<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 April 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 April 19, 2000 was 11,458,306.
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The unaudited consolidated financial information for the quarter and six months
ended April 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
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
(amounts in 000's)
<TABLE>
<CAPTION>
October 3, April 2,
1999 2000
--------------- --------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,624 $ 6,236
Accounts receivable less allowance for doubtful accounts,
$3,805 at October 3, 1999 and $4,693 at April 2, 2000 31,775 32,597
Inventories 56,925 56,531
Deferred income taxes 7,282 7,282
Other current assets 2,128 1,796
--------------- --------------
Total current assets 105,734 104,442
--------------- --------------
Property and equipment, net 54,946 55,808
Deferred income taxes 862 862
Goodwill and other intangible assets, net 12,218 23,966
Other assets 7,841 6,387
--------------- --------------
TOTAL ASSETS $ 181,601 $ 191,465
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks and other $ 18,545 $ 15,538
Current maturities of long-term debt 8,422 9,366
Accounts payable 11,247 11,642
Accrued liabilities 17,292 17,479
Income taxes payable 7,178 5,790
--------------- --------------
Total current liabilities 62,684 59,815
--------------- --------------
Long-term debt 31,381 30,215
--------------- --------------
Other long-term liabilities 5,092 6,633
--------------- --------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.20 par value; authorized 20,000 shares;
issued 10,920 at October 3, 1999 and 11,452 at April 2, 2000 2,184 2,291
Capital in excess of par value of common stock 46,695 57,788
Retained earnings 34,561 35,721
Accumulated other comprehensive loss (996) (998)
--------------- --------------
Total stockholders' equity 82,444 94,802
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 181,601 $ 191,465
=============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Income Statements
(amounts in 000's, except earnings per share)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
April 4, 1999 April 2, 2000
---------------- ----------------
<S> <C> <C>
Net sales $ 39,491 $ 60,972
Cost of sales 29,146 43,813
-------------- --------------
Gross profit 10,345 17,159
-------------- --------------
Operating expenses:
Selling, general and administrative 6,069 9,722
Amortization of goodwill and intangible assets 285 509
Research and development 407 2,730
Acquired in-process research and development - 2,510
-------------- --------------
Total operating expenses 6,761 15,471
-------------- --------------
Operating income 3,584 1,688
-------------- --------------
Other expense:
Interest (411) (1,333)
Other (66) (65)
-------------- --------------
Total other expense (477) (1,398)
-------------- --------------
Income before income taxes 3,107 290
Provision for income taxes 1,113 96
-------------- --------------
Net income $ 1,994 $ 194
============== ==============
Earnings per share:
-Basic $ 0.18 $ 0.02
============== ==============
-Diluted $ 0.18 $ 0.02
============== ==============
Weighted average common shares outstanding:
-Basic 11,261 11,118
-Diluted 11,370 11,809
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Income Statements
(amounts in 000's, except earnings per share)
<TABLE>
<CAPTION>
Six Months
Six Months Ended Ended
April 4, 1999 April 2, 2000
---------------- ----------------
<S> <C> <C>
Net sales $ 78,908 $ 115,560
Cost of sales 57,702 84,833
------------ ----------------
Gross profit 21,206 30,727
------------ ----------------
Operating expenses:
Selling, general and administrative 12,184 18,148
Amortization of goodwill and intangible assets 570 903
Research and development 755 5,075
Acquired in-process research and development - 2,510
------------ ----------------
Total operating expenses 13,509 26,636
------------ ----------------
Operating income 7,697 4,091
------------ ----------------
Other income (expense):
Interest (963) (2,381)
Other 50 22
------------ ----------------
Total other expense (913) (2,359)
------------ ----------------
Income before income taxes 6,784 1,732
Provision for income taxes 2,510 572
------------ ----------------
Net income $ 4,274 $ 1,160
============ ================
Earnings per share:
-Basic $ 0.38 $ 0.11
============ ================
-Diluted $ 0.37 $ 0.10
============ ================
Weighted average common shares outstanding:
-Basic 11,337 11,019
-Diluted 11,449 11,418
</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 000's)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
April 4, 1999 April 2, 2000
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 4,274 $ 1,160
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,386 5,747
Allowance for doubtful accounts (470) 888
Acquired in-process research and development - 2,510
Changes in assets and liabilities, net of acquisition:
Accounts receivable 1,477 (1,710)
Inventories (2,520) 394
Other current assets (509) 332
Other assets (1,749) -
Accounts payable (326) 395
Accrued liabilities (2,330) 1,247
Income taxes payable 1,929 112
------------------- -------------------
Net cash provided by operating activities 3,162 11,075
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition - (1,548)
Investment in an unconsolidated affiliate - (251)
Purchases of property and equipment (2,349) (5,454)
Change in other assets - 392
------------------- -------------------
Net cash used in investing activities (2,349) (6,861)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable to banks and other 2,635 (5,007)
Payments on long-term debt (1,508) (2,722)
Decrease in other long-term liabilities (6) (9)
Repurchases of common stock (5,764) -
Exercise of employee stock options 27 2,138
------------------- -------------------
Net cash used in financing activities (4,616) (5,600)
------------------- -------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (7) (2)
------------------- -------------------
Net decrease in cash and cash equivalents (3,810) (1,388)
Cash and cash equivalents at beginning of period 9,610 7,624
------------------- -------------------
Cash and cash equivalents at end of period $ 5,800 $ 6,236
=================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
April 2, 2000
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 consolidated financial
statements and notes thereto in the Annual Report on Form 10-K for the fiscal
year ended October 3, 1999.
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:
<TABLE>
<CAPTION>
October 3, April 2,
1999 2000
--------------- ---------------
(amounts in 000's)
<S> <C> <C>
Raw materials $ 14,002 $ 12,944
Work in process 22,244 19,425
Finished goods 20,679 24,162
--------------- ---------------
$ 56,925 $ 56,531
=============== ===============
</TABLE>
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.
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.
7
<PAGE>
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 income for the quarters ended April 4, 1999 and
April 2, 2000 was $1,994,000 and $192,000, respectively. Total comprehensive
income for the six months ended April 4, 1999 and April 2, 2000 was $4,267,000
and $1,158,000, 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 during the respective
periods.
Earnings per share for the quarters and six months ended April 4, 1999 and April
2, 2000 were calculated as follows:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
--------------------------------- ---------------------------------
April 4, April 2, April 4, April 2,
1999 2000 1999 2000
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
(in 000's, except per share data)
BASIC
Net income $ 1,994 $ 194 $ 4,274 $ 1,160
============== =============== =============== ==============
Weighted-average common shares
outstanding 11,261 11,118 11,337 11,019
============== =============== =============== ==============
Basic earnings per share $ 0.18 $ 0.02 $ 0.38 $ 0.11
============== =============== =============== ==============
DILUTED
Net income 1,994 194 4,274 1,160
============== =============== =============== ==============
Weighted-average common shares
outstanding for basic 11,261 11,118 11,337 11,019
Dilutive effect of stock options 109 691 112 399
-------------- --------------- --------------- --------------
Weighted-average common shares
outstanding on a diluted basis 11,370 11,809 11,449 11,418
============== =============== =============== ==============
Diluted earnings per share $ 0.18 $ 0.02 $ 0.37 $ 0.10
============== =============== =============== ==============
</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.
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.
8
<PAGE>
The Company operates predominantly in a single industry segment as a
manufacturer of discrete semiconductors. 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>
Six Months Ended
--------------------------------------------------
April 4, 1999 April 2, 2000
------------------- -------------------
<S> <C> <C>
(amounts in 000's)
Net sales
United States
Sales to unaffiliated customers $ 32,674 $ 55,780
Intergeographic sales 5,552 4,482
Europe
Sales to unaffiliated customers 4,294 4,330
Intergeographic sales 1,042 1,042
Asia
Sales to unaffiliated customers 2,523 862
Intergeographic sales 1,159 835
Eliminations of intergeographic sales (7,753) (6,359)
------------------- -------------------
39,491 60,972
=================== ===================
Income from operations:
United States 3,106 1,477
Europe 307 218
Asia 171 (7)
------------------- -------------------
Total $ 3,584 $ 1,688
=================== ===================
Capital expenditures:
United States $ 1,785 $ 5,393
Europe 515 21
Asia 49 40
------------------- -------------------
Total $ 2,349 $ 5,454
=================== ===================
Depreciation and amortization:
United States $ 2,268 $ 4,767
Europe 955 93
Asia 163 146
------------------- -------------------
Total $ 3,386 $ 5,006
=================== ===================
October 3, 1999 April 2, 2000
------------------- -------------------
(amounts in 000's)
Identifiable assets:
United States $ 166,429 $ 178,740
Europe 8,019 8,110
Asia 7,153 6,275
------------------- -------------------
Total $ 181,601 $ 193,125
=================== ===================
</TABLE>
9
<PAGE>
8. ACQUISITION
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 owns 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 ("R & 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 in-process R & D was determined by
estimating the stage of completion of each in-process R & 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 in-process R & 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 in-process R & D of
$2,510,000, in accordance with generally accepted accounting principles, in the
quarter ended April 2, 2000.
The in-process R & 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.
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.
10
<PAGE>
<TABLE>
<CAPTION>
Six months Six months
ended ended
April 4, 1999 April 2, 2000
---------------- -----------------
Supplementary information: (amounts in 000's)
Cash paid during the periods for:
<S> <C> <C> <C>
Interest $ 997 $ 2,418
================
Income taxes $ 390 $ 92
================ =================
Business acquired in a purchase transaction (Note 8):
Fair values of assets acquired - 250
Goodwill - 9,860
Other intangible assets - 5,000
Less stock and debt issued - (13,562)
Cash paid for acquisition $ - $ 1,548
================ =================
</TABLE>
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 April 2, 2000 Compared To The
Quarter Ended April 4, 1999.
Net sales for the second quarter of fiscal year 2000 increased $21.5 million to
$61.0 million from $39.5 million for the second 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 and
computer/peripheral markets. The increase in sales for the second quarter of
fiscal year 2000 included $18.7 million from the LinFinity Microelectronics,
Inc. ("LinFinity") and Microsemi Microwave Products (MMP) divisions, which we
acquired in April and June of 1999, respectively.
Gross profit increased $6.8 million to $17.2 million for the second quarter of
fiscal year 2000 from $10.3 million for the second quarter of fiscal year 1999.
Gross margin percentage for the second quarter of fiscal year 2000 was 28.1%, up
from 26.2% in the second quarter of the prior fiscal year. Gross profit in the
second quarter of fiscal year 2000 included $7.6 million from the LinFinity and
MMP divisions. Gross profit for the second quarter of fiscal 2000, (excluding
LinFinity and MMP), decreased $0.8 million compared to the same quarter of the
prior fiscal year. This decrease and the decline in gross profit percentage to
22.6% (excluding LinFinity and MMP) were due to lower capacity utilization and
lower shipments in the space/satellite business at certain subsidiaries.
Selling, general and administrative expenses increased $3.7 million to $9.7
million for the second quarter of fiscal year 2000 compared to the corresponding
period of the prior year. The increase was primarily due to the additions of
LinFinity and MMP.
Research and development for the second quarter of fiscal year 2000 increased
$2.3 million to $2.7 million from $0.4 million for the second 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.
The charge for acquired in-process research and development of $2.5 million in
the second quarter of fiscal year 2000 was related to our acquisition of the HBT
Business Products Group (now called Micro WaveSys, Inc.) of Infinesse
Corporation in February 2000.
12
<PAGE>
Interest expense increased $0.9 million due to increases in borrowings to
finance the LinFinity and MMP acquisitions.
Our effective income tax rates of 35.8% and 33.0% in the quarters ended April 4,
1999 and April 2, 2000, respectively, were the combined result of taxes computed
on consolidated income. The lower effective tax rate in the current quarter is
primarily attributable to adjustments to accrual rates due in significant part
to a higher proportion of income earned within lower tax rate jurisdictions.
Results Of Operations For The Six Months Ended April 2, 2000 Compared To The Six
Months Ended April 4, 1999.
The six months ended April 2, 2000 comprised 26 weeks, and the six months ended
April 4, 1999 comprised 27 weeks.
Net sales for the first six months of fiscal year 2000 increased $36.7 million
to $115.6 million from $78.9 million for the first six 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. The increase in sales for the first six months of
fiscal year 2000 included $36.1 million from the LinFinity and MMP divisions,
which we acquired in April and June of 1999, respectively.
Gross profit increased $9.5 million to $30.7 million, or 26.6% of sales for the
first six months of fiscal year 2000 from $21.2 million, or 25.9% of sales for
the first six months of fiscal year 1999. The increase in gross profit was due
to higher total sales. Gross profit for the first six months of fiscal year
2000 included $13.3 million from the LinFinity and MMP divisions. Gross profit
for the first six months of fiscal 2000, (excluding LinFinity and MMP),
decreased $3.8 million compared to the same period of the prior fiscal year.
This decrease and the decline in gross profit percentage to 21.9% (excluding
LinFinity and MMP) were due to lower capacity utilization and lower shipments in
the space/satellite business at certain subsidiaries.
Selling, general and administrative expenses increased $6.0 million to $18.1
million for the first six months of fiscal year 2000, compared to 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 six months of fiscal year 2000 increased
$4.3 million to $5.1 million from $0.8 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.
The charge for acquired in-process research and development of $2.5 million in
the first six months of fiscal year 2000 was related to our acquisition of the
HBT Business Products Group (now called Micro WaveSys, Inc.) of Infinesse
Corporation in February 2000.
Interest expense increased $1.4 million due to increases in borrowings to
finance the LinFinity and MMP acquisitions.
Our effective income tax rates of 37.0% and 33.0% in the six months ended April
4, 1999 and April 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 $3.2 million and $11.7 million for
the first six 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 non-cash charges for depreciation,
acquired in-process research and development, and changes in accounts
receivable, inventories, other assets, accrued liabilities and income taxes
payable.
13
<PAGE>
Net cash used in investing activities was $2.3 million and $7.5 million for the
first six months of fiscal years 1999 and 2000, respectively. The increase was
primarily due to increased purchases of property and equipment and the Micro
WaveSys acquisition.
Net cash used in financing activities was $4.6 million and $5.6 million for the
first six months of fiscal years 1999 and 2000, respectively. The net cash used
in financing activities in the first six months of fiscal year 1999 was
primarily a result of the repurchases of our common stock. The net cash used in
financing activities in the first six months of fiscal year 2000 was primarily a
result of payments on our debt, partially offset by proceeds received from
exercises of stock options.
Our operations in the six months ended April 4, 1999 and April 2, 2000 were
funded with internally generated funds and borrowings under our revolving line
of credit, which expires in March 2003. Under this line of credit, we can
borrow up to $30.0 million. As of April 2, 2000, $13.5 million was borrowed and
$12.1 million was available under this credit facility. At April 2, 2000, we
had $6.2 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 owns
100 shares, and 100 shares are reserved for future option grants.
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.
14
<PAGE>
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 do not
guarantee 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
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 S-3, as
amended, as filed by the Company with the Securities and Exchange Commission on
April 26, 2000, and 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.
15
<PAGE>
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
---------------------------------------------------
(a) An election of the Board of Directors was held at the annual meeting
of Stockholders on February 29, 2000.
(b) Names and personal information about the nominees to the Board of
Directors were included in the Proxy Statement dated January 20, 2000.
(c) Votes were received for each of the nominees to the Board of Directors
as follows:
For Withheld
-------------- ---------------
Philip Frey, Jr. 9,510,293 642,013
Joseph M. Scheer 9,509,965 642,341
Brad Davidson 9,510,390 641,916
Robert B. Phinizy 9,506,965 645,341
Martin H. Jurick 9,510,490 641,816
Votes were received for the amendments of the Microsemi 1987 Stock
Plan, including increasing of the number of shares available under the
plan, as follows:
For 6,521,301
Against 1,843,283
Abstain 348,629
Non-votes 2,206,766
(d) Inapplicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit:
Exhibit 2.3 Asset Purchase Agreement, dated as of February 15, 2000
between Microsemi Corporation and Infinesse Corporation,
incorporated by reference to the same numbered exhibit
to the Company's Form 8-K filed with the Securities and
Exchange Commission on March 15, 2000.
Exhibit 27 Unaudited Financial Data Schedule for the six months
ended April 2, 2000.
Exhibit 99.1 Information under the heading "Risk Factors" in the Form
S-3, as amended, as filed by the Company with the
Securities and Exchange Commission on April 26, 2000 is
incorporated herein by this reference.
16
<PAGE>
(b) Reports on Form 8-K:
On March 15, 2000, the completion of the acquisition of the HBT
Business Products Group of Infinesse Corporation was reported on Form
8-K under item 2 and the related Assets Purchase Agreement dated
February 15, 2000 was filed as an exhibit thereto under item 7.
17
<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 15, 2000
18
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<PAGE>
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MICROSEMI CORPORATION AND SUBSIDIARIES UNAUDITED FINANCIAL DATA SCHEDULE FOR THE
SIX MONTHS ENDED APRIL 2, 2000 (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
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<FISCAL-YEAR-END> OCT-1-2000
<PERIOD-START> OCT-4-1999
<PERIOD-END> APR-2-2000
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<SECURITIES> 1,095
<RECEIVABLES> 37,290
<ALLOWANCES> 4,693
<INVENTORY> 56,531
<CURRENT-ASSETS> 104,442
<PP&E> 107,641
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<CURRENT-LIABILITIES> 61,475
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<SALES> 115,560
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<CGS> 84,833
<TOTAL-COSTS> 84,833
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,381
<INCOME-PRETAX> 1,732
<INCOME-TAX> 572
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