PMC-Sierra Reports Fourth Quarter 2009 Results

As a supplement to the Company's condensed consolidated financial statements presented in accordance with generally accepted accounting principles ("GAAP"), the Company provides additional non-GAAP measures for cost of revenues, gross profit, gross profit percentage, research and development expense, selling, general and administrative expense, amortization of purchased intangible assets, restructuring costs and other charges, other income (expense), provision for (recovery of) income taxes, operating expenses, operating income, operating margin percentage, net income, and basic and diluted net income per share.

 

A non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.  The Company believes that the additional non-GAAP measures are useful to investors for the purpose of financial analysis.  Management uses these measures internally to evaluate the Company's in-period operating performance before gains, losses and other charges that are considered by management to be outside of the Company's core operating results.  In addition, the measures are used for planning and forecasting of the Company's future periods.  However, non-GAAP measures are not in accordance with, nor are they a substitute for, GAAP measures.  Other companies may use different non-GAAP measures and presentation of results.

       
PMC-Sierra, Inc.

Adjustments to GAAP Cost of Revenues, Gross Profit, Gross Profit Percentage, Research and Development Expense, Selling, General and Administrative Expense, Amortization of Purchased Intangible Assets, Restructuring Costs and Other Charges, Other Income (Expense), Provision for (Recovery of) Income Taxes, Operating Expenses, Operating Income, Operating Margin Percentage, Net Income, and Basic and Diluted Net Income Per Share

(in thousands, except for per share amounts)
(unaudited)
 
Three Months Ended Twelve Months Ended
December 27, September 27, December 28, December 27, December 28,

2009 (1)

2009 (2)

2008 (3)

2009 (4)

2008 (5)

    As adjusted *   As adjusted *
 
GAAP cost of revenues $ 44,583 $ 44,432 $ 41,890 $ 165,231 $ 181,642
Stock-based compensation   (199 )   (149 )   (165 )   (779 )   (1,123 )
Non-GAAP cost of revenues $ 44,384   $ 44,283   $ 41,725   $ 164,452   $ 180,519  
 
GAAP gross profit $ 94,914 $ 86,444 $ 78,950 $ 330,908 $ 343,433
Stock-based compensation   199     149     165     779     1,123  
Non-GAAP gross profit $ 95,113   $ 86,593   $ 79,115   $ 331,687   $ 344,556  
 
Non-GAAP gross profit % 68 % 66 % 65 % 67 % 66 %
 
GAAP research and development expense $ 38,350 $ 35,823 $ 40,649 $ 149,184 $ 157,642
Stock-based compensation (2,099 ) (2,173 ) (2,369 ) (8,665 ) (11,176 )
Exclusion of termination costs   -     129     -     (1,039 )   -  
Non-GAAP research and development expense $ 36,251   $ 33,779   $ 38,280   $ 139,480   $ 146,466  
 
GAAP selling, general and administrative expense $ 21,088 $ 19,743 $ 21,578 $ 84,942 $ 93,532
Stock-based compensation (2,886 ) (2,798 ) (2,585 ) (11,952 ) (12,539 )
Exclusion of termination costs   -     147     -     (624 )   -  
Non-GAAP selling, general and administrative expense $ 18,202   $ 17,092   $ 18,993   $ 72,366   $ 80,993  
 
GAAP amortization of purchased intangible assets $ 9,836 $ 9,836 $ 9,836 $ 39,344 $ 39,344
Exclusion of amortization of purchased intangible assets   (9,836 )   (9,836 )   (9,836 )   (39,344 )   (39,344 )
Non-GAAP amortization of purchased intangible assets $ -   $ -   $ -   $ -   $ -  
 
GAAP restructuring costs and other charges $ 75 $ 175 $ 39 $ 888 $ 824
Exclusion of restructuring costs and other charges   (75 )   (175 )   (39 )   (888 )   (824 )
Non-GAAP restructuring costs and other charges $ -   $ -   $ -   $ -   $ -  
 
GAAP other income (expense) $ (2,731 ) $ (1,631 ) $ 9,393 $ (5,449 ) $ 6,189
Loss on subleased facilities - - - 538 -
Foreign exchange loss (gain) on foreign tax liabilities 2,403 978 (4,541 ) 2,694 (8,165 )
Accretion of the debt discount related to the senior convertible notes 772 757 1,137 2,999 5,617
Gain on repurchase of senior convertible notes, net - - (10,049 ) - (14,980 )
Recovery of investment loss - - - - (400 )
Asset impairment - - 4,300 - 4,300
Loss on investment securities   -     -     -     -     11,790  
Non-GAAP other income $ 444   $ 104   $ 240   $ 782   $ 4,351  
 
GAAP provision for (recovery of) income taxes $ 7,708 $ (8,583 ) $ 7,428 $ 4,224 $ (70,017 )
(Provision for) recovery of income tax matters   (5,837 )   9,884     (2,152 )   567     92,058  
Non-GAAP provision for income taxes $ 1,871   $ 1,301   $ 5,276   $ 4,791   $ 22,041  
 
 
Three Months Ended Twelve Months Ended
December 27, September 27, December 28, December 27, December 28,

2009 (1)

2009 (2)

2008 (3)

2009 (4)

2008 (5)

    As adjusted *   As adjusted *
 
GAAP operating expenses $ 69,349 $ 65,577 $ 72,102 $ 274,358 $ 291,342
Stock-based compensation (4,985 ) (4,971 ) (4,954 ) (20,617 ) (23,715 )
Exclusion of termination costs - 276 - (1,663 ) -
Exclusion of amortization of purchased intangible assets (9,836 ) (9,836 ) (9,836 ) (39,344 ) (39,344 )
Exclusion of restructuring costs and other charges   (75 )   (175 )   (39 )   (888 )   (824 )
Non-GAAP operating expenses $ 54,453   $ 50,871   $ 57,273   $ 211,846   $ 227,459  
 
GAAP operating income $ 25,565 $ 20,867 $ 6,848 $ 56,550 $ 52,091
Stock-based compensation 5,184 5,120 5,119 21,396 24,838
Exclusion of termination costs - (276 ) - 1,663 -
Exclusion of amortization of purchased intangible assets 9,836 9,836 9,836 39,344 39,344
Exclusion of restructuring costs and other charges   75     175     39     888     824  
Non-GAAP operating income $ 40,660   $ 35,722   $ 21,842   $ 119,841   $ 117,097  
 
Non-GAAP operating margin % 29 % 27 % 18 % 24 % 22 %
 
GAAP net income $ 15,126 $ 27,819 $ 8,813 $ 46,877 $ 128,297
Stock-based compensation 5,184 5,120 5,119 21,396 24,838
Exclusion of termination costs - (276 ) - 1,663 -
Exclusion of amortization of purchased intangible assets 9,836 9,836 9,836 39,344 39,344
Exclusion of restructuring costs and other charges 75 175 39 888 824
Loss on subleased facilities - - - 538 -
Foreign exchange loss (gain) on foreign tax liabilities 2,403 978 (4,541 ) 2,694 (8,165 )
Accretion of the debt discount related to the senior convertible notes 772 757 1,137 2,999 5,617
Gain on repurchase of senior convertible notes, net - - (10,049 ) - (14,980 )
Recovery of investment loss - - - - (400 )
Asset impairment - - 4,300 - 4,300
Loss on investment securities - - - - 11,790
Provision for (recovery of) income tax matters   5,837     (9,884 )   2,152     (567 )   (92,058 )
Non-GAAP net income $ 39,233   $ 34,525   $ 16,806   $ 115,832   $ 99,407  
 
Non-GAAP net income per share - basic $ 0.17 $ 0.15 $ 0.08 $ 0.51 $ 0.45
Non-GAAP net income per share - diluted $ 0.17 $ 0.15 $ 0.08 $ 0.50 $ 0.44
 
Shares used to calculate non-GAAP net income per share - basic 229,070 227,123 223,363 226,225 221,659
Shares used to calculate non-GAAP net income per share - diluted 233,751 231,863 224,029 229,567 223,687
 
Non-GAAP adjustments

(1) $5.2 million stock-based compensation expense; $9.8 million amortization of purchased intangible assets; $0.1 million restructuring costs; $2.4 million foreign exchange loss on foreign tax liabilities; $0.8 million of non-cash interest expense for the accretion of the debt discount related to the senior convertible notes; and $5.8 million income tax provision which includes $1.9 million net deferred tax provision relating to foreign exchange translation of a foreign subsidiary, $1.8 million tax effect on inter-company transactions, $1.8 million year-end tax adjustments including those based on completed filings and assessments received from tax authorities, $0.5 million arrears interest relating to unrecognized tax benefits, and $0.2 million income tax recovery related to the adjustments above.

 

(2) $5.1 million stock-based compensation expense; $0.3 million recovery of previously accrued termination costs; $9.8 million amortization of purchased intangible assets; $0.2 million restructuring costs; $1.0 million foreign exchange loss on foreign tax liabilities; $0.8 million of non-cash interest expense for the accretion of the debt discount related to the senior convertible notes; and $9.9 million income tax recovery which includes $9.4 million net deferred tax recovery relating to foreign exchange translation of a foreign subsidiary, $0.3 million arrears interest relating to unrecognized tax benefits, $1.0 million tax effect on inter-company transactions, $0.8 million tax adjustments based on completed filings and assessments received from tax authorities, and $1.0 million income tax recovery related to the adjustments above.

 

(3) $5.1 million stock-based compensation expense; $9.8 million amortization of purchased intangible assets; $4.5 million foreign exchange gain on foreign tax liabilities; $1.1 million of non-cash interest expense for the accretion of the debt discount related to the senior convertible notes; $10.0 million gain on repurchase of senior convertible notes, net; $4.3 million asset impairment; and $2.2 million net income tax effects comprised of $0.4 million income tax recovery related to adjustments above, $5.6 million deferred tax expense relating to unrealized gain on foreign exchange translation of a foreign subsidiary, $4.3 million reversal of unrecognized tax benefits and related interest, and $1.3 million tax adjustments based on completed filings and assessments received from tax authorities.

 

(4) $21.4 million stock-based compensation expense; $1.7 million of termination costs; $39.3 million amortization of purchased intangible assets; $0.9 million restructuring costs; $0.5 million loss on subleased facilities; $2.7 million foreign exchange loss on foreign tax liabilities; $3.0 million of non-cash interest expense for the accretion of the debt discount related to the senior convertible notes; and $0.6 million income tax recovery which includes $6.5 million net deferred tax recovery relating to foreign exchange translation of a foreign subsidiary, $5.0 million tax effect on intercompany transactions, $1.5 million year end tax adjustments including those based on completed filings and assessments received from tax authorities, $1.5 million arrears interest relating to unrecognized tax benefits, and $2.1 million income tax recovery related to the adjustments above.

 

(5) $24.8 million stock-based compensation expense; $39.3 million amortization of purchased intangible assets; $0.8 million restructuring costs; $8.2 million foreign exchange gain on foreign tax liabilities; $5.6 million of non-cash interest expense for the accretion of the debt discount related to the senior convertible notes; $15.0 million gain on the repurchase of senior convertible notes, net; $0.4 million recovery of investment loss; $4.3 million for asset impairment; $11.8 million related to loss on investment securities; and $92.1 million income tax recovery relating to $94.3 million related to the net adjustment to accrual for unrecognized tax benefits, $5.6 million deferred tax expense relating to unrealized gain on foreign exchange translation of a foreign subsidiary, and $3.4 million income tax effect related to the non-GAAP adjustments above.

During the second quarter of 2008, the Company reached a settlement on several ongoing foreign tax matters related to prior years for amounts less than had been accrued as unrecognized tax benefits.  As part of the settlement, the Company agreed to a cash payment of $18.0 million and utilized $38.1 million in investment tax credits.


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