Microsemi Reports First Quarter 2012 Results

During the first quarter of 2012, we closed the measurement period for the acquisition of Actel Corporation that occurred in the prior year first quarter.  We completed our evaluation of income tax-related information obtained about facts and circumstances that existed as of the acquisition date.  In accordance with relevant accounting standards, we retrospectively adjusted the preliminary amounts previously reported and are now reporting the final amounts.  In the balance sheet as of October 2, 2011, we have reflected a retrospective adjustment of $1.3 million that increased non-current deferred tax assets and retained earnings.  This retrospective adjustment will be reflected in the income statement for the second quarter of 2011.      

Notes Reconciling Non-GAAP Financial Information to GAAP Financial Information

To supplement the consolidated financial results prepared in accordance with Generally Accepted Accounting Principles ("GAAP"), this press release and its attachments include non-GAAP financial measures that exclude items listed in the footnotes below.  Management excludes these items because it believes that the non-GAAP measures enhance an investor's overall understanding of Microsemi's financial performance and future prospects by being more reflective of Microsemi's core operational activities and to be more comparable with the results of the Company over various periods.  Management uses non-GAAP financial measures internally for strategic decision making, forecasting future results and evaluating current performance.  Guidance is provided only on a non-GAAP basis due to the inherent difficulty of forecasting the timing or amount of certain items that have been excluded from the forward-looking non-GAAP measures, and a reconciliation to the comparable GAAP guidance has not been provided because certain factors that are materially significant to Microsemi's ability to estimate the excluded items are not accessible or estimable on a forward-looking basis.  By disclosing non-GAAP financial measures, management intends to provide investors with a more meaningful, consistent comparison of Microsemi's operating results and trends for the periods presented.  Non-GAAP financial measures are not prepared in accordance with GAAP; therefore, the information is not necessarily comparable to other companies' financial information and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.

The items excluded from GAAP financial results in calculating non-GAAP financial measures, are set forth below:  


Restructuring activities involve the closure, sale and consolidation of certain of Microsemi's manufacturing and other facilities. As these facilities are not expected to have a continuing contribution to operations or are expected to have a diminishing contribution during the transition phase, management believes excluding such items from Microsemi's operations provides investors with a means of evaluating Microsemi's on-going operations.  Remediation and impairment of fixed assets relate to facility closure costs.  Inventory write-offs due to realignment activities relate to the exiting of products that do not meet profitability metrics, products with recent substantial declines in projected demand or actions to improve overall cost structure.  Restructuring and other special charges include severance and other costs related to facilities in the process of closing or already closed. Gain (loss) on facility sales or closures relate to gain or loss on property and equipment and losses related to property and equipment destroyed in the Thailand flood in October 2011.  It also includes insurance recoveries on losses when or if received.  Management excludes these expenses when evaluating core operating activities and for strategic decision making, forecasting future results and evaluating current performance.


Manufacturing profit in acquired inventory resulted from purchase-accounting adjustments to increase the value of inventory acquired to its fair value.  As the acquired inventory is sold, the associated manufacturing profit in acquired inventory increases cost of goods sold and reduces gross profit.  The manufacturing profit in acquired inventory has been excluded to facilitate comparability of gross profit between periods.  In addition, management excludes the impact of manufacturing profit in acquired inventory in internal measurements of gross profit as it does not reflect continuing operations of acquired operations.  


While amortization of acquisition related intangible assets is expected to continue in the future, for internal analysis of Microsemi's operations, management does not view this expense as reflective of the business' current performance.  


Stock based compensation has been excluded as management excludes these expenses when evaluating operating activities and for strategic decision making, forecasting future results and evaluating current performance.


Amounts have related to expenses from previously disclosed matters and actions related to the International Trade Commission, as well as gains or losses on litigation settlement net of settlement costs.  Management excludes these expenses when evaluating operating activities and for strategic decision making, forecasting future results and evaluating current performance.


Under relevant accounting guidance, acquisition costs for business combinations are expensed as incurred rather than capitalized into the purchase price of an acquisition.  These costs have been excluded as management excludes these expenses when evaluating operating activities and for strategic decision making, forecasting future results and evaluating current performance.


The company elected the fair value option in accounting for term loan balances outstanding under Microsemi's credit facility prior to the most recent amendment of our credit facility.  Changes in fair value of the loan balances and related interest rate swap agreements are reflected as adjustments to the income statement.  Changes in the fair value of term loan balances outstanding and related interest rate swaps do not result in a change to the principal we owe and are non-cash amounts that management excludes from internal measurements and from forecasting future results.  Upon election of the fair value option, up front debt issuance costs are immediately recognized as an expense.  Following the most recent amendment of our credit facility, we did not elect the fair value option on our term loan.  Also, we entered into a foreign currency forward near the end of the fourth quarter of fiscal year 2011 to minimize exposure to USD/CAD exchange rates in conjunction with the acquisition of Zarlink.  As of the end of the fourth quarter, exchange rates had moved such that we recorded an $11.7 million loss.  However, upon the acquisition of Zarlink Semiconductor, Inc. in the first quarter of fiscal year 2012, we recognized a $15.4 gain at settlement.  Management excludes these gains and losses from internal measurements and in evaluating current performance.


The tax effect on non-GAAP adjustments represent the difference in the provision for income taxes that resulted from non-GAAP adjustments to pretax income and also certain acquisition-related and nondeductible stock-based compensation items, non-cash valuation allowance charges and releases related to deferred tax assets.  These amounts are excluded as non-GAAP adjustments as the requirement or releases of valuation allowance related to restructuring activities or acquisitions are not viewed by management as being reflective of the business' ongoing tax position.  

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