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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Microsemi Corp. (delisted) | NASDAQ:MSCC | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 68.74 | 68.61 | 68.78 | 0 | 01:00:00 |
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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95-2110371
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(State or other jurisdiction of
incorporation or organization)
|
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(I.R.S. Employer
Identification No.)
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Large Accelerated Filer
x
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Accelerated Filer
o
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Non-Accelerated Filer
o
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Smaller Reporting Company
o
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(Do not check if a smaller reporting company)
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Emerging Growth Company
o
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Reference
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Page
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PART I.
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Financial Information
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ITEM 1.
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Financial Statements
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Unaudited Consolidated Balance Sheets
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Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss)
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Unaudited Consolidated Statements of Cash Flows
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Notes to Unaudited Consolidated Financial Statements
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ITEM 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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ITEM 3.
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Quantitative and Qualitative Disclosures About Market Risk
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ITEM 4.
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Controls and Procedures
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PART II.
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Other Information
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ITEM 1.
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Legal Proceedings
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ITEM 1A.
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Risk Factors
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ITEM 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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ITEM 3.
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Defaults Upon Senior Securities
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ITEM 4.
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Mine Safety Disclosures
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ITEM 5.
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Other Information
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ITEM 6.
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Exhibits
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Microsemi Corporation
|
2
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•
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expectations regarding the proposed acquisition of Microsemi by Microchip Technology Incorporated, including the satisfaction of closing conditions to the transaction and anticipated timing of the closing;
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•
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expectations concerning policy changes with respect to monetary, regulatory, tax, and trade, among others, and the effects of any such changes on our business and results of operations;
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•
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expectations regarding tax exposures and future tax rates, especially in regards to the recent enactment of Tax Cuts and Jobs Act ("TCJA"), our ability to realize deferred tax assets
and the outcome or effects of examinations by U.S., state or foreign jurisdictions;
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•
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expectations regarding potentially divergent laws and regulations, trade restrictions, including treaty changes, tariffs, sanctions and the suspension of export licenses;
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•
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expectations that we will be able to successfully integrate acquired companies and personnel with our existing operations;
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•
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expectations regarding our liquidity and capital resources, including our loan covenants;
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•
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demand, growth and sales expectations for our products;
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•
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expectations concerning the potential termination or renegotiation of U.S. government contracts, uncertainties of governmental appropriations and national defense policies and priorities and the effects of past or future government shutdowns and contract terminations or renegotiations;
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•
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compliance with and changes to import/export tariffs and regulations;
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•
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expectations that plant consolidations will result in anticipated cost savings without unanticipated costs or expenses;
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•
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expectations regarding competitive conditions;
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•
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new market opportunities and emerging applications for our products;
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•
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expectations concerning the anticipated benefits of our acquisitions;
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•
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expectations that we will be able to identify or complete prospective acquisitions in a market with increasing competition from other potential acquirers, the effects of a consolidating semiconductor industry and high valuations of acquisition candidates;
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•
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the uncertainty of litigation, administrative and similar matters, the associated costs and expenses, and the potential material adverse effect that these matters could have on our business and results of operations;
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•
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beliefs our customers will not cancel orders or terminate or renegotiate their purchasing relationships with us and will pay receivables when contractually due;
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•
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expectations that we will not suffer production delays as a result of a supplier's inability to supply parts;
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•
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the effect of events such as natural disasters and related disruptions on our operations;
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Microsemi Corporation
|
3
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•
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beliefs that we stock adequate supplies of all materials;
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•
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beliefs that we will be able to successfully resolve any disputes and other business matters as anticipated;
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•
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beliefs that we will be able to meet our operating cash and capital commitment requirements in the foreseeable future;
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•
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critical accounting estimates;
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•
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expectations regarding our financial and operating results;
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•
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expectations regarding our performance and competitive position in future periods; and
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•
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expectations regarding our outlook for our end markets.
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Microsemi Corporation
|
4
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PART I. FINANCIAL INFORMATION
|
ITEM 1.
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FINANCIAL STATEMENTS
|
Microsemi Corporation
|
5
|
MICROSEMI CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited, amounts in millions, except par value)
|
|
|
April 1,
2018 |
|
October 1,
2017 |
||||
Assets
|
|
|
|
|
||||
Current assets:
|
|
|
|
|
||||
Cash and cash equivalents
|
|
$
|
223.2
|
|
|
$
|
144.9
|
|
Accounts receivable, net of allowances of $41.7 at April 1, 2018 and $43.8 at October 1, 2017
|
|
292.2
|
|
|
267.9
|
|
||
Inventories
|
|
265.6
|
|
|
239.1
|
|
||
Other current assets
|
|
71.9
|
|
|
75.0
|
|
||
Total current assets
|
|
852.9
|
|
|
726.9
|
|
||
Property and equipment, net
|
|
223.8
|
|
|
197.6
|
|
||
Goodwill
|
|
2,538.4
|
|
|
2,497.3
|
|
||
Intangible assets, net
|
|
698.6
|
|
|
752.3
|
|
||
Deferred income taxes, net
|
|
68.7
|
|
|
67.2
|
|
||
Other assets
|
|
87.7
|
|
|
81.8
|
|
||
Total assets
|
|
$
|
4,470.1
|
|
|
$
|
4,323.1
|
|
|
|
|
|
|
||||
Liabilities and Stockholders' Equity
|
|
|
|
|
||||
Current liabilities:
|
|
|
|
|
||||
Accounts payable
|
|
$
|
162.6
|
|
|
$
|
164.9
|
|
Accrued liabilities
|
|
131.0
|
|
|
153.4
|
|
||
Current maturity of long-term debt
|
|
81.4
|
|
|
61.1
|
|
||
Total current liabilities
|
|
375.0
|
|
|
379.4
|
|
||
Long-term debt
|
|
1,800.5
|
|
|
1,735.6
|
|
||
Deferred income taxes
|
|
84.6
|
|
|
103.8
|
|
||
Other long-term liabilities
|
|
123.6
|
|
|
110.0
|
|
||
Commitments and contingencies (Note 10)
|
|
|
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|
|
|
||
Stockholders’ equity:
|
|
|
|
|
||||
Preferred stock, $1.00 par value; authorized 1 share; none issued
|
|
—
|
|
|
—
|
|
||
Common stock, $0.20 par value; 250.0 authorized, 118.0 issued and outstanding at April 1, 2018 and 116.3 issued and outstanding at October 1, 2017
|
|
23.6
|
|
|
23.3
|
|
||
Capital in excess of par value of common stock
|
|
1,474.1
|
|
|
1,443.7
|
|
||
Retained earnings
|
|
586.9
|
|
|
526.9
|
|
||
Accumulated other comprehensive income
|
|
1.8
|
|
|
0.4
|
|
||
Total stockholders’ equity
|
|
2,086.4
|
|
|
1,994.3
|
|
||
Total liabilities and stockholders' equity
|
|
$
|
4,470.1
|
|
|
$
|
4,323.1
|
|
Microsemi Corporation
|
6
|
MICROSEMI CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (loss)
(unaudited, amounts in millions, except earnings per share)
|
|
|
Quarter Ended
|
|
Six Months Ended
|
||||||||||||
|
|
April 1,
2018 |
|
April 2,
2017 |
|
April 1,
2018 |
|
April 2,
2017 |
||||||||
Net sales
|
|
$
|
492.2
|
|
|
$
|
442.9
|
|
|
$
|
960.9
|
|
|
$
|
878.4
|
|
Cost of sales (excluding amortization of intangible assets below)
|
|
201.9
|
|
|
158.8
|
|
|
382.0
|
|
|
317.8
|
|
||||
Gross profit
|
|
290.3
|
|
|
284.1
|
|
|
578.9
|
|
|
560.6
|
|
||||
Operating expenses
|
|
|
|
|
|
|
|
|
||||||||
Selling, general and administrative
|
|
100.8
|
|
|
75.8
|
|
|
185.1
|
|
|
166.2
|
|
||||
Research and development costs
|
|
92.7
|
|
|
86.9
|
|
|
181.8
|
|
|
169.2
|
|
||||
Amortization of intangible assets
|
|
42.2
|
|
|
46.5
|
|
|
92.4
|
|
|
92.1
|
|
||||
Restructuring, severance and facilities charges
|
|
3.1
|
|
|
5.8
|
|
|
8.6
|
|
|
8.2
|
|
||||
Total operating expenses
|
|
238.8
|
|
|
215.0
|
|
|
467.9
|
|
|
435.7
|
|
||||
Operating income
|
|
51.5
|
|
|
69.1
|
|
|
111.0
|
|
|
124.9
|
|
||||
Other expense
|
|
|
|
|
|
|
|
|
||||||||
Interest expense, net
|
|
(22.8
|
)
|
|
(25.9
|
)
|
|
(44.4
|
)
|
|
(51.8
|
)
|
||||
Other expense, net
|
|
(0.8
|
)
|
|
(0.3
|
)
|
|
(4.4
|
)
|
|
(1.6
|
)
|
||||
Total other expense
|
|
(23.6
|
)
|
|
(26.2
|
)
|
|
(48.8
|
)
|
|
(53.4
|
)
|
||||
Income before income taxes
|
|
27.9
|
|
|
42.9
|
|
|
62.2
|
|
|
71.5
|
|
||||
Provision for income taxes
|
|
15.6
|
|
|
1.7
|
|
|
2.0
|
|
|
10.9
|
|
||||
Net income
|
|
$
|
12.3
|
|
|
$
|
41.2
|
|
|
$
|
60.2
|
|
|
$
|
60.6
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic
|
|
$
|
0.10
|
|
|
$
|
0.36
|
|
|
$
|
0.51
|
|
|
$
|
0.53
|
|
Diluted
|
|
$
|
0.10
|
|
|
$
|
0.35
|
|
|
$
|
0.50
|
|
|
$
|
0.52
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
||||||||
Basic
|
|
117.4
|
|
|
114.7
|
|
|
117.2
|
|
|
114.4
|
|
||||
Diluted
|
|
119.6
|
|
|
117.0
|
|
|
119.3
|
|
|
116.6
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Net income
|
|
$
|
12.3
|
|
|
$
|
41.2
|
|
|
$
|
60.2
|
|
|
$
|
60.6
|
|
Other comprehensive income (loss), net of taxes
|
|
|
|
|
|
|
|
|
||||||||
Currency translation adjustment
|
|
0.9
|
|
|
0.3
|
|
|
1.4
|
|
|
(0.9
|
)
|
||||
Other comprehensive income (loss), net of taxes
|
|
0.9
|
|
|
0.3
|
|
|
1.4
|
|
|
(0.9
|
)
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Total comprehensive income
|
|
$
|
13.2
|
|
|
$
|
41.5
|
|
|
$
|
61.6
|
|
|
$
|
59.7
|
|
Microsemi Corporation
|
7
|
MICROSEMI CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited, amounts in millions)
|
|
|
Six Months Ended
|
||||||
|
|
April 1,
2018 |
|
April 2,
2017 |
||||
Cash flows from operating activities:
|
|
|
|
|
||||
Net income
|
|
$
|
60.2
|
|
|
$
|
60.6
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
||||
Depreciation and amortization
|
|
120.5
|
|
|
115.8
|
|
||
Amortization of deferred financing cost
|
|
6.1
|
|
|
5.6
|
|
||
Loss on divestiture
|
|
—
|
|
|
1.2
|
|
||
Loss on disposition or impairment of assets
|
|
1.2
|
|
|
—
|
|
||
Deferred income taxes
|
|
(19.2
|
)
|
|
(7.3
|
)
|
||
Charge for stock-based compensation
|
|
51.7
|
|
|
43.9
|
|
||
Change in assets and liabilities:
|
|
|
|
|
||||
Accounts receivable
|
|
(7.5
|
)
|
|
12.8
|
|
||
Inventories
|
|
12.0
|
|
|
(2.1
|
)
|
||
Other current assets
|
|
3.3
|
|
|
(16.6
|
)
|
||
Other assets
|
|
(3.0
|
)
|
|
(11.4
|
)
|
||
Accounts payable
|
|
(18.1
|
)
|
|
(1.1
|
)
|
||
Accrued liabilities
|
|
(28.8
|
)
|
|
(5.5
|
)
|
||
Other long-term liabilities
|
|
9.9
|
|
|
3.2
|
|
||
Net cash provided by operating activities
|
|
188.3
|
|
|
199.1
|
|
||
Cash flows from investing activities:
|
|
|
|
|
||||
Purchases of property and equipment
|
|
(29.6
|
)
|
|
(26.5
|
)
|
||
Proceeds from the sale of short term investments
|
|
0.1
|
|
|
0.1
|
|
||
Acquisitions net of cash acquired
|
|
(138.6
|
)
|
|
(17.0
|
)
|
||
Net cash used in investing activities
|
|
(168.1
|
)
|
|
(43.4
|
)
|
||
Cash flows from financing activities:
|
|
|
|
|
||||
Proceeds from debt
|
|
145.0
|
|
|
235.0
|
|
||
Repayments of debt
|
|
(65.4
|
)
|
|
(385.4
|
)
|
||
Payments of debt issuance costs
|
|
—
|
|
|
(1.2
|
)
|
||
Payments for stock settled tax withholdings
|
|
(23.1
|
)
|
|
(3.9
|
)
|
||
Proceeds from exercise of stock options
|
|
1.6
|
|
|
1.5
|
|
||
Net cash provided by (used in) financing activities
|
|
58.1
|
|
|
(154.0
|
)
|
||
Net increase in cash and cash equivalents
|
|
78.3
|
|
|
1.7
|
|
||
Cash and cash equivalents at beginning of period
|
|
144.9
|
|
|
189.5
|
|
||
Cash and cash equivalents at end of period
|
|
$
|
223.2
|
|
|
$
|
191.2
|
|
Microsemi Corporation
|
8
|
|
|
Quarter Ended
|
|
Six Months Ended
|
||||||||||||
|
|
April 1,
2018 |
|
April 2,
2017 |
|
April 1,
2018 |
|
April 2,
2017 |
||||||||
Basic
|
|
|
|
|
|
|
|
|
||||||||
Net income
|
|
$
|
12.3
|
|
|
$
|
41.2
|
|
|
$
|
60.2
|
|
|
$
|
60.6
|
|
Weighted-average common shares outstanding
|
|
117.4
|
|
|
114.7
|
|
|
117.2
|
|
|
114.4
|
|
||||
Basic earnings per share
|
|
$
|
0.10
|
|
|
$
|
0.36
|
|
|
$
|
0.51
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
||||||||
Diluted
|
|
|
|
|
|
|
|
|
||||||||
Net income
|
|
$
|
12.3
|
|
|
$
|
41.2
|
|
|
$
|
60.2
|
|
|
$
|
60.6
|
|
Weighted-average common shares outstanding for basic
|
|
117.4
|
|
|
114.7
|
|
|
117.2
|
|
|
114.4
|
|
||||
Dilutive effect of stock awards
|
|
2.2
|
|
|
2.3
|
|
|
2.1
|
|
|
2.2
|
|
||||
Weighted-average common shares outstanding on a diluted basis
|
|
119.6
|
|
|
117.0
|
|
|
119.3
|
|
|
116.6
|
|
||||
Diluted earnings per share
|
|
$
|
0.10
|
|
|
$
|
0.35
|
|
|
$
|
0.50
|
|
|
$
|
0.52
|
|
Microsemi Corporation
|
9
|
Microsemi Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
|
Microsemi Corporation
|
10
|
Microsemi Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
|
Microsemi Corporation
|
11
|
Microsemi Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
|
|
|
April 1,
2018 |
|
October 1,
2017 |
||||
Raw materials
|
|
$
|
55.3
|
|
|
$
|
42.5
|
|
Work in process
|
|
130.3
|
|
|
120.6
|
|
||
Finished goods
|
|
80.0
|
|
|
76.0
|
|
||
|
|
$
|
265.6
|
|
|
$
|
239.1
|
|
|
|
April 1,
2018 |
|
October 1,
2017 |
||||
Amortizable intangible assets
|
|
|
|
|
||||
Completed technology
|
|
$
|
627.2
|
|
|
$
|
670.9
|
|
Customer relationships
|
|
69.5
|
|
|
73.8
|
|
||
Backlog, trade name and other
|
|
1.9
|
|
|
0.6
|
|
||
|
|
$
|
698.6
|
|
|
$
|
745.3
|
|
|
|
|
|
|
||||
Non-amortizable intangible assets
|
|
|
|
|
||||
Goodwill
|
|
$
|
2,538.4
|
|
|
$
|
2,497.3
|
|
In-process research and development
|
|
$
|
—
|
|
|
$
|
7.0
|
|
Balance as of October 1, 2017
|
|
$
|
2,497.3
|
|
Additions from acquisitions
|
|
41.1
|
|
|
Balance as of April 1, 2018
|
|
$
|
2,538.4
|
|
Microsemi Corporation
|
12
|
Microsemi Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
|
|
Quarter Ended
|
|
Six Months Ended
|
||||||||||||
|
April 1,
2018 |
|
April 2,
2017 |
|
April 1,
2018 |
|
April 2,
2017 |
||||||||
Completed technology
|
$
|
38.9
|
|
|
$
|
34.5
|
|
|
$
|
77.3
|
|
|
$
|
66.2
|
|
Customer relationships
|
3.0
|
|
|
11.7
|
|
|
7.6
|
|
|
23.7
|
|
||||
Backlog, trade name and other
|
0.3
|
|
|
0.3
|
|
|
7.5
|
|
|
2.2
|
|
||||
|
$
|
42.2
|
|
|
$
|
46.5
|
|
|
$
|
92.4
|
|
|
$
|
92.1
|
|
Less than 1 Year
|
|
1-2 Years
|
|
2-3 Years
|
|
3-4 Years
|
|
4-5 Years
|
|
Thereafter
|
||||||||||||
$
|
160.2
|
|
|
$
|
146.9
|
|
|
$
|
144.8
|
|
|
$
|
128.8
|
|
|
$
|
51.1
|
|
|
$
|
66.8
|
|
Microsemi Corporation
|
13
|
Microsemi Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
|
|
|
Principal Outstanding
|
|
Base Rate
|
|
Base Rate Margin
|
|
Eurodollar Rate Margin
|
|
Applicable Rate
|
||||||
Revolving Facility
|
|
$
|
100.0
|
|
|
3.75
|
%
|
|
0.75
|
%
|
|
1.75
|
%
|
|
3.49
|
%
|
Term Loan A Facility
|
|
$
|
737.4
|
|
|
3.75
|
%
|
|
0.75
|
%
|
|
1.75
|
%
|
|
3.42
|
%
|
Term Loan B Facility
|
|
$
|
794.7
|
|
|
3.75
|
%
|
|
1.00
|
%
|
|
2.00
|
%
|
|
3.74
|
%
|
Microsemi Corporation
|
14
|
Microsemi Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
|
Microsemi Corporation
|
15
|
Microsemi Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
|
Six Months Ended
|
|
Quantity
|
|
Weighted-Average Fair Value per Award
|
|||
April 2, 2017
|
|
|
|
|
|||
Restricted shares
|
|
1.1
|
|
|
$
|
45.10
|
|
Performance stock units
|
|
0.2
|
|
|
$
|
42.65
|
|
|
|
|
|
|
|||
April 1, 2018
|
|
|
|
|
|||
Restricted shares
|
|
1.5
|
|
|
$
|
54.07
|
|
Performance stock units
|
|
0.5
|
|
|
$
|
48.99
|
|
Microsemi Corporation
|
16
|
Microsemi Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
|
Microsemi Corporation
|
17
|
Microsemi Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
|
|
|
Employee Severance
|
|
Contract Termination Costs
|
|
Other Associated Costs
|
|
Total
|
||||||||
Balance at October 1, 2017
|
|
$
|
8.5
|
|
|
$
|
8.4
|
|
|
$
|
1.7
|
|
|
$
|
18.6
|
|
Provisions
|
|
7.4
|
|
|
0.8
|
|
|
0.9
|
|
|
9.1
|
|
||||
Reversal/adjustment of prior provision
|
|
—
|
|
|
(0.2
|
)
|
|
(0.3
|
)
|
|
(0.5
|
)
|
||||
Cash expenditures
|
|
(10.3
|
)
|
|
(2.4
|
)
|
|
(0.1
|
)
|
|
(12.8
|
)
|
||||
Other non-cash settlement
|
|
—
|
|
|
(0.8
|
)
|
|
(1.2
|
)
|
|
(2.0
|
)
|
||||
Balance at April 1, 2018
|
|
$
|
5.6
|
|
|
$
|
5.8
|
|
|
$
|
1.0
|
|
|
$
|
12.4
|
|
Microsemi Corporation
|
18
|
ITEM 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
|
Microsemi Corporation
|
19
|
|
|
Quarter Ended
|
|
Six Months Ended
|
||||||||||||||||||||||||||
|
|
April 1,
2018 |
|
April 2,
2017 |
|
Variance $
|
|
Variance %
|
|
April 1,
2018 |
|
April 2,
2017 |
|
Variance $
|
|
Variance %
|
||||||||||||||
Net sales
|
|
$
|
492.2
|
|
|
$
|
442.9
|
|
|
$
|
49.3
|
|
|
11.1
|
%
|
|
$
|
960.9
|
|
|
$
|
878.4
|
|
|
$
|
82.5
|
|
|
9.4
|
%
|
Gross profit
|
|
$
|
290.3
|
|
|
$
|
284.1
|
|
|
$
|
6.2
|
|
|
2.1
|
%
|
|
$
|
578.9
|
|
|
$
|
560.6
|
|
|
$
|
18.3
|
|
|
3.3
|
%
|
Gross margin
|
|
59.0
|
%
|
|
64.1
|
%
|
|
(5.1
|
)%
|
|
|
|
60.2
|
%
|
|
63.8
|
%
|
|
(3.6
|
)%
|
|
|
Microsemi Corporation
|
20
|
•
|
Aerospace & Defense - Microsemi’s high-performance solutions are used by the majority of commercial airliners manufactured today and all Tier 1 prime contractors in a variety of homeland and offshore security applications. Microsemi products are used in the latest advanced models such as the Boeing 787 Dreamliner, Boeing 737 MAX, Airbus A350 and Airbus A320neo. Microsemi's high-reliability products are used in most satellites and in a wide range of commercial and military avionics systems. Microsemi’s product offering for aerospace includes radiation hardened and radiation tolerant solutions for the satellite market to which it supplies all of the top manufacturers. Microsemi's defense and security solutions are also used in products such as unmanned aerial vehicles, radar applications and radio and guidance systems. Microsemi continues to lead the market for semiconductor sales in this end market.
|
•
|
Communications - Microsemi is a key supplier to top-tier companies focused on wired and wireless communications products. These products are deployed in applications ranging from the central office to the enterprise and the home, and to a broad array of wired and wireless networked devices. Microsemi boasts the largest and most complete timing product offering, as well as the industry's only end to end timing product portfolio. Microsemi also pioneered the concept and development of Power-over-Ethernet ("PoE") technology and offers ICs and system solutions (midspans) based on this increasingly popular power transmission solution.
|
•
|
Data Center - Microsemi's data center products and solutions enable high-speed communications between the servers, switches and storage devices that comprise these systems thereby allowing large quantities of data to be stored, managed and moved securely. As storage demand continues to grow, managing the data becomes more critical for the operation of the entire company or service provider. Our focus in this area is in developing controllers and switches for high-performance storage systems in cloud and enterprise data center applications.
|
•
|
Industrial - Microsemi delivers secure and highly reliable solutions for applications including industrial controls, machine-to-machine (M2M) communications, energy exploration and drilling, semiconductor capital equipment and alternative energy platforms. Microsemi is also a leading supplier of ultra-low power wireless solutions used in medical devices including implantable defibrillators and pacemakers, MRI machines, and portable medical equipment.
|
•
|
its new PDS-208G power-over-Ethernet (PoE) switch, offering an optimal and cost-effective solution designed specifically for digital ceiling installations;
|
•
|
the ZL70123, a new radio frequency (RF) base station module for implantable devices utilizing the Medical Implant Communication Service (MICS) RF band, developed specifically for external controllers and monitors of implantable medical devices;
|
•
|
sampling availability of the first product in its next-generation 1200-volt (V) Silicon Carbide (SiC) MOSFETs, the 40 mOhm MSC040SMA120B;
|
•
|
its 1200 V SiC Schottky barrier diodes (SBDs), expanding Microsemi's growing SiC discretes and modules portfolios;
|
•
|
DIGI-G5, the newest member of its award-winning DIGI franchise, enabling packet optical transport platforms to triple in capacity while slashing power consumption by 50 percent per port;
|
•
|
enhancements to its Switchtec PCIe advanced Fabric Switch (PAX), which now provides high-performance fabric connectivity and composability for multi-host graphics processing unit (GPU) and NVMe solid state drive (SSD) systems;
|
•
|
its Switchtec PCIe Gen 4 development platform, which enables customers to immediately begin PCIe Gen 4 system hardware designs based on the company's PCIe Gen 4 switch and develop firmware using its Switchtec software development kit (SDK); and
|
Microsemi Corporation
|
21
|
•
|
its radiation-tolerant AAHS298B eight-channel source driver for space applications, was successfully qualified and certified by the U.S. Defense Logistics Agency (DLA) as Qualified Manufacturers List (QML) Class V and Q, with four Standard Microcircuits Drawings (SMDs) listed, is now in production.
|
|
|
Quarter Ended
|
|
Six Months Ended
|
||||||||||||
|
|
April 1,
2018 |
|
April 2,
2017 |
|
April 1,
2018 |
|
April 2,
2017 |
||||||||
Aerospace & Defense
|
|
$
|
125.5
|
|
|
$
|
112.1
|
|
|
$
|
253.2
|
|
|
$
|
223.3
|
|
Communications
|
|
174.0
|
|
|
168.1
|
|
|
337.2
|
|
|
326.1
|
|
||||
Data Center
|
|
113.2
|
|
|
98.4
|
|
|
217.1
|
|
|
199.9
|
|
||||
Industrial
|
|
79.5
|
|
|
64.3
|
|
|
153.4
|
|
|
129.1
|
|
||||
|
|
$
|
492.2
|
|
|
$
|
442.9
|
|
|
$
|
960.9
|
|
|
$
|
878.4
|
|
Microsemi Corporation
|
22
|
|
|
Quarter Ended
|
|
Six Months Ended
|
||||||||||||
|
|
April 1,
2018 |
|
April 2,
2017 |
|
April 1,
2018 |
|
April 2,
2017 |
||||||||
Completed technology
|
|
$
|
38.9
|
|
|
$
|
34.5
|
|
|
$
|
77.3
|
|
|
$
|
66.2
|
|
Customer relationships
|
|
3.0
|
|
|
11.7
|
|
|
7.6
|
|
|
23.7
|
|
||||
Backlog, trade name and other
|
|
0.3
|
|
|
0.3
|
|
|
7.5
|
|
|
2.2
|
|
||||
|
|
$
|
42.2
|
|
|
$
|
46.5
|
|
|
$
|
92.4
|
|
|
$
|
92.1
|
|
Microsemi Corporation
|
23
|
|
|
Employee Severance
|
|
Contract Termination Costs
|
|
Other Associated Costs
|
|
Total
|
||||||||
Balance at October 1, 2017
|
|
$
|
8.5
|
|
|
$
|
8.4
|
|
|
$
|
1.7
|
|
|
$
|
18.6
|
|
Provisions
|
|
7.4
|
|
|
0.8
|
|
|
0.9
|
|
|
9.1
|
|
||||
Reversal/adjustment of prior provision
|
|
—
|
|
|
(0.2
|
)
|
|
(0.3
|
)
|
|
(0.5
|
)
|
||||
Cash expenditures
|
|
(10.3
|
)
|
|
(2.4
|
)
|
|
(0.1
|
)
|
|
(12.8
|
)
|
||||
Other non-cash settlement
|
|
—
|
|
|
(0.8
|
)
|
|
(1.2
|
)
|
|
(2.0
|
)
|
||||
Balance at April 1, 2018
|
|
$
|
5.6
|
|
|
$
|
5.8
|
|
|
$
|
1.0
|
|
|
$
|
12.4
|
|
Microsemi Corporation
|
24
|
Microsemi Corporation
|
25
|
|
|
Six Months Ended
|
||||||
|
|
April 1,
2018 |
|
April 2,
2017 |
||||
Net income
|
|
$
|
60.2
|
|
|
$
|
60.6
|
|
Depreciation and amortization
|
|
120.5
|
|
|
115.8
|
|
||
Amortization of deferred financing cost
|
|
6.1
|
|
|
5.6
|
|
||
Loss on divestiture
|
|
—
|
|
|
1.2
|
|
||
Loss on disposition or impairment of assets
|
|
1.2
|
|
|
—
|
|
||
Deferred income taxes
|
|
(19.2
|
)
|
|
(7.3
|
)
|
||
Charge for stock-based compensation
|
|
51.7
|
|
|
43.9
|
|
||
Net change in working capital accounts
|
|
(39.3
|
)
|
|
(12.4
|
)
|
||
Net change in other long-term assets and liabilities
|
|
7.1
|
|
|
(8.3
|
)
|
||
Net cash provided by operating activities
|
|
$
|
188.3
|
|
|
$
|
199.1
|
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Microsemi Corporation
|
26
|
|
|
Principal Outstanding
|
|
Base Rate
|
|
Base Rate Margin
|
|
Eurodollar Rate Margin
|
|
Applicable Rate
|
||||||
Revolving Facility
|
|
$
|
100.0
|
|
|
3.75
|
%
|
|
0.75
|
%
|
|
1.75
|
%
|
|
3.49
|
%
|
Term Loan A Facility
|
|
$
|
737.4
|
|
|
3.75
|
%
|
|
0.75
|
%
|
|
1.75
|
%
|
|
3.42
|
%
|
Term Loan B Facility
|
|
$
|
794.7
|
|
|
3.75
|
%
|
|
1.00
|
%
|
|
2.00
|
%
|
|
3.74
|
%
|
Microsemi Corporation
|
27
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
Microsemi Corporation
|
28
|
PART II. OTHER INFORMATION
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
ITEM 1A.
|
RISK FACTORS
|
•
|
potential adverse effects on our relationships with our current suppliers and other business partners, or those with which we are seeking to establish business relationships;
|
Microsemi Corporation
|
29
|
•
|
the pendency and outcome of any legal proceedings that have been or may be instituted against us, our directors and others relating to the transactions contemplated by the Merger Agreement;
|
•
|
the restrictions imposed on our business and operations by certain covenants set forth in the Merger Agreement, which may prevent us from pursuing certain opportunities without Microchip’s approval;
|
•
|
that we may forego opportunities we might otherwise pursue absent the Merger Agreement;
|
•
|
potential adverse effects on our ability to attract, recruit, retain and motivate current and prospective employees who may be uncertain about their future roles and relationships with us following the completion of the Merger; and
|
•
|
the diversion of our employees’ and management’s attention due to activities related to the transactions contemplated by the Merger Agreement.
|
•
|
we could be required to pay a termination fee of $290 million, or an expense reimbursement amount up to $35 million, to Microchip under certain circumstances as described in the Merger Agreement;
|
•
|
we would have incurred significant costs in connection with the Merger that we would be unable to recover;
|
•
|
we may be subject to additional legal proceedings related to the Merger;
|
•
|
the failure of the acquisition to be consummated may result in negative publicity and a negative impression of us in the investment community;
|
•
|
any disruptions to our business resulting from the announcement and pendency of the acquisition, including any adverse changes in our relationships with our customers, vendors and employees, may continue or intensify in the event the Merger is not consummated;
|
•
|
we may not be able to take advantage of alternative business opportunities or effectively respond to competitive pressures; and
|
•
|
we may experience loss of employees.
|
Microsemi Corporation
|
30
|
Microsemi Corporation
|
31
|
•
|
our ability to obtain additional financing in the future for acquisitions, capital expenditures, general corporate purposes or other purposes may be impaired;
|
•
|
our current credit facilities only permit borrowing on variable rates of interest and increases in certain benchmark interest rates will increase the cost of borrowing;
|
•
|
leverage will increase our vulnerability to declining economic conditions, particularly if the decline is prolonged;
|
•
|
failure to comply with any of our debt covenants may result in an event of default which, if not cured or waived, could have a material adverse effect on us;
|
•
|
financial and restrictive covenants in our credit facilities and indenture governing the senior unsecured notes may adversely affect or limit our ability to implement business plans, react to changes in economic conditions, benefit from changes in tax regulations, pay a cash dividend or execute repurchases of our common stock; and
|
•
|
debt service payments will continue to have a negative impact on our cash flows; and prepayment terms may discourage us from refinancing our current credit agreement or reduce the benefit of lower interest rates.
|
•
|
uncertainty and potentially divergent laws and regulations, highlighted by the vote in 2016 by the United Kingdom to leave the European Union;
|
•
|
legislative or regulatory requirements and potential changes in or interpretations of requirements in the United States and in the countries in which we manufacture or sell our products;
|
•
|
trade restrictions, including changes to treaties and tariffs, sanctions and the suspension of export licenses;
|
•
|
compliance with and changes in import/export tariffs and regulations;
|
•
|
restrictions in the transfer or repatriation of funds;
|
•
|
tax regulations and treaties and potential changes in regulations and treaties in the United States and in and between countries in which we manufacture or sell our products;
|
Microsemi Corporation
|
32
|
•
|
fluctuations in income tax expense and net income due to differing statutory tax rates in various domestic and international jurisdictions;
|
•
|
uncertain interpretations of and difficulties enforcing intellectual property laws;
|
•
|
local business and cultural factors that may differ from our domestic standards and practices, including business practices from which we are prohibited from engaging by the Foreign Corrupt Practices Act (the "FCPA") and other anti-corruption laws and regulations;
|
•
|
availability of transportation services, including disruptions related to work stoppages, security incidents or natural events at manufacturing, shipping or receiving points or along transportation routes;
|
•
|
work stoppages or disruption of local labor supply;
|
•
|
communication interruptions;
|
•
|
economic and political instability, including the recent uncertainty in the global financial markets;
|
•
|
acts of war or terrorism, or health issues (such as for example Sudden Acute Respiratory Syndrome, Avian Influenza, or the H7N9, Ebola or Zika viruses), which could disrupt our manufacturing and logistical activities;
|
•
|
changes in freight rates;
|
•
|
potentially longer payment cycles and difficulties in collecting receivables;
|
•
|
difficulties and enforcing contracts generally; and
|
•
|
currency exchange rate fluctuations, devaluation of foreign currencies, hard currencies shortages and exchange rate fluctuations.
|
Microsemi Corporation
|
33
|
•
|
unexpected losses of key employees or customers of the acquired company;
|
•
|
conforming the acquired company's standards, processes, procedures and controls with our operations;
|
•
|
coordinating new product and process development;
|
•
|
increasing complexity from combining recent acquisitions;
|
•
|
hiring additional management and other critical personnel;
|
•
|
increasing the scope, geographic diversity and complexity of our operations;
|
•
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difficulties in consolidating facilities and transferring processes and know-how;
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•
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other difficulties in the assimilation of acquired operations, technologies or products;
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•
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diversion of management's attention from other business concerns; and
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•
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adverse effects on existing business relationships with customers.
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•
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use a significant portion of our available cash;
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•
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issue equity securities, which would dilute current stockholders' percentage ownership;
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•
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incur substantial debt;
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•
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incur or assume contingent liabilities, known or unknown, including potential lawsuits, infringement actions and similar liabilities;
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•
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incur impairment charges related to goodwill or other intangibles;
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•
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incur large, immediate accounting write-offs; and
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•
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face antitrust or other regulatory inquiries or actions.
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Microsemi Corporation
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34
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Microsemi Corporation
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35
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Microsemi Corporation
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36
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Microsemi Corporation
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37
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Microsemi Corporation
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38
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•
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the timing of orders from and shipment of products to major customers;
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•
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an unexpected reduction in sales to, or loss of, key customers;
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•
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customer payments that are unexpectedly delayed;
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•
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our product mix;
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•
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changes in the prices of our products;
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•
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manufacturing delays or interruptions;
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•
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delays or failures in testing and processing products for aerospace and defense applications;
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•
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inventory obsolescence or write-downs;
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•
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restructuring charges;
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•
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variations in the cost of components for our products;
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•
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limited availability of components we obtain from a single or a limited number of suppliers; and
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•
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seasonal and other fluctuations in demand for our products.
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Microsemi Corporation
|
39
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Microsemi Corporation
|
40
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•
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unavailability or late delivery of the advanced, and often customized, equipment used in the production of our specialized products;
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•
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availability of qualified manufacturing personnel;
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•
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delays in bringing new production equipment on-line;
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•
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delays in supplying satisfactory designs or products to our existing customers;
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•
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unforeseen environmental, engineering or manufacturing qualification problems relating to existing or new facilities; and
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•
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overexpansion may result in unfavorable manufacturing variances, restructuring costs and impairments.
|
Microsemi Corporation
|
41
|
•
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defects in masks, which are used to transfer circuit patterns onto our wafers;
|
Microsemi Corporation
|
42
|
•
|
impurities in the materials used;
|
•
|
contamination of the manufacturing environment; and
|
•
|
equipment failure.
|
Microsemi Corporation
|
43
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Microsemi Corporation
|
44
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Microsemi Corporation
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45
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Microsemi Corporation
|
46
|
•
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Section 203 of the Delaware General Corporation Law, which prohibits a merger with a 15%-or-greater stockholder, such as a party that has completed a successful tender offer, without board approval until three years after that party became a 15%-or-greater stockholder; and
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•
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The authorization in the certificate of incorporation of undesignated preferred stock, which could be issued without stockholder approval in a manner designed to prevent or discourage a takeover or in a way that may dilute an investment in our common stock.
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ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
Microsemi Corporation
|
47
|
ITEM 5.
|
OTHER INFORMATION
|
ITEM 6.
|
EXHIBITS
|
Microsemi Corporation
|
48
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|
Microsemi Corporation
|
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By
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/s/ John W. Hohener
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|
|
|
John W. Hohener
|
|
|
|
Executive Vice President, Chief Financial Officer, and Treasurer
(Principal Financial and Accounting Officer and duly authorized to sign on behalf of the Registrant)
|
Microsemi Corporation
|
49
|
Microsemi Corporation
|
50
|
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