BEAVERTON, OR today announced consolidated financial results for
the fiscal 2008 second quarter ended December 1, 2007.
The Company reported a loss from continuing operations of $5.0
million or $0.24 per share on revenue of $97.4 million for the
second quarter of fiscal 2008, which compares to income from
continuing operations of $3.0 million or $0.14 per share on revenue
of $103.7 million for the second quarter of fiscal 2007. Included
in the second quarter of fiscal 2008 loss was $1.0 million of
severance costs associated with the previously announced Hong Kong
factory closure.
For comparison purposes it's important to note that the
Company's 52 week fiscal year reporting convention results in one
additional week of reporting approximately every five years. As a
result, the first quarter of fiscal 2008 contained 14 weeks
compared to the standard 13 weeks.
Second quarter fiscal 2008 revenue declined 6% when compared to
the second quarter of fiscal 2007. The decline was expected and is
primarily a result of the normal cyclical slowdown that has been
experienced in the North American printed circuit board markets
over the last 12 months. On a sequential quarterly 13 week adjusted
basis, second quarter revenue grew 5% when compared to the first
quarter of fiscal 2008. North America quarterly revenue grew 1% on
a sequential basis to $52.9 million. Fiscal 2008 second quarter
revenue for Merix Asia was $44.5 million, which was the highest
quarterly rate since its acquisition in September 2005.
"I am pleased with the revenue growth and operating improvement
progress we have seen in our Asian operations," said Michael D.
Burger, President and Chief Executive Officer. "However, I am very
disappointed in the revenue and profit performance in North
America. Our North American results fell below our expectations and
were a key contributor to our continued net loss in the second
quarter."
Merix' overall gross margin averaged 11.6% of revenue for the
second quarter of fiscal 2008 compared to 18.1% and 13.0% in the
second quarter of fiscal 2007 and first quarter of fiscal 2008,
respectively. The decline in gross margin when compared to the
second quarter of fiscal 2007 was primarily a result of the lower
North American revenue and its impact on factory fixed cost
absorption. The reduction from the first quarter of fiscal 2008 was
a direct result of a 3.1 percentage point decline in North American
gross margin to 12.2% resulting from lower than expected demand
combined with an unfavorable change in the mix of business coming
from several end markets. Partially offsetting the decline in North
America gross margin was a modest sequential quarterly improvement
to 10.7% in Asia gross margins. This improvement was expected and
enabled by the successful completion of the first phase of our
Chinese expansion plan that was completed ahead of schedule as the
quarter ended.
"The Asia restructuring and planned profit improvements remain
on track," commented Mr. Burger. "We've significantly grown our
Asia revenues and have nearly doubled our Asia gross margins over
the last 12 months. We anticipate further improvements in both
revenue and margins as we complete the second phase of our planned
expansion over the next 6 to 9 months."
Operating expenses, excluding $1.0 million of severance costs,
declined $0.7 million to $13.5 million in the second quarter of
fiscal 2008 when compared to the second quarter of fiscal 2007 as a
result of the initial actions taken to improve our overall
financial model.
"Our financial results fell short of the expectations set
earlier in the quarter," commented Mr. Burger. "I am disappointed
in the Company's overall financial performance and the speed to
which we reacted in the quarter to the changing business
environment. As a result, we are taking immediate action to improve
our North American profitability."
This week Merix will begin the elimination of approximately 180
employees from our North America-based workforce. The reduction
will primarily affect our North American manufacturing operations
and to a lesser extent all other support functions enabling savings
in both cost of sales and operating expenses. The work force
reductions combined with other efficiency improvements are
anticipated to reduce our annual cost structure by approximately
$11 million. In addition, we are announcing our intention to close
our Wood Village, Oregon mass lamination operation by March 1,
2008.
Mr. Burger continued, "As I mentioned above, our Chinese
expansion has progressed well and remains ahead of schedule. This
expansion gives us the additional flexibility of closing our Wood
Village operation while still providing our customers with an
improved Asian-based solution many of them are seeking. When
complete, the Wood Village closure is anticipated to reduce our
North American fixed cost base by over $7 million annually. In
addition, it appears as though the excellent progress we are making
on our Chinese expansion may enable the full closure of our Hong
Kong factory to occur four to six months earlier than originally
anticipated. Assuming the closure occurs this spring, we anticipate
that it will enable the realization of an additional $1.0 million
to $1.5 million of quarterly cost savings exiting our fourth
quarter of fiscal 2008."
Business Outlook
The Company completed the second fiscal quarter of 2008 with
$63.7 million of backlog to be shipped during the third fiscal
quarter of 2008. The third quarter is an inherently difficult
period to estimate revenue given the holiday buying cycles. We
currently estimate third quarter revenue to range from $94 million
to $98 million. Net income is more difficult to predict. We are
taking meaningful cost out of the Oregon factory, but we also
appreciate disruption often occurs when there is a large reduction
in force, which can impact output. The third quarter remains a
quarter of transition and as such we anticipate financial results
to approximate those reported in the second fiscal quarter. Our
objective is to return the company to profitability in the first
quarter of fiscal 2009 and achieve our financial model during the
second half of fiscal 2009.
Commenting on the outlook, Mr. Burger stated, "The changing
demand environment has delayed our expected return to
profitability. However, I remain optimistic we are on the right
path to achieving good financial returns to our shareholders in all
market conditions with the plans and actions we have communicated
to you today."
Conference Call and Webcast Information
Merix will conduct a conference call and live webcast today
Wednesday, January 9, 2008 at 7:00 a.m. Pacific Time. Management
will discuss second quarter fiscal 2008 results, its business
outlook for the third quarter and comment further on the strategic
direction of the Company. To access the webcast, log on to
www.merix.com.
A telephone replay will be available from 10:00 am PT on
Wednesday, January 9, 2008 until approximately 12:00 am PT on
Friday, January 18, 2008 by calling (706) 645-9291, access code
27522764.
Use of Non-GAAP Financial Measures
The non-GAAP financial measure "Adjusted EBITDA" is disclosed in
this press release. Management believes the disclosure of this
non-GAAP financial measure, when presented in conjunction with the
corresponding GAAP measures; provides useful information to the
Company, investors and other users of the financial statements.
Management believes this measure is an important factor of the
Company's business because it reflects financial performance that
is unencumbered by debt service and/or other non-recurring or
unusual items. The EBITDA financial measure is commonly used in the
Company's industry, however, it should not be considered as an
alternative to cash flow from operating activities, as a measure of
liquidity or as an alternative to net income or operating results
in accordance with generally accepted accounting principles. The
Company's definition of adjusted EBITDA may differ from definitions
of such financial measures used by other companies. The Company has
provided a reconciliation of both measures to GAAP financial
information in the attached schedules.
About Merix
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
communications and networking, computing and peripherals,
industrial and medical, defense and aerospace, and automotive end
markets in the electronics industry. Additional corporate
information is available on the internet at www.merix.com
Forward-Looking Statements
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 2008 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," "goal" and other similar expressions, are
based on current expectations, estimates, assumptions and
projections that are subject to change. 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: our ability to
control or pass through increases in the cost of raw materials and
supplies; changes in customer order levels, product mix and
inventory build-up; lower than expected or delayed sales; ability
to successfully restructure Merix Asia and complete the related
capital expansion; the ability to successfully and timely integrate
the operations of Merix Asia; fluctuations in demand for products
and services of the Company, including quick-turn and premium
services; foreign currency risk; the introduction of new products
or technologies by competitors; 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; 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 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 26, 2007. Merix Corporation does not
undertake to update any such factors or to publicly announce
developments or events relating to the matters described
herein.
MERIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share data, unaudited)
Three Months Ended Six Months Ended
------------------------------ --------------------
December September November December November
1, 2007 1, 2007 25, 2006 1, 2007 25, 2006
--------- --------- --------- --------- ---------
Net Sales $ 97,378 $ 99,430 $ 103,657 $ 196,808 $ 206,636
Cost of Sales 86,128 86,478 84,908 172,606 167,725
--------- --------- --------- --------- ---------
Gross Margin 11,250 12,952 18,749 24,202 38,911
Operating Expenses:
Selling, general
and
administrative 12,841 13,951 13,419 26,792 26,854
Amortization of
identifiable
intangible assets 645 613 761 1,258 1,523
Severance and
impairment
charges 980 241 - 1,221 -
--------- --------- --------- --------- ---------
Total
operating
expenses 14,466 14,805 14,180 29,271 28,377
--------- --------- --------- --------- ---------
Operating Income
(Loss) (3,216) (1,853) 4,569 (5,069) 10,534
Other Income
(Expense):
Interest income 275 294 409 569 744
Interest expense (1,076) (1,096) (1,226) (2,172) (2,989)
Other income
(expense), net (244) (348) (178) (592) (739)
--------- --------- --------- --------- ---------
Total other
expense, net (1,045) (1,150) (995) (2,195) (2,984)
--------- --------- --------- --------- ---------
Income (loss) from
continuing
operations before
income taxes and
minority interests (4,261) (3,003) 3,574 (7,264) 7,550
Income tax expense 546 410 448 956 948
--------- --------- --------- --------- ---------
Income (loss) from
continuing
operations before
minority interests (4,807) (3,413) 3,126 (8,220) 6,602
Minority interests 202 236 175 438 241
--------- --------- --------- --------- ---------
Income (loss) from
continuing
operations (5,009) (3,649) 2,951 (8,658) 6,361
Income (loss) from
discontinued
operations, net of
income tax expense
of $0, $0, $98,
$0, and $98 - - (1,190) - (957)
--------- --------- --------- --------- ---------
Net income (loss) $ (5,009) $ (3,649) $ 1,761 $ (8,658) $ 5,404
========= ========= ========= ========= =========
Diluted income
(loss) per share
from continuing
operations $ (0.24) $ (0.17) $ 0.14 $ (0.41) $ 0.30
Diluted income
(loss) per share
from discontinued
operations - - (0.06) - (0.04)
--------- --------- --------- --------- ---------
Diluted net income
(loss) per share $ (0.24) $ (0.17) $ 0.09 $ (0.41) $ 0.26
========= ========= ========= ========= =========
Shares used in per
share calculations:
Diluted 21,024 20,909 20,760 20,954 25,210
MERIX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
December 1, May 26,
2007 2007
----------- -----------
Assets
Cash and short-term investments $ 16,666 $ 26,200
Accounts receivable, net 78,214 76,825
Inventories, net 26,583 25,231
Assets held for sale 1,223 1,206
Assets of discontinued operations - -
Other current assets 11,291 7,119
----------- -----------
Total current assets 133,977 136,581
Property, plant and equipment, net 107,454 101,264
Goodwill 31,544 31,614
Identifiable intangibles, net 9,913 11,171
Assets of discontinued operations - -
Other assets 5,711 6,227
----------- -----------
Total assets $ 288,599 $ 286,857
=========== ===========
Liabilities and Shareholders' Equity
Current portion of long-term debt $ 2,095 $ 2,532
Accounts payable 55,951 45,918
Other accrued liabilities 17,602 17,713
Income taxes payable 666 352
Liabilities of discontinued operations - -
----------- -----------
Total current liabilities 76,314 66,515
Long-term debt 75,503 75,503
Other long-term liabilities 1,330 1,845
----------- -----------
Total liabilities 153,147 143,863
Minority interest 3,745 4,550
Shareholders? equity 131,707 138,444
----------- -----------
Total liabilities and shareholders' equity $ 288,599 $ 286,857
=========== ===========
MERIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands, unaudited)
For the Six Months Ended
----------------------
December November
1, 2007 25, 2006
---------- ----------
Cash flows from operating activities:
Net income (loss) $ (8,658) $ 5,404
Net adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation and amortization 11,108 11,976
Other non-cash expense 2,557 2,789
Changes in working capital 1099 (4,530)
---------- ----------
Net cash provided by operating
activities 6,106 15,639
Cash flows from investing activities:
Purchases of property, plant and equipment (12,070) (11,802)
Proceeds from disposal of property, plant and
equipment 23 999
Acquisition of businesses, net of cash acquired
and debt assumed - 75
Net changes in investments 9,025 (5,475)
---------- ----------
Net cash provided by (used in)
investing activities (3,022) (16,203)
Cash flows from financing activities:
Principal payments on long-term borrowings (438) (2,867)
Other financing activities, net (3,155) 1,863
---------- ----------
Net cash provided by (used in)
financing activities (3,593) (1,004)
Effect of exchange rate changes - -
---------- ----------
Increase (decrease) in cash and cash equivalents (509) (1,568)
Cash and cash equivalents:
Beginning of period 17,175 12,280
---------- ----------
End of period $ 16,666 $ 10,712
========== ==========
Merix Corporation
Supplemental Information
Q2 07 Q1 08 Q2 08
--------------- --------------- ---------------
SALES BY END MARKETS (%
of Net Sales)
Communications &
Networking 42% $ 43,754 42% $ 41,777 39% $ 37,575
Computing & Peripherals 16% 16,748 8% 8,013 9% 8,375
Industrial & Medical 8% 7,996 10% 10,323 10% 9,724
Defense & Aerospace 5% 4,843 6% 5,770 7% 6,528
Automotive 17% 17,771 20% 20,208 21% 20,691
Other 12% 12,545 13% 13,339 15% 14,485
---- --------- ---- --------- ---- ---------
Total Sales 100% $ 103,657 100% $ 99,430 100% $ 97,378
---- --------- ---- --------- ---- ---------
SHARE BASED COMPENSATION
Share based compensation
included in:
Cost of goods sold $ 81 $ 82 $ 58
Operating expense 450 678 480
--------- --------- ---------
Total share-based
compensation $ 531 $ 760 $ 538
--------- --------- ---------
DILUTED EARNINGS PER
SHARE CALCULATIONS
Weighted average shares
outstanding 20,384 20,909 21,024
Add: Dilutive stock
options 376 - -
--------- --------- ---------
Shares used in diluted
EPS calculations 20,760 20,909 21,024
Net income from
continuing operations $ 2,951 $ (3,649) $ (5,009)
--------- --------- ---------
Net income used in
diluted EPS
calculations $ 2,951 $ (3,649) $ (5,009)
Diluted net income per
share from continuing
operations $ 0.14 $ (0.17) $ (0.24)
--------- --------- ---------
ADJUSTED EBITDA
RECONCILIATIONS
Net income $ 1,761 $ (3,649) $ (5,009)
Add back items:
Severance charges - 241 980
Interest expense, net
of def'd financing
cost 1,007 843 842
Interest income (409) (294) (275)
Income tax expense 448 410 546
Amortization of
identifiable
intangible assets 761 613 645
Amortization, other 237 25 48
Depreciation 5,008 4,730 4,560
(Income) loss from
discontinued
operations 1,190 - -
--------- --------- ---------
ADJUSTED EBITDA $ 10,003 $ 2,919 $ 2,337
--------- --------- ---------
Merix Investor Relations Contact: Allen Muhich Vice President,
Finance & Investor Relations 503.716.3667
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