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 June 30, 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
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The number of shares outstanding of the issuer's Common Stock, $.20 par value,
on July 17, 1996 was 7,850,899.
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The unaudited consolidated financial information for the quarter and
nine months ended June 30, 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 June 30, 1996 and October 1, 1995 are attached hereto and incorporated herein
by this reference.
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
(amounts in 000's)
June 30, 1996 October 1, 1995
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ASSETS
Current assets
Cash and cash equivalents $ 3,189 $ 3,965
Accounts receivable less allowance for doubtful accounts of
$2,689 at June 30, 1996 and $2,018 at October 1, 1995 23,293 20,191
Inventories 48,052 43,281
Deferred income taxes 5,471 5,471
Other current assets 2,784 4,375
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Total current assets 82,789 77,283
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Property and equipment, at cost 56,722 52,044
Less: Accumulated depreciation (30,977) (28,442)
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25,745 23,602
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Deferred income taxes 569 569
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Other assets 3,131 3,361
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$ 112,234 $ 104,815
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable to banks and others $ 5,096 $ 4,561
Current maturities of long-term debt 1,720 2,328
Accounts payable and accrued liabilities 24,373 19,952
Income taxes payable 2,973 4,016
Deferred income taxes 712 712
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Total current liabilities 34,874 31,569
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Deferred income taxes 1,864 1,864
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Long-term debt 46,616 48,158
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Other long-term liabilities 2,101 2,114
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Stockholders' equity
Common stock, $.20 par value; authorized 20,000 shares; issued
7,841 shares at June 30, 1996 and 7,789 shares at October 1, 1995 1,568 1,558
Paid-in capital 14,770 14,644
Retained earnings 10,441 4,908
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Total stockholders' equity 26,779 21,110
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$ 112,234 $ 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
June 30, 1996 July 2, 1995
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Net sales $ 41,261 $ 36,138
Cost of sales 30,257 26,536
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Gross profit 11,004 9,602
Operating expenses
Selling 2,418 2,045
General and administrative 3,478 3,127
Amortization of goodwill and other intangible assets 66 58
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Total operating expenses 5,962 5,230
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Income from operations 5,042 4,372
Other income (expense)
Interest expense (net) (968) (1,237)
Other (110) (289)
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Total other expenses (1,078) (1,526)
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Income before income taxes 3,964 2,846
Provision for income taxes 1,625 1,148
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Net income $ 2,339 $ 1,698
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Earnings per share
- Primary $ 0.28 $ 0.21
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- Fully diluted $ 0.23 $ 0.17
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Common and common equivalent shares outstanding
- Primary 8,259 8,099
- Fully diluted 11,782 11,752
<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)
39 Weeks Ended 39 Weeks Ended
June 30, 1996 July 2, 1995
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Net sales $ 115,667 $ 96,236
Cost of sales 85,151 71,516
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Gross profit 30,516 24,720
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Operating expenses
Selling 6,783 5,923
General and administrative 10,212 8,084
Amortization of goodwill and other intangible assets 178 151
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Total operating expenses 17,173 14,158
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Income from operations 13,343 10,562
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Other income (expense)
Interest expense (net) (3,380) (3,731)
Other (384) (177)
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Total other expenses (3,764) (3,908)
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Income before income taxes 9,579 6,654
Provision for income taxes 3,983 2,595
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Net income $ 5,596 $ 4,059
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Earnings per share
- Primary $ 0.68 $ 0.50
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- Fully diluted $ 0.56 $ 0.43
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Common and common equivalent shares outstanding
- Primary 8,273 8,053
- Fully diluted 11,796 11,752
<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)
39 Weeks Ended 39 Weeks Ended
June 30, 1996 July 2, 1995
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Retained earnings (accumulated deficit) at beginning of period $ 4,908 $ (1,128)
Net income 5,596 4,059
Currency translation loss (63) (2)
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Retained earnings at end of period $ 10,441 $ 2,929
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<FN>
See accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(amounts in 000's)
39 Weeks Ended 39 Weeks Ended
June 30, 1996 July 2, 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,596 $ 4,059
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation and amortization 3,036 2,937
Increase in allowance for doubtful accounts 671 229
Loss on retirements of fixed assets 207 -
Translation loss on foreign currency (63) (2)
Changes in assets and liabilities:
Accounts receivable (3,773) (2,946)
Inventories (4,771) (1,054)
Other current assets 1,591 (108)
Other assets 52 715
Accounts payable and accrued liabilities 4,421 1,254
Income taxes payable (1,043) 1,671
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Net cash provided from operating activities 5,924 6,755
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (5,208) (2,565)
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Net cash used for investing activities (5,208) (2,565)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable to banks and others 535 (2,471)
Reduction of long-term debt (2,150) (2,200)
Reduction of other long-term liabilities (13) (89)
Exercise of employee stock options 136 138
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Net cash used for financing activities (1,492) (4,622)
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Net decrease in cash and cash equivalents (776) (432)
Cash and cash equivalents at beginning of period 3,965 3,994
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Cash and cash equivalents at end of period $ 3,189 $ 3,562
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<FN>
See accompanying Notes to Unaudited Consolidated Financial Statements.
</FN>
MICROSEMI CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 thirty-nine 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:
June 30, 1996 October 1, 1995
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(amounts in 000's)
Raw materials $ 10,592 $ 10,367
Work in progress 21,893 20,847
Finished goods 15,567 12,067
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$ 48,052 $ 43,281
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3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Account payable and accrued liabilities consisted of:
June 30, 1996 October 1, 1995
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(amounts in 000's)
Accounts payable $ 7,841 $ 6,774
Accrued payroll, vacation and related taxes 9,077 8,392
Other accrued expenses 7,455 4,786
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$ 24,373 $ 19,952
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4. BORROWINGS
Long-term debt consisted of:
June 30, 1996 October 1, 1995
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(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 $ 2,720 $ 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 in 1999 2,000 2,000
Notes payable-bearing interest in the range of 5% - 13%
due between December 1996 and July 2002 4,985 6,950
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48,336 50,486
Less current portion (1,720) (2,328)
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$ 46,616 $ 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 June 30,
1996, $4,536,000 was borrowed under this credit facility.
The $5,350,000 Industrial Development Revenue Bond was originally issued in
April 1985, through the City of Santa Ana for the construction of improvements
and new facilities at the Santa Ana plant. It was remarketed in 1995 and carries
interest currently at 6.75% per annum. The terms of the bond require principal
payments of $1,050,000 in 1998, $100,000 annually from 1999 to 2004 and
$3,700,000 in 2005. A $5,557,000 letter of credit is carried by a bank to
guarantee the repayment of this bond. There are no compensating balance
requirements, however, the letter of credit agreement requires the Company to
make collateral payments of $350,000 on February 1, 1996, 1997 and 1998,
totaling $1,050,000 to ensure the availability of funds for the payment of
principal scheduled for February 1, 1998.
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.
5. EARNINGS PER SHARE
Earnings per share on 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 on 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.
6. 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
39 Weeks ended 39 Weeks ended
June 30, 1996 July 2, 1995
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Cash paid during the period for: (amounts in 000's)
Interest $ 2,503 $ 4,477
Income taxes $ 5,026 $ 747
7. 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 Corporations operations in the first nine 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 June 30,
1996, $4,536,000 was borrowed under this credit facility. At June 30, 1996, the
Company had $3,189,000 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 originally issued in April 1985, through the City of Santa Ana,
for the construction of improvements and new facilities at the Santa Ana plant.
The new terms of the Bond require principal payments of $1,050,000 in 1998;
$100,000 annually from 1999 to 2004 and $3,700,000 in 2005 and carries interest
currently at 6.75% per annum.
See Note 4 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. See "Important Factors Related to Forward-Looking
Statements and Associated Risks."
The average collection period of accounts receivable was 51 days for the
first nine months of fiscal year 1996 compared to 54 days for the same period of
fiscal year 1995.
The average days sales of products in inventories was 147 days for the
first thirty-nine weeks of fiscal year 1996 compared to 155 days for the
corresponding period of fiscal year 1995. This decrease primarily resulted from
higher sales in the current period.
The Company has no other significant capital commitments.
Order backlog at June 30, 1996 increased to $72,000,000 from $57,500,000
at July 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, among
other items, 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 materially
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.
The information under the headings "Foreign Operations", "Sales to
Foreign Customers", "Order Backlog", "Competition", "Changes in Technology",
"Proprietary Rights", "Manufacturing Risks", "Dependence on Key Personnel",
"Possible Volatility of Stock Prices", "Product Liability" and "Environmental
Regulations" on pages 4 to 8 in the Company's Form 10-K for the fiscal year
ended October 1, 1995, is incorporated herein by this reference and attached
hereto as exhibit 99.1.
RESULTS OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED JUNE 30, 1996 COMPARED TO THE
THIRTEEN WEEKS ENDED JULY 2, 1995.
Net sales for the third quarter of fiscal year 1996 increased 14% to
$41,261,000, from $36,138,000 for the same period of fiscal year 1995. The
increase of $5,123,000 was primarily due to a higher volume of shipments in
commercial, telecommunication, medical and commercial space products.
Gross profit increased $1,402,000 to $11,004,000 for the current quarter
of fiscal year 1996 from $9,602,000 for the same period of fiscal year 1995 as a
result of higher sales.
Operating expenses for the thirteen weeks ended June 30, 1996 increased
$732,000, 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 41% and 40% in the third 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 THIRTY-NINE WEEKS ENDED JUNE 30, 1996 COMPARED TO
THE THIRTY-NINE WEEKS ENDED JULY 2, 1995.
Net sales for the first nine months of fiscal year 1996 increased 20% to
$115,667,000, from $96,236,000 for the same period of fiscal year 1995. The
increase of $19,431,000 was primarily due to a higher volume of shipments in
commercial, telecommunication, medical and commercial space products.
Gross profit increased $5,796,000 to $30,516,000 for the first nine
months of fiscal year 1996 from $24,720,000 for the same period of fiscal year
1995 as a result of higher sales. As a percentage of sales, gross profit
increased slightly from 25.7% to 26.4% for the first thirty-nine weeks of fiscal
years 1995 and 1996, respectively, primarily as a result of increased absorption
of fixed overhead due to the higher sales volume.
Operating expenses for the thirty-nine weeks ended June 30, 1996
increased $3,015,000, 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 39% in the first nine 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) Inapplicable.
(b) Inapplicable.
(c) Inapplicable.
(d) Inapplicable.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11.5 Unaudited computation of Earnings Per
Share for the thirteen and thirty-nine
weeks ended June 30, 1996 and July 2, 1995
Exhibit 27.7 Unaudited Financial Data Schedule for the
nine months ended June 30, 1996
Exhibit 99.1 "Important Factors" as set forth on
pages 4 to 8 of the Company's Form 10-K,
filed with the Securities and Exchange
Commission on December 22, 1995.
(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
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 7, 1996