Mail Stop 6010
January 19, 2006
David R. Sonksen, CFO
Microsemi Corporation
2381 Morse Avenue
Irvine, California 92614
Re: Microsemi Corporation
Registration Statement on Form S-4
Filed December 23, 2005
File No. 333-130655
Dear Mr. Sonksen:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Risks related to the merger, page 9
1. Please tell us why you have not included a risk factor that
highlights the risk related to the litigation disclosed on page 10
of
your Form 10-K. Also, tell us why you did not file the related
indemnification agreement as an exhibit.
Certain officers and directors of APT who support and approve the
merger, page 9
2. Please expand the appropriate section to discuss in greater
detail
the options discussed in the fifth sentence of this risk factor.
Microsemi may be unable to realize cost savings, synergies and
other
benefits, page 9
3. We note various references to cost savings and synergies.
Please
expand the appropriate section to discuss in greater detail these
synergies and savings, and quantify the synergies and savings to
the
extent practicable. Also, disclose the assumptions upon which the
synergies are based in a manner that will provide investors a
framework for analysis of the synergies.
Governmental authorities could seek to block or challenge the
merger,
page 11
4. Please update this section to the extent practicable.
Microsemi`s subsidiaries manufacturing processes are complex and
specialized, page 13
5. Please expand the fourth sentence of this risk factor to
quantify
any material delays and reduced yields.
Reliance on government contractors for a significant portion of
Microsemi`s sales, page 13
6. Please expand the risk factor to quantify the significant
portion
of sales to defense and aerospace markets.
Interruptions, delays or cost increases affecting Microsemi`s
materials, page 15
7. Please quantify the references to the "increasing portions of
its
products" and the "substantial portion of each company`s outside
manufacturing" to the extent practicable.
International operations and sales may expose Microsemi to
material
risks, page 17
8. Please quantify the reference to "a significant portion of
total
revenues."
Unaudited Pro Forma Condensed Combined Balance Sheet, page 24
9. Please refer to your pro forma adjustment (1) and (8) regarding
your estimated charge for in-process research and development of
$9.4
million. To the extent practicable, please expand your disclosures
to
address the significant assumptions used to value in-process
research
and development, as well as the nature and value of individually
significant projects.
Background, and Reasons for the Merger, page 35
10. We note the first full paragraph on page 38 concerning Lehman
Brothers. Please provide the disclosure required by Item 4(b) of
Form S-4.
Fairness Opinion of APT`s Financial Advisor, page 41
11. Please provide us with copies of any materials prepared by
Houlihan in connection with is fairness opinion, including among
other things, any "board books, " drafts of fairness opinions
provided to APT`s board and any summaries made to APT`s board. We
may have further comments once we have had the opportunity to
review
the requested materials.
12. Please expand the next to last paragraph on page 48 to
quantify
the contingent fee and the customary fee.
Potential Conflicts of Interest of APT Management in the Merger,
page
49
13. Please expand this section to briefly compare the current
compensation arrangement for each named officer of APT.
Employment Agreements, page 49
14. Please file as exhibits the employment agreements.
Conversion of Securities, page 51
15. Please tell us whether you intend to file a new registration
statement if you need to issue additional shares. We note the
next
to last sentence of this section.
16. Please include examples of additional shares that might need
to
be issued.
Material U.S. Federal Income Tax Consequences of the Merger, page
61
17. You should unequivocally state what the tax consequences will
be.
For example, we note your disclosure that "If the merger qualifies
as
a reorganization..." If doubt exists, you should explain the
reasons
for the doubt, the degrees of uncertainty and possible outcomes
and
provide appropriate risk factors.
18. If you intend to rely upon Annex E as part of the required
disclosure, provide a descriptive reference to it in this section.
Also, we note that you have only included only the opinion from
Advanced Power`s counsel. In addition, please file the tax
opinion
from Microsemi`s counsel.
19. Please explain the significance, if any, of the 20% limit on
cash
merger consideration on the tax consequences.
20. Please revise to provide more detailed guidance as to how an
APT
shareholder must allocate the cash versus stock portions of the
consideration received for his APT stock, both for calculating his
tax liability on the exchange and his basis in the Microsemi stock
received. For example, how does the value of the Microsemi stock
on
the distribution date affect this calculation? Illustrative
examples
may be appropriate.
21. Please explain in greater detail the "statement setting forth
specified facts relating to the merger" that a shareholder is
required to file with their tax return. Describe how this
information will be provided to APT shareholders.
Undertakings, page II-2
22. Please use the current version of required undertakings.
Microsemi Corporation - Annual Report on Form 10-K for the fiscal
year ended October 2, 2005
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 26
Results of Operations for the Fiscal Year 2004 Compared to the
Fisacl
Year 2005, page 33
23. Please revise future filings, including your December 31, 2005
Form 10-Q, to include an analysis explaining the underlying
reasons
for the significant changes noted. For example, we note that your
financial statements reflect materially higher revenues resulting
from "better pricing for certain high-reliability products" and
"higher volume of shipments for certain products." Per Item
303(A)(3)(ii), you should "provide a narrative discussion of the
extent to which such increases are attributable to increases in
prices or to increases in the volume or amount of goods or
services
being sold or to the introduction of new products or services."
Under SAB Topic 13.B, "[c]hanges in revenue should not be
evaluated
solely in terms of volume and price changes, but should also
include
an analysis of the reasons and factors contributing to the
increase
or decrease." Per Release 33-8350, "[a] thorough analysis often
will
involve discussing both the intermediate effects of those matters
and
the reasons underlying those intermediate effects." And under FRC
501.04, you should include a discussion and quantification of the
contribution of two or more factors identified as the causes for
material changes "where identification and quantification of the
extent of contribution of each of two or more factors is necessary
to
an understanding of a material change, or where there are material
increases or decreases in net sales or revenue." As such, your
MD&A
should not only identify and quantify to the extent practicable
the
increase in sales prices and volume, but also should analyze those
and any other significant reasons underlying the increases
(including
underlying offsetting decreases) when the reasons are also
material
and determinable. For example, we note that you refer to certain
products but you do not provide an explanation of the nature of
these
products. You refer to the contribution of the gross margin on
new
products on page 34, but you do not quantify or discuss the impact
of
these new products on your revenues. We note that you present a
table showing the percentage of sales by OEM customer but you do
not
explain the underlying reasons for significant changes in the
customer groups or how management uses the information in the
table
to analyze the company`s operations.
On page 34 you disclose that cost of sales includes $13.1 million
and
$9.6 million related to transitional idle capacity and inventory
abandonments in 2004 and 2005, respectively. We note no
discussion
of the nature of these amounts or the underlying material causes.
You should provide disclosure where necessary for investors to
ascertain the likelihood that past performance is indicative of
future performance.
Similarly, where a company`s financial statements reflect material
restructuring or impairment charges, or a decline in the
profitability of a plant or other business activity, MD&A should
also, where material, analyze the reasons underlying these
matters.
Whether favorable or unfavorable conditions constitute or give
rise
to the material trends, demands, commitments, events or
uncertainties
being discussed, the analysis should consist of material
substantive
information and present a balanced view of the underlying dynamics
of
the business.
Please see Item 303 of Regulation S-K, SAB Topic 13.B, FRC 501,
and
Release 33-8350.
Financial Statements
Note 11. Segment Information, page 67
24. We noted that you state the company operates in a single
industry
segment. We also noted on page 50 that the company identifies
five
separate reporting units where it appears separate financial
information is maintained. In your Form 8-K filed on November 17,
2005 you refer to both your "high reliability semiconductor" and
"high performance analog and mixed signal" businesses. Please
tell
us more about how management reviews the business pursuant to
paragraphs 10 - 18 of SFAS 131 and clarify for us how you
determined
there is only one reportable segment.
Form 8-K filed November 17, 2005
25. We see that you have incorporated this Form 8-K by reference
into
your Form S-4 filed December 23, 2005. Both Regulation G and Item
10(e) of Regulation S-K, therefore, applies to your non-GAAP
disclosures in this Form 8-K. See General Instruction B.2 of Form
8-
K. Please respond to the following:
* We note that you do not provide a presentation, with equal or
greater prominence, of the most directly comparable financial
measure
calculated and presented in accordance with GAAP for your non-GAAP
presentations. For example, we note your discussion of non-GAAP
net
income, non-GAAP per share net income and non-GAAP gross margins
in
the second paragraph of the November 17, 2005 press release with
no
comparable GAAP measure disclosed. Please amend your filing to
comply with Item 10(e) of Regulation S-K.
* In your Business Outlook you include certain forecasted non-GAAP
financial information. With regard to the quantitative
reconciliation of non-GAAP financial measures that are forward-
looking, Regulation G requires a schedule or other presentation
detailing the differences between the forward-looking non-GAAP
financial measure and the appropriate forward-looking GAAP
financial
measure. If the GAAP financial measure is not accessible on a
forward-looking basis, you must disclose that fact and provide
reconciling information that is available without an unreasonable
effort. Furthermore, you must identify information that is
unavailable and disclose its probable significance.
* We note that you do not provide a reconciliation (by schedule or
other clearly understandable method), which shall be quantitative
for
historical non-GAAP measures presented, and quantitative, to the
extent available without unreasonable efforts, for forward-looking
information, of the differences between the non-GAAP financial
measure disclosed or released with the most directly comparable
financial measure or measures calculated and presented in
accordance
with GAAP for each non-GAAP financial measure that you present.
Please amend your filing to comply with Item 10(e) of Regulation
S-K.
* We note that you do not include a statement for each non-GAAP
measure presented disclosing the reasons why your management
believes
that presentation of the non-GAAP financial measure provides
useful
information to investors regarding the your financial condition
and
results of operations. You would also include, to the extent
material, the additional purposes, if any, for which your
management
uses the non-GAAP financial measure. See Item 10(e) of Regulation
S-
K. In addition, the staff`s response to Question 8 included in
Frequently Asked Questions Regarding the Use of Non-GAAP Measures
in
June of 2003 notes that the inclusion of a non-GAAP financial
measure
may be misleading absent the following disclosures:
- - The manner in which management uses the non-GAAP measure to
conduct
or evaluate its business;
- - The economic substance behind management`s decision to use such
a
measure;
- - The material limitations associated with use of the non-GAAP
financial measure as compared to the use of the most directly
comparable GAAP financial measure;
- - The manner in which management compensates for these limitations
when using the non-GAAP financial measure; and
- - The substantive reasons why management believes the non-GAAP
financial measure provides useful information to investors.
* The nature of some of the reconciling items included in your
Schedule Reconciling Non-GAAP Income to GAAP Income is such that
the
charge or gain is reasonably likely to recur within two years, or
there was a similar charge or gain within the prior two years.
Item
10(e) of Regulation S-K prohibits adjusting a non-GAAP performance
measure to eliminate or smooth items identified as non-recurring,
infrequent or unusual under those conditions. Please either
delete
the adjustments for (a) transitional idle capacity and inventory
abandonments, (b) amortization of intangible assets, (c) gain/loss
on
disposition of assets, (d) impairments of long lived assets, and
(e)
restructuring and other special charges, or tell us why the
current
presentation is not prohibited under Item 10(e) of Regulation S-K.
Please note that the staff`s response to Question 8 included in
Frequently Asked Questions Regarding the Use of Non-GAAP Measures
in
June of 2003 notes that Non-GAAP performance measures more likely
would be permissible if management reasonably believes it is
probable
that the financial impact of the item will disappear or become
immaterial within a near-term finite period.
* Please note that the staff`s response to Question 8 included in
Frequently Asked Questions Regarding the Use of Non-GAAP Measures
in
June of 2003 notes that whether a company can present a non-GAAP
financial measure that eliminates recurring restructuring charges
will depend on all the facts and circumstances. However, if there
is
a past pattern of restructuring charges, no articulated
demonstration
that such charges will not continue and no other unusual reason
that
a company can substantiate to identify the special nature of the
restructuring charges, it would be difficult for a company to meet
the burden of disclosing why such a non-GAAP financial measure is
useful to investors. In such circumstances, Item 10(e) of
Regulation
S-K would not permit the use of the non-GAAP financial measure.
* With respect to excluding your charge for the acceleration of
stock
options from net income, please revise to include all of the
disclosures required by SAB Topic 14.G. Companies should never
use a
non-GAAP financial measure in an attempt to smooth earnings. In
addition, while there is no per se prohibition against removing a
recurring item, you should demonstrate the usefulness of any
measure
that excludes recurring items, especially if the non-GAAP
financial
measure is used to evaluate performance.
* We see your Schedule Reconciling Reported Financial Ratios. In
the
case of ratios or measures where a non-GAAP financial measure is
the
numerator and/or the denominator in the calculation of that ratio
or
measure, you must provide a reconciliation with regard to each
non-
GAAP financial measure used in the calculation.
* We note that you provide a pro forma non-GAAP Consolidated
Income
Statement. First, Item 10(e) of Regulation S-K prohibits using
titles or descriptions of non-GAAP financial measures that are the
same as, or confusingly similar to, titles or descriptions used
for
GAAP financial measures. Second, this presentation does not
appear
to meet any of the conditions in Rule 11-01(a) of Regulation S-X
for
presentation of pro forma financial information. In addition,
Item
10(e) of Regulation S-X prohibits presenting non-GAAP financial
measures on the face of any pro forma financial information
required
to be disclosed by Article 11 of Regulation S-X. Third, you are
required to comply with Regulation G and Item 10(e) of Regulation
S-K
for each non-GAAP measure presented in the table.
* Regulation G requires that the presentation of a non-GAAP
financial
measure, taken together with the information accompanying the
measure
and any other accompanying discussion, not contain a material
misstatement or material omission necessary in order to make the
presentation not misleading, in light of the circumstances in
which
the presentation is made.
We may have further comments after reviewing your response.
Forms 8-K filed July 29, May 11, and January 27, 2005
26. With respect to the non-GAAP disclosures in your Forms 8-K
that
are "furnished" and not filed with the Commission, please respond
to
the following:
* We note that you provide a reconciliation of the non-GAAP
information as required by Regulation G is in the form of a
statement
of operations. We do not believe that the presentation of a non-
GAAP
statement of operations is appropriate unless all disclosures
required by Item 10(e)(1)(i) of Regulation S-K are included for
each
separate non-GAAP measure. Please delete this presentation from
all
future Forms 8-K furnished with the Commission. If you continue to
present non-GAAP information, Item 2.02 of Form 8-K requires that
disclosures "furnished" include information that complies with the
disclosure requirements of Item 10(e)(1)(i) of Regulation S-K.
Accordingly, in addition to the reconciliation for each non-GAAP
measure, you must also provide statements disclosing the reasons
why
management believes presentation of each of the individual non-
GAAP
measures provide useful information to investors regarding your
financial condition and results of operations. Those disclosures
should be specific and substantive to each individual measure.
Refer
to SEC Release 33-8176 and also Question 8 of the FAQ Regarding
the
Use of Non-GAAP Financial Measures, dated June 13, 2003. Please
confirm that you will revise your Forms 8-K in future periods to
provide all of the disclosures required by Item 10(e)(1)(i) for
each
non-GAAP measure presented. Provide us with a full sample of your
proposed disclosure.
* Please note that the requirements of paragraph (e)(1)(i) of Item
10
of Regulation S-K apply to disclosures under Item 2.02.
Accordingly,
please revise your presentation in future Forms 8-K to present the
most comparable GAAP measure with equal or greater prominence to
your
non-GAAP measure. In addition, please revise your reconciliation
from
GAAP gross margin to non-GAAP gross margin to conform to the
requirements of Item 10(e)(1)(i)(B). Provide us with a full sample
of
your proposed disclosures.
We may have further comments after reviewing your response.
Advanced Power Technology, Inc.
Forms 8-K filed April 29, July 27, October 4, and October 24, 2005
27. As previously noted in the Staff`s letter dated May 17, 2005
to
Advanced Power Technology, we note your disclosure of certain non-
GAAP financial measures. In addition, we see that you have
incorporated the forms 8-K by reference into Microsemi
Corporation`s
Form S-4 filed December 23, 2005. Both Regulation G and Item
10(e)
of Regulation S-K, therefore, apply to your non-GAAP disclosures
in
this Form 8-K. See General Instruction B.2 of Form 8-K. Please
amend each disclosure of non-GAAP financial information included
in
these Forms 8-K to comply with our prior comments, the applicable
portions of the comments above on the non-GAAP disclosures of
Microsemi Corporation to the extent they also relate to your
disclosures, Regulation G, Frequently Asked Questions Regarding
the
Use of Non-GAAP Measures issued in June of 2003, and Item 10(e) of
Regulation S-K.
********
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities Act
of
1933 and that they have provided all information investors require
for an informed investment decision. Since the company and its
management are in possession of all facts relating to a company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Julie Sherman at (202) 551-3640 or Kaitlin
Tillan at (202) 551-3604 if you have questions regarding comments
on
the financial statements and related matters. Please contact Alan
Morris at (202) 551-3601 or me at (202) 551-3602 with any other
questions.
Sincerely,
Thomas Jones
Senior Attorney
cc. via Telefax Nicholas J. Yocca
(949) 203-6161
David R. Sonksen, CFO
Microsemi Corporation
January 19, 2006
Page 1