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Microsemi Corp. Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: November 21, 2012 06:05AM

Microsemi Corp. (MSCC) filed Annual Report for the period ended 2012-09-30. Microsemi Corp has a market cap of $1.56 billion; its shares were traded at around $18 with a P/E ratio of 10.6 and P/S ratio of 1.5. Microsemi Corp had an annual average earning growth of 16.3% over the past 10 years.



Highlight of Business Operations:

Net sales increased $176.6 million or 21% between 2012 and 2011 to $1.0 billion in 2012 from $835.9 million in 2011. Net sales increased $317.6 million or 61% between 2011 and 2010 to $835.9 million in 2011 from $518.3 million in 2010. Sales in each end market were favorably impacted in each year by contributions from products we added from recent acquisitions. For 2012 and 2011, we estimate that between 15% to 20% and 25% to 30%, respectively, of net sales were derived from acquisitions concluded in each fiscal year. Estimated sales by end markets are based on our understanding of end market uses of our products. Our analysis of sales by end markets may be found in the "Results of Operations" section below. We believe an estimated breakout of net sales by end markets for the last three fiscal years is approximately as follows (amounts in thousands):

At October 2, 2011, we had recorded severance accruals of $2.7 million from reductions in force at our various facilities other than Scottsdale. We recorded additional provisions, primarily related to activities at Microsemi - CMPG, for severance and retention payments totaling $8.7 million in 2012 and also assumed a fair value of $9.8 million in pre-acquisition liabilities recorded by Microsemi - CMPG. Severance covered approximately 300 individuals in manufacturing, engineering and sales. Employee severance is expected to be paid within the next twelve months. Contract termination costs relate primarily to remaining obligations under facility leases and are expected to be paid through 2020. During the quarter ended July 1, 2012, we executed an agreement with a landlord that released us from a lease commitment and as a result, we reversed $1.3 million in provision for contract termination costs. Other associated costs related primarily to relocation costs that we incurred for the consolidation of several facilities in Northern California. The following table reflects the related restructuring activities and the accrued liabilities in the consolidated balance sheets at the dates below (amounts in thousands):

We account for goodwill on an impairment-only approach and amortize intangible assets with definite useful lives over the benefit period, which approximates straight-line expense over the respective useful lives. We assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset such as goodwill is impaired as the basis for determining whether a quantitative impairment test is required. We assess definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be fully recoverable. Whenever we determine that there has been an impairment of goodwill or other intangible assets with indefinite lives, we will record an impairment charge against earnings. We operate as one reporting unit and an impairment charge would equal the excess of the carrying value of goodwill in our one reporting unit over its then fair value. The identification of intangible assets and determination of the fair value and useful lives are subjective in nature and often involve the use of significant estimates and assumptions. The judgments made in determining the estimated useful lives assigned to each class of assets can significantly affect net income. We completed our most recent quantitative analysis during the fourth quarter of 2012 and noted that the estimated fair value of our reporting unit substantially exceeded its carrying value and no qualitative factors existed during the fiscal year to indicate that it was more likely than not that the fair value of the reporting unit is less than its carrying amount.

Net sales increased $176.6 million or 21% between 2012 and 2011 to $1.0 billion for 2012 from $835.9 million for 2011. Net sales increased $317.6 million or 61% between 2011 and 2010 to $835.9 million for 2011 from $518.3 million for 2010. Sales in each end market were favorably impacted in each year by contributions from products we added from recent acquisitions. For 2012 and 2011, we estimate that between 15% to 20% and 25% to 30%, respectively, of net sales were derived from acquisitions concluded in each fiscal year. Estimated sales by end markets are based on our understanding of end market uses of our products. We believe an estimated breakout of net sales by end markets for the last three fiscal years is approximately as follows (amounts in thousands):

We recorded a provision for income taxes of $15.0 million on pretax loss of $14.7 million in 2012 compared to a benefit for income taxes of $33.7 million on pre-tax income of $22.0 million in 2011. During fiscal year 2012, we generated tax expense of $15.0 million primarily due to the tax provision on profitable entities in foreign jurisdictions and U.S. tax provision relating to deferred tax liabilities that will not provide future sources of income to reduce deferred tax assets. During fiscal year 2011, we generated a tax benefit of $33.7 million primarily due to the release of the entire valuation allowance on our Israeli operations, and due to the release of valuation allowance resulting from the recording of the deferred tax liability related to the acquisitions completed during the year. We had cumulative operating losses for the three years ended in 2012 for our U.S. operations and several foreign operations and accordingly, have reflected a full valuation allowance on our U.S. and such

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