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Merix Corporation: Merix Corporation Announces Third Quarter 2009 Results

^{Published on 2009-04-08 13:38:07, Last Modified on 2009-11-03 08:17:11 - Market Wire}
 

BEAVERTON, OR--(Marketwire - April 8, 2009) - Merix Corporation (NASDAQ: [ MERX ]) today announced consolidated financial results for the third quarter of fiscal 2009 ended February 28, 2009.

The Company reported a net loss of $32.7 million or $1.54 per diluted share on revenue of $60.7 million for the third quarter of fiscal 2009, which compares to a net loss of $6.1 million or $0.29 per diluted share on revenue of $76.9 million in the second quarter of fiscal 2009.

Included in the fiscal 2009 third quarter loss was a non-cash impairment charge of $20.5 million or $0.97 per diluted share for goodwill recorded on the 2005 acquisition of our Asian business and $1.8 million of $0.09 per diluted share of severance and other restructuring charges associated with our recent cost reduction activities.

During the third quarter of fiscal 2009 the Company generated $10.3 million of cash from operations and ended the quarter with $19.1 million of cash and cash equivalents, representing a $7.6 million increase from the second quarter of the fiscal year.

Commenting on the recent third quarter performance, Michael D. Burger, President and Chief Executive Officer, said, "Like most businesses today, the printed circuit board market has been severely affected by the global recession. Despite the decline in revenues, we were able to generate good third quarter cash flows through improvements in days sales outstanding and inventory turns as well as the collection of Chinese value added tax refunds. Further, we continued to reduce our costs through selective actions, many of which were made near the end of the third quarter and are anticipated to have a greater benefit in the fourth fiscal quarter, which ends in May."

On a sequential basis, third quarter 2009 revenue decreased 21% when compared to the second quarter of fiscal 2009. This decline was due in part to a 34% decrease in sales to the automotive end market caused by a sharp global decrease in automobile sales.

Mr. Burger continued, "Despite the economic slowdown we believe we are maintaining market share and beginning to win new projects in a number of larger customer programs. Further, I am pleased with how our employees and managers are responding to the market challenges by continuing to build upon the process improvements made over the last 18 months. In fact, Merix' factories continue to execute exceptionally well and we continue to improve on-time-delivery, factory yields and product quality. Although difficult to predict, based on recent booking trends, our backlog at end of the third quarter and other market data, we anticipate fourth quarter revenues to stabilize and remain relatively flat when compared to the third quarter of fiscal 2009."

Merix' overall gross margins averaged 1.4% of revenue for the third quarter of fiscal 2009 compared to 8.4% and 7.8% in the third quarter of fiscal 2008 and second quarter of fiscal 2009, respectively. The margin declines were primarily caused by lower fixed cost absorption resulting from decreased production volumes and lower revenue. Gross margins tend to be heavily influenced by fluctuations in revenues due to the fixed cost nature of the production processes.

Operating expenses, exclusive of impairment and restructuring charges, totaled $9.4 million in the third quarter of fiscal 2009 compared to $10.8 million and $9.2 million in the third quarter of fiscal 2008 and second quarter of fiscal 2009, respectively. Third quarter 2009 operating expenses included a $0.3 million increase in the allowance for doubtful accounts to recognize increased risk associated with the current economic environment.

As noted earlier, the Company evaluated its goodwill and other long lived assets for impairment. As a result of management's third quarter impairment analysis the Company recognized a non-cash charge of $20.5 million to write-down goodwill in our Asia business segment to zero.

Conference Call and Webcast Information

Merix will conduct a conference call and live webcast Wednesday, April 8, 2009 at 2:00 p.m. PT. Management will discuss third quarter fiscal 2009 financial results, provide a qualitative discussion regarding our business outlook and comment further on the strategic direction of the Company. To access the webcast, log on to [ www.merix.com ].

An online replay of the webcast will be available at 5:00 pm PT on April 8, 2009 and a telephone replay will be available from 4:00 pm PT on April 8, 2009 until 11:59 pm PT on Wednesday, April 15, 2009 by calling (320) 365-3844, access code 993471.

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 production services to its customers. Principal markets served by Merix include communications and networking, computing and peripherals, test, 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 future reporting periods 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," "goals" 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 and technology expansion; the ability to successfully and timely integrate the operations of Merix Asia; continued availability of our line of credit facility or sources of additional capital; the ability to successfully restructure Merix Oregon; 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 31, 2008 and Form 10-Q for the second quarter ended November 29, 2008. 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) Fiscal quarter ended Nine months ended ------------------------------- -------------------- February November March 1, February March 1, 28, 2009 29, 2008 2008 28, 2009 2008 --------- --------- --------- --------- --------- Net sales: $ 60,721 $ 76,900 $ 94,275 $ 228,248 $ 291,083 Cost of sales 59,845 70,865 86,351 211,063 262,593 --------- --------- --------- --------- --------- Gross profit 876 6,035 7,924 17,185 28,490 Gross margin 1.4% 7.8% 8.4% 7.5% 9.8% Operating expenses: Engineering 500 697 337 1,760 1,287 Selling, general and administrative 8,395 7,989 9,930 26,086 32,161 Amortization of intangible assets 472 520 527 1,512 1,785 Impairment and severance charges 22,342 1,089 14,640 22,904 15,861 --------- --------- --------- --------- --------- Total operating expenses 31,709 10,295 25,434 52,262 51,094 --------- --------- --------- --------- --------- Operating income (loss) (30,833) (4,260) (17,510) (35,077) (22,604) Other expense, net (1,050) (1,029) 3,914 (3,268) 1,744 --------- --------- --------- --------- --------- Loss before income taxes and minority interests (31,883) (5,289) (13,596) (38,345) (20,860) Provision for income taxes 628 693 (511) 2,049 445 --------- --------- --------- --------- --------- Loss before minority interests (32,511) (5,982) (13,085) (40,394) (21,305) Minority interests 155 106 269 507 707 --------- --------- --------- --------- --------- Net loss $ (32,666) $ (6,088) $ (13,354) $ (40,901) $ (22,012) ========= ========= ========= ========= ========= Diluted net loss per share $ (1.54) $ (0.29) $ (0.63) $ (1.95) $ (1.05) ========= ========= ========= ========= ========= Diluted shares used in per share calculations 21,170 20,945 21,079 20,957 21,002 ========= ========= ========= ========= ========= MERIX CORPORATION SUPPLEMENTAL INFORMATION NET SALES, GROSS PROFIT & GROSS MARGIN BY SEGMENT (in thousands) (Unaudited) Fiscal quarter ended Nine months ended ------------------------------- -------------------- February November March 1, February March 1, 28, 2009 29, 2008 2008 28, 2009 2008 --------- --------- --------- --------- --------- Net sales: Oregon $ 22,964 $ 29,431 $ 41,151 $ 89,638 $ 133,057 San Jose 5,843 6,720 7,485 20,237 24,650 --------- --------- --------- --------- --------- North America 28,807 36,151 48,636 109,875 157,707 Asia 31,914 40,749 45,639 118,373 133,376 --------- --------- --------- --------- --------- Total net sales $ 60,721 $ 76,900 $ 94,275 $ 228,248 $ 291,083 ========= ========= ========= ========= ========= Gross profit: Oregon $ (2,356) $ 768 $ 2,200 $ 2,261 $ 12,534 San Jose (30) 716 1,206 2,001 4,056 --------- --------- --------- --------- --------- North America (2,386) 1,484 3,406 4,262 16,590 Asia 3,262 4,551 4,518 12,923 11,900 --------- --------- --------- --------- --------- Total gross profit $ 876 $ 6,035 $ 7,924 $ 17,185 $ 28,490 ========= ========= ========= ========= ========= Gross margin: Oregon -10.3% 2.6% 5.3% 2.5% 9.4% San Jose -0.5% 10.7% 16.1% 9.9% 16.5% --------- --------- --------- --------- --------- North America -8.3% 4.1% 7.0% 3.9% 10.5% Asia 10.2% 11.2% 9.9% 10.9% 8.9% --------- --------- --------- --------- --------- Total gross margin 1.4% 7.8% 8.4% 7.5% 9.8% ========= ========= ========= ========= ========= MERIX CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (Unaudited) February 28, 2009 May 31, 2008 ------------ ------------ Assets: Cash and short-term investments $ 19,084 $ 5,728 Accounts receivable, net 45,699 73,153 Inventories, net 16,213 23,631 Assets held for sale 4 1,477 Deferred income taxes 75 75 Prepaid and other current assets 4,684 12,961 ------------ ------------ Total current assets 85,759 117,025 Property, plant and equipment, net 101,015 103,012 Goodwill 11,392 31,794 Intangible assets, net 7,352 8,866 Deferred income taxes 773 885 Assets held for sale 1,146 - Other assets 4,732 5,859 ------------ ------------ Total assets $ 212,169 $ 267,441 ============ ============ Liabilities and Shareholders' Equity: Accounts payable $ 37,262 $ 59,789 Accrued liabilities 14,712 15,783 ------------ ------------ Total current liabilities 51,974 75,572 Long-term debt 78,000 70,000 Other long-term liabilities 3,751 3,522 ------------ ------------ Total liabilities 133,725 149,094 ------------ ------------ Minority interests 3,849 4,573 Shareholders' equity 74,595 113,774 ------------ ------------ Total liabilities and shareholders' equity $ 212,169 $ 267,441 ============ ============ MERIX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (in thousands) (Unaudited) Fiscal quarter ended Nine months ended -------------------- -------------------- Feb. 28, Mar. 1, Feb. 28, Mar. 1, 2009 2008 2009 2008 --------- --------- --------- --------- Cash flows from operating activities: Net loss $ (32,666) $ (13,354) $ (40,901) $ (22,012) Net adjustments to reconcile loss to net cash provided by operating activitities: Depreciation and amortization 5,697 5,235 16,822 16,231 Other non-cash items 20,969 7,383 22,381 10,052 Changes in working capital 16,258 4,778 25,044 4,004 --------- --------- --------- --------- Net cash provided by operating activities 10,258 4,042 23,346 8,275 Cash flows from investing activities: Purchases of property, plant and equipment (3,288) (7,679) (18,132) (19,749) Proceeds from disposal of property, plant and equipment 362 - 961 23 Net changes in investments - - - 9,025 --------- --------- --------- --------- Net cash used in investing activities (2,926) (7,679) (17,171) (10,701) Cash flows from financing activities: Principal payments on long-term borrowings - (2,500) - (2,500) Principal payments on capital lease obligations - - - (438) Net borrowings on revolving line of credit 1,017 - 8,000 - Other financing activities, net (748) (104) (819) (1,386) --------- --------- --------- --------- Net cash used in financing activities 269 (2,604) 7,181 (4,324) --------- --------- --------- --------- Net change in cash and cash equivalents 7,601 (6,241) 13,356 (6,750) Cash and cash equivalents Beginning of period 11,483 16,666 5,728 17,175 --------- --------- --------- --------- End of period $ 19,084 $ 10,425 $ 19,084 $ 10,425 ========= ========= ========= ========= SUPPLEMENTAL INFORMATION NET SALES STATISTICS AND SHARE BASED COMPENSATION (in thousands) (Unaudited) Three months ended ---------------------------------------- February 28, November 29, March 1, 2009 2008 2008 ------------ ------------ ------------ Net Sales by End Markets: Communications & Networking $24,917 41% $29,664 39% $40,402 43% Automotive 11,511 19% 17,449 23% 17,520 19% Computing & Peripherals 4,725 8% 5,984 8% 9,681 10% Test, Industrial and Medical 7,153 12% 9,366 12% 9,753 10% Defense & Aerospace 5,998 10% 7,299 9% 6,534 7% Other 6,417 10% 7,138 9% 10,385 11% ------- --- ------- --- ------- --- $60,721 100% $76,900 100% $94,275 100% ======= === ======= === ======= === Net Sales by Type: Quick-Turn & Premium $ 9,959 16% $13,158 17% $20,378 22% Full Lead Time 50,762 84% 63,742 83% 73,897 78% ------- --- ------- --- ------- --- $60,721 100% $76,900 100% $94,275 100% ======= === ======= === ======= === Top 5 Customers (as % of net sales) 37% 36% 35% ======= ======= ======= Current Period Change in Average Pricing Compared to: Three months ended -------------------------- November 29, March 1, 2008 2008 ------------ ------------ Oregon 4% 13% San Jose -2% -1% Asia 3% 10% ------------ ------------ Consolidated 4% 3% ============ ============ Current Period Change in Unit Volumes Compared to: Three months ended -------------------------- November 29, March 1, 2008 2008 ------------ ------------ Oregon -25% -51% San Jose -12% -21% Asia -24% -37% ------------ ------------ Consolidated -24% -38% ============ ============ Nine months ended ---------------------------- February 28, 2009 March 1, 2008 ------------- ------------- Net Sales by End Markets: Communications & Networking $ 93,357 41% $122,909 42% Automotive 48,373 21% 58,583 20% Computing & Peripherals 17,294 8% 26,065 9% Test, Industrial and Medical 26,938 12% 32,022 11% Defense & Aerospace 20,520 9% 18,827 7% Other 21,766 9% 32,677 11% -------- --- -------- --- $228,248 100% $291,083 100% ======== === ======== === Net Sales by Type: Quick-Turn & Premium $ 41,096 18% $ 67,767 23% Full Lead Time 187,152 82% 223,316 77% -------- --- -------- --- $228,248 100% $291,083 100% ======== === ======== === Top 5 Customers (as % of net sales) 38% 34% ======== ======== Current Period Change in Average Pricing Compared to: Nine months ended ------------- March 1, 2008 ------------- Oregon 5% San Jose 11% Asia 10% ------------- Consolidated -3% ============= Current Period Change in Unit Volumes Compared to: Nine months ended ------------- March 1, 2008 ------------- Oregon -37% San Jose -24% Asia -19% ------------- Consolidated -20% =============