Presentation of Financial Information

The unaudited condensed consolidated financial statements include the accounts of Microsemi Corporation and its subsidiaries. Intercompany transactions have been eliminated in consolidation.

The condensed consolidated financial statements are unaudited, but in the opinion of our management, include all adjustments (all of which are normal or recurring adjustments) necessary for a fair statement of the results of operations for the periods indicated. The results of operations for the most recently reported quarter and nine months ended July 2, 2017 are not necessarily indicative of the results to be expected for the full year.

The unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and Article 10 of SEC Regulation S-X, and therefore do not include all information and note disclosures necessary for a fair statement of our consolidated financial position, results of operations and cash flows in conformity with United States generally accepted accounting principles. The unaudited condensed consolidated financial statements and notes thereto must be read in their entirety in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended October 2, 2016.

The unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, which require us to make estimates and assumptions that may materially affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ materially from those estimates. Information with respect to our accounting policies that we believe could have the most significant effect on our reported results and require subjective or complex judgments is contained in the notes to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended October 2, 2016. In referencing a year, we are referring to the fiscal year ended on the Sunday closest to September 30. Except for per-share amounts, dollar amounts are presented in millions unless otherwise stated.

Reclassifications

Certain prior year amounts have been reclassified to conform to current year statement of cash flows presentation primarily due to the early adoption of the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments in fiscal year 2016. As a result, we have classified cash payments made during the second quarter of our fiscal year 2016 related to debt extinguishment amounting to approximately $61.3 million as cash flows used in financing activities. These payments were previously reported in our quarterly consolidated financial statements as cash flows used in operating activities.

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 awards outstanding during the respective periods. Earnings per share were calculated as follows:



	Quarter Ended				Nine Months Ended
	July 2, 2017		July 3, 2016		July 2, 2017		July 3, 2016
Basic
Net income (loss)	$	13.6	$	115.2	$	74.3	$	(73.1	)
Weighted-average common shares outstanding	115.0		112.1		114.7		105.3
Basic earnings (loss) per share	$	0.12	$	1.03	$	0.65	$	(0.69	)

Diluted
Net income (loss)	$	13.6	$	115.2	$	74.3	$	(73.1	)
Weighted-average common shares outstanding for basic	115.0		112.1		114.7		105.3
Dilutive effect of stock awards	2.2		2.5		2.1		—
Weighted-average common shares outstanding on a diluted basis	117.2		114.6		116.8		105.3
Diluted earnings (loss) per share	$	0.12	$	1.00	$	0.64	$	(0.69	)

There were no stock awards excluded in the computation of diluted earnings per share for the quarter and nine months ended July 2, 2017. For the quarter ended July 3, 2016, we excluded 0.2 million of stock awards in the computation of diluted earnings per share as these stock awards would have been anti-dilutive. For the nine months ended July 3, 2016, all stock awards were excluded as we reported a net loss in this period.

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09 which provides guidance on how an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and on accounting for costs to obtain or fulfill a contract with a customer. The ASU also requires expanded disclosure regarding the nature, amount, timing and uncertainty of revenue that is recognized. In July 2015, the FASB decided to delay the effective date of this ASU by one year. This ASU, as amended, will be effective for the Company beginning in the first quarter of fiscal 2019 and can be adopted either full retrospective or modified retrospective with the cumulative effect recognized as of the date of adoption. Early adoption is permitted, but no earlier than fiscal 2018. We expect to adopt this ASU on a modified retrospective basis in the first quarter of fiscal 2019, and we are currently assessing the impact of this ASU on our consolidated financial statements.

The FASB since issued additional updates of its new standard on revenue recognition issued in May 2014. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606) - Principal versus Agent Considerations, which clarifies the implementation guidance for principal versus agent considerations in ASU 2014-09. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing, which amends the guidance in ASU 2014-09 related to identifying performance obligations and accounting for licenses of intellectual property. Finally, on December 2016, the FASB issued ASU 2016-20 which makes minor corrections or minor improvements to the codification that are not expected to have a significant effect on current accounting practice or create significant administrative costs to most entities. We are currently assessing the adoption and impact of these ASUs on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. This ASU will be effective for the Company beginning in the first quarter of fiscal 2020 on a modified retrospective basis. Early adoption is permitted. We are currently evaluating the impact of adopting the new lease standard on our consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16 which simplifies the accounting for the income tax effects of intra-entity transfers and will require companies to recognize the income tax effects of intra-entity transfers of assets other than inventory when the transfer occurs. Previous guidance required companies to defer the income tax effects of intra-entity transfers of assets until the asset had been sold to an outside party or otherwise recognized. This ASU will be effective for the Company beginning in the first quarter of fiscal 2019. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the impact of this new guidance on our consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18 which requires entities to include in their cash and cash-equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. As a result, companies will no longer present transfers between cash and cash equivalents, and restricted cash and restricted cash equivalents in the statement of cash flows. The guidance is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. We elected to early adopt this ASU and adoption did not impact our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, which modifies the goodwill impairment test and requires an entity to write down the carrying value of goodwill up to the amount by which the carrying amount of a reporting unit

exceeds its fair value. This ASU will be effective for us beginning in the first quarter of 2021 with early adoption permitted and requires prospective adoption. Since the ASU simplifies the test for goodwill impairment, we do not expect the adoption of the ASU to have a material impact on our financial statements.