UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
- -----
Exchange Act of 1934
For the Quarterly Period Ended July 1, 2001
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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 ____
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.)
2381 Morse Avenue, Irvine, California 92614
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(Address of principal executive offices) (Zip Code)
(949) 221-7100
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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 months (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 of the issuer's Common Stock, $.20 par value, outstanding
on July 12, 2001 was 14,055,042.
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The unaudited consolidated financial information for the quarter and nine months
ended July 1, 2001 of Microsemi Corporation and Subsidiaries ("Microsemi" or 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, 2000, are attached hereto and incorporated herein.
2
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
(amounts in thousands, except share data)
October 1, 2000 July 1, 2001
---------------- ------------
(Restated - Note 2)
ASSETS
Current assets:
Cash and cash equivalents $ 30,460 $ 37,379
Accounts receivable less allowance for doubtful accounts,
$5,767 at October 1, 2000 and $3,890 at July 1, 2001 33,029 33,720
Inventories 52,553 49,732
Deferred income taxes 8,392 8,392
Other current assets 2,020 4,274
-------------- ------------
Total current assets 126,454 133,497
Property and equipment, net 55,458 58,959
Deferred income taxes 2,688 2,688
Goodwill and other intangible assets, net 22,559 20,491
Other assets 3,639 1,450
-------------- ------------
TOTAL ASSETS $ 210,798 $ 217,085
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,037 $ 36
Current maturities of long-term debt 1,230 3,745
Accounts payable 11,489 8,789
Accrued liabilities 23,992 21,634
Income taxes payable 8,549 5,550
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Total current liabilities 46,297 39,754
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Long-term debt 9,651 6,190
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Other long-term liabilities 5,160 5,035
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Commitments and contingencies (Note 3)
Stockholders' equity:
Preferred stock, 1,000,000 shares authorized; none issued,
100,000 shares designated as Series A, $1.00 par value - -
Common stock, $.20 par value; 20,000,000 shares authorized;
13,794,406 issued at October 1, 2000 and 14,048,192 issued
at July 1, 2001 2,759 2,810
Capital in excess of par value of common stock 105,161 108,746
Retained earnings 42,807 55,610
Accumulated other comprehensive loss (1,037) (1,060)
-------------- ------------
Total stockholders' equity 149,690 166,106
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 210,798 $ 217,085
============== ============
The accompanying notes are an integral part of these statements.
3
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Income Statements
(amounts in thousands, except earnings per share)
Quarter Ended Quarter Ended
July 2, 2000 July 1, 2001
------------------- ---------------
(Restated - Note 2)
Net sales $ 66,644 $ 60,089
Cost of sales 47,593 39,623
------------------- ---------------
Gross profit 19,051 20,466
------------------- ---------------
Operating expenses:
Selling, general and administrative 10,282 9,464
Amortization of goodwill and other intangible assets 719 670
Research and development 2,953 4,094
------------------- ---------------
Total operating expenses 13,954 14,228
------------------- ---------------
Operating income 5,097 6,238
------------------- ---------------
Other (expense) income:
Interest, net (854) 162
Other, net (30) 221
------------------- ---------------
Total other (expense) income (884) 383
------------------- ---------------
Income before income taxes 4,213 6,621
Provision for income taxes 1,390 2,185
------------------- ---------------
Net income $ 2,823 $ 4,436
=================== ===============
Earnings per share:
-Basic $ 0.23 $ 0.32
-Diluted $ 0.22 $ 0.30
=================== ===============
Weighted average common and common equivalent
shares outstanding:
-Basic 12,220 13,996
-Diluted 13,095 14,910
The accompanying notes are an integral part of these statements.
4
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Income Statements
(amounts in thousands, except earnings per share)
Nine Months Ended Nine Months Ended
July 2, 2000 July 1, 2001
------------------- ---------------
(Restated - Note 2)
Net sales $ 182,204 $ 186,225
Cost of sales 132,409 125,232
------------------- ---------------
Gross profit 49,795 60,993
------------------- ---------------
Operating expenses:
Selling, general and administrative 28,430 29,348
Amortization of goodwill and other intangible assets 1,622 2,029
Research and development 8,028 11,291
Acquired in-process research and development 2,510 -
------------------- ---------------
Total operating expenses 40,590 42,668
------------------- ---------------
Operating income 9,205 18,325
------------------- ---------------
Other (expense) income:
Interest, net (3,235) 518
Other, net (8) 267
------------------- ---------------
Total other (expense) income (3,243) 785
------------------- ---------------
Income before income taxes 5,962 19,110
Provision for income taxes 1,968 6,306
------------------- ---------------
Net income $ 3,994 $ 12,804
=================== ===============
Earnings per share:
-Basic $ 0.35 $ 0.92
=================== ===============
-Diluted $ 0.34 $ 0.87
=================== ===============
Weighted average common and common equivalent
shares outstanding:
-Basic 11,419 13,941
-Diluted 11,999 14,756
The accompanying notes are an integral part of these statements.
5
MICROSEMI CORPORATION AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(amounts in thousands)
Nine Months Ended Nine Months Ended
July 2, 2000 July 1, 2001
------------------- --------------------
(Restated - Note 2)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,994 $ 12,804
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 8,752 9,192
Provision for doubtful accounts 2,671 (1,866)
Loss (gain) on retirement and disposition of assets 355 (400)
Acquired in-process research and development 2,510 -
Stock based compensation for services provided - 459
Changes in assets and liabilities, net of acquisition and
disposition:
Accounts receivable (1,990) 1,175
Inventories 1,761 2,821
Other current assets (551) (2,254)
Other assets 1,074 1,350
Accounts payable 2,485 (2,700)
Accrued liabilities 5,095 (2,359)
Income taxes payable 1,503 (2,999)
------------------ -------------------
Net cash provided by operating activities 27,659 15,223
------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition (1,548) -
Proceeds from sale of assets 1,608 1,020
Investment in an unconsolidated affiliate (251) -
Purchases of property and equipment (7,300) (10,665)
Change in other assets - 259
------------------ -------------------
Net cash used in investing activities (7,491) (9,386)
------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable to banks and other (19,006) (1,001)
Payments on long-term debt (31,110) (946)
Increase (decrease) in other long-term liabilities 14 (125)
Proceeds from sale of common stock 45,336 -
Exercises of employee stock options 2,288 3,177
------------------ -------------------
Net cash (used in) provided by financing activities (2,478) 1,105
------------------ -------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (32) (23)
------------------ -------------------
Net increase in cash and cash equivalents 17,658 6,919
Cash and cash equivalents at beginning of period 7,624 30,460
------------------ -------------------
Cash and cash equivalents at end of period $ 25,282 $ 37,379
================== ===================
The accompanying notes are an integral part of these statements.
6
MICROSEMI CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
July 1, 2001
1. PRESENTATION OF FINANCIAL INFORMATION
The financial information furnished herein is unaudited, but in the opinion of
management of Microsemi Corporation includes all adjustments (all of which are
normal, recurring adjustments) necessary for a fair presentation of the results
of operations for the periods indicated. The results of operations for the
first nine months of the current fiscal year are not necessarily indicative of
the results to be expected for the full year.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q, and therefore do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. The unaudited consolidated financial statements
and notes should be read in conjunction with the consolidated financial
statements and notes thereto in the Annual Report on Form 10-K for the fiscal
year ended October 1, 2000.
2. INVENTORIES
For interim reporting purposes, cost of goods sold and inventories are estimated
based upon the use of the gross profit method.
Inventories used in the computation of cost of goods sold were:
October 1, 2000 July 1, 2001
------------------ ------------------
(Restated - Note 2)
(amounts in thousands)
Raw materials $ 12,503 $ 13,643
Work in process 22,239 22,444
Finished goods 17,811 13,645
--------------- ------------------
$ 52,553 $ 49,732
=============== ==================
During the first quarter of fiscal year 2001, the Company changed its method of
determining the cost of inventories at its Scottsdale subsidiary ("Scottsdale")
from the last-in, first-out ("LIFO") method to the first-in, first-out ("FIFO")
method. The Company believes that the FIFO method is preferable since it will
enhance the comparability of the Company's financial statements by changing to
the predominant method utilized in its industry and will conform all inventories
of the Company to the same accounting method. In addition, Scottsdale has
experienced improvements in productivity and permanent declines in inventory
costs. Accordingly, the FIFO method will result in a better matching of
revenues and costs and measurement of operating results. The Company has also
applied to the Internal Revenue Service to change to the FIFO inventory costing
method for income tax purposes.
As required by Accounting Principles Board Opinion No. 20, Accounting Changes,
all previously reported results have been restated to reflect the retroactive
application of this accounting change as of the beginning of fiscal year 2000.
The effect of the restatement was to increase retained earnings at October 1,
2000 by $39,000. The respective effects on net income for the three-month and
nine-month periods ended July 2, 2000 were immaterial.
7
3. CONTINGENCY
In Broomfield, Colorado, the owner of a property located adjacent to a
manufacturing facility owned by a subsidiary of the Company had notified 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 that owner of the adjacent property for 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. In November 1998, the Company signed an agreement with three
former owners of this facility whereby the former owners 1) reimbursed the
Company for $530,000 of past costs, 2) assumed responsibility for 90% of all
future clean-up costs, and 3) agreed to indemnify and protect the Company
against any and all third-party claims relating to the contamination of the
facility. An Integrated Corrective Action Plan has been submitted to the State
of Colorado. 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. In the opinion of management, the final outcome of the
Broomfield, Colorado environmental matter will not have a material adverse
effect on the Company's financial position, results of operations or cash flows.
The Company is involved in various pending litigation matters, arising out of
the normal conduct of its business, including from time to time litigation
relating to commercial transactions, contracts, and environmental matters. In
the opinion of management, the final outcome of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
4. COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity (net assets) of a
business enterprise during the period from transactions and other events and
circumstances from non-owner sources. Accumulated other comprehensive loss
consists of the change in the cumulative translation adjustment. Total
comprehensive income of the Company for the quarters ended July 2, 2000
(Restated-Note 2) and July 1, 2001 was $2,793,000 and $4,442,000, respectively.
Total comprehensive income for the nine months ended July 2, 2000 (Restated-Note
2) and July 1, 2001 was $3,962,000 and $12,781,000, respectively.
5. EARNINGS PER SHARE
Basic earnings per share have been computed based upon the weighted average
number of common shares outstanding during the respective periods. Diluted
earnings per share have been computed, when the result is dilutive, using the
treasury stock method for stock options outstanding and giving effect to
issuance of shares upon conversion of debt during the respective periods.
Earnings per share for the respective quarters and respective nine months ended
July 2, 2000 and July 1, 2001 were calculated as follows:
8
Quarter Ended Nine Months Ended
--------------------------------- -------------------------------
July 2, 2000 July 1, 2001 July 2, 2000 July 1, 2001
------------- ------------- ------------- ------------
(Restated - (Restated -
Note 2) Note 2)
(amounts in thousands, except per share data)
BASIC
Net income $ 2,823 $ 4,436 $ 3,994 $ 12,804
============= ============= ============ ============
Weighted-average common shares
outstanding 12,220 13,996 11,419 13,941
============= ============= ============ ============
Basic earnings per share $ 0.23 $ 0.32 $ 0.35 $ 0.92
============= ============= ============ ============
DILUTED
Net income $ 2,823 $ 4,436 $ 3,994 $ 12,804
Interest savings from assumed
conversions of convertible debt,
net of income taxes 29 29 39 88
------------- ------------- ------------ ------------
Net income assuming conversions $ 2,852 $ 4,465 $ 4,033 $ 12,892
============= ============= ============ ============
Weighted-average common shares
outstanding for basic 12,220 13,996 11,419 13,941
Dilutive effect of stock options 708 747 504 648
Dilutive effect of convertible debt 167 167 76 167
------------- ------------- ------------ ------------
Weighted-average common shares
outstanding on a diluted basis 13,095 14,910 11,999 14,756
============= ============= ============ ============
Diluted earnings per share $ 0.22 $ 0.30 $ 0.34 $ 0.87
============= ============= ============ ============
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
established new standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
The Company adopted SFAS No. 133 in fiscal year 2001; however, the adoption of
this standard did not have any material impact on the consolidated results of
operations, financial position or cash flows of the Company.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 establishes new
accounting and reporting standards for business combinations and will require
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 and for all business combinations accounted for by
the purchase method for which the date of acquisition is after June 30, 2001.
Use of the pooling-of-interest method will be prohibited. SFAS No. 142, which
changes the accounting for goodwill from an amortization method to an
impairment-only approach, will be effective no later than the first quarter of
fiscal year 2003. The Company is currently evaluating the impact of adopting
SFAS No. 141 and No. 142.
9
7. SEGMENT INFORMATION
The Company's reportable operating segments are based on geographic location,
and the measure of segment profit is income from operations.
The Company operates predominantly in a single industry segment as a
manufacturer of discrete semiconductors and whole-circuit solutions. Geographic
areas in which the Company operates include the United States, Europe and Asia.
Intergeographic sales primarily represent intercompany sales which are accounted
for based on established sales prices between the related companies and are
eliminated in consolidation.
Financial information by geographic segments is as follows:
Nine Months Ended
---------------------------------------------------------
July 2, 2000 July 1, 2001
--------------------------- -------------------
(Restated - Note 2)
(amounts in thousands)
Net sales:
United States
Sales to unaffiliated customers $ 165,795 $ 163,491
Intergeographic sales 13,898 21,006
Europe
Sales to unaffiliated customers 13,731 20,298
Intergeographic sales 2,648 3,924
Asia
Sales to unaffiliated customers 2,678 2,436
Intergeographic sales 2,792 3,355
Eliminations of intergeographic sales (19,338) (28,285)
------------------ -------------------
$ 182,204 $ 186,225
================== ===================
Income (loss) from operations:
United States $ 8,602 $ 17,079
Europe 509 949
Asia 94 297
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Total $ 9,205 $ 18,325
================== ===================
Capital expenditures:
United States $ 7,253 $ 10,464
Europe - 201
Asia 47 -
------------------ -------------------
Total $ 7,300 $ 10,665
================== ===================
Depreciation and amortization:
United States $ 8,626 $ 8,835
Europe (92) 179
Asia 218 178
------------------ -------------------
Total $ 8,752 $ 9,192
================== ===================
October 1, 2000 July 1, 2001
--------------------------- ------------------
(Restated - Note 2)
(amounts in thousands)
Identifiable assets:
United States $ 195,693 $ 199,199
Europe 8,401 11,909
Asia 6,704 5,977
------------------ ------------------
Total $ 210,798 $ 217,085
================== ==================
10
8. SUBSEQUENT EVENTS
On June 12, 2001, Microsemi announced that it had entered into an agreement in
principle to acquire the assets of Compensated Devices, Inc. (CDI), of Melrose,
MA. Microsemi will pay $11.5 million for CDI in a combination of cash and one-
year notes that are payable in cash and/or shares of Microsemi's common stock,
at Microsemi's option and assume certain liabilities. This acquisition is
expected to be completed in the fourth quarter of fiscal year 2001.
On July 31, 2001, Microsemi announced that its stockholders approved the
proposed increase in the number of authorized shares of its Common Stock from 20
million to 100 million pursuant to written consents. Based on this approval, the
board of directors of Microsemi has declared a 2-for-1 stock split to be
effected by a dividend payable in shares of Common Stock. The dividend is
payable August 28, 2001 to stockholders of record as of the close of business on
August 14, 2001. Stockholders will receive one additional share of Common Stock
for every one share held on the record date. As a result of the stock split,
Microsemi's outstanding shares of Common Stock would increase from 14,072,286
(including 1,013 treasury shares), to 28,144,572 shares, estimated based upon
the currently outstanding shares.
On August 2, 2001, Micro NES Acquisition Corp.("MNES"), a wholly-owned
subsidiary of Microsemi and New England Semiconductor Corp. and a wholly-owned
subsidiary thereof ("NESC") consummated a purchase and sale of assets. MNES
plans to operate the acquired business or assets at the same physical location
in Lawrence, Massachusetts where the seller has operated them prior to August 2,
2001. MNES has paid approximately $3.3 million cash to the seller, approximately
$6 million was paid with a one-year promissory note and the balance of
approximately $5 million was mostly paid in the form of cash or assumed loans
and other obligations specified in the agreement. The parties arrived at the
price and terms on the basis of negotiations which resulted in a letter of
intent signed and announced by Microsemi in early June 2001. MNES paid for the
acquisition with a loan from Microsemi. NESC and its shareholders previously had
no material relationship with Microsemi, its directors or officers, or their
respective associates. Another subsidiary of Microsemi had been a sublessor to
New England Semiconductor Corp., and that sublease was terminated as part of
this transaction.
11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q includes current beliefs, expectations and
other forward looking statements, the realization of which may be adversely
impacted by any of the factors discussed below or the additional factors
referenced under the heading "Important Factors Related to Forward-Looking
Statements and Associated Risks," found below. This Management's Discussion and
Analysis of Financial Condition and Results of Operations and the accompanying
unaudited consolidated financial statements and notes should be read in
conjunction with the Management's Discussion and Analysis of Financial Condition
and Results of Operations and the consolidated financial statements and notes
thereto in the Annual Report on Form 10-K for the fiscal year ended October 1,
2000.
INTRODUCTION
- ------------
Microsemi Corporation is a leading designer, manufacturer and marketer of
analog, mixed-signal and discrete semiconductors. The Company's semiconductors
manage and regulate power, protect against transient voltage spikes and
transmit, receive and amplify signals. Microsemi's products include individual
components as well as whole-circuit solutions that enhance customer end products
by providing battery optimization, reducing size or protecting circuits.
Microsemi's commercial products are used in dynamic high growth mobile
connectivity applications, including mobile phones and handheld Internet
devices, and broadband communications applications such as base stations,
wireless LAN, and cable and fiber optic systems. These high growth opportunities
have emerged from ongoing capabilities in designing and manufacturing
semiconductors for military, satellite and medical applications. The Company
serves several end markets of the semiconductor industry. These end markets
include battery-operated products, communications and Internet infrastructure,
and military and aerospace. Battery-operated products include portable digital
assistants (PDAs), mobile phones, portable or implantable medical equipment,
hearing aids, notebook computers and wireless web tablets. The Company's
diverse customer base includes Motorola, Lockheed Martin, Seagate, Mitsubishi,
Guidant, Samsung, Medtronic, Boeing, Palm, Dell and Compaq.
Results Of Operations For The Quarter Ended July 2, 2000 (Restated-Note 2)
Compared To The Quarter Ended July 1, 2001.
Net sales decreased $6.5 million, from $66.6 million for the third quarter of
fiscal year 2000 to $60.1 million for the third quarter of fiscal year 2001.
The decrease was primarily attributable to a decline in products sold to the
low-end PC and mobile telephone markets and by the reduction or elimination of
revenues generated by subsidiaries that were sold or closed, partially offset by
higher sales of power management, TVS and RF/Microwave products to the mobile
connectivity and telecommunications markets, as well as increased sales to the
military and space/satellite customers. The Company sold the assets of its Micro
Commercial Components division ("MCC") and closed this division in June 2000.
The Company also discontinued the operations of BKC Semiconductors, Inc. ("BKC")
in September 2000 and Microsemi (H.K.) Ltd. ("Hong Kong") in June 2001. For the
quarter ended July 2, 2000, MCC, BKC and Hong Kong had revenues of $2.5 million,
$2.0 million and $1.0 million, respectively. For the quarter ended July 1, 2001,
Hong Kong had revenues of $0.6 million.
Gross profit increased $1.4 million, from $19.1 million for the third quarter of
fiscal year 2000 to $20.5 million for the third quarter of fiscal year 2001. As
a percentage of sales, gross profit was 28.6% for the third quarter of fiscal
year 2000, compared to 34.1% for the third quarter of fiscal year 2001. This
increase was due primarily to higher capacity utilization, a shift in revenues
from lower-margin commodity products in the computer/peripherals and industrial
markets to higher-margin application-specific products in the mobile
connectivity, telecommunications, medical and commercial satellite markets,
which is expected to continue for the remainder of the year, and the
consolidation of certain operations that produced lower margin products. MCC,
BKC and Hong Kong had gross profit of $0.0 million, $1.0 million and $0.2
million in the quarter ended July 2, 2000. Hong Kong had a gross profit of $0.2
in the quarter ended July 1, 2001.
Selling, general and administrative expenses decreased from $10.3 million for
the third quarter of fiscal year 2000 to $9.5 million for the third quarter of
fiscal year 2001, primarily due to eliminations of expenditures of the
businesses that were sold or closed.
12
Research and development expense increased $1.1 million, from $3.0 million for
third quarter of fiscal year 2000 to $4.1 million for the third quarter of
fiscal year 2001. The increase was primarily due to higher spending to develop
power management and RF/Microwave products for the mobile connectivity,
telecommunications and medical markets.
The effective income tax rate was 33.0% in the quarters ended July 2, 2000 and
July 1, 2001, respectively.
Results Of Operations For The Nine Months Ended July 2, 2000 (Restated-Note 2)
Compared To The Nine Months Ended July 1, 2001.
Net sales increased $4.0 million, from $182.2 million for the first nine months
of fiscal year 2000 to $186.2 million for the first nine months of fiscal year
2001. The increase was primarily attributable to higher sales of power
management, TVS and RF/Microwave products to the mobile connectivity and
telecommunications markets, as well as sales to the military and space/satellite
customers, partially offset by a decline in products sold to the low-end PC and
mobile telephone markets, partially offset by revenues generated by divisions
that were sold or closed. The Company sold the assets of its MCC division and
closed this division in June 2000. The Company also discontinued the operations
of BKC in September 2000, Microsemi PPC Inc. ("PPC") in March 2001 and Hong Kong
in June 2001. For the nine months ended July 2, 2000, MCC, BKC, PPC and Hong
Kong had revenues of $9.8 million, $6.3 million, $3.2 million and $2.7 million,
respectively. For the nine months ended July 1, 2001, PPC and Hong Kong had
revenues of $2.8 million and $2.4 million, respectively.
Gross profit increased $11.2 million, from $49.8 million for the first nine
months of fiscal year 2000 to $61.0 million for the first nine months of fiscal
year 2001. As a percentage of sales, gross profit was 27.3% for first nine
months of fiscal year 2000, compared to 32.8% for the corresponding period of
fiscal year 2001. This increase was due primarily to higher capacity
utilization and a shift in revenues from lower-margin commodity products in the
computer/peripherals and industrial markets to higher-margin application-
specific products in the mobile connectivity, telecommunications, medical and
commercial satellite markets, and the closures of certain operations that
produced lower-margin products. MCC, BKC, PPC and Hong Kong had gross profit of
$1.0 million, $3.2 million, $0.0 million and $0.3 million in the first nine
months of fiscal year 2000. PPC and Hong Kong had gross profit of $1.0 million
and $0.7 million in the first nine months of fiscal year 2001.
Selling, general and administrative expenses increased $0.9 million from $28.4
million for the first nine months of fiscal year 2000 to $29.3 million for the
first nine months of fiscal year 2001, primarily due to increased expenditures
to support the increase in sales, partially offset by the elimination and
reduction of expenses incurred by the subsidiaries that were sold or closed.
Research and development expense increased $3.3 million, from $8.0 million for
the first nine months of fiscal year 2000 to $11.3 million for the first nine
months of fiscal year 2001. The increase was primarily due to higher spending
on development of power management and RF/Microwave products for the mobile
connectivity, telecommunications and medical markets.
The effective income tax rate was 33.0% in the nine months ended July 2, 2000
and July 1, 2001, respectively.
Capital Resources And Liquidity
Net cash provided by operating activities was $27.7 million and $15.2 million
for the first nine months of fiscal years 2000 and 2001, respectively. The net
cash provided by operating activities was $12.4 million less in the first nine
months of fiscal year 2001 than had been provided in the same period of fiscal
year 2000 as a result of the combined impact of greater net income during the
first nine months of fiscal year 2001, more than offset by the combined effect
of differences in certain non-cash financial statement items, such as the
provision for returns and doubtful accounts, acquired in-process research and
development, accounts receivable, inventories, other current assets, accrued
liabilities and taxes.
13
Net cash used in investing activities was $7.5 million and $9.4 million for the
nine months ended July 2, 2000 and July 1, 2001, respectively. The net cash used
in investing activities was $1.9 million more in the first nine months of fiscal
year 2001 than it had been in the first nine months of fiscal year 2000,
primarily due to a higher amount of purchases of property and equipment in the
first nine months of fiscal year 2001.
Net cash (used in) provided by financing activities was ($2.5) million and $1.1
million for the first nine months of fiscal years 2000 and 2001, respectively.
In the first nine months of fiscal year 2000 the Company repaid a large portion
of the Company's debt with proceeds from sales of its common stock and from
exercises of employee stock options. The net cash provided from financing in the
first nine months of fiscal year 2001 was primarily a combined result of
proceeds from exercises of employee stock options, partially offset by repayment
of a smaller portion of the Company's debt.
Microsemi's operations in the nine months ended July 1, 2001 were funded with
internally generated funds. The Company has maintained a credit line with a
bank, from which it can borrow up to $30 million. The credit line is secured by
substantially all of the assets of the Company. This credit line expires in
March 2003. As of July 1, 2001, there were no funds borrowed under this credit
facility. The credit line includes a facility to issue letters of credit, and
$4.1 million was outstanding in the form of letters of credit as of July 1,
2001. At July 1, 2001, Microsemi had $37.4 million in cash and cash
equivalents.
Based upon information currently available, management believes that Microsemi
can meet its current operating cash and debt service requirements with
internally generated funds together with its available borrowings.
14
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
- ----------------------------------------------------------------------------
Some of the statements in this report or incorporated by reference are forward-
looking, including, without limitation, the statements under the captions
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". These statements include those that contain words like "may,"
"will," "could," "should," "project," "believe," "anticipate," "expect," "plan,"
"estimate," "forecast," "potential," "intend," "maintain," "continue" and
variations of these words or comparable words. In addition, all of the non-
historical information herein is forward-looking, include any statement or
implication about a future time, result or other circumstance. Forward-looking
statements are not a guarantee of future performance and involve risks and
uncertainties. Actual results may differ substantially from the results that
the forward-looking statements suggest for various reasons. These forward-
looking statements are made only as of the date of this report. Microsemi does
not undertake to update or revise the forward-looking statements, whether as a
result of new information, future events or otherwise.
The forward-looking statements included in this report are based on, among other
items, current assumptions that Microsemi will be able to meet its current
operating cash and debt service requirements, that Microsemi will be able to
successfully resolve disputes and other business matters as anticipated, that
competitive conditions within the analog, mixed signal and discrete
semiconductor, integrated circuit or custom component assembly industries will
not affect the Company materially or adversely, that Microsemi will retain
existing key personnel, that Microsemi's forecasts will reasonably anticipate
market demand for its products, and that there will be no other material adverse
change in its operations or business. Other factors that could cause results to
vary materially from current expectations are referred to elsewhere in this
report. Assumptions relating to the foregoing involve judgments that are
difficult to make and future circumstances that are difficult to predict
accurately or correctly. 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 Microsemi to alter its internal forecasts, which may in turn
affect results or expectations. Microsemi Corporation does not undertake to
announce publicly these changes that may occur in our expectations after the
periods presented herein. Readers are cautioned against giving undue weight to
any of the forward-looking statements.
Adverse changes to our results could result from any number of factors,
including for example fluctuations in economic conditions, potential effects of
inflation, lack of earnings visibility, dependence upon certain customers or
markets, dependence upon suppliers, future capital needs, rapid technological
changes, difficulties in integrating acquired businesses, ability to realize
cost savings or productivity gains, potential cost increases, dependence on key
personnel, difficulties regarding hiring and retaining qualified personnel in a
competitive labor market, risks of doing business in international markets, and
problems of third parties.
The inclusion of forward-looking information should not be regarded as a
representation by Microsemi or any other person that its objectives or plans
will be achieved. Additional factors that could cause results to vary
materially from current expectations are discussed under the heading "Important
factors related to forward-looking statements and associated risks" in the
annual report in the Form 10-K as filed with the Securities and Exchange
Commission in December 2000, and elsewhere in that Form 10-K, including but not
limited to, under the headings, "Legal Proceedings," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and the notes to
the financial statements included therein.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inapplicable.
15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Inapplicable.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other information
-----------------
Inapplicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICROSEMI CORPORATION
By: /s/ DAVID R. SONKSEN
---------------------
David R. Sonksen
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer and duly
authorized to sign on behalf of the
Registrant)
DATED: August 13, 2001
17