<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 28, 1998
--------------------------------------------
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
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 979-8220
----------------------------------------------------
(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 28, 1998 was 11,777,276.
1
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The unaudited consolidated financial information for the quarter and nine
months ended June 28, 1998 of Microsemi Corporation and Subsidiaries (the
"Company" or "Microsemi") and the comparative unaudited consolidated financial
information for the corresponding periods of the prior year, together with the
balance sheet as of September 28, 1997 are attached hereto and incorporated
herein by this reference.
2
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MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
(amounts in 000's)
<TABLE>
<CAPTION>
June 28, 1998 September 28, 1997
-------------- ------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 7,210 $ 6,145
Accounts receivable less allowance for doubtful accounts of
$1,518 at June 28, 1998 and $2,665 at September 28, 1997 23,249 25,093
Inventories 53,818 53,248
Deferred income taxes 8,252 8,160
Other current assets 1,859 4,363
-------- --------
Total current assets 94,388 97,009
-------- --------
Property and equipment, at cost 72,452 70,485
Less: Accumulated depreciation (36,199) (35,614)
-------- --------
36,253 34,871
-------- --------
Goodwill 9,940 133
-------- --------
Other 5,629 3,181
-------- --------
$146,210 $135,194
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable to banks and others $ 5,191 $ 4,633
Current maturity of long-term debt 4,658 3,574
Accounts payable 5,054 11,304
Accrued liabilities 16,602 15,942
Income taxes payable 4,664 5,743
-------- --------
Total current liabilities 36,169 41,196
-------- --------
Deferred income taxes 2,598 2,544
-------- --------
Long-term debt 20,050 47,621
-------- --------
Other long-term liabilities 1,942 1,924
-------- --------
Stockholders' equity
Common stock, $.20 par value; authorized 20,000 shares;
issued 11,777 shares at June 28, 1998 and
8,736 shares at September 28, 1997 2,355 1,747
Paid-in capital 50,382 16,197
Retained earnings 33,598 24,743
Cumulative foreign currency translation adjustment (884) (778)
-------- --------
Total stockholders' equity 85,451 41,909
-------- --------
$146,210 $135,194
======== ========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
3
<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 28, 1998 June 29, 1997
-------------- --------------
<S> <C> <C>
Net sales $39,291 $42,648
Cost of sales 28,417 30,963
------- -------
Gross profit 10,874 11,685
------- -------
Operating expenses:
Selling 3,275 2,416
General and administrative 3,348 3,131
------- -------
Total operating expenses 6,623 5,547
------- -------
Income from operations 4,251 6,138
------- -------
Other expenses:
Interest expense (net) (394) (906)
Other (71) (89)
------- -------
Total other expenses (465) (995)
------- -------
Income before income taxes 3,786 5,143
Provision for income taxes 1,439 2,116
------- -------
Net income $ 2,347 $ 3,027
======= =======
Earnings per share:
-Basic $ 0.20 $ 0.35
======= =======
-Diluted $ 0.20 $ 0.28
======= =======
Weighted average common
shares outstanding:
-Basic 11,777 8,709
-Diluted 11,964 11,898
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
4
<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 28, 1998 June 29, 1997
-------------- --------------
<S> <C> <C>
Net sales $124,537 $119,064
Cost of sales 89,963 86,593
-------- --------
Gross profit 34,574 32,471
-------- --------
Operating expenses:
Selling 8,306 7,006
General and administrative 10,204 9,912
-------- --------
Total operating expenses 18,510 16,918
-------- --------
Income from operations 16,064 15,553
-------- --------
Other expenses:
Interest expense (net) (1,736) (2,826)
Other (45) (257)
-------- --------
Total other expenses (1,781) (3,083)
-------- --------
Income before income taxes 14,283 12,470
Provision for income taxes 5,428 5,159
-------- --------
Net income $ 8,855 $ 7,311
======== ========
Earnings per share:
-Basic $ 0.85 $ 0.87
======== ========
-Diluted $ 0.79 $ 0.70
======== ========
Weighted average common
shares outstanding:
-Basic 10,386 8,428
-Diluted 11,984 11,861
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
5
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Retained Earnings
(amounts in 000's)
<TABLE>
<CAPTION>
39 Weeks Ended 39 Weeks Ended
June 28, 1998 June 29, 1997
-------------- --------------
<S> <C> <C>
Retained earnings at beginning
of period $ 24,743 $ 13,692
Net income 8,855 7,311
-------- --------
Retained earnings at end of period $ 33,598 $ 21,003
======== ========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
6
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(amounts in 000's)
<TABLE>
<CAPTION>
39 Weeks Ended 39 Weeks Ended
June 28, 1998 June 29, 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,855 $ 7,311
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,538 2,886
(Decrease) increase in allowance for
doubtful accounts (1,121) 394
Changes in assets and liabilities,
net of acquisitions and disposition:
Accounts receivable 856 (999)
Inventories (3,041) 1,051
Other current assets 2,397 (668)
Other assets 366 (1,736)
Accounts payable (3,971) (681)
Accrued liabilities 1,286 455
Income taxes payable (1,197) 952
Other (144) (6)
-------- -------
Net cash provided by operating
activities 7,824 8,959
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions (13,740) (2,200)
Proceeds from disposition 5,000 -
Investment in an unconsolidated affiliate (1,000) -
Purchases of property and equipment (4,342) (5,618)
-------- -------
Net cash used in investing activities (14,082) (7,818)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable to banks
and others (1,261) (1,806)
Increase in long-term debt 10,000 3,355
Payments on long-term debt (1,988) (2,117)
Increase (decrease) of other
long-term liabilities 18 (48)
Exercise of employee stock options 554 207
-------- -------
Net cash provided by (used in)
financing activities 7,323 (409)
-------- -------
Net increase in cash and cash
equivalents 1,065 732
Cash and cash equivalents at
beginning of period 6,145 4,059
-------- -------
Cash and cash equivalents
at end of period $ 7,210 $ 4,791
======== =======
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
7
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 28, 1998
1. PRESENTATION OF FINANCIAL INFORMATION
The financial information furnished herein is unaudited, but, in the opinion of
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 included in the Annual Report on Form 10-K for the fiscal year ended
September 28, 1997.
2. INVENTORIES
Inventories used in the computation of cost of goods sold were:
<TABLE>
<CAPTION>
June 28, 1998 September 28, 1997
------------- ------------------
(amounts in 000's)
<S> <C> <C>
Raw materials $15,273 $15,954
Work in process 21,271 23,774
Finished goods 17,274 13,520
------- -------
$53,818 $53,248
======= =======
</TABLE>
3. ACCRUED LIABILITIES
Accrued liabilities consist of:
<TABLE>
<CAPTION>
June 28, 1998 September 28, 1997
------------- ------------------
(amounts in 000's)
<S> <C> <C>
Accrued payroll, profit sharing, $ 9,039 $ 9,016
benefits and related taxes 2,261 2,641
Accrued interest 5,302 4,285
Other accrued liabilities ------- -------
$16,602 $15,942
======= =======
</TABLE>
8
<PAGE>
4. BORROWINGS
Long-term debt consisted of:
<TABLE>
<CAPTION>
June 28, 1998 September 28, 1997
------------- ------------------
(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 a first deed of trust $ 2,305 $ 2,520
City of Santa Ana, California, Industrial Development Revenue
Bond-bearing interest at 6.75% due in installments from 1998 to
2005; secured by a first deed of trust 4,300 5,350
Convertible Subordinated Debentures-bearing interest at
5.875% due 2012 - 33,261
Convertible Subordinated Notes-bearing interest at 10% due in 1999 - 750
Equipment lease due to GE Capital Public Finance, Inc., bearing
interest at 5.93%, payable in monthly installments through July 2,205 2,700
2002
Notes payable (PPC acquisition) bearing interest at 7% due monthly
through September 2009 2,164 2,370
Note payable to Imperial Bank, bearing interest at the bank prime
rate, payable in monthly installments through July 2003 10,000 -
Notes payable-bearing interest at rates in ranges of 5% - 10% due
between July 1998 and July 2002 3,734 4,244
----------- ------------
24,708 51,195
Less current portion (4,658) (3,574)
----------- ------------
$ 20,050 $ 47,621
=========== ============
</TABLE>
A $2,305,000 Industrial Revenue Bond, due to the City of Broomfield, Colorado,
carries an interest rate of 7.875% per annum. The terms of the bond require
principal payments of $230,000 in 1999 and $2,075,000 in 2000.
An 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. It was
remarketed in 1995 and carries an average interest rate of 6.75% per annum. A
principal payment of $1,050,000 was made in February 1998. The terms of the
bond require principal payments of $100,000 annually from 1999 to 2004 and
$3,700,000 in 2005. A $4,466,000 letter of credit is carried by a bank to
guarantee the repayment of this bond. There are no compensating balance
requirements. An annual commitment fee of 2% is charged on this letter of
credit. In addition, the agreement contains provisions regarding net worth and
working capital. The Company was in compliance with the aforementioned
covenants at June 28, 1998.
9
<PAGE>
In February 1987, the Company sold $40,250,000 of 5.875% convertible
subordinated debentures due 2012. The debentures were convertible into common
stock at $13.55 per share. As of September 28, 1997 they were redeemable at
100% of par plus accrued interest. Deferred debt issuance costs of $1,128,000
were included in other assets and were being amortized over the life of the
debentures on a straight-line basis. In fiscal years 1987, 1988, 1989 and 1991,
the Company repurchased at market prices a total of $6,969,000 in principal
amount of these debentures. In the first quarter of fiscal year 1998, $2,000
was converted into 147 shares of common stock. In February 1998, Microsemi gave
notice that all outstanding debentures would be redeemed, subject to conversion
at the election of the holders prior to the redemption date, and $33,234,000 in
principal amount was converted into 2,452,682 shares of common stock and $25,000
was redeemed in cash, at par. Accrued interest of $631,000 and unamortized debt
issuance costs of $884,000 associated with these debentures were recorded to
additional paid-in capital upon conversion of the debentures to common stock.
In June 1992, the Company issued $2,000,000 of 10% Convertible Subordinated
Notes, due in 1999, to an officer and two existing shareholders to finance a
portion of an acquisition completed in fiscal year 1992. The notes were
converted, at $1.875 per share, into 53,333, 613,331 and 400,000 shares of
common stock in fiscal years 1996, 1997 and 1998, respectively.
In June 1997, the Company entered into a $2,700,000 equipment lease agreement
with GE Capital Public Finance, Inc., providing for monthly payments through
July 2002 of $45,000 plus interest at 5.93% per annum.
In September 1997, the Company issued and assumed notes payable aggregating
$2,164,000 at June 28, 1998, related to the PPC acquisition, payable to the
former owners, bearing an interest rate of 7%, due in monthly installments over
various periods through September 2009.
In June 1998, the Company finalized an amendment of its existing bank credit
facility which added a $10,000,000 term loan used by Microsemi to finance a
portion of the BKC acquisition. The terms of the term loan require monthly
payments of $167,000 plus interest at the bank's prime rate from August 1998
through July 2003.
The amended credit agreement maintains a revolving credit facility with domestic
banks which continues according to its terms through September 1999. Under the
credit facility the Company can borrow up to $15,000,000. The credit line bears
interest at the bank's prime rate and is secured by substantially all of the
assets of the Company. In addition, the credit agreement contains provisions
regarding net worth and working capital. The Company was in compliance with the
aforementioned covenants at June 28, 1998. As of June 28, 1998, $3,900,000 was
borrowed under this credit facility.
5. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". This Statement establishes standards for computing and
requires the presentation of basic and diluted earnings per share (EPS). The
Company adopted this statement in the first quarter of fiscal year 1998 and has
restated the EPS for the prior year periods as required.
Basic earnings per share have been computed based upon the weighted average
number of common shares outstanding during the respective periods. Diluted
earnings per share have been computed, when the result is dilutive, using the
treasury stock method for stock options outstanding during the respective
10
<PAGE>
periods and 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.
Earnings per share for the quarters and nine months ended June 28, 1998 and June
29, 1997 were calculated as follows:
<TABLE>
<CAPTION>
Quarter ended Nine months ended
------------------------------ -----------------------------
6/28/98 6/29/97 6/28/98 6/29/97
------------ ------------- ------------ ------------
(in 000's, except per share data)
<S> <C> <C> <C> <C>
BASIC
Net income $ 2,347 $ 3,027 $ 8,855 $ 7,311
============ ============= ============ ============
Weighted-average common shares outstanding 11,777 8,709 10,386 8,428
============ ============= ============ ============
Basic earnings per share $ 0.20 $ 0.35 $ 0.85 $ 0.87
============ ============= ============ ============
DILUTED
Net income $ 2,347 $ 3,027 $ 8,855 $ 7,311
Interest savings from assumed conversions of
convertible debt, net of income taxes - 309 618 935
------------ ------------- ------------ ------------
Net income assuming conversions $ 2,347 $ 3,336 $ 9,473 $ 8,246
============ ============= ============ ============
Weighted-average common shares outstanding 11,777 8,709 10,386 8,428
Stock options 187 334 284 357
Convertible debt - 2,855 1,314 3,076
------------ ------------- ------------ ------------
Weighted-average common shares outstanding
on a diluted basis 11,964 11,898 11,984 11,861
============ ============= ============ ============
Diluted earnings per share $ 0.20 $ 0.28 $ 0.79 $ 0.70
============ ============= ============ ============
</TABLE>
11
<PAGE>
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 28, 1998 June 29, 1997
--------------------- ---------------------
(amounts in 000's)
<S> <C> <C>
Cash paid during the period for:
Interest $ 1,349 $ 2,059
===================== =====================
Income taxes $ 6,763 $ 4,004
===================== =====================
Non-cash financing activities:
Conversion of subordinated debt, net of accrued
interest and unamortized debt issue costs, into
2,852,829 and 614,807 shares of common stock (See Note 4) $ 33,733 $ 1,170
===================== =====================
Business acquired in purchase transaction:
Fair values of assets acquired $ 7,260 $ 2,200
Goodwill 9,839 -
Less debt assumed (3,359) -
--------------------- ---------------------
Cash paid for acquisition $ 13,740 $ 2,200
===================== =====================
</TABLE>
In December 1997, the Company sold General Microcircuits, Inc., a wholly owned
subsidiary in Mooresville, North Carolina, for $5,000,000 in cash and a
$2,000,000 note receivable.
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 the owner of the adjacent property from remediation
costs. Although 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. In the opinion of management, the final outcome of this matter will
not have a material adverse effect on the Company's financial position or
results of operations.
12
<PAGE>
8. ACQUISITION
On May 15, 1998, the Company acquired BKC Semiconductors, Incorporated (BKC),
located in Lawrence, Massachusetts, for approximately $13,740,000 in cash plus
existing indebtedness of BKC of approximately $3,359,000. Microsemi financed
this acquisition with cash on hand and advances under its existing credit
facilities as amended. BKC was a publicly held company, which manufactures
discrete semiconductors with sales of approximately $11,000,000 for the fiscal
year ended September 28, 1997. The acquisition was accounted for under the
purchase method. The costs of the acquisition were allocated to the assets
acquired and liabilities assumed based on their estimated fair market values to
the extent of the purchase price. The Company's unaudited consolidated results
of operations for the quarter and nine months ended June 28, 1998 included the
operations of BKC since the date of acquisition. The unaudited balance sheet at
June 28, 1998 reflected the Company's allocation of the purchase price to the
assets and liabilities of BKC based upon the Company's current estimates of the
relative values of the assets acquired and liabilities assumed. The Company
recorded approximately $9,800,000 of goodwill related to this acquisition. The
final allocation of the purchase price may vary as additional information is
obtained, and accordingly, the ultimate allocation may differ from those used in
the unaudited consolidated financial statements included herein.
9. DISPOSITION
On December 31, 1997, the Company sold General Microcircuits, Inc., a wholly
owned subsidiary in Mooresville, North Carolina, for $5,000,000 in cash and a
$2,000,000 note receivable. Microsemi did not realize any material gain or loss
from this transaction.
10. NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130"), which will become effective in fiscal 1999. FAS 130 establishes
standards for reporting and displaying of comprehensive income and its
components in the Company's consolidated financial statements. Comprehensive
income is defined in FAS 130 as the change in equity (net assets) of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. The Company does not expect the adoption of FAS 130 to
have a material impact on its reported consolidated financial condition or
results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("FAS 131"), which will become effective in
fiscal 1999. FAS 131 establishes standards for the way publicly-held companies
report information about operating segments as well as disclosures about
products and services, geographic areas and major customers. However, the
Company does not expect the adoption of FAS 131 to have a material impact on its
reported consolidated financial condition or results of operations.
13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q includes forward looking statements, the
realization of which may be adversely impacted by certain important factors
discussed below under "Important factors related to forward-looking statements
and associated risks" and in the Form 10-K for the fiscal year ended September
28, 1997.
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 28, 1998 were
funded with internally generated funds and borrowings under the Company's line
of credit. In September 1997, the Company renewed its bank credit line through
September 1999. Under the current line of credit, the Company can borrow up to
$15,000,000. As of June 28, 1998, $3,900,000 was borrowed under this credit
facility. At June 28, 1998, the Company had $7,210,000 in cash and cash
equivalents.
An 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. It was
remarketed in 1995 and carries an average interest rate of 6.75% per annum. The
terms of the bond require principal payments of $100,000 annually from 1999 to
2004 and $3,700,000 in 2005. A $4,466,000 letter of credit is carried by a bank
to guarantee the repayment of this bond. An annual commitment fee of 2% is
charged on this letter of credit. A principal payment of $1,050,000, consisting
of $350,000 in cash and $700,000 in matured certificates of deposit, was made in
February 1998.
The Company's 5.875% Convertible Subordinated Debentures, which were due in
2012, required semiannual interest payments of approximately $977,000. The
Debentures were callable at 100% of face value and were convertible at the
option of the holder into Common Stock at a conversion price of $13.55. On
February 12, 1998, $33,234,000 in outstanding debentures were converted into
2,452,682 shares of Common Stock and $25,000 was redeemed in cash at par. (See
Note 4 of Notes to Unaudited Consolidated Financial Statements).
On December 31, 1997, the Company sold General Microcircuits, Inc., a wholly
owned subsidiary in Mooresville, North Carolina, for $5,000,000 in cash and a
$2,000,000 promissory note. Microsemi did not realize any material gain or loss
from this transaction.
14
<PAGE>
On January 29, 1998, the Company announced that it had made an equity investment
of $1,000,000 in Xemod, Inc. Xemod, Inc. was founded in 1994 and is
headquartered in Sunnyvale, California. It designs, manufactures and markets
power amplifier semiconductor components targeted at the cellular and wireless
communication markets.
In May 1998, the Company acquired BKC Semiconductors Incorporated (BKC), located
in Lawrence, Massachusetts for approximately $13,740,000 in cash plus existing
indebtedness of BKC of approximately $3,359,000. Microsemi financed this
acquisition with cash on hand, a $10,000,000 term loan and borrowings under its
existing credit facilities. BKC was a publicly held company, which manufactures
discrete semiconductors with sales of approximately $11,000,000 for the fiscal
year ended September 28, 1997. The acquisition was accounted for under the
purchase method.
The Company has no other significant capital commitments.
Based upon information currently available, the Company believes that it can
meet its current operating cash and debt service requirements with internally
generated funds together with its available borrowings.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 28, 1998 COMPARED TO THE
QUARTER ENDED JUNE 29, 1997.
Net sales for the third quarter of fiscal year 1998 decreased $3,357,000 to
$39,291,000, from $42,648,000 for the third quarter of fiscal year 1997. Sales
for third quarter of fiscal 1998 included $1,891,000 and $1,464,000 generated by
the PPC and BKC divisions which were acquired in September 1997 and May 1998,
respectively. Sales for the third quarter of fiscal 1997 included $3,235,000
from GMI, which was sold on December 31, 1997. The remaining decrease of
$3,477,000, excluding the acquisitions and the disposition, was primarily due to
lower demand for commercial space, telecommunications and commercial products.
Gross profit decreased $811,000 to $10,874,000 or 27.7% of sales for the current
quarter of fiscal year 1998 from $11,685,000 or 27.4% of sales for the third
quarter of fiscal year 1997. Gross profit in the third quarter of fiscal year
1998 also included $792,000 and $558,000 from the PPC and BKC divisions.
Gross profit in the third quarter of fiscal year 1997 included $593,000 from
GMI. The remaining net decrease in gross profit was due to lower sales.
Operating expenses for the third quarter of fiscal 1998 increased $1,076,000
compared to those of the corresponding period of the prior year. Operating
expenses of PPC and BKC were $501,000 and $527,000, respectively, in the quarter
ended June 28, 1998. Operating expenses of GMI were $347,000 in the quarter
ended June 29, 1997. The net remaining increase was primarily due to sales and
marketing expenses in the current period.
Interest expense decreased $512,000 due to lower overall borrowings, principally
the reduction of interest due to conversions of debentures and notes payable
into shares of common stock.
The effective tax rates of 38% and 41% in the third quarters of fiscal years
1998 and 1997, respectively, were the combined result of taxes computed on
foreign and domestic income. The decrease in the fiscal 1998 effective tax rate
is primarily attributable to expected changes in the proportion of income earned
within various taxing jurisdictions and the tax rates applicable to such taxing
jurisdictions.
15
<PAGE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 28, 1998 COMPARED TO THE
NINE MONTHS ENDED JUNE 29, 1997.
Net sales for the first nine months of fiscal year 1998 increased $5,473,000 to
$124,537,000, from $119,064,000 for the same period of fiscal year 1997. This
increase was primarily due to the addition of $5,569,000 from PPC and $1,464,000
from BKC Products, which were acquired in September 1997, and May 1998,
respectively. Sales of GMI were $4,298,000 and $9,719,000 in the nine-month
periods ended June 28, 1998 and June 29, 1997, respectively. The remaining
increase in sales was due to higher shipments of commercial space products in
the beginning of the current fiscal year.
Gross profit increased $2,103,000 to $34,574,000 or 27.8% of sales for the first
nine months of fiscal year 1998 from $32,471,000 or 27.3% of sales for the same
period of fiscal year 1997. Gross profit contributed by GMI was $637,000 and
$1,720,000 in the nine-month periods ended June 28, 1998 and June 29, 1997,
respectively. Gross profit contributed by PPC and BKC for the nine-month period
ended June 28, 1998 was $2,690,000 and $558,000, respectively. The remaining
increase in gross profit was due to higher sales.
Operating expenses for the first nine months of fiscal year 1998 increased
$1,592,000 compared to the corresponding period of the prior year. Operating
expenses of GMI were $401,000 and $1,049,000 in the nine-month periods ended
June 28, 1998 and June 29, 1997, respectively. The net remaining increase in
operating expenses was primarily due to the addition of the PPC and BKC
subsidiaries.
Interest expense decreased $1,090,000 due to lower overall borrowings,
principally the reduction of interest due to conversions of debentures and notes
payable.
The effective tax rates of 38% and 41% in the first nine months of fiscal years
1998 and 1997, respectively, were the combined result of taxes computed on
foreign and domestic income. The decrease in the fiscal 1998 effective tax rate
is primarily attributable to expected changes in the proportion of income earned
within various taxing jurisdictions and the tax rates applicable to such taxing
jurisdictions.
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. All
information herein which is not historic, and any inference from historic
information concerning future periods, is a forward-looking statement. The
forward-looking statements included herein are based on, among other items,
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 and the custom diode assembly markets will not change
materially or adversely, that the Company will successfully integrate and manage
acquired operations and 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. Potential risks and uncertainties also include demand
for and acceptance of the company's products, the success of planned marketing
and promotional campaigns, environmental matters, litigation, and inventory
obsolescence. Other factors that could cause results to vary materially from
current expectations are discussed below or elsewhere in this Form 10-Q.
Assumptions relating to the foregoing involve judgments that are difficult to
predict accurately and are subject to many factors that can materially
16
<PAGE>
affect results. Forecasting and other management decisions are subjective in
many respects and thus subject to interpretations and periodic revisions based
on actual experience and business developments, the impact of which may cause
the Company to alter its forecasts, which may in turn affect the Company's
results. In light of the factors that can materially affect the forward-looking
information included herein, 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.
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 28, 1997. Additional factors
that could cause results to vary materially from current expectations are
discussed under the heading "Important factors related to forward-looking
statements and associated risks" in the Company' s Annual Report on Form 10-K
for the fiscal year ended September 28, 1997 as filed with the Securities and
Exchange Commission, and elsewhere in that Form 10-K. This Form 10-Q should be
read in conjunction with such additional factors, which are incorporated herein
by this reference.
Year 2000
- ---------
Microsemi is currently modifying its software to be year 2000 compliant. The
Company does not expect the cost of modification to be significant. Failure of
the Company or its major customers, suppliers or service providers to address,
timely and successfully, all relevant year 2000 compliance issues could have
material adverse effects on the Company, including business disruption and
claims by third parties.
Order Backlog
- -------------
The Company's consolidated order backlog was $59,000,000 as of June 28, 1998,
compared to $73,000,000 at June 29, 1997 and $77,100,000 at September 28, 1997.
The decrease in backlog primarily reflects a shift in the mix of business and a
delay of orders from several commercial space customers. The aforementioned
backlog amounts included $7,000,000 and $10,000,000 for GMI at June 29, 1997 and
September 28, 1997, respectively. The backlog of PPC was $2,800,000 at
September 28, 1997, and $2,400,000 at June 28, 1998. The backlog of BKC was
$4,800,000 at June 28, 1998. (See Note 9 of Notes to Unaudited Consolidated
Financial Statements).
The decrease in backlog was primarily due to slower bookings from a number of
market areas, most significantly for commercial space products. This in turn
may be due in part to uncertainty in the electronics market generally. Many of
the customers of the Company have been subject to adverse financial or market
conditions, intense competition, and various other pressures to reduce inventory
or curtail production. In addition, its customers generally do not apprise the
Company of their future purchasing plans. Improvement in future bookings is
still not clearly evident.
The Company's backlog as of any particular date may not be representative of
actual sales for any succeeding period because lead times for the release of
purchase 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 considerations, the rate of booking new orders
can vary significantly from month to month, and the possibility of customer
changes in delivery schedules or cancellations of orders.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Inapplicable
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 2.1 The Agreement and Plan of Merger among the Company,
Micro BKCA Acquisition Corp. and BKC Semiconductors
Incorporated, dated January 21, 1998, was filed with
Form 8-K on June 1, 1998 under the same exhibit
number and is incorporated herein by this reference.
Exhibit 27.1 Unaudited Financial Data Schedule for the nine months
ended June 28, 1998.
Exhibit 27.2 Restated Unaudited Financial Data Schedule for the
fiscal year ended September 29, 1996, quarters ended
December 19, 1996, March 30, 1997, June 29, 1997 and
fiscal year ended September 28, 1997.
Exhibit 27.3 Restated Unaudited Financial Data Schedule for the
fiscal year ended October 1, 1995, quarters ended
December 31, 1995, March 31, 1996, and June 30, 1996.
(b) Reports on Form 8-K:
On June 1, 1998, the completion of the acquisition of BKC
Semiconductors Incorporated was reported under Item 2.
18
<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 10, 1998
19
<PAGE>
EXHIBIT INDEX
Exhibit 2.1 The Agreement and Plan of Merger among the Company, Micro
BKC Acquisition Corp. and BKC Semiconductors
Incorporated, dated January 21, 1998, was filed with Form
8-K on June 1, 1998 under the same exhibit number and is
incorporated herein by this reference.
Exhibit 27.1 Unaudited Financial Data Schedule for the nine months
ended June 28, 1998.
Exhibit 27.2 Restated Unaudited Financial Data Schedule for the fiscal
year ended September 29, 1996, quarters ended December
19, 1996, March 30, 1997, June 29, 1997 and fiscal year
ended September 28, 1997.
Exhibit 27.3 Restated Unaudited Financial Data Schedule for the fiscal
year ended October 1, 1995, quarters ended December 31,
1995, March 31, 1996, and June 30, 1996.
20
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