<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 January 3, 1999
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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
-------------------------------------------------------
(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 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 January 22, 1999 was 11,326,279.
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited consolidated financial information for the quarter ended January
3, 1999 of Microsemi Corporation and Subsidiaries (the "Company") and the
comparative unaudited consolidated financial information for the corresponding
period of the prior year, together with the balance sheet as of September 27,
1998 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>
January 3, 1999 September 27, 1998
--------------- ------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 7,364 $ 9,610
Accounts receivable less allowance for doubtful accounts,
$2,020 at January 3, 1999 and $2,457 at September 27, 1998 21,322 23,094
Inventories 56,045 54,433
Deferred income taxes 6,049 6,049
Other current assets 1,655 1,319
-------------- -----------------
Total current assets 92,435 94,505
-------------- -----------------
Property and equipment, at cost 78,696 77,667
Less: Accumulated depreciation (43,574) (42,113)
-------------- -----------------
35,122 35,554
-------------- -----------------
Other assets 16,436 15,029
-------------- -----------------
TOTAL ASSETS $ 143,993 $ 145,088
============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable to banks and others $ 7,507 $ 6,172
Current maturity of long-term debt 4,160 4,339
Accounts payable 5,413 6,656
Accrued liabilities 13,520 14,401
Income taxes payable 7,158 5,874
-------------- -----------------
Total current liabilities 37,758 37,442
-------------- -----------------
Long-term debt 17,778 18,667
-------------- -----------------
Other long-term liabilities 1,936 1,962
-------------- -----------------
Commitments and contingencies
Stockholders' equity
Common stock, $.20 par value; authorized 20,000 shares;
issued 11,326 at January 3, 1999 and 11,666 at
September 27, 1998 2,265 2,333
Capital in excess of par value of common stock 48,437 49,896
Retained earnings 36,772 35,734
Cumulative translation adjustment (953) (946)
-------------- -----------------
Total stockholders' equity 86,521 87,017
-------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 143,993 $ 145,088
============== =================
</TABLE>
The accompanying notes are an integral part of these statements.
3
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MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Income Statements
(amounts in 000's, except earnings per share)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
January 3, 1999 December 28, 1997
--------------- -----------------
<S> <C> <C>
Net sales $ 39,417 $ 44,052
Cost of sales 28,904 32,033
--------------- -----------------
Gross profit 10,513 12,019
--------------- -----------------
Operating expenses
Selling 3,131 2,542
General and administrative 3,269 3,598
--------------- -----------------
Total operating expenses 6,400 6,140
--------------- -----------------
Income from operations 4,113 5,879
--------------- -----------------
Other (expense) income
Interest expense (552) (912)
Other 116 20
--------------- -----------------
Total other expense (436) (892)
--------------- -----------------
Income before income taxes 3,677 4,987
Provision for income taxes 1,397 1,895
--------------- -----------------
Net income $ 2,280 $ 3,092
=============== =================
Earnings per share
-Basic $ 0.20 $ 0.35
=============== =================
-Diluted $ 0.20 $ 0.28
=============== =================
Weighted average common shares outstanding
-Basic 11,408 8,907
-Diluted 11,523 12,005
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
4
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MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Retained Earnings
(amounts in 000's)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
January 3, 1999 December 28, 1997
--------------- -----------------
<S> <C> <C>
Retained earnings at beginning of period $ 35,734 $ 24,742
Net income 2,280 3,092
Treasury stock repurchased and canceled (1,242) -
--------------- -----------------
Retained earnings at end of period $ 36,772 $ 27,834
=============== =================
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
5
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MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(amounts in 000's)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
January 3, 1999 December 28, 1997
---------------------- -----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITITES:
Net income $ 2,280 $ 3,092
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,749 1,071
Allowance for doubtful accounts (437) (51)
Changes in assets and liabilities:
Accounts receivable 2,209 (68)
Inventories (1,612) (452)
Other current assets (336) 2,329
Other assets (1,695) (172)
Accounts payable (1,243) (1,458)
Accrued liabilities (881) 209
Income taxes payable 1,284 458
------------------- -------------------
Net cash provided by operating activities 1,318 4,958
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in an unconsolidated affiliate - (1,000)
Purchases of property and equipment (1,029) (1,734)
------------------- -------------------
Net cash used in investing activities (1,029) (2,734)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable to banks and other 1,335 (2,283)
Payments of long-term debt (1,068) (472)
Reduction of other long-term liabilities (26) (16)
Repurchases of common stock (2,785) -
Exercise of employee stock options 16 185
------------------- -------------------
Net cash provided used in financing activities (2,528) (2,586)
------------------- -------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (7) (30)
------------------- ------------------
Net decrease in cash and cash equivalents (2,246) (392)
Cash and cash equivalents at beginning of period 9,610 6,145
------------------- -------------------
Cash and cash equivalents at end of period $ 7,364 $ 5,753
=================== ===================
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
6
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MICROSEMI CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
January 3, 1999
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 quarter 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 consolidated financial
statements and notes thereto in the Annual Report on Form 10-K for the fiscal
year ended September 27, 1998.
2. COMPREHENSIVE INCOME
Effective in the first quarter of fiscal 1999, the company adopted Statement of
Financial Accounting standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 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 SFAS 130 as the change in equity
(net assets) of a business enterprise during the period from transactions and
other events and circumstances from nonowner sources. Total comprehensive
income was $2,276,000 and $3,073,000 for the quarters ended January 3, 1999 and
December 28, 1997, respectively. The difference from net income as reported is
the tax effected change in the cumulative translation adjustment.
3. RECENTLY ISSUED ACCOUNTING STANDARD
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131") which supersedes Statement of Financial Accounting Standards No.
14. This statement changes the way that publicly-held companies report
information about operating segments as well as disclosures about products and
services, geographic areas and major customers. Operating segments are defined
as revenue-producing components of the enterprise, which are generally used
internally for evaluating segment performance. SFAS 131 will be effective for
the Company's year ending October 3, 1999 and will not affect the Company's
financial position or results of operations.
7
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4. 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>
January 3, 1999 September 27, 1998
--------------- ------------------
(amounts in 000's)
<S> <C> <C>
Raw materials $ 14,399 $ 14,759
Work in process 18,043 18,282
Finished goods 23,603 21,392
-------------- ---------------
$ 56,045 $ 54,433
============== ===============
</TABLE>
5. BORROWINGS
Long-term debt consisted of:
<TABLE>
<CAPTION>
January 3, September 27,
1999 1998
------------------- -------------------
(amounts in 000's)
<S> <C> <C>
Industrial Development Bond, bearing interest at 7.875%, due
May 2000; secured by first deed of trust $ 2,305 $ 2,305
Industrial Development Bond, bearing interest at 6.75%, due
February 2005; secured by first deed of trust 4,300 4,300
Note payable, bearing interest at 5.93%, payable monthly
through July 2002 1,935 2,070
Notes payable (PPC Acquisition), bearing interest at 7%,
payable monthly through September 2009 2,019 2,092
Notes payable to a bank, bearing interest at the bank's prime
rate (7.75% at January 3, 1999), payable in monthly
installments through July 2003 9,084 9,667
Notes payable, bearing interest at ranges of 5% - 9.75%, due
between January 1999 and September 2009 2,295 2,572
----------------- ------------------
21,938 23,006
Less current portion (4,160) (4,339)
----------------- ------------------
$ 17,778 $ 18,667
================= ==================
</TABLE>
8
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A $2,305,000 Industrial Revenue Bond was issued in November 1975 through the
City of Broomfield, Colorado and 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.
A $4,300,000 Industrial Development Revenue Bond was originally issued in April
1985, through the City of Santa Ana, California for the construction of
improvements and new facilities at the Company's 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. 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 January 3, 1999.
In June 1997, the Company entered into a $2,700,000 equipment loan agreement,
providing for monthly principal payments through July 2002 of $45,000 plus
interest at 5.93% per annum. $1,935,000 of this loan remained outstanding at
January 3, 1999.
In September 1997, the Company issued and assumed notes payable of $2,370,000
related to the PPC acquisition. These notes are payable to the former owners,
bear an interest rate of 7%, and are due in monthly installments over various
periods through September 2009. $2,019,000 of these notes remained outstanding
at January 3, 1999.
In June 1998, the Company finalized an amendment to its existing bank credit
facility which added a $10,000,000 term loan ($9,167,000 was outstanding at
January 3, 1999), used by Microsemi to finance a portion of the BKC acquisition.
The terms of the term loan require monthly principal payments of $167,000 plus
interest at the bank's prime rate from August 1998 through July 2003 and is
secured by substantially all of the assets of the Company. The Company also has
an option to borrow from this term loan at 1.5% per annum plus the LIBOR rate.
The terms of the loan also contain provisions regarding net worth and working
capital. The Company was in compliance with the aforementioned covenants at
January 3, 1999.
The Company 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. The Company also has an option to borrow from this
credit line at 1.5% per annum plus the LIBOR rate. In addition, the credit
agreement contains provisions regarding net worth and working capital. The
Company was in compliance with the aforementioned covenants at January 3, 1999.
As of January 3, 1999, $7,467,000 was borrowed under this credit facility.
6. EARNINGS PER SHARE
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.
9
<PAGE>
Earnings per share for the quarters ended January 3, 1999 and December 28, 1997
were calculated as follows:
<TABLE>
<CAPTION>
January 3, 1999 December 28, 1997
--------------- -----------------
<S> <C> <C>
BASIC
Net income $ 2,280 $ 3,092
============== ==============
Weighted-average common shares outstanding 11,408 8,907
============== ==============
Basic earnings per share $ 0.20 $ 0.35
============== ==============
DILUTED
Net income $ 2,280 $ 3,092
Interest savings from assumed conversions of
convertible debt, net of income taxes - 310
-------------- --------------
Net income assuming conversions $ 2,280 $ 3,402
============== ==============
Weighted-average common shares outstanding
for basic 11,408 8,907
Dilutive effect of stock options 115 375
Dilutive effect of convertible debt - 2,723
-------------- --------------
Weighted-average common
shares outstanding on a diluted basis 11,523 12,005
============== ==============
Diluted earnings per share $ 0.20 $ 0.28
============== ==============
</TABLE>
10
<PAGE>
7. 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
- ---------------------------
Quarter ended Quarter ended
January 3, 1999 December 28, 1997
--------------- -----------------
(amounts in 000's)
<S> <C> <C>
Cash paid during the period for:
Interest $ 637 $ 373
============= =============
Income taxes $ 140 $ 1,502
============= =============
Non-cash financing activities:
Conversions of subordinated debt into 400,147 shares of
common stock $ - $ 752
============= =============
</TABLE>
8. 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 former owners of the manufacturing facility, agreed to settle the
claim and to indemnify the owner of the adjacent property for remediation costs.
Although TCE and other contaminants previously used at the facility were present
in soil and groundwater on the subsidiary's property, the Company vigorously
contested any assertion that the subsidiary was the cause of the contamination.
In November 1998, the Company signed an agreement with three former owners of
this facility whereby the former owners will 1) reimburse the Company for
$530,000 of past costs related to the dispute, 2) assume responsibility for 90%
of all future clean-up costs, and 3) indemnify and protect the Company against
any and all third-party claims relating to the contamination of the facility.
The Company received a $530,000 cash reimbursement in the first quarter of
fiscal year 1999. State and local agencies in Colorado are reviewing current
data and considering study and cleanup options, and it is not yet possible to
predict the future costs for remediation. In the opinion of management, the
final outcome of the Broomfield, Colorado environmental matter will not have a
material adverse effect on the Company's financial position or results of
operations.
The Company is involved in various pending litigation arising out of the normal
conduct of its business, including those relating to commercial transactions,
contracts, and environmental matters. In the opinion of management, the final
outcome of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
11
<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 Form 10-K for the fiscal year ended September 27, 1998.
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.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JANUARY 3, 1999 COMPARED TO THE
- ---------------------------------------------------------------------------
QUARTER ENDED DECEMBER 28, 1997.
- --------------------------------
Net sales for the first quarter of fiscal year 1999 decreased $4,635,000 to
$39,417,000, from $44,052,000 for the first quarter of fiscal year 1998. This
decrease was primarily due to lower demand for the space market related products
and the elimination of GMI, which was sold in December 1997. The decrease was
partially offset by the addition of BKC, which was acquired in May 1998 and an
increase in shipments of commercial products.
Gross profit decreased $1,506,000 to $10,513,000 or 26.7% of sales for the
current quarter of fiscal year 1999 from $12,019,000 or 27.3% of sales for the
first quarter of fiscal year 1998. The decrease of gross profit was due to
lower total sales and lower sales of space level products, which typically have
higher margins than commercial products.
Selling expenses increased $589,000 to $3,131,000 for the current quarter of
fiscal year 1999, compared to that of the corresponding period of the prior
year, primarily due to higher payments of commissions for commercial products
and to the addition of the BKC subsidiary. General and administrative expenses
decreased $329,000 to $3,269,000 for the current quarter of fiscal year 1999,
compared to $3,598,000 for the corresponding period of the prior year. General
and administrative expense for the first quarter of fiscal year 1998 included
certain charges related to the sale of GMI.
Interest expense decreased $360,000 to $552,000 for the first quarter of fiscal
year 1999 from $912,000 for the first quarter of fiscal year 1998; primarily due
to the conversions of debt into common stock in February 1998, resulting in
lower average borrowings.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Microsemi Corporation's operations in the three months ended January 3, 1999
were funded with internally generated funds and borrowings under the Company's
line of credit. In September 1997, the Company renewed its credit line with a
bank through September 1999. Under the current line of credit, the Company can
borrow up to $15,000,000. As of January 3, 1999, $7,467,000 was borrowed under
this credit facility. At January 3, 1999, the Company had $7,364,000 in cash
and cash equivalents.
12
<PAGE>
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 Company's 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.
Microsemi has repurchased 459,087 shares for $3,626,000 through December 1998.
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.
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, 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. 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 susceptible 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
in Form 10-K for the fiscal year ended September 27, 1998. 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 in Form 10-K as
filed on December 28, 1998 with the Securities and Exchange Commission, and
elsewhere in that Form 10-K.
ORDER BACKLOG
- -------------
The Company's consolidated order backlog was $51,000,000 as of January 3, 1999,
compared to $67,000,000 at December 28, 1997 and $51,000,000 at September 27,
1998. 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, ordering practices, or cancellations of orders.
13
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YEAR 2000
- ---------
Microsemi has made and will continue to make certain investments in its
equipment and business system and application software to ensure the Company is
year 2000 ("Y2K") compliant.
The Company has established a global Y2K team as well as local site teams to
address the issues and to ensure that all aspects of its business will be Y2K
compliant. These teams are studying business system software and hardware,
equipment and software used in the manufacturing of product, facilities,
telecommunications and internal network. The global and the local site teams
consist of management as well as operational and information technology staff
members. The global Y2K team was formed to address company-wide Y2K issues,
such as overall project integration and management, project schedules and report
to management. Local site teams address research and remediation for site-
specific equipment, facilities, customers, suppliers and other business
partners. The teams' responsibilities include the following functional areas:
(1) factory equipment and facilities, (2) business system software, (3) desktop
computers, telecommunications system and network hardware and software systems,
and (4) customers, suppliers, and business partners.
Factory equipment includes automated test equipment and test data collection
systems. The high reliability nature of the Company's products calls for test,
test data collection and data retention. This need is generally called for in
product performance specifications, such as mil PF 19500. Microsemi is taking
an inventory of factory and facility equipment to determine their Y2K readiness.
The company estimates this inventory will be finished and a compliance plan will
be presented to management by March 31, 1999. A contingency plan will be
presented to management by June 30, 1999.
The initial study of the impact of the internal information system (business
system software) has been completed and non-compliant items have been
identified. Approximately 30% of the Company's business software is Y2K
compliant. The Company is in the process of installing Y2K compliant software
for the remainder of the Company. The Company is planning to complete the
installation of Y2K compliant business system software at its five largest units
by August 1999 and the remaining small units by December 1999. The Company is
planning to develop a contingency plan by August 1999.
Networking and telecommunication hardware and software are Y2K compliant. The
Company is taking an inventory and assessing Y2K compliance of desktop
computers. This project should be completed by March 31, 1999. The Company
anticipates that non-compliant equipment will be upgraded or replaced by June
30, 1999.
The Company is currently engaged in surveying customers, suppliers, service
providers and business partners, including banks and other financial
institutions to determine whether they are Y2K compliant. The survey is not yet
complete and, accordingly, Microsemi is unable to evaluate the extent to which
such entities may be Y2K compliant and the effect that any non-compliance might
have. The Company anticipates cooperation in these efforts from its customers,
suppliers, service providers and business partners; however, the Company has no
control and no assurance of their cooperation as well as their Y2K readiness.
Microsemi is expecting to have a contingency plan for non Y2K compliance of its
customers, suppliers, service providers and business partners by June 1999.
The activities of the Company's Y2K project teams include the development of
contingency plans in the event the Company and/or its related third parties have
not completed all remediation programs by December 1999. Due to the complexity
of the Y2K issues, there can be no assurance that such plans will be sufficient
to address all internal and external failures or that unresolved or undetected
Y2K issues will not have a material adverse effect on the Company's business,
financial condition, results of operations and cash flows. The contingency
plans, even if successful and effective, may result in loss of efficiencies,
increased costs, and other adverse effects on the Company's business and
operations.
14
<PAGE>
The Company estimates that the expenses to date for the Y2K project have been
approximately $850,000. Completion of the project is expected to require an
additional expenditure of $650,000 by December 1999.
Microsemi believes that its Y2K project teams will identify all of the Company's
material Y2K issues in the course of their assessments. However, given the
pervasiveness of Y2K issues and the complexity of and interrelationships among
Y2K issues, both internal and external, there can be no assurance that Microsemi
will be able to identify and accurately evaluate all such issues. Identification
of these issues is crucial to an effective remediation plan. In the process of
compiling an inventory of and developing the remediation plan for Y2K issues,
the Company may discover material undetected or unanticipated Y2K issues that
will require substantial time and significant expense to address and that
certain known issues may take longer and may be more costly to remedy. Further,
any delayed or unsuccessful remediation of Y2K issues could result in material
adverse effects on the Company, such as failure to efficiently utilize
manufacturing capacity, shipping delays, loss of critical data, disrupted
communications, product defects, inventory write-offs, waste of inventory and
supplies, personal injury, difficulties in managing international operations,
errors in accounting, and such indirect adverse effects as claims by third
parties against the Company that may relate thereto. In addition, if Y2K
problems experienced by any of the Company's significant customers, suppliers,
public utilities, service providers or business partners cause or contribute to
delays or interruptions in placing orders, or in delivery of products or
services to the Company, or in collection of receivables, or in interruptions in
the Company's electrical or telecommunications utilities, such delays or
interruptions could have a material adverse effect on the Company's business,
financial condition, results of operations and cash flows. Disruption in and
throughout the global economy resulting from Y2K issues may have a chain
reaction and could also have materially adverse affects on the Company. The
Company believes that such disruption is especially likely in foreign countries,
including those of Europe and Asia, whose Y2K compliance programs are believed
to trail those in the United States. However, no assurance is given as to Y2K
readiness in the United States, whose technological infrastructure is especially
complex and interrelated. The occurrence of any of the aforementioned or other
risks may have a material adverse effect on the Company's business, financial
condition, results of operations and cash flows, including but not limited to
such effects on the Company's foreign operations. In addition, insurance
coverage for the risks described above may be unavailable or available only at
prohibitive costs, and the Company may be responsible itself for all of the
potential adverse financial effects thereof.
Recently Issued Accounting Standard
- -----------------------------------
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131") which supersedes Statement of Financial Accounting Standards No.
14. This statement changes the way that publicly-held companies report
information about operating segments as well as disclosures about products and
services, geographic areas and major customers. Operating segments are defined
as revenue-producing components of the enterprise, which are generally used
internally for evaluating segment performance. SFAS 131 will be effective for
the Company's year ending October 3, 1999 and will not affect the Company's
financial position or results of operations.
15
<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 27 Unaudited Financial Data Schedule for the three
months ended January 3, 1999.
(b) Reports on Form 8-K:
None
16
<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: February 4, 1999
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
Microsemi Corporation and Subsidiaries Unaudited Financial Data Schedule For The
Three Months Ended January 3, 1999 (in thousands, except earnings per share)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-3-1999
<PERIOD-START> SEP-28-1998
<PERIOD-END> JAN-3-1999
<CASH> 7,364
<SECURITIES> 0
<RECEIVABLES> 23,342
<ALLOWANCES> 2,020
<INVENTORY> 56,045
<CURRENT-ASSETS> 92,435
<PP&E> 78,696
<DEPRECIATION> 43,574
<TOTAL-ASSETS> 143,993
<CURRENT-LIABILITIES> 37,758
<BONDS> 17,778
0
0
<COMMON> 2,265
<OTHER-SE> 84,256
<TOTAL-LIABILITY-AND-EQUITY> 143,993
<SALES> 39,417
<TOTAL-REVENUES> 39,417
<CGS> 28,904
<TOTAL-COSTS> 28,904
<OTHER-EXPENSES> 116
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 552
<INCOME-PRETAX> 3,677
<INCOME-TAX> 1,397
<INCOME-CONTINUING> 2,280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,280
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
