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Merix Corporation today announced consolidated financial results for the quarter and year ended May 27, 2006. Sales for the fourth quarter increased 95% to $100.4 million compared to $51.6 million for the fourth quarter of fiscal 2005, due primarily to the inclusion of sales activity for Merix Asia which was acquired in September 2005 along with growth in its quick-turn services business and increased premium opportunities. On a GAAP basis, net income in the fourth quarter of fiscal 2006 was $3.5 million or $0.17 per diluted share compared to a net loss of $1.7 million or $0.09 per share in the fourth quarter of fiscal 2005. On a non-GAAP basis, Merix had income of $3.9 million, or $0.19 per diluted share, in the fourth quarter of fiscal 2006 compared to a non-GAAP loss of $124 thousand, or $0.01 per share, in the fourth quarter of fiscal 2005. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Sales for the fiscal year 2006 increased approximately 65% to $309.0 million, compared to $187.0 million for fiscal 2005. The increase in sales is primarily attributable to the acquisition of Merix Asia in September 2005 as well as the December 2004 acquisition of Merix San Jose. On a GAAP basis, the Company had net income of $1.4 million or $0.07 per share in fiscal 2006, compared to a net loss of $2.6 million or $0.14 per share in fiscal 2005. On a non-GAAP basis, Merix had income of $8.0 million, or $0.41 per diluted share, for the fiscal year 2006 compared to a non-GAAP loss of $88 thousand, or $0.00 per share, for the fiscal year 2005.
"Fiscal 2006 was a transformational year for Merix," said Mark Hollinger, Chairman and Chief Executive Officer of Merix Corporation. "We achieved records this year in consolidated revenues and quick-turn sales. The strength of our strategy of establishing a diversified, global manufacturing footprint through the acquisition of Merix Asia combined with our focused expansion of quick-turn capability in <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />North America was demonstrated in the operating results for this period."
Hollinger added, "As we continue the integration of our Asian operations, we are gaining traction on cross-selling opportunities with continued program wins from traditional Merix customers to be serviced from our Asian factories and Merix Asia customers utilizing our North American quick-turn capability. At the same time we continue to enhance our customer service globally through advances in our technology offerings. We continue to diversify our customer base and industry end markets as part of our growth initiatives."
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, adjusted for one-time acquisition related and debt restructuring charges) was $12.9 million in the fourth quarter of fiscal 2006 and $33.0 million for the fiscal year 2006. This is compared to EBITDA of $2.7 million for the fourth quarter of fiscal 2005 and $12.4 million for the fiscal year 2005.
Merix generated cash from operations of $8.4 million in the fourth quarter. Cash and short-term investments were $31.1 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 $99.0 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 acquisition of Merix Asia. Debt, net of cash and investments at the end of the fourth quarter fiscal 2006 was $67.9 million, down from $70.7 million at the end of the third quarter of fiscal 2006. Incremental borrowing capacity under revolving lines of credit was $36.8 million at the end of the fourth quarter fiscal 2006, compared to $18.1 million at the end of the third quarter 2006.
In May 2006, Merix issued $70.0 million in 4% convertible debentures, using the net proceeds to redeem the $25 million 6.5% convertible debenture, prepay and cancel the $30 million Asian Credit Agreement and reduce approximately $12.0 million in outstanding borrowings under its domestic revolving line of credit. The Company expects to save up to $2.0 million in annual interest expense as a result of this refinancing transaction and will also benefit from a simplified capital structure, elimination of debt covenants and extension of debt maturity to seven years.
For the first quarter of fiscal 2007, Merix expects sales to range between $102.0 million and $106.0 million with GAAP net income of between $5.2 million and $6.1 million or between $0.25 and $0.30 per diluted share. GAAP net income includes an estimated $500 thousand for stock option expense required to be recorded beginning in our fiscal 2007 under SFAS No.123(R). Non-GAAP earnings are expected to range between $6.3 million and $7.2 million or between $0.31 and $0.35 per diluted share and exclude stock option expense and amortization of identifiable intangibles. EBITDA, adjusted to eliminate stock option expense, in the first quarter is expected to range between $13.3 million and $14.3 million.
Commenting on the outlook, Hollinger stated, "We continue to see strength in our global markets through the first quarter of fiscal 2007 and we expect to progress towards achieving our longer term gross margin goal of 22% to 24%."
Hollinger concluded, "Our focus for fiscal 2007 will be to:
-- Accelerate the realization of our global sales and operating synergies
-- Increase our quick-turn market share
-- Expand our technological capability in Asia
-- Enhance throughput in all factories
-- Optimize our sales mix
We believe that progress in these areas will better position us for sustained growth and a global competitive advantage"
Conference Call and Webcast Information
Merix will conduct a conference call and live webcast on Thursday, June 29 at 5:30 am PT. To access the webcast, log on to www.merix.com. A replay of the webcast will be available beginning at 8:30 am PT on June 29, 2006. A phone replay will be available until approximately 10:00 am PT on July 5, 2006 by calling 719-457-0820, access code 4675431.
Use of Non-GAAP Financial Measures
In fiscal 2006, Merix defined its non-GAAP income as GAAP net income before amortization of identifiable intangibles, inventory purchase accounting adjustments resulting from acquisitions, the write-off of unamortized deferred financing charges, debt restructuring charges and the earnings effect of the valuation allowance against deferred taxes. In fiscal 2007, non-GAAP income will be defined as GAAP net income before amortization of identifiable intangibles and stock option expense. 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.
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.