<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
- ------ Exchange Act of 1934
For the Quarterly Period Ended June 29, 1997
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or
______ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to _______
Commission File No. 0-8866
MICROSEMI CORPORATION
---------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2110371
----------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2830 South Fairview Street, Santa Ana, California 92704
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(Address of principal executive offices) (Zip Code)
(714) 979-8220
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 month period (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
The number of shares outstanding of the issuer's Common Stock, $.20 par value,
on July 24, 1997 was 8,712,506.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The unaudited consolidated financial information for the quarter and nine
months ended June 29, 1997 of Microsemi Corporation and Subsidiaries (the
"Company") and the comparative unaudited consolidated financial information for
the corresponding periods of the prior year, together with the balance sheet as
of September 29, 1996 are attached hereto and incorporated herein by this
reference.
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
(amounts in 000's)
<TABLE>
<CAPTION>
June 29, 1997 September 29, 1996
------------- ------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 4,791 $ 4,059
Accounts receivable less allowance for doubtful accounts,
$2,553 at June 29, 1997 and $2,159 at September 29, 1996 25,345 24,740
Inventories 47,328 47,279
Deferred income taxes 6,952 6,952
Other current assets 1,870 1,202
-------- --------
Total current assets 86,286 84,232
-------- --------
Property and equipment, at cost 64,957 57,278
Less: Accumulated depreciation (34,364) (31,637)
-------- --------
30,593 25,641
-------- --------
Deferred income taxes 675 675
Other assets 5,673 3,891
-------- --------
$123,227 $114,439
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable to banks and others $ 2,746 $ 4,552
Current maturity of long-term debt 3,115 1,625
Accounts payable and accrued liabilities 22,829 23,055
Income taxes payable 5,646 4,694
Deferred income taxes 750 750
-------- --------
Total current liabilities 35,086 34,676
-------- --------
Deferred income taxes 1,973 1,973
-------- --------
Long-term debt 46,164 46,420
-------- --------
Other long-term liabilities 1,914 1,962
-------- --------
Stockholders' equity
Common stock, $.20 par value; authorized 20,000 shares;
issued 8,712 shares at June 29, 1997 and
7,908 shares at September 29, 1996 1,743 1,582
Paid-in capital 16,111 14,895
Retained earnings 20,236 12,931
-------- --------
Total stockholders' equity 38,090 29,408
-------- --------
$123,227 $114,439
======== ========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
(amounts in 000's, except earnings per share)
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
June 29, 1997 June 30, 1996
-------------- --------------
<S> <C> <C>
Net sales $42,648 $41,261
Cost of sales 30,963 30,257
------- -------
Gross profit 11,685 11,004
------- -------
Operating expenses
Selling 2,416 2,418
General and administrative 3,131 3,544
------- -------
Total operating expenses 5,547 5,962
------- -------
Income from operations 6,138 5,042
------- -------
Other expense
Interest expense (net) (906) (968)
Other (89) (110)
------- -------
Total other expense (995) (1,078)
------- -------
Income before income taxes 5,143 3,964
Provision for income taxes 2,116 1,625
------- -------
Net income $ 3,027 $ 2,339
======= =======
Earnings per share
-Primary $ 0.33 $ 0.28
======= =======
-Fully diluted $ 0.28 $ 0.23
======= =======
Common and common equivalent shares outstanding
-Primary 9,046 8,259
-Fully diluted 11,901 11,782
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
(amounts in 000's, except earnings per share)
<TABLE>
<CAPTION>
39 Weeks Ended 39 Weeks Ended
June 29, 1997 June 30, 1996
-------------- --------------
<S> <C> <C>
Net sales $119,064 $115,667
Cost of sales 86,593 85,151
-------- --------
Gross profit 32,471 30,516
-------- --------
Operating expenses
Selling 7,006 6,783
General and administrative 9,912 10,390
-------- --------
Total operating expenses 16,918 17,173
-------- --------
Income from operations 15,553 13,343
-------- --------
Other expense
Interest expense (net) (2826) (3,380)
Other (257) (384)
-------- --------
Total other expense (3,083) (3,764)
-------- --------
Income before income taxes 12,470 9,579
Provision for income taxes 5,159 3,983
-------- --------
Net income $ 7,311 $ 5,596
======== ========
Earnings per share
-Primary $ 0.83 $ 0.68
======== ========
-Fully diluted $ 0.69 $ 0.56
======== ========
Common and common equivalent shares outstanding
-Primary 8,853 8,273
-Fully diluted 11,946 11,796
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Retained Earnings
(amounts in 000's)
<TABLE>
<CAPTION>
39 Weeks Ended 39 Weeks Ended
June 29, 1997 June 30, 1996
-------------- --------------
<S> <C> <C>
Retained earnings at beginning of period $12,931 $ 4,908
Net income 7,311 5,596
Translation loss from foreign currency (6) (63)
------- -------
Retained earnings at end of period $20,236 $10,441
======= =======
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(amounts in 000's)
<TABLE>
<CAPTION>
39 Weeks Ended 39 Weeks Ended
June 29, 1997 June 30, 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITITES:
Net income $ 7,311 $ 5,596
Adjustments to reconcile net income to net cash provided from
operating activities:
Depreciation and amortization 2,886 3,036
Increase in allowance for doubtful accounts 394 671
Loss on retirements of fixed assets - 207
Changes in assets and liabilities, net of acquisition:
Accounts receivable (999) (3,773)
Inventories 1,051 (4,771)
Other current assets (668) 1,591
Other assets (1,736) 52
Accounts payable and accrued liabilities (226) 4,421
Income taxes payable 952 (1,043)
Other (6) (63)
------- -------
Net cash provided from operating activities 8,959 5,924
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition (2,200) -
Purchase of property and equipment (5,618) (5,208)
------- -------
Net cash used for investing activities (7,818) (5,208)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable to banks and others (1,806) 535
Proceeds from issuance of long-term debt 3,355 -
Payments of long-term debt (2,117) (2,150)
Reduction of other long-term liabilities (48) (13)
Exercise of employee stock options 207 136
------- -------
Net cash provided from (used for) financing activities (409) (1,492)
------- -------
Net increase (decrease) in cash and cash equivalents 732 (776)
Cash and cash equivalents at beginning of period 4,059 3,965
------- -------
Cash and cash equivalents at end of period $ 4,791 $ 3,189
======= =======
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 29, 1997
1. PRESENTATION OF FINANCIAL INFORMATION
The financial information furnished herein is unaudited, but, in the opinion of
the management of Microsemi Corporation, includes all adjustments (all of which
are normal, recurring adjustments) necessary for a fair presentation of the
results of operations for the periods indicated. The results of operations for
the first nine months of the current fiscal year are not necessarily indicative
of the results to be expected for the full year.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. The unaudited consolidated financial statements
and notes should be read in conjunction with the financial statements and notes
thereto in the Annual Report on Form 10-K for the fiscal year ended September
29, 1996.
2. INVENTORIES
For interim reporting purposes, cost of goods sold and inventories are estimated
based upon the use of the gross profit method applied to each product line.
Inventories used in the computation of cost of goods sold were:
<TABLE>
<CAPTION>
June 29, 1997 September 29, 1996
------------- ------------------
(amounts in 000's)
<S> <C> <C>
Raw materials $15,616 $14,310
Work in process 20,040 19,493
Finished goods 11,672 13,476
------- -------
$47,328 $47,279
======= =======
</TABLE>
3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
June 29, 1997 September 29, 1996
------------- ------------------
(amounts in 000's)
<S> <C> <C>
Accounts payable $ 7,332 $ 8,013
Accrued payroll, profit
sharing, benefits and
related taxes 8,355 7,980
Other accrued liabilities 7,142 7,062
------- -------
$22,829 $23,055
======= =======
</TABLE>
<PAGE>
4. BORROWINGS
Long-term debt consisted of:
<TABLE>
<CAPTION>
June 29, 1997 September 29, 1996
------------- ------------------
(amounts in 000's)
<S> <C> <C>
City of Broomfield, Colorado, Industrial Development Bond-bearing
interest at 7.875% due in installments from 1996 to 2000; secured
by the first deed of trust $ 2,520 $ 2,720
City of Santa Ana, California, Industrial Development Revenue
Bond-bearing interest at 6.75% due in installments from 1998 to
2005; secured by the first deed of trust 5,350 5,350
Convertible Subordinated Debentures-bearing interest at
5.875% due 2012 33,261 33,281
Convertible Subordinated Notes-bearing interest at 10% due in 1999 750 1,900
Note payable due to GE Capital Public Finance, Inc., bearing
interest at 5.93%, payable in monthly installments, from August 1,
1997 to July 1, 2002. 2,700 -
Notes payable-bearing interest at rates in ranges of 0% - 13% due
between July 1997 and July 2002 4,698 4,794
-------- --------
49,279 48,045
Less current portion (3,115) (1,625)
-------- --------
$ 46,164 $ 46,420
======== ========
</TABLE>
The Company maintains a line of credit with a bank, from which it can borrow up
to $15,000,000. As of June 29, 1997 $2,415,000 was borrowed under this credit
facility.
The $6,500,000 Santa Ana Industrial Development Revenue Bond was originally
issued in April 1985, through the City of Santa Ana Industrial Development
Authority for the construction of improvements and new facilities at the Santa
Ana plant. On February 1, 1995, the balance of $5,350,000 was re-marketed and
carries an average interest rate of 6.75% per annum. The terms of the bond
require principal payments of $1,050,000 in 1998, $100,000 annually from 1999 to
2004 and $3,700,000 in 2005. A $5,557,000 letter of credit is carried by a
bank, for a fee of 1.75%, to guarantee the repayment of this bond. There are no
compensating balance requirements, however, the letter of credit agreement
requires the Company to make annual collateral payments of $350,000 on February
1, 1996, 1997 and 1998, totaling $1,050,000, to ensure the availability of funds
for the payment of principal scheduled for February 1, 1998.
The Company's 5.875% Convertible Subordinated Debentures, originally issued for
$40,250,000, require annual sinking fund payments in the amount of 5% of the
principal amount thereof, commencing in March 1997, less the principal amount of
converted or redeemed debentures. As of June 29, 1997, the amount of redeemed
and converted debentures would have satisfied this requirement through March 1,
1999.
<PAGE>
5. EARNINGS PER SHARE
Earnings per share for the primary basis have been computed based upon the
weighted average number of common and common equivalent shares outstanding
during the respective periods. Earnings per share for the fully diluted basis
have been computed, when the result is dilutive, based upon the assumption that
the convertible subordinated debt had been converted into common stock as of the
beginning of the respective periods, with a corresponding increase in net income
to reflect a reduction in related interest expense, net of applicable taxes.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128.
This Statement establishes standards for computing and presenting earnings per
share (EPS). It replaces the presentation of primary EPS with basic EPS. This
Statement is effective for financial statements issued for periods ending after
December 15, 1997. The adoption of this Statement will not have any material
effect on the EPS of the Company.
6. STATEMENT OF CASH FLOWS
For purposes of the unaudited Consolidated Statements of Cash Flows, the Company
considers all short-term, highly liquid investments having a maturity of three
months or less at the date of acquisition to be cash equivalents.
Supplementary information
- -------------------------
<TABLE>
<CAPTION>
39 weeks ended 39 weeks ended
June 29, 1997 June 30, 1996
-------------- --------------
(amounts in 000's)
<S> <C> <C>
Cash paid during the period for:
Interest $2,059 $2,503
====== ======
Income taxes $4,004 $5,026
====== ======
Non-cash financing activities:
Conversion of subordinated debt into 615,000
shares of common stock (See Note 4) $1,170 $ -
====== ======
Business acquired in purchase transaction
(See Note 8):
Fair values of assets acquired $2,900 $ -
Less debt issued (700) -
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Cash paid for acquisition $2,200 $ -
====== ------
</TABLE>
7. CONTINGENCY
In Broomfield, Colorado, the owner of a property located adjacent to a
manufacturing facility owned by a subsidiary of the Company had filed suit
against the subsidiary and other parties, claiming that contaminants migrated to
his property, thereby diminishing its value. In August 1995, the subsidiary
together with the former owners of the manufacturing facility, agreed to settle
the claim and to indemnify
<PAGE>
the owner of the adjacent property from remediation costs. Although TCE and
other contaminants previously used at the facility are present in soil and
groundwater on the subsidiary's property, the Company vigorously contests any
assertions that the subsidiary is the cause of the contamination; however, there
can be no assurance that recourse will be available against third parties. State
and local agencies in Colorado are reviewing current data and considering study
and cleanup options, and it is not yet possible to predict costs for remediation
or the allocation thereof among potentially responsible parties.
8. ACQUISITION
On October 25, 1996, Microsemi RF Products, Inc. (RF), formerly known as Micro
Acquisition Corp., a wholly owned subsidiary of the Company, purchased certain
assets and the right to manufacture a selected group of products of the high-
reliability portion of SGS Thomson's Radio Frequency Semiconductor business in
Montgomeryville, Pennsylvania. The purchase price included approximately
$2,200,000 in cash and a $700,000 promissory note, which carries no interest and
has scheduled payments of $200,000 due on January 15, 1997, $200,000 due on
January 15, 1998 and $300,000 due on January 15, 1999. The acquisition has been
accounted for by the purchase method. Accordingly, the cost of the acquisition
was allocated to the assets acquired based on their estimated fair market values
to the extent of the purchase price. The Company's consolidated results of
operations include the operations of the RF business since the date of
acquisition.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
Microsemi Corporation is a multinational supplier of high reliability power
semiconductors, surface mount and custom diode assemblies for the electronics,
computer, telecommunications, defense/aerospace and medical markets. The
Company's semiconductor products include diodes, transistors and silicon
controlled rectifiers (SCR's) which can be used in virtually all electrical and
electronic circuits. Typical functions include solid state switching, signal
processing, voltage and power regulation, circuit protection and absorption of
electrical surges and transient voltage spikes. Technologies for these devices
range from the very mature mesa rectifier diodes still used in all types of
power supply applications to the newly designed micro-miniature transient
absorbers, which are mounted within the cables used to connect computer or
telecommunications equipment.
Capital Resources and Liquidity
Microsemi Corporation's operations in the nine months ended June 29, 1997
were funded with internally generated funds and borrowings from the Company's
line of credit. Under the current line of credit, the Company can borrow up to
$15,000,000. As of June 29, 1997, $2,415,000 was borrowed under this credit
facility. At June 29, 1997, the Company had $4,791,000 in cash and cash
equivalents.
A $6,500,000 Industrial Development Revenue Bond was originally issued in
April 1985, through the City of Santa Ana Industrial Development Authority for
the construction of improvements and new facilities at the Santa Ana plant. On
February 1, 1995, the balance of $5,350,000 was re-marketed and carries an
average interest rate of 6.75% per annum. The terms of the bond require
principal payments of $1,050,000 in 1998, $100,000 annually from 1999 to 2004
and $3,700,000 in 2005. A $5,557,000 letter of credit is carried by a bank, for
a fee of 1.75%, to guarantee the repayment of this bond. There are no
<PAGE>
compensating balance requirements, however, the letter of credit agreement
requires the Company to make annual collateral payments of $350,000 on February
1, 1996, 1997 and 1998, totaling $1,050,000, to ensure the availability of funds
for the payment of principal scheduled for February 1, 1998.
On October 25, 1996, Microsemi RF Products, Inc., formerly known as Micro
Acquisition Corp., a wholly owned subsidiary of the Company, purchased certain
assets and the right to manufacture a selected group of products of the high-
reliability portion of SGS Thomson's Radio Frequency Semiconductor business in
Montgomeryville, Pennsylvania. The purchase price included approximately
$2,200,000 in cash and a $700,000 note payable. (See note 8)
In June 1997, the Company obtained a loan of $2,700,000 from G.E. Capital
Public Finance, Inc. to purchase certain equipment. This loan bears interest at
5.93% and is payable in installments from August 1, 1997 to July 1, 2002.
The Company had no other material capital commitments as of June 29, 1997.
The average collection period of accounts receivable was 58 days for the
first nine months of fiscal year 1997 compared to 51 days for the same period of
fiscal year 1996. The longer collection period was mainly caused by higher
average balances of accounts receivables, which was the result of higher sales
at the end of the current period and the prior year end and by the increase in
foreign sales, which typically have longer collection periods.
The average days sales of products in inventories was 150 for the nine months
ended June 29, 1997 compared to 147 days for the corresponding period of fiscal
year 1996.
The State of Washington, Department of Ecology proposed finding that the
Company was a potentially liable party for the study and cleanup of certain
hazardous substances which alleged contaminated what became known as the Yakima
Railroad Area Site. The State of Washington claimed that the Company was one of
the potentially liable parties that had arranged for the disposal of these
hazardous substances through Cameron-Yakima Incorporated, a company that the
State of Washington claimed had caused or contributed to the contamination on
the site through its operation of a hazardous waste treatment facility. The
Company joined a group of companies, which anticipated resolving its liabilities
with the State of Washington. The Company paid $54,000 for its share in the
final settlement in July 1997.
Important factors related to forward-looking statements and associated risks
This Form 10-Q contains certain forward-looking statements that are based on
current expectations and involve a number of risks and uncertainties. The
forward looking statements included herein are, among other items, based on
current assumptions that the Company will be able to meet its current operating
cash and debt service requirements with internally generated funds and its
available line of credit, that it will be able to successfully resolve disputes
and other business matters as anticipated, that competitive conditions within
the semiconductor, surface mount and custom diode assembly industries will not
change materially or adversely, that the Company will retain existing key
personnel, that the Company's forecasts will reasonably anticipate market demand
for its products, and that there will be no materially adverse change in the
Company's operations or business. Assumptions relating to the foregoing involve
judgments that are difficult to predict and are subject to many factors that can
adversely affect results. Forecasting and other management decisions are
subjective in many respects and thus susceptible to interpretations and periodic
revisions based on actual experience and business
<PAGE>
developments, the impact of which may cause the Company to alter its forecasts,
which may in turn affect the Company's results of operations. In light of the
factors that can affect the forward-looking information included herein and
other risks referred to in this Form 10-Q, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved.
Foreign Operations
The Company conducts a portion of its operations outside the United States
that is subject to risks associated with many factors beyond its control, such
as fluctuations in foreign currency rates, instability of foreign economies and
governments and changes in U.S. and foreign laws and policies affecting trade
and investment. The Company owns manufacturing and assembling facilities in
Ennis, Ireland; Bombay, India and Hong Kong and is in the process of
establishing a joint venture in The People's Republic of China (PRC). On July
1, 1997, the sovereign of Hong Kong was returned to the PRC. Under the terms of
the Sino-British Joint Declaration, Hong Kong has a high degree of autonomy,
which enables Hong Kong to decide on its own economic, financial and trade
policies and to participate in international organizations and trade agreements;
however, there can be no assurance that changes will not be made in the future
or that the handover of Hong Kong to the PRC will not have any adverse effects
on the Company's assets in Hong Kong or the results of operations of the
Company.
Sales to Foreign Customers
Foreign sales may be subject to political and economic risks, including
political instability, changes in import/export regulations, tariffs and freight
rates and difficulties in collecting receivables and enforcing contracts.
Changes in tariff structures, exchange rates or other trade policies could
adversely affect the Company's sales to foreign customers or the collection of
receivables generated from such sales.
Order Backlog
The Company's consolidated order backlog was $73,000,000 as of June 29, 1997,
compared to $72,000,000 at June 30, 1996 and $68,000,000 at September 29, 1996.
Lead times for the release of the orders depend upon the scheduling practices
of individual customers. The delivery times of new or non-standard products can
be affected by scheduling factors and other manufacturing circumstances. The
rate of booking new orders can vary significantly from month to month. For
these reasons and because of the possibility of customer changes in delivery
schedules or cancellations of orders, the Company's backlog as of any particular
date may not be representative of actual sales for any succeeding period.
A portion of the Company's sales are to military and aerospace markets which
are subject to the business risk of changes in government appropriations and
changes in national defense policies and priorities. All of the Company's
contracts with prime U.S. Government contractors contain customary provisions
permitting termination at any time at the convenience of the U.S. Government or
the prime contractors upon payment to the Company for cost incurred plus a
reasonable profit. Certain contracts are also subject to price re-negotiation
in accordance with the U.S. Government sole source procurement provisions. No
material contract of the Company has been terminated or re-negotiated; however,
there can be no assurance that customers will not terminate or re-negotiate
their contracts.
<PAGE>
Competition
The Company competes primarily in the discrete semiconductor market,
particularly in the area of high reliability components. The Company has
numerous competitors across all of its product lines. In the defense market
sector, the Company possesses the major share of the market. In the
commercial/industrial arena, there are numerous competitors such as Motorola,
Inc., General Semiconductor, Inc., ITT Corp. and International Rectifier, Corp.
which are significantly larger than Microsemi and have greater resources and
larger market shares. Competition of its product lines is dependent on price
and performance, the relative importance of these factors varies among products
and markets.
Changes in Technology
The power semiconductor market is subject to technological change and changes
in industry standards. To remain competitive, the Company must continue to
allocate resources to advance process technologies, to increase product
performance, to improve manufacturing yields and to improve the mix between the
Company's shipment of military and commercial products and between its high cost
and low cost products. There can be no assurance that the Company's competitors
will not develop new technologies that are substantially equivalent or superior
to the Company's technology.
Proprietary Rights
The Company generally does not have, nor does it generally intend to apply
for, patent protection on many aspects of its technology. The Company believes
that patents often provide only narrow protection and patents require public
disclosure of information which may otherwise be subject to trade secret
protection. The Company's reliance upon protection of some of its technology as
"trade secrets" will not necessarily protect the Company from the use by other
persons of its technology or their use of technology that is similar or superior
to that which is embodied in the Company's trade secrets. There can be no
assurance that others will not be able to independently duplicate or exceed the
Company's technology in whole or in part. No assurance can be made that the
Company will be able to maintain the confidentiality of the Company's
technology, dissemination of which could have an adverse effect on the Company's
business. In addition, litigation may be necessary to determine the scope and
the validity of the Company's proprietary rights. There can be no assurance
that any patents held by the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company.
Manufacturing Risks
The Company's manufacturing processes are highly complex, require advanced
and costly equipment and are continuously modified in an effort to improve
yields and product performance. Minute impurities or other difficulties in the
manufacturing process can lower yields. In addition, California and the Pacific
Rim are known to contain various earthquake faults. The Company's operations
could be materially adversely affected if production at any of it major
facilities were interrupted. There can be no assurance that the Company will
not experience manufacturing difficulties in the future.
<PAGE>
Dependence on Key Personnel
The Company's future performance is significantly dependent on the continued
active participation of members of its current management. The Company does not
have written employment contracts with its employees. Should one or more of
the Company's key management employees leave or otherwise become unavailable to
the Company, the Company's business and results of operations may be materially
adversely affected.
Product Liability
The Company's business exposes it to potential liability risks that are
inherent in the manufacturing and marketing of high-reliability electronic
components for critical applications. No assurances can be made that the
Company's product liability insurance coverage is adequate or that present
coverage will continue to be available at acceptable costs, or that a product
liability claim would not adversely affect the business or financial condition
of the Company.
Change of Control Provisions
The Company's Certificate of Incorporation, Bylaws, Shareholder Rights Plan
and certain employment compensation plans contain provisions that may make it
more difficult for a third party to acquire, or that may discourage a third
party from attempting to acquire, control of the Company. In addition, as a
Delaware corporation, the Company is subject to the restrictions imposed under
Section 201 of the Delaware General Corporation Law which may deter the Company
from engaging in certain change of control transactions with certain of its
stockholders under certain circumstances.
Environmental Regulation
While the Company believes that is has the environmental permits necessary to
conduct its business and that its activities conform to present environmental
regulations, increased public attention has been focused on the environmental
impact of semiconductor operations. The Company, in the conduct of its
manufacturing operations, has handled and does handle materials that are
considered hazardous, toxic or volatile under federal, state and local laws and,
therefore, is subject to regulations relating to their use, storage, discharge
and disposal. No assurances can be made that the risk of accidental release of
such materials can be completely eliminated. In addition, the Company operates
or owns facilities located on or near real properties that may formerly have
been used in ways that involved such materials. In the event of a violation of
environmental laws, the Company could be held liable for damages and the costs
of remediation and is subject to variable interpretations and governmental
priorities concerning environmental laws and regulations. Environmental
statutes have been interpreted to provide for joint and several liability and
strict liability regardless of actual fault. There can be no assurance that the
Company and its subsidiaries will not be required to incur costs to comply with,
or that the operations, business, or financial condition of the Company will not
be materially adversely affected by current or future environmental laws or
regulations.
Effect of Inflation
The Company continuously attempts to minimize any effect of inflation on
earnings by controlling its operating costs and selling prices. During the past
few years, the rate of inflation has been low and has not had a material impact
on the Company's results of operations. Higher inflation may adversely affect
the Company's results of operations.
<PAGE>
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 29, 1997 COMPARED TO THE
QUARTER ENDED JUNE 30, 1996.
Net sales for the third quarter of fiscal year 1997 increased $1,387,000 to
$42,648,000, from $41,261,000 for the third quarter of fiscal year 1996; this
increase was primarily due to strong demand for the space market related
products, partially off set by lower demand for certain other telecommunications
and commercial products.
Gross profit increased $681,000 to $11,685,000 or 27.4% of sales for the
current quarter of fiscal year 1997 from $11,004,000 or 26.7% of sales for the
third quarter of fiscal year 1996. This improvement resulted primarily from a
greater concentration in higher profit space and other high performance
products; whereas the prior year included a greater proportion of lower margin
commercial products.
Operating expenses for the current quarter of fiscal year 1997 decreased
$415,000 compared to that of the corresponding period of the prior year;
primarily due to savings that resulted from the reorganization of a subsidiary
in fiscal year 1996, partially offset by normal increases in wages and other
related expenses.
The effective tax rate of 41% in the third quarters of fiscal years 1997 and
1996 is the combined result of taxes computed on foreign and domestic income.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 29, 1997 COMPARED TO THE
NINE MONTHS ENDED JUNE 30, 1996.
Net sales for the first nine months of fiscal year 1997 increased $3,397,000
to $119,064,000, from $115,667,000 for the first nine months of fiscal year
1996. This increase reflects the continuing strong demand for the Company's
space market products, partially off set by lower demand for certain other
telecommunications and commercial products.
Gross profit increased $1,955,000 to $32,471,000 or 27.3% of sales for the
first nine months of fiscal year 1997 from $30,516,000 or 26.4% of sales for the
same period of fiscal year 1996. This improvement resulted from a greater
concentration in higher margin space and other high performance products;
whereas the prior year included a greater proportion of lower margin commercial
products.
Operating expenses for the first nine months of fiscal year 1997 decreased
$255,000 compared to that of the corresponding period of the prior year. This
decrease was primarily due to savings that resulted from the reorganization of a
subsidiary in fiscal year 1996, partially offset by normal increases in wages
and other related expenses.
Interest expense decreased $554,000 in the current nine months, compared to
the prior year's corresponding period, due to lower average borrowings during
the current period and a lower interest rate on the credit line.
The effective tax rates of 41% and 42% in the first thirty-nine weeks of
fiscal years 1997 and 1996, respectively are the combined result of taxes
computed on foreign and domestic income.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The State of Washington, Department of Ecology proposed finding that
the Company was a potentially liable party for the study and cleanup of
certain hazardous substances which allegedly contaminated what became
known as the Yakima Railroad Area Site. The State of Washington claimed
that the Company was one of the potentially liable parties that had
arranged for the disposal of these hazardous substances through
Cameron-Yakima Incorporated, a company that the State of Washington
claimed had caused or contributed to the contamination on the site
through its operation of a hazardous waste treatment facility. The
Company joined a group of companies, which anticipated resolving its
liabilities with the State of Washington. The Company paid $54,000 for
its share in the final settlement in July 1997.
Item 2. Changes in Securities
---------------------
Inapplicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) Inapplicable
(b) Inapplicable
(c) Inapplicable
(d) Inapplicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit 11 Unaudited computation of Earnings Per Share for the
thirteen and thirty-nine weeks ended June 29, 1997
and June 30, 1996.
Exhibit 27 Unaudited Financial Data Schedule for the nine months
ended June 29, 1997.
(b) Reports on Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICROSEMI CORPORATION
By: /s/ David R. Sonksen
-----------------------------------
David R. Sonksen
Vice President - Finance and
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer and duly
authorized to sign on behalf of the
Registrant)
DATED: August 12, 1997
<PAGE>
Exhibit 11
Microsemi Corporation and Subsidiaries
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
-------------------------------- ---------------------------------
June 29, 1997 June 30, 1996 June 29, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
PRIMARY
Net income $ 3,027 $ 2,339 $ 7,311 $ 5,596
======= ======= ======= =======
Weighted average shares outstanding 8,712 7,841 8,496 7,841
Equivalent shares from stock options 334 418 357 432
------- ------- ------- -------
Primary common and common
equivalent shares 9,046 8,259 8,853 8,273
======= ======= ======= =======
Primary earnings per share $ 0.33 $ 0.28 $ 0.83 $ 0.68
======= ======= ======= =======
FULLY DILUTED
Net income $ 3,027 $ 2,339 $ 7,311 $ 5,596
Interest savings from conversion of
convertible debt, net of income
taxes 309 323 935 969
------- ------- ------- -------
Fully diluted net income $ 3,336 $ 2,662 $ 8,246 $ 6,565
======= ======= ======= =======
Weighted average shares outstanding 8,712 7,841 8,496 7,841
Equivalent shares from stock options 334 418 380 432
Convertible shares 2,855 3,523 3,070 3,523
------- ------- ------- -------
Fully diluted common and common
equivalent shares 11,901 11,782 11,946 11,796
======= ======= ======= =======
Fully diluted earnings per share $ 0.28 $ 0.23 $ 0.69 $ 0.56
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
Microsemi Corporation and Subsidiaries Unaudited Financial Data Schedule for the
Nine Months Ended June 29, 1997 (in thousands, except earnings per share)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> JUN-29-1997
<CASH> 4,791
<SECURITIES> 0
<RECEIVABLES> 27,898
<ALLOWANCES> 2,553
<INVENTORY> 47,328
<CURRENT-ASSETS> 86,286
<PP&E> 64,957
<DEPRECIATION> 34,364
<TOTAL-ASSETS> 123,227
<CURRENT-LIABILITIES> 35,086
<BONDS> 46,164
0
0
<COMMON> 1,743
<OTHER-SE> 36,347
<TOTAL-LIABILITY-AND-EQUITY> 123,227
<SALES> 119,064
<TOTAL-REVENUES> 119,064
<CGS> 86,593
<TOTAL-COSTS> 86,593
<OTHER-EXPENSES> 257
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,826
<INCOME-PRETAX> 12,470
<INCOME-TAX> 5,159
<INCOME-CONTINUING> 7,311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,311
<EPS-PRIMARY> .83
<EPS-DILUTED> .69
</TABLE>
