SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934
For the Quarterly Period Ended March 31, 1996
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or
- ----- Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File No. 0-8866
MICROSEMI CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 95-2110371
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2830 South Fairview Street, Santa Ana, California 92704
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(Address of principal executive offices) (Zip Code)
(714) 979-8220
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(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 April 16, 1996 was 7,825,659.
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The unaudited consolidated financial information for the quarter and
six months ended March 31, 1996 of Microsemi Corporation and Subsidiaries (the
"Company") and the comparative unaudited consolidated financial information for
the corresponding periods of the prior year, together with the balance sheet as
of October 1, 1995 are attached hereto and incorporated herein by this
reference.
MICROSEMI CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(amounts in 000's)
March 31, 1996 October 1, 1995
-------------- ---------------
(Unaudited) (Audited)
ASSETS
Current assets
Cash and cash equivalents $ 3,241 $ 3,965
Accounts receivable less allowance for doubtful accounts of
$2,492 at March 31, 1996 and $2,018 at October 1, 1995 22,392 20,191
Inventories 46,567 43,281
Deferred income taxes 5,471 5,471
Other current assets 2,826 4,375
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Total current assets 80,497 77,283
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Property and equipment, at cost 54,945 52,044
Less: Accumulated depreciation (30,342) (28,442)
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24,603 23,602
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Deferred income taxes 569 569
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Other assets 3,220 3,361
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$ 108,889 $ 104,815
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable to banks and others $ 6,074 $ 4,561
Current maturities of long-term debt 1,878 2,328
Accounts payable and accrued liabilities 21,439 19,952
Income taxes payable 3,227 4,016
Deferred income taxes 712 712
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Total current liabilities 33,330 31,569
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Deferred income taxes 1,864 1,864
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Long-term debt 47,106 48,158
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Other long-term liabilities 2,193 2,114
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Stockholders' equity
Common stock, $.20 par value; authorized 20,000 shares; issued
7,824 shares at March 31, 1996 and 7,789 shares at October 1, 1995 1,564 1,558
Paid-in capital 14,718 14,644
Retained earnings 8,114 4,908
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Total stockholders' equity 24,396 21,110
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$ 108,889 $ 104,815
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<FN>
See accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
(amounts in 000's, except earnings per share)
13 Weeks Ended 13 Weeks Ended
March 31, 1996 April 2, 1995
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Net sales $ 39,107 $ 32,441
Cost of sales 28,798 24,327
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Gross profit 10,309 8,114
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Operating expenses
Selling 2,289 1,983
General and administrative 3,563 2,639
Amortization of goodwill and other intangible assets 55 44
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Total operating expenses 5,907 4,666
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Income from operations 4,402 3,448
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Other income (expense)
Interest expense (net) (1,184) (1,342)
Other (67) 68
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Total other expense (1,251) (1,274)
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Income before income taxes 3,151 2,174
Provision for income taxes 1,323 826
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Net income $ 1,828 $ 1,348
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Earnings per share
- Primary $ .22 $ 0.17
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- Fully diluted $ .18 $ 0.15
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Common and common equivalent shares outstanding
- Primary 8,232 7,993
- Fully diluted 11,755 11,573
<FN>
See accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
(amounts in 000's, except earnings per share)
26 Weeks Ended 26 Weeks Ended
March 31, 1996 April 2, 1995
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Net sales $ 74,406 $ 60,098
Cost of sales 54,894 44,980
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Gross profit 19,512 15,118
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Operating expenses
Selling 4,365 3,878
General and administrative 6,734 4,957
Amortization of goodwill and other intangible assets 112 93
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Total operating expenses 11,211 8,928
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Income from operations 8,301 6,190
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Other income (expense)
Interest expense (net) (2,412) (2,494)
Other (274) 112
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Total other expense (2,686) (2,382)
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Income before income taxes 5,615 3,808
Provision for income taxes 2,358 1,447
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Net income $ 3,257 $ 2,361
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Earnings per share
- Primary $ 0.39 $ 0.30
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- Fully diluted $ 0.33 $ 0.26
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Common and common equivalent shares outstanding
- Primary 8,264 7,989
- Fully diluted 11,787 11,573
<FN>
See accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Retained Earnings (Accumulated Deficit)
(amounts in 000's)
26 Weeks Ended 26 Weeks Ended
March 31, 1996 April 2, 1995
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Retained earnings (accumulated deficit) at beginning of period $ 4,908 $ (1,128)
Net income 3,257 2,361
Currency translation loss (51) (2)
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Retained earnings at end of period $ 8,114 $ 1,231
<FN>
See accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(amounts in 000's)
26 Weeks Ended 26 Weeks Ended
March 31, 1996 April 2, 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 3,257 $ 2,361
Adjustments to reconcile net earnings to net cash provided
from operating activities:
Depreciation and amortization 2,012 1,800
Increase (decrease) in allowance for doubtful accounts 474 (148)
Translation loss on foreign currency (51) (2)
Changes in assets and liabilities:
Accounts receivable (2,675) (673)
Inventories (3,826) (1,913)
Other current assets 1,549 (95)
Other assets 29 633
Accounts payable and accrued liabilities 1,487 (1,000)
Income taxes payable (789) 1,123
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Net cash provided from operating activities 2,007 2,086
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (2,901) (1,395)
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Net cash used for investing activities (2,901) (1,395)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable to banks and others 1,513 (690)
Reduction of long-term debt (1,502) (1,051)
Increase in (reduction of) other long-term liabilities 79 (6)
Exercise of employee stock options 80 60
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Net cash provided from (used for) financing activities 170 (1,687)
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Net decrease in cash and cash equivalents (724) (996)
Cash and cash equivalents at beginning of period 3,965 3,994
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Cash and cash equivalents at end of period $ 3,241 $ 2,998
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<FN>
See accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
MICROSEMI CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
1. PRESENTATION OF FINANCIAL INFORMATION
The financial information furnished herein is unaudited, but, in the opinion of
the management of Microsemi Corporation, includes all adjustments (all of which
are normal, recurring adjustments) necessary for a fair presentation of the
results of operations for the periods indicated. The results of operations for
the first twenty-six weeks 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 financial statements and notes should,
therefore, be read in conjunction with the financial statements and notes
thereto in the Annual Report on Form 10-K for the fiscal year ended October 1,
1995.
2. INVENTORIES
For interim reporting purposes, cost of goods sold and inventories are estimated
based upon the use of the gross profit method applied to each product line.
Inventories used in the computation of cost of goods sold were:
March 31, 1996 October 1, 1995
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(amounts in 000's)
Raw materials $ 10,162 $ 10,367
Work in progress 21,677 20,847
Finished goods 14,728 12,067
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$ 46,567 $ 43,281
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3. BORROWINGS
Long-term debt consisted of:
March 31, 1996 October 1, 1995
(amounts in 000's)
Industrial Development Bond-bearing interest at
7.875% due in installments from 1996 to 2000;
secured by first deed of trust $ 2,905 $ 2,905
Industrial Development Bond-bearing interest at
6.75% due in installments from 1998 to 2005;
secured by first deed of trust 5,350 5,350
Convertible Subordinated Debentures-bearing
interest at 5.875% due in March 2012 33,281 33,281
Convertible Subordinated Notes-bearing interest
at 10% due 1999 2,000 2,000
Notes payable-bearing interest at ranges of 5% - 13%
due between December 1996 and July 2002 5,448 6,950
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48,984 50,486
Less current portion (1,878) (2,328)
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$ 47,106 $ 48,158
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The Company maintains a line of credit with a bank, from which the Company can
borrow up to $20,000,000 based upon percentages of certain accounts receivable
and inventory balances at certain of the Company's operations. As of March 31,
1996, $5,969,000 was borrowed under this credit facility.
The Company's 5.875% Convertible Subordinated Debentures require annual sinking
fund payments in the amount of 5% of the principal amount thereof, commencing in
March 1997, less the principal amount of converted or redeemed debentures.
A letter of credit for the Microsemi Santa Ana Industrial Development Revenue
Bond is carried by a bank in the amount of $5,557,000. This letter of credit
guarantees the repayment of a $5,350,000 Industrial Development Revenue Bond
which was issued in April 1985 and carries interest currently at 6.75% per
annum, through the City of Santa Ana for the construction of improvements and
new facilities at the Santa Ana plant. The terms of the letter of credit require
principal payments of $350,000 in 1996, 1997 and 1998; $100,000 from 1999 to
2004 and $3,700,000 in 2005.
4. EARNINGS PER SHARE
Earnings per share for the primary basis have been computed based upon the
weighted average number of common and common equivalent shares outstanding
during the respective periods. Earnings per share for the fully diluted basis
have been computed, when the result is dilutive, based upon the assumption that
the convertible subordinated debt had been converted to common stock at the date
of issuance, with a corresponding increase in net income to reflect a reduction
in related interest expense, net of applicable taxes.
5. STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statements of Cash Flows, the Company considers
all short-term, highly liquid investments with maturities of three months or
less at the date of acquisition to be cash equivalents.
Supplementary information
- -------------------------
26 weeks ended 26 weeks ended
March 31, 1996 April 2, 1995
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Cash paid during the period for: (amounts in 000's)
Interest $ 1,900 $ 3,262
Income taxes $ 3,147 $ 144
6. CONTINGENCY
In Broomfield, Colorado, an owner of 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 former owners of the manufacturing facility, agreed to settle the
claim and to indemnify the owner of the adjacent property from remediation
costs. Although TCE and other contaminants previously used at the facility are
present in soil and groundwater on the subsidiary's property, the Company
vigorously contests any assertion that the subsidiary is the cause of the
contamination; 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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q includes forward looking statements,
the realization of which may be impacted by certain important factors discussed
below under "Important Factors Related to Forward-Looking Statements and
Associated Risks."
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 power supply applications, to the newly designed micro-miniature
transient absorbers, which are mounted within the cables used to connect
computer and telecommunications equipment.
Capital Resources and Liquidity
Microsemi Corporation's operations in the first six months of fiscal year
1996 were funded with internally generated funds and borrowings from the
Company's line of credit. Under the current line of credit, the Company can
borrow up to $20,000,000 based upon percentages of certain accounts receivable
and inventory balances at certain of the Company's operations. As of March 31,
1996, $5,959,000 was borrowed under this credit facility. At March 31, 1996, the
Company had $3,241,000 in cash and cash equivalents.
A letter of credit for the Microsemi Santa Ana Industrial Development
Revenue Bond is carried by a bank in the amount of $5,557,000. This letter of
credit guarantees the repayment of a $5,350,000 Industrial Development Revenue
Bond which was issued in April 1985 and carries interest currently at 6.75% per
annum, through the City of Santa Ana for the construction of improvements and
new facilities at the Santa Ana plant. The terms require principal payments of
$350,000 in 1996, 1997 and 1998; $100,000 from 1999 to 2004 and $3,700,000 in
2005.
See note 5 to the unaudited consolidated financial statements for further
discussion of borrowings.
The Company believes that it can meet its current operating cash and debt
service requirements with internally generated funds together with its available
borrowing capacity.
The average collection period of accounts receivable was 52 days for the
first six months of fiscal year 1996 compared to 55 days for the same period of
fiscal year 1995.
The average days sales of products in inventories was 149 days for the
first half of fiscal year 1996 compared to 166 days for the corresponding period
of fiscal year 1995. This decrease primarily resulted from higher sales in the
period.
The Company has no other significant capital commitments.
Order backlog at March 31, 1996 increased to $70,100,000 from $52,100,000
at April 2, 1995.
Important Factors Related to Forward-Looking Statements and Associated Risks
This Quarterly Report on Form 10-Q contains certain forward-looking
statements that are based on current expectations and involve a number of risks
and uncertainties. The forward looking statements included herein are based on
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, surface mount and custom diode assembly industries will not
change materially or adversely, 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 material adverse change in the
Company's operations or business. Assumptions relating to the foregoing involve
judgements that are difficult to predict accurately and are subject to many
factors that can materially affect results. Forecasting and other management
decisions are subjective in many respects and thus susceptible 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.
RESULTS OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED MARCH 31, 1996 COMPARED TO
THE THIRTEEN WEEKS ENDED APRIL 2, 1995.
Net sales for the second quarter of fiscal year 1996 increased 21% to
$39,107,000, from $32,441,000 for the same period of fiscal year 1995. The
increase of $6,666,000 was primarily due to higher volume of shipments in
commercial, telecommunication, medical and commercial space products.
Gross profit increased $2,195,000 to $10,309,000 for the current quarter
of fiscal year 1996 from $8,114,000 for the same period of fiscal year 1995 as a
result of higher sales. As a percentage of sales, gross profit increased from
25% to 26% for the second quarters of fiscal years 1995 and 1996, respectively,
as a result of increased absorption of fixed overhead due to higher sales
volume.
Operating expenses for the thirteen weeks ended March 31, 1996 increased
$1,241,000, compared to the corresponding period of the prior year, primarily
due to additional support required for the higher sales volume.
The effective tax rates of 42% and 38% in the second quarters of fiscal
years 1996 and 1995, respectively, are the combined result of taxes computed on
foreign and domestic income.
RESULTS OF OPERATIONS FOR THE TWENTY-SIX WEEKS ENDED MARCH 31, 1996 COMPARED TO
THE TWENTY-SIX WEEKS ENDED APRIL 2, 1995.
Net sales for the first half of fiscal year 1996 increased 24% to
$74,406,000, from $60,098,000 for the first half of fiscal year 1995. The
increase of $14,308,000 was primarily due to higher volume of shipments in
commercial, telecommunication, medical and commercial space products.
Gross profit increased $4,394,000 to $19,512,000 for the first six months
of fiscal year 1996 from $15,118,000 for the same period of fiscal year 1995 as
a result of higher sales. As a percentage of sales, gross profit increased from
25% to 26% for the first twenty-six weeks of fiscal years 1995 and 1996,
respectively, primarily as a result of increased absorption of fixed overhead
due to higher sales volume.
Operating expenses for the twenty-six weeks ended March 31, 1996
increased $2,283,000, compared to the corresponding period of the prior year,
primarily due to additional support required for the higher sales volume;
however, operating expense, as a percentage of sales, remained relatively
consistent at approximately 15% of sales for both periods.
The effective tax rates of 42% and 38% in the first six months of fiscal
years 1996 and 1995, respectively, are the combined result of taxes computed on
foreign and domestic income.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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Inapplicable.
Item 2. Changes in Securities
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Inapplicable.
Item 3. Defaults Upon Senior Securities
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Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders
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(a) An election of the Board of Directors was held at the
annual meeting of Stockholders on February 27, 1996.
(b) Names and personal information about the nominees to
the Board of Directors were included in the Proxy
Statement dated January 27, 1996.
(c) 7,200,415 votes were received for each of the
nominees to the Board of Directors as follows:
For Withheld
Philip Frey, Jr. 7,196,923 3,492
Jiri Sandera 7,197,340 3,075
Joseph M. Scheer 7,197,465 2,950
Brad Davidson 7,197,340 3,075
Robert B. Phinizy 7,197,340 3,075
Martin H. Jurick 7,197,465 2,950
(d) Inapplicable.
Item 5. Other Information
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None
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
Exhibit 10.78 Motorola - Microsemi PowerMite(R)
Technology Agreement
Exhibit 11.4 Unaudited computation of Earnings Per
Share for the thirteen and twenty-six
weeks ended March 31, 1996 and April 2,
1995
Exhibit 27.6 Unaudited Financial Data Schedule for the
six months ended March 31, 1996
(b) Reports on Form 8-K:
None
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: /DAVID R. SONKSEN/
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David R. Sonksen
Vice President - Finance and
Chief Financial Officer
(Principal Financial Officer
and Chief Accounting Officer
and duly authorized to sign on
behalf of the Registrant)
DATED: May 9, 1996