Microchip Technology Announces Its Best Quarter Ever
-- MICROCHIP COMPLETED THE ACQUISITION OF SILICON STORAGE TECHNOLOGY, INC.
(SST) ON APRIL 8, 2010
-- MICROCHIP CONSOLIDATED NET SALES OF $320.8 MILLION, INCLUDING SST'S
SALES BEGINNING APRIL 9, 2010
o MICROCHIP'S NET SALES, EXCLUDING SST, WERE $302.4 MILLION, UP 8.8%
SEQUENTIALLY
o SST'S NET SALES FROM CONTINUING OPERATIONS WERE $18.4 MILLION
o RECORD NET SALES OF 8-BIT, 16-BIT, AND 32-BIT MICROCONTROLLERS; RECORD
NET SALES OF ANALOG PRODUCTS
-- CONSOLIDATED CONTINUING OPERATIONS ON A GAAP BASIS:
o GROSS MARGIN OF 62.2%; OPERATING PROFIT OF 33.2% AND OPERATING INCOME
OF $106.6 MILLION; NET INCOME OF $89.6 MILLION AND 27.9% OF NET SALES;
EPS OF 47 CENTS PER DILUTED SHARE
-- CONSOLIDATED CONTINUING OPERATIONS ON A NON-GAAP BASIS:
o RECORD GROSS MARGINS OF 63.6%; RECORD OPERATING PROFIT OF 37.9% AND
RECORD OPERATING INCOME OF $121.7 MILLION; RECORD NET INCOME OF $104.2
MILLION AND 32.5% OF NET SALES; RECORD EPS OF 55 CENTS PER DILUTED
SHARE
-- RECORD SHIPMENTS OF 49,710 DEVELOPMENT TOOLS
-- INCREASED QUARTERLY DIVIDEND TO A RECORD 34.3 CENTS PER SHARE
CHANDLER, Ariz.--(BUSINESS WIRE)-- Microchip Technology Incorporated (NASDAQ: MCHP), a leading provider of microcontroller, analog and Flash-IP solutions, today reported results for the three months ended June 30, 2010 as summarized in the following tables:
(in millions, except earnings per Microchip Excluding SST Results1
diluted share and percentages) Three Months Ended June 30, 2010
% of Net Non- % of Net
GAAP Sales GAAP2 Sales
Net Sales $302.4 $302.4
Gross Margin $185.1 61.2% $187.5 62.0%
Operating Income $100.4 31.8% $112.0 37.0%
Other Expense ($4.2) ($2.6)
Income Tax Expense $11.4 $13.5
Net Income from Continuing Operations $84.8 26.9% $96.0 31.7%
Earnings per Diluted Share3 45 cents 51 cents
(in millions, except earnings per diluted SST Results Including
share and percentages) Purchase Accounting Adjustments
April 9, 2010 to June 30, 2010
% of Net Non- % of Net
GAAP Sales GAAP2 Sales
Net Sales $18.4 $18.4
Gross Margin $14.4 78.0% $16.6 90.0%
Operating Income $6.2 33.7% $9.7 52.5%
Other Income $0.3 $0.3
Income Tax Expense $1.7 $1.7
Net Income from Continuing Operations $4.8 26.3% $8.3 44.9%
Earnings per Diluted Share from Continuing 2 cents 4 cents
Operations3
Net Income (Loss) from Discontinued (-) - $5.9 32.2%
Operations
Earnings per Diluted Share from 0 cents 3 cents
Discontinued Operations3
(in millions, except earnings per Microchip Consolidated Results
diluted share and percentages) Three Months Ended June 30, 2010
% of Net Non- % of Net
GAAP Sales GAAP2 Sales
Net Sales $320.8 $320.8
Gross Margin $199.4 62.2% $204.1 63.6%
Operating Income $106.6 33.2% $121.7 37.9%
Other Expense ($3.9) ($2.2)
Income Tax Expense $13.1 $15.1
Net Income from Continuing Operations $89.6 27.9% $104.2 32.5%
Earnings per Diluted Share3 47 cents 55 cents
Net Income (Loss) from Discontinued (-) - $5.9 1.8%
Operations
Earnings per Diluted Share from 0 cents 3 cents
Discontinued Operations3
1 Microchip's results excluding SST do not have any discontinued operations. 2 See the "Use of Non-GAAP Financial Measures" section of this release. 3 Earnings per share have been calculated based on the diluted shares outstanding of Microchip on a consolidated basis.
Consolidated net sales for the first quarter of fiscal 2011 were $320.8 million, up 15.4% sequentially from net sales of $278.0 million in the immediately preceding quarter, and up 66.3% from net sales of $192.9 million in the prior year's first quarter. GAAP net income from continuing operations for the first quarter of fiscal 2011 was $89.6 million, or 47 cents per diluted share, up 18.3% from GAAP net income of $75.7 million, or 40 cents per diluted share, in the immediately preceding quarter, and up 227.4% from GAAP net income of $27.4 million, or 15 cents per diluted share, in the prior year's first quarter.
Consolidated Non-GAAP net income from continuing operations for the first quarter of fiscal 2011 was $104.2 million, or 55 cents per diluted share, up 20.2% from consolidated non-GAAP net income of $86.7 million, or 46 cents per diluted share, in the immediately preceding quarter, and up 197.9% from consolidated non-GAAP net income of $35.0 million, or 19 cents per diluted share, in the prior year's first quarter. For the first fiscal quarter of fiscal 2010 and fiscal 2011, our consolidated non-GAAP results exclude the effect of share-based compensation, any gain or loss on trading securities, expenses related to our acquisition activities (including intangible asset amortization, purchased inventory costs, severance costs and legal and other administrative expenses associated with acquisitions), the acquisition of patent licenses and non-cash interest expense on our convertible debentures. A reconciliation of our non-GAAP and GAAP results is included in this press release.
Microchip also announced today that its Board of Directors declared a quarterly cash dividend on its common stock of 34.3 cents per share. The quarterly dividend is payable on September 2, 2010 to stockholders of record on August 19, 2010. Microchip initiated quarterly cash dividend payments in the third quarter of fiscal 2003.
"The June quarter was another exceptional quarter for Microchip. Microchip's net sales, excluding SST, grew 8.8% sequentially, we achieved the high end of our gross margin guidance, and exceeded our operating profit and earnings per share guidance that we provided on May 5, 2010," said Steve Sanghi, Microchip's President and CEO. "Microchip's non-GAAP gross margins excluding SST were a record 62% for the quarter ending June 2010. Microchip's factories are running at higher levels of production output than they have ever produced in the history of the company, maintaining the high efficiency, quality and yields for which we are known. Excluding SST, Microchip's business produced record non-GAAP operating margins of 37.0% and record non-GAAP earnings per share of 51 cents per diluted share."
"The continuing operations of SST produced $18.4 million in net sales, 90% non-GAAP gross margins, 52.5% non-GAAP operating profit, and 4 cents of non-GAAP earnings per diluted share," continued Mr. Sanghi. "With the sale of several non-core assets and substantial operating expense reductions, we are pleased to achieve operating profitability for SST and announce the very first quarter under Microchip's ownership to be accretive to our earnings. These results exceeded our original guidance for the June quarter provided on May 5, 2010."
"The consolidated results from continuing operations produced net sales of $320.8 million in the June 2010 quarter, non-GAAP gross margins of 63.6%, non-GAAP operating profit of 37.9% and non-GAAP earnings per diluted share of 55 cents. We are exceptionally pleased with these record-setting results," Mr. Sanghi added.
"Our microcontroller business delivered superb results with net sales up a strong 9.8% on a sequential basis and up 55.3% from the year ago quarter, achieving a new record. Our 16-bit microcontroller business achieved another record for quarterly net sales and was up 26% sequentially and up 154% from the year ago quarter. Our 32-bit microcontroller product line continues to make good progress with 86% sequential growth from a small but rapidly growing base, and building upon the 36% sequential growth it experienced in the June quarter," said Ganesh Moorthy, Chief Operating Officer. "Our analog business had another outstanding quarter with 17.8% sequential growth, and was up 101.2% from the year ago quarter."
Eric Bjornholt, Microchip's Chief Financial Officer, said, "Microchip's inventory days on its balance sheet decreased from 97 days at the end of March to 96 days at the end of June. Distribution inventory dropped one day, to 40 days at the end of the June quarter. Overall inventory combining Microchip and distributor balances was down two days on June 30, 2010 compared to the balances at March 31, 2010. Inventory days remain well below our internal target of 115 and we continue to ramp our factories to increase capacity to meet our customers' demand."
Mr. Bjornholt continued, "We ended the June quarter with a total cash and investment position of approximately $1.5 billion. We expect our cash generation to be very strong in the September quarter and for the remainder of fiscal 2011."
Mr. Sanghi added, "We continue to make outstanding progress in the integration and restructuring of the SST business including the sale of certain assets. We announced the consummation of the sale of the NAND drive and certain memory product lines on May 21, 2010. On July 8, 2010, we announced an exclusive limited license to Professional Computer Technology, Ltd. that allows them to manufacture certain Serial NOR-Flash products and sell these products to a specific licensed market under its own brand name. We are progressing well on the sale of the WiFi power amplifier business and continue our rationalization efforts for the various SST memory product lines. We continue diligent work on the integration activities associated with SST, including taking actions to achieve strong financial returns from the continuing businesses, integrating the SST employees into the Microchip culture and actively marketing those assets that are being held for sale. We are confident that the SST transaction will provide substantial long-term value to our stockholders."
Mr. Sanghi said, "We are very pleased with how our business has performed in recent quarters and are confident that we have gained market share in our microcontroller and analog markets. Microchip's book-to-bill ratio for the June quarter excluding SST was approximately 1.41, providing us with a record high opening backlog. In the September 2010 quarter, we expect net sales from Microchip's business including SST to be up approximately 6% to 7% sequentially. We expect the continuing operations of SST to deliver approximately $20 million in net sales to our overall results."
Mr. Sanghi concluded, "As we look into the December quarter, our backlog is substantially higher than it was for the September quarter at the same point in time. We continue to see robust demand around the world, driven by exceptionally strong new design wins in our microcontroller and analog product lines. We are increasing our manufacturing capacity to meet the projected demands of our customers in the December quarter. Considering all of this, we expect the December quarter net sales to be up approximately 3% over the September quarter, in our otherwise seasonally weakest quarter of the year."
Acquisition of Silicon Storage Technology, Inc.
On April 8, 2010, Microchip acquired SST, a public company based in Sunnyvale, California, in a merger transaction for $3.05 per share, or a total of $353.8 million. The acquisition was accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total purchase price was allocated to SST's net assets based upon their estimated fair values as of April 8, 2010. The excess purchase price over the value of the net assets acquired was recorded to goodwill. The continuing operations of SST include the licensing and microcontroller divisions. The discontinued operations include SST's various memory product lines and WiFi power amplifier businesses. The purchase price allocation resulted in net tangible assets acquired of $231.5 million for continuing operations, and $54.5 million for discontinued operations and intangible assets of $58.7 million ($44.5 million for continuing operations and $14.2 million for discontinued operations). The excess purchase price over the value of the net tangible assets acquired and intangible assets was recorded to goodwill and amounted to $9.1 million. The GAAP financial results for SST include purchase accounting adjustments related to inventory valuation costs, intangible asset amortization, severance costs, and legal and other general and administrative costs associated with the acquisition.
Microchip's Recent Highlights:
-- Microchip significantly expanded its Human Interface portfolio with a
royalty-free solution for projected capacitive touch sensing; a
microcontroller family that integrates three graphics acceleration units
and a display controller, along with 96 Kbytes of RAM, to simplify and
lower the costs of embedded graphics displays; an expansion of
Microchip's mTouch(TM) sensing solutions that enables capacitive touch
sensing interfaces through metal--an industry first; and two new tools
that speed the development of sophisticated graphical and touch-sensing
designs using PIC32, 32-bit microcontrollers.
-- Wireless continues to be a growing trend in the embedded market, and
Microchip continues to develop new solutions that make it easy for its
microcontroller customers to add wireless connectivity to their designs.
The latest offerings include new agency-certified Wi-Fi(R) modules and
low-power, sub-GHz radios and modules.
-- The Wall Street Journal ranked CEO Steve Sanghi second among the top 28
long-serving CEOs of the S&P 500. CEOs were ranked according to how
shareholder returns since going public compare to those of the remainder
of the market. According to data compiled by executive search firm
Spencer Stewart, Microchip's cumulative return has been 4,476% since its
IPO--nearly 10 times the change in the S&P 500 over the same period.
-- During the quarter, Microchip shipped 49,710 development systems, which
is its fifth consecutive quarterly record for development tool
shipments, demonstrating the continued strong interest in Microchip's
products. The total cumulative number of development systems shipped now
stands at 979,270.
-- In the 8-bit arena, Microchip announced the broadest line of low-power,
high-performance microcontrollers available, including a wide range of
features and pin counts with 1.8 - 5.5V operation. Microchip's latest
16-bit microcontroller family integrates USB and large RAM for improved
throughput and data buffering while reducing system cost and size.
-- The most recent additions to Microchip's large and rapidly growing
analog product line included a Synchronous Boost Regulator that enables
the use of PIC(R) microcontrollers with a single battery cell, the
industry's first Ion and photo smoke-detector ICs to offer alarm memory,
new Digital-to-Analog Converters for a wide range of applications, and
low-power LIN transceivers that meet the new AEC-Q100 standard to
satisfy the stringent requirements of global automotive and industrial
manufacturers.
-- Microchip continued to expand its memory portfolio with single-I/O bus
UNI/O(R) EEPROM devices in extremely small, Wafer-Level Chip-Scale and
TO-92 packages, along with the first SST products to be announced since
the acquisition--the newest members of the 25 series Serial Flash memory
family based on Microchip's proprietary SuperFlash(R) Technology.
Second Quarter Fiscal Year 2011 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 Non-GAAP1
Adjustments
Results from
Continuing
Operations:
Net Sales $340 to $343 $340 to $343
million million
Gross Margin2 Approximately 62.7% $3.1 million Approximately 63.6%
Operating Approximately 28.0% $8.2 million Approximately 25.6%
Expenses2
Other Income ($4.3) million ($1.7) million ($2.6) million
(Expense)
Tax Rate 13.0% to 13.5% $1.7 million 13.0% to 13.5%
Net Income from $98.3 to $99.8 $11.2 to $11.3 $109.5 to $111.1
Continuing million million million
Operations
Diluted Common 191.3 to 193.3
Shares million 1.3 million shares 190 to 192 million
Outstanding3
Earnings per
Diluted Share Approximately 52 Approximately 6 Approximately 58
From Continuing cents cents cents
Operations
-- Microchip's consolidated inventory at September 30, 2010 is expected to
be approximately flat in days to the June 30, 2010 levels, while
remaining below our internal target of 115 days.
-- Capital expenditures for the quarter ending September 30, 2010 are
expected to be approximately $42 million. Capital expenditures for all
of fiscal year 2011 are anticipated to be approximately $120 million. We
are continuing to take actions to invest in the needed equipment to
support the expected net sales growth of our new products and
technologies.
-- We expect net cash generation during the September quarter of
approximately $115 million to $135 million before the dividend payment
of $63.7 million announced today. The amount of expected net cash
generation is before the effect of any stock buy back activity.
-- Microchip's Board of Directors authorized a stock buy back of up to 10.0
million shares in December 2007. At June 30, 2010, approximately 2.5
million shares remained available for purchase under this program.
Future purchases will depend upon market conditions, interest rates and
corporate considerations.
1 Use of Non-GAAP Financial Measures:
Our Non-GAAP adjustments, where applicable, include the effect of share-based compensation, any gain or loss on trading securities, the expenses related to our acquisition activities (including intangible asset amortization, purchased inventory costs, severance costs and legal and other general and administrative expenses associated with acquisitions), patent portfolio licenses, non-recurring tax events and non-cash interest expense on our convertible debentures and the related income tax implications of these items.
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 value of our trading securities varies in amount from period to period and is affected by fluctuations in the market prices of such securities that we cannot predict and are not within the control of management. The non-GAAP adjustments related to the impact of our acquisitions and a portion of our interest expense related to our convertible debentures are non-cash expenses related to such transactions. Our acquisitions of patent portfolio licenses and tax events related to IRS settlements, changes in tax regulations and the reinstatement of the R&D tax credit are non-recurring events in our business. Accordingly, management excludes all of these items from its internal operating forecasts and models.
We are using non-GAAP gross profit margin, 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 administration expenses, non-GAAP operating income, non-GAAP other income (expense), 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 its 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 or, in the case of our trading securities, because such item is difficult to predict and not within the control of management. 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 Generally, gross margin fluctuates over time, driven primarily by the mix of microcontrollers, analog products and memory products sold; 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.
3 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, and the repurchase or the issuance of stock or the sale of treasury shares.
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended June 30,
2010 2009
Net sales $ 320,801 $ 192,949
Cost of sales 121,358 96,514
Gross profit 199,443 96,435
Operating expenses:
Research and development 38,657 27,636
Selling, general and administrative 53,679 36,383
Special charges 475 1,238
92,811 65,257
Operating income 106,632 31,178
Loss from equity investments (52 ) -
Other (expense) income, net (3,894 ) 1,477
Income from continuing operations before income 102,686 32,655
taxes
Income tax provision 13,071 5,287
Net Income from continuing operations 89,615 27,368
Discontinued operations:
Income from discontinued operations before income 295 -
taxes
Income tax provision 344 -
Net loss from discontinued operations (49 ) -
Net income $ 89,566 $ 27,368
Basic income per common share continuing operations $ 0.48 $ 0.15
Basic income per common share discontinued - -
operations
Basic net income per common share $ 0.48 $ 0.15
Diluted income per common share continuing $ 0.47 $ 0.15
operations
Diluted income per common share discontinued - -
operations
Diluted net income per common share $ 0.47 $ 0.15
Basic common shares outstanding 185,540 182,856
Diluted common shares outstanding 190,072 185,526
MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
June 30, March 31,
2010 2010
(Unaudited)
Cash and short-term investments $ 1,315,816 $ 1,214,323
Accounts receivable, net 193,499 137,806
Inventories 128,129 116,579
Assets held for sale 43,526 -
Other current assets 166,912 142,261
Total current assets 1,847,882 1,610,969
Property, plant & equipment, net 507,666 493,039
Long-term investments 160,129 317,215
Other assets 177,592 95,090
Total assets $ 2,693,269 $ 2,516,313
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other current liabilities $ 176,014 $ 104,449
Deferred income on shipments to distributors 108,070 98,941
Total current liabilities 284,084 203,390
Convertible debentures 342,223 340,672
Long-term income tax payable 96,221 57,140
Deferred tax liability 395,356 376,713
Other long-term liabilities 7,920 5,018
Stockholders' equity 1,567,465 1,533,380
Total liabilities and stockholders' equity $ 2,693,269 $ 2,516,313
RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(in thousands except per share amounts and percentages)
(Unaudited)
RECONCILIATION OF GAAP GROSS PROFIT TO NON-GAAP GROSS PROFIT
Three Months
Three Months Ended June 30, 2010 Ended
June 30, 2009
Microchip Microchip SST
Consolidated excluding SST
Gross profit, as $ 199,443 $ 185,087 $ 14,356 $ 96,435
reported
Share-based compensation 1,965 1,965 - 1,710
expense
Acquisition-related
inventory valuation 2,661 453 2,208 967
costs and intangible
asset amortization
Non-GAAP gross profit $ 204,069 $ 187,505 $ 16,564 $ 99,112
Non-GAAP gross profit 63.6 % 62.0 % 90.0 % 51.4 %
percentage
RECONCILIATION OF GAAP RESEARCH AND DEVELOPMENT EXPENSES TO NON-GAAP RESEARCH
AND DEVELOPMENT EXPENSES
Three Months
Three Months Ended June 30, 2010 Ended
June 30, 2009
Microchip Microchip SST
Consolidated excluding SST
Research and development $ 38,657 $ 34,700 $ 3,957 $ 27,636
expenses, as reported
Share-based compensation (3,167 ) (3,167 ) - (2,989 )
expense
Non-GAAP research and $ 35,490 $ 31,533 $ 3,957 $ 24,647
development expenses
Non-GAAP research and
development expenses as 11.1 % 10.4 % 21.5 % 12.8 %
a percentage of net
sales
RECONCILIATION OF GAAP SELLING, GENERAL AND ADMINISTRATIVE EXPENSES TO NON-GAAP
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Three Months
Three Months Ended June 30, 2010 Ended
June 30, 2009
Microchip Microchip SST
Consolidated excluding SST
Selling, general and
administrative expenses, $ 53,679 $ 49,960 $ 3,719 $ 36,383
as reported
Share-based compensation (4,319 ) (4,319 ) - (4,299 )
expense
Acquisition-related
intangible asset (2,464 ) (1,689 ) (775 ) (308 )
amortization and other
costs
Non-GAAP selling,
general and $ 46,896 $ 43,952 $ 2,944 $ 31,776
administrative expenses
Non-GAAP selling,
general and
administrative expenses 14.6 % 14.5 % 16.0 % 16.5 %
as a percentage of net
sales
RECONCILIATION OF GAAP OPERATING INCOME TO NON-GAAP OPERATING INCOME
Three Months
Three Months Ended June 30, 2010 Ended
June 30, 2009
Microchip Microchip SST
Consolidated excluding SST
Operating income, as $ 106,632 $ 100,427 $ 6,205 $ 31,178
reported
Share-based compensation 9,451 9,451 - 8,998
expense
Acquisition-related
inventory valuation
costs, intangible asset 5,125 2,142 2,983 1,275
amortization and other
costs
Special charge - SST 475 - 475 -
severance costs
Special charge - patent - - - 1,238
license
Non-GAAP operating $ 121,683 $ 112,020 $ 9,663 $ 42,689
income
Non-GAAP operating
income as a percentage 37.9 % 37.0 % 52.5 % 22.1 %
of net sales
RECONCILIATION OF GAAP OTHER (EXPENSE) INCOME, NET TO NON-GAAP OTHER EXPENSE,
NET
Three Months
Three Months Ended June 30, 2010 Ended
June 30, 2009
Microchip Microchip SST
Consolidated excluding SST
Other (expense) income, $ (3,894 ) $ (4,235 ) $ 341 $ 1,477
net, as reported
Convertible debt
non-cash interest 1,649 1,649 - 1,508
expense
Gain on trading - - - (5,447 )
securities
Non-GAAP other expense, $ (2,245 ) $ (2,586 ) $ 341 $ (2,462 )
net
Non-GAAP other expense,
net, as a percentage of -0.7 % -0.9 % 1.9 % -1.3 %
net sales
RECONCILIATION OF GAAP INCOME TAX PROVISION FROM CONTINUING OPERATIONS TO
NON-GAAP INCOME TAX PROVISION FROM CONTINUING OPERATIONS
Three Months
Three Months Ended June 30, 2010 Ended
June 30, 2009
Microchip Microchip SST
Consolidated excluding SST
Income tax provision, as $ 13,071 $ 11,416 $ 1,655 $ 5,287
reported
Income tax rate, as 12.7 % 11.9 % 25.5 % 16.2 %
reported
Share-based compensation 1,162 1,162 - 1,170
expense
Acquisition-related
inventory valuation
costs, intangible asset 270 264 6 165
amortization and other
costs
Special charge - SST 26 - 26 -
severance costs
Special charge - patent - - - 124
license
Convertible debt
non-cash interest 618 618 - 581
expense
Gain on trading - - - (2,097 )
securities
Non-GAAP income tax $ 15,147 $ 13,460 $ 1,687 $ 5,230
provision
Non-GAAP income tax rate 12.7 % 12.3 % 16.9 % 13.0 %
RECONCILIATION OF GAAP NET INCOME AND DILUTED NET INCOME PER SHARE TO
NON-GAAP NET INCOME AND NON-GAAP DILUTED NET INCOME PER SHARE
Three Three
Months Months
Three Months Ended June 30, 2010 Ended Ended
June 30, March 31,
2009 2010
Continuing Microchip
Microchip Operations Continuing Consolidated SST
Consolidated Microchip Operations Continuing Discontinued
Operations (excluding SST Operations Operations
SST)
Net income (loss), $ 89,566 $ 84,776 $ 4,839 $ 89,615 $ (49 ) $ 27,368 $ 75,749
as reported
Share-based
compensation 8,289 8,289 - 8,289 - 7,828 8,465
expense, net of tax
effect
Acquisition-related
inventory valuation
costs, intangible 10,823 1,878 2,977 4,855 5,968 1,110 1,502
asset amortization
and other costs,
net of tax effect
Special charge -
SST severance 449 - 449 449 - - -
costs, net of tax
effect
Special charge -
patent license, net - - - - - 1,114 -
of tax effect
Convertible debt
non-cash interest 1,031 1,031 - 1,031 - 927 982
expense, net of tax
effect
Gain on trading
securities, net of - - - - - (3,350 ) -
tax effect
Non-GAAP net income $ 110,158 $ 95,974 $ 8,265 $ 104,239 $ 5,919 $ 34,997 $ 86,698
Non-GAAP net income
as a percentage of 34.3 % 31.7 % 44.9 % 32.5 % 0.0 % 18.1 % 31.2 %
net sales
Diluted net income
per share, as $ 0.47 $ 0.45 $ 0.02 $ 0.47 $ - $ 0.15 $ 0.40
reported
Non-GAAP diluted
net income per $ 0.58 $ 0.51 $ 0.04 $ 0.55 $ 0.03 $ 0.19 $ 0.46
share
Microchip will host a conference call today, August 5, 2010 at 5:00 p.m. (Eastern Time) to discuss this release. This call will be simulcast over the Internet at www.microchip.com. The webcast will be available for replay until August 12, 2010.
A telephonic replay of the conference call will be available at approximately 7:00 p.m. (Eastern Time) August 5, 2010 and will remain available until 5:00 p.m. (Eastern Time) on August 12, 2010. Interested parties may listen to the replay by dialing 719-457-0820 and entering access code 5783541.
Cautionary Statement:
The statements in this release relating to our factories running at higher levels of production output, maintaining our high efficiency, quality and yields, our 32-bit microcontroller product line continuing to make good progress, ramping our factories to increase capacity, our cash generation being very strong in the September quarter and for the remainder of fiscal 2011, outstanding progress in the SST restructuring, progressing well on the sale of the WiFi power amplifier business, continuing our rationalization efforts for the various SST memory product lines, integration activities associated with SST, including achieving strong financial returns, integrating employees, and actively marketing assets held for sale, the SST transaction providing substantial long-term value to our stockholders, expecting net sales for Microchip's business including SST to be up approximately 6% to 7% sequentially, expecting continuing operations of SST to deliver approximately $20 million in net sales to our overall results, continued robust demand around the world, driven by exceptionally strong new design wins in our microcontroller and analog product lines, increasing our manufacturing capacity to meet the project demands of our customers in the December quarter, our expectation for December quarter net sales to be up approximately 3% over the September quarter, seasonally weakest quarter, continued strong interest in our products, our second quarter fiscal 2011 guidance on a consolidated basis including GAAP and non-GAAP as applicable for net sales, gross margin, operating expenses, other income (expense), tax rate, net income from continuing operations, diluted common shares outstanding, earnings per diluted share from continuing operations, inventory levels, capital expenditures for the September quarter and for fiscal 2011 including taking actions to invest in needed equipment to support our expected growth, and net cash generation are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause our actual results to differ materially, including, but not limited to: the continued strength of the economic recovery or any unexpected fluctuations or weakness in the U.S. and global economies, changes in demand or market acceptance of our products and the products of our customers; the mix of inventory we hold and our ability to satisfy short-term orders from our inventory; changes in utilization of our manufacturing capacity and our ability to effectively ramp our production levels; competitive developments including pricing pressures; the level of orders that are received and can be shipped in a quarter; the level of sell-through of our products through distribution; changes or fluctuations in customer order patterns and seasonality; foreign currency effects on our business; the impact of any significant acquisitions that we make; costs and outcome of any current or future tax audit or any litigation involving intellectual property, customers or other issues; difficulties associated with successfully integrating SST's business with our business and technologies; unexpected costs related to the integration of SST; the risk that our customers may fail to accept the SST product offerings; disruptions in our business or the businesses of our customers or suppliers due to natural disasters, terrorist activity, armed conflict, war, worldwide oil prices and supply, public health concerns or disruptions in the transportation system; and general economic, industry or political conditions in the United States or internationally.
For a detailed discussion of these and other risk factors, please refer to Microchip's filings on Forms 10-K and 10-Q. You can obtain copies of Forms 10-K and 10-Q and other relevant documents for free at Microchip's website (www.microchip.com) or the SEC's website (www.sec.gov) or from commercial document retrieval services.
Stockholders of Microchip are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date such statements are made. Microchip does not undertake any obligation to publicly update any forward-looking statements to reflect events, circumstances or new information after this August 5, 2010 press release, or to reflect the occurrence of unanticipated events.
About Microchip:
Microchip Technology Incorporated is a leading provider of microcontroller, analog and Flash-IP solutions, providing low-risk product development, lower total system cost and faster time to market for thousands of diverse customer applications worldwide. Headquartered in Chandler, Arizona, Microchip offers outstanding technical support along with dependable delivery and quality. For more information, visit the Microchip website at www.microchip.com.
Note: The Microchip name and logo, PIC, UNI/O and SuperFlash are registered trademarks of Microchip Technology Inc. in the USA and other countries. mTouch is a trademark of Microchip Technology Inc. in the USA and other countries. All other trademarks mentioned herein are the property of their respective companies.
Source: Microchip Technology Incorporated
Released August 5, 2010