Microsemi Reports Third Quarter 2006 Results
IRVINE, Calif., July 27, 2006 (PRIMEZONE) -- Microsemi Corporation (Nasdaq:MSCC) today reported results for its third quarter of fiscal year 2006.
-- Net Sales for Third Quarter Increased 33 Percent over
Prior Year Quarter
-- Net Sales Increased 18 Percent in Third Quarter over
Second Quarter
-- GAAP Gross Margins 43.4 Percent
-- Non-GAAP Gross Margins 50.3 Percent
-- Positive Book-to-Bill Ratio of 1.07 to 1 for Third Quarter
Net sales for Microsemi's third quarter, ended July 2, 2006, were $100.2 million, up 33 percent from net sales of $75.2 million in the third quarter of 2005, and up 18 percent from net sales of $84.9 million in the second quarter of 2006. GAAP gross margins were 43.4 percent in the third quarter, a 140 basis point decrease from the 44.8 percent in the third quarter of 2005 and 160 basis point decrease from the 45.0 percent in the second quarter of 2006. GAAP results in the third quarter of 2006 include a one-time non-cash acquisition-related charge of $15.3 million for in-process research and development (IPR&D), $2.7 million for manufacturing profit in acquired inventory and $1.2 million in increased amortization. Third quarter GAAP net income was $0.1 million compared to $9.8 million in the third quarter of 2005 and $13.6 million in the second quarter of 2006. GAAP diluted earnings per share were $0.00 for the third quarter, compared to $0.15 in the third quarter of 2005 and $0.20 in the second qu arter of 2006. After the effects of the restructuring costs and other special charges and credits, our GAAP operating margins were 4.7 percent in the third quarter, compared to 17.7 percent in the third quarter of 2005 and 23.5 percent in the second quarter of 2006.
For the third quarter, non-GAAP net income was $20.1 million, up 75 percent from $11.5 million in the third quarter of 2005 and up 14 percent from $17.7 million in the second quarter of 2006. Non-GAAP diluted earnings per share in the third quarter were $0.28, up from $0.18 in the third quarter of 2005 and $0.26 in the second quarter of 2006. Non-GAAP gross margins were 50.3 percent in the third quarter, compared to 46.6 percent in the third quarter of 2005 and 51.1 percent in the second quarter of 2006. Non-GAAP operating margins were 30.0 percent in the third quarter, a 900 basis point increase over the 21.0 percent in the third quarter of 2005. Non-GAAP operating margins were 30.7 percent in the second quarter of 2006. Non-GAAP results are explained and reconciled to GAAP results in the attached tables. Non-GAAP income and non-GAAP operating margins exclude transitional idle capacity and inventory abandonments, manufacturing profit in acquired inventory, in-process research and development, amortizat ion of intangible assets, stock option compensation, gain or loss on disposition of assets and restructuring and other special charges.
For the third quarter, the income tax rate was 98.1 percent compared to 29.0 percent for the third quarter of 2005 and 35.1 percent for the second quarter of 2006. The increase in the income tax rate for the quarter was due primarily to the non-deductibility for tax purposes of the acquisition-related $15.3 million IPR&D charge.
For the third quarter, the non-GAAP income tax rate was 35.7 percent compared to 29.0 percent for the third quarter of 2005 and 35.1 percent for the second quarter of 2006. The increase in tax rates was due to higher proportions of income being taxed in the United States as a result of the acquisition and a reduction in tax benefits and credits.
James J. Peterson, President and Chief Executive Officer, stated, "Microsemi experienced another strong quarter as evidenced by our impressive non-GAAP results and record shipments in excess of $100 million. We are pleased that we achieved our post-acquisition non-GAAP operating margin target of 30 percent two quarters ahead of original plan. The integration of APT's operations is on track and we anticipate that its positive contributions will have a greater impact on operations in 2007."
Mr. Peterson concluded, "We remain confident that we will exceed overall industry growth expectations in both our high reliability semiconductor and high performance analog mixed signal businesses. We remain focused on driving growth with the acceptance of our new products and leveraging efficiencies going forward to further improve profitability in the coming years."
The book-to-bill ratio for the quarter was 1.07 to 1, which reflects strength in the Company's high reliability semiconductor products and demand for its new high performance analog and mixed signal products.
Business Outlook
We expect that for the fourth quarter of fiscal year 2006, our sales will increase between 7 percent and 9 percent sequentially. On a non-GAAP basis, we expect earnings for the fourth quarter of fiscal year 2006 to be $0.29 to $0.31 per diluted share.
Microsemi regularly announces a quarterly outlook in the form of issuing a news release and does not undertake to update any of this information between such public announcements. Please refer to the "SAFE HARBOR" STATEMENT below for risks that may affect future actual results.
About Microsemi Corporation
Microsemi Corporation, with corporate headquarters in Irvine, California, is a leading designer, manufacturer and marketer of high performance analog and mixed signal integrated circuits and high reliability semiconductors. The company's semiconductors manage and control or regulate power, protect against transient voltage spikes and transmit, receive and amplify signals.
Microsemi's products include individual components as well as integrated circuit solutions that enhance customer designs by improving performance, reliability and battery optimization, reducing size or protecting circuits. The principal markets the company serves include implantable medical, defense/aerospace and satellite, notebook computers, monitors and LCD TVs, automotive and mobile connectivity applications. More information may be obtained by contacting the company directly or by visiting its web site at http://www.microsemi.com.
The Microsemi Corporation logo is available at http://www.primezone.com/newsroom/prs/?pkgid=1233
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Any statements set forth in the news release that are not entirely historical and factual in nature are forward-looking statements. For instance, all statements of plans, beliefs, or expectations are forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Potential risks and uncertainties include, but are not limited to, such factors as changes in generally accepted accounting principles, the difficulties regarding the making of estimates and projections, in the hiring and retention of qualified personnel in a competitive labor market, of acquiring and integrating new operations or assets, or in closing or disposing of operations or assets, or possible difficulties in transferring work from one plant to another, or regarding rapidly changing technology and product obsolescence, difficulties predicting the timing a nd costs of plant closures, the potential inability to realize cost savings or productivity gains or other impediments to improving capacity utilization, potential cost increases, weakness or competitive pricing environment of the marketplace, uncertain demand for and acceptance of the company's products, unexpected results of in-process or planned development or marketing and promotional campaigns, changes in demand for products, difficulties foreseeing future demand, inventory adjustments by customers, customer order cancellations, effects of limited visibility of future sales, potential non-realization of expected orders or non-realization of backlog, product returns, product liability, and other potential adverse business and economic conditions or adverse changes in current or expected industry conditions, business disruptions, travel disruptions, embargoes, epidemics, disasters, wars or potential future effects of the tragic events of September 11, variations in customer order preferences, fluctuations in market prices of the company's common stock and potential unavailability of additional capital on favorable terms, difficulties in implementing company strategies, dealing with environmental matters, other regulatory matters, or any matters involving litigation, arbitration, or investigation, difficulties and costs imposed by law, including Section 404 of the Sarbanes-Oxley Act of 2002, difficulties in determining the scope of, and procuring and maintaining, adequate insurance coverage, difficulties, and costs of protecting patents and other proprietary rights, work stoppages, labor issues, inventory obsolescence, difficulties regarding customer qualification of products, manufacturing facilities and processes, and other difficulties managing consolidation or growth, including in the maintenance of internal controls, the implementation of information systems, and the training of personnel. In addition to these factors and any other factors mentioned elsewhere in this news release, the reader should refer as well to the factors, uncertainties or risks identified in the company's most recent Form 10-K and subsequent Form 10-Q reports filed with the SEC. Additional risk factors shall be identified from time to time in Microsemi's future filings. Microsemi does not undertake to supplement or correct any information in this release that is or becomes incorrect.
To supplement the consolidated financial results prepared in accordance with Generally Accepted Accounting Principles ("GAAP"), we use non-GAAP financial measures (non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP income before taxes, non-GAAP net income, and non-GAAP diluted earnings per share) that exclude transitional idle capacity and inventory abandonments, manufacturing profit in acquired inventory, in-process research and development, amortization of intangible assets, stock option compensation, gain or loss on disposition of assets and restructuring and other special charges. Management excludes these items because it believes that the non-GAAP measures enhance an investor's overall understanding of the Company's financial performance and future prospects by being more reflective of the Company's core operational activities and to be more comparable with the results of the Company over various periods. Management uses non-GAAP financial measures in ternally for strategic decision making, forecasting future results and evaluating current performance. Guidance is provided only on a non-GAAP basis due to the inherent difficulty of forecasting the timing or amount of such items. These items could be materially significant in our GAAP results in any period. By disclosing non-GAAP financial measures, management intends to provide investors with a more meaningful, consistent comparison of the Company's core operating results and trends for the periods presented. Non-GAAP financial measures are not prepared in accordance with GAAP; therefore, the information is not necessarily comparable to other companies and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.
Investor Inquiries: David R. Sonksen, Microsemi Corporation, Irvine, CA (949) 221-7101.
MICROSEMI CORPORATION
Unaudited Consolidated Income Statements
(In thousands, except per share amounts)
Quarter ended Nine months ended
------------------- -------------------
July 2, July 3, July 2, July 3,
2006 2005 2006 2005
-------- -------- -------- --------
NET SALES $100,221 $ 75,214 $267,233 $218,286
Cost of sales 56,748 41,523 146,072 130,803
-------- -------- -------- --------
GROSS MARGIN 43,473 33,691 121,161 87,483
Operating expenses:
Selling, general and
administrative 14,238 15,680 41,531 39,367
In-process research &
development 15,300 -- 15,300 --
Research and development 6,678 4,583 16,397 14,186
Amortization of intangible
assets 1,403 229 1,846 688
Restructuring
charges/(credits) 1,137 (208) 2,298 2,727
(Gain)/loss on dispositions
of assets (15) 95 (17) 547
-------- -------- -------- --------
Total operating expenses 38,741 20,379 77,355 57,515
-------- -------- -------- --------
OPERATING INCOME 4,732 13,312 43,806 29,968
Interest and other income,
net 1,291 417 3,228 781
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 6,023 13,729 47,034 30,749
Provision for income taxes 5,906 3,978 19,481 9,686
-------- -------- -------- --------
NET INCOME $ 117 $ 9,751 $ 27,553 $ 21,063
======== ======== ======== ========
Earnings per share
Basic $ 0.00 $ 0.16 $ 0.40 $ 0.34
======== ======== ======== ========
Diluted $ 0.00 $ 0.15 $ 0.38 $ 0.33
======== ======== ======== ========
Common and common
equivalent shares
outstanding:
Basic 69,397 62,013 68,569 61,193
Diluted 72,006 65,697 71,721 64,759
MICROSEMI CORPORATION
Schedule Reconciling Non-GAAP Income to GAAP Income
(in thousands, except per share amounts)
Quarter ended Nine months ended
----------------- -----------------
July 2, July 3, July 2, July 3,
2006 2005 2006 2005
------- ------- ------- -------
GAAP NET INCOME $ 117 $ 9,751 $27,553 $21,063
======= ======= ======= =======
The non-GAAP amounts have
been adjusted to exclude the
following items:
Excluded from cost of sales
Transitional idle capacity
and inventory
abandonments (a) $ 4,225 $ 1,342 $10,941 $ 9,014
Manufacturing profit in
acquired inventory (e) 2,743 -- 2,743 --
Excluded from operating
expenses
In-process research &
development (d) 15,300 -- 15,300 --
Amortization of intangible
assets (b) 1,403 229 1,846 688
Credit for acceleration of
stock options (c) -- -- (1,065) --
Stock option
compensation (c) 501 -- 1,579 --
(Gain)/loss on disposition
of assets (a) (15) 95 (17) 547
Restructuring and other
special charges (a) 1,137 842 3,427 3,777
------- ------- ------- -------
25,294 2,508 34,754 14,026
Income tax effect on
non-GAAP adjustments 5,274 727 8,460 4,591
------- ------- ------- -------
Net effect of adjustments
to GAAP net income $20,020 $ 1,781 $26,294 $ 9,435
======= ======= ======= =======
NON-GAAP NET INCOME $20,137 $11,532 $53,847 $30,498
======= ======= ======= =======
(a)-(e) Please refer to corresponding footnotes below.
MICROSEMI CORPORATION
Schedule Reconciling Reported Financial Ratios
Quarter ended
------------------------------------------
July 2, April 2, July 3,
2006 2006 2005
------------ ------------ ------------
GAAP gross margin 43.4 percent 45.0 percent 44.8 percent
Effect of reconciling
items on gross margin 6.9 percent 6.1 percent 1.8 percent
Non-GAAP gross margin 50.3 percent 51.1 percent 46.6 percent
GAAP operating margin 4.7 percent 23.5 percent 17.7 percent
Effect of reconciling
items on operating
margin 25.3 percent 7.2 percent 3.3 percent
Non-GAAP operating margin 30.0 percent 30.7 percent 21.0 percent
To supplement the consolidated financial results prepared in
accordance with Generally Accepted Accounting Principles ("GAAP"), we
use non-GAAP financial measures (non-GAAP gross margin, non-GAAP
operating expenses, non-GAAP operating income, non-GAAP income before
taxes, non-GAAP net income, and non-GAAP diluted earnings per share)
that exclude transitional idle capacity and inventory abandonments,
manufacturing profit in acquired inventory, in-process research and
development, amortization of intangible assets, stock option
compensation, gain or loss on disposition of assets and restructuring
and other special charges. Management excludes these items because it
believes that the non-GAAP measures enhance an investor's overall
understanding of the Company's financial performance and future
prospects by being more reflective of the Company's core operational
activities and to be more comparable with the results of the Company
over various periods. Management uses non-GAAP financial measures
internally for strategic decision making, forecasting future results
and evaluating current performance. Guidance is provided only on a
non-GAAP basis due to the inherent difficulty of forecasting the
timing or amount of such items. These items could be materially
significant in our GAAP results in any period. By disclosing non-GAAP
financial measures, management intends to provide investors with a
more meaningful, consistent comparison of the Company's core
operating results and trends for the periods presented. Non-GAAP
financial measures are not prepared in accordance with GAAP;
therefore, the information is not necessarily comparable to other
companies and should be considered as a supplement to, not a
substitute for, or superior to, the corresponding measures calculated
in accordance with GAAP.
The items excluded from GAAP financial results in calculating
non-GAAP financial results, are set forth below:
(a) The restructuring activities involve the closure and
consolidation of our manufacturing facilities. As these
facilities are not expected to have a continuing contribution to
operations or have a diminishing contribution during the
transition phase, management believes excluding such items from
the Company’s operations provides investors with a means of
evaluating the Company’s on-going operations. Transitional idle
capacity relates to unused manufacturing capacity and
non-productive manufacturing expenses during the period from when
shutdown activities commence to when a facility is closed.
Inventory abandonments relate to identification and disposal of
inventory that will not be utilized after a product line is
transferred to a new manufacturing location. Loss on disposition
of assets results from abandonment of non-productive assets in
accordance with a restructuring plan. Restructuring and other
special charges includes severance and other costs related to
facilities in the process of closing or already closed.
Management excludes these expenses when evaluating core operating
activities and for strategic decision making, forecasting future
results and evaluating current performance.
(b) While amortization of acquisition related intangible assets is
expected to continue in the future, for internal analysis of the
Company’s operations, management does not view this expense as
reflective of the business’ current performance.
(c) Stock option compensation in connection with the SFAS123R has
been excluded to facilitate the comparability of the current
quarter and fiscal year-to-date with results from prior periods
when stock option compensation was not expensed in accordance
with accounting rules applicable in such periods. The reduction
of the charge for the acceleration of stock options originally
recorded in the fourth quarter of 2005 was due to lower than
previously estimated forfeiture rates. In addition, management
excludes these expenses when evaluating core operating activities
and for strategic decision making, forecasting future results and
evaluating current performance.
(d) In-process research and development has been excluded to
facilitate the comparability of expenses between periods. In
addition, management does not include IPR&D, a one-time
acquisition-related charge, in measuring core research and
development costs, nor does it believe that IPR&D is indicative
of current or future spending.
(e) Manufacturing profit in acquired inventory resulted from
purchase-accounting adjustments to increase the value of
inventory acquired in the APT transaction to its fair value. As
the acquired inventory is sold, the associated manufacturing
profit in acquired inventory increases cost of goods sold and
reduces gross margins. The manufacturing profit in acquired
inventory has been excluded to facilitate comparability of gross
margins between periods. In addition, management excludes the
impact of manufacturing profit in acquired inventory in internal
measurements of gross margin as it does not reflect continuing
operations at APT. Manufacturing profit in acquired inventory
from the APT acquisition will not materially impact gross margins
beyond the fourth quarter of fiscal year 2006.
MICROSEMI CORPORATION
Selected Non-GAAP Financial Information
(in thousands except for per share amounts)
Quarter ended Nine months ended
------------------- --------------------
July 2, July 3, July 2, July 3,
2006 2005 2006 2005
-------- -------- -------- --------
GAAP gross margin $ 43,473 $ 33,691 $121,161 $ 87,483
Transitional idle capacity
and inventory
abandonments (a) 4,225 1,342 10,941 9,014
Manufacturing profit in
acquired inventory (e) 2,743 -- 2,743 --
-------- -------- -------- --------
Non-GAAP gross margin $ 50,441 $ 35,033 $134,845 $ 96,497
-------- -------- -------- --------
GAAP operating expenses $ 38,741 $ 20,379 $ 77,355 $ 57,515
In-process research
& development (d) (15,300) -- (15,300) --
Amortization of
intangible assets (b) (1,403) (229) (1,846) (688)
Credit for acceleration
of stock options (c) -- -- 1,065 --
Stock option
compensation (c) (501) -- (1,579) --
Gain/(loss) on disposition
of assets (a) 15 (95) 17 (547)
Restructuring and other
special charges (a) (1,137) (842) (3,427) (3,777)
-------- -------- -------- --------
Non-GAAP operating
expenses $ 20,415 $ 19,213 $ 56,285 $ 52,503
-------- -------- -------- --------
GAAP operating income $ 4,732 $ 13,312 $ 43,806 $ 29,968
Transitional idle capacity
and inventory
abandonments (a) 4,225 1,342 10,941 9,014
Manufacturing profit in
acquired inventory (e) 2,743 -- 2,743 --
In-process research
& development (d) 15,300 -- 15,300 --
Amortization of intangible
assets (b) 1,403 229 1,846 688
Credit for acceleration of
stock options (c) -- -- (1,065) --
Stock option
compensation (c) 501 -- 1,579 --
(Gain)/loss on disposition
of assets (a) (15) 95 (17) 547
Restructuring and other
special charges (a) 1,137 842 3,427 3,777
-------- -------- -------- --------
Non-GAAP operating income $ 30,026 $ 15,820 $ 78,560 $ 43,994
-------- -------- -------- --------
GAAP income before taxes $ 6,023 $ 13,729 $ 47,034 $ 30,749
Transitional idle capacity
and inventory
abandonments (a) 4,225 1,342 10,941 9,014
Manufacturing profit in
acquired inventory (e) 2,743 -- 2,743 --
In-process research
& development (d) 15,300 -- 15,300 --
Amortization of intangible
assets (b) 1,403 229 1,846 688
Credit for acceleration of
stock options (c) -- -- (1,065) --
Stock option
compensation (c) 501 -- 1,579 --
(Gain)/loss on disposition
of assets (a) (15) 95 (17) 547
Restructuring and other
special charges (a) 1,137 842 3,427 3,777
-------- -------- -------- --------
Non-GAAP income
before taxes $ 31,317 $ 16,237 $ 81,788 $ 44,775
-------- -------- -------- --------
GAAP net income $ 117 $ 9,751 $ 27,553 $ 21,063
Transitional idle capacity
and inventory
abandonments (a) 4,225 1,342 10,941 9,014
Manufacturing profit in
acquired inventory (e) 2,743 -- 2,743 --
In-process research
& development (d) 15,300 -- 15,300 --
Amortization of intangible
assets (b) 1,403 229 1,846 688
Credit for acceleration of
stock options (c) -- -- (1,065) --
Stock option
compensation (c) 501 -- 1,579 --
(Gain)/loss on disposition
of assets (a) (15) 95 (17) 547
Restructuring and other
special charges (a) 1,137 842 3,427 3,777
Income tax effect on
non-GAAP adjustments (5,274) (727) (8,460) (4,591)
-------- -------- -------- --------
Non-GAAP net income $ 20,137 $ 11,532 $ 53,847 $ 30,498
-------- -------- -------- --------
GAAP diluted earnings
per share $ 0.00 $ 0.15 $ 0.38 $ 0.33
Impact of non-GAAP
adjustments on diluted
earnings per share 0.28 0.03 0.37 0.14
-------- -------- -------- --------
Non-GAAP diluted earnings
per share $ 0.28 $ 0.18 $ 0.75 $ 0.47
-------- -------- -------- --------
(a)-(e) Please refer to corresponding footnotes above.
MICROSEMI CORPORATION
Condensed Unaudited Consolidated Balance Sheets
(in thousands)
July 2, 2006 October 2, 2005
ASSETS ------------ ---------------
Current Assets:
Cash and cash equivalents $153,460 $ 98,149
Short-term investment 1,000 --
Accounts receivable, net 67,988 53,233
Inventories 82,995 55,917
Deferred income taxes 9,639 12,921
Other current assets 5,551 2,101
-------- --------
Total current assets 320,633 222,321
Property and equipment, net 67,460 58,366
Deferred income taxes -- 8,074
Goodwill 54,058 3,258
Other intangible assets, net 47,006 4,493
Other assets 1,100 4,069
-------- --------
TOTAL ASSETS $490,257 $300,581
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 44,394 $ 42,378
Non-current liabilities 6,682 3,617
Shareholders' equity 439,181 254,586
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $490,257 $300,581
======== ========
CONTACT: Microsemi Corporation
Financial Contact:
David R. Sonksen, Executive Vice President and CFO
(949) 221-7101
Editorial Contact:
Cliff Silver, Manager, Corporate Communications
(949) 221-7112
