SOURCE: Merix Corporation

July 16, 2007 08:00 ET

Merix Corporation Announces Financial Results for Fourth Quarter Fiscal Year 2007

BEAVERTON, OR--(Marketwire - July 16, 2007) - Merix Corporation (NASDAQ: MERX) today announced consolidated financial results for the fiscal 2007 fourth quarter and fiscal year ended May 26, 2007.

The Company reported a loss from continuing operations of $80.6 million or $3.89 per share on revenue of $93.6 million for the fourth quarter of fiscal 2007, which compares to income from continuing operations of $3.8 million or $0.19 per share on revenue of $98.3 million for the 2006 fiscal fourth quarter. Included in the 2007 fourth quarter loss are a $26.6 million impairment charge primarily associated with the fixed assets of the Company's Hong Kong manufacturing operation and a $53.3 million goodwill impairment charge reflecting the decreased value of our acquisitions. The impairments are required by U.S. Generally Accepted Accounting Principles (GAAP). Excluding these charges, the Company reported a fourth quarter 2007 pre-tax loss from continuing operations of $0.6 million.

"Our fourth quarter operating results are in line with the expectations set earlier in the quarter," said Michael D. Burger, President and Chief Executive Officer.

The loss from continuing operations reported for fiscal 2007 was $72.2 million or $3.54 per share on revenue of $400.5 million, which compares to income from continuing operations of $1.6 million or $0.08 per share on revenue of $304.0 million for fiscal year 2006. The increase in revenues was primarily attributed to the inclusion of a full year of Merix Asia results in the fiscal year 2007.

Mr. Burger commented, "We don't want to diminish the fourth quarter non-cash charges, however, we believe fiscal 2007 was a year Merix achieved a number of successes. Revenues exceeded $400 million for the first time in Company history and when comparing to last year, revenues grew 9% in North America and 10% in Asia when annualizing its revenues from fiscal 2006. The Company generated $26 million in cash flow from operations, reduced its borrowings by $21 million while investing $20 million in operations. We made significant progress in transferring technology to Merix Asia and have achieved our first major milestone to successfully implementing a global ERP system."

"The Company also recently completed a comprehensive strategic plan which identified an opportunity to combine its production capacity in Asia from three facilities to two," said Mr. Burger. "This combination was enabled by the recent decision to significantly expand both the capacity and technological capabilities of our Huiyang, China based factory. The expansion is estimated to cost approximately $13 million and will be completed over an 18 month period. We anticipate this investment will allow us to expand margins and profitably grow our revenues in this region by up to 40% as well as accelerate Merix Asia's technological capabilities to better support our customers' needs."

Mr. Burger continued, "As a consequence of the planned expansion we will begin to phase out production in our higher cost and unprofitable Hong Kong factory. Although this decision makes a lot of sense from both a customer and financial standpoint, it is difficult to make as it impacts a number of our employees and their families. The Company will provide severance and other benefits to assist the affected employees in their transition."

The goodwill impairment charge noted above related to the goodwill that was recorded as part of the September 2005 acquisition of Merix Asia and to a lesser extent the December 2004 acquisition of Merix San Jose. Mr. Burger commented, "I believe it's important to stress that although the goodwill impairment analysis that is required under GAAP indicates the financial results of these acquisitions have not achieved our initial expectations, both businesses remain extremely important to our long-term strategy and we are fully committed to them."

Business Outlook

The Company completed the fourth fiscal quarter of 2007 with $54.4 million of backlog to be shipped during the first fiscal quarter of fiscal 2008. We currently estimate revenues for the first quarter of fiscal 2008 to be in the range of $96 million to $100 million and associated loss from continuing operations to range from $1.0 million to $2.5 million. The estimated first quarter income includes an estimated $0.6 million for stock option expense, which is $0.5 million higher than the fourth quarter of fiscal 2007. It is 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 will contain 14 weeks compared to the standard 13 weeks.

Commenting on the outlook, Mr. Burger stated, "During the fourth quarter of fiscal 2007, we reduced backlog slightly and entered the first quarter with backlog levels that approximate our current customer demand rate. Our North American order level has been relatively steady during the last quarter and we are beginning to see some intermittent improvement in customer demand. While we currently anticipate our first quarter operational performance to look similar to our fourth quarter, we are cautiously optimistic about our business levels exiting the first quarter of fiscal 2008. Longer-term, I am very excited about the prospects for Merix, its shareholders and employees."

Conference Call and Webcast Information

Merix will conduct a conference call and live webcast today Monday, July 16, 2007 at 8:00 a.m. Pacific Time. Management will discuss fourth quarter fiscal 2007 results, its business outlook for the first quarter fiscal 2008 and comment further on the strategic direction of the Company.

To access the webcast, log on to www.merix.com. A replay of the webcast will be available beginning at 11:30 am PT on Monday, July 16, 2007. A phone replay will be available until approximately 11:59 pm PT on Monday, July 23, 2007 by calling (320) 365-3844, access code 875280.

Use of Non-GAAP Financial Measures

"Adjusted EBITDA" and "Pre-Tax income/(loss) before impairment items" are disclosed in this press release and are non-GAAP financial measures. Management believes the disclosure of these non-GAAP financial measures, when presented in conjunction with the corresponding GAAP measures, provide useful information to the Company, investors and other users of the financial statements and other financial information identifying and understanding operating performance for a given level of net sales and business trends. Management believes these measures are important factors of the Company's business because they reflect 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 first 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 27, 2006 and its Form 10-Q for the quarter ended February 24, 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        Twelve Months Ended
                     -------------------------------  --------------------
                      May 26,   February    May 27,    May 26,    May 27,
                       2007     24, 2007     2006       2007       2006
                     ---------  ---------  ---------  ---------  ---------

Net Sales            $  93,571  $ 100,288  $  98,331  $ 400,496  $ 303,978
Cost of Sales           80,020     83,983     76,961    335,332    254,344
                     ---------  ---------  ---------  ---------  ---------
Gross Margin            13,551     16,305     21,370     65,164     49,634

Operating Expenses:
    Selling, general
     and
     administrative     11,861     11,227     11,342     46,341     35,317
    Amortization of
     identifiable
     intangible
     assets                599        624        674      2,745      3,105
    Severance
     charges               453      1,023          -      1,476        658
    Goodwill
     impairment         53,311          -          -     53,311          -
    Impairment on
     fixed assets
     and other          26,627          -          -     26,627        478
                     ---------  ---------  ---------  ---------  ---------
      Total
       operating
       expenses         92,851     12,874     12,016    130,500     39,558
                     ---------  ---------  ---------  ---------  ---------

  Operating Income
   (Loss)              (79,300)     3,431      9,354    (65,336)    10,076

Other Income
 (Expense):
    Debt
     extinguishment
     costs                   -          -     (1,820)         -     (1,820)
    Interest income        258        377        392      1,378      1,837
    Interest expense    (1,054)    (1,309)    (2,281)    (5,353)    (6,059)
    Other
     income
     (expense), net       (144)      (141)    (1,462)    (1,015)    (1,593)
                     ---------  ---------  ---------  ---------  ---------
      Total other
       expense, net       (940)    (1,073)    (5,171)    (4,990)    (7,635)
                     ---------  ---------  ---------  ---------  ---------

Income (loss) from
 continuing
 operations before
 income taxes and
 minority interests    (80,240)     2,358      4,183    (70,326)     2,441
Income tax expense          84        367         11      1,399        460
                     ---------  ---------  ---------  ---------  ---------
Income (loss) from
 continuing
 operations before
 minority interests    (80,324)     1,991      4,172    (71,725)     1,981
Minority interests         251        220        341        502        372
                     ---------  ---------  ---------  ---------  ---------
Income (loss) from
 continuing
 operations            (80,575)     1,771      3,831    (72,227)     1,609
Income (loss) from
 discontinued
 operations, net of
  income tax expense
  (benefit) of
  $(51), $0,  $47
  and $0                   102        314       (317)      (756)      (177)
                     ---------  ---------  ---------  ---------  ---------
Net income (loss)    $ (80,473) $   2,085  $   3,514  $ (72,983) $   1,432
                     =========  =========  =========  =========  =========

Diluted income
 (loss) per share
 from continuing
 operations          $   (3.89) $    0.09  $    0.19  $   (3.54) $    0.08
Diluted income
 (loss) per share
 from discontinued
 operations               0.01       0.02      (0.02)     (0.04)      0.01
                     ---------  ---------  ---------  ---------  ---------
Diluted net income
 (loss) per share    $   (3.88) $    0.10  $    0.17  $   (3.58) $    0.07
                     =========  =========  =========  =========  =========

Shares used in per
 share calculations:
  Diluted               20,720     20,811     20,507     20,406     19,715





                         MERIX CORPORATION

               CONDENSED CONSOLIDATED BALANCE SHEETS
                    (in thousands, unaudited)


                                                 May 26,        May 27,
                                                  2007           2006
                                              -------------- --------------


Assets
Cash and short-term investments               $       26,200 $       30,805
Accounts receivable, net                              76,779         75,277
Inventories, net                                      25,513         23,367
Assets held for sale                                   1,206          1,987
Assets of discontinued operations                          -          3,254
Other current assets                                   7,122          5,356
                                              -------------- --------------
  Total current assets                               136,820        140,046

Property, plant and equipment, net                   101,264        122,184
Goodwill                                              31,614         89,889
Identifiable intangibles, net                         11,171         13,916
Assets of discontinued operations                          -            781
Other assets                                           6,227         12,114
                                              -------------- --------------
     Total assets                             $      287,096 $      378,930
                                              ============== ==============

Liabilities and Shareholders' Equity
Current portion of long-term debt             $        2,532 $        7,655
Accounts payable                                      45,918         46,956
Other accrued liabilities                             17,741         25,179
Income taxes payable                                     352            134
Liabilities of discontinued operations                     -            578
                                              -------------- --------------
  Total current liabilities                           66,543         80,502

Long-term debt                                        75,503         91,077
Other long-term liabilities                            1,845          1,108
                                              -------------- --------------
  Total liabilities                                  143,891        172,687

Minority interest                                      4,550          4,118

Shareholders’ equity                                 138,655        202,125
                                              -------------- --------------

      Total liabilities and shareholders'
       equity                                 $      287,096 $      378,930
                                              ============== ==============





                            MERIX CORPORATION

              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                        (in thousands, unaudited)



                                              For the Fiscal Year Ended
                                              ----------------------------
                                              May 26, 2007   May 27, 2006
                                              -------------  -------------

Cash flows from operating activities:
   Net income (loss)                          $     (72,983) $       1,432
      Net adjustments to reconcile net income
       (loss) to net cash provided by
       operating activities:
         Depreciation and amortization               23,226         21,791
         Other non-cash expense                      84,423          7,369
      Changes in working capital                     (8,489)       (14,951)
                                              -------------  -------------
               Net cash provided by operating
                activities                           26,177         15,641

Cash flows from investing activities:
   Purchases of property, plant and equipment       (19,795)        (7,246)
   Proceeds from disposal of property, plant
    and equipment                                       999             40
   Acquisition of businesses, net of cash
    acquired and debt assumed                             -       (103,928)
   Net changes in investments                         9,500         50,030
                                              -------------  -------------
               Net cash provided by (used in)
                investing activities                 (9,296)       (61,104)

Cash flows from financing activities:
   Proceeds from long-term borrowings                     -        143,200
   Principal payments on long-term borrowings       (16,125)       (87,742)
   Other financing activities, net                    4,139         (6,845)
                                              -------------  -------------
               Net cash provided by (used in)
                financing activities                (11,986)        48,613

Effect of exchange rate changes                           -              -
                                              -------------  -------------
Increase (decrease) in cash and cash
 equivalents                                          4,895          3,150

Cash and cash equivalents:
   Beginning of period                               12,280          9,130
                                              -------------  -------------
   End of period                              $      17,175  $      12,280
                                              =============  =============



                            MERIX CORPORATION

                       RELATED FINANCIAL HIGHLIGHTS
         (dollars and shares in thousands, except EPS, unaudited)



                          Q4 06               Q3 07             Q4 07
                  --------------------  ----------------  ----------------
SUMMARY OPERATING
 RESULTS AND
 RECONCILIATION

Net sales             100.0% $  98,331  100.0% $ 100,288  100.0% $  93,571
Gross profit           21.7%    21,370   17.3%    17,359   14.5%    13,551
Income (loss)
 from continuing
 operations             3.9%     3,831    1.8%     1,771  -86.1%   (80,575)
Income Tax              0.0%        11    0.4%       367    0.1%        84
Goodwill
 impairment             0.0%         -    0.0%         -   57.0%    53,311
Impairment on
 fixed assets and
 other                  0.0%         -    0.0%         -   28.5%    26,627
Debt
 extinguishment
 costs                  1.9%     1,820    0.0%         -    0.0%         -
Pre-tax income
 (loss) before
 impairment items       5.8%     5,662    2.1%     2,138   -0.6%      (553)
                  ---------  ---------  -----  ---------  -----  ---------
SALES BY END
 MARKETS (% of
 Net Sales)

Communications &
 Networking              42% $  41,271     46% $  45,752     43% $  40,334
Computing &
 Peripherals             14%    13,841     14%    14,326     11%     9,666
Industrial &
 Medical                  9%     8,659      9%     8,550      8%     7,786
Defense &
 Aerospace                4%     4,038      5%     5,014      5%     4,848
Automotive               19%    18,251     16%    16,490     20%    19,015
Other                    12%    12,271     10%    10,156     13%    11,922
                  ---------  ---------  -----  ---------  -----  ---------
Total Sales             100%    98,331    100% $ 100,288    100% $  93,571
                  ---------  ---------  -----  ---------  -----  ---------
SHARE BASED
 COMPENSATION

Share based
 compensation
 included in:
  Cost of goods
   sold                      $     (11)        $      70         $      60
  Operating
   expense                          44               603               196
                             ---------         ---------         ---------
Total share-based
 compensation                $      33         $     673         $     256
                             ---------         ---------         ---------
DILUTED EARNINGS
 PER SHARE
 CALCULATIONS

Weighted average
 shares
 outstanding                    19,696            20,575            20,720
Add: Dilutive
 stock options                     811               236                 -

                             ---------         ---------         ---------
Shares used in
 diluted EPS
 calculations                   20,507            20,811            20,720

Net income from
 continuing
 operations                  $   3,831         $   1,771         $ (80,575)

                             ---------         ---------         ---------
Net income used
 in diluted EPS
 calculations                $   3,831         $   1,771         $ (80,575)
Diluted net
 income per share
 from continuing
 operations                  $    0.19         $    0.09         $   (3.89)
                             ---------         ---------         ---------

ADJUSTED EBITDA
 RECONCILIATIONS

   Net income
    (Loss)                   $   3,514         $   2,085         $ (80,473)
Add back items:
  Noncash charges                                                   79,938
  Interest
   expense, net
   of def'd
   financing cost                1,958             1,075               820
  Interest income                 (392)             (377)             (258)
  Income tax
   expense                          11               367                84
  Amortization of
   identifiable
   intangible
   assets                          674               624               599
  Amortization,
   other                           352               258               260
  Depreciation                   4,924             4,765             4,715
  (Income) loss
   from
   discontinued
   operations                      317              (314)             (102)
                             ---------         ---------         ---------
Adjusted EBITDA              $  11,358         $   8,483         $   5,583
                             ---------         ---------         ---------

Contact Information

  • Merix Investor Relations Contact:
    Allen Muhich
    Vice President, Finance & Investor Relations
    503.716.3667