Merix reports Q4 and FY 2004
Jul 01, 2004
Merix Corporation (Nasdaq:MERX) reported financial results for the quarter and year ended May 29, 2004. Sales for the quarter increased 97.5% to $44.5 million compared to $22.5 million for the fourth quarter of fiscal 2003. The Company had a net loss this quarter of $1.6 million or $0.08 per share compared to a loss of $20.3 million or $1.39 per share in the same period last year. Excluding the impact of adjustments to a valuation allowance against deferred taxes, the pro-forma loss for the fourth quarter of fiscal 2004 was $1.0 million or $0.05 per share compared to a pro-forma loss in the fourth quarter of fiscal 2003 of $3.7 million or $0.25 per share.
Sales for fiscal year 2004 increased 65.4% to $156.4 million, compared to $94.6 million for fiscal 2003. The Company had net income of $28 thousand for fiscal 2004 or $0.00 per share, compared to a net loss of $30.1 million or $2.07 per share for fiscal 2003. Excluding the impact of a pre-tax charge of $2.1 million for restructuring and related activities and a non-cash charge of $16.6 million for a valuation allowance against deferred tax assets in fiscal 2003, the pro-forma net loss for fiscal 2003 was $0.84 per share.
Pro-forma net loss in fiscal years 2004 and 2003 exclude adjustments to a valuation allowance against deferred tax assets. Pro-forma net loss in fiscal year 2003 also excludes a charge for restructuring and related activities. These charges have been excluded from pro-forma results as they are not considered to be representative of underlying trends in the Company's performance and their exclusion provides the investor with additional information to more readily compare the Company's results over multiple periods. See Related Financial Highlights in this earnings release for a reconciliation of GAAP to pro-forma results.
Gross margin improved to 9.0% in the fourth quarter of fiscal 2004 from a negative (6.6%) in the fourth quarter of fiscal 2003. Contributing to the improved gross margin in fiscal 2004 were higher manufacturing capacity utilization, resulting in fixed costs being spread over more units of production, and a higher margin sales mix. However, gross margin decreased in the fourth quarter of fiscal 2004 compared to the third quarter gross margin of 19% due to lower levels of premium revenue as a result of reduced customer demand for expedited volume orders, reduced orders from a major customer, and lower sales and a scrap loss resulting from a manufacturing process error.
Selling, general and administrative expense in the fourth quarter of fiscal 2004 included a $450 thousand charge for legal fees expected to be incurred to defend securities class action claims that the Company will vigorously contest.
There was no income tax expense or benefit recorded for fiscal year 2004. Income tax expense in the fourth quarter of fiscal 2003 was $14.1 million, primarily due to a non-cash charge of $16.6 million required to establish a full valuation allowance against deferred tax assets as required by Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). Under SFAS 109 the Company is required to restore deferred tax assets in periods of profitability, which results in decreased tax expense. The Company does not expect to record any significant net tax benefit or expense in fiscal 2005.
Cash flow from operations in fiscal 2004 was $73 thousand in the fourth quarter and $1.7 million for the full year. The balance sheet remained strong at the end of the year with cash and investments of $124.5 million and debt to total capitalization of 11%.
Mark Hollinger, Chairman and Chief Executive Officer of Merix, commented, "Improvement in end market demand and the ramp of programs with new customers contributed to annual sales growth of over 65% in fiscal 2004 compared to the prior year. This growth rate created challenges for the organization and the manufacturing team worked very hard to increase production output to meet customer needs. We moved forward on Phase I of our capacity expansion project, which included the start-up of our Wood Village facility and expansion of outer layer capacity at Forest Grove. Production from Wood Village began during the fourth quarter as planned and the start-up went very well. During fiscal 2004 we also established a dedicated group in manufacturing focused on enhancing our quick-turn capabilities and in the fourth quarter of fiscal 2004 we had over a 50% increase in revenue from new designs compared to the fourth quarter of fiscal 2003.
"As we look forward to the first quarter of fiscal 2005, we believe some customers have excess inventories, which is contributing to a lower level of customer demand, and we currently expect sales in the first quarter to range between $40.0 and $43.0 million. Our net loss is expected to be between $0.18 and $0.11 per share, which includes a pre-tax charge of about $750 thousand related to abandonment of a significant business development opportunity in Asia. Pro-forma net loss is expected to be between $0.12 and $0.07 per share, including a benefit for income taxes using an estimated effective tax rate of 35%," stated Hollinger.
"We have seen tremendous growth and many challenges during the last year. In fiscal 2005, we intend to dedicate ourselves to attaining profitable results, satisfying the needs of our customers, reducing costs, and continuing improvements in operational performance," concluded Hollinger.