PMTR Pemstar

Reduces Net Loss Before Restructuring by 55% Compared to Prior Quarter ROCHESTER, Minn., Nov. 2 /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 2006 second quarter ended September 30, 2005. Revenue from continuing operations for the three months ended September 30, 2005 increased to $211.1 million, compared to $157.9 million in the same quarter a year ago. The increase included approximately $65 million of additional revenue resulting from the full turnkey operation with a wireless handset customer, which was in our guidance going into the quarter. Net loss from continuing operations for the fiscal 2006 second quarter ended September 30, 2005 was $(13.4) million or $(0.30) per share, compared to net loss of $(3.4) million or ($0.07) per share in the same quarter a year ago. Results from continuing operations for the second quarter include adjustments for certain Americas locations of $(8.8) million or $(0.20) per share, comprised of restructuring charges of $(7.9) million, $(0.5) million of accounts receivable and inventory reserves primarily related to restructured sites and $(0.4) million due to consulting fees. Other than these adjustments, the net loss from continuing operations resulted primarily from reduced gross margins related to volume reduction and product mix changes in the semiconductor capital equipment and wireless hand set production combined with the low capacity utilization being addressed by the restructuring efforts. Revenues from discontinued operations in our Guadalajara facility for the fiscal second quarter were $1.0 and $8.5 million for fiscal 2006 and 2005, respectively. Loss from discontinued operations for the fiscal second quarter totaled $(0.08) million or $(0.00) per share. Expenses contributing to the second quarter fiscal 2006 loss included $(0.3) million or $(0.00) per share of adjustments comprised of restructuring charges of $(0.7) million and adjustments to reserves of $0.4 million. Excluding the above-mentioned adjustments of $(8.8) million for continuing operations and $(0.3) million for discontinued operations totaling $(0.20) per share, the adjusted net loss for the fiscal second quarter of 2006, was $(4.3) million or $(0.10) per share, which is in-line with prior guidance. Roy Bauer, PEMSTAR's President and COO stated, "We are encouraged with our progress in the second quarter as we reduced our net loss, excluding restructuring charges, by 55% compared to the prior quarter losses, as we start to realize the intended benefits of our restructuring initiatives from the last 18 months. The impact, however, was muted in the second quarter as it took slightly longer to transition customers out of our San Jose facility. Now that this work is behind us we are shifting all of our resources to improving profitability and targeting strategic growth opportunities. To ensure our success we have realigned our sales force and have strengthened our engineering sales team around our key accounts to drive higher margin projects." Greg Lea, PEMSTAR's Executive Vice President and CFO commented, "This was another positive quarter for us as we again moved closer to achieving our target operating model. Our adjusted EBITDA from continuing operations, which excludes restructuring charges, was $1.6 million. This is the first time in the last twelve months that we have achieved a positive adjusted EBITDA from continuing operations. This is an important milestone for us and the result of everyone's continued hard work across our entire organization. Our cost structure is clearly now better aligned with our level of customer demand. Finally, consistent with our restructuring plan, we took a charge of $8.6 million in the second fiscal quarter, which includes charges classified within discontinued operations. This brings the total to $15.3 million on a year to date basis, which remains in line with our initial guidance of $14 million to $18 million." Business Update During the second quarter of fiscal 2006, sales from continuing operations, excluding incremental turnkey revenue, to the industrial sector accounted for 50.2% of net sales; computing and data storage was 34.6% of net sales; communications was 13.6% of net sales; and medical was 1.6% of net sales. The full turnkey transaction change in our Tianjin facility materially affected the following statistical points given the increases in sales, accounts receivable and accounts payable. Accounts receivable at September 30, 2005 was $136.3 million with days sales outstanding (DSO) of 58 compared with $150.9 million in accounts receivable with DSO of 65 at June 30, 2005. Net inventories of $68.3 million as of September 30, 2005 with a turn rate of 12.0 times, compared with $63.8 million at June 30, 2005 and a turn rate of 12.8 times. PEMSTAR's cash cycle of 36 days was slightly lower than the June quarter's level of 37 days. The cash and restricted cash balance at September 30, 2005, was $41.8 million, compared to $33.6 million at June 30, 2005. Liquidity, defined as worldwide cash and restricted cash plus available domestic borrowing, stood at $58.1 million, as of September 30, 2005, which was improved on October 20, 2005 by PEMSTAR borrowing an additional $10.5 million within its amended domestic revolving credit facility. Debt as of September 30, 2005, was $117.6 million, compared to $122.0 million in the quarter ended June 30, 2005. The September 30, 2005 and June 30, 2005 balances include $21.6 million and $21.0 million, respectively, which together with restricted cash of $23.4 million and $22.8 million, respectively, are related to financing transactions to stabilize costs of the China turnkey transaction. Debt is calculated as debt plus capital leases, including current maturities in both cases. Al Berning, Chairman and CEO of PEMSTAR stated, "We are pleased with our continued progress on an operations basis combined with the level of new and existing customer projects. We start manufacturing production on the General Dynamics' Land Warrior program in the quarter and our program with Boston Scientific Medical is tracking well. Both programs are examples of our successful efforts in the industrial equipment and medical industries. We also initiated exciting new programs with SpectraLink, a leader in workplace Wi-Fi telephony, and with FinePoint Innovations, a subsidiary of InPlay Technologies. Our ability to work with customers from design through production of complex and configurable products consistently differentiates PEMSTAR. Our renewed focus will lead to higher margin, more specialized opportunities. Also, PEMSTAR launched new programs with long-term, top-tier customers, Honeywell and IBM. Finally, we are encouraged by reports of stabilization from customers across the semiconductor capital equipment industry. Based on public guidance, this stabilization is expected to continue. Looking forward, our progress remains on schedule and we are optimistic in our outlook as we remain focused on achieving profitable growth while diligently managing our cost structure." Fiscal 2006 Third-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 third quarter ending December 31, 2005, of $225 million to $250 million, including planned turnkey revenue in China, and a net loss of $(0.02) to a net income of $0.02 per share. 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 non-GAAP measures for the fiscal quarter ended September 30,2005, called "adjusted net income/loss", which excludes certain restructuring charges, adjustments made to create accounts receivable and inventory reserves and business consultants' fees, and "adjusted EBITDA", which represents earnings before certain restructuring charges as well as interest, taxes, depreciation and amortization. Management uses the adjusted net income/loss and adjusted EBITDA measures in its internal analysis and review of operational performance, monitoring compliance with debt agreement covenants and for providing guidance to investors. Management believes that these adjusted measures 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 these non-GAAP measures management believes that investors get a better picture of the performance of PEMSTAR's underlying business. Management encourages investors to review PEMSTAR's net loss 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. A reconciliation of the non-GAAP measures used in this release to their closest GAAP counterpart is included in tables appearing at the end of this release. Investor Conference Call / Webcast Details PEMSTAR will host a live Webcast to review fiscal 2006 second-quarter results today, Wednesday, November 2, 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 second quarter conference call, phone 800-633-8284 (domestic), or 402-977-9140 (international), access number 21265256. The telephone replay will be available beginning at 6:00 p.m. CT (7:00 p.m. ET) on Wednesday, November 2, through 6:00 p.m. CT (7:00 p.m. ET) on Friday, November 4. 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 11 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 integration of acquired or restructured businesses; increased competition; 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 PEMSTAR's Annual Report on Form 10-K for the fiscal year ended March 31, 2005 and PEMSTAR's quarterly reports filed on form 10-Q filed with the SEC. 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 Balance Sheets (In thousands, except per share data) September 30, June 30, March 31, 2005 2005 2005 Assets Current assets: Cash and equivalents $18,426 $10,744 $25,883 Restricted cash 23,391 22,835 - Accounts receivable, net 136,339 150,868 98,759 Recoverable income taxes 1,005 973 971 Inventories 68,250 63,812 68,345 Unbilled services 6,773 8,024 8,173 Deferred income taxes 989 973 953 Prepaid expenses and other 8,648 11,661 10,413 Assets related to discontinued operations 695 2,101 9,395 Total current assets 264,516 271,991 222,892 Property, plant and equipment, net 66,337 70,824 76,169 Goodwill, net 33,877 33,878 33,878 Deferred income taxes 2,620 2,747 2,733 Other assets 3,762 4,030 4,210 Non-current assets related to discontinued operations 233 448 4,112 Total assets $371,345 $383,918 $343,994 Liabilities and shareholders' equity Current liabilities: Cash overdraft $3,288 $2,921 $312 Revolving credit facilities and current maturities of long-term debt 99,400 103,189 79,068 Current maturities of capital lease obligations 590 626 453 Accounts payable 115,387 123,322 84,375 Income taxes payable 806 807 1,491 Accrued expenses and other 30,430 21,850 26,001 Liabilities related to discontinued operations 2,842 4,162 5,695 Total current liabilities 252,743 256,877 197,395 Long-term debt, less current maturities 5,845 6,179 6,560 Capital lease obligations, less current maturities 11,807 11,959 11,973 Other liabilities and deferred credits 8,108 2,840 2,895 Shareholders' equity: Common stock, par value $0.01 per share-authorized 150,000 shares, issued and outstanding 45,205 shares at September 30, 2005 and 45,178 shares at March 31, 2005 452 452 452 Additional paid-in capital 255,049 255,060 255,067 Accumulated other comprehensive income 2,368 2,120 3,601 Accumulated deficit (165,027) (151,569) (133,949) Total shareholders' equity 92,842 106,063 125,171 Total liabilities and shareholders' equity $371,345 $383,918 $343,994 Pemstar Inc. Consolidated Statements of Operations (In thousands, except per share data) Three Months Ended Six Months Ended September 30 September 30 2005 2004 2005 2004 Net sales $ 211,074 $ 157,875 $ 420,917 $ 343,195 Cost of goods sold 204,010 144,756 408,364 312,537 Gross profit 7,064 13,119 12,553 30,658 Selling, general and administrative expenses 10,491 14,430 22,627 28,316 Restructuring and impairment charges 7,893 220 10,239 220 Operating loss (11,320) (1,531) (20,313) 2,122 Other (income) expense - net (884) 255 (948) (1,151) Interest expense 2,771 2,066 4,448 4,079 Loss before income taxes (13,207) (3,852) (23,813) (806) Income tax expense (benefit) 168 (480) (524) (402) Loss from continuing operations (13,375) (3,372) (23,289) (404) Loss from discontinued operations (83) (2,659) (7,789) (5,102) Net loss $(13,458) $(6,031) $(31,078) $(5,506) Basic and diluted loss per common share: Loss from continuing operations $(0.30) $(0.07) $(0.52) $(0.01) Loss from discontinued operations (0.00) (0.06) (0.17) (0.11) Net loss $(0.30) $(0.13) $(0.69) $(0.12) Shares used in computing basic and diluted loss per common share: 45,184 45,150 45,199 45,146 Pemstar Inc. Non-GAAP Measures (In thousands, except per share data) Reconciliation of Net Loss to Adjusted Net Loss Three Months Ended Three Months Ended June 30, 2005 September 30, 2005 Continuing Discontinued Continuing Discontinued Operations Operations Total Operations Operations Total Net loss $(9,914) $(7,706) $(17,620) $(13,375) $(83) $(13,458) Add back: Restructuring charges 2,346 4,333 6,679 7,893 693 8,586 Accounts receivable and inventory reserves 1,292 1,918 3,210 508 (362) 146 Other unusual items 650 336 986 388 - 388 Adjusted net (loss) income $(5,625) $(1,119) $(6,744) $(4,586) $248 $(4,338) Basic per common share: Net loss $(0.22) $(0.17) $(0.39) $(0.30) $(0.00) $(0.30) Add back: Restructuring charges 0.05 0.10 0.15 0.17 0.01 0.18 Accounts receivable and inventory reserves 0.04 0.03 0.07 0.02 (0.01) 0.01 Other unusual items 0.01 0.01 0.02 0.01 - 0.01 Adjusted net (loss) income $(0.12) $(0.03) $(0.15) $(0.10) $0.00 $(0.10) Reconciliation of Non-GAAP financial disclosure - Adjusted EBITDA Three months ended September 30, 2005 Net loss from continuing operations $(13,375) Interest 2,771 Taxes 168 Depreciation 4,109 Amortization 11 Restructuring charges 7,893 Earnings before interest, taxes, depreciation and amortization (EBITDA) without restructuring charges 1,577 DATASOURCE: PEMSTAR Inc. CONTACT: Greg S. Lea, Executive Vice President & Chief Financial Officer of PEMSTAR Inc., +1-507-292-6941, ; or David Pasquale, Executive Vice President of The Ruth Group, +1-646-536-7006, Web site: http://www.pemstar.com/

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