Microchip Technology Announces Record Net Sales and Financial Results for Second Quarter Fiscal Year 2014

Third Quarter Fiscal Year 2014 Outlook:

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially.

      Microchip Consolidated Guidance
        GAAP      

Non-GAAP
Adjustments

      Non-GAAP1
                         
Net Sales       $463.1 to $492.7 million               $463.1 to $492.7 million
Gross Margin 2       58.3% to 58.7%       $2.3 to $2.5 million       58.8% to 59.2%
Operating Expenses 2      

34.25% to 34.75%

     

$33.6 to $35.7 million

      27.0% to 27.5%
Other Expense       $7.3 million       $2.3 million       $5.0 million
Income Tax Expense       11.8% to 12.8%       $2.6 to $2.9 million       10.5% to 11.5%
Net Income      

$88.7 to $99.8 million

     

$35.2 to $37.7 million

      $123.9 to $137.5 million

Diluted Common Shares

Outstanding 3

     

Approximately 218.4
million shares

     

Approximately 0.6
million shares

     

Approximately 217.8
million shares

Earnings per Diluted Share      

40 to 46 cents

     

About 7 cents

      57 to 63 cents

1 See the “Use of Non-GAAP Financial Measures” section of this release.

2 Earnings per share have been calculated based on the diluted shares outstanding of Microchip on a consolidated basis.

3 See Footnote 2 under the “Use of Non-GAAP Financial Measures” section of this release.

 
  • Microchip’s inventory days at December 31, 2013 are expected to be flat to up eight days compared to the September 30, 2013 levels. We believe our inventory position will enable us to continue to service our customers effectively while allowing us to control future capital expenditures. Our actual inventory level will depend on the inventory that our distributors decide to hold to support their customers, overall demand for our products and our production levels.
  • Capital expenditures for the quarter ending December 31, 2013 are expected to be approximately $35 million. Capital expenditures for all of fiscal year 2014 are anticipated to be approximately $115 million. We are continuing to take actions to selectively invest in the equipment needed to support the expected growth of our new products and technologies.
  • We expect net cash generation during the December quarter of approximately $110 million to $130 million prior to the dividend payment.

1

 

Use of Non-GAAP Financial Measures: Our Non-GAAP adjustments, where applicable, include the effect of share-based compensation, expenses related to our acquisition activities (including intangible asset amortization, inventory valuation costs, restructuring costs, severance costs, earn-out adjustments and legal and other general and administrative expenses associated with acquisitions), and non-cash interest expense on our convertible debentures, the related income tax implications of these items and nonrecurring tax events.

 
We are required to estimate the cost of certain forms of share-based compensation, including employee stock options, restricted stock units and our employee stock purchase plan, and to record a commensurate expense in our income statement. Share-based compensation expense is a non-cash expense that varies in amount from period to period and is affected by the price of our stock at the date of grant. The price of our stock is affected by market forces that are difficult to predict and are not within the control of management. The non-GAAP adjustments related to the impact of our acquisitions, nonrecurring tax events and a portion of our interest expense related to our convertible debentures are either non-cash expenses or non-recurring expenses related to such transactions. Accordingly, management excludes all of these items from its internal operating forecasts and models.
 
We are using non-GAAP net sales, non-GAAP gross profit, non-GAAP gross profit percentage, non-GAAP operating expenses in dollars and as a percentage of sales including non-GAAP research and development expenses and non-GAAP selling, general and administrative expenses, non-GAAP operating income, non-GAAP other expense, net, non-GAAP income tax/tax rate, non-GAAP net income, and non-GAAP diluted earnings per share which exclude the items noted in the immediately preceding paragraph, as applicable, to permit additional analysis of our performance.
 

Management believes these non-GAAP measures are useful to investors because they enhance the understanding of our historical financial performance and comparability between periods. Many of our investors have requested that we disclose this non-GAAP information because they believe it is useful in understanding our performance as it excludes non-cash and other charges that many investors feel may obscure our underlying operating results. Management uses these non-GAAP measures to manage and assess the profitability of our business. Specifically, we do not consider such items when developing and monitoring our budgets and spending. As described above, the economic substance behind our decision to exclude such items relates either to these charges being non-cash in nature, or to the one-time nature of the events. Our determination of the above non-GAAP measures might not be the same as similarly titled measures used by other companies, and it should not be construed as a substitute for amounts determined in accordance with GAAP. There are limitations associated with using non-GAAP measures, including that they exclude financial information that some may consider important in evaluating our performance. Management compensates for this by presenting information on both a GAAP and non-GAAP basis for investors and providing reconciliations of the GAAP and non-GAAP results.

 

2

Diluted Common Shares Outstanding can vary for, among other things, the trading price of our common stock, the actual exercise of options or vesting of restricted stock units, the potential for incremental dilutive shares from our convertible debentures (additional information regarding our share count is available in the investor relations section of our website under the heading “Supplemental Financial Information”), and the repurchase or the issuance of stock. The diluted common shares outstanding presented in the guidance table above assumes an average Microchip stock price in the December 2013 quarter of $41 per share (however, we make no prediction as to what our actual share price will be for such period or any other period and we cannot estimate what our stock option exercise activity will be during the quarter).

 

3

Generally, gross margin fluctuates over time, driven primarily by the mix of microcontrollers, analog products and memory products sold and licensing revenue; variances in manufacturing yields; fixed cost absorption; wafer fab loading levels; inventory reserves; pricing pressures in our non-proprietary product lines; and competitive and economic conditions. Operating expenses fluctuate over time, primarily due to net sales and profit levels.

 
 
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
(Unaudited)
               
 
 

Three Months Ended

September 30,

Six Months Ended
September 30,

2013     2012 2013 2012
 
Net sales $ 492,669 $ 383,298 $ 955,461 $ 735,432
Cost of sales 203,806   189,103   400,024   336,440  
Gross profit 288,863 194,195 555,437 398,992
 
Operating expenses:
Research and development 78,254 64,082 151,339 112,908
Selling, general and administrative 69,368 71,767 135,078 127,359
Amortization of acquired intangible assets 23,744 27,858 51,421 31,904
Special (income) charges (11 ) 22,394   1,690   22,394  
171,355   186,101   339,528   294,565  
 
Operating income 117,508 8,094 215,909 104,427
Losses on equity method investments (101 ) (32 ) (361 ) (153 )
Other expense, net (6,201 ) (5,943 ) (14,006 ) (11,291 )
 
Income before income taxes 111,206 2,119 201,542 92,983
Income tax provision 11,400   23,303   23,157   35,457  
 
Net income (loss) $ 99,806   (21,184 ) $ 178,385   $ 57,526  
 
Basic net income (loss) per common share $ 0.50   $ (0.11 ) $ 0.90   $ 0.30  
Diluted net income (loss) per common share $ 0.46   $ (0.11 ) $ 0.83   $ 0.28  
 
Basic common shares outstanding 197,825   194,060   197,388   193,756  
Diluted common shares outstanding 216,475   194,060   214,371   204,627  
     
 
 
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

           
 
ASSETS
 
September 30, March 31,
2013 2013
(Unaudited)
Cash and short-term investments $ 1,151,911 $ 1,578,597
Accounts receivable, net 230,493 229,955
Inventories 275,124 242,334
Other current assets 163,378 185,484
Total current assets 1,820,906 2,236,370
 
Property, plant & equipment, net 518,191 514,544
Long-term investments 829,656 257,450
Other assets 796,398 843,041
 
Total assets $ 3,965,151 $ 3,851,405
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Accounts payable and other current liabilities $ 179,469 $ 202,659
Short-term borrowings 8,375 -
Deferred income on shipments to distributors 151,049 138,952
Total current liabilities 338,893 341,611
 
Long-term line of credit 290,000 620,000
Long-term borrowings 340,379 -
Convertible debentures 367,533 363,385
Long-term income tax payable 192,007 182,723
Deferred tax liability 379,761 388,250
Other long-term liabilities 38,039 21,966
 
Stockholders’ equity 2,018,539 1,933,470
 
Total liabilities and stockholders’ equity $ 3,965,151 $ 3,851,405
 
 
 
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(in thousands except per share amounts and percentages)
(Unaudited)
                           
 
RECONCILIATION OF GAAP NET SALES TO NON-GAAP NET SALES
Three Months Ended

 

Six Months Ended

September 30,

 

September 30,

2013 2012

 

2013

2012

Net sales, as reported

$

492,669

 

$

383,298

 

$

955,461

$

735,432

Distributor revenue recognition adjustment -   24,496  

 

-

 

24,748

 
Non-GAAP net sales

$

492,669

 

 

$

407,794

 

 

$

955,461

 

$

760,180

 
 
 
RECONCILIATION OF GAAP GROSS PROFIT TO NON-GAAP GROSS PROFIT
Three Months Ended Six Months Ended
September 30, September 30,
2013 2012 2013 2012
Gross profit, as reported

$

288,863

$

194,195

$

555,437

$

398,992

Distributor revenue recognition adjustment - 15,737 - 15,868
Share-based compensation expense 1,864 2,614 3,833 3,924
Acquisition-related acquired inventory valuation other costs -   22,650   -   24,150  
Non-GAAP gross profit

$

290,727

 

$

235,196

 

$

559,270

 

$

442,934

 
Non-GAAP gross profit percentage

59.0

%

57.7 % 58.5 % 58.3 %
 
 
RECONCILIATION OF GAAP RESEARCH AND DEVELOPMENT EXPENSES TO NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES
Three Months Ended Six Months Ended
September 30, September 30,
2013 2012 2013 2012
Research and development expenses, as reported

$

78,254

$

64,082

$

151,339

$

112,908

Share-based compensation expense (6,931 ) (6,358 ) (12,621 ) (10,390 )
Acquisition-related costs -   (17 ) -   (17 )
Non-GAAP research and development expenses

$

71,323

 

$

57,707

 

$

138,718

 

$

102,501

 
Non-GAAP research and development expenses as a percentage of net sales 14.5 % 14.2 % 14.5 % 13.5 %
 
 
RECONCILIATION OF GAAP SELLING, GENERAL AND ADMINISTRATIVE EXPENSES TO NON-GAAP SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Three Months Ended Six Months Ended
September 30, September 30,
2013 2012 2013 2012
Selling, general and administrative expenses, as reported

$

69,368

$

71,767

$

135,078

$

127,359

Share-based compensation expense (6,205 ) (11,581 ) (11,202 ) (16,225 )
Acquisition-related costs (383 ) (1,832 ) (1,271 ) (5,019 )
Non-GAAP selling, general and administrative expenses

$

62,780

 

$

58,354

 

$

122,605

 

$

106,115

 
Non-GAAP selling, general and administrative expenses as a percentage of net sales 12.7 % 14.3 % 12.8 %

14.0

%

 
 
RECONCILIATION OF GAAP OPERATING EXPENSES TO NON-GAAP OPERATING EXPENSES
Three Months Ended Six Months Ended
September 30, September 30,
2013 2012 2013 2012
Operating expenses, as reported $ 171,355 $ 186,101 $ 339,528 $ 294,565
Share-based compensation expense (13,136 ) (17,956 ) (23,823 ) (26,632 )
Acquisition-related costs (383 ) (1,832 ) (1,271 ) (5,019 )
Amortization of acquired intangible assets (23,744 ) (27,858 )

(51,421

)

(31,904 )
Special income (charges) 11   (22,394 ) (1,690 ) (22,394 )
Non-GAAP operating expenses $ 134,103   $ 116,061   $ 261,323   $ 208,616  
Non-GAAP operating expenses as a percentage of net sales 27.2 % 28.5 % 27.4 % 27.4 %
 
 
RECONCILIATION OF GAAP OPERATING INCOME TO NON-GAAP OPERATING INCOME
Three Months Ended Six Months Ended
September 30, September 30,
2013 2012 2013 2012
Operating income, as reported $ 117,508 $ 8,094 $ 215,909 $ 104,427
Distributor revenue recognition adjustment - 15,737 - 15,868
Share-based compensation expense 15,000 20,553 27,656 30,539
Acquisition-related acquired inventory valuation and other costs 383 24,499 1,271 29,186
Amortization of acquired intangible assets 23,744 27,858 51,421 31,904
Special (income) charges (11 ) 22,394   1,690   22,394  
Non-GAAP operating income $ 156,624   $ 119,135   $ 297,947   $ 234,318  
Non-GAAP operating income as a percentage of net sales 31.8 % 29.2 % 31.2 % 30.8 %
 
 
RECONCILIATION OF GAAP OTHER EXPENSE, NET TO NON-GAAP OTHER EXPENSE, NET
Three Months Ended Six Months Ended
September 30, September 30,
2013 2012 2013 2012
Other expense, net, as reported $ (6,201 ) $ (5,943 ) $ (14,006 ) $ (11,291 )
Convertible debt non-cash interest expense 2,235   2,042   4,396   4,017  
Non-GAAP other expense, net $ (3,966 ) $ (3,901 ) $ (9,610 ) $ (7,274 )
Non-GAAP other expense, net, as a percentage of net sales

-0.8

%

-1.0

%

-1.0

%

-1.0

%

 
 
RECONCILIATION OF GAAP INCOME TAX PROVISION TO NON-GAAP INCOME TAX PROVISION
Three Months Ended Six Months Ended
September 30, September 30,
2013 2012 2013 2012
Income tax provision, as reported $ 11,400 $ 23,303 $ 23,157 $ 35,457
Income tax rate, as reported 10.3 % 1099.7 % 11.5 % 38.1 %
Distributor revenue recognition adjustment - 3,387 - 3,404
Share-based compensation expense 1,589 3,419 2,991 4,741
Acquisition-related acquired inventory valuation costs, intangible asset amortization and other costs 357 4,818 780 5,387
Special (income) charges (4 ) 11,476 633 11,476
Convertible debt non-cash interest expense 837 766 1,646 1,507
Non-recurring tax events 1,995   (29,716 ) 1,995   (29,716 )
Non-GAAP income tax provision $ 16,174   $ 17,453   $ 31,202   $ 32,256  
Non-GAAP income tax rate 10.6 % 15.1 % 10.8 % 14.2 %
 
 
RECONCILIATION OF GAAP NET INCOME (LOSS) AND GAAP DILUTED NET INCOME (LOSS) PER SHARE TO NON-GAAP NET INCOME AND NON-GAAP DILUTED NET INCOME PER SHARE
Three Months Ended Six Months Ended
September 30, September 30,
2013 2012 2013 2012
Net income (loss), as reported $ 99,806 $ (21,184 ) $ 178,385 $ 57,526
Distributor revenue recognition adjustment, net of tax effect - 12,350 - 12,464
Share-based compensation expense, net of tax effect 13,411 17,134 24,665 25,798
Acquisition-related acquired inventory valuation costs, intangible asset amortization and other costs, net of tax effect 23,770 47,539 51,912 55,703
Special (income) charges, net of tax effect (7 ) 10,918 1,057 10,918
Convertible debt non-cash interest expense, net of tax effect 1,398 1,276 2,750 2,510
Non-recurring tax events (1,995 ) 29,716   (1,995 ) 29,716  
Non-GAAP net income $ 136,383   $ 97,749   $ 256,774   $ 194,635  
Non-GAAP net income as a percentage of net sales 27.7 %

24.0

%

26.9 % 25.6 %
 
Diluted net income (loss) per share, as reported $ 0.46   $ (0.11 ) $ 0.83   $ 0.28  
Non-GAAP diluted net income per share $ 0.63   $ 0.48   $

1.20

  $ 0.95  
Diluted common shares outstanding, as reported 216,475   194,060   214,371   204,627  
Diluted common shares outstanding Non-GAAP 215,764   205,286   213,691   204,285  
 

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