PEMSTAR Reports Fiscal Fourth Quarter And Full Year 2005 Results
Announces Initiatives to Improve Future Operations and Financial
Performance ROCHESTER, Minn., May 24 /PRNewswire-FirstCall/ --
PEMSTAR Inc. (NASDAQ:PMTR), a leading provider of global
engineering, product design, manufacturing and fulfillment services
to technology, industrial and medical companies, today announced
financial results for its fiscal 2005 fourth quarter and full year
ended March 31, 2 005. Revenue for the three months ended March 31,
2005 decreased to $150.4 million, compared to $186.1 million in the
same quarter a year ago. This was due to the planned transition out
of certain consumer business and weaker semi-conductor capital
equipment orders. The year ago period also includes revenues from
manufacturing sites that have since been closed. Revenue for the
fiscal year ended March 31, 2005 increased to $689.9 million, as
compared with $669.4 million for the fiscal year ended March 31,
2004. The revenue growth was led by growth in semi-conductor
capital equipment business. Net loss for the fiscal fourth quarter
ended March 31, 2005 was $(12.3) million or $(0.27) per share,
compared to net loss of $(3.3) million or $(0.07) per share in the
same quarter a year ago. The increased net loss resulted from a
$9.8 million decrease in gross profit compared to the prior year
period due to decreased sales resulting in lower capacity
utilization. Results for the fourth quarter also include one time
adjustments for certain Americas locations and to engineering
operations of $4.3 million or $(0.09) per share, including
adjustments to estimated unbilled services of $(0.06) and accounts
receivable and inventory reserves of $(0.03). Net loss for the full
year ended March 31, 2005 was $(33.7) million or $(0.75) per share,
compared to net loss of $(25.3) million or $(0.60) per share for
the full year ended March 31, 2004. Results for the full year 2005
include one-time restructuring charges totaling $5.2 million or
$(0.11) per share. The prior year net loss, as restated, included
restructuring charges of $8.0 million or $(0.19) per share. There
was a $16.2 million decline in second half gross profit performance
due to lower sales resulting in lower capacity utilization in
fiscal 2005 versus fiscal 2004, which the company is addressing as
noted below. Excluding the above-mentioned one time adjustments
totaling $(0.09) per share, the adjusted net loss for the fiscal
fourth quarter of 2005, was $(8.0) million or $(0.18) per share,
which is in-line with prior guidance. The adjusted net loss for the
fiscal year ended March 31, 2005, excluding charges for
restructuring of $5.2 million, accounts receivable and inventory
reserves of $7.5 million, was $(25.1) million or $(0.56) per share.
Al Berning, Chairman and CEO of PEMSTAR stated, "Fiscal year 2005
has been a transition year for PEMSTAR. Our focus, while taking
restructuring actions over the past 12 months, has been on
maintaining our ability to support and service our customers
globally by strengthening the performance of our core operations."
Roy Bauer, PEMSTAR's President and COO added, "We are taking
actions over the next 6 months to optimize our cost structure,
capacity and engineering organization in the Americas. This will
result in the reduction of 100,000 square feet from our San Jose
facility and one consolidated Americas engineering team. PEMSTAR's
San Jose operation will now be a center for new customer product
introductions and prototype builds. We are also reviewing options
for our Mexico operation, which would likely include a sale or
downsizing, thereby eliminating additional excess capacity. New
manufacturing opportunities, requiring lower cost structures, will
be shifted to our other low cost facilities around the world.
Finally, we are further reducing our SG&A costs with a planned
6% reduction of our domestic workforce. Taken together, our planned
actions position PEMSTAR to better capitalize on our core
capabilities geared towards engineering services and high
complexity manufacturing, while making us stronger and better able
to service our key customers." Greg Lea, PEMSTAR's Executive Vice
President and CFO commented, "The planned restructuring actions we
are currently taking are expected to significantly improve our
competitive position and financial model. Once completed, we expect
that these actions, along with our other cost containment
initiatives currently being implemented, will reduce our operating
expense structure by approximately $4 to $5 million per quarter
giving PEMSTAR increased operating leverage and putting us on track
to achieve profitability. As a result of our planned restructuring
activities, we expect to take a charge of approximately $14 to $18
million over the next two quarters. Based on 2005 actions and
expected 2006 reductions, we estimate removing approximately
425,000 square feet of manufacturing capacity from our global
operations, leaving us with 1,151,000 square feet worldwide. By the
end of the second quarter of fiscal 2006 we will have reduced our
workforce in the Americas by 20 percent over that eighteen month
period." Business Update During the fourth quarter of fiscal 2005,
sales to the industrial sector accounted for 41.5% of net sales;
computing and data storage was 28.9 % of net sales; communications
was 26.0% of net sales; and medical was 3.6% of net sales. Accounts
receivable at March 31, 2005 was $102.5 million with days sales
outstanding (DSO) of 61, compared with $124.9 million in accounts
receivable with DSO of 64 at December 31, 2004. Net inventories of
$73.4 million as of March 31, 2005 with a turn rate of 8.0 times,
compared with $84.0 million at December 31, 2004 and a turn rate of
8.2 times. PEMSTAR's cash cycle remained at the December quarter's
level of 52 days. Cash generated from operations was $23.0 million
in the fourth quarter and $25.3 million for fiscal 2005 primarily
due to improved working capital management. The cash balance at
March 31, 2005, was $26.0 million, compared to $18.4 million at
December 31, 2004. Liquidity, defined as worldwide cash plus
available domestic borrowing, stood at $48.9 million. Debt as of
March 31, 2005, was $98.1 million, compared to $104.2 million in
the quarter ended December 31, 2004. This decrease was due to
reduced borrowings under PEMSTAR's domestic and Asia credit
facilities. Debt is calculated as debt plus capital leases,
including current maturities in both cases. Al Berning further
commented, "Despite a challenging business environment we remain
optimistic about our prospects in 2006 and we expect to derive the
incremental benefits from our restructuring actions starting in the
fiscal second quarter. By eliminating the less strategic,
underperforming parts of our business, PEMSTAR will now be a
leaner, more efficient company with improved capacity utilization
levels and the ability to achieve improved financial performance.
In addition, we continue to win important new programs from both
new and existing customers like the Airbus A380 project and the
General Dynamics' Land Warrior program funded by the U.S. Army this
past February. PEMSTAR plays an important role in these programs.
Customers continue to value our focus on product development, test,
automation services and high complexity manufacturing, which
differentiates us." Fiscal 2006 First-Quarter Outlook The following
forward-looking statements are based on current expectations, and
today's economic uncertainties make it difficult to project results
going forward. PEMSTAR currently expects net sales in the fiscal
2006 first quarter ending June 30, 2005, of $160 million to $170
million, and a net loss of $(0.10) to $(0.15) per share, as the
company's restructuring improvements are not fully implemented
until the second quarter. As is the company's practice, this
guidance excludes reserves to adjust capacity to market conditions
and customer demands, along with further restructuring charges
referred to above. Use of Non-GAAP Measures From time to time
management uses financial measures which do not reflect "generally
accepted accounting principles" (GAAP) in analyzing PEMSTAR's
operating performance, and believes that these non-GAAP measures
may assist investors in analyzing the underlying trends in
PEMSTAR's business over time. Investors should consider these
non-GAAP measures in addition to, not as a substitute for or as
superior to, financial reporting measures prepared in accordance
with GAAP. In this press release, PEMSTAR has reported a non-GAAP
measure called "adjusted net income" for the fiscal year and
quarter ended March 31, 2005, which excludes certain restructuring
charges, adjustments made to create accounts receivable and
inventory reserves and fourth quarter adjustments to estimated
unbilled services. Management uses the adjusted net income measures
in its internal analysis and review of operational performance, and
for providing guidance to investors. Management believes that this
adjusted net income measure provides investors with useful
information in comparing PEMSTAR's performance over different
periods, particularly when comparing this period to periods in
which PEMSTAR did not incur some or all of the charges and
adjustments described above. By using this non-GAAP measure
management believes that investors get a better picture of the
performance of PEMSTAR's underlying business. Management encourages
investors to review PEMSTAR's net income prepared in accordance
with GAAP to understand its performance taking into account all
relevant factors, including those that may only occur from time to
time but have a material impact on PEMSTAR's financial results.
Investor Conference Call / Webcast Details PEMSTAR will host a live
Webcast to review fiscal 2005 fourth-quarter results today,
Tuesday, May 24, at 4:00 p.m. CT (5:00 p.m. ET). To access the
Webcast, go to the investor relations portion of PEMSTAR's Web
site, http://www.pemstar.com/, and click on the Webcast icon. A
replay of the Webcast will be available on PEMSTAR's Web site for
one month. If you do not have access to the Internet and want to
listen to an audio replay of the conference call, phone
800-633-8284 (domestic), or 402-977-9140 (international), access
number 21247992. The telephone replay will be available beginning
at 6:00 p.m. CT on Tuesday, May 24, through 6:00 p.m. CT on
Thursday, May 26. About PEMSTAR PEMSTAR Inc.
(http://www.pemstar.com/) provides a comprehensive range of
engineering, product design, manufacturing and fulfillment services
to customers on a global basis through facilities strategically
located in the Americas, Asia and Europe. The company's service
offerings support customers' needs from product development and
design, through manufacturing to worldwide distribution and
aftermarket support. PEMSTAR has over one million square feet in 14
locations worldwide. This press release may contain
"forward-looking" statements. These forward-looking statements,
including statements made by Mr. Berning, Mr. Bauer and Mr. Lea,
may contain statements of intent, belief or current expectations of
PEMSTAR Inc. and its management. Such forward-looking statements
are not guarantees of future results and involve risks and
uncertainties that may cause actual results to differ materially
from the potential results discussed in the forward-looking
statements. In addition to factors discussed above, risks and
uncertainties that may cause such differences for PEMSTAR include
but are not limited to: recession or decline in economic
conditions; rumors or threats of war; actual conflicts or trade
disruptions; trade disruptions resulting from world health alerts
or actual disease outbreaks; changes in demand for electronics
manufacturing services; changes in demand by major customers due to
cancellations, reductions or delays of orders; shortages or price
fluctuations in component parts; difficulties managing expansion
and integrating acquired businesses; increased competition; the
courts' failure to approve the class action and derivative
settlements and other risk factors listed from time to time in
PEMSTAR's Securities and Exchange Commission filings, including but
not limited to risks as included in Exhibit 13.1 of PEMSTAR's
Annual Report on Form 10-K for the fiscal year ended March 31,
2004, as amended, and in PEMSTAR's Quarterly Reports on Form 10-Q
filed since March 31, 2004. Contacts: Greg S. Lea PEMSTAR Inc.
Executive Vice President & Chief Financial Officer Phone:
507-292-6941 Email: David Pasquale The Ruth Group Executive Vice
President Phone: 646-536-7006 Email: PEMSTAR Inc. Consolidated
Statements of Operations (In thousands, except per share data)
Three Months Ended Year Ended March 31, March 31, 2005 2004 2005
2004 Net sales $ 150,446 $ 186,050 $ 689,916 $ 669,446 Cost of
goods sold 145,905 171,693 652,018 626,832 Gross profit 4,541
14,357 37,898 42,614 Selling, general and administrative expenses
15,876 15,155 60,593 52,413 Restructuring costs 38 295 5,205 7,961
Operating loss (11,373) (1,093) (27,900) (17,760) Other expense
(income)-net (73) 91 (928) (794) Interest expense 2,166 1,893 8,162
7,815 Loss before income taxes (13,466) (3,077) (35,134) (24,781)
Income tax (benefit) expense (1,153) 203 (1,397) 503 Net loss
$(12,313) $(3,280) $(33,737) $(25,284) Basic and diluted loss per
common share: $(0.27) $(0.07) $(0.75) $(0.60) Shares used in
computing net loss per common share: 45,173 45,119 45,154 42,002
PEMSTAR Inc. Consolidated Balance Sheets (In thousands, except per
share data) March 31, March 31, 2005 2004 Assets Current assets:
Cash and equivalents $26,038 $9,832 Accounts receivable, net
102,516 127,823 Recoverable income taxes 1,248 870 Inventories
73,402 93,661 Unbilled services 8,078 11,547 Deferred income taxes
953 63 Prepaid expenses and other 10,657 14,810 Total current
assets 222,892 258,606 Property, plant and equipment 173,266
167,325 Less accumulated depreciation (93,169) (74,204) 80,097
93,121 Goodwill 33,878 33,878 Deferred income taxes 2,733 2,177
Other assets 4,394 6,351 Total assets $343,994 $394,133 Liabilities
and shareholders' equity Current liabilities: Cash overdraft $ 375
$7,130 Revolving credit facilities and current maturities of
long-term debt 79,068 68,618 Current maturities of capital lease
obligations 453 1,769 Accounts payable 88,543 106,644 Income taxes
payable 1,556 631 Accrued expenses and other 27,400 22,925 Total
current liabilities 197,395 207,717 Long-term debt, less current
maturities 6,560 8,856 Capital lease obligations, less current
maturities 11,973 11,867 Other liabilities and deferred credits
2,895 7,384 Shareholders' equity Common stock, par value $0.01 per
share-authorized 150,000 shares, issued and outstanding 45,178
shares at March 31, 2005 and 45,136 shares at March 31, 2004 452
451 Additional paid-in capital 255,067 255,153 Accumulated other
comprehensive income 3,601 3,081 Accumulated deficit (133,949)
(100,212) Loans to shareholders - (164) Total shareholders' equity
125,171 158,309 Total liabilities and shareholders' equity $343,994
$394,133 DATASOURCE: PEMSTAR Inc. CONTACT: Greg S. Lea, Executive
Vice President & Chief Financial Officer of PEMSTAR Inc.,
+1-507-292-6941, or ; or David Pasquale, Executive Vice President
of The Ruth Group, +1-646-536-7006, or , for PEMSTAR Inc. Web site:
http://www.pemstar.com/
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