<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 July 2, 2000
-------------------------------------------
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 July 21, 2000 was 13,776,106.
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 July 2, 2000 of Microsemi Corporation and Subsidiaries ("Microsemi" or the
"Company") and the comparative unaudited consolidated financial information for
the corresponding periods of the prior year, together with the balance sheet as
of October 3, 1999, are attached hereto and incorporated herein.
2
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MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
(amounts in thousands)
<TABLE>
<CAPTION>
October 3, 1999 July 2, 2000
--------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,624 $ 25,282
Accounts receivable less allowance for
doubtful accounts, $3,805 at October
3, 1999 and $6,476 at July 2, 2000 31,775 31,094
Inventories 56,925 52,422
Deferred income taxes 7,282 7,183
Other current assets 2,128 3,870
--------------- --------------
Total current assets 105,734 119,851
--------------- --------------
Property and equipment, net 54,946 54,930
Deferred income taxes 862 862
Goodwill and other intangible assets, net 12,218 23,334
Other assets 7,841 5,755
--------------- --------------
TOTAL ASSETS $ 181,601 $ 204,732
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks and other $ 18,545 $ 1,539
Current maturities of long-term debt 8,422 1,259
Accounts payable 11,247 13,732
Accrued liabilities 17,292 21,365
Income taxes payable 7,178 7,172
--------------- --------------
Total current liabilities 62,684 45,067
--------------- --------------
Long-term debt 31,381 9,934
--------------- --------------
Other long-term liabilities 5,092 6,656
--------------- --------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.20 par value;
authorized 20,000 shares; issued
10,920 at October 3, 1999 and
13,776 at July 2, 2000 2,184 2,755
Capital in excess of par value of
common stock 46,695 102,810
Retained earnings 34,561 38,538
Accumulated other comprehensive loss (996) (1,028)
--------------- --------------
Total stockholders' equity 82,444 143,075
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 181,601 $ 204,732
=============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Income Statements
(amounts in thousands, except earnings per share)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
July 4, 1999 July 2, 2000
---------------- ----------------
<S> <C> <C>
Net sales $ 48,758 $ 66,644
Cost of sales 36,790 47,602
---------------- ----------------
Gross profit 11,968 19,042
---------------- ----------------
Operating expenses:
Selling, general and administrative 8,268 10,282
Amortization of goodwill and intangible assets 391 719
Research and development 1,374 2,953
Acquired in-process research and development 1,950 -
---------------- ----------------
Total operating expenses 11,983 13,954
---------------- ----------------
Operating (loss) income (15) 5,088
---------------- ----------------
Other expenses:
Interest (1,012) (854)
Other (36) (30)
---------------- ----------------
Total other expenses (1,048) (884)
---------------- ----------------
(Loss) income before income taxes (1,063) 4,204
(Benefit) provision for income taxes (393) 1,387
---------------- ----------------
Net (loss) income $ (670) $ 2,817
================ ================
(Loss) earnings per share:
-Basic $ (0.06) $ 0.23
================ ================
-Diluted $ (0.06) $ 0.22
================ ================
Weighted average common shares outstanding:
-Basic 10,915 12,220
-Diluted 10,915 13,095
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Income Statements
(amounts in thousands, except earnings per share)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
July 4, 1999 July 2, 2000
------------------- ----------------
<S> <C> <C>
Net sales $ 127,666 $ 182,204
Cost of sales 94,492 132,435
------------------ ---------------
Gross profit 33,174 49,769
------------------ ---------------
Operating expenses:
Selling, general and administrative 20,452 28,430
Amortization of goodwill and intangible assets 961 1,622
Research and development 2,129 8,028
Acquired in-process research and development 1,950 2,510
------------------ ---------------
Total operating expenses 25,492 40,590
------------------ ---------------
Operating income 7,682 9,179
------------------ ---------------
Other (expenses) income:
Interest (1,975) (3,235)
Other 14 (8)
------------------ ---------------
Total other expenses (1,961) (3,243)
------------------ ---------------
Income before income taxes 5,721 5,936
Provision for income taxes 2,117 1,959
------------------ ---------------
Net income $ 3,604 $ 3,977
================== ===============
Earnings per share:
-Basic $ 0.32 $ 0.35
================== ===============
-Diluted $ 0.32 $ 0.33
================== ===============
Weighted average common shares outstanding:
-Basic 11,200 11,419
-Diluted 11,313 11,999
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
July 4, 1999 July 2, 2000
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,604 $ 3,977
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,898 8,752
Allowance for doubtful accounts (679) 2,671
Loss on retirement/disposition of assets - 355
Acquired in-process research and development 1,950 2,510
Changes in assets and liabilities, net of acquisitions and
disposition:
Accounts receivable 1,367 (1,990)
Inventories (4,161) 1,787
Other current assets (23) (551)
Other assets - 1,074
Accounts payable 357 2,485
Accrued liabilities (880) 5,095
Income taxes payable 1,220 1,494
----------------- -----------------
Net cash provided by operating activities 8,653 27,659
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions (29,488) (1,548)
Proceeds from sales of assets - 1,608
Investment in an unconsolidated affiliate - (251)
Purchases of property and equipment (4,635) (7,300)
Change in other assets (2,275) -
----------------- -----------------
Net cash used in investing activities (36,398) (7,491)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable to banks and other 13,368 (19,006)
Proceeds from long-term debt 30,800 -
Payments on long-term debt (12,541) (31,110)
(Decrease) increase in other long-term liabilities (3) 14
Repurchases of common stock (6,073) -
Proceeds from sale of common stock - 45,336
Proceeds from exercises of employee stock options 27 2,288
----------------- -----------------
Net cash provided by (used in) financing activities 25,578 (2,478)
----------------- -----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (31) (32)
----------------- -----------------
Net (decrease) increase in cash and cash equivalents (2,198) 17,658
Cash and cash equivalents at beginning of period 9,610 7,624
----------------- -----------------
Cash and cash equivalents at end of period $ 7,412 $ 25,282
================= =================
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
July 2, 2000
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 consolidated financial
statements and notes thereto in the Annual Report on Form 10-K for the fiscal
year ended October 3, 1999.
Fiscal years 1999 and 2000 were respectively comprised of 53 and 52 weeks. The
first nine months of fiscal years 1999 and 2000 were respectively comprised of
40 and 39 weeks. The third quarters of fiscal years 1999 and 2000 were each
comprised of 13 weeks.
2. INVENTORIES
For interim reporting purposes, cost of goods sold and inventories are estimated
based upon the use of the gross profit method.
Inventories used in the computation of cost of goods sold were:
October 3, 1999 July 2, 2000
--------------- --------------
(amounts in 000's)
Raw materials $ 14,002 $ 12,865
Work in process 22,244 18,127
Finished goods 20,679 21,430
---------- ----------
$ 56,925 $ 52,422
========== ==========
3. 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 1) reimbursed 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. 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, results of operations or cash flows.
7
<PAGE>
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, results of operations or cash flows.
4. 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 non-owner sources. Accumulated other
comprehensive loss consists of the change in the cumulative translation
adjustment. Total comprehensive loss for the quarter ended July 4, 1999 was
$670,000. Total comprehensive income for the quarter ended July 2, 2000 was
$2,785,000. Total comprehensive income for the nine months ended July 4, 1999
and July 2, 2000 was $3,573,000 and $3,945,000, respectively.
5. 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 and giving effect of
issuable shares upon conversion of debt during the respective periods.
Earnings per share for the quarters and nine months ended July 4, 1999 and July
2, 2000 were calculated as follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
---------------------------------- ---------------------------------
July 4, July 2, July 4, July 2,
1999 2000 1999 2000
--------------- -------------- --------------- --------------
(in 000's, except per share data)
BASIC
<S> <C> <C> <C> <C>
Net (loss) income $ (670) $ 2,817 $ 3,604 $ 3,977
============== ============= ============== =============
Weighted-average common shares
outstanding 10,915 12,220 11,200 11,419
============== ============= ============== =============
Basic (loss) earnings per share $ (0.06) $ 0.23 $ 0.32 $ 0.35
============== ============= ============== =============
DILUTED
Net (loss) income (670) 2,846 3,604 4,016
============== ============= ============== =============
Weighted-average common shares
outstanding for basic 10,915 12,220 11,200 11,419
Dilutive effect of stock options - 708 113 504
Dilutive effect of convertible debt - 167 - 76
-------------- ------------- -------------- -------------
Weighted-average common shares
outstanding on a diluted basis 10,915 13,095 11,313 11,999
============== ============= ============== =============
Diluted (loss) earnings per share $ (0.06) $ 0.22 $ 0.32 $ 0.33
============== ============= ============== =============
</TABLE>
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which will become effective for the Company in fiscal year 2001. SFAS
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. SFAS 133
is not expected to materially affect the Company's financial position, results
of operations or cash flows.
8
<PAGE>
7. SEGMENT INFORMATION
In 1999, the Company adopted SFAS 131. The Company's reportable operating
segments are based on geographic location, and the measure of segment profit is
income from operations.
The Company operates predominantly in a single industry segment as a
manufacturer of discrete semiconductors and whole-circuit solutions. Geographic
areas in which the Company operates include the United States, Ireland, Hong
Kong and India. Intergeographic sales primarily represent intercompany sales
which are accounted for based on established sales prices between the related
companies and are eliminated in consolidation.
Financial information by geographic segments is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------
July 4, 1999 July 2, 2000
------------- ------------
(amounts in 000's)
<S> <C> <C>
Net sales
United States
Sales to unaffiliated customers $ 107,897 $ 165,795
Intergeographic sales 16,214 13,898
Europe
Sales to unaffiliated customers 12,724 13,731
Intergeographic sales 3,080 2,648
Asia
Sales to unaffiliated customers 7,045 2,678
Intergeographic sales 3,579 2,792
Eliminations of intergeographic sales (22,873) (19,338)
----------- -----------
$ 127,666 $ 182,204
=========== ===========
Income from operations:
United States $ 6,621 $ 8,576
Europe 692 509
Asia 369 94
----------- -----------
Total $ 7,682 $ 9,179
=========== ===========
Capital expenditures:
United States $ 4,552 $ 7,253
Europe 34 -
Asia 49 47
----------- -----------
Total $ 4,635 $ 7,300
=========== ===========
Depreciation and amortization:
United States $ 5,681 $ 8,626
Europe 54 (92)
Asia 163 218
----------- -----------
Total $ 5,898 $ 8,752
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
October 3, 1999 July 2, 2000
--------------- ------------
(amounts in 000's)
<S> <C> <C>
Identifiable assets:
United States $ 166,429 $ 189,316
Europe 8,019 8,831
Asia 7,153 6,585
----------- -----------
Total $ 181,601 $ 204,732
=========== ===========
</TABLE>
9
<PAGE>
8. ACQUISITION AND DISPOSITION
In February 2000, Microsemi acquired certain assets of the HBT Business Products
Group (now called Micro WaveSys, Inc.) of Infinesse Corporation ("Infinesse").
This business specializes in RF components utilizing III-V Compounds (primarily
Gallium Arsenide and Indium Gallium Phosphide), and SiGe semiconductors for
advanced cellular, PCS and 3G, BlueTooth, and 5.7 GHz LAN applications. The cost
of this acquisition was approximately $15,110,000, which was funded with cash,
debt, shares of Microsemi's common stock, and the issuance of a note convertible
into shares of Microsemi's common stock. The acquisition was accounted for
under the purchase method of accounting, and goodwill resulting from this
acquisition was approximately $9,860,000. Microsemi's consolidated results of
operations include those of Micro WaveSys since the date of acquisition. Micro
WaveSys has 1,000 authorized shares, of which, Microsemi owns 800 shares,
Infinesse or its assignees own 100 shares, and 100 shares are reserved for
future option grants.
The costs of the acquisition were allocated to the assets acquired and
liabilities assumed based on their estimated fair values to the extent of the
aggregate purchase price. Portions of the purchase price were allocated to
certain intangible assets such as completed technology, assembled workforce, and
in-process research and development ("IPR&D"). The allocation of the purchase
price to these intangible assets was based on an independent valuation report.
The amount of the purchase price allocated to IPR&D was determined by estimating
the stage of completion of each IPR&D project at the date of acquisition,
estimating cash flows resulting from the future release of products employing
these technologies, and discounting the net cash flows back to their present
values. At the date of acquisition, technological feasibility of the IPR&D
projects had not been reached and the technology had no alternative future uses
without further development. Accordingly, Microsemi expensed the portion of the
purchase price allocated to IPR&D of $2,510,000, in accordance with generally
accepted accounting principles, in the quarter ended April 2, 2000.
The IPR&D comprises a number of individual technological development efforts,
focusing on the discovery of new, technologically advanced knowledge and more
complete solutions to customers' needs, the conceptual formulation and design of
possible alternatives, as well as the testing of process and product cost
improvements. Specifically, these technologies included efforts regarding
Microsemi's strategy of expanding product offerings into the high growth
wireless, broadband, and the analog and mixed signal IC sectors.
The weighted average stage of completion for all projects, in the aggregate, was
approximately 60% as of the acquisition date. As of that date, the estimated
remaining costs to bring the projects under development to technological
feasibility are over $500,000. Upon completion, cash flows from sales of
products incorporating those technologies were estimated to commence in the year
2000. Revenues forecasted in each period were reduced by related expenses,
capital expenditures, and the cost of working capital. The discount rate
applied to the net cash flows was 28%, which reflected the level of risk
associated with the particular technologies and the current return on investment
requirements of the market.
As discussed above, a portion of the costs of acquisition was allocated to
completed technology and assembled workforce. The total allocation approximated
$2,490,000 for these intangible assets.
Pro forma results as if the acquisition had taken place in the prior year would
not be materially different from the Company's reported results.
In June 2000, Microsemi sold certain assets of its Micro Commercial Components
division at book value for $2,670,000. As of July 2, 2000, Microsemi received
$1,600,000 in cash. Microsemi will receive the balance of $1,070,000 in four
monthly installments, starting in August 2000.
10
<PAGE>
9. STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statement of Cash Flows, the Company considers
all short-term, highly liquid investments with original maturities of three
months or less to be cash equivalents.
<TABLE>
<CAPTION>
Nine months Nine months
ended ended
July 4, 1999 July 2, 2000
-------------- -------------
(amounts in 000's)
<S> <C> <C>
Supplementary information:
Cash paid during the periods for:
Interest $ 2,130 $ 3,510
======== ========
Income taxes $ 306 $ 509
======== ========
Businesses acquired in purchase transactions
(Note 8):
Fair values of assets acquired $ 31,547 $ 250
Goodwill 1,091 9,860
Other intangible assets 4,432 5,000
Less stock and debt issued and
liability assumed (7,500) (13,562)
-------- --------
Cash paid for acquisition $ 29,570 $ 1,548
======== ========
</TABLE>
In June 2000, the Company sold certain assets of the Micro Commercial Components
division, at book value, for $2.7 million. As of July 2, 2000, the Company
received $1.6 million in cash. The Company will receive the balance of $1.1
million in four monthly installments, starting in August 2000.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q includes current beliefs, expectations and
other forward looking statements, the realization of which may be impacted by
certain important factors discussed below or referenced under the heading
"Important Factors Related to Forward-Looking Statements and Associated Risks,"
found below. This Management's Discussion and Analysis of Financial Condition
and Results of Operations and the unaudited consolidated financial statements
and notes should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations and the consolidated
financial statements and notes thereto in the Annual Report on Form 10-K for the
fiscal year ended October 3, 1999.
INTRODUCTION
------------
We are a leading designer, manufacturer and marketer of analog, mixed-signal and
discrete semiconductors. Our semiconductors manage and regulate power, protect
against transient voltage spikes and transmit, receive and amplify signals. Our
products include individual components as well as complete circuit solutions
that enhance our customers' end products by providing battery optimization,
reducing size or protecting circuits. Our commercial products are used in
dynamic high growth mobile connectivity applications, including mobile phones
and handheld Internet devices, and broadband communications applications such as
base stations, wireless LAN, cable and fiber optic systems. These high growth
opportunities have emerged from our ongoing capabilities in designing and
manufacturing semiconductors for military, satellite and medical applications.
We serve several end markets of the semiconductor industry. These end markets
include battery-operated products, communications and Internet infrastructure,
and military and aerospace. Battery-operated products include portable digital
assistants (PDAs), mobile phones, portable or implantable, medical equipment,
hearing aids, notebook computers and wireless web tablets. Our diverse customer
base includes Motorola, Lockheed Martin, Seagate, Mitsubishi, Guidant, Samsung,
Medtronic, Boeing, Palm, Dell and Compaq.
Results Of Operations For The Quarter Ended July 2, 2000 Compared To The Quarter
Ended July 4, 1999.
Net sales for the third quarter of fiscal year 2000 increased $17.8 million to
$66.6 million from $48.8 million for the third quarter of fiscal year 1999. The
increase was attributable primarily to higher sales of power management, TVS and
RF/Microwave products to the mobile connectivity, telecommunications,
computer/peripheral and space/satellite markets. We acquired LinFinity
Microelectronics, Inc. ("LinFinity") and Microsemi Microwave Products ("MMP") in
April and June of 1999, respectively. We sold certain assets of our Micro
Commercial Components division ("MCC") in June 2000. LinFinity, MMP and MCC
collectively had revenues of $15.1 million and $24.6 million in the quarters
ended July 4, 1999 and July 2, 2000, respectively.
Gross profit increased $7.0 million to $19.0 million for the third quarter of
fiscal year 2000 from $12.0 million for the third quarter of fiscal year 1999.
Gross margin percentage for the third quarter of fiscal year 2000 was 28.6%, up
from 24.5% in the third quarter of the prior fiscal year. This increase was due
to higher capacity utilization and an increase in shipments of higher margin
power management, TVS, RF/Microwave and space/satellite products. LinFinity, MMP
and MCC collectively had gross profit of $3.5 million and $9.2 million in the
quarters ended July 4, 1999 and July 2, 2000, respectively.
Selling, general and administrative expenses increased $2.0 million to $10.3
million for the third quarter of fiscal year 2000 compared to $8.3 million for
the corresponding period of the prior year. The increase was primarily due to
the additions of LinFinity and MMP.
Research and development for the third quarter of fiscal year 2000 increased by
$1.6 million to $3.0 million from $1.4 million for the third quarter of fiscal
year 1999. The increase was due to higher spending to develop power management
and RF products for the mobile connectivity, telecommunications, medical and
computer/peripheral markets.
Interest expense for the third quarter of fiscal year 2000 decreased $.2 million
from the third quarter of fiscal year 1999. The decrease was due to a lower
average balance of debt during the current-year period.
12
<PAGE>
Our effective income tax rates of 37.0% and 33.0% in the quarters ended July 4,
1999 and July 2, 2000, respectively, were the combined result of taxes computed
on consolidated income. The lower effective tax rate in the current-year
quarter is primarily attributable to adjustments to accrual rates due mostly to
a higher proportion of income earned within lower tax rate jurisdictions.
Results Of Operations For The Nine Months Ended July 2, 2000 Compared To The
Nine Months Ended July 4, 1999.
The nine months ended July 2, 2000 comprised 39 weeks, and the nine months ended
July 4, 1999 comprised 40 weeks.
Net sales for the first nine months of fiscal year 2000 increased $54.5 million
to $182.2 million from $127.7 million for the first nine months of fiscal year
1999. This increase was attributable primarily to higher sales of our power
management and RF products to the mobile connectivity, telecommunications and
computer/peripheral markets. LinFinity, MMP and MCC collectively had revenues of
$22.5 million and $70.0 million in the nine months ended July 4, 1999 and July
2, 2000, respectively.
Gross profit increased $16.6 million to $49.8 million, or 27.3% of sales for the
first nine months of fiscal year 2000 from $33.2 million, or 26.0% of sales for
the first nine months of fiscal year 1999. This increase was due to higher
capacity utilization as a result primarily of an increase in shipments of higher
margin power management, TVS, RF/Microwave and space/satellite products.
LinFinity, MMP and MCC collectively had gross profit of $4.7 million and $23.5
million in the nine months ended July 4, 1999 and July 2, 2000, respectively.
Selling, general and administrative expenses increased $7.9 million to $28.4
million for the first nine months of fiscal year 2000, compared to $20.5 million
for the corresponding period of the prior year. The increase was primarily due
to the additions of LinFinity and MMP.
Research and development for the first nine months of fiscal year 2000 increased
by $5.9 million to $8.0 million from $2.1 million for the corresponding period
of fiscal year 1999. The increase was due to higher spending to develop our
power management and RF products for the mobile connectivity,
telecommunications, medical and computer/peripheral markets.
Interest expense increased $1.3 million due to a higher average balance of debt
used to finance the LinFinity and MMP acquisitions. The acquisition debt
obtained in April, 1999 was paid off in June, 2000 with proceeds from the sale
of our common stock.
Our effective income tax rates of 37.0% and 33.0% in the nine months ended July
4, 1999 and July 2, 2000, respectively, were the combined result of taxes
computed on consolidated income. The lower effective tax rate in the current
period is primarily attributable to adjustments to accrual rates due in
significant part to a higher proportion of income earned within lower tax rate
jurisdictions.
Capital Resources And Liquidity
Net cash provided by operating activities was $8.7 million and $27.7 million for
the first nine months of fiscal years 1999 and 2000, respectively. The increase
in cash provided by operating activities in fiscal year 2000 compared to fiscal
year 1999 was primarily attributable to a higher level of non-cash charges for
depreciation and amortization and acquired in-process research and development.
In addition, net cash provided by operating activities were impacted by changes
in accounts receivable and allowance for doubtful accounts, inventories, other
assets, accounts payable and accrued liabilities.
Net cash used in investing activities was $36.4 million and $7.5 million for the
first nine months of fiscal years 1999 and 2000, respectively. The net cash
used in investing activities in the first nine months of fiscal year 1999 was a
result of the Linfinity and MMP acquisitions. The net cash used in investing
activities in the first nine months of fiscal year 2000, was primarily due to
the purchases of capital equipment and the cash portion of the payment for the
Micro WaveSys acquisition, partially offset by proceeds received from the sale
of MCC.
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<PAGE>
Net cash provided by financing activities was $25.6 million for the first nine
months of fiscal year 1999. Net cash used in financing activities was $2.5
million for the first nine months of fiscal year 2000. The net cash provided by
financing activities in the first nine months of fiscal year 1999 was primarily
a result of cash obtained from long-term debt, partially offset by the
repurchases of our common stock. The net cash used in financing activities in
the first nine months of fiscal year 2000 was primarily a result of payments on
our debt, partially offset by proceeds received from the sale of our common
stock in an underwritten public offering and from exercises of stock options.
Our operations in the nine months ended July 4, 1999 and July 2, 2000 were
funded with internally generated funds, borrowings under our revolving line of
credit, which expires in March 2003, and from the sale of our common stock in
June 2000. At July 2, 2000, we had $25.3 million in cash and cash equivalents.
In June 1999, we finalized a lease agreement for a building located in Santa
Ana, California. This lease requires a current monthly rental payment of
$23,217. This transaction was recorded as a purchase at the present value of the
lease payments.
In February 2000, we acquired the HBT Business Products Group (now called Micro
WaveSys, Inc.) of Infinesse Corporation ("Infinesse") for $1.5 million in cash,
312,500 shares of our common stock and $4.5 million in notes payable. Micro
WaveSys has 1,000 authorized shares, of which, we own 800 shares, Infinesse or
assignees own 100 shares, and 100 shares are reserved for future option grants.
In June 2000, we sold 2,303,300 shares of our common stock and received
approximately $45.3 million, net of expenses. A portion of the proceeds was used
to pay off the balance of a bank debt originally incurred to finance the
acquisitions of LinFinity and MMP.
In June 2000, we sold certain assets of MCC, at book value, for $2.7 million. As
of July 2, 2000, we received $1.6 million in cash. We expect to receive the
balance of $1.1 million in four monthly installments, starting in August 2000.
We are committed by the terms of our revolving line of credit and other credit
facilities to make debt service payments on our outstanding indebtedness.
Based upon information currently available, we believe that we can meet our
current operating cash and debt service requirements with internally generated
funds together with our available borrowings.
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IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
----------------------------------------------------------------------------
Some of the statements in this report or incorporated by reference are forward-
looking, including, without limitation, the statements under the captions
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." You can identify these statements by the use of words like "may,"
"will," "could," "should," "project," "believe," "anticipate," "expect," "plan,"
"estimate," "forecast," "potential," "intend," "continue" and variations of
these words or comparable words. In addition, all of the non-historical
information herein is forward-looking. Forward-looking statements are not a
guarantee of future performance and involve risks and uncertainties. Actual
results may differ substantially from the results that the forward-looking
statements suggest for various reasons. These forward-looking statements are
made only as of the date of this report. We do not undertake to update or revise
the forward-looking statements, whether as a result of new information, future
events or otherwise.
The forward-looking statements included in this report are based on, among other
items, current assumptions that we will be able to meet our current operating
cash and debt service requirements, that we will be able to successfully resolve
disputes and other business matters as anticipated, that competitive conditions
within the semiconductor, integrated circuit and custom diode assembly
industries will not affect us materially or adversely, that we will retain
existing key personnel, that our forecasts will reasonably anticipate market
demand for our products, and that there will be no other material adverse change
in our operations or business. Other factors that could cause results to vary
materially from current expectations are referred to elsewhere in this report.
Assumptions relating to the foregoing involve judgments that are difficult to
make and future circumstances that are difficult to predict accurately or
correctly. 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 us to
alter our forecasts, which may in turn affect our results. Readers are cautioned
against giving undue weight to any of our forward-looking statements.
Adverse changes could result from any number of factors, including fluctuations
in economic conditions, potential effects of inflation, lack of earnings
visibility, dependence upon a small number of customers or markets, dependence
upon suppliers, future capital needs, rapid technological changes, difficulties
in integrating acquired businesses, ability to realize cost savings or
productivity gains, potential cost increases, dependence on key personnel,
difficulties regarding hiring and retaining qualified personnel in a competitive
labor market, risks of doing business in international markets, and problems of
third parties.
The inclusion of such information should not be regarded as a representation by
us or any other person that our objectives or plans will be achieved.
Additional factors that could cause results to vary materially from current
expectations are discussed under the heading "Risk Factors" in the Form 424B4
Prospectus that we filed with the Securities and Exchange Commission on June 1,
2000, and any subsequent amendments thereto, which are incorporated herein by
this reference as Exhibit 99.1 hereto, or under the heading "Important factors
related to forward-looking statements and associated risks" in our annual report
in the Form 10-K as filed with the Securities and Exchange Commission in
December 1999, and elsewhere in that Form 10-K, including but not limited to,
under the headings, "Legal Proceedings," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and the notes to the
financial statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inapplicable.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Inapplicable
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit:
Exhibit 27 Unaudited Financial Data Schedule for the nine
months ended July 2, 2000.
Exhibit 99.1 Information under heading "Risk Factors" in the
Form 424B4 Prospectus as filed by the Company with
the Securities and Exchange Commission on June 1,
2000 is incorporated herein by this reference.
(b) Reports on Form 8-K:
None
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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 7, 2000
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