PMC Reports First Quarter 2014 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, other income (expense), (provision for) recovery of income taxes, operating expenses, operating income (loss), operating margin percentage, net income (loss), and basic and diluted net income (loss) 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
Other Income (Expense), (Provision for) Recovery of Income Taxes, Operating Expenses, Operating Income (Loss),
Operating Margin Percentage, Net Income (Loss), and Basic and Diluted Net Income (Loss) Per Share
(in thousands, except for per share amounts)
(unaudited)

	Three Months Ended
	March 29,			December 28,			March 30,
	2014 ⁽¹⁾			2013 ⁽²⁾			2013 ⁽³⁾


GAAP cost of revenues	$	37,564		$	37,349		$	37,387
Stock-based compensation		(241	)		(256	)		(245	)
Acquisition-related costs		-			(5	)		-
Termination recoveries (costs)		9			(171	)		-
Non-GAAP cost of revenues	$	37,332		$	36,917		$	37,142

GAAP gross profit	$	88,904		$	89,523		$	87,774
Stock-based compensation		241			256			245
Acquisition-related costs		-			5			-
Termination (recoveries) costs		(9	)		171			-
Non-GAAP gross profit	$	89,136		$	89,955		$	88,019

Non-GAAP gross profit %		70.5	%		70.9	%		70.3	%

GAAP research and development expense	$	50,148		$	54,009		$	54,624
Stock-based compensation		(2,647	)		(2,854	)		(3,304	)
Acquisition-related costs		(800	)		(1,071	)		(273	)
Termination recoveries (costs)		58			(2,690	)		(392	)
Asset impairment		-			(508	)		-
Non-GAAP research and development expense	$	46,759		$	46,886		$	50,655

GAAP selling, general and administrative expense	$	29,340		$	27,768		$	28,342
Stock-based compensation		(3,303	)		(3,694	)		(3,833	)
Acquisition-related costs		(61	)		(39	)		(6	)
Lease exit costs		(142	)		(48	)		-
Termination costs		(3	)		(1,282	)		(207	)
Reversal of accruals		-			1,300			-
Asset impairment		(477	)		(639	)		-
Other expenses		(58	)		-			-
Non-GAAP selling, general and administrative expense	$	25,296		$	23,366		$	24,296

GAAP amortization of purchased intangible assets	$	12,329		$	13,547		$	10,784
Amortization of purchased intangible assets		(12,329	)		(13,547	)		(10,784	)
Non-GAAP amortization of purchased intangible assets	$	-		$	-		$	-

GAAP other income (expense)	$	519		$	2,499		$	1,613
Foreign exchange gain on foreign tax liabilities		(879	)		(2,564	)		(1,313	)
Non-GAAP other income (expense)	$	(360	)	$	(65	)	$	300

GAAP provision for (recovery of) income taxes	$	1,847		$	12,377		$	4,164
(Provision for) recovery of income tax matters		(1,111	)		(11,760	)		(4,056	)
Non-GAAP provision for (recovery of) income taxes	$	736		$	617		$	108

GAAP operating expenses	$	91,817		$	95,324		$	93,750
Stock-based compensation		(5,950	)		(6,548	)		(7,137	)
Acquisition-related costs		(861	)		(1,110	)		(279	)
Asset impairment		(477	)		(1,147	)		-
Lease exit costs		(142	)		(48	)		-
Termination recoveries (costs)		55			(3,972	)		(599	)
Amortization of purchased intangible assets		(12,329	)		(13,547	)		(10,784	)
Reversal of accruals		-			1,300			-
Other expenses		(58	)		-			-
Non-GAAP operating expenses	$	72,055		$	70,252		$	74,951


	March 29,			December 28,			March 30,
	2014			2013			2013

GAAP operating income (loss)	$	(2,913	)	$	(5,801	)	$	(5,976	)
Stock-based compensation		6,191			6,804			7,382
Acquisition-related costs		861			1,115			279
Asset impairment		477			1,147			-
Lease exit costs		142			48			-
Termination (recoveries) costs		(64	)		4,143			599
Amortization of purchased intangible assets		12,329			13,547			10,784
Reversal of accruals		-			(1,300	)		-
Other expenses		58			-			-
Non-GAAP operating income	$	17,081		$	19,703		$	13,068

Non-GAAP operating margin		14	%		16	%		10	%

GAAP net (loss) income	$	(4,241	)	$	(15,679	)	$	(8,527	)
Stock-based compensation		6,191			6,804			7,382
Acquisition-related costs		861			1,115			279
Termination (recoveries) costs		(64	)		4,143			599
Reversal of accruals		-			(1,300	)		-
Asset impairment		477			1,147			-
Lease exit costs		142			48			-
Amortization of purchased intangible assets		12,329			13,547			10,784
Other expenses		58			-			-
Foreign exchange gain on foreign tax liabilities		(879	)		(2,564	)		(1,313	)
Provision for (recovery of) income tax matters		1,111			11,760			4,056
Non-GAAP net income	$	15,985		$	19,021		$	13,260

Non-GAAP net income per share - basic	$	0.08		$	0.09		$	0.07
Non-GAAP net income per share - diluted	$	0.08		$	0.09		$	0.06


Shares used to calculate non-GAAP net income per share - basic		195,188			201,615			203,307
Shares used to calculate non-GAAP net income per share - diluted		198,306			203,047			205,475

(1) $6.2 million stock-based compensation expense; $0.9 million acquisition-related costs; $0.1 million recovery of termination costs; $12.3 million amortization of purchased intangible assets; $0.9 million foreign exchange gain on foreign tax liabilities; $0.5 million asset impairment; $0.1 million lease exit costs; $0.1 million other expenses, and $1.1 million provision for income taxes which includes $0.8 million income tax provision related to unrecognized tax benefits, $0.3 million income tax provision related to prepaid tax amortization, $0.4 million tax provision related to certain income tax credits, $0.1 million for adjustments related to prior periods, and $0.5 million deferred income tax benefit related to tax deductible items above.

(2) $6.8 million stock-based compensation expense; $1.1 million acquisition-related costs and deferred tax effects; $4.1 million termination costs; $1.1 million asset impairment; $1.3 million reversal of accrual; $0.1 million lease exit costs; $13.5 million amortization of purchased intangible assets; $2.6 million foreign exchange gain on foreign tax liabilities; and $11.8 million provision for income taxes which includes $1.9 million income tax recovery related to intercompany transactions, $2.9 million income tax recovery for adjustments related to prior periods and changes in estimates, $0.9 million income tax provision related to unrecognized tax benefits, $3.3 million provision related to non-deductible intangible asset amortization, $0.7 million income tax provision related to foreign exchange translation of a foreign subsidiary, $10.4 million deferred tax provision related to changes in assessments for certain income tax credits, and $1.3 million income tax provision related to tax deductible goodwill and other items above.

(3) $7.4 million stock-based compensation expense; $0.3 million acquisition-related costs; $0.6 million termination costs; $10.8 million amortization of purchased intangible assets; $1.3 million foreign exchange gain on foreign tax liabilities; and $4.1 million provision for income taxes which includes $1.8 million tax provision related to intercompany transactions, $2.6 million income tax provision related to unrecognized tax benefits, $0.5 million deferred tax recovery related to non-deductible intangible asset amortization, $0.1 million tax provision for adjustments related to prior periods, and $0.1 million income tax provision related to tax deductible items above.

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