-----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, PFUVyCaLHFG00h+kDlkeFzYmlluFjjg0CRIsTJw/nqsqnybA6yH2ZFTaLoXGtUX2 98hXcNsF2KBhqz+My/KPqw== 0001017062-01-500801.txt : 20010814 0001017062-01-500801.hdr.sgml : 20010814 ACCESSION NUMBER: 0001017062-01-500801 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010701 FILED AS OF DATE: 20010813 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: 1706612 BUSINESS ADDRESS: STREET 1: 2381 MORSE AVENUE CITY: IRVINE STATE: CA ZIP: 92614 BUSINESS PHONE: 7149798220 FORMER COMPANY: FORMER CONFORMED NAME: MICROSEMICONDUCTOR CORP DATE OF NAME CHANGE: 19830323 10-Q 1 d10q.txt FORM 10-Q FOR QUARTER ENDED JULY 1, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities - ----- Exchange Act of 1934 For the Quarterly Period Ended July 1, 2001 ------------------------------------------- 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.) 2381 Morse Avenue, Irvine, California 92614 -------------------------------------------------------- (Address of principal executive offices) (Zip Code) (949) 221-7100 ---------------------------------------------------- (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 of the issuer's Common Stock, $.20 par value, outstanding on July 12, 2001 was 14,055,042. PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS The unaudited consolidated financial information for the quarter and nine months ended July 1, 2001 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 1, 2000, are attached hereto and incorporated herein. 2 MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Balance Sheets (amounts in thousands, except share data)
October 1, 2000 July 1, 2001 ---------------- ------------ (Restated - Note 2) ASSETS Current assets: Cash and cash equivalents $ 30,460 $ 37,379 Accounts receivable less allowance for doubtful accounts, $5,767 at October 1, 2000 and $3,890 at July 1, 2001 33,029 33,720 Inventories 52,553 49,732 Deferred income taxes 8,392 8,392 Other current assets 2,020 4,274 -------------- ------------ Total current assets 126,454 133,497 Property and equipment, net 55,458 58,959 Deferred income taxes 2,688 2,688 Goodwill and other intangible assets, net 22,559 20,491 Other assets 3,639 1,450 -------------- ------------ TOTAL ASSETS $ 210,798 $ 217,085 ============== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 1,037 $ 36 Current maturities of long-term debt 1,230 3,745 Accounts payable 11,489 8,789 Accrued liabilities 23,992 21,634 Income taxes payable 8,549 5,550 -------------- ------------ Total current liabilities 46,297 39,754 -------------- ------------ Long-term debt 9,651 6,190 -------------- ------------ Other long-term liabilities 5,160 5,035 -------------- ------------ Commitments and contingencies (Note 3) Stockholders' equity: Preferred stock, 1,000,000 shares authorized; none issued, 100,000 shares designated as Series A, $1.00 par value - - Common stock, $.20 par value; 20,000,000 shares authorized; 13,794,406 issued at October 1, 2000 and 14,048,192 issued at July 1, 2001 2,759 2,810 Capital in excess of par value of common stock 105,161 108,746 Retained earnings 42,807 55,610 Accumulated other comprehensive loss (1,037) (1,060) -------------- ------------ Total stockholders' equity 149,690 166,106 -------------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 210,798 $ 217,085 ============== ============
The accompanying notes are an integral part of these statements. 3 MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Income Statements (amounts in thousands, except earnings per share)
Quarter Ended Quarter Ended July 2, 2000 July 1, 2001 ------------------- --------------- (Restated - Note 2) Net sales $ 66,644 $ 60,089 Cost of sales 47,593 39,623 ------------------- --------------- Gross profit 19,051 20,466 ------------------- --------------- Operating expenses: Selling, general and administrative 10,282 9,464 Amortization of goodwill and other intangible assets 719 670 Research and development 2,953 4,094 ------------------- --------------- Total operating expenses 13,954 14,228 ------------------- --------------- Operating income 5,097 6,238 ------------------- --------------- Other (expense) income: Interest, net (854) 162 Other, net (30) 221 ------------------- --------------- Total other (expense) income (884) 383 ------------------- --------------- Income before income taxes 4,213 6,621 Provision for income taxes 1,390 2,185 ------------------- --------------- Net income $ 2,823 $ 4,436 =================== =============== Earnings per share: -Basic $ 0.23 $ 0.32 -Diluted $ 0.22 $ 0.30 =================== =============== Weighted average common and common equivalent shares outstanding: -Basic 12,220 13,996 -Diluted 13,095 14,910
The accompanying notes are an integral part of these statements. 4 MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Income Statements (amounts in thousands, except earnings per share)
Nine Months Ended Nine Months Ended July 2, 2000 July 1, 2001 ------------------- --------------- (Restated - Note 2) Net sales $ 182,204 $ 186,225 Cost of sales 132,409 125,232 ------------------- --------------- Gross profit 49,795 60,993 ------------------- --------------- Operating expenses: Selling, general and administrative 28,430 29,348 Amortization of goodwill and other intangible assets 1,622 2,029 Research and development 8,028 11,291 Acquired in-process research and development 2,510 - ------------------- --------------- Total operating expenses 40,590 42,668 ------------------- --------------- Operating income 9,205 18,325 ------------------- --------------- Other (expense) income: Interest, net (3,235) 518 Other, net (8) 267 ------------------- --------------- Total other (expense) income (3,243) 785 ------------------- --------------- Income before income taxes 5,962 19,110 Provision for income taxes 1,968 6,306 ------------------- --------------- Net income $ 3,994 $ 12,804 =================== =============== Earnings per share: -Basic $ 0.35 $ 0.92 =================== =============== -Diluted $ 0.34 $ 0.87 =================== =============== Weighted average common and common equivalent shares outstanding: -Basic 11,419 13,941 -Diluted 11,999 14,756
The accompanying notes are an integral part of these statements. 5 MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Statements of Cash Flows (amounts in thousands)
Nine Months Ended Nine Months Ended July 2, 2000 July 1, 2001 ------------------- -------------------- (Restated - Note 2) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,994 $ 12,804 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,752 9,192 Provision for doubtful accounts 2,671 (1,866) Loss (gain) on retirement and disposition of assets 355 (400) Acquired in-process research and development 2,510 - Stock based compensation for services provided - 459 Changes in assets and liabilities, net of acquisition and disposition: Accounts receivable (1,990) 1,175 Inventories 1,761 2,821 Other current assets (551) (2,254) Other assets 1,074 1,350 Accounts payable 2,485 (2,700) Accrued liabilities 5,095 (2,359) Income taxes payable 1,503 (2,999) ------------------ ------------------- Net cash provided by operating activities 27,659 15,223 ------------------ ------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Payment for acquisition (1,548) - Proceeds from sale of assets 1,608 1,020 Investment in an unconsolidated affiliate (251) - Purchases of property and equipment (7,300) (10,665) Change in other assets - 259 ------------------ ------------------- Net cash used in investing activities (7,491) (9,386) ------------------ ------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in notes payable to banks and other (19,006) (1,001) Payments on long-term debt (31,110) (946) Increase (decrease) in other long-term liabilities 14 (125) Proceeds from sale of common stock 45,336 - Exercises of employee stock options 2,288 3,177 ------------------ ------------------- Net cash (used in) provided by financing activities (2,478) 1,105 ------------------ ------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (32) (23) ------------------ ------------------- Net increase in cash and cash equivalents 17,658 6,919 Cash and cash equivalents at beginning of period 7,624 30,460 ------------------ ------------------- Cash and cash equivalents at end of period $ 25,282 $ 37,379 ================== ===================
The accompanying notes are an integral part of these statements. 6 MICROSEMI CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS July 1, 2001 1. PRESENTATION OF FINANCIAL INFORMATION The financial information furnished herein is unaudited, but in the opinion of management of Microsemi Corporation includes all adjustments (all of which are normal, recurring adjustments) necessary for a fair presentation of the results of operations for the periods indicated. The results of operations for the first nine months of the current fiscal year are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q, and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. The unaudited consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto in the Annual Report on Form 10-K for the fiscal year ended October 1, 2000. 2. INVENTORIES For interim reporting purposes, cost of goods sold and inventories are estimated based upon the use of the gross profit method. Inventories used in the computation of cost of goods sold were:
October 1, 2000 July 1, 2001 ------------------ ------------------ (Restated - Note 2) (amounts in thousands) Raw materials $ 12,503 $ 13,643 Work in process 22,239 22,444 Finished goods 17,811 13,645 --------------- ------------------ $ 52,553 $ 49,732 =============== ==================
During the first quarter of fiscal year 2001, the Company changed its method of determining the cost of inventories at its Scottsdale subsidiary ("Scottsdale") from the last-in, first-out ("LIFO") method to the first-in, first-out ("FIFO") method. The Company believes that the FIFO method is preferable since it will enhance the comparability of the Company's financial statements by changing to the predominant method utilized in its industry and will conform all inventories of the Company to the same accounting method. In addition, Scottsdale has experienced improvements in productivity and permanent declines in inventory costs. Accordingly, the FIFO method will result in a better matching of revenues and costs and measurement of operating results. The Company has also applied to the Internal Revenue Service to change to the FIFO inventory costing method for income tax purposes. As required by Accounting Principles Board Opinion No. 20, Accounting Changes, all previously reported results have been restated to reflect the retroactive application of this accounting change as of the beginning of fiscal year 2000. The effect of the restatement was to increase retained earnings at October 1, 2000 by $39,000. The respective effects on net income for the three-month and nine-month periods ended July 2, 2000 were immaterial. 7 3. CONTINGENCY In Broomfield, Colorado, the owner of a property located adjacent to a manufacturing facility owned by a subsidiary of the Company had notified 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 that owner of the adjacent property for 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. 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, 2) assumed responsibility for 90% of all future clean-up costs, and 3) agreed to indemnify and protect the Company against any and all third-party claims relating to the contamination of the facility. An Integrated Corrective Action Plan has been submitted to the State of Colorado. 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. 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 matters, arising out of the normal conduct of its business, including from time to time litigation relating to commercial transactions, contracts, and environmental matters. In the opinion of management, the final outcome of these matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows. 4. COMPREHENSIVE INCOME Comprehensive income is defined 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 of the Company for the quarters ended July 2, 2000 (Restated-Note 2) and July 1, 2001 was $2,793,000 and $4,442,000, respectively. Total comprehensive income for the nine months ended July 2, 2000 (Restated-Note 2) and July 1, 2001 was $3,962,000 and $12,781,000, respectively. 5. EARNINGS PER SHARE Basic earnings per share have been computed based upon the weighted average number of common shares outstanding during the respective periods. Diluted earnings per share have been computed, when the result is dilutive, using the treasury stock method for stock options outstanding and giving effect to issuance of shares upon conversion of debt during the respective periods. Earnings per share for the respective quarters and respective nine months ended July 2, 2000 and July 1, 2001 were calculated as follows: 8
Quarter Ended Nine Months Ended --------------------------------- ------------------------------- July 2, 2000 July 1, 2001 July 2, 2000 July 1, 2001 ------------- ------------- ------------- ------------ (Restated - (Restated - Note 2) Note 2) (amounts in thousands, except per share data) BASIC Net income $ 2,823 $ 4,436 $ 3,994 $ 12,804 ============= ============= ============ ============ Weighted-average common shares outstanding 12,220 13,996 11,419 13,941 ============= ============= ============ ============ Basic earnings per share $ 0.23 $ 0.32 $ 0.35 $ 0.92 ============= ============= ============ ============ DILUTED Net income $ 2,823 $ 4,436 $ 3,994 $ 12,804 Interest savings from assumed conversions of convertible debt, net of income taxes 29 29 39 88 ------------- ------------- ------------ ------------ Net income assuming conversions $ 2,852 $ 4,465 $ 4,033 $ 12,892 ============= ============= ============ ============ Weighted-average common shares outstanding for basic 12,220 13,996 11,419 13,941 Dilutive effect of stock options 708 747 504 648 Dilutive effect of convertible debt 167 167 76 167 ------------- ------------- ------------ ------------ Weighted-average common shares outstanding on a diluted basis 13,095 14,910 11,999 14,756 ============= ============= ============ ============ Diluted earnings per share $ 0.22 $ 0.30 $ 0.34 $ 0.87 ============= ============= ============ ============
6. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which established new standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Company adopted SFAS No. 133 in fiscal year 2001; however, the adoption of this standard did not have any material impact on the consolidated results of operations, financial position or cash flows of the Company. In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 establishes new accounting and reporting standards for business combinations and will require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. Use of the pooling-of-interest method will be prohibited. SFAS No. 142, which changes the accounting for goodwill from an amortization method to an impairment-only approach, will be effective no later than the first quarter of fiscal year 2003. The Company is currently evaluating the impact of adopting SFAS No. 141 and No. 142. 9 7. SEGMENT INFORMATION The Company's reportable operating segments are based on geographic location, and the measure of segment profit is income from operations. The Company operates predominantly in a single industry segment as a manufacturer of discrete semiconductors and whole-circuit solutions. Geographic areas in which the Company operates include the United States, Europe and Asia. 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:
Nine Months Ended --------------------------------------------------------- July 2, 2000 July 1, 2001 --------------------------- ------------------- (Restated - Note 2) (amounts in thousands) Net sales: United States Sales to unaffiliated customers $ 165,795 $ 163,491 Intergeographic sales 13,898 21,006 Europe Sales to unaffiliated customers 13,731 20,298 Intergeographic sales 2,648 3,924 Asia Sales to unaffiliated customers 2,678 2,436 Intergeographic sales 2,792 3,355 Eliminations of intergeographic sales (19,338) (28,285) ------------------ ------------------- $ 182,204 $ 186,225 ================== =================== Income (loss) from operations: United States $ 8,602 $ 17,079 Europe 509 949 Asia 94 297 ------------------ ------------------- Total $ 9,205 $ 18,325 ================== =================== Capital expenditures: United States $ 7,253 $ 10,464 Europe - 201 Asia 47 - ------------------ ------------------- Total $ 7,300 $ 10,665 ================== =================== Depreciation and amortization: United States $ 8,626 $ 8,835 Europe (92) 179 Asia 218 178 ------------------ ------------------- Total $ 8,752 $ 9,192 ================== ===================
October 1, 2000 July 1, 2001 --------------------------- ------------------ (Restated - Note 2) (amounts in thousands) Identifiable assets: United States $ 195,693 $ 199,199 Europe 8,401 11,909 Asia 6,704 5,977 ------------------ ------------------ Total $ 210,798 $ 217,085 ================== ==================
10 8. SUBSEQUENT EVENTS On June 12, 2001, Microsemi announced that it had entered into an agreement in principle to acquire the assets of Compensated Devices, Inc. (CDI), of Melrose, MA. Microsemi will pay $11.5 million for CDI in a combination of cash and one- year notes that are payable in cash and/or shares of Microsemi's common stock, at Microsemi's option and assume certain liabilities. This acquisition is expected to be completed in the fourth quarter of fiscal year 2001. On July 31, 2001, Microsemi announced that its stockholders approved the proposed increase in the number of authorized shares of its Common Stock from 20 million to 100 million pursuant to written consents. Based on this approval, the board of directors of Microsemi has declared a 2-for-1 stock split to be effected by a dividend payable in shares of Common Stock. The dividend is payable August 28, 2001 to stockholders of record as of the close of business on August 14, 2001. Stockholders will receive one additional share of Common Stock for every one share held on the record date. As a result of the stock split, Microsemi's outstanding shares of Common Stock would increase from 14,072,286 (including 1,013 treasury shares), to 28,144,572 shares, estimated based upon the currently outstanding shares. On August 2, 2001, Micro NES Acquisition Corp.("MNES"), a wholly-owned subsidiary of Microsemi and New England Semiconductor Corp. and a wholly-owned subsidiary thereof ("NESC") consummated a purchase and sale of assets. MNES plans to operate the acquired business or assets at the same physical location in Lawrence, Massachusetts where the seller has operated them prior to August 2, 2001. MNES has paid approximately $3.3 million cash to the seller, approximately $6 million was paid with a one-year promissory note and the balance of approximately $5 million was mostly paid in the form of cash or assumed loans and other obligations specified in the agreement. The parties arrived at the price and terms on the basis of negotiations which resulted in a letter of intent signed and announced by Microsemi in early June 2001. MNES paid for the acquisition with a loan from Microsemi. NESC and its shareholders previously had no material relationship with Microsemi, its directors or officers, or their respective associates. Another subsidiary of Microsemi had been a sublessor to New England Semiconductor Corp., and that sublease was terminated as part of this transaction. 11 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 adversely impacted by any of the factors discussed below or the additional factors 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 accompanying 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 1, 2000. INTRODUCTION - ------------ Microsemi Corporation is a leading designer, manufacturer and marketer of analog, mixed-signal and discrete semiconductors. The Company's semiconductors manage and regulate power, protect against transient voltage spikes and transmit, receive and amplify signals. Microsemi's products include individual components as well as whole-circuit solutions that enhance customer end products by providing battery optimization, reducing size or protecting circuits. Microsemi's 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, and cable and fiber optic systems. These high growth opportunities have emerged from ongoing capabilities in designing and manufacturing semiconductors for military, satellite and medical applications. The Company serves 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. The Company's diverse customer base includes Motorola, Lockheed Martin, Seagate, Mitsubishi, Guidant, Samsung, Medtronic, Boeing, Palm, Dell and Compaq. Results Of Operations For The Quarter Ended July 2, 2000 (Restated-Note 2) Compared To The Quarter Ended July 1, 2001. Net sales decreased $6.5 million, from $66.6 million for the third quarter of fiscal year 2000 to $60.1 million for the third quarter of fiscal year 2001. The decrease was primarily attributable to a decline in products sold to the low-end PC and mobile telephone markets and by the reduction or elimination of revenues generated by subsidiaries that were sold or closed, partially offset by higher sales of power management, TVS and RF/Microwave products to the mobile connectivity and telecommunications markets, as well as increased sales to the military and space/satellite customers. The Company sold the assets of its Micro Commercial Components division ("MCC") and closed this division in June 2000. The Company also discontinued the operations of BKC Semiconductors, Inc. ("BKC") in September 2000 and Microsemi (H.K.) Ltd. ("Hong Kong") in June 2001. For the quarter ended July 2, 2000, MCC, BKC and Hong Kong had revenues of $2.5 million, $2.0 million and $1.0 million, respectively. For the quarter ended July 1, 2001, Hong Kong had revenues of $0.6 million. Gross profit increased $1.4 million, from $19.1 million for the third quarter of fiscal year 2000 to $20.5 million for the third quarter of fiscal year 2001. As a percentage of sales, gross profit was 28.6% for the third quarter of fiscal year 2000, compared to 34.1% for the third quarter of fiscal year 2001. This increase was due primarily to higher capacity utilization, a shift in revenues from lower-margin commodity products in the computer/peripherals and industrial markets to higher-margin application-specific products in the mobile connectivity, telecommunications, medical and commercial satellite markets, which is expected to continue for the remainder of the year, and the consolidation of certain operations that produced lower margin products. MCC, BKC and Hong Kong had gross profit of $0.0 million, $1.0 million and $0.2 million in the quarter ended July 2, 2000. Hong Kong had a gross profit of $0.2 in the quarter ended July 1, 2001. Selling, general and administrative expenses decreased from $10.3 million for the third quarter of fiscal year 2000 to $9.5 million for the third quarter of fiscal year 2001, primarily due to eliminations of expenditures of the businesses that were sold or closed. 12 Research and development expense increased $1.1 million, from $3.0 million for third quarter of fiscal year 2000 to $4.1 million for the third quarter of fiscal year 2001. The increase was primarily due to higher spending to develop power management and RF/Microwave products for the mobile connectivity, telecommunications and medical markets. The effective income tax rate was 33.0% in the quarters ended July 2, 2000 and July 1, 2001, respectively. Results Of Operations For The Nine Months Ended July 2, 2000 (Restated-Note 2) Compared To The Nine Months Ended July 1, 2001. Net sales increased $4.0 million, from $182.2 million for the first nine months of fiscal year 2000 to $186.2 million for the first nine months of fiscal year 2001. The increase was primarily attributable to higher sales of power management, TVS and RF/Microwave products to the mobile connectivity and telecommunications markets, as well as sales to the military and space/satellite customers, partially offset by a decline in products sold to the low-end PC and mobile telephone markets, partially offset by revenues generated by divisions that were sold or closed. The Company sold the assets of its MCC division and closed this division in June 2000. The Company also discontinued the operations of BKC in September 2000, Microsemi PPC Inc. ("PPC") in March 2001 and Hong Kong in June 2001. For the nine months ended July 2, 2000, MCC, BKC, PPC and Hong Kong had revenues of $9.8 million, $6.3 million, $3.2 million and $2.7 million, respectively. For the nine months ended July 1, 2001, PPC and Hong Kong had revenues of $2.8 million and $2.4 million, respectively. Gross profit increased $11.2 million, from $49.8 million for the first nine months of fiscal year 2000 to $61.0 million for the first nine months of fiscal year 2001. As a percentage of sales, gross profit was 27.3% for first nine months of fiscal year 2000, compared to 32.8% for the corresponding period of fiscal year 2001. This increase was due primarily to higher capacity utilization and a shift in revenues from lower-margin commodity products in the computer/peripherals and industrial markets to higher-margin application- specific products in the mobile connectivity, telecommunications, medical and commercial satellite markets, and the closures of certain operations that produced lower-margin products. MCC, BKC, PPC and Hong Kong had gross profit of $1.0 million, $3.2 million, $0.0 million and $0.3 million in the first nine months of fiscal year 2000. PPC and Hong Kong had gross profit of $1.0 million and $0.7 million in the first nine months of fiscal year 2001. Selling, general and administrative expenses increased $0.9 million from $28.4 million for the first nine months of fiscal year 2000 to $29.3 million for the first nine months of fiscal year 2001, primarily due to increased expenditures to support the increase in sales, partially offset by the elimination and reduction of expenses incurred by the subsidiaries that were sold or closed. Research and development expense increased $3.3 million, from $8.0 million for the first nine months of fiscal year 2000 to $11.3 million for the first nine months of fiscal year 2001. The increase was primarily due to higher spending on development of power management and RF/Microwave products for the mobile connectivity, telecommunications and medical markets. The effective income tax rate was 33.0% in the nine months ended July 2, 2000 and July 1, 2001, respectively. Capital Resources And Liquidity Net cash provided by operating activities was $27.7 million and $15.2 million for the first nine months of fiscal years 2000 and 2001, respectively. The net cash provided by operating activities was $12.4 million less in the first nine months of fiscal year 2001 than had been provided in the same period of fiscal year 2000 as a result of the combined impact of greater net income during the first nine months of fiscal year 2001, more than offset by the combined effect of differences in certain non-cash financial statement items, such as the provision for returns and doubtful accounts, acquired in-process research and development, accounts receivable, inventories, other current assets, accrued liabilities and taxes. 13 Net cash used in investing activities was $7.5 million and $9.4 million for the nine months ended July 2, 2000 and July 1, 2001, respectively. The net cash used in investing activities was $1.9 million more in the first nine months of fiscal year 2001 than it had been in the first nine months of fiscal year 2000, primarily due to a higher amount of purchases of property and equipment in the first nine months of fiscal year 2001. Net cash (used in) provided by financing activities was ($2.5) million and $1.1 million for the first nine months of fiscal years 2000 and 2001, respectively. In the first nine months of fiscal year 2000 the Company repaid a large portion of the Company's debt with proceeds from sales of its common stock and from exercises of employee stock options. The net cash provided from financing in the first nine months of fiscal year 2001 was primarily a combined result of proceeds from exercises of employee stock options, partially offset by repayment of a smaller portion of the Company's debt. Microsemi's operations in the nine months ended July 1, 2001 were funded with internally generated funds. The Company has maintained a credit line with a bank, from which it can borrow up to $30 million. The credit line is secured by substantially all of the assets of the Company. This credit line expires in March 2003. As of July 1, 2001, there were no funds borrowed under this credit facility. The credit line includes a facility to issue letters of credit, and $4.1 million was outstanding in the form of letters of credit as of July 1, 2001. At July 1, 2001, Microsemi had $37.4 million in cash and cash equivalents. Based upon information currently available, management believes that Microsemi can meet its current operating cash and debt service requirements with internally generated funds together with its available borrowings. 14 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". These statements include those that contain words like "may," "will," "could," "should," "project," "believe," "anticipate," "expect," "plan," "estimate," "forecast," "potential," "intend," "maintain," "continue" and variations of these words or comparable words. In addition, all of the non- historical information herein is forward-looking, include any statement or implication about a future time, result or other circumstance. Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties. Actual results may differ substantially from the results that the forward-looking statements suggest for various reasons. These forward- looking statements are made only as of the date of this report. Microsemi does 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 Microsemi will be able to meet its current operating cash and debt service requirements, that Microsemi will be able to successfully resolve disputes and other business matters as anticipated, that competitive conditions within the analog, mixed signal and discrete semiconductor, integrated circuit or custom component assembly industries will not affect the Company materially or adversely, that Microsemi will retain existing key personnel, that Microsemi's forecasts will reasonably anticipate market demand for its products, and that there will be no other material adverse change in its 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 Microsemi to alter its internal forecasts, which may in turn affect results or expectations. Microsemi Corporation does not undertake to announce publicly these changes that may occur in our expectations after the periods presented herein. Readers are cautioned against giving undue weight to any of the forward-looking statements. Adverse changes to our results could result from any number of factors, including for example fluctuations in economic conditions, potential effects of inflation, lack of earnings visibility, dependence upon certain customers or markets, dependence upon suppliers, future capital needs, rapid technological changes, difficulties in integrating acquired businesses, ability to realize cost savings or productivity gains, potential cost increases, dependence on key personnel, difficulties regarding hiring and retaining qualified personnel in a competitive labor market, risks of doing business in international markets, and problems of third parties. The inclusion of forward-looking information should not be regarded as a representation by Microsemi or any other person that its objectives or plans will be achieved. 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 annual report in the Form 10-K as filed with the Securities and Exchange Commission in December 2000, 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 included therein. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Inapplicable. 15 PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- Inapplicable. Item 2. Changes in Securities --------------------- None Item 3. Defaults Upon Senior Securities ------------------------------- Inapplicable Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None Item 5. Other information ----------------- Inapplicable Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: None (b) Reports on Form 8-K: None 16 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 Executive Vice President and Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer and duly authorized to sign on behalf of the Registrant) DATED: August 13, 2001 17 -----END PRIVACY-ENHANCED MESSAGE-----