-----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, Q3Rdxg/9LRG1642/n0EyhP0bFr55mwPqvolafRUVvzJGpaPw89HqNyoCb+p9MCAG QDmkvKLnJrbdqpCMdRlrsg== 0001017062-98-001051.txt : 19980513 0001017062-98-001051.hdr.sgml : 19980513 ACCESSION NUMBER: 0001017062-98-001051 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980329 FILED AS OF DATE: 19980512 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: SEC FILE NUMBER: 000-08866 FILM NUMBER: 98615979 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 FOR PERIOD ENDING 3/29/98 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 March 29, 1998 --------------------------------------------- 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 24, 1998 was 11,777,276. 1 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS The unaudited consolidated financial information for the quarter and six months ended March 29, 1998 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 September 28, 1997 are attached hereto and incorporated herein by this reference. 2 MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Balance Sheets (amounts in 000's)
ASSETS March 29, September 28, 1998 1997 --------- ------------- Current assets Cash and cash equivalents $ 4,159 $ 6,145 Accounts receivable less allowance for doubtful accounts, $2,030 at March 29, 1998 and $2,665 at September 28, 1997 24,850 25,093 Inventories 48,336 53,248 Deferred income taxes 8,160 8,160 Other current assets 2,261 4,363 -------- -------- Total current assets 87,766 97,009 -------- -------- Property and equipment, at cost 69,917 70,485 Less: Accumulated depreciation (34,837) (35,614) -------- -------- 35,080 34,871 -------- -------- Other assets 5,001 3,314 -------- -------- $127,847 $135,194 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable to banks and others $ 125 $ 4,633 Current maturities of long-term debt 2,505 3,574 Accounts payable 5,381 11,304 Accrued liabilities 15,306 15,942 Income taxes payable 4,798 5,743 -------- -------- Total current liabilities 28,115 41,196 -------- -------- Deferred income taxes 2,544 2,544 -------- -------- Long-term debt 12,089 47,621 -------- -------- Other long-term liabilities 1,922 1,924 -------- -------- Stockholders' equity Common stock, $.20 par value; authorized 20,000 shares; issued 11,777 shares at March 29, 1998 and 8,736 shares at September 28, 1997 2,355 1,747 Additional paid-in capital 50,380 16,197 Retained earnings 30,442 23,965 -------- -------- Total stockholders' equity 83,177 41,909 -------- -------- $127,847 $135,194 ======== ========
See accompanying Notes to Unaudited Consolidated Financial Statements. 3 MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Income Statements (amounts in 000's, except earnings per share)
13 Weeks Ended 13 Weeks Ended March 29, 1998 March 30, 1997 -------------- -------------- Net sales $41,194 $40,657 Cost of sales 29,513 29,615 ------- ------- Gross profit 11,681 11,042 ------- ------- Operating expenses Selling 2,489 2,441 General and administrative 3,258 3,437 ------- ------- Total operating expenses 5,747 5,878 ------- ------- Income from operations 5,934 5,164 ------- ------- Other (expense) income Interest expense (net) (430) (960) Other 6 (134) ------- ------- Total other expense (424) (1,094) ------- ------- Income before income taxes 5,510 4,070 Provision for income taxes 2,094 1,675 ------- ------- Net income $ 3,416 $ 2,395 ======= ======= Earnings per share -Basic $ 0.33 $ 0.28 ======= ======= -Diluted $ 0.29 $ 0.23 ======= ======= Weighted average common shares outstanding -Basic 10,473 8,547 -Diluted 12,001 11,872
See accompanying Notes to Unaudited Consolidated Financial Statements. 4 MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Income Statements (amounts in 000's, except earnings per share)
26 Weeks Ended 26 Weeks Ended March 29, 1998 March 30, 1997 -------------- -------------- Net sales $85,246 $76,416 Cost of sales 61,546 55,630 ------- ------- Gross profit 23,700 20,786 ------- ------- Operating expenses Selling 5,031 4,590 General and administrative 6,856 6,781 ------- ------- Total operating expenses 11,887 11,371 ------- ------- Income from operations 11,813 9,415 ------- ------- Other (expense) income Interest expense (net) (1,342) (1,920) Other 26 (168) ------- ------- Total other expense (1,316) (2,088) ------- ------- Income before income taxes 10,497 7,327 Provision for income taxes 3,989 3,043 ------- ------- Net income $ 6,508 $ 4,284 ======= ======= Earnings per share -Basic $ 0.67 $ 0.52 ======= ======= -Diluted $ 0.58 $ 0.41 ======= ======= Weighted average common shares outstanding -Basic 9,691 8,272 -Diluted 11,969 11,868
See accompanying Notes to Unaudited Consolidated Financial Statements. 5 MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Statements of Retained Earnings (amounts in 000's)
26 Weeks Ended 26 Weeks Ended March 29, 1998 March 30, 1997 -------------- -------------- Retained earnings at beginning of period $23,965 $12,931 Net income 6,508 4,284 Translation loss from foreign currency (31) (6) ------- ------- Retained earnings at end of period $30,442 $17,209 ======= =======
See accompanying Notes to Unaudited Consolidated Financial Statements. 6 MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Statements of Cash Flows (amounts in 000's)
26 Weeks Ended 26 Weeks Ended March 29, 1998 March 30, 1997 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,508 $ 4,284 Adjustments to reconcile net income to net cash provided from operating activities Depreciation and amortization 2,134 1,893 Increase (decrease) in allowance for doubtful accounts (582) 371 Changes in assets and liabilities, net of acquisition: Accounts receivable (2,950) (173) Inventories (937) (1,556) Other current assets 1,299 67 Other assets 1,063 (457) Accounts payable (3,245) 434 Accrued liabilities 364 (516) Income taxes payable (945) (22) Other (31) (6) ------- ------- Net cash provided by operating activities 2,678 4,319 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Payment for acquisition - (2,200) Proceeds from disposition 5,000 - Investment in an unconsolidated affiliate (1,000) - Purchases of property and equipment (3,252) (3,676) ------- ------- Net cash provided by (used in) investing activities 748 (5,876) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: (Decrease) increase in notes payable to banks and others (4,508) 3,525 Proceeds from issuance of long-term debt - 655 Payments of long-term debt (1,454) (882) Reduction of other long-term liabilities (2) (58) Exercise of employee stock options 552 162 ------- ------- Net cash (used in) provided by financing activities (5,412) 3,402 ------- ------- Net (decrease) increase in cash and cash equivalents (1,986) 1,845 Cash and cash equivalents at beginning of period 6,145 4,059 ------- ------- Cash and cash equivalents at end of period $ 4,159 $ 5,904 ======= =======
See accompanying Notes to Unaudited Consolidated Financial Statements. 7 MICROSEMI CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS March 29, 1998 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 financial statements and notes thereto in the Annual Report on Form 10-K for the fiscal year ended September 28, 1997. 2. INVENTORIES Inventories used in the computation of cost of goods sold were:
March 29, 1998 September 28, 1997 -------------- ------------------ (amounts in 000's) Raw materials $13,742 $15,954 Work in process 20,279 23,774 Finished goods 14,315 13,520 ------- ------- $48,336 $53,248 ======= ======= 3. ACCRUED LIABILITIES Accrued liabilities consist of: March 29, 1998 September 28, 1997 -------------- ------------------ (amounts in 000's) Accrued payroll, profit sharing, benefits and related taxes $ 7,401 $ 9,016 Accrued interest 2,293 2,641 Other accrued liabilities 5,612 4,285 ------- ------- $15,306 $15,942 ======= =======
8 4. BORROWINGS Long-term debt consisted of:
March 29, 1998 September 28, 1997 -------------- ------------------ (amounts in 000's) City of Broomfield, Colorado, Industrial Development Bond-bearing interest at 7.875% due in installments from 1996 to 2000; secured by a first deed of trust $ 2,520 $ 2,520 City of Santa Ana, California, Industrial Development Revenue Bond-bearing interest at 6.75% due in installments from 1998 to 2005; secured by a first deed of trust 4,300 5,350 Convertible Subordinated Debentures-bearing interest at 5.875% due 2012 - 33,261 Convertible Subordinated Notes-bearing interest at 10% due in 1999 - 750 Equipment loan due to GE Capital Public Finance, Inc., bearing interest at 5.93%, payable in monthly installments through July 2,340 2,700 2002 Notes payable (PPC acquisition) bearing interest at 7% due monthly through September 2009 2,234 2,370 Notes payable-bearing interest at rates in ranges of 5% - 10% due between April 1998 and September 2002 3,200 4,244 ------- ------- 14,594 51,195 Less current portion (2,505) (3,574) ------- ------- $12,089 $47,621 ======= =======
A $2,520,000 Industrial Revenue Bond, due to the City of Broomfield, Colorado, carries an interest rate of 7.875% per annum. The terms of the bond require principal payments of $215,000 in 1998, $230,000 in 1999 and $2,075,000 in 2000. An Industrial Development Revenue Bond was originally issued in April 1985, through the City of Santa Ana Industrial Development Authority for the construction of improvements and new facilities at the Santa Ana plant. It was remarketed in 1995 and carries an average interest rate of 6.75% per annum. The terms of the bond require principal payments of $100,000 annually from 1999 to 2004 and $3,700,000 in 2005. A principal payment of $1,050,000 was made in February 1998. A $4,466,000 letter of credit is carried by a bank to guarantee the repayment of this bond. There are no compensating balance requirements. An annual commitment fee of 2% is charged on this letter of credit. In addition, the agreement contains provisions regarding net worth and working capital. The Company was in compliance with the aforementioned covenants at March 29, 1998. In February 1987, the Company sold $40,250,000 of 5.875% convertible subordinated debentures due 2012. The debentures were convertible into common stock at $13.55 per share. As of September 28, 1997 they were redeemable at 100% of par plus accrued interest. Deferred debt issuance costs of $1,128,000 were included in other assets and were being amortized over the life of the debentures on a 9 straight-line basis. In fiscal years 1987, 1988, 1989 and 1991, the Company repurchased at market prices a total of $6,969,000 in principal amount of these debentures. In the first quarter of fiscal year 1998, $2,000 was converted into 147 shares of common stock. In February, 1998, $33,234,000 was converted into 2,452,682 shares of common stock and $25,000 was redeemed in cash, at par. Accrued interest of $631,000 and unamortized debt issuance costs of $884,000 associated with these debentures were recorded to additional paid-in capital upon conversion of the debentures to common stock. In June 1992, the Company issued $2,000,000 of 10% Convertible Subordinated Notes, due in 1999, to an officer and two existing shareholders to finance a portion of an acquisition completed in fiscal year 1992. The notes were converted, at $1.875 per share, into 53,333, 613,331 and 400,000 shares of common stock in fiscal years 1996, 1997 and 1998, respectively. In June 1997, the Company entered into a $2,700,000 equipment loan agreement with GE Capital Public Finance, Inc., providing for monthly payments through July 2002 of $45,000 plus interest at 5.93% per annum. In September 1997, the Company issued and assumed notes payable aggregating $2,370,000, related to the PPC acquisition, payable to the former owners, bearing an interest rate of 7%, due in monthly installments through September 2009. The Company maintains a revolving credit facility with a domestic bank which continues according to its terms through September 1999. Under the credit facility the Company can borrow up to $15,000,000. The credit line has an interest rate of prime and is secured by substantially all of the assets of the Company. In addition, the credit agreement contains provisions regarding net worth and working capital. The Company was in compliance with the aforementioned covenants at March 29, 1998. At March 29, 1998, this credit facility had no outstanding balance. 5. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share". This Statement establishes standards for computing and requires the presentation of basic and diluted earnings per share (EPS). The Company adopted this statement in the first quarter of fiscal year 1998 and has restated the EPS for the prior year periods as required. Basic earnings per share have been computed based upon the weighted average number of common shares outstanding during the respective periods. Diluted earnings per share have been computed, when the result is dilutive, using the treasury stock method for stock options outstanding during the respective periods and based upon the assumption that the convertible subordinated debt had been converted into common stock as of the beginning of the respective periods, with a corresponding increase in net income to reflect a reduction in related interest expense, net of applicable taxes. 10 Earnings per share for the quarters and six months ended March 29, 1998 and March 30, 1997 were calculated as follows:
Quarter ended Six months ended ----------------- ---------------- 3/29/98 3/30/97 3/29/98 3/30/97 ------- ------- ------- ------- (in 000's, except per share data) BASIC Net Income $ 3,416 $ 2,395 $ 6,508 $ 4,284 ======= ======= ======= ======= Weighted-average common shares outstanding 10,473 8,547 9,691 8,272 ======= ======= ======= ======= Basic earnings per share $ 0.33 $ 0.28 $ 0.67 $ 0.52 ======= ======= ======= ======= DILUTED Net income $ 3,416 $ 2,395 $ 6,508 $ 4,284 Interest savings from assumed conversions of convertible debt, net of income taxes 118 305 428 626 ------- ------- ------- ------- Net income assuming conversions $ 3,534 $ 2,700 $ 6,936 $ 4,910 ======= ======= ======= ======= Weighted-average common shares outstanding 10,473 8,547 9,691 8,272 Stock options 288 337 307 403 Convertible debt 1,240 2,988 1,971 3,193 ------- ------- ------- ------- Weighted-average common shares outstanding on a diluted basis 12,001 11,872 11,969 11,868 ======= ======= ======= ======= Diluted earnings per share $ 0.29 $ 0.23 $ 0.58 $ 0.41 ======= ======= ======= =======
11 6. STATEMENT OF CASH FLOWS For purposes of the unaudited Consolidated Statements of Cash Flows, the Company considers all short-term, highly liquid investments having a maturity of three months or less at the date of acquisition to be cash equivalents.
Supplementary information - ------------------------- 26 weeks ended 26 weeks ended March 29, 1998 March 30, 1997 -------------- -------------- (amounts in 000's) Cash paid during the period for: Interest $ 783 $1,629 ======= ====== Income taxes $ 5,610 $2,550 ======= ====== Non-cash financing activities: Conversion of subordinated debt, net of accrued interest and unamortized debt issue costs, into 2,852,829 and 614,807 shares of common stock (See Note 4) $33,733 $1,170 ======= ====== Business acquired in purchase transaction: Fair values of assets acquired $ - $2,900 Less debt issued - (700) ------- ------ Cash paid for acquisition $ - $2,200 ======= ======
In December 1997, the Company sold General Microcircuits, Inc., a wholly owned subsidiary in Mooresville, North Carolina, for $5,000,000 in cash and $2,000,000 in a note receivable. 7. 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 the former owners of the manufacturing facility, agreed to settle the claim and to indemnify the owner of the adjacent property from remediation costs. Although contaminants previously used at the facility are present in soil and groundwater on the subsidiary's property, the Company vigorously contests any assertions 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. In the opinion of management, the final outcome of this matter will not have a material adverse effect on the Company's financial position or results of operations. 8. ACQUISITION On January 21, 1998, the Company and BKC Semiconductors Incorporated (BKC), located in Lawrence, Massachusetts, jointly announced a definitive agreement whereby Microsemi will acquire all of the common stock and options of BKC for approximately $13,400,000 in cash plus repayment of existing 12 indebtedness of BKC. Microsemi intends to finance this acquisition with cash on hand and borrowings under its existing credit facilities, as amended concurrent with the acquisition. BKC is a publicly held company, which manufactures discrete semiconductors with sales of approximately $11,000,000 for the fiscal year ended September 28, 1997. The acquisition is expected to be completed in the third quarter of fiscal year 1998 and will be accounted for under the purchase method. 9. DISPOSITION On December 31, 1997, the Company sold General Microcircuits, Inc., a wholly owned subsidiary in Mooresville, North Carolina, for $5,000,000 in cash and $2,000,000 in a note receivable. Microsemi did not realize any material gain or loss from this transaction. 13 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q includes forward looking statements, the realization of which may be impacted by certain important factors discussed below under "Important factors related to forward-looking statements and associated risks" and in the Form 10-K for the fiscal year ended September 28, 1997. Introduction - ------------ Microsemi Corporation is a multinational supplier of high reliability power semiconductors, surface mount and custom diode assemblies for the electronics, computer, telecommunications, defense/aerospace and medical markets. The Company's semiconductor products include diodes, transistors and silicon controlled rectifiers (SCR's) which can be used in virtually all electrical and electronic circuits. Typical functions include solid state switching, signal processing, voltage and power regulation, circuit protection and absorption of electrical surges and transient voltage spikes. Technologies for these devices range from the very mature mesa rectifier diodes, still used in all types of power supply applications, to the newly designed micro-miniature transient absorbers, which are mounted within the cables used to connect computer or telecommunications equipment. Capital Resources and Liquidity - ------------------------------- Microsemi Corporation's operations in the six months ended March 29, 1998 were funded with internally generated funds and borrowings under the Company's line of credit. In September 1997, the Company renewed its bank credit line through September 1999. Under the current line of credit, the Company can borrow up to $15,000,000. As of March 29, 1998, there was no outstanding balance under this credit facility. At March 29, 1998, the Company had $4,159,000 in cash and cash equivalents. An Industrial Development Revenue Bond was originally issued in April 1985, through the City of Santa Ana Industrial Development Authority for the construction of improvements and new facilities at the Santa Ana plant. It was remarketed in 1995 and carries an average interest rate of 6.75% per annum. The terms of the bond require principal payments of $100,000 annually from 1999 to 2004 and $3,700,000 in 2005. A $4,466,000 letter of credit is carried by a bank to guarantee the repayment of this bond. An annual commitment fee of 2% is charged on this letter of credit. A principal payment of $1,050,000, consisting of $350,000 in cash and $700,000 in matured certificates of deposit, was made in February 1998. Based upon information currently available, the Company believes that it can meet its current operating cash and debt service requirements with internally generated funds together with its available borrowings. The Company's 5.875% Convertible Subordinated Debentures, which were due in 2012, required semiannual interest payments of approximately $977,000. The Debentures were callable at 100% of face value and were convertible at the option of the holder into Common Stock at a conversion price of $13.55. On February 12, 1998, $33,234,000 in outstanding debentures were converted into 2,452,682 shares of Common Stock and $25,000 was redeemed in cash. (See Note 4 of Notes to Unaudited Consolidated Financial Statements). 14 On December 31, 1997, the Company sold General Microcircuits, Inc., a wholly owned subsidiary in Mooresville, North Carolina, for $5,000,000 in cash and $2,000,000 in a promissory note. Microsemi did not realize any material gain or loss from this transaction. On January 21, 1998, the Company and BKC Semiconductors Incorporated (BKC), Lawrence, Massachusetts, jointly announced a definitive agreement whereby Microsemi will acquire all of the outstanding stock and options of BKC for approximately $13,400,000 in cash plus repayment of existing indebtedness of BKC. (See Note 8 of Notes to Unaudited Consolidated Financial Statements.) Microsemi intends to finance this acquisition with cash on hand and through borrowings under its existing credit facilities, which will be increased to $25,000,000 upon completion of the acquisition. On January 29, 1998, the Company announced that it had made an equity investment of $1,000,000 in Xemod, Inc. Xemod, Inc was founded in 1994 and is headquartered in Sunnyvale, California. It designs, manufacturers and markets power amplifier semiconductor components targeted at the cellular and wireless communication markets. Microsemi is currently modifying its software to be year 2000 compliant. The Company does not expect the cost of modification to be significant. The Company has no other significant capital commitments. RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 29, 1998 COMPARED TO THE QUARTER ENDED MARCH 30, 1997. Net sales for the second quarter of fiscal year 1998 increased $537,000 to $41,194,000, from $40,657,000 for the second quarter of fiscal year 1997. Sales for the second quarter of fiscal 1998 included $1,712,000 of sales generated by the PPC division that was acquired in September 1997. Sales for the second quarter of fiscal 1997 included $3,049,000 of sales from GMI, which was sold on December 31, 1997. The remaining increase of $1,874,000, excluding the acquisition and the disposition, was primarily due to demand for the space market related products and higher shipments of the Powermite product. Gross profit increased $639,000 to $11,681,000 or 28.4% of sales for the current quarter of fiscal year 1998 from $11,042,000 or 27.2% of sales for the second quarter of fiscal year 1997. Gross profit in the second quarter of fiscal year 1998 also included $984,000 from the PPC division. These increases were partially offset by the reduction in gross profit resulting from the sale of GMI in December 1997. Gross profit in the second quarter of fiscal year 1997 included $566,000 from GMI. The remaining net increase in gross profit was due to higher sales. Operating expenses for the second quarter of fiscal year 1998 decreased $131,000 compared to those of the corresponding period of the prior year. Operating expenses of PPC were $511,000 in the quarter ended March 29, 1998. Operating expenses of GMI were $344,000 in the quarter ended March 30, 1997. The net remaining decrease in operating expenses was primarily due to lower operating expenses of the RF Products division and lower sales commission. Interest expense decreased $530,000 due to lower overall borrowings and the reduction of interest upon conversions of debentures and notes payable. 15 The effective tax rates of 38% and 41% in the second quarters of fiscal years 1998 and 1997, respectively, were the combined result of taxes computed on foreign and domestic income. The decrease in the fiscal 1998 effective tax rate is primarily attributable to expected changes in the proportion of income earned within various taxing jurisdictions and the tax rates applicable to such taxing jurisdictions. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 29, 1998 COMPARED TO THE SIX MONTHS ENDED MARCH 30, 1997. Net sales for the first six months of fiscal year 1998 increased $8,830,000 to $85,246,000, from $76,416,000 for the same period of fiscal year 1997. This increase was primarily due to higher demand for the space market related products, greater shipments of the Powermite and the addition of PPC Products, which was acquired in September 1997. Sales of GMI were $4,298,000 and $6,484,000 in the six-month periods ended March 29, 1998 and March 30, 1997, respectively. Gross profit increased $2,914,000 to $23,700,000 or 27.8% of sales for the first half of fiscal year 1998 from $20,786,000 or 27.2% of sales for the same period of fiscal year 1997. The increase in gross profit was due to higher sales, improved sales mix and from the PPC division which was acquired in September 1997. These increases were partially offset by the reduction in gross profit resulting from the sale of GMI in December 1997. Gross profit of GMI was $627,000 and $1,127,000 in the six-month periods ended March 29, 1998 and March 30, 1997, respectively. Gross profit for PPC for the six-month period ended March 29, 1998 was $1,578,000. The remaining net increase in gross profit was due to higher sales. Operating expenses for the first six months of fiscal year 1998 increased $516,000 compared to those of the corresponding period of the prior year. Operating expenses of GMI were $401,000 and $702,000 in the six-month periods ended March 29, 1998 and March 30, 1997, respectively. The net remaining increase in operating expenses was primarily due to the addition of the PPC subsidiary. Interest expense decreased $578,000 due to lower overall borrowings and the reduction of interest upon conversions of debentures and notes payable. The effective tax rates of 38% and 42% in the first six months of fiscal years 1998 and 1997, respectively, were the combined result of taxes computed on foreign and domestic income. The decrease in the fiscal 1998 effective tax rate is primarily attributable to expected changes in the proportion of income earned within various taxing jurisdictions and the tax rates applicable to such taxing jurisdictions. Important factors related to forward-looking statements and associated risks - ---------------------------------------------------------------------------- This Form 10-Q contains certain forward-looking statements that are based on current expectations and involve a number of risks and uncertainties. The forward-looking statements included herein are based on, among other items, current assumptions that the Company will be able to meet its current operating cash and debt service requirements with internally generated funds and its available line of credit, that it will be able to successfully resolve disputes and other business matters as anticipated, that competitive conditions within the semiconductor and the custom diode assembly markets will not change materially or adversely, that the Company will successfully integrate and manage acquired operations and 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 16 operations or business. Other factors that could cause results to vary materially from current expectations are discussed elsewhere in this Form 10-Q. Assumptions relating to the foregoing involve judgments that are difficult to predict accurately and are subject to many factors that can materially affect results. Forecasting and other management decisions are subjective in many respects and thus subject to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause the Company to alter its forecasts, which may in turn affect the Company's results. In light of the factors that can materially affect the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. The unaudited consolidated financial statements and notes should be read in conjunction with the financial statements and notes thereto in the Annual Report on Form 10-K for the fiscal year ended September 28, 1997. Additional factors that could cause results to vary materially from current expectations are discussed under the heading "Important factors related to forward-looking statements and associated risks" in the Company's Annual Report on Form 10-K for the fiscal year ended September 28, 1997 as filed with the Securities and Exchange Commission, and elsewhere in that Form 10-K. This Form 10-Q should be read in conjunction with such additional factors, which are incorporated herein by this reference. Order Backlog - ------------- The Company's consolidated order backlog was $58,000,000 as of March 29, 1998, compared to $65,000,000 at March 30, 1997 and $67,000,000 at September 28, 1997. The decrease in backlog primarily reflects a shift in the mix of business and a push out of orders from several commercial space customers. Backlog of General Microcircuits, Inc., has been eliminated from the previously reported amounts. (See Note 9 of Notes to Unaudited Consolidated Financial Statements). The Company's backlog as of any particular date may not be representative of actual sales for any succeeding period because lead times for the release of purchase orders depend upon the scheduling practices of individual customers, the delivery times of new or non-standard products can be affected by scheduling factors and other manufacturing considerations, the rate of booking new orders can vary significantly from month to month, and the possibility of customer changes in delivery schedules or cancellations of orders. PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- Inapplicable Item 2. Changes in Securities --------------------- At March 29, 1998 none of the Company's 5.875% Convertible subordinated Debentures due 2012 remained outstanding. 2,452,682 shares of Common Stock were issued upon conversion of the debentures at a conversion price of $13.55 per share. The Debentures had been called for redemption at par, in accordance with the terms of the debentures. 17 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 24, 1998. (b) Names and personal information about the nominees to the Board of Directors were included in the Proxy Statement dated January 24, 1998. (c) Votes were received for each of the nominees to the Board of Directors as follows:
For Withheld --------- -------- Philip Frey, Jr. 7,935,664 300 Joseph M. Scheer 7,934,089 1,875 Brad Davidson 7,935,864 100 Robert B. Phinizy 7,932,189 3,775 Martin H. Jurick 7,932,964 3,000
(d) Inapplicable Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: Exhibit 27 Unaudited Financial Data Schedule for the six months ended March 29, 1998. (b) Reports on Form 8-K: On January 27, 1998, the Company's execution of agreement for acquisition of BKC Semiconductors, Inc., dated January 21, 1998, and the Company's giving of a notice of redemption of the Company's 5.875% Convertible Subordinated Debentures due 2012 ("Debentures") were reported under Item 5. On February 24, 1998, the redemption or conversion of all outstanding Debentures was reported under Item 5. 18 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 6, 1998 19 EX-27 2 FINANCIAL DATA SCHEDULE - ARTICLE 5
5 6-MOS SEP-27-1998 SEP-29-1997 MAR-29-1998 4,159 0 26,880 2,030 48,336 87,766 69,917 34,837 127,847 28,115 12,089 0 0 2,355 80,822 127,847 85,246 85,246 61,546 61,546 (26) 0 1,342 10,497 3,989 6,508 0 0 0 6,508 .67 .58
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