, based on combined recent
historical revenue, makes Merix a top 25 global printed circuit
board manufacturer. Through this acquisition, we now have an
expanded sales reach around the world, a greatly expanded customer
list, market share in new end markets, lower cost manufacturing
facilities, and enhanced product offerings. Customers are very
interested in our Asian facilities and a significant number of them
are visiting the plants to better understand our capabilities and
plans for that region. Merix Asia is one of the top 15 printed
circuit board manufacturers in the region and the manufacturing
capacity in the three multi-layer plants in Asia is expandable,
which allows for further growth." "We offer our customers a range
of capabilities that include velocity, advanced technology, and
global manufacturing. Our goal is to capitalize on the
opportunities this model offers through achievement of the
synergies we believe are possible. We are continuing to recruit
experienced people in the U.S. and Asia to provide leadership in
manufacturing, sales, and other functions to support our plans to
successfully execute the integration, enhance our operations, and
improve financial performance," concluded Hollinger. Business
Outlook For the third quarter of fiscal 2006, Merix expects sales
to range between $87 and $91 million with a GAAP net loss of
between $3.0 and $2.1 million. Non-GAAP earnings are expected to
range between income of $100 and $700 thousand or between
approximately breakeven and $0.04 per share. Excluding $2.1 million
of expense in cost of goods sold related to inventory purchase
accounting entries, EBITDA in the third quarter is expected to
range between $7.2 and $8.1 million. Merix is a leading
manufacturer of technologically advanced, multilayer, rigid printed
circuit boards for use in sophisticated electronic equipment. Merix
provides quick-turn prototype, pre-production and volume board
production to its customers. Principal markets served by Merix
include data communications and wireless telecommunications,
automotive, 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 third 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 Merix Asia 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
Merix Asia with Merix; the ability to avoid unanticipated costs,
including costs relating to product quality issues and customer
warranty claims; 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 Six Months
Ended --------------------------------------- Nov. 26, Nov. 27,
Nov. 26, Nov. 27, 2005 2004 2005 2004 -------- -------- --------
-------- Net sales $ 61,672 $ 43,244 $113,459 $ 85,374 Cost of
sales 54,256 37,559 98,429 75,296 -------- -------- --------
-------- Gross profit 7,416 5,685 15,030 10,078 Engineering 1,399
1,536 2,891 3,337 Selling, general and administrative 6,723 3,500
11,597 8,027 Amortization of identifiable intangibles 827 - 1,577 -
Restructuring and related activities - - 1,135 - -------- --------
-------- -------- Total operating expense 8,949 5,036 17,200 11,364
Operating loss (1,533) 649 (2,170) (1,286) Interest expense (1,108)
(413) (1,544) (832) Interest income and other, net 362 445 895 826
-------- -------- -------- -------- Income (loss) before taxes and
minority interest (2,279) 681 (2,819) (1,292) Income tax expense 54
- 59 1 -------- -------- -------- -------- Income (loss) before
minority interest (2,333) 681 (2,878) (1,293) Minority interest
expense 13 - 13 - -------- -------- -------- -------- Net income
(loss) $ (2,346) $ 681 $ (2,891) $ (1,293) ======== ========
======== ======== Net loss per diluted share $ (0.12) $ 0.04 $
(0.15) $ (0.07) ======== ======== ======== ======== Shares used in
per share calculations 19,475 19,430 19,425 19,158 ========
======== ======== ======== MERIX CORPORATION CONDENSED CONSOLIDATED
BALANCE SHEETS (in thousands, unaudited) Nov. 26, May 28, 2005 2005
-------- -------- Assets Cash and short-term investments $ 39,155 $
77,685 Accounts receivable, net 67,485 37,338 Inventories 25,455
11,227 Other current assets 14,303 2,451 -------- -------- Total
current assets 146,398 128,701 Property, plant and equipment, net
130,265 88,132 Goodwill 82,330 25,551 Identifiable intangibles, net
18,012 9,754 Leasehold land use rights 6,535 Other assets 2,174
1,803 -------- -------- Total assets $385,714 $253,941 ========
======== Liabilities and Shareholders' Equity Accounts payable $
49,999 $ 16,957 Other accrued liabilities 14,294 4,773 Accrued
compensation 4,030 4,721 Accrued warranty 4,408 1,519 Current
portion of long-term debt 4,976 1,000 -------- -------- Total
current liabilities 77,707 28,970 Long-term debt 107,655 26,000
Other long-term liability 992 960 -------- -------- Total
liabilities 186,354 55,930 Minority interests 3,542 - Shareholders'
equity 195,818 198,011 -------- -------- Total liabilities and
shareholders' equity $385,714 $253,941 ======== ======== MERIX
CORPORATION RELATED FINANCIAL HIGHLIGHTS (dollars and shares in
thousands, except EPS) SUMMARY OPERATING RESULTS Q2 05 Q1 06 Q2 06
------------------ -------------- -------------- -------------- Net
sales 100.0% $43,244 100.0% $51,787 100.0% $61,672 Cost of sales
86.9% 37,559 85.3% 44,172 88.0% 54,256 Gross margin 13.1% 5,685
14.7% 7,615 12.0% 7,416 Engineering expense 3.6% 1,536 2.9% 1,492
2.3% 1,399 Selling, general & administrative expense 8.1% 3,500
9.4% 4,875 10.9% 6,723 Restructuring and related activities 0.0% -
2.2% 1,135 0.0% - Amortization of identifiable intangibles 0.0% -
1.5% 751 1.3% 827 Total operating expense 11.6% 5,036 15.9% 8,253
14.5% 8,949 Operating income (loss) 1.5% 649 -1.2% (638) -2.5%
(1,533) Interest and other income (expense), net 0.1% 32 0.2% 97
-1.2% (746) Income (loss) before taxes and minority interest 1.6%
681 -1.0% (541) -3.7% (2,279) Net income (loss) 1.6% 681 -1.1%
(545) -3.8% (2,346) Effective tax rate 0.0% 0.0% 2.4% Shares for
diluted EPS 19,430 19,376 19,475 Diluted income (loss) per share $
0.04 ($0.03) ($0.12) SALES BY END MARKETS (% of Sales)
-------------------- Communications 82% $35,336 73% $37,856 62%
$38,304 High-end computing & storage 8% 3,474 6% 3,290 7% 4,498
Test & measurement 3% 1,542 5% 2,505 7% 4,264 Aviation &
aerospace 1% 474 4% 1,872 3% 1,587 Automotive 0% - 0% - 6% 3,958
EMSI & other 6% 2,418 12% 6,264 15% 9,061 OTHER FINANCIAL DATA
-------------------- Cash provided by operations $ 4,950 $ 2,389 $
3,946 EBITDA $ 3,873 $ 3,732 $ 4,993 Capital expenditures $ 5,890 $
1,479 $ 1,108 Depreciation and amortization (% of sales) 7.7% $
3,317 8.6% $ 4,469 9.3% $ 5,722 NON-GAAP EARNINGS RECONCILIATIONS
----------------- Net Net Net Income Income EPS Income EPS (Loss)
EPS (Loss) ------- -------- ------- -------- -------- -------- GAAP
net loss $ 0.04 $ 681 $(0.03) $ (545) ($0.12) $(2,346) Adjustments:
-Amortization of identifiable intangibles - - 0.04 751 0.04 827
-Legal fees for defense of securities litigation - - - - 0.03 575
-Restructuring and related activities - - 0.06 1,135 - - -Asia
purchase adjustments - - - - 0.09 1,727 -Adjustment to valuation
allowance on deferred tax asset (0.01) (238) (0.02) (469) (0.01)
(253) ------ ------- ------ ------- ------- ------- Non-GAAP net
income (loss) $ 0.02 $ 443 $ 0.05 $ 872 $ 0.03 $ 530 ------ -------
------ ------- ------- ------- GAAP net income $ 681 $ (545)
$(2,346) Add back items: Interest expense 413 437 1,108 Interest
income (538) (633) (448) Income taxes - 4 54 Amortization 75 840
843 Depreciation 3,242 3,629 4,055 Asia purchase adjustments - -
1,727 ------ ------- ------- ------- ------- ------- Adjusted
EBITDA $ 3,873 $ 3,732 $ 4,993 *T
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