-----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, GoDFsIQbPdHwmDk2+qa2PpINLH47xtXBsCFd322DiVMGQyz0E6QMclq4TIR76QEM Pm5MBwpXwpp/J9F49YbTkg== 0001017062-98-001726.txt : 19980812 0001017062-98-001726.hdr.sgml : 19980812 ACCESSION NUMBER: 0001017062-98-001726 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980628 FILED AS OF DATE: 19980811 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: 98682322 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 FOR PERIOD ENDED JUNE 28, 1998 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 28, 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 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 28, 1998 was 11,777,276. 1 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS The unaudited consolidated financial information for the quarter and nine months ended June 28, 1998 of Microsemi Corporation and Subsidiaries (the "Company" or "Microsemi") 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)
June 28, 1998 September 28, 1997 -------------- ------------------ ASSETS Current assets Cash and cash equivalents $ 7,210 $ 6,145 Accounts receivable less allowance for doubtful accounts of $1,518 at June 28, 1998 and $2,665 at September 28, 1997 23,249 25,093 Inventories 53,818 53,248 Deferred income taxes 8,252 8,160 Other current assets 1,859 4,363 -------- -------- Total current assets 94,388 97,009 -------- -------- Property and equipment, at cost 72,452 70,485 Less: Accumulated depreciation (36,199) (35,614) -------- -------- 36,253 34,871 -------- -------- Goodwill 9,940 133 -------- -------- Other 5,629 3,181 -------- -------- $146,210 $135,194 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable to banks and others $ 5,191 $ 4,633 Current maturity of long-term debt 4,658 3,574 Accounts payable 5,054 11,304 Accrued liabilities 16,602 15,942 Income taxes payable 4,664 5,743 -------- -------- Total current liabilities 36,169 41,196 -------- -------- Deferred income taxes 2,598 2,544 -------- -------- Long-term debt 20,050 47,621 -------- -------- Other long-term liabilities 1,942 1,924 -------- -------- Stockholders' equity Common stock, $.20 par value; authorized 20,000 shares; issued 11,777 shares at June 28, 1998 and 8,736 shares at September 28, 1997 2,355 1,747 Paid-in capital 50,382 16,197 Retained earnings 33,598 24,743 Cumulative foreign currency translation adjustment (884) (778) -------- -------- Total stockholders' equity 85,451 41,909 -------- -------- $146,210 $135,194 ======== ========
See accompanying Notes to Unaudited Consolidated Financial Statements. 3 MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Statements of Operations (amounts in 000's, except earnings per share)
13 Weeks Ended 13 Weeks Ended June 28, 1998 June 29, 1997 -------------- -------------- Net sales $39,291 $42,648 Cost of sales 28,417 30,963 ------- ------- Gross profit 10,874 11,685 ------- ------- Operating expenses: Selling 3,275 2,416 General and administrative 3,348 3,131 ------- ------- Total operating expenses 6,623 5,547 ------- ------- Income from operations 4,251 6,138 ------- ------- Other expenses: Interest expense (net) (394) (906) Other (71) (89) ------- ------- Total other expenses (465) (995) ------- ------- Income before income taxes 3,786 5,143 Provision for income taxes 1,439 2,116 ------- ------- Net income $ 2,347 $ 3,027 ======= ======= Earnings per share: -Basic $ 0.20 $ 0.35 ======= ======= -Diluted $ 0.20 $ 0.28 ======= ======= Weighted average common shares outstanding: -Basic 11,777 8,709 -Diluted 11,964 11,898
See accompanying Notes to Unaudited Consolidated Financial Statements. 4 MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Statements of Operations (amounts in 000's, except earnings per share)
39 Weeks Ended 39 Weeks Ended June 28, 1998 June 29, 1997 -------------- -------------- Net sales $124,537 $119,064 Cost of sales 89,963 86,593 -------- -------- Gross profit 34,574 32,471 -------- -------- Operating expenses: Selling 8,306 7,006 General and administrative 10,204 9,912 -------- -------- Total operating expenses 18,510 16,918 -------- -------- Income from operations 16,064 15,553 -------- -------- Other expenses: Interest expense (net) (1,736) (2,826) Other (45) (257) -------- -------- Total other expenses (1,781) (3,083) -------- -------- Income before income taxes 14,283 12,470 Provision for income taxes 5,428 5,159 -------- -------- Net income $ 8,855 $ 7,311 ======== ======== Earnings per share: -Basic $ 0.85 $ 0.87 ======== ======== -Diluted $ 0.79 $ 0.70 ======== ======== Weighted average common shares outstanding: -Basic 10,386 8,428 -Diluted 11,984 11,861
See accompanying Notes to Unaudited Consolidated Financial Statements. 5 MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Statements of Retained Earnings (amounts in 000's)
39 Weeks Ended 39 Weeks Ended June 28, 1998 June 29, 1997 -------------- -------------- Retained earnings at beginning of period $ 24,743 $ 13,692 Net income 8,855 7,311 -------- -------- Retained earnings at end of period $ 33,598 $ 21,003 ======== ========
See accompanying Notes to Unaudited Consolidated Financial Statements. 6 MICROSEMI CORPORATION AND SUBSIDIARIES Unaudited Consolidated Statements of Cash Flows (amounts in 000's)
39 Weeks Ended 39 Weeks Ended June 28, 1998 June 29, 1997 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 8,855 $ 7,311 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,538 2,886 (Decrease) increase in allowance for doubtful accounts (1,121) 394 Changes in assets and liabilities, net of acquisitions and disposition: Accounts receivable 856 (999) Inventories (3,041) 1,051 Other current assets 2,397 (668) Other assets 366 (1,736) Accounts payable (3,971) (681) Accrued liabilities 1,286 455 Income taxes payable (1,197) 952 Other (144) (6) -------- ------- Net cash provided by operating activities 7,824 8,959 -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for acquisitions (13,740) (2,200) Proceeds from disposition 5,000 - Investment in an unconsolidated affiliate (1,000) - Purchases of property and equipment (4,342) (5,618) -------- ------- Net cash used in investing activities (14,082) (7,818) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in notes payable to banks and others (1,261) (1,806) Increase in long-term debt 10,000 3,355 Payments on long-term debt (1,988) (2,117) Increase (decrease) of other long-term liabilities 18 (48) Exercise of employee stock options 554 207 -------- ------- Net cash provided by (used in) financing activities 7,323 (409) -------- ------- Net increase in cash and cash equivalents 1,065 732 Cash and cash equivalents at beginning of period 6,145 4,059 -------- ------- Cash and cash equivalents at end of period $ 7,210 $ 4,791 ======== =======
See accompanying Notes to Unaudited Consolidated Financial Statements. 7 MICROSEMI CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS June 28, 1998 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 financial statements and notes thereto included 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:
June 28, 1998 September 28, 1997 ------------- ------------------ (amounts in 000's) Raw materials $15,273 $15,954 Work in process 21,271 23,774 Finished goods 17,274 13,520 ------- ------- $53,818 $53,248 ======= =======
3. ACCRUED LIABILITIES Accrued liabilities consist of:
June 28, 1998 September 28, 1997 ------------- ------------------ (amounts in 000's) Accrued payroll, profit sharing, $ 9,039 $ 9,016 benefits and related taxes 2,261 2,641 Accrued interest 5,302 4,285 Other accrued liabilities ------- ------- $16,602 $15,942 ======= =======
8 4. BORROWINGS Long-term debt consisted of:
June 28, 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 $ 2,305 $ 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 lease due to GE Capital Public Finance, Inc., bearing interest at 5.93%, payable in monthly installments through July 2,205 2,700 2002 Notes payable (PPC acquisition) bearing interest at 7% due monthly through September 2009 2,164 2,370 Note payable to Imperial Bank, bearing interest at the bank prime rate, payable in monthly installments through July 2003 10,000 - Notes payable-bearing interest at rates in ranges of 5% - 10% due between July 1998 and July 2002 3,734 4,244 ----------- ------------ 24,708 51,195 Less current portion (4,658) (3,574) ----------- ------------ $ 20,050 $ 47,621 =========== ============
A $2,305,000 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 $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. A principal payment of $1,050,000 was made in February 1998. 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. 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 June 28, 1998. 9 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 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, Microsemi gave notice that all outstanding debentures would be redeemed, subject to conversion at the election of the holders prior to the redemption date, and $33,234,000 in principal amount 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 lease 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 $2,164,000 at June 28, 1998, related to the PPC acquisition, payable to the former owners, bearing an interest rate of 7%, due in monthly installments over various periods through September 2009. In June 1998, the Company finalized an amendment of its existing bank credit facility which added a $10,000,000 term loan used by Microsemi to finance a portion of the BKC acquisition. The terms of the term loan require monthly payments of $167,000 plus interest at the bank's prime rate from August 1998 through July 2003. The amended credit agreement maintains a revolving credit facility with domestic banks 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 bears interest at the bank's prime rate 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 June 28, 1998. As of June 28, 1998, $3,900,000 was borrowed under this credit facility. 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 10 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. Earnings per share for the quarters and nine months ended June 28, 1998 and June 29, 1997 were calculated as follows:
Quarter ended Nine months ended ------------------------------ ----------------------------- 6/28/98 6/29/97 6/28/98 6/29/97 ------------ ------------- ------------ ------------ (in 000's, except per share data) BASIC Net income $ 2,347 $ 3,027 $ 8,855 $ 7,311 ============ ============= ============ ============ Weighted-average common shares outstanding 11,777 8,709 10,386 8,428 ============ ============= ============ ============ Basic earnings per share $ 0.20 $ 0.35 $ 0.85 $ 0.87 ============ ============= ============ ============ DILUTED Net income $ 2,347 $ 3,027 $ 8,855 $ 7,311 Interest savings from assumed conversions of convertible debt, net of income taxes - 309 618 935 ------------ ------------- ------------ ------------ Net income assuming conversions $ 2,347 $ 3,336 $ 9,473 $ 8,246 ============ ============= ============ ============ Weighted-average common shares outstanding 11,777 8,709 10,386 8,428 Stock options 187 334 284 357 Convertible debt - 2,855 1,314 3,076 ------------ ------------- ------------ ------------ Weighted-average common shares outstanding on a diluted basis 11,964 11,898 11,984 11,861 ============ ============= ============ ============ Diluted earnings per share $ 0.20 $ 0.28 $ 0.79 $ 0.70 ============ ============= ============ ============
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 - -------------------------
39 weeks ended 39 weeks ended June 28, 1998 June 29, 1997 --------------------- --------------------- (amounts in 000's) Cash paid during the period for: Interest $ 1,349 $ 2,059 ===================== ===================== Income taxes $ 6,763 $ 4,004 ===================== ===================== 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 $ 7,260 $ 2,200 Goodwill 9,839 - Less debt assumed (3,359) - --------------------- --------------------- Cash paid for acquisition $ 13,740 $ 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 a $2,000,000 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. 12 8. ACQUISITION On May 15, 1998, the Company acquired BKC Semiconductors, Incorporated (BKC), located in Lawrence, Massachusetts, for approximately $13,740,000 in cash plus existing indebtedness of BKC of approximately $3,359,000. Microsemi financed this acquisition with cash on hand and advances under its existing credit facilities as amended. BKC was 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 was accounted for under the purchase method. The costs of the acquisition were allocated to the assets acquired and liabilities assumed based on their estimated fair market values to the extent of the purchase price. The Company's unaudited consolidated results of operations for the quarter and nine months ended June 28, 1998 included the operations of BKC since the date of acquisition. The unaudited balance sheet at June 28, 1998 reflected the Company's allocation of the purchase price to the assets and liabilities of BKC based upon the Company's current estimates of the relative values of the assets acquired and liabilities assumed. The Company recorded approximately $9,800,000 of goodwill related to this acquisition. The final allocation of the purchase price may vary as additional information is obtained, and accordingly, the ultimate allocation may differ from those used in the unaudited consolidated financial statements included herein. 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 a $2,000,000 note receivable. Microsemi did not realize any material gain or loss from this transaction. 10. NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"), which will become effective in fiscal 1999. FAS 130 establishes standards for reporting and displaying of comprehensive income and its components in the Company's consolidated financial statements. Comprehensive income is defined in FAS 130 as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company does not expect the adoption of FAS 130 to have a material impact on its reported consolidated financial condition or results of operations. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information" ("FAS 131"), which will become effective in fiscal 1999. FAS 131 establishes standards for the way publicly-held companies report information about operating segments as well as disclosures about products and services, geographic areas and major customers. However, the Company does not expect the adoption of FAS 131 to have a material impact on its reported consolidated financial condition or results of operations. 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 adversely 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 nine months ended June 28, 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 June 28, 1998, $3,900,000 was borrowed under this credit facility. At June 28, 1998, the Company had $7,210,000 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. 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 at par. (See Note 4 of Notes to Unaudited Consolidated Financial Statements). 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 a $2,000,000 promissory note. Microsemi did not realize any material gain or loss from this transaction. 14 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, manufactures and markets power amplifier semiconductor components targeted at the cellular and wireless communication markets. In May 1998, the Company acquired BKC Semiconductors Incorporated (BKC), located in Lawrence, Massachusetts for approximately $13,740,000 in cash plus existing indebtedness of BKC of approximately $3,359,000. Microsemi financed this acquisition with cash on hand, a $10,000,000 term loan and borrowings under its existing credit facilities. BKC was 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 was accounted for under the purchase method. The Company has no other significant capital commitments. 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. RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 28, 1998 COMPARED TO THE QUARTER ENDED JUNE 29, 1997. Net sales for the third quarter of fiscal year 1998 decreased $3,357,000 to $39,291,000, from $42,648,000 for the third quarter of fiscal year 1997. Sales for third quarter of fiscal 1998 included $1,891,000 and $1,464,000 generated by the PPC and BKC divisions which were acquired in September 1997 and May 1998, respectively. Sales for the third quarter of fiscal 1997 included $3,235,000 from GMI, which was sold on December 31, 1997. The remaining decrease of $3,477,000, excluding the acquisitions and the disposition, was primarily due to lower demand for commercial space, telecommunications and commercial products. Gross profit decreased $811,000 to $10,874,000 or 27.7% of sales for the current quarter of fiscal year 1998 from $11,685,000 or 27.4% of sales for the third quarter of fiscal year 1997. Gross profit in the third quarter of fiscal year 1998 also included $792,000 and $558,000 from the PPC and BKC divisions. Gross profit in the third quarter of fiscal year 1997 included $593,000 from GMI. The remaining net decrease in gross profit was due to lower sales. Operating expenses for the third quarter of fiscal 1998 increased $1,076,000 compared to those of the corresponding period of the prior year. Operating expenses of PPC and BKC were $501,000 and $527,000, respectively, in the quarter ended June 28, 1998. Operating expenses of GMI were $347,000 in the quarter ended June 29, 1997. The net remaining increase was primarily due to sales and marketing expenses in the current period. Interest expense decreased $512,000 due to lower overall borrowings, principally the reduction of interest due to conversions of debentures and notes payable into shares of common stock. The effective tax rates of 38% and 41% in the third 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. 15 RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 28, 1998 COMPARED TO THE NINE MONTHS ENDED JUNE 29, 1997. Net sales for the first nine months of fiscal year 1998 increased $5,473,000 to $124,537,000, from $119,064,000 for the same period of fiscal year 1997. This increase was primarily due to the addition of $5,569,000 from PPC and $1,464,000 from BKC Products, which were acquired in September 1997, and May 1998, respectively. Sales of GMI were $4,298,000 and $9,719,000 in the nine-month periods ended June 28, 1998 and June 29, 1997, respectively. The remaining increase in sales was due to higher shipments of commercial space products in the beginning of the current fiscal year. Gross profit increased $2,103,000 to $34,574,000 or 27.8% of sales for the first nine months of fiscal year 1998 from $32,471,000 or 27.3% of sales for the same period of fiscal year 1997. Gross profit contributed by GMI was $637,000 and $1,720,000 in the nine-month periods ended June 28, 1998 and June 29, 1997, respectively. Gross profit contributed by PPC and BKC for the nine-month period ended June 28, 1998 was $2,690,000 and $558,000, respectively. The remaining increase in gross profit was due to higher sales. Operating expenses for the first nine months of fiscal year 1998 increased $1,592,000 compared to the corresponding period of the prior year. Operating expenses of GMI were $401,000 and $1,049,000 in the nine-month periods ended June 28, 1998 and June 29, 1997, respectively. The net remaining increase in operating expenses was primarily due to the addition of the PPC and BKC subsidiaries. Interest expense decreased $1,090,000 due to lower overall borrowings, principally the reduction of interest due to conversions of debentures and notes payable. The effective tax rates of 38% and 41% in the first nine 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. All information herein which is not historic, and any inference from historic information concerning future periods, is a forward-looking statement. 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 operations or business. Potential risks and uncertainties also include demand for and acceptance of the company's products, the success of planned marketing and promotional campaigns, environmental matters, litigation, and inventory obsolescence. Other factors that could cause results to vary materially from current expectations are discussed below or 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 16 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. Year 2000 - --------- Microsemi is currently modifying its software to be year 2000 compliant. The Company does not expect the cost of modification to be significant. Failure of the Company or its major customers, suppliers or service providers to address, timely and successfully, all relevant year 2000 compliance issues could have material adverse effects on the Company, including business disruption and claims by third parties. Order Backlog - ------------- The Company's consolidated order backlog was $59,000,000 as of June 28, 1998, compared to $73,000,000 at June 29, 1997 and $77,100,000 at September 28, 1997. The decrease in backlog primarily reflects a shift in the mix of business and a delay of orders from several commercial space customers. The aforementioned backlog amounts included $7,000,000 and $10,000,000 for GMI at June 29, 1997 and September 28, 1997, respectively. The backlog of PPC was $2,800,000 at September 28, 1997, and $2,400,000 at June 28, 1998. The backlog of BKC was $4,800,000 at June 28, 1998. (See Note 9 of Notes to Unaudited Consolidated Financial Statements). The decrease in backlog was primarily due to slower bookings from a number of market areas, most significantly for commercial space products. This in turn may be due in part to uncertainty in the electronics market generally. Many of the customers of the Company have been subject to adverse financial or market conditions, intense competition, and various other pressures to reduce inventory or curtail production. In addition, its customers generally do not apprise the Company of their future purchasing plans. Improvement in future bookings is still not clearly evident. 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. 17 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 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: Exhibit 2.1 The Agreement and Plan of Merger among the Company, Micro BKCA Acquisition Corp. and BKC Semiconductors Incorporated, dated January 21, 1998, was filed with Form 8-K on June 1, 1998 under the same exhibit number and is incorporated herein by this reference. Exhibit 27.1 Unaudited Financial Data Schedule for the nine months ended June 28, 1998. Exhibit 27.2 Restated Unaudited Financial Data Schedule for the fiscal year ended September 29, 1996, quarters ended December 19, 1996, March 30, 1997, June 29, 1997 and fiscal year ended September 28, 1997. Exhibit 27.3 Restated Unaudited Financial Data Schedule for the fiscal year ended October 1, 1995, quarters ended December 31, 1995, March 31, 1996, and June 30, 1996. (b) Reports on Form 8-K: On June 1, 1998, the completion of the acquisition of BKC Semiconductors Incorporated was reported under Item 2. 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: August 10, 1998 19 EXHIBIT INDEX Exhibit 2.1 The Agreement and Plan of Merger among the Company, Micro BKC Acquisition Corp. and BKC Semiconductors Incorporated, dated January 21, 1998, was filed with Form 8-K on June 1, 1998 under the same exhibit number and is incorporated herein by this reference. Exhibit 27.1 Unaudited Financial Data Schedule for the nine months ended June 28, 1998. Exhibit 27.2 Restated Unaudited Financial Data Schedule for the fiscal year ended September 29, 1996, quarters ended December 19, 1996, March 30, 1997, June 29, 1997 and fiscal year ended September 28, 1997. Exhibit 27.3 Restated Unaudited Financial Data Schedule for the fiscal year ended October 1, 1995, quarters ended December 31, 1995, March 31, 1996, and June 30, 1996. 20 EX-27.1 2 FINANCIAL DATA SCHEDULE - PERIOD ENDED 06/28/1998
5 1,000 9-MOS SEP-27-1998 SEP-29-1997 JUN-28-1998 7,210 0 24,767 1,518 53,818 94,388 72,452 36,199 146,210 36,169 20,050 0 0 2,355 83,096 146,210 124,537 124,537 89,963 89,963 45 0 1,736 14,283 5,428 8,855 0 0 0 8,855 .85 .79
EX-27.2 3 RESTATED FDS FOR PERIOD ENDED 09/29/1996
5 1,000 12-MOS 3-MOS 6-MOS 9-MOS 12-MOS SEP-29-1996 SEP-28-1997 SEP-28-1997 SEP-28-1997 SEP-28-1997 OCT-02-1995 SEP-30-1996 SEP-30-1996 SEP-30-1996 SEP-30-1996 SEP-29-1996 DEC-29-1996 MAR-30-1997 JUN-29-1997 SEP-28-1997 4,059 4,249 5,904 4,791 6,145 0 0 0 0 0 26,899 23,417 27,072 27,898 27,758 2,159 2,199 2,530 2,553 2,665 47,279 50,175 49,935 47,328 53,248 84,232 84,002 84,468 86,286 97,009 57,278 60,249 62,549 64,957 70,485 31,637 32,468 33,424 34,364 35,614 114,439 116,532 122,715 123,227 135,194 34,676 34,146 39,429 35,086 41,196 46,420 46,726 44,391 46,164 47,621 0 0 0 0 0 0 0 0 0 0 1,582 1,643 1,741 1,743 1,747 27,826 30,150 33,277 36,347 40,162 114,439 116,532 122,715 123,227 135,194 157,435 35,759 76,416 119,064 163,234 157,435 35,759 76,416 119,064 163,234 115,320 26,015 55,630 86,593 118,435 115,320 26,015 55,630 86,593 118,435 545 34 168 257 329 0 0 0 0 0 4,440 960 1,920 2,826 3,684 13,966 3,257 7,327 12,470 18,506 5,866 1,368 3,043 5,159 7,455 8,100 1,889 4,284 7,311 11,051 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 8,100 1,889 4,284 7,311 11,051 1.03 0.24 0.52 0.87 1.30 0.80 0.19 0.41 0.70 1.03
EX-27.3 4 RESTATED FDS FOR PERIOD ENDED 10/01/1995
5 1,000 12-MOS 3-MOS 6-MOS 9-MOS OCT-01-1995 SEP-29-1996 SEP-29-1996 SEP-29-1996 OCT-03-1994 OCT-02-1995 OCT-02-1995 OCT-02-1995 OCT-01-1995 DEC-31-1995 MAR-31-1996 JUN-30-1996 3,965 3,117 3,241 3,189 0 0 0 0 22,209 21,550 24,884 25,982 2,018 1,903 2,492 2,689 43,281 43,981 46,567 48,052 77,283 74,880 80,497 82,789 52,044 53,205 54,945 56,722 28,442 29,389 30,342 30,977 104,815 102,771 108,889 112,234 31,569 28,414 33,330 34,874 48,158 47,767 47,106 46,616 0 0 0 0 0 0 0 0 1,558 1,559 1,564 1,568 19,552 20,932 22,832 25,211 104,815 102,771 108,889 112,234 133,881 35,299 74,406 115,667 133,881 35,299 74,406 115,667 98,086 26,096 54,894 85,151 98,086 26,096 54,894 85,151 234 207 274 384 0 0 0 0 5,022 1,228 2,412 3,380 10,260 2,464 5,615 9,579 4,207 1,035 2,358 3,983 6,053 1,429 3,257 5,596 0 0 0 0 0 0 0 0 0 0 0 0 6,053 1,429 3,257 5,596 0.79 0.18 0.42 0.72 0.63 0.15 0.33 0.56
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