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MFLEX Reports Financial Results for Second Quarter Fiscal 2010
May 06, 2010 (04:05 PM EDT)


Improved Labor Productivity and Overhead Cost Controls Help Company Achieve Better-than-Expected Gross Margins of 14.5 Percent

ANAHEIM, Calif., May 6 /PRNewswire-FirstCall/ -- Multi-Fineline Electronix, Inc. (Nasdaq: MFLX), a leading global provider of high-quality, technologically advanced flexible printed circuit and value-added component assembly solutions to the electronics industry, today reported financial results for its second quarter ended March 31, 2010.  Net sales in the second quarter of fiscal 2010 were $154.1 million, a decrease of 11.5 percent from net sales of $174.1 million in the same period of the prior year.  The decrease in net sales was due primarily to several programs reaching their end of life cycle, a shift in product mix to programs with lower flex content and, to a lesser degree, component shortages that delayed shipments of some flex assemblies.

Net income for the second quarter of fiscal 2010 was $4.9 million, or $0.19 per diluted share. As part of MFLEX's on-going initiatives to reduce costs and improve its competitive position, second quarter net income includes a $1.9 million non-cash, pre-tax impairment charge related to the planned retirement of certain assets at the Company's Anaheim facility.  Excluding the impairment charge, which on an after-tax basis was $1.2 million, second quarter 2010 net income was $6.1 million, or $0.24 per diluted share.  This compares to net income of $8.7 million, or $0.34 per diluted share, for the same period in fiscal 2009.

"We believe the factors that impacted second quarter net sales are temporary and anticipate an increase in customer demand in the second half of fiscal 2010," said Reza Meshgin, Chief Executive Officer of MFLEX.  "In addition, I was quite pleased with our second quarter operational execution that resulted in a better-than-expected gross margin of 14.5 percent. Our gross margin performance is indicative of Company-wide initiatives aimed at improving operating efficiencies that have resulted in reduced overhead costs and improved labor productivity.  Going forward, we expect the benefits from these initiatives will help to offset the near-term impact of competitive pricing and start-up costs related to MFC3, our new state-of-the-art manufacturing facility in China."

Financial Highlights

Gross margin during the second quarter of fiscal 2010 increased to 14.5 percent, compared to 14.2 percent for the same period in the prior year, primarily due to improved labor productivity and reduced overhead costs, and partially offset by higher material content of programs during the 2010 second quarter.  Sequentially, gross margin declined from 15.9 percent in the first quarter of fiscal 2010 due to the deleveraging of fixed manufacturing costs resulting from a lower level of sales.

Cash flow from operating activities for the second quarter of fiscal 2010 was $35.5 million, compared to $45.7 million in the prior year period.

At March 31, 2010, the Company had cash and cash equivalents of $146.8 million, or $5.70 per diluted share.

Outlook

For the third quarter of fiscal 2010, the Company expects net sales to range between $175 and $195 million, and gross margin to range between 14 and 16 percent based on the projected product mix and leveraging of manufacturing costs.

Commenting on the Company's business outlook, Mr. Meshgin said, "New programs scheduled to ramp in the second half of fiscal 2010 are expected to significantly increase sales during the remainder of the year and give us confidence in our ability to achieve full year net sales growth in 2010.  We continue to believe our competitive position is strong and our market share with our major customers remains stable. Our previously announced capacity expansion initiatives are moving forward as planned. With construction of MFC3 almost complete, and an additional manufacturing facility in Chengdu, China underway, we believe we are well positioned to support future growth opportunities."

Mr. Meshgin concluded, "We remain vigilant in efforts to control costs and improve operational efficiencies.  The $1.9 million pre-tax impairment charge recorded in the second quarter of 2010 is part of a Company-wide expense reduction plan that includes the transfer of certain low-volume assembly manufacturing currently performed at our headquarters in Anaheim, California to other MFLEX facilities in Asia.  This is expected to result in a reduction-in-force of approximately 85 employees in Anaheim and additional charges of $1.0 million and $0.4 million in the third quarter and fourth quarters of fiscal 2010, respectively. We expect these actions will result in annual pre-tax cost savings of $6.7 million beginning in fiscal 2011 without impacting our ability to achieve our future growth objectives."

Use of Non-GAAP Financial Information

To supplement the condensed consolidated financial results prepared in accordance with Generally Accepted Accounting Principles ("GAAP"), we use non-GAAP financial measures (non-GAAP net income and non-GAAP diluted earnings per share) that exclude certain charges for impairment. Management excludes these items because it believes that the non-GAAP measures enhance an investor's overall understanding of the Company's financial performance and future prospects by being more reflective of the Company's recurring operational activities and to be more comparable with the results of the Company over various periods. Management uses non-GAAP financial measures internally for strategic decision making, forecasting future results and evaluating current performance. By disclosing non-GAAP financial measures, management intends to provide investors with a more meaningful, consistent comparison of the Company's core operating results and trends for the periods presented. Non-GAAP financial measures are not prepared in accordance with GAAP; therefore, the information is not necessarily comparable to other companies' financial information and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.

Conference Call

MFLEX will host a conference call at 5:30 p.m. Eastern time (2:30 p.m. Pacific time) today to review its financial results for the second quarter of fiscal 2010.  The dial-in number for the call in North America is 1-866-225-8754 and 1-480-629-9692 for international callers. The call also will be webcast live on the Internet and can be accessed by logging onto www.mflex.com.

The webcast will be archived on the Company's website for at least 60 days following the call. An audio replay of the conference call will be available for seven days beginning at 8:30 p.m. Eastern time (5:30 p.m. Pacific time) today.  The audio replay dial-in number for North America is 1-800-406-7325 and 1-303-590-3030 for international callers.  The replay passcode is 4289334.

About MFLEX

MFLEX (www.mflex.com) is a global provider of high-quality, technologically advanced flexible printed circuit and value-added component assembly solutions to the electronics industry. The Company is one of a limited number of manufacturers that provides a seamless, integrated end-to-end flexible printed circuit solution for customers, ranging from design and application engineering, prototyping and high-volume manufacturing to turnkey component assembly and testing. The Company targets its solutions within the electronics market and, in particular, focuses on applications where flexible printed circuits are the enabling technology in achieving a desired size, shape, weight or functionality of an electronic device. Current applications for the Company's products include mobile phones and smart mobile devices, medical devices, computer/data storage, portable bar code scanners and other handheld consumer electronic devices. MFLEX's common stock is quoted on the Nasdaq Global Select Market under the symbol MFLX.

Certain statements in this news release are forward-looking statements that involve a number of risks and uncertainties. These forward-looking statements include, but are not limited to, statements and predictions regarding: revenues; net sales; sales; full year net sales growth projections; net income; cash balances, cash flow and uses of cash; tax rates; operating expenses; capital expenditures; inventory levels; profitability; gross margins, including factors that could affect gross margins; yields; labor productivity and operating efficiencies; growth and diversification of the Company's customer base; the Company's relationship and opportunities with, and expected demand, orders from and trends with, its customers (including the effect of seasonality and product life cycles on demand); trends regarding the use of flex in smartphones and other consumer electronic devices; demand for smartphones and other consumer electronic devices; the Company's competitive advantages and market opportunities; expected benefits from the acquisition of Pelikon and the MorphPad™ display; the utilization of flex and flex assemblies; current and upcoming programs, product mix and the material content and ramping thereof; efficiencies and effectiveness of location strategy for the Company's workforce and operations; the Company's manufacturing capabilities, capacity and ability to ramp/expand production of flex and flex assemblies and capacity; and plans regarding expansion of the Company's manufacturing facilities.  Additional forward-looking statements include, but are not limited to, statements pertaining to other financial items, plans, strategies or objectives of management for future operations, the Company's future operations and financial condition or prospects, and any other statement that is not historical fact, including any statement which is preceded by the words "scheduled," "assume," "can," "will," "plan," "should," "expect," "estimate," "aim," "intend," "project," "foresee," "target," "anticipate," "may," "believe," or similar words. Actual events or results may differ materially from those stated or implied by the Company's forward-looking statements as a result of a variety of factors including the effect of the economy or seasonality on the demand for electronic devices, the Company's success with new and current customers and those customers' success in the marketplace, the Company's ability to develop and deliver new technologies, the Company's ability to diversify its customer base and markets, the Company's effectiveness in managing manufacturing processes and costs and expansion of its operations, the Company's efficiencies and effectiveness of location strategy for the Company's workforce and operations, the Company's ability to manage quality assurance issues, the degree to which the Company is able to utilize available manufacturing capacity, enter into new markets and execute its strategic plans, electricity and component shortages, the impact of competition, pricing pressures and technological advances, the usage of flex in the smartphones and other consumer electronic devices and other risks detailed from time to time in the Company's SEC reports, including its Quarterly Report on Form 10-Q for the quarter ended March 31, 2010. These forward-looking statements represent management's judgment as of the date of this news release. The Company disclaims any intent or obligation to update these forward-looking statements.

Contact:

Lasse Glassen


Investor Relations


Tel:  213-486-6546


Email:  investor_relations@mflex.com



(SUMMARY FINANCIAL INFORMATION FOLLOWS)



Multi-Fineline Electronix, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)










Three Months Ended


Six Months Ended


March 31,


March 31,


2010


2009


2010


2009

Net sales

$ 154,075


$ 174,097


$ 383,574


$ 390,727

Cost of sales

131,772


149,429


324,797


332,987

Gross profit

22,303


24,668


58,777


57,740

Operating expenses








Research and development

3,462


1,241


6,297


2,412

Sales and marketing

5,855


6,070


12,539


11,405

General and administrative

4,892


6,300


10,775


13,317

Impairment and restructuring costs

1,937


(185)


1,937


127

Total operating expenses

16,146


13,426


31,548


27,261

Operating income

6,157


11,242


27,229


30,479

Other income (expense), net








Interest expense

(269)


(198)


(547)


(217)

Interest income

116


252


202


637

Other income (expense), net

308


169


498


(1,312)

Income before income taxes

6,312


11,465


27,382


29,587

Provision for income taxes

(1,370)


(2,720)


(6,125)


(6,751)

Net income

$     4,942


$     8,745


$   21,257


$   22,836









Net income per share:








Basic

$       0.19


$       0.35


$       0.84


$       0.91

Diluted

$       0.19


$       0.34


$       0.83


$       0.90

Shares used in computing net income per share:








Basic

25,433


24,997


25,350


25,032

Diluted

25,776


25,431


25,759


25,332



Multi-Fineline Electronix, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)






March 31,


September 30,


2010


2009





Cash and cash equivalents

$ 146,820


$       139,721

Short-term investments

11,566


11,812

Accounts receivable, net

101,695


129,270

Inventories

40,148


50,285

Other current assets

13,789


17,475

Total current assets

314,018


348,563

Property, plant and equipment

158,745


150,099

Other assets

29,000


27,268

Total assets

$ 501,763


$       525,930





Accounts payable

$   84,243


$       122,524

Other current liabilities

23,017


24,003

Total current liabilities

107,260


146,527

Notes payable

-


10,852

Other long-term liabilities

10,896


9,563

Stockholders' equity

383,607


358,988

Total liabilities and stockholders' equity

$ 501,763


$       525,930











Multi-Fineline Electronix, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)










Three Months Ended


Six Months Ended


March 31,


March 31,


2010


2009


2010


2009









Cash flows from operating activities








Net Income

$     4,942


$     8,745


$   21,257


$   22,836









Adjustments to reconcile net income to net cash provided by operating activities








Depreciation and amortization

11,697


10,198


23,740


19,930

Provision for doubtful accounts

206


67


2,285


(166)

Deferred taxes

(37)


(67)


(125)


(191)

Stock-based compensation expense

1,451


1,174


2,827


1,884

Impairment and restructuring costs

1,937


13


1,937


1,378

Gain on disposal of equipment

(170)


(186)


(315)


(114)

Changes in operating assets and liabilities

15,441


25,765


(3,683)


17,438

Net cash provided by operating activities

35,467


45,709


47,923


62,995

Cash flows from investing activities








Sale of short-term investments

150


-


300


-

Purchases of property and equipment (1)

(19,216)


(3,760)


(30,925)


(10,858)

Proceeds from sale of equipment

208


520


442


535

Change in restricted cash, net

-


204


-


145

Acquisition of business, net of cash acquired

-


-


-


(872)

Net cash used in investing activities

(18,858)


(3,036)


(30,183)


(11,050)

Cash flows from financing activities








Proceeds from exercise of stock options

659


718


1,604


882

Repayment of long-term debt

(11,144)


-


(11,144)


-

Repurchase of common stock

-


(8,410)


-


(8,410)

Tax withholdings for net share settlements of equity awards

(257)


-


(1,162)


-

Net cash used in financing activities

(10,742)


(7,692)


(10,702)


(7,528)

Effect of exchange rate changes on cash

(22)


(1)


61


(29)









Net increase in cash

5,845


34,980


7,099


44,388

Cash and cash equivalents at beginning of period

140,975


71,498


139,721


62,090

Cash and cash equivalents at end of period

$ 146,820


$ 106,478


$ 146,820


$ 106,478

















(1)  Excludes $2,191 of capital expenditures accrued but not paid as of March 31, 2010.



SOURCE Multi-Fineline Electronix, Inc.