SOURCE: Merix Corporation

April 02, 2007 16:00 ET

Merix Corporation Announces Financial Results for Third Quarter Fiscal Year 2007

FOREST GROVE, OR -- (MARKET WIRE) -- April 2, 2007 -- Merix Corporation (NASDAQ: MERX) today announced consolidated financial results for the third quarter of fiscal 2007 ended February 24, 2007.

The Company reported net income from continuing operations of $1.8 million or $0.09 per share on revenue of $100.3 million for the third quarter of fiscal 2007, which compares to net income of $0.7 million or $0.04 per share on revenue of $92.8 million for the 2006 fiscal third quarter. During the first three quarters of fiscal 2007 the Company reported net income from continuing operations of $8.3 million or $0.40 per share on revenues of $306.9 million, which compares to a net loss of $2.2 million or $0.11 per share during the same fiscal 2006 period. Net income including discontinued operations was $2.1 million for the third quarter and $7.5 million for the first three quarters of fiscal 2007.

As highlighted above, third quarter 2007 revenues increased 8% over the same quarter in fiscal 2006, but declined 3% from the second quarter of this fiscal year. The sequential reduction in quarterly revenue was primarily a result of the cyclical slowdown currently being experienced in the North American markets. Quick turn and premium services revenue represented 25% of Company's total revenue mix in the third quarter of fiscal 2007 compared to 27% in the second quarter of fiscal 2007. The lower quick turn and premium services revenue was primarily caused by the short-term prioritization of full lead time customer shipments required to reduce the Company's backlog position to more normal levels.

Gross margins averaged 17.3% of revenues for the third quarter of fiscal 2007, which approximated the margins reported in both the third quarter of fiscal 2006 and the second quarter of fiscal 2007. Sequentially, North American gross margins declined by 3.1 percentage points from the second quarter of fiscal 2007 to the third quarter of fiscal 2007 principally because of the reduction in higher margin quick turn and premium services revenue mentioned above. As expected however, gross margins in Asia improved by 3.8 percentage points, which was primarily caused by higher average prices as well as continued growth of new higher margin business for our Asian factories.

Operating expenses totaled 13.9% of revenues for the third quarter of fiscal 2007 compared to 14.2% in the 2006 third quarter and 13.3% in the second quarter of fiscal 2007. Included in the third quarter of fiscal 2007 operating expenses was $1.0 million or 1.0% of revenues related to severance costs and executive search fees primarily resulting from the January 2007 resignation of Merix' Chief Executive Officer. Excluding these one-time costs, operating expenses would have been 12.9% of revenues for the third quarter of fiscal 2007.

"Our third quarter's results are in line with the expectations set earlier in the quarter," said William C. McCormick, Chairman and Interim Chief Executive Officer. "We improved the performance in our Asian operation, which continues to rebound from the unprecedented copper laminate cost increases. However, we must continue to execute on our plan of improving the mix of business for Merix Asia to be profitable and value creating."

McCormick continued, "We are also pleased to announce that on April 1, 2007 we completed the previously disclosed sale of the two non-strategic single-sided facilities in China. The completion of this transaction enables the Merix management team to focus its full attention on continuing to improve the Asian operations."

Mr. McCormick also commented on the Company's recent Chief Executive Officer search, "The Company's Board of Directors is aggressively pursuing the search for a new CEO. The Board is pleased with progress of the search process as well as the quality of candidates that have surfaced. Although it's difficult to predict, we are optimistic that we could have our new CEO on board by the first quarter of fiscal 2008."

Business Outlook

The Company completed the third fiscal quarter of 2007 with $61.2 million of backlog to be shipped during the fourth fiscal quarter. We currently estimate revenues for the fourth quarter of fiscal 2007 to range between $93 million and $97 million and net income from continuing operations to approximate breakeven. Net income includes an estimated $0.5 million for stock option expense.

Commenting on the outlook, McCormick stated, "Many of our North American markets have softened since the end of calendar 2006. We believe this softness is a normal cyclical slowdown that is periodically experienced in our industry. However, we continue to expect sequential improvements in Asian operations to somewhat offset the North American market slowdown."

Conference Call and Webcast Information

Merix will conduct a conference call and live webcast today Monday, April 2, 2007 at 1:30 pm PT. Management will discuss third quarter fiscal 2007 results and its business outlook for the fourth quarter at that time.

To access the webcast, log on to www.merix.com. A replay of the webcast will be available beginning at 4:00 pm PT on Monday, April 2, 2007. A phone replay will be available until approximately 6:00 pm PT on Monday, April 9, 2007 by calling (719) 457-0820, access code 8114159.

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 third quarter of fiscal 2007 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, 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: 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; 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 Company, including quick-turn and premium services; foreign currency risk; the introduction of new products or technologies by competitors; the ability to successfully and timely integrate the operations of Merix Asia; 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 November 25, 2006. 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)


                                                      For the Thirty-Nine
                       For the Thirteen Weeks Ended       Weeks Ended
                     -------------------------------  --------------------
                     February   November   February   February   February
                        24,        25,        25,        24,        25,
                       2007       2006       2006       2007       2006

Net Sales            $ 100,288  $ 103,657  $  92,834  $ 306,924  $ 205,647
Cost of Sales           82,929     85,274     76,743    251,384    174,650
                     ---------  ---------  ---------  ---------  ---------
Gross Margin            17,359     18,383     16,091     55,540     30,997

Operating Expenses:
  Engineering            1,664      1,572      1,756      4,820      4,647
  Selling, general
   and administrative   10,617     11,467     10,541     33,575     22,062
  Amortization of
   identifiable
   intangible assets       624        761        854      2,147      2,431
  Severance and
   impairment
   charges               1,023          -          -      1,023      1,135
                     ---------  ---------  ---------  ---------  ---------
     Total operating
      expenses          13,928     13,800     13,151     41,565     30,275
                     ---------  ---------  ---------  ---------  ---------

 Operating Income        3,431      4,583      2,940     13,975        722

Other Income
 (Expense):
  Interest income          377        409        359      1,121      1,444
  Interest expense      (1,309)    (1,226)    (2,232)    (4,298)    (3,776)
  Other income
   (expense), net         (141)      (183)        54       (884)      (132)
                     ---------  ---------  ---------  ---------  ---------
     Total other
      expense, net      (1,073)    (1,000)    (1,819)    (4,061)    (2,464)
                     ---------  ---------  ---------  ---------  ---------

Income (loss) from
 continuing
 operations before
 income taxes and
 minority interests      2,358      3,583      1,121      9,914     (1,742)
Income tax expense         367        448        391      1,315        442
                     ---------  ---------  ---------  ---------  ---------
Income (loss) from
 continuing operations
  before minority
  interests              1,991      3,135        730      8,599     (2,184)
Minority interests         220         22         18        252        (31)
                     ---------  ---------  ---------  ---------  ---------
Income (loss) before
 discontinued
 operations              1,771      3,113        712      8,347     (2,215)
Income (loss) from
 discontinued
 operations, net of
 income tax expense
 of $0, $0, $0, $98
 and $7, respectively      314     (1,351)        97       (858)       133
                     ---------  ---------  ---------  ---------  ---------
Net income (loss)    $   2,085  $   1,762  $     809  $   7,489  $  (2,082)
                     =========  =========  =========  =========  =========

Diluted income
 (loss) per share
 from continuing
 operations          $    0.09  $    0.15  $    0.04  $    0.40  $   (0.11)
Diluted income
 (loss) per share
 from discontinued
 operations               0.01      (0.07)      0.00      (0.04)         -
                     ---------  ---------  ---------  ---------  ---------
Diluted net income
 (loss) per share    $    0.10  $    0.08  $    0.04  $    0.36  $   (0.11)
                     =========  =========  =========  =========  =========

Shares used in per
 share calculations:
  Diluted               20,811     20,760     19,766     20,665     19,459



                            MERIX CORPORATION

                  CONDENSED CONSOLIDATED BALANCE SHEETS
                        (in thousands, unaudited)

                                                 February 24,     May 27,
                                                     2007          2006
                                                 ------------  ------------


 Assets
 Cash and short-term investments                 $     24,464  $     30,805
 Accounts receivable, net                              82,161        75,277
 Inventories, net                                      26,277        23,367
 Assets held for sale                                   1,323         1,987
 Assets of discontinued operations                        527         3,254
 Other current assets                                   9,229         5,356
                                                 ------------  ------------
   Total current assets                               143,981       140,046

 Property, plant and equipment, net                   122,736       122,184
 Goodwill                                              85,048        89,889
 Identifiable intangibles, net                         11,769        13,916
 Assets of discontinued operations                          -           781
 Other assets                                          11,303        12,114
                                                 ------------  ------------
      Total assets                               $    374,837  $    378,930
                                                 ============  ============

 Liabilities and Shareholders' Equity
 Current portion of long-term debt               $      2,789  $      7,655
 Accounts payable                                      52,503        46,956
 Other accrued liabilities                             19,689        25,179
 Income taxes payable                                     709           134
 Liabilities of discontinued operations                   407           578
                                                 ------------  ------------
   Total current liabilities                           76,097        80,502

 Long-term debt                                        75,503        91,077
 Other long-term liability                              1,162         1,108
                                                 ------------  ------------
   Total liabilities                                  152,762       172,687

 Minority interest liability                            4,428         4,118

 Shareholders' equity                                 217,647       202,125
                                                 ------------  ------------

       Total liabilities and shareholders'
        equity                                   $    374,837  $    378,930
                                                 ============  ============



                            MERIX CORPORATION

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




                                                              For the
                                                        Thirty-Nine Weeks
                                                              Ended
                                                        ------------------
                                                        February  February
                                                           24,       25,
                                                          2007      2006
                                                        --------  --------

Cash flows from operating activities:
   Net income (loss)                                    $  7,489  $ (2,082)
      Net adjustments to reconcile net income (loss) to
       net cash provided by operating activities:
         Depreciation and amortization                    17,633    15,841
         Other non-cash expense                            3,825     6,547
      Changes in working capital                          (5,978)  (12,228)
                                                        --------  --------
               Net cash provided by operating
                activities                                22,969     8,078

Cash flows from investing activities:
   Purchases of property, plant and equipment            (14,918)   (5,708)
   Proceeds from disposal of property, plant and
    equipment                                                999         -
   Acquisition of businesses, net of cash acquired and
    debt assumed                                               -  (103,059)
   Net changes in investments                             18,525    45,830
                                                        --------  --------
               Net cash provided by/used in investing
                activities                                 4,606   (62,937)

Cash flows from financing activities:
   Proceeds from long-term borrowings                          -    67,533
   Principal payments on long-term borrowings            (16,125)  (10,080)
   Other financing activities, net                           736    (2,118)
                                                        --------  --------
               Net cash provided by (used in) financing
                activities                               (15,389)   55,335

Effect of exchange rate changes                               (2)        6
                                                        --------  --------
Increase (decrease) in cash and cash equivalents          12,184       482

Cash and cash equivalents:
   Beginning of period                                    12,280     9,130
                                                        --------  --------
   End of period                                        $ 24,464  $  9,612
                                                        ========  ========



                            MERIX CORPORATION

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




                                Q3 06           Q2 07           Q3 07
                            --------------  --------------  --------------
SALES BY END MARKETS (% of
 Net Sales)
                            ---  ---------  ---  ---------  ---  ---------
Communications & Networking  45% $  41,347   42% $  43,754   46% $  45,752
Computing & Peripherals      12%    10,738   16%    16,748   14%    14,326
Industrial & Medical          9%     8,102    8%     7,996    9%     8,550
Defense & Aerospace           3%     2,737    5%     4,843    5%     5,014
Automotive                   22%    20,671   17%    17,771   16%    16,490
Other                         9%     9,239   12%    12,545   10%    10,156
                            ---  ---------  ---  ---------  ---  ---------
Total Sales                 100% $  92,834  100% $ 103,657  100% $ 100,288
                            ---  ---------  ---  ---------  ---  ---------
SHARE BASED COMPENSATION
                            ---  ---------  ---  ---------  ---  ---------
Share based compensation
 included in:
  Cost of goods sold             $       8       $      81       $      70
  Operating expense                     48             450             603
                                 ---------       ---------       ---------
Total share-based
 compensation                    $      56       $     531       $     673
                            ---  ---------  ---  ---------  ---  ---------
DILUTED EARNINGS PER SHARE
 CALCULATIONS
                            ---  ---------  ---  ---------  ---  ---------
Weighted average shares
 outstanding                        19,526          20,384          20,575
Add: Dilutive stock options            240             376             236

                                 ---------       ---------       ---------
Shares used in diluted EPS
 calculations                       19,766          20,760          20,811

Net income from continuing
 operations                      $     712       $   3,113       $   1,771

                                 ---------       ---------       ---------
Net income used in diluted
 EPS calculations                $     712       $   3,113       $   1,771
Diluted net income per
 share from continuing
 operations                      $    0.04       $    0.15       $    0.09

                            ---  ---------  ---  ---------  ---  ---------
EBITDA RECONCILIATIONS
                            ---  ---------  ---  ---------  ---  ---------
   Net income                    $     809       $   1,762       $   2,085
Add back items:
  Interest expense, net of
   def'd financing cost              1,981           1,007           1,075
  Interest income                     (359)           (409)           (377)
  Income tax expense                   391             448             367
  Amortization of
   identifiable intangible
   assets                              854             761             624
  Amortization, other                  267             237             258
  Depreciation                       5,233           5,008           4,765
   (Income) loss from
    discountinued
    operations                         (97)          1,351            (314)
                                 ---------       ---------       ---------
EBITDA                           $   9,079       $  10,165       $   8,483
                            ---  ---------  ---  ---------  ---  ---------


Contact Information

  • Merix Investor Relations Contact:
    Allen Muhich
    Vice President, Finance & Investor Relations
    503.992.4077