<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 March 29, 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 months (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 April 24, 1998 was 11,777,276.
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The unaudited consolidated financial information for the quarter and six
months ended March 29, 1998 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 28, 1997 are attached hereto and incorporated herein by this
reference.
2
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
(amounts in 000's)
<TABLE>
<CAPTION>
ASSETS March 29, September 28,
1998 1997
--------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 4,159 $ 6,145
Accounts receivable less allowance for doubtful
accounts, $2,030 at March 29, 1998 and $2,665
at September 28, 1997 24,850 25,093
Inventories 48,336 53,248
Deferred income taxes 8,160 8,160
Other current assets 2,261 4,363
-------- --------
Total current assets 87,766 97,009
-------- --------
Property and equipment, at cost 69,917 70,485
Less: Accumulated depreciation (34,837) (35,614)
-------- --------
35,080 34,871
-------- --------
Other assets 5,001 3,314
-------- --------
$127,847 $135,194
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable to banks and others $ 125 $ 4,633
Current maturities of long-term debt 2,505 3,574
Accounts payable 5,381 11,304
Accrued liabilities 15,306 15,942
Income taxes payable 4,798 5,743
-------- --------
Total current liabilities 28,115 41,196
-------- --------
Deferred income taxes 2,544 2,544
-------- --------
Long-term debt 12,089 47,621
-------- --------
Other long-term liabilities 1,922 1,924
-------- --------
Stockholders' equity
Common stock, $.20 par value; authorized 20,000
shares; issued 11,777 shares at March 29, 1998
and 8,736 shares at September 28, 1997 2,355 1,747
Additional paid-in capital 50,380 16,197
Retained earnings 30,442 23,965
-------- --------
Total stockholders' equity 83,177 41,909
-------- --------
$127,847 $135,194
======== ========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
3
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Income Statements
(amounts in 000's, except earnings per share)
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
March 29, 1998 March 30, 1997
-------------- --------------
<S> <C> <C>
Net sales $41,194 $40,657
Cost of sales 29,513 29,615
------- -------
Gross profit 11,681 11,042
------- -------
Operating expenses
Selling 2,489 2,441
General and administrative 3,258 3,437
------- -------
Total operating expenses 5,747 5,878
------- -------
Income from operations 5,934 5,164
------- -------
Other (expense) income
Interest expense (net) (430) (960)
Other 6 (134)
------- -------
Total other expense (424) (1,094)
------- -------
Income before income taxes 5,510 4,070
Provision for income taxes 2,094 1,675
------- -------
Net income $ 3,416 $ 2,395
======= =======
Earnings per share
-Basic $ 0.33 $ 0.28
======= =======
-Diluted $ 0.29 $ 0.23
======= =======
Weighted average common shares outstanding
-Basic 10,473 8,547
-Diluted 12,001 11,872
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
4
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Income Statements
(amounts in 000's, except earnings per share)
<TABLE>
<CAPTION>
26 Weeks Ended 26 Weeks Ended
March 29, 1998 March 30, 1997
-------------- --------------
<S> <C> <C>
Net sales $85,246 $76,416
Cost of sales 61,546 55,630
------- -------
Gross profit 23,700 20,786
------- -------
Operating expenses
Selling 5,031 4,590
General and administrative 6,856 6,781
------- -------
Total operating expenses 11,887 11,371
------- -------
Income from operations 11,813 9,415
------- -------
Other (expense) income
Interest expense (net) (1,342) (1,920)
Other 26 (168)
------- -------
Total other expense (1,316) (2,088)
------- -------
Income before income taxes 10,497 7,327
Provision for income taxes 3,989 3,043
------- -------
Net income $ 6,508 $ 4,284
======= =======
Earnings per share
-Basic $ 0.67 $ 0.52
======= =======
-Diluted $ 0.58 $ 0.41
======= =======
Weighted average common shares outstanding
-Basic 9,691 8,272
-Diluted 11,969 11,868
</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>
26 Weeks Ended 26 Weeks Ended
March 29, 1998 March 30, 1997
-------------- --------------
<S> <C> <C>
Retained earnings at beginning of period $23,965 $12,931
Net income 6,508 4,284
Translation loss from foreign currency (31) (6)
------- -------
Retained earnings at end of period $30,442 $17,209
======= =======
</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>
26 Weeks Ended 26 Weeks Ended
March 29, 1998 March 30, 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,508 $ 4,284
Adjustments to reconcile net income to net cash provided
from operating activities
Depreciation and amortization 2,134 1,893
Increase (decrease) in allowance for doubtful accounts (582) 371
Changes in assets and liabilities, net of acquisition:
Accounts receivable (2,950) (173)
Inventories (937) (1,556)
Other current assets 1,299 67
Other assets 1,063 (457)
Accounts payable (3,245) 434
Accrued liabilities 364 (516)
Income taxes payable (945) (22)
Other (31) (6)
------- -------
Net cash provided by operating activities 2,678 4,319
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition - (2,200)
Proceeds from disposition 5,000 -
Investment in an unconsolidated affiliate (1,000) -
Purchases of property and equipment (3,252) (3,676)
------- -------
Net cash provided by (used in) investing activities 748 (5,876)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in notes payable to banks and others (4,508) 3,525
Proceeds from issuance of long-term debt - 655
Payments of long-term debt (1,454) (882)
Reduction of other long-term liabilities (2) (58)
Exercise of employee stock options 552 162
------- -------
Net cash (used in) provided by financing activities (5,412) 3,402
------- -------
Net (decrease) increase in cash and cash equivalents (1,986) 1,845
Cash and cash equivalents at beginning of period 6,145 4,059
------- -------
Cash and cash equivalents at end of period $ 4,159 $ 5,904
======= =======
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
7
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1998
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 six 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
28, 1997.
2. INVENTORIES
Inventories used in the computation of cost of goods sold were:
<TABLE>
<CAPTION>
March 29, 1998 September 28, 1997
-------------- ------------------
(amounts in 000's)
<S> <C> <C>
Raw materials $13,742 $15,954
Work in process 20,279 23,774
Finished goods 14,315 13,520
------- -------
$48,336 $53,248
======= =======
<CAPTION>
3. ACCRUED LIABILITIES
Accrued liabilities consist of:
March 29, 1998 September 28, 1997
-------------- ------------------
(amounts in 000's)
<S> <C> <C>
Accrued payroll, profit sharing,
benefits and related taxes $ 7,401 $ 9,016
Accrued interest 2,293 2,641
Other accrued liabilities 5,612 4,285
------- -------
$15,306 $15,942
======= =======
</TABLE>
8
<PAGE>
4. BORROWINGS
Long-term debt consisted of:
<TABLE>
<CAPTION>
March 29, 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 $ 2,520 $ 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 loan due to GE Capital Public Finance, Inc., bearing
interest at 5.93%, payable in monthly installments through July 2,340 2,700
2002
Notes payable (PPC acquisition) bearing interest at 7% due monthly
through September 2009 2,234 2,370
Notes payable-bearing interest at rates in ranges of 5% - 10% due
between April 1998 and September 2002 3,200 4,244
------- -------
14,594 51,195
Less current portion (2,505) (3,574)
------- -------
$12,089 $47,621
======= =======
</TABLE>
A $2,520,000 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 $215,000 in 1998, $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. The
terms of the bond require principal payments of $100,000 annually from 1999 to
2004 and $3,700,000 in 2005. A principal payment of $1,050,000 was made in
February 1998. 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 March 29, 1998.
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
9
<PAGE>
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, $33,234,000 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 loan 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
$2,370,000, related to the PPC acquisition, payable to the former owners,
bearing an interest rate of 7%, due in monthly installments through September
2009.
The Company maintains a revolving credit facility with a domestic bank 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 has an
interest rate of prime 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 March 29, 1998. At March 29, 1998, this credit
facility had no outstanding balance.
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
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.
10
<PAGE>
Earnings per share for the quarters and six months ended March 29, 1998 and
March 30, 1997 were calculated as follows:
<TABLE>
<CAPTION>
Quarter ended Six months ended
----------------- ----------------
3/29/98 3/30/97 3/29/98 3/30/97
------- ------- ------- -------
(in 000's, except per share data)
<S> <C> <C> <C> <C>
BASIC
Net Income $ 3,416 $ 2,395 $ 6,508 $ 4,284
======= ======= ======= =======
Weighted-average common shares outstanding 10,473 8,547 9,691 8,272
======= ======= ======= =======
Basic earnings per share $ 0.33 $ 0.28 $ 0.67 $ 0.52
======= ======= ======= =======
DILUTED
Net income $ 3,416 $ 2,395 $ 6,508 $ 4,284
Interest savings from assumed conversions of
convertible debt, net of income taxes 118 305 428 626
------- ------- ------- -------
Net income assuming conversions $ 3,534 $ 2,700 $ 6,936 $ 4,910
======= ======= ======= =======
Weighted-average common shares outstanding 10,473 8,547 9,691 8,272
Stock options 288 337 307 403
Convertible debt 1,240 2,988 1,971 3,193
------- ------- ------- -------
Weighted-average common shares outstanding
on a diluted basis 12,001 11,872 11,969 11,868
======= ======= ======= =======
Diluted earnings per share $ 0.29 $ 0.23 $ 0.58 $ 0.41
======= ======= ======= =======
</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.
<TABLE>
<CAPTION>
Supplementary information
- -------------------------
26 weeks ended 26 weeks ended
March 29, 1998 March 30, 1997
-------------- --------------
(amounts in 000's)
<S> <C> <C>
Cash paid during the period for:
Interest $ 783 $1,629
======= ======
Income taxes $ 5,610 $2,550
======= ======
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 $ - $2,900
Less debt issued - (700)
------- ------
Cash paid for acquisition $ - $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 $2,000,000
in a 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.
8. ACQUISITION
On January 21, 1998, the Company and BKC Semiconductors Incorporated (BKC),
located in Lawrence, Massachusetts, jointly announced a definitive agreement
whereby Microsemi will acquire all of the common stock and options of BKC for
approximately $13,400,000 in cash plus repayment of existing
12
<PAGE>
indebtedness of BKC. Microsemi intends to finance this acquisition with cash on
hand and borrowings under its existing credit facilities, as amended concurrent
with the acquisition. BKC is 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 is expected to be completed in
the third quarter of fiscal year 1998 and will be accounted for under the
purchase method.
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
$2,000,000 in a note receivable. Microsemi did not realize any material gain or
loss from this transaction.
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 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 six months ended March 29, 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 March 29, 1998, there was no outstanding balance under this
credit facility. At March 29, 1998, the Company had $4,159,000 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.
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.
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. (See Note 4
of Notes to Unaudited Consolidated Financial Statements).
14
<PAGE>
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
$2,000,000 in a promissory note. Microsemi did not realize any material gain or
loss from this transaction.
On January 21, 1998, the Company and BKC Semiconductors Incorporated (BKC),
Lawrence, Massachusetts, jointly announced a definitive agreement whereby
Microsemi will acquire all of the outstanding stock and options of BKC for
approximately $13,400,000 in cash plus repayment of existing indebtedness of
BKC. (See Note 8 of Notes to Unaudited Consolidated Financial Statements.)
Microsemi intends to finance this acquisition with cash on hand and through
borrowings under its existing credit facilities, which will be increased to
$25,000,000 upon completion of the acquisition.
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, manufacturers and markets
power amplifier semiconductor components targeted at the cellular and wireless
communication markets.
Microsemi is currently modifying its software to be year 2000 compliant. The
Company does not expect the cost of modification to be significant.
The Company has no other significant capital commitments.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 29, 1998 COMPARED TO THE
QUARTER ENDED MARCH 30, 1997.
Net sales for the second quarter of fiscal year 1998 increased $537,000 to
$41,194,000, from $40,657,000 for the second quarter of fiscal year 1997. Sales
for the second quarter of fiscal 1998 included $1,712,000 of sales generated by
the PPC division that was acquired in September 1997. Sales for the second
quarter of fiscal 1997 included $3,049,000 of sales from GMI, which was sold on
December 31, 1997. The remaining increase of $1,874,000, excluding the
acquisition and the disposition, was primarily due to demand for the space
market related products and higher shipments of the Powermite product.
Gross profit increased $639,000 to $11,681,000 or 28.4% of sales for the current
quarter of fiscal year 1998 from $11,042,000 or 27.2% of sales for the second
quarter of fiscal year 1997. Gross profit in the second quarter of fiscal year
1998 also included $984,000 from the PPC division. These increases were
partially offset by the reduction in gross profit resulting from the sale of GMI
in December 1997. Gross profit in the second quarter of fiscal year 1997
included $566,000 from GMI. The remaining net increase in gross profit was due
to higher sales.
Operating expenses for the second quarter of fiscal year 1998 decreased $131,000
compared to those of the corresponding period of the prior year. Operating
expenses of PPC were $511,000 in the quarter ended March 29, 1998. Operating
expenses of GMI were $344,000 in the quarter ended March 30, 1997. The net
remaining decrease in operating expenses was primarily due to lower operating
expenses of the RF Products division and lower sales commission.
Interest expense decreased $530,000 due to lower overall borrowings and the
reduction of interest upon conversions of debentures and notes payable.
15
<PAGE>
The effective tax rates of 38% and 41% in the second 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.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 29, 1998 COMPARED TO THE
SIX MONTHS ENDED MARCH 30, 1997.
Net sales for the first six months of fiscal year 1998 increased $8,830,000 to
$85,246,000, from $76,416,000 for the same period of fiscal year 1997. This
increase was primarily due to higher demand for the space market related
products, greater shipments of the Powermite and the addition of PPC Products,
which was acquired in September 1997. Sales of GMI were $4,298,000 and
$6,484,000 in the six-month periods ended March 29, 1998 and March 30, 1997,
respectively.
Gross profit increased $2,914,000 to $23,700,000 or 27.8% of sales for the first
half of fiscal year 1998 from $20,786,000 or 27.2% of sales for the same period
of fiscal year 1997. The increase in gross profit was due to higher sales,
improved sales mix and from the PPC division which was acquired in September
1997. These increases were partially offset by the reduction in gross profit
resulting from the sale of GMI in December 1997. Gross profit of GMI was
$627,000 and $1,127,000 in the six-month periods ended March 29, 1998 and March
30, 1997, respectively. Gross profit for PPC for the six-month period ended
March 29, 1998 was $1,578,000. The remaining net increase in gross profit was
due to higher sales.
Operating expenses for the first six months of fiscal year 1998 increased
$516,000 compared to those of the corresponding period of the prior year.
Operating expenses of GMI were $401,000 and $702,000 in the six-month periods
ended March 29, 1998 and March 30, 1997, respectively. The net remaining
increase in operating expenses was primarily due to the addition of the PPC
subsidiary.
Interest expense decreased $578,000 due to lower overall borrowings and the
reduction of interest upon conversions of debentures and notes payable.
The effective tax rates of 38% and 42% in the first six 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. 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
16
<PAGE>
operations or business. Other factors that could cause results to vary
materially from current expectations are discussed 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 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.
Order Backlog
- -------------
The Company's consolidated order backlog was $58,000,000 as of March 29, 1998,
compared to $65,000,000 at March 30, 1997 and $67,000,000 at September 28, 1997.
The decrease in backlog primarily reflects a shift in the mix of business and a
push out of orders from several commercial space customers. Backlog of General
Microcircuits, Inc., has been eliminated from the previously reported amounts.
(See Note 9 of Notes to Unaudited Consolidated Financial Statements).
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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Inapplicable
Item 2. Changes in Securities
---------------------
At March 29, 1998 none of the Company's 5.875% Convertible subordinated
Debentures due 2012 remained outstanding. 2,452,682 shares of Common
Stock were issued upon conversion of the debentures at a conversion
price of $13.55 per share. The Debentures had been called for
redemption at par, in accordance with the terms of the debentures.
17
<PAGE>
Item 3. Defaults Upon Senior Securities
-------------------------------
Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) An election of the Board of Directors was held at the annual
meeting of Stockholders on February 24, 1998.
(b) Names and personal information about the nominees to the Board of
Directors were included in the Proxy Statement dated January 24,
1998.
(c) Votes were received for each of the nominees to the Board of
Directors as follows:
<TABLE>
<CAPTION>
For Withheld
--------- --------
<S> <C> <C>
Philip Frey, Jr. 7,935,664 300
Joseph M. Scheer 7,934,089 1,875
Brad Davidson 7,935,864 100
Robert B. Phinizy 7,932,189 3,775
Martin H. Jurick 7,932,964 3,000
</TABLE>
(d) Inapplicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit 27 Unaudited Financial Data Schedule for the six months
ended March 29, 1998.
(b) Reports on Form 8-K:
On January 27, 1998, the Company's execution of agreement for
acquisition of BKC Semiconductors, Inc., dated January 21, 1998,
and the Company's giving of a notice of redemption of the Company's
5.875% Convertible Subordinated Debentures due 2012 ("Debentures")
were reported under Item 5.
On February 24, 1998, the redemption or conversion of all
outstanding Debentures was reported under Item 5.
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: May 6, 1998
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-27-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> MAR-29-1998
<CASH> 4,159
<SECURITIES> 0
<RECEIVABLES> 26,880
<ALLOWANCES> 2,030
<INVENTORY> 48,336
<CURRENT-ASSETS> 87,766
<PP&E> 69,917
<DEPRECIATION> 34,837
<TOTAL-ASSETS> 127,847
<CURRENT-LIABILITIES> 28,115
<BONDS> 12,089
0
0
<COMMON> 2,355
<OTHER-SE> 80,822
<TOTAL-LIABILITY-AND-EQUITY> 127,847
<SALES> 85,246
<TOTAL-REVENUES> 85,246
<CGS> 61,546
<TOTAL-COSTS> 61,546
<OTHER-EXPENSES> (26)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,342
<INCOME-PRETAX> 10,497
<INCOME-TAX> 3,989
<INCOME-CONTINUING> 6,508
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,508
<EPS-PRIMARY> .67
<EPS-DILUTED> .58
</TABLE>
