-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KvVuPhAj4myn3bfCrmYkL6kUndKqCHDsr9vqMLHIL96Hk74CmfBRJNYJ4aIzoFFt jQZZh3seCx55yL9IWUxQxg== 0000310568-96-000006.txt : 19960808 0000310568-96-000006.hdr.sgml : 19960808 ACCESSION NUMBER: 0000310568-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960807 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROSEMI CORP CENTRAL INDEX KEY: 0000310568 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 952110371 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-08866 FILM NUMBER: 96605376 BUSINESS ADDRESS: STREET 1: 2830 S FAIRVIEW ST STREET 2: PO BOX 26890 CITY: SANTA ANA STATE: CA ZIP: 92704 BUSINESS PHONE: 7149798220 FORMER COMPANY: FORMER CONFORMED NAME: MICROSEMICONDUCTOR CORP DATE OF NAME CHANGE: 19830323 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities - ----- Exchange Act of 1934 For the Quarterly Period Ended June 30, 1996 -------------------------------------------- or Transition Report Pursuant to Section 13 or 15(d) of the Securities - ----- Exchange Act of 1934 For the transition period from to ------- ------- Commission File No. 0-8866 MICROSEMI CORPORATION --------------------- (Exact name of registrant as specified in its charter) Delaware 95-2110371 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2830 South Fairview Street, Santa Ana, California 92704 -------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (714) 979-8220 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 month period (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares outstanding of the issuer's Common Stock, $.20 par value, on July 17, 1996 was 7,850,899. PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS The unaudited consolidated financial information for the quarter and nine months ended June 30, 1996 of Microsemi Corporation and Subsidiaries (the "Company") and the comparative unaudited consolidated financial information for the corresponding periods of the prior year, together with the balance sheet as of June 30, 1996 and October 1, 1995 are attached hereto and incorporated herein by this reference. MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Balance Sheets (amounts in 000's)
June 30, 1996 October 1, 1995 ------------- --------------- ASSETS Current assets Cash and cash equivalents $ 3,189 $ 3,965 Accounts receivable less allowance for doubtful accounts of $2,689 at June 30, 1996 and $2,018 at October 1, 1995 23,293 20,191 Inventories 48,052 43,281 Deferred income taxes 5,471 5,471 Other current assets 2,784 4,375 ------- ------- Total current assets 82,789 77,283 ------- ------- Property and equipment, at cost 56,722 52,044 Less: Accumulated depreciation (30,977) (28,442) ------- ------- 25,745 23,602 ------- ------- Deferred income taxes 569 569 ------- ------- Other assets 3,131 3,361 ------- ------- $ 112,234 $ 104,815 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable to banks and others $ 5,096 $ 4,561 Current maturities of long-term debt 1,720 2,328 Accounts payable and accrued liabilities 24,373 19,952 Income taxes payable 2,973 4,016 Deferred income taxes 712 712 ------- ------- Total current liabilities 34,874 31,569 ------- ------- Deferred income taxes 1,864 1,864 ------- ------- Long-term debt 46,616 48,158 ------- ------- Other long-term liabilities 2,101 2,114 ------- ------- Stockholders' equity Common stock, $.20 par value; authorized 20,000 shares; issued 7,841 shares at June 30, 1996 and 7,789 shares at October 1, 1995 1,568 1,558 Paid-in capital 14,770 14,644 Retained earnings 10,441 4,908 ------- ------- Total stockholders' equity 26,779 21,110 ------- ------- $ 112,234 $ 104,815 ======= ======= See accompanying Notes to Unaudited Consolidated Financial Statements.
MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Statements of Operations (amounts in 000's, except earnings per share)
13 Weeks Ended 13 Weeks Ended June 30, 1996 July 2, 1995 ------------- ------------ Net sales $ 41,261 $ 36,138 Cost of sales 30,257 26,536 ------ ------ Gross profit 11,004 9,602 Operating expenses Selling 2,418 2,045 General and administrative 3,478 3,127 Amortization of goodwill and other intangible assets 66 58 ------ ------ Total operating expenses 5,962 5,230 ------ ------ Income from operations 5,042 4,372 Other income (expense) Interest expense (net) (968) (1,237) Other (110) (289) ------ ------ Total other expenses (1,078) (1,526) ------ ------ Income before income taxes 3,964 2,846 Provision for income taxes 1,625 1,148 ------ ------ Net income $ 2,339 $ 1,698 ====== ====== Earnings per share - Primary $ 0.28 $ 0.21 ====== ====== - Fully diluted $ 0.23 $ 0.17 ====== ====== Common and common equivalent shares outstanding - Primary 8,259 8,099 - Fully diluted 11,782 11,752 See accompanying Notes to Unaudited Consolidated Financial Statements.
MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Statements of Operations (amounts in 000's, except earnings per share)
39 Weeks Ended 39 Weeks Ended June 30, 1996 July 2, 1995 ------------- ------------ Net sales $ 115,667 $ 96,236 Cost of sales 85,151 71,516 ------- ------ Gross profit 30,516 24,720 ------- ------ Operating expenses Selling 6,783 5,923 General and administrative 10,212 8,084 Amortization of goodwill and other intangible assets 178 151 ------- ------ Total operating expenses 17,173 14,158 ------- ------ Income from operations 13,343 10,562 ------- ------ Other income (expense) Interest expense (net) (3,380) (3,731) Other (384) (177) ------- ------ Total other expenses (3,764) (3,908) ------- ------ Income before income taxes 9,579 6,654 Provision for income taxes 3,983 2,595 ------- ------ Net income $ 5,596 $ 4,059 ======= ====== Earnings per share - Primary $ 0.68 $ 0.50 ======= ====== - Fully diluted $ 0.56 $ 0.43 ======= ====== Common and common equivalent shares outstanding - Primary 8,273 8,053 - Fully diluted 11,796 11,752 See accompanying Notes to Unaudited Consolidated Financial Statements.
MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Statements of Retained Earnings (Accumulated Deficit) (amounts in 000's)
39 Weeks Ended 39 Weeks Ended June 30, 1996 July 2, 1995 ------------- ------------ Retained earnings (accumulated deficit) at beginning of period $ 4,908 $ (1,128) Net income 5,596 4,059 Currency translation loss (63) (2) ------ ----- Retained earnings at end of period $ 10,441 $ 2,929 ====== ===== See accompanying Notes to Unaudited Consolidated Financial Statements.
MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Statements of Cash Flows (amounts in 000's)
39 Weeks Ended 39 Weeks Ended June 30, 1996 July 2, 1995 ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,596 $ 4,059 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 3,036 2,937 Increase in allowance for doubtful accounts 671 229 Loss on retirements of fixed assets 207 - Translation loss on foreign currency (63) (2) Changes in assets and liabilities: Accounts receivable (3,773) (2,946) Inventories (4,771) (1,054) Other current assets 1,591 (108) Other assets 52 715 Accounts payable and accrued liabilities 4,421 1,254 Income taxes payable (1,043) 1,671 ------ ------ Net cash provided from operating activities 5,924 6,755 ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (5,208) (2,565) ------ ------ Net cash used for investing activities (5,208) (2,565) ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in notes payable to banks and others 535 (2,471) Reduction of long-term debt (2,150) (2,200) Reduction of other long-term liabilities (13) (89) Exercise of employee stock options 136 138 ------ ------ Net cash used for financing activities (1,492) (4,622) ------ ------ Net decrease in cash and cash equivalents (776) (432) Cash and cash equivalents at beginning of period 3,965 3,994 ------ ------ Cash and cash equivalents at end of period $ 3,189 $ 3,562 ====== ====== See accompanying Notes to Unaudited Consolidated Financial Statements.
MICROSEMI CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 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 thirty-nine weeks 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 financial statements and notes should, therefore, be read in conjunction with the financial statements and notes thereto in the Annual Report on Form 10-K for the fiscal year ended October 1, 1995. 2. 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:
June 30, 1996 October 1, 1995 ------------- --------------- (amounts in 000's) Raw materials $ 10,592 $ 10,367 Work in progress 21,893 20,847 Finished goods 15,567 12,067 ------ ------ $ 48,052 $ 43,281 ====== ======
3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Account payable and accrued liabilities consisted of:
June 30, 1996 October 1, 1995 ------------- --------------- (amounts in 000's) Accounts payable $ 7,841 $ 6,774 Accrued payroll, vacation and related taxes 9,077 8,392 Other accrued expenses 7,455 4,786 ------ ------ $ 24,373 $ 19,952 ====== ======
4. BORROWINGS Long-term debt consisted of:
June 30, 1996 October 1, 1995 ------------- --------------- (amounts in 000's) Industrial Development Bond-bearing interest at 7.875% due in installments from 1996 to 2000; secured by first deed of trust $ 2,720 $ 2,905 Industrial Development Bond-bearing interest at 6.75% due in installments from 1998 to 2005; secured by first deed of trust 5,350 5,350 Convertible Subordinated Debentures-bearing interest at 5.875% due in March 2012 33,281 33,281 Convertible Subordinated Notes-bearing interest at 10% due in 1999 2,000 2,000 Notes payable-bearing interest in the range of 5% - 13% due between December 1996 and July 2002 4,985 6,950 ------ ------ 48,336 50,486 Less current portion (1,720) (2,328) ------ ------ $ 46,616 $ 48,158 ====== ======
The Company maintains a line of credit with a bank, from which the Company can borrow up to $20,000,000 based upon percentages of certain accounts receivable and inventory balances at certain of the Company's operations. As of June 30, 1996, $4,536,000 was borrowed under this credit facility. The $5,350,000 Industrial Development Revenue Bond was originally issued in April 1985, through the City of Santa Ana for the construction of improvements and new facilities at the Santa Ana plant. It was remarketed in 1995 and carries interest currently at 6.75% per annum. The terms of the bond require principal payments of $1,050,000 in 1998, $100,000 annually from 1999 to 2004 and $3,700,000 in 2005. A $5,557,000 letter of credit is carried by a bank to guarantee the repayment of this bond. There are no compensating balance requirements, however, the letter of credit agreement requires the Company to make collateral payments of $350,000 on February 1, 1996, 1997 and 1998, totaling $1,050,000 to ensure the availability of funds for the payment of principal scheduled for February 1, 1998. The Company's 5.875% Convertible Subordinated Debentures require annual sinking fund payments in the amount of 5% of the principal amount thereof, commencing in March 1997, less the principal amount of converted or redeemed debentures. 5. EARNINGS PER SHARE Earnings per share on the primary basis have been computed based upon the weighted average number of common and common equivalent shares outstanding during the respective periods. Earnings per share on the fully diluted basis have been computed, when the result is dilutive, based upon the assumption that the convertible subordinated debt had been converted to common stock at the date of issuance, with a corresponding increase in net income to reflect a reduction in related interest expense, net of applicable taxes. 6. STATEMENT OF CASH FLOWS For purposes of the Consolidated Statements of Cash Flows, the Company considers all short-term, highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents. Supplementary information
39 Weeks ended 39 Weeks ended June 30, 1996 July 2, 1995 ------------- ------------ Cash paid during the period for: (amounts in 000's) Interest $ 2,503 $ 4,477 Income taxes $ 5,026 $ 747
7. CONTINGENCY In Broomfield, Colorado, an owner of 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 from remediation costs. Although TCE and other contaminants previously used at the facility are present in soil and groundwater on the subsidiary's property, the Company vigorously contests any assertion that the subsidiary is the cause of the contamination; however, there can be no assurance that recourse will be available against third parties. State and local agencies in Colorado are reviewing current data and considering study and cleanup options, and it is not yet possible to predict costs for remediation or the allocation thereof among potentially responsible parties. 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." 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 power supply applications, to the newly designed micro-miniature transient absorbers, which are mounted within the cables used to connect computer and telecommunications equipment. Capital Resources and Liquidity Microsemi Corporations operations in the first nine months of fiscal year 1996 were funded with internally generated funds and borrowings from the Company's line of credit. Under the current line of credit, the Company can borrow up to $20,000,000 based upon percentages of certain accounts receivable and inventory balances at certain of the Company's operations. As of June 30, 1996, $4,536,000 was borrowed under this credit facility. At June 30, 1996, the Company had $3,189,000 in cash and cash equivalents. A letter of credit for the Microsemi Santa Ana Industrial Development Revenue Bond is carried by a bank in the amount of $5,557,000. This letter of credit guarantees the repayment of a $5,350,000 Industrial Development Revenue Bond which was originally issued in April 1985, through the City of Santa Ana, for the construction of improvements and new facilities at the Santa Ana plant. The new terms of the Bond require principal payments of $1,050,000 in 1998; $100,000 annually from 1999 to 2004 and $3,700,000 in 2005 and carries interest currently at 6.75% per annum. See Note 4 to the unaudited consolidated financial statements for further discussion of borrowings. The Company believes that it can meet its current operating cash and debt service requirements with internally generated funds together with its available borrowing capacity. See "Important Factors Related to Forward-Looking Statements and Associated Risks." The average collection period of accounts receivable was 51 days for the first nine months of fiscal year 1996 compared to 54 days for the same period of fiscal year 1995. The average days sales of products in inventories was 147 days for the first thirty-nine weeks of fiscal year 1996 compared to 155 days for the corresponding period of fiscal year 1995. This decrease primarily resulted from higher sales in the current period. The Company has no other significant capital commitments. Order backlog at June 30, 1996 increased to $72,000,000 from $57,500,000 at July 2, 1995. Important Factors Related to Forward-Looking Statements and Associated Risks This Quarterly Report on 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, among other items, based on 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. Assumptions relating to the foregoing involve judgements 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 information under the headings "Foreign Operations", "Sales to Foreign Customers", "Order Backlog", "Competition", "Changes in Technology", "Proprietary Rights", "Manufacturing Risks", "Dependence on Key Personnel", "Possible Volatility of Stock Prices", "Product Liability" and "Environmental Regulations" on pages 4 to 8 in the Company's Form 10-K for the fiscal year ended October 1, 1995, is incorporated herein by this reference and attached hereto as exhibit 99.1. RESULTS OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED JUNE 30, 1996 COMPARED TO THE THIRTEEN WEEKS ENDED JULY 2, 1995. Net sales for the third quarter of fiscal year 1996 increased 14% to $41,261,000, from $36,138,000 for the same period of fiscal year 1995. The increase of $5,123,000 was primarily due to a higher volume of shipments in commercial, telecommunication, medical and commercial space products. Gross profit increased $1,402,000 to $11,004,000 for the current quarter of fiscal year 1996 from $9,602,000 for the same period of fiscal year 1995 as a result of higher sales. Operating expenses for the thirteen weeks ended June 30, 1996 increased $732,000, compared to the corresponding period of the prior year, primarily due to additional support required for the higher sales volume. The effective tax rates of 41% and 40% in the third quarters of fiscal years 1996 and 1995, respectively, are the combined result of taxes computed on foreign and domestic income. RESULTS OF OPERATIONS FOR THE THIRTY-NINE WEEKS ENDED JUNE 30, 1996 COMPARED TO THE THIRTY-NINE WEEKS ENDED JULY 2, 1995. Net sales for the first nine months of fiscal year 1996 increased 20% to $115,667,000, from $96,236,000 for the same period of fiscal year 1995. The increase of $19,431,000 was primarily due to a higher volume of shipments in commercial, telecommunication, medical and commercial space products. Gross profit increased $5,796,000 to $30,516,000 for the first nine months of fiscal year 1996 from $24,720,000 for the same period of fiscal year 1995 as a result of higher sales. As a percentage of sales, gross profit increased slightly from 25.7% to 26.4% for the first thirty-nine weeks of fiscal years 1995 and 1996, respectively, primarily as a result of increased absorption of fixed overhead due to the higher sales volume. Operating expenses for the thirty-nine weeks ended June 30, 1996 increased $3,015,000, compared to the corresponding period of the prior year, primarily due to additional support required for the higher sales volume; however, operating expense, as a percentage of sales, remained relatively consistent at approximately 15% of sales for both periods. The effective tax rates of 42% and 39% in the first nine months of fiscal years 1996 and 1995, respectively, are the combined result of taxes computed on foreign and domestic income. 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 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 11.5 Unaudited computation of Earnings Per Share for the thirteen and thirty-nine weeks ended June 30, 1996 and July 2, 1995 Exhibit 27.7 Unaudited Financial Data Schedule for the nine months ended June 30, 1996 Exhibit 99.1 "Important Factors" as set forth on pages 4 to 8 of the Company's Form 10-K, filed with the Securities and Exchange Commission on December 22, 1995. (b) Reports on Form 8-K: None. 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: 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, 1996 EX-11.5 2 UNAUDITED EARNINGS PER SHARE Exhibit 11.5 Microsemi Corporation and Subsidiaries Unaudited Earnings Per Share For the thirteen and thirty-nine weeks ended June 30, 1996 and July 2, 1995 (in thousands, except per share data)
13 Weeks ended 39 Weeks ended June 30, July 2, June 30, July 2, 1996 1995 1996 1995 PRIMARY Net income $ 2,339 $ 1,698 $ 5,596 $ 4,059 ======= ======= ======= ======= Outstanding shares 7,841 7,670 7,841 7,670 Equivalent shares from stock options 418 429 432 383 ------- ------- ------- ------- Primary common and common equivalent shares 8,259 8,099 8,273 8,053 ======= ======= ======= ======= Primary earnings per share $ 0.28 $ 0.21 $ 0.68 $ 0.50 ======= ======= ======= ======= FULLY DILUTED Net income $ 2,339 $ 1,698 $ 5,596 $ 4,059 Interest savings from conversion of convertible debt 323 334 969 1,000 ------- ------- ------- ------- Fully diluted net income $ 2,662 $ 2,032 $ 6,565 $ 5,059 ======= ======= ======= ======= Outstanding shares 7,841 7,670 7,841 7,670 Equivalent shares from stock options 418 559 432 559 Convertible shares 3,523 3,523 3,523 3,523 ------- ------- ------- ------- Fully diluted common and common equivalent shares 11,782 11,752 11,796 11,752 ======= ======= ======= ======= Fully diluted earnings per share $ 0.23 $ 0.17 $ 0.56 $ 0.43 ======= ======= ======= =======
EX-27 3 EXHIBIT 27.7 UNAUDITED FINANCIAL DATA SCHEDULE
5 1000 9-MOS SEP-29-1996 OCT-02-1995 JUN-30-1996 3189 0 25982 2689 48052 82789 56722 30977 112234 34874 46616 0 0 1568 25211 112234 115667 115667 85151 85151 384 0 3380 9579 3983 5596 0 0 0 5596 .68 .56
EX-99.1 4 IMPORTANT FACTORS EXHIBIT 99.1 IMPORTANT FACTORS FOREIGN OPERATIONS The Company conducts a portion of its operations outside the United States and its business is subject to risks associated with many factors beyond its control, such as fluctuations in foreign currency rates, instability of foreign economies and governments, and changes in U.S. and foreign laws and policies affecting trade and investment. The Company owns or leases manufacturing and assembling facilities in Ennis, Ireland; Bombay, India and Hong Kong and is in the process of establishing a joint venture in The People's Republic of China. Although the Company has not experienced any materially adverse effects with respect to its foreign operations arising from such factors, there can be no assurance that such problems will not arise in the future. SALES TO FOREIGN CUSTOMERS Sales to foreign customers represented approximately 20%, 17% and 12% of net sales for the 1995, 1994 and 1993 fiscal years, respectively. Foreign sales may be subject to political and economic risks, including political instability, changes in import/export regulations, tariffs and freight rates and difficulties in collecting receivables and enforcing contracts generally. Although the Company has not experienced any materially adverse effects with respect to sales to foreign customers, changes in current tariff structures, exchange rates or other trade policies could adversely affect the Company's sales to foreign customers or the collection of receivables generated from such sales. ORDER BACKLOG The Company's consolidated order backlog at October 1, 1995 (primarily for delivery within nine months) was $62,700,000 as compared to $47,600,000 at October 2, 1994. Although total backlog has increased by 32%, the mix of new orders reflects a flat demand in military related business and an increase in commercial, industrial, medical and space business. See discussion of changes in military procurement practices in Management's Discussion and Analysis of Financial Condition and Results of Operations. 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. For these reasons, and because of the possibility of customer changes in delivery schedules or cancellations of orders, the Company's backlog as of any particular date may not be representative of actual sales for any succeeding period. A portion of the Company's sales are to military and aerospace markets which are subject to the business risk of changes in governmental appropriations and changes in national defense policies and priorities. See discussion of changes in military procurement practices in Management's Discussion and Analysis of Financial Condition and Results of Operations. All of the Company's contracts with prime U.S. Government's contractors contain customary provisions permitting termination at any time at the convenience of the U.S. Government or the prime contractor upon payment to the Company for costs incurred plus a reasonable profit. Certain contracts are also subject to price renegotiation in accordance with U.S. Government sole source procurement provisions. No material contract of the Company has been terminated or renegotiated. COMPETITION The Company competes primarily in the discrete semiconductor market, particularly in the area of high reliability components. The Company has numerous competitors across all of its product lines. In the defense market sector, the Company possesses the major share of the market. In the commercial/industrial arena, there are numerous competitors such as Motorola, Inc., General Instruments Corp., ITT Corp. and National Semiconductor who are significantly larger than Microsemi and have greater resources. Competition in certain of its product lines is dependent on price and performance. Competition in the high reliability area is dependent less on price and more on product reliability and performance. The Company believes that it competes effectively in all areas of business in which it is engaged. CHANGES IN TECHNOLOGY The power semiconductor market is subject to technological change and changes in industry standards. To remain competitive, the Company must continue to devote resources to advance process technologies, to increase product performance, to improve manufacturing yields and to improve the mix between the Company's shipment of military and commercial product and between its high cost and low cost products. There can be no assurance that the Company's competitors will not develop new technologies that are substantially equivalent or superior to the Company's technology. PROPRIETARY RIGHTS The Company generally does not have, nor does it generally intend to apply for, patent protection on any aspect of its technology. The Company believes that patents often provide only narrow protection and patents require public disclosure of information which may otherwise be subject to trade secret protection. The Company's reliance upon protection of some of its technology as "trade secrets" will not necessarily protect the Company from the use by other persons of its technology, or their use of technology that is similar or superior to that which is embodied in the Company's trade secrets. There can be no assurance that others will not be able to independently duplicate or exceed the Company's technology in whole or in part. No assurances can be made that the Company will be able to maintain the confidentiality of the Company's technology, dissemination of which could have a material adverse effect on the Company's business. In addition, litigation may be necessary to determine the scope and validity of the Company's proprietary rights. In instances in which the Company holds any patents on a product line, the patents are not known to have any material current value. Also there can be no assurance that any patents held by the Company will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide competitive advantages to the Company. MANUFACTURING RISKS The Company's manufacturing processes are highly complex, require advanced and costly equipment and are continuously being modified in an effort to improve yields and product performance. Minute impurities or other difficulties in the manufacturing process can lower yields. In addition, California and the Pacific Rim are known to contain various earthquake faults. The Company's operations could be materially adversely affected if production at any of its major facilities were interrupted. There can be no assurance that the Company will not experience manufacturing difficulties in the future. DEPENDENCE ON KEY PERSONNEL The Company's future performance is significantly dependent on the continued active participation of members of its current management. The Company does not have written employment contracts with its employees. Should one or more of the Company's key management employees leave or otherwise become unavailable to the Company, the Company's business and results of operations may be materially adversely affected. POSSIBLE VOLATILITY OF STOCK PRICES The market prices of securities issued by technology companies, including the Company, have been volatile. The securities of many technology companies have experienced extreme price and volume fluctuations, which have often been not necessarily related to the companies' respective operating performances. Quarter to quarter variations in operating results, changes in earnings estimates by analysts, announcements of technological innovations or new products, announcements of major contract awards, events involving other companies in the industry and other events or factors may have a significant impact on the market price of the Company's Common Stock. PRODUCT LIABILITY The Company's business exposes it to potential liability risks that are inherent in the manufacturing and marketing of high-reliability electronic components for critical applications. No assurances can be made that the Company's product liability insurance coverage is adequate or that present coverage will continue to be available at acceptable costs, or that a product liability claim would not adversely affect the business or financial condition of the Company. CHANGE OF CONTROL PROVISIONS The Company's Certificate of Incorporation, Bylaws, Shareholder Rights Plan and certain employment compensation plans contain provisions that make it more difficult for a third party to acquire, or that may discourage a third party from attempting to acquire, control of the Company. In addition, as a Delaware corporation, the Company is subject to the restrictions imposed under Section 203 of the Delaware General Corporation Law which prevent the Company from engaging in certain change of control transactions with certain of its stockholders under certain circumstances. ENVIRONMENTAL REGULATION While the Company believes that it has the environmental permits necessary to conduct its business and that its activities conform to present environmental regulations, increased public attention has been focused on the environmental impact of semiconductor operations. The Company, in the conduct of its manufacturing operations, has handled and does handle materials that are considered hazardous, toxic or volatile under federal, state and local laws and, therefore, is subject to regulations relating to their use, storage, discharge and disposal. No assurances can be made that the risk of accidental release of such materials can be completely eliminated. In addition, the Company operates or owns facilities located on or near real property that may formerly have been used in ways that involved such materials. In the event of a violation of environmental laws, the Company could be held liable for damages and the costs of remediation, and, along with the rest of the semiconductor industry, is subject to variable interpretations and governmental priorities concerning environmental laws and regulations. Environmental statutes have been interpreted to provide for joint and several liability and strict liability regardless of actual fault. There can be no assurance that the Company and its subsidiaries will not be required to incur costs to comply with, or that the operations, business, or financial condition of the Company will not be materially adversely affected by, current or future environmental laws or regulations. -----END PRIVACY-ENHANCED MESSAGE-----