Corporate News

Trex Company, Inc. (NYSE: TWP) has successfully refinanced its revolving credit facility. The new $85 million facility matures on December 31, 2011 and can be extended to December 31, 2012 if certain conditions are met. The facility is provided by BB&T Capital Markets and TD Bank, N.A.

President and CEO Ron Kaplan commented, "The refinancing - which follows our redemption in September 2009 of the $25 million principal outstanding on our Variable Rate Demand Environmental Improvement Revenue Bonds - completes our initiative to consolidate our senior debt. We have structured the new facility to provide additional flexibility and liquidity as well as ample working capital. It provides management with the right capital structure to continue focusing on running the business."

There has been no borrowing on the new line. As part of the refinancing process, the company paid off its existing real estate loans with BB&T Company in the amount of approximately $5 million with available cash.

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Infineon Technologies AG (OTC: IFNNY) and Lantiq today announced the closing of the sale of Infineon's Wireline business to Lantiq, an affiliate of the U.S. based investor Golden Gate Capital.

The new company, Lantiq, is a fabless semiconductor company with over 20 years of experience in Wireline communication and a strong technical foundation with over 800 patent families. Lantiq will continue to drive innovation for the Next-Generation Access and Home Networks.

The sale of Infineon WLC to Golden Gate Capital was announced in July this year. The final purchase price will amount to approximately EUR 243 Million resulting from customary adjustments in the asset purchase agreement with Golden Gate Capital. Infineon is expected to record a book gain of more than Euro 100 Million as a result of this transaction in the first quarter of its fiscal year ending September 30, 2010.

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NVIDIA Corporation (NASDAQ: NVDA) reports Q3 adjusted EPS of $0.19, 9 cents better than the analyst estimate of $0.10. Revenue for the quarter was $903.2 million, which compares to the estimate of $835.19 million. Shares are up 7% today

Highlights From NVDA's Q3 Conference Call:

• GP demand continued to steadily increase, driven by a healthy marketing environment and new applications that require GPUs. Our unprecedented investments in parallel computing are creating change and opportunity, and are the foundation of our growth in the coming year.
  
• We believe we are in the midst of a giant leap in computer graphics. The GPU continues to advance the most parallel of applications, 3-D graphics. And it is now poised to revolutionize a wide range of industries by making parallel computing mainstream.
  
• Movie production houses that worked on Terminator Salvation and Star Trek ran color grading and image processing 20 times faster using parallel computing on NVIDIA GPUs.
  
• We held our first GPU technology conference last month, and even after closing registration early, we were oversubscribed by 50%. 1,500 people from over 40 countries listened, learned, and shared during 200 hours of sessions. At one point, more than 35,000 people were watching online.
  
• (CFO) Revenue was $903.2 million, above our guidance and up 16% sequentially, making the third consecutive quarter of top line strong growth.
  
• Gross margin was 43.4%, 41% on a non-GAAP basis, significantly higher than guidance.
  
• GAAP operating expense was just under $284 million, marginally above guidance. And GAAP net income was $107.6 million or $0.19 per diluted share. Non-GAAP income was also $0.19 per diluted share.
  
• Our core GPU business was particularly strong, up almost 25% sequentially. Within that, our desktop and notebook GPU segments were up 19% and over 41% respectively quarter-over-quarter. While demand was strong, we were supply-constrained throughout the quarter, particularly in our 40-nanometer products. 40-nanometer products for desktop and notebook constituted 19% of our total GPU revenue in the quarter.
  
• Our professional business saw another quarter of growth, up 11% sequentially. While revenues in this business are still well below their levels of a year ago, quotation activity continues to gain momentum and is encouraging.
  
• Gross margin improved sequentially as a result of several factors: significantly higher than anticipated unit sales of GPUs; improved 55-nanometer yields, as well as other cost reductions; and more favorable product mix across businesses, and particularly better mix within the GPU business itself.
  
• Inventories at the end of the quarter were essentially flat compared with the prior quarter.
  
• Inventory days on hand improved to 47, calculated on a non-GAAP basis, a four-day improvement over Q2. Inventory in the channel remains very low at around a month.
  
• With demand outstripping supply, we don't see OEMs at the channel building inventory.
  
• Our outlook for Q4 of fiscal 2010 is as follows. Revenue is expected to be up slightly, approximately 2% from the third quarter. While revenue from 40-nanometer products is expected to grow significantly quarter-over-quarter, we expect 40-nanometer products to be supply-constrained throughout the quarter.
  
• GAAP gross margin is expected to be 40 to 42%, essentially flat with Q3, excluding the insurance reimbursement. GAAP operating expenses are expected to be in the range of 305 million. This is up from the third quarter, due primarily to our fourth quarter comprising 14 weeks versus the usual 13
  weeks, as well as costs relating to a record number of product bring-ups.
  
• (Q&A) I guess I would start with - we've seen several quarters now where you've significantly exceeded your guidance. Can you talk a little bit about the business processes that you have in place to forecast your business and whether you're finding yourself sort of short of product going forward as a result of not really getting accurate forecasts from your customers in your channel? (A)So, Doug, our process starts really at the very baseline of our field sales force, and we gather forecasts from the field, both the OEMs and to the extent we can through the channels. We also at the same time try and correlate that with what market forecasters expect to be growth rates in the various end markets we participate in. And from that, we set revenue plans. And from that, we set wafer start plans ultimately. I think the challenge for probably everyone in the industry right now is that demand has been more robust than what anyone has been able to particularly foresee. And given that you've got a 12-to-13-week lead time from the date you decide that you want more volume to the date that you can ship that volume, we're being surprised by robust demand within that lead time. And so it's a good thing in some respects. I think the downside for us has been that, as a result, we have been supply-constrained. But we do look at a number of different inputs as it relates - in terms of compiling our forecasts and trying to challenge our crystal ball, so to speak.
  
• All right, if we could sort of move in and sort of focus in on one segment of the business, the chipsets, it appears during the quarter you guys have made a little bit of a change in tone towards the outlook for your chipset business. Can you talk about that? And can you talk a little bit about what's going on over with the AMD chipsets, the downturn there you attribute to their supply constraints? Is there any thought that you might be also possibly experiencing some share loss in that piece of business? (A)Our primary AMD chipset today is a chipset called the MCP61. The MCP61 is the only single-chip solution in the marketplace today, and it enables the lowest cost solution for an AMD platform. There's really at this point nothing that I know how to do, nor do I believe anybody else can build a chipset that is as low cost at a system level as MCP61. You know that the AMD market is primarily mainstream desktop. And then you also know that for a variety of reasons AMD CPUs lost share last quarter. And so when AMD CPU loses share, they lose share primarily in the mainstream market, and so that's basically what we experienced. I don't think we lost any share within the AMD CPU market. I think the AMD CPU lost share in the mainstream desktop PC market. If the AMD CPU recovers in share, relative to Intel, we'll grow the MCP61 business again. And so my expectation is that for the foreseeable future, certainly well beyond several quarters, the MCP61 is going to be a wonderful chipset for AMD processors. The second question is longer term about our chipset. You know that we have a dispute with Intel. And it is now impossible for us to build next-generation chipsets with all the allegations that they're making in the market and with the dispute hanging over it. We have one major generation of the current architecture post MCP79. It is a really exciting new MCP next-generation, and we're expecting it to be very successful. The customer feedback has been quite wonderful.And while MCP79's GPU capability already far exceeds that of Arrandale, MCP89 will take it that much further. And so MCP89 is our next major generation of this architecture. And so we're expecting our chipset business overall to do quite nicely through next year and beyond. The only thing that I have said, and I want it to be very clear, is that we have no intentions at this point of building a DMI-based chipset. But otherwise we have ongoing investments, as well as chipset developments in the current architecture.
  
• I guess from an end demand perspective, first and foremost, beyond the limitations on the supply side, are you seeing any sort of abnormal seasonality or inventory-related impact on demand as we look into the fourth quarter? (A)We came into this quarter with very, very strong demand again. Last quarter, we were supply-constrained from the very first day of the quarter, and it got more and more challenging as demand continued to grow. I think that Mercury Research showed that we lost market share. I think we did lose market share. We came out of the quarter not being able to fulfill several million units of demand on us, not to mention the terms business that would've been on top of that. And so the demand on our GPUs at the moment is very, very, very, very high. Is it because of Windows 7? It could be. I hope that it is. And I hope that it's because people's PCs are getting rather old, and they could use a refresh. I hope that it's because the adoption of GPUs is higher than before. And so we're seeing very, very strong demand at the moment. I expect us to be supply-constrained, and the projections that we're giving you guys are the supply-constrained forecasts. And so I'm expecting us to be supply-constrained, and we're going to fight really hard to make up as much as we can. But the demand is pretty strong out there right now.
  
• I guess as a follow-up, also looking at your MCP business, it was helpful to hear how you think it's going to play out. But if we try to get a little more granular on that, the fact that you're not planning to do any of the DMI side of things - you're at 250 million in revenues now. When do you think it starts to impact your overall chipset business that you're making the choice, or Intel's forcing the choice, that you won't be supporting the new architecture? When would we start to see that on the revenue side of the equation? (A)My sense is that we'll see our - and I'm just giving you my crystal ball. Who knows? But based on our analysis, my sense is that our chipset business ought to peak probably around Q3, Q4 next year. And then they'll ramp-down from there. And it just depends on available CPUs that we can connect to, customer demand for Ion, so on so forth, our competitiveness relative to Arrandale, Arrandale CPUs. Arrandale has integrated graphics, but MCP79 already has better GPU technology, and MCP89 takes that even further. And because Windows 7 requires direct compute and open CL and direct compute are becoming increasingly important, what we call GPU computing, I think that the disparity between our MCP and Intel's integrated graphics is growing, not shrinking. And it's growing by leaps and bounds at the moment. And so I think those are all play factors. But without much estimation, I think that our chipset business is likely to continue to grow for the foreseeable future, or has the opportunity to grow certainly.

Ocean Power Technologies, Inc (Nasdaq: OPTT) is on the move mid-day after announcing, in partnership with Leighton Contractors Pty, it has received a A$66.46 million grant from the Federal Government of Australia to build a 19 MW wave power project off the coast of Victoria, Australia.

The award is one of four renewable energy projects approved by the Federal Government after considering over 30 applications, and is the sole wave energy venture.

Shares of OPTT are up 35% currently.

Starbucks (NASDAQ: SBUX) reports Q4 adjusted EPS of $0.24, 3 cents better than the analyst estimate of $0.21. Revenue for the quarter was $2.40 billion, which compares to the estimate of $2.39 billion. Shares are up 6.24% today.

Highlights From SBUX's Q4 Conference Call:

• Sees FY10 EPS growth in the range of 15 - 20% from 2009
  
• (CEO) Both one and two-year sequential quarter comparable store sales trends have improved. With same-store sales in both our U.S. and international businesses stronger as we exited Q4 than when we entered it.
  
• Consolidated same-store sales trends improved to negative 1% from negative 5% in the previous quarter. Non-GAAP operating margin expanded to 10.4%.
  
• Non-GAAP earnings per share for Q4 totaled $0.24 compared to EPS of $0.10 in the prior year, an increase of 140%.
  
• We're seeing outstanding results for our seasonal offerings, where we've been able to build on high levels of customer anticipation with an integrated go-to-market approach.
  
• We've brought Anniversary Blend whole bean coffee back to our stores every year since we first introduced it in 1996 in honor of our 25th anniversary. And during the quarter, it achieved the best sales results in its history and Pumpkin Spice Latte is on the same track.
  
• We launched the new program with a Free Food Day and drew 1.5 million customers into our stores to sample the new line up.
  
• It's important to note that VIA is not just a product introduction or promotion. It is a significant new global growth platform within our core business with strong margins, consistent with our other whole bean and ground coffees.
  
• Starbucks VIA is not only resonating with our core customers, but it has enabled us to tap into new and incremental use occasions and need states; office workers for late-night meetings, business travelers, teachers, healthcare professionals, the list goes on.
  
• More than 3.5 million customers are registered Starbucks cardholders.
  
• Our recently launched iPhone application exceeded 500,000 downloads in the first week and has consistently been in the top free downloads on iTunes since it was introduced.
  
• We continue to see significant opportunities for store growth in Greater China, which we believe will ultimately be our largest market outside of the U.S.
  
• The China market, which now has nearly 700 stores, holds the potential for thousands.
  
• In the UK, we are seeing a number of improvements in the overall performance of the business, including increased traffic as several of our customer-driven initiatives beginning to take hold.
  
• I'm pleased to report that by the end of 2009, more than 9000 Subway restaurants in the U.S. will feature Seattle's Best Coffee as well as our plans to expand into even more Subway restaurants during 2010. We also will bring Seattle's Best Coffee to a group of more than 800 Subway restaurants in Canada before the end of 2009.
  
• (CFO) Q4 revenues were $2.4 billion, down 4% from $2.5 billion a year ago. The revenue decline was primarily driven by foreign currency translation, fewer company operated stores and a 1% decline in comparable store sales, attributable to a 1% decrease in traffic.
  
• And importantly, consolidated comps as well as U.S and international comps ended the quarter higher than where they started the quarter.
  
• We reported consolidated operating income of $199 million in the fourth quarter, which includes $53 million of restructuring charges, nearly all related to lease exit and other costs associated with the store closures.
  
• Excluding those charges, non-GAAP operating income was $253 million. This compares to Q4 fiscal 2008 operating income of $14 million and non-GAAP operating income of $119 million.
  
• Consolidated operating margin was 8.2% on a GAAP basis and 10.4% on a non-GAAP basis, which represented a 570 basis point improvement from the 4.7% non-GAAP operating margin reported a year ago.
  
• Total U.S. net revenues for the quarter were $1.7 billion, a 4% decline from $1.8 billion a year ago.
  
• Company operated U.S. retail revenues declined 3% to $1.6 billion for the quarter, primarily due to 474 fewer company operated stores and a 1% decline in comparable store sales. The comp decline was driven by a 1% decrease in traffic, while the average value per transaction was flat.
  
• The operating margin improved 760 basis points to 12.0% of related revenues from 4.4% a year ago.
  
• International total net revenues declined 4% to $514 million in the fourth quarter of fiscal 2009, driven by foreign currency impact due to the stronger U.S. dollar compared with the British pound and Canadian dollar. Comparable store sales for the quarter were flat with the year ago period, comprised of a 1% increase in transactions offset by a 2% decrease in the average value per transaction.
  
• International operating income was $45 million in Q4 fiscal 2009, a significant increase from $22 million last year. Operating margin improved by 470 basis points to 8.8%, its highest level since the first quarter of fiscal 2008.
  
• I'll now move on to the results from the global consumer products group. CPG total net revenues decreased 2% to $188 million in the fourth quarter of fiscal 2009, primarily due to lower U.S. foodservice revenues partly offset by higher revenues from packaged coffee.
  
• We expect our effective tax rate to be in the range of 34 to 35%, which is close to its historical level. And this leads to our outlook for earnings per share. We expect fiscal 2010 non-GAAP EPS growth in the range of 15 to 20% including roughly two to $0.03 per share coming from the addition of a 53rd fiscal week. Not included in this estimate is the impact from the remaining international store closures, which we expect to be two to $0.03 in restructuring that will be spread throughout the year.
  
• We are preparing to launch VIA domestically in the CPG channel in the middle of fiscal 2010 through a recently signed broker agreement. While this avenue allows us to control what we believe is a great opportunity with our brand outside our stores, there are upfront investments in the business that we will need to make to support this model. Therefore, in line with our previous expectations, we expect VIA to be profit neutral to Starbucks for fiscal 2010.
  
• Finally, we expect cash flow from operations to again reach approximately $1.4 billion in fiscal 2010.
  
• And our expectation for capital spend next year is in the range of 500 to $550 million, a slight increase from fiscal 2009. Roughly half of this total is expected to go to renovations and store equipment upgrades.
  
• (Q&A) Troy, you highlighted the free cash in the business this year and what you expect to do next year, but you stopped short of talking about what you plan to do with that. So if you could talk about either what you plan to do about it or what's the timeframe in which you might make that decision. And then just a clarification. You stopped short of saying comps are actually positive now, but I assume just
  given the trend that they would have to be currently positive, is that true? (A)Well, let me - no, we don't report separate months. So I'm going to let you work on the arithmetic. All I'll let you know is that we had negative 1% comps for the quarter and I'll repeat what we said. We had improving trends and we ended the quarter stronger than how we began the quarter. And just to be consistent with our history, we don't talk about specific months. Now back to your first question. Our top priority for cash of course is investing back in our existing business, making sure we're maintaining the excellence of the asset that we have in place. And the next priority is to fund the growth opportunities that we have; VIA, new store growth around the world and so on. And we see abundant opportunities there. With that said, I think fiscal 2009 demonstrates the cash generating power that we have in this business. And I do expect that as we move again into 2010 we will have excess cash above and beyond those critical business needs that I've described in the business. Now with that said, I also remain a bit cautious about this economic environment that we're in. We are on the front end here of the first holiday quarter which is our strongest cash producing quarter of the year. So we're not going to make any conclusions on how best to deploy that excess cash until we come through this quarter. What I will say is that we are evaluating how to distribute excess cash and what's the appropriate distribution strategy. We're having those discussions with our Board. And I would expect as we get somewhere to the latter half of our second quarter then we'll conclude that work and be ready to talk about what the next step is for us. So more to come.
  
• Maybe just to add on to that question, Troy, just the guidance that you provided of 15 to 20% earnings growth, it would seem if my math is right that you could pretty much get there with the rolling forward of the cost saves that you have realized in the back half of this year and benefiting really the first part of the year, that alone. So simplistically are you guys thinking that the same stores sales that you're guiding to is enough to offset some of the natural inflation that we might see in the business? Or are you expecting G&A to be much higher next year? And to John's question, will potentially the use of cash flow for buybacks be upside to the guidance that you provided?(A)There's a lot there. Let me start with the cost saves. I think the important thing to mention, I'll just repeat what we've talked about earlier in the year. These cost save initiatives that have delivered $580 million in '09, as you know, came in throughout the year. That will annualize to a bigger number in fiscal '10. And I'll also point out that this muscle that we have built in '09 gives us opportunity to go after more in the years ahead. We have new capabilities here that we didn't have in the past around driving efficiencies through every corner of our business. And I would expect that beyond annualizing that number that we'll continue to seek out and find efficiencies throughout the business. With that said, and you made this point well, there are natural inflationary pressures that just are there every year in our business. Wage inflation, real estate, in perhaps different environments than now, but those cost increases are always there, commodities from time to time. Healthcare is a critical element of ours. Given that we have such a broad-based healthcare program, we are more exposed to cost increases there than many retailers are. So the sum of all that is that the cost saves that we'll get in '10 and that we will continue to seek are intended to at least give us a tool to offset natural inflation in the business. There was a day when the high comp growth we had was how we offset those cost increases. We've built a model this year that gives us one more way to do that. We will have, we expect, positive comparable store sales this year and the combination of that with increased cost saves are what we believe drives the margin improvement in the year ahead.
  
• Could you discuss the decline in, it seemed like there was a deceleration in the U.S. license store revenue. And I'm wondering if I'm seeing that right. Is there any change in - is this just the impact of certain types of locations like we were talking about airports, hospitality, perhaps not doing as well? Or is there a change in strategy by Starbucks on that? And then secondly, and with regard to Starbucks - I'm sorry, Seattle's Best licensing, how meaningful could that be to earnings? You mentioned the 9,000 stores with Subway. (A)We had a very good and robust year in licensing. Cliff, if you want to take the question with regard to his interpretation of the downturn in revenue, I think that'd be helpful. (A)Thank you, Howard, and David, thanks for the question. Our licensed business, as you know, feeds in part off the traffic volumes in the people who operate the units. And certainly most environments or a lot of the environments have had the same challenges over the last 12 months. We have certainly seen a very strong business model and we're really confident that some of the disciplines we've brought around our overhead costs will pass through and are passing through to the license business. It's been a good year, and we see good opportunities for future growth. (A)With regard to Seattle's Best Coffee. I think the fact first off that the organization was willing to have Michelle depart the core brand and go after Seattle's Best Coffee represents internally and now to this audience, how bullish we are ultimately on the future of Seattle's Best Coffee. I think the marketplace has changed to a large degree where the coffee consumer is going after multiple tastes and although their loyalty to Starbucks is significant, there are times when they want perhaps a different kind of coffee, whether it's flavored or a lighter roast. In view of that, we want to be able to take Seattle's Best Coffee out of the shadow of Starbucks, and really for the first time in its history have a lifeof its own. So the organization is beginning to take form and what I would say is that we've lifted the guard rails off Seattle's Best Coffee in terms of licensing opportunities, sales opportunities. And the Subway opportunity that we've outlined today is just one of many conversations that we're having. And I think candidly, given the fact that the fast food players have gone after the breakfast business, specifically McDonald's, in such a big way, and they've made such a big push in coffee, their core competitors want to compete directly in that space and we have a coffee that is not just a supplier but a national brand. And we've got training and competency that we believe we can help them. So the Subway situation I think is an interesting case study and there'll be more to come. But I think SBC is in its infant stages of what it could be domestically and internationally.