PMC-Sierra Fiscal 3Q12 Financial Results

PMC-Sierra, Inc.
reported results for the third quarter ended September 30, 2012.

Net revenues in the third quarter of 2012 were $131.7 million, a decrease of 4% compared to net revenues of $137.8 million in the second quarter of 2012 and a decrease of 24% compared to $173.3 million in the third quarter of 2011.

GAAP net loss in the third quarter of 2012 was $274.4 million, or a loss of $1.31 per share. Third quarter GAAP results included impairment write-downs of goodwill and intangible assets of $276.1 million related to the Passave and Wintegra acquisitions, completed in 2006 and 2010, respectively. This compares to a GAAP net income of $26.5 million, or $0.12 per diluted share, including a $28.5 million benefit from the recognition of certain U.S. tax credits, mainly arising from foreign withholding taxes paid in the second quarter of 2012.

Non-GAAP net income in the third quarter of 2012 was $21.4 million, or $0.10 per diluted share, compared to non-GAAP net income of $21.3 million, or $0.09 per diluted share, in the second quarter of 2012.

Non-GAAP net income in the third quarter of 2012
excludes the following items:

• $6.1 million in stock-based compensation expense;
• $1.1 million in acquisition-related costs;
• $1.4 million in termination costs;
• $0.9 million in asset impairments;
• $1.8 million in lease exit costs;
• $11.6 million in amortization of purchased intangible assets;
• $2.1 million foreign exchange loss on foreign tax liabilities;
• $1 million of non-cash interest expense for the accretion of the debt discount related to the senior convertible notes;
• $6.3 million recovery of income taxes; and
• $276.1 million impairment of goodwill and purchased intangible assets.

"Our third quarter results were in line with expectations despite a tough macro environment," said Greg Lang, president and CEO of PMC. "With business uncertainty weighing on infrastructure purchases in every geography and market segment, we remain focused on best-in-class product execution, design wins and controlling operating expenses."

For a full reconciliation of each non-GAAP item used herein to the most directly comparable GAAP financial measure, please refer to the schedule included with this release. The company believes the additional non-GAAP measures are useful to investors for the purpose of financial analysis. Management uses these non-GAAP measures internally to evaluate its 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 to plan for the company’s future periods. However, non-GAAP measures are neither stated in accordance with, nor are they a substitute for, GAAP measures.

Highlights of events during 3Q2012 and recently include:

• On October 2, 2012, Goldman Sachs completed the repurchase of PMC’s common stock under the Accelerated Stock Buyback Agreement previously announced on May 2, 2012. Total shares repurchased under the Accelerated Stock Buyback Agreement are 26.8 million. In addition, PMC repurchased an additional 6.9 million shares under the Employee Equity Stock Buyback Plan which was approved for $40 million. The total amount of shares repurchased under both programs is approximately 33.7 million, representing approximately 14.5% of PMC’s total shares outstanding as of May 2, 2012.
• PMC announced the redemption of the company’s 2.25% senior convertible notes. The redemption took place on October 20, 2012, at one hundred per cent (100%) of the outstanding principal amount of the notes plus accrued and unpaid interest. On October 20, 2012, PMC redeemed the remaining outstanding Senior Convertible Notes for approximately $51.8 million.
• In storage networks for next generation cloud, data center, and broader market applications, Adaptec by PMC recently announced the introduction of the Series 7 family of RAID adapters, representing the industry’s first and highest port count PCIe Gen 3 6Gb/s SAS/SATA RAID adapters. It represents the first RAID adapters to take advantage of PCIe Gen3 bandwidth, providing performance for a range of enterprise and cloud computing applications. With 16 direct-connected SSDs, Series 7 adapters can deliver up to 450,000 IOPS on a 4K random read block size, equivalent to nearly 10x the performance of previous-generation RAID adapters.
• PMC delivered the industry’s first tri-speed converged carrier Ethernet/OTN framer. PMC’s PM5442 META 120G enables OEMs to substantially reduce total development costs by addressing high-speed line-card needs with a single silicon platform. As interconnect speeds increase, OTN is emerging as the de-facto protocol enabling seamless and scalable convergence of IP infrastructure and the optical transport domain. OTN provides the operations, administration and maintenance (OAM) functionality necessary for a DWDM transport infrastructure, and service providers see value in extending the OTN OAM out to the router interface. Additionally, OTN supports forward error correction (FEC) for reach extension, significantly increasing the number of links over which 100G can be deployed.