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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 1, 2000
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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 number # 0-8866
MICROSEMI CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 95-2110371
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2830 South Fairview Street, Santa Ana, CA 92704
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 979-8220
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
$.20 par value Common Stock
---------------------------
(Title of class)
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___
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [_]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on November
29, 2000 was approximately $253,615,000. Shares of Common Stock beneficially
held by each officer and director and by each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons have been
assumed for this purpose to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
The number of outstanding shares of Common Stock on November 29, 2000 was
13,803,631.
Documents Incorporated by Reference
-----------------------------------
Part III: Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on or about February 27, 2001. This proxy statement
will be filed not later than 120 days after the close of Registrant's fiscal
year ended October 1, 2000.
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PART I
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ITEM 1. BUSINESS
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INTRODUCTION
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Microsemi Corporation (the "Company", "Microsemi") was incorporated in Delaware
in 1960. Its name was changed from Microsemiconductor Corporation in February
1983. The principal executive offices of the Company are located at 2830 South
Fairview Street, Santa Ana, California 92704 and its telephone number is (714)
979-8220. Unless the context otherwise requires, the "Company" and "Microsemi"
refer to Microsemi Corporation and its consolidated subsidiaries.
Microsemi 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 products include individual components as well as complete circuit
solutions that enhance customer designs by providing battery optimization,
reducing size or protecting circuits. Markets the company serves include mobile
connectivity, computer/peripherals, telecommunications, medical,
industrial/commercial, space/satellite and military.
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
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This Form 10-K contains certain forward-looking statements that are based on
current expectations and involve a number of risks and uncertainties. All of the
non-historical information herein is forward-looking. The forward-looking
statements included herein and elsewhere in this filing are based on, among
other items, current assumptions that the Company will be able to meet its
current operating cash and debt service requirements with internally generated
funds and its available line of credit, that it will be able to successfully
resolve disputes and other business matters as anticipated, that competitive
conditions within the semiconductor, integrated circuit and custom diode
assembly industries will not change materially or adversely, that the Company
will retain existing key personnel, that the Company's forecasts will reasonably
anticipate market demand for its products, and that there will be no materially
adverse change in the Company's operations or business. Other factors that could
cause results to vary materially from current expectations are discussed
elsewhere in this Form 10-K, including part I, item 3; and part II, items 5, 7
and 8. Assumptions relating to the foregoing involve judgments that are
difficult to predict accurately and are subject to many factors that can
materially affect results. Forecasting and other management decisions are
subjective in many respects and thus susceptible to interpretations and periodic
revisions based on actual experience and business developments, the impact of
which may cause the Company to alter its forecasts, which may in turn affect the
Company's results. In light of the factors that can materially affect the
forward-looking information included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved. Readers are
cautioned against undue weight to forward-looking statements.
PRODUCTS
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Microsemi Corporation is a global supplier of commercial and high-reliability
analog integrated circuits and power and signal discrete semiconductors serving
the satellite, telecommunications, computer and peripherals, military/aerospace,
industrial/commercial, and medical markets.
The Company's analog and mixed-signal integrated circuit ("IC") products offer
light, sound and power management for desktop and mobile computing platforms as
well as other power control applications. Power management generally refers to a
class of standard linear integrated circuits ("SLICs") which perform voltage
regulation and reference in most electronic systems. The definition of power
management has broadened in recent years to encompass other devices and modules,
often application specific standard products ("ASSPs"), which address particular
aspects of power management, such as audio or display related ICs. This business
is composed of both a core platform of traditional SLICs, such as low dropout
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regulators ("LDOs") and pulse width modulators ("PWMs"), and differentiated
ASSPs such as backlight inverters, audio amplification ICs and small computer
standard interface ("SCSI") terminators.
Major discrete products are silicon rectifiers, zener diodes, low leakage and
high voltage diodes, temperature compensated zener diodes, transistors and a
family of subminiature high power transient suppressor diodes. The Company also
manufactures discrete semiconductors for commercial applications, such as
automatic surge protectors, transient suppressor diodes used for telephone
applications and computer switching diodes used in computer systems.
A partial list of applications of the Company's discrete semiconductor products
includes: heart pacer transient shock protector diodes (where the Company
believes it is the leading supplier in that market), low leakage diodes,
transistors used in jet aircraft engines and high performance test equipment,
high temperature diodes used in oil drilling sensing elements operating at 200
degrees centigrade, temperature compensated zener or rectifier diodes used in
missile systems, power transistors and other electronic systems. The Company's
integrated circuit products are used in computer and data storage, lighting,
automotive, telecommunications, test instruments, defense and space equipment,
high-quality sound reproduction and data transfer.
The Company currently serves a broad group of customers including Motorola,
Lockheed-Martin, Giga-Byte Technology, Raytheon, Mitsubishi Electric, Alcatel,
Cardiac Pacemaker and Zenitron Corp.
MARKETING
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Microsemi Corporation is a global supplier of power management, power
conditioning, transient suppression and RF/Microwave semiconductor products. It
serves the satellite, telecommunications, computer and peripherals,
military/aerospace, industrial/commercial, and medical markets with high-
reliability and commercial analog integrated circuits and power and signal
discrete semiconductors.
The Company's products are marketed through domestic electronic component sales
representatives and the Company's inside sales force to original equipment
manufacturers. The Company also employs industrial distributors to service its
customers' needs for standard catalog products. For fiscal year 2000, the
Company's domestic sales accounted for approximately 63% of the Company's
revenues, of which sales representatives and distributors accounted for
approximately 21% and 21%, respectively. The Company has direct sales offices in
many metropolitan areas including Los Angeles, Garden Grove, Santa Ana, Phoenix,
Denver, Chicago, Minneapolis, Montgomeryville, Boston, Long Island, West Palm
Beach, Hong Kong, Singapore and Ireland. Sales to foreign customers, made
through the Company's direct domestic sales force and 26 overseas sales
representatives and distributors, accounted for approximately 37% of fiscal year
2000 sales.
No one customer accounted for more than 4% of the Company's revenue in fiscal
year 2000. However, approximately 21% of the Company's business is to customers
whose principal sales are to the U.S. Government.
RESEARCH AND DEVELOPMENT
------------------------
The Company believes that continuing timely development and introduction of new
products are essential to maintaining its competitive position. The Company
currently conducts most of its product development effort in-house. The Company
also employs outside consultants to assist with product design.
The Company spent approximately $1,532,000, $4,002,000 and $11,196,000, in
fiscal years 1998, 1999 and 2000, respectively, for research and development,
none of which was customer sponsored.
The principal focus of the Company's research and development activities has
been to improve processes and to develop new products that support the growth of
its businesses.
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MANUFACTURING AND SUPPLIERS
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The Company's principal domestic manufacturing operations are located in Santa
Ana and Garden Grove, California; Broomfield, Colorado; Scottsdale, Arizona and
Watertown and Lowell, Massachusetts. Each operates its own wafer processing,
assembly, testing and screening departments.
The Company's domestic plants manufacture and process all products and
assemblies starting from purchased silicon wafers and piece parts. Manufacturing
and processing operations are controlled in accordance with military as well as
other rigid commercial and industrial specifications.
A major portion of the Company's semiconductor manufacturing effort takes place
after the semiconductor is assembled. Parts are tested a number of times,
visually screened and environmentally subjected to shock, vibration, "burn in"
and electrical tests in order to prove and assure reliability.
The Company purchases silicon wafers, other semiconductor materials and
packaging piece parts from domestic and foreign suppliers generally on long-term
purchase commitments which are cancelable with 30 to 90 days notice. With the
exception of glass sleeves for high reliability diode products and glass to
metal sealed parts for computer diode and zener diode products, all materials
are available from multiple sources. In the case of sole source items, the
Company has never suffered production delays as a result of vendors' inability
to supply the parts. The Company believes that it stocks adequate supplies for
all materials, based upon backlog, delivery lead time and anticipated new
business. In the ordinary course of business, the Company enters into purchase
agreements with some of its major suppliers to supply products over periods of
up to 18 months.
The Company also purchases a portion of its finished wafers from foundry
sources. If a foundry were to terminate its relationship with the Company, or
should the Company's supply from a foundry be interrupted or terminated for any
reason, such as a natural disaster or another unforeseen event, the Company may
not have sufficient time to replace the supply of products manufactured by that
foundry.
Certain subcontract suppliers provide packaging and testing for the Company's
products necessary to deliver finished products. The Company pays those
suppliers for assembled or fully tested products meeting predetermined
specifications. After wafer level testing, the silicon wafers are separated into
individual dice that are then assembled into packages and tested in accordance
with the Company's test procedures.
There can be no assurance that the Company will obtain sufficient supply of
product from foundry or subcontract assembly sources to meet customer demand in
the future. Obtaining sufficient foundry capacity is particularly difficult
during periods of high demand for foundry services, and may become substantially
more difficult if the Company's product requirements increase significantly. In
addition, because the Company must order products and build inventory
substantially in advance of product shipments, there is a risk that the Company
will forecast incorrectly and produce excess or insufficient inventories for
particular products. This inventory risk is heightened because certain of the
Company's key customers place orders with short lead times.
FOREIGN OPERATIONS
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The Company conducts a portion of its operations outside the United States and
its business is subject to risks associated with many factors beyond its
control, such as fluctuations in foreign currency rates, instability of foreign
economies and governments, and changes in U.S. and foreign laws and policies
affecting trade and investment. The Company owns or leases manufacturing and
assembling facilities in Ennis, Ireland; Mumbai, India and Hong Kong and is a
partner in a joint venture in The People's Republic of China (PRC). No assurance
can be made that political and economic factors in such countries will not have
material adverse effects on the assets, cash flows and results of operations of
the Company.
The Company's Mumbai, India facility assembles a commercial zener diode line to
compete in the lower-cost commercial and consumer markets. This plant also
performs subcontract coil manufacturing.
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The Company's Hong Kong subsidiary, Microsemi (H.K.) Ltd., produces diode
products for commercial customers. The Hong Kong subsidiary utilizes diode
chips manufactured in the Company's U.S. plants and assembles, tests and
finishes the products. The plant is also approved for assembly of certain
military specified diodes.
The Company's Ennis, Ireland operation manufactures diodes, rectifiers, zeners,
thyristors and transistors and supports the other Microsemi operations. This
plant is Defense Supply Center Columbus (DSCC) approved by the U.S. government
to screen high reliability product to Military Specification Standard MIL-PRF-
19500 and is also European Space Agency qualified. A trading company at this
facility services European customers with products from Microsemi U.S. and Asian
locations.
SALES TO FOREIGN CUSTOMERS
--------------------------
Sales to foreign customers represented approximately 23%, 35% and 37% of net
sales for the 1998, 1999 and 2000 fiscal years, respectively. Foreign sales may
be subject to political and economic risks, including financial or political
instability, currency fluctuations, changes in the effective price of goods in
local currencies, the effect of trade sanctions, embargoes, or changes in
import/export regulations, tariffs and freight rates and difficulties in
collecting receivables and enforcing contracts generally; any of these factors
and other trade policies could adversely affect the Company's sales to foreign
customers or the collection of receivables generated from such sales. Many of
the Company's customers, including space customers, provide the Company minimal
information on future ordering plans. Therefore, fluctuations in backlog can be
unpredictable.
ORDER BACKLOG
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The Company's consolidated order backlog at October 1, 2000, for delivery within
twelve months, was $87,335,000, as compared to $66,700,000 at October 3, 1999.
The Company's backlog at any particular date may not be representative of actual
sales for any succeeding period because of various factors, which may include
that lead times for the release of purchase orders depend upon the scheduling
practices of individual customers, the delivery times of new or non-standard
products can be affected by scheduling factors and other manufacturing
considerations, the rate of booking new orders can vary significantly from month
to month, and the continual possibility of customer changes in delivery
schedules or cancellations of orders having an adverse effect on actual sales.
Also, a portion of the Company's sales are to military and aerospace markets
which are subject to the business risk of changes in governmental appropriations
and changes in national defense policies and priorities. All of the Company's
contracts with prime U.S. Government contractors contain customary provisions
permitting termination at any time at the convenience of the U.S. Government or
the prime contractors upon payment to the Company for costs incurred plus a
reasonable profit. Certain contracts are also subject to price re-negotiation
in accordance with U.S. Government sole source procurement provisions.
COMPETITION
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The markets in which the Company competes are extremely competitive. The Company
expects that competition will increase. The principal factors of competition in
the Company's markets include performance, product features, product
availability, price, quality, timing of new product introductions and the
emergence of new technologies.
The Company competes in the semiconductor market, particularly in the area of
high reliability components. The Company has numerous competitors across all of
its product lines. In the defense market, the Company believes that it possesses
a considerable share of the market. In the commercial/industrial arena, there
are numerous competitors such as Motorola, Inc., General Semiconductor, Inc.,
Texas Instruments, Semtech, Linear Tech, Maxim, Dallas Semiconductor, Vishay,
Fairchild Semiconductor and International Rectifier, which are significantly
larger and have greater resources and larger market shares than Microsemi. In
addition, Microsemi has licensed technology from and to parties, which have, in
certain cases, the right to use the technology to develop products competitive
with the Company's products. For
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instance, in a license and supply agreement with LinFinity Microelectronics,
Inc. ("LinFinity"), IMP, Inc. has the right to manufacture, market and sell a
line of SCSI products through its own sales force in direct competition with
LinFinity. Commercial products are under extreme price pressure due to intense
price competition. The market for analog ICs is also intensely competitive. With
respect to application-specific data communications devices, the Company's
principal competitors are Dallas Semiconductor, IMP, Inc., and Texas
Instruments. In the area of integrated circuit products, because the markets are
diverse and highly fragmented, the Company expects to encounter different
competitors on different products. The Company's principal competitors are
expected to include Linear Technology Corporation, IMP, Inc., Maxim Integrated
Products, Inc., Analog Devices Inc., Dallas Semiconductor, Micrel, Motorola,
National Semiconductor Corporation, Semtech, Texas Instruments and certain
European and Asian manufacturers. Due to the increasing demand for analog
circuits, the Company expects intensified competition from existing and new
competitors. Increased competition could adversely affect Microsemi's financial
condition, results of operations or cash flow of the Company.
There can be no assurance that the Company will be able to compete successfully
in the future. The Company's ability to compete successfully is dependent upon
its response to the entry of new competitors, the average selling prices
received for its products, changing technology and customer requirements,
development or acquisition of new products, the timing of new product
introductions by the Company or its competitors, continued improvement of
existing products, changes in overall worldwide market and economic conditions,
cost effectiveness, quality, service and market acceptance of the Company's
products. Price competition in the industry is intense and may increase, which
may have a material adverse effect on the Company's operating results. There can
be no assurance that the Company will be able to compete successfully as to
price or any of these other factors. There can be no assurance that the Company
will have the financial resources, technical expertise or marketing,
distribution and support capabilities to compete successfully. The Company's
future success will be highly dependent upon the successful development and
introduction of new products that are responsive to market needs. There can be
no assurance that the Company will be able to successfully develop or market any
such products.
CHANGES IN TECHNOLOGY
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The semiconductor market is subject to changes in technologies and industry
standards. To remain competitive, the Company must continue to devote resources
to advance process technologies, to increase product performance, to improve
manufacturing yields and to improve the mix between the Company's shipment of
military and commercial products and between its high cost and low cost
products. There can be no assurance that the Company's competitors will not
develop new technologies that are superior to the Company's technology.
PROPRIETARY RIGHTS
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The Company generally does not rely on patent protection for any aspect of its
technology. The Company believes that patents often provide only narrow
protection and require public disclosure of information which may otherwise be
subject to trade secret protection. The Company's reliance upon protection of
some of its technology as "trade secrets" will not necessarily protect the
Company from the use by other persons of its technology, or their use of
technology that is similar or superior to that which is embodied in the
Company's trade secrets. There can be no assurance that others will not be able
to independently duplicate or exceed the Company's technology in whole or in
part. No assurance can be made that the Company will be able to maintain the
confidentiality of the Company's technology, dissemination of which could have
an adverse effect on the Company's business. In addition, litigation may be
necessary to determine the scope and the validity of the Company's proprietary
rights. There can be no assurance that patents held by the Company will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide competitive advantages to the Company.
If the Company's products were found to violate a patent or other right of a
third party, the Company's business could be adversely affected. In addition,
the laws of certain countries in which the Company's products are or may be
developed, manufactured or sold, including Hong Kong, Japan, China, Singapore,
Thailand and Taiwan, may not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States.
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MANUFACTURING RISKS
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The Company's manufacturing processes are highly complex, require advanced and
costly equipment and are continuously being modified in an effort to improve
yields and product performance. Minute impurities or other difficulties in the
manufacturing process can lower yields. In addition, California and the Pacific
Rim are known to contain various earthquake faults. The Company's operations
could be materially adversely affected if production at any of its facilities
were interrupted for any reason. There can be no assurance that the Company will
not experience manufacturing difficulties in the future.
The Company subcontracts a portion of its wafer fabrication to outside
foundries. There are a number of foundries which, given appropriate lead times,
could meet some of Microsemi's needs. However, the Company can not guarantee
that it will be able to meet its customers' required delivery schedules. Because
of the unique nature of the manufacturing processes, it would be difficult for
Microsemi to arrange for independent suppliers to make wafers in a short period
of time. If a fire, natural disaster or any other event prevents Microsemi from
operating the factory for more than a few days, the Company's revenue and
financial condition could be severely impacted. Microsemi believes that it has
sufficient manufacturing capacity to meet its near term plans although prolonged
problems with any specific piece of equipment could cause Microsemi to miss its
goals.
Microsemi purchases most of its raw materials, including silicon wafers, on a
purchase order basis from a limited number of vendors. If any subcontractors or
vendors are unable to provide these services or materials in the future, the
relationships with Microsemi's customers could be seriously affected and its
revenues, financial condition and cash flows could be severely damaged.
After certain wafers are fabricated and tested, they are sent to contract
assembly houses to be packaged. Microsemi's integrated circuit products are
packaged and tested by a limited number of third party subcontractors in Asian
countries. Some of the raw materials included in these operations are obtained
from sole source suppliers. Although the Company seeks to reduce its dependence
on sole and limited source suppliers both for assembly services and for
materials, disruption or financial, operational, production or quality assurance
difficulties at any of these sources could occur and cause Microsemi to have
severe delivery problems.
EMPLOYEES
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On October 1, 2000, the Company employed 1,827 persons domestically including
185 in engineering, 1,421 in manufacturing, 104 in marketing and 117 in general
management and administration. Additionally, 638 persons were employed in the
Company's Hong Kong, Mumbai, India, and Ennis, Ireland operations. None of the
Company's employees is represented by a labor union. The Company has experienced
no work stoppage and believes its employee relations are good.
DEPENDENCE ON KEY PERSONNEL
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The Company's future performance is significantly dependent on the continued
active participation of members of its current management. The Company does not
have written employment contracts with its employees. Should one or more of the
Company's key management employees leave or otherwise become unavailable to the
Company, the Company's business and results of operations may be materially
adversely affected.
PRODUCT LIABILITY
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The Company's business exposes it to potential liability risks that are inherent
in the manufacturing and marketing of high-reliability electronic components for
critical applications. No assurance can be made that the Company's product
liability insurance coverage is adequate or that present coverage will continue
to be available at acceptable costs, or that a product liability claim would not
adversely affect the business or financial condition of the Company.
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CHANGE OF CONTROL PROVISIONS
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The Company's Certificate of Incorporation, Bylaws, Shareholder Rights Plan and
certain employment compensation plans contain provisions that make it more
difficult for a third party to acquire, or that may discourage a third party
from attempting to acquire control of the Company. In addition, as a Delaware
corporation, the Company is subject to the restrictions imposed under Section
203 of the Delaware General Corporation Law, which may deter the Company from
engaging in certain change of control transactions with certain of its
stockholders under certain circumstances.
ENVIRONMENTAL REGULATION
------------------------
While the Company believes that it has the environmental permits necessary to
conduct its business and that its operations conform to present environmental
regulations, increased public attention has been focused on the environmental
impact of semiconductor operations. The Company, in the conduct of its
manufacturing operations, has handled and does handle materials that are
considered hazardous, toxic or volatile under federal, state and local laws and,
therefore, is subject to regulations related to their use, storage, discharge
and disposal. No assurance can be made that the risk of accidental release of
such materials can be completely eliminated. In addition, the Company operates
or owns facilities located on or near real property that formerly might have
been used in ways that involved such materials. In the event of a violation of
environmental laws, the Company could be held liable for damages and the costs
of remediation, and, along with the rest of the semiconductor industry, is
subject to variable interpretations and governmental priorities concerning
environmental laws and regulations. Environmental statutes have been interpreted
to provide for joint and several liability and strict liability regardless of
actual fault. There can be no assurance that the Company and its subsidiaries
will not be required to incur costs to comply with, or that the operations,
business, or financial condition of the Company will not be adversely affected
by current or future environmental laws or regulations. (See "Legal
Proceedings")
RISKS RELATED TO ACQUISITIONS
------------------------------
The Company's strategy to increase its revenue and the markets it serves has
included and may continue to include acquisition of complementary businesses. In
and prior to fiscal year 2000, the Company has consummated acquisitions of
businesses and product lines and may continue to make acquisitions. There can be
no assurance that the Company will be able to identify, acquire or manage such
companies or products or successfully integrate such operations into those of
the Company without encountering unanticipated costs, liabilities, obligations,
delays or other problems. The Company may compete for acquisition and expansion
opportunities with companies that have greater resources than the Company. There
can be no assurance that suitable acquisition candidates will be available or
that acquisitions will be obtainable on terms acceptable to the Company.
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ITEM 2. PROPERTIES
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The Company's headquarters are located in a building complex located in Santa
Ana, California. This complex contains general offices, engineering and
manufacturing space. The Company owns office, engineering and production
facilities in Santa Ana and Garden Grove, California; Broomfield, Colorado;
Watertown, Massachusetts; Montgomeryville, Pennsylvania; Riviera Beach, Florida;
Ennis, Ireland; Mumbai, India; and Hong Kong and leases office, engineering and
production facilities in Carlsbad and Los Angeles, California; Scottsdale,
Arizona and Lawrence and Lowell, Massachusetts. As described in Note 7 to the
Consolidated Financial Statements, the acquisition of land, buildings and
additions in Santa Ana were accomplished through the issuance of Industrial
Development Bonds. Deeds of trust on the related properties were granted as
security for the bonds.
The Company believes that its existing facilities are well-maintained and in
good operating condition and that they are adequate for its immediately
foreseeable business needs.
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ITEM 3. LEGAL PROCEEDINGS
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In Broomfield, Colorado, the owner of a property located adjacent to the
manufacturing facility owned by a subsidiary of the Company notified the
subsidiary and other parties, claiming that contaminants migrated to his
property, thereby diminishing its value. In August 1995, the subsidiary,
together with the former owners of the manufacturing facility, agreed to settle
the claim and to indemnify the owner of the adjacent property from remediation
costs. Although TCE and other contaminants previously used at the facility are
present in soil and groundwater on the subsidiary's property, the Company
vigorously contests any assertion that the subsidiary is the cause of the
contamination. 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) assume responsibility for 90% of all
future clean-up costs, and 3) indemnify and protect the Company against any and
all third-party claims relating to the contamination of the property. 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.
On July 31, 2000, Lemelson Medical, Education & Research Foundation, Limited
Partnership, filed a first amended complaint in the United Stated District Court
for the District of Arizona alleging that numerous corporations, including the
Company, have infringed upon certain of the plaintiff's patents. The plaintiff
is seeking compensatory damages, treble damages, injunctive relief and
attorney's fees. The plaintiff does not specify an amount of any damages
claimed. The action, as it relates to the Company, is in its preliminary stages.
On October 31, 2000, Mitel Semiconductor, Inc. filed a complaint in the Orange
County Superior Court against the Company and two of its employees. The
plaintiff alleges that the Company and former employees of plaintiff utilized
alleged confidential information to interfere with the plaintiff's relationship
with certain of its employees, and that the Company and the other defendants
misappropriated plaintiff's alleged trade secrets to unfairly compete. The
plaintiff sought an award of compensatory damages, disgorgement of profits,
exemplary damages and a preliminary and permanent injunction. The action is in
its preliminary stages.
On November 28, 2000, Mil-Plus Components, Inc., filed a complaint against the
Company in the United States District Court for the Eastern District of New York
alleging that the Company violated the anti-trust laws of the United States and
the state of New York in connection with a termination of plaintiff as a
distributor. The plaintiff also alleges a breach of contract by the Company and
that the Company made false oral representations to the plaintiff to the effect
that it would not be terminated as a distributor. In its complaint, the
plaintiff alleges damages of 50 million dollars, treble damages, exemplary
damages and attorney's fees. The action is in its preliminary stages.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
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(a) Market Information
------------------
The Company's Common Stock is traded on the NASDAQ National Market under the
symbol MSCC. The following table sets forth the high and low closing prices
at which the Company's Common Stock traded as reported on the NASDAQ National
Market.
HIGH LOW
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Fiscal Year ended October 3, 1999
1st Quarter $ 12 5/8 $ 7 3/8
2nd Quarter 12 3/4 7
3rd Quarter 9 7/8 7 1/4
4th Quarter 10 3/16 7 1/16
HIGH LOW
---- ---
Fiscal Year ended October 1, 2000
1st Quarter $ 8 7/8 $ 6 11/16
2nd Quarter 48 8 7/16
3rd Quarter 34 1/16 18 11/16
4th Quarter 42 1/4 27 15/16
POSSIBLE VOLATILITY OF STOCK PRICES
-----------------------------------
The market prices of securities issued by technology companies, including the
Company, have been volatile. The securities of many technology companies have
experienced extreme price and volume fluctuations, which have often been not
necessarily related to the companies' respective operating performances.
Quarter to quarter variations in operating results, changes in earnings
estimates by analysts, announcements of technological innovations or new
products, announcements of major contract awards, events involving other
companies in the industry and other events or factors may have a significant
impact on the market price of the Company's Common Stock.
(b) Approximate Number of Common Equity Security Holders
----------------------------------------------------
Approximate Number of
Record Holders
Title of Class (as of October 1, 2000)
--------------- -----------------------
Common Stock, $.20 Par Value 417 (1)
(1) The number of stockholders of record treats all of the
beneficial holders of shares held in one "nominee" or
"street name" as a unit.
(c) Dividends
---------
The Company has not paid dividends in the last five years and has no current
plans to do so.
11
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
<TABLE>
<CAPTION>
For the five fiscal years in the period ended
October 1, 2000
------------------------------------------------------------------
1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- ----------
(Amounts in 000's except per share amounts)
<S> <C> <C> <C> <C> <C>
Selected Income Statement Data:
-------------------------------
Net sales $ 157,435 $ 163,234 $ 164,710 $ 185,081 $ 247,577
Gross profit $ 43,135 $ 45,960 $ 47,285 $ 40,870 $ 69,941
Operating expenses $ 24,184 $ 23,441 $ 26,826 $ 35,781 $ 54,496
Net income $ 8,100 $ 11,051 $ 11,322 $ 1,499 $ 8,207
Earnings per share:
Basic $ 1.03 $ 1.30 $ 1.05 $ 0.13 $ 0.68
Diluted $ 0.80 $ 1.03 $ 0.98 $ 0.13 $ 0.66
Weighted average shares outstanding:
Basic 7,828 8,493 10,735 11,131 12,009
Diluted 11,772 11,901 11,956 11,244 12,600
Selected Balance Sheet Data:
----------------------------
Working capital $ 49,556 $ 55,813 $ 57,063 $ 43,050 $ 80,118
Total assets $ 113,014 $ 135,194 $ 145,088 $ 181,601 $ 210,745
Long-term debt $ 46,420 $ 47,621 $ 18,667 $ 31,381 $ 9,651
Stockholders' equity $ 29,408 $ 41,909 $ 87,017 $ 82,444 $ 149,651
</TABLE>
In fiscal years 1999 and 2000, $4,002,000 and $11,196,000 of Research and
Development was included in operating expenses. Research and Development of
$1,020,000, $1,161,000 and $1,532,000 for fiscal years 1996, 1997 and 1998 has
been reclassified from cost of sales to operating expenses accordingly.
The selected financial data should be read in conjunction with the Consolidated
Financial Statements and Notes thereto, and Management's Discussion and Analysis
of Financial Condition and Results of Operations included in this Form 10-K.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
See Part I, Item 1, under "Important Factors Related to Forward-Looking
Statements and Associated Risks", and the factors discussed in Part I, Items 1
and 3, and Part II, Item 5.
RESULTS OF OPERATIONS FOR FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 2000
-----------------------------------------------------------------------
Net sales increased $62.5 million from $185.1 for fiscal year 1999 to $247.6
million for fiscal year 2000. The increase was attributed primarily to higher
sales of power management and RF/microwave products to the mobile connectivity,
telecommunications, computer/peripheral and space/satellite markets. The Company
acquired LinFinity Microelectronics, Inc. ("LinFinity") and Microsemi Microwave
Products ("MMP") in April and June of 1999, respectively. The Company sold
certain assets of the Micro Commercial Components division ("MCC") in June 2000.
LinFinity and MMP collectively had revenues of $27.3 million and $80.8 million
in fiscal years 1999 and 2000, respectively. MCC had revenues of $16.0 million
and $12.4 million in fiscal years 1999 and 2000, respectively.
Gross profit increased $29.0 million from $40.9 million for fiscal year 1999 to
$69.9 million for fiscal year 2000. As a percentage of sales, gross profit was
22.1% for fiscal year 1999, compared to 28.3% for fiscal year 2000. The increase
was due to higher capacity utilization and an increase in shipments of higher
margin power management, TVS, RF/microwave and space/satellite products. Gross
profit included $8.5 million and $32.8 million for LinFinity and MMP and $1.5
million and $1.0 million for MCC for fiscal years 1999 and 2000, respectively.
Selling and general and administrative expenses increased $10.0 million from
$28.4 million for fiscal year 1999 to $38.4 million for fiscal year 2000. The
increase was primarily due to higher sales volume. Selling and general and
administrative expenses included $4.3 million and $10.7 million for LinFinity
and MMP and $1.3 million and $0.8 million for MCC for fiscal years 1999 and
2000, respectively.
Research and development expense increased $7.2 million from $4.0 million for
fiscal year 1999 to $11.2 million for fiscal year 2000. This increase reflected
Microsemi's continuing investment to develop new power management and RF
products for the high-growth markets.
Acquired in-process research and development of $2.0 million and $2.5 million
were related to the acquisitions of LinFinity in April 1999 and Micro WaveSys in
March 2000, respectively.
Interest expense increased $0.2 million from $3.1 million for fiscal year 1999
to $3.3 million in fiscal year 2000, due to increase in borrowings to finance
the acquisitions in fiscal year 1999. These loans were paid off with proceeds
from the sale of Microsemi's common stock in June 2000.
The effective income tax rates of 23% and 33% for fiscal years 1999 and 2000,
respectively, were the combined results of taxes computed on foreign and
domestic income. The increase in the fiscal year 2000 effective tax rate was
primarily attributable to the effects of permanent differences in fiscal year
2000 on a higher pre-tax income base as compared to fiscal year 1999.
RESULTS OF OPERATIONS FOR FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1999
-----------------------------------------------------------------------
Net sales increased $20.4 million from $164.7 million for fiscal year 1998, to
$185.1 million for fiscal year 1999. The total revenues included $27.3 million
generated by LinFinity and MMP in fiscal year 1999. Excluding sales from
LinFinity and MMP, sales for fiscal year 1999 decreased $6.9 million compared to
fiscal year 1998. During fiscal 1999, the demand for commercial space products
was lower than prior years; however, the decrease was partially offset by an
increase in other commercial products.
Gross profit decreased $6.4 million from $47.3 million for fiscal year 1998 to
$40.9 million for fiscal year 1999. Gross profit in fiscal year 1999 included
$8.5 million from the LinFinity and MMP divisions. As a percentage of sales,
gross profit decreased from 28.7% for fiscal year 1998 to 22.1% for fiscal year
1999. The decrease was due to change of product sales mix, with lower sales of
commercial space products,
13
<PAGE>
which typically have higher margins than other commercial products, the effects
of pricing pressure and lower utilization of plant capacity. Gross profit was
also adversely affected by a $6.0 million inventory charge to cost of sales. The
charge was made because of reductions in estimates of utilization and realizable
value of certain inventories resulted from recent changes in market conditions
and customer requirements. Microsemi experienced heightened competition and
commercialization of its military business, lower demands for its commercial
satellite products and recent initiatives by satellite customers to use lower
cost parts in their programs.
Operating expenses increased $9.0 million to $35.8 million for fiscal year 1999
compared to fiscal year 1998. The increase was primarily due to the addition of
the LinFinity and MMP divisions and two design centers located in San Jose and
San Diego, California. The increase was also due in part to the charge for
acquired in-process research and development of $2.0 million, which was related
to the LinFinity acquisition in April 1999.
Interest expense increased $1.0 million from $2.1 million in fiscal year 1998 to
$3.1 million for fiscal year 1999, due to the acquisitions of LinFinity and MMP.
The effective income tax rates of 38% and 23% for fiscal years 1998 and 1999,
respectively, were the combined results of taxes computed on foreign and
domestic income. The decrease in the fiscal year 1999 effective tax rate was
primarily attributable to changes in the proportion of income earned within
various taxing jurisdictions and the tax rates applicable to such taxing
jurisdictions.
CAPITAL RESOURCES & LIQUIDITY
-----------------------------
Cash provided by operating activities was $12.6 million, $16.1 million and $35.8
million for fiscal years 1998, 1999 and 2000, respectively. The increase in cash
provided by operating activities in 1999 compared to 1998 was primarily
attributable to changes in earnings and inventories. The increase in cash
provided by operating activities in 2000 compared to 1999 was primarily
attributable to changes in earnings, depreciation and amortization, deferred
income taxes, accounts receivable and accrued liabilities.
Net cash used by investing activities was $15.6 million, $40.3 million and $9.8
million in 1998, 1999 and 2000, respectively. The increase in fiscal year 1999,
compared to fiscal year 1998, was primarily due to the acquisitions of LinFinity
and MMP. The decrease in fiscal year 2000, compared to fiscal year 1999, was
primarily due to lower payments for acquisitions.
Net cash provided by financing activities was $6.7 million and $22.3 million for
fiscal years 1998 and 1999, respectively. Net cash used for financing activities
in 2000 was $3.1 million. The net cash provided by financing activities in
fiscal years 1998 and 1999 was proceeds from the bank loans used to finance
acquisitions; partially offset by payments on the Company's debt. Net cash used
for financing activities in fiscal 2000 was primarily due to payments on the
Company's debt, partially offset by proceeds from the sale of the Company's
common stock.
Microsemi's operations in fiscal year 2000 were funded with internally generated
funds and borrowings under a revolving line of credit, which expires in March
2003 and from the sale of the Company's common stock in June 2000. Under this
line of credit, the Company can borrow up to $30.0 million. As of October 1,
2000, there were no funds borrowed under this credit facility. At October 1,
2000, Microsemi had $30.5 million in cash, cash equivalents and short-term
marketable securities.
The Company has no significant capital commitments.
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
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
MICROSEMI CORPORATION AND SUBSIDIARIES
Index to Financial Statements
-----------------------------
<TABLE>
<CAPTION>
1. Consolidated Financial Statements Page
--------------------------------- ----
<S> <C>
Report of Independent Accountants 16
Consolidated Balance Sheets at October 3, 1999
and October 1, 2000 17
Consolidated Income Statements for each of the three fiscal
years in the period ended October 1, 2000 18
Consolidated Statements of Stockholders' Equity for each of
the three fiscal years in the period ended October 1, 2000 19
Consolidated Statements of Cash Flows for each of the three
fiscal years in the period ended October 1, 2000 20
Notes to Consolidated Financial Statements 21
2. Financial Statement Schedule
----------------------------
Schedule for the fiscal years ended September 27, 1998,
October 3, 1999, October 1, 2000.
Schedule
--------
II - Valuation and Qualifying Accounts 38
</TABLE>
Financial statement schedules not listed above are either omitted
because they are not applicable or the required information is shown
in the consolidated financial statements or in the notes thereto.
15
<PAGE>
Report of Independent Accountants
To the Board of Directors
and Stockholders
of Microsemi Corporation:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Microsemi Corporation and its subsidiaries at October 1, 2000 and October 3,
1999, and the results of their operations and their cash flows for each of the
three fiscal years in the period ended October 1, 2000 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Orange County, California
November 28, 2000
16
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in 000's)
<TABLE>
<CAPTION>
October 3, October 1,
1999 2000
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,624 $ 30,460
Accounts receivable, less allowance for doubtful accounts,
$3,805 in 1999 and $5,767 in 2000 31,775 33,029
Inventories 56,925 52,500
Deferred income taxes 7,282 8,392
Other current assets 2,128 2,020
----------- -----------
Total current assets 105,734 126,401
Property and equipment, net 54,946 55,458
Deferred income taxes 862 2,688
Goodwill and other intangible assets, net 12,218 22,559
Other assets 7,841 3,639
----------- -----------
TOTAL ASSETS $ 181,601 $ 210,745
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks and others $ 18,545 $ 1,037
Current maturities of long-term debt 8,422 1,230
Accounts payable 11,247 11,489
Accrued liabilities 17,292 23,992
Income taxes payable 7,178 8,535
----------- -----------
Total current liabilities 62,684 46,283
----------- -----------
Long-term debt 31,381 9,651
----------- -----------
Other long-term liabilities 5,092 5,160
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock (Note 1) - -
Common stock, $0.20 par value; authorized 20,000 shares;
issued and outstanding 10,920 in 1999 and 13,794 in 2000 2,184 2,759
Capital in excess of par value of common stock 46,695 105,161
Retained earnings 34,561 42,768
Accumulated other comprehensive loss (996) (1,037)
----------- -----------
Total stockholders' equity 82,444 149,651
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 181,601 $ 210,745
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For each of the three fiscal years in the period ended October 1, 2000
(amounts in 000's, except earnings per share)
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Net sales $ 164,710 $ 185,081 $ 247,577
Cost of sales 117,425 144,211 177,636
--------- --------- ---------
Gross profit 47,285 40,870 69,941
--------- --------- ---------
Operating expenses:
Selling and general and administrative 24,778 28,434 38,431
Amortization of goodwill and other intangible assets 516 1,395 2,359
Research and development 1,532 4,002 11,196
Acquired in-process research and development - 1,950 2,510
--------- --------- ---------
Total operating expenses 26,826 35,781 54,496
--------- --------- ---------
Income from operations 20,459 5,089 15,445
--------- --------- ---------
Other expenses:
Interest, net (2,148) (3,112) (3,329)
Other, net (50) (36) 133
--------- --------- ---------
Total other expenses (2,198) (3,148) (3,196)
--------- --------- ---------
Income before income taxes 18,261 1,941 12,249
Provision for income taxes 6,939 442 4,042
--------- --------- ---------
Net income $ 11,322 $ 1,499 $ 8,207
========= ========= =========
Earnings per share:
Basic $ 1.05 $ 0.13 $ 0.68
========= ========= =========
Diluted $ 0.98 $ 0.13 $ 0.66
========= ========= =========
Weighted-average common shares outstanding:
Basic 10,735 11,131 12,009
========= ========= =========
Diluted 11,956 11,244 12,600
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For each of the three fiscal years in the period ended October 1, 2000
(amounts in 000's)
<TABLE>
<CAPTION>
Common Stock
--------------------
Capital in Accumulated
excess of other
par value of Retained compre-
Shares Amount common earnings hensive Total
stock loss
------- --------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 28, 1997 8,736 $ 1,747 $ 16,197 $ 24,742 $ (777) $ 41,909
Exercise of employee stock options 191 38 519 - - 557
Treasury stock repurchased and canceled (114) (22) (488) (330) - (840)
Conversion of debt 2,853 570 33,668 - - 34,238
Comprehensive income - - - 11,322 (169) 11,153
------- ------- --------- --------- -------- ---------
Balance at September 27, 1998 11,666 2,333 49,896 35,734 (946) 87,017
Exercise of employee stock options 14 3 49 - - 52
Treasury stock repurchased and canceled (760) (152) (3,250) (2,672) - (6,074)
Comprehensive income - - - 1,499 (50) 1,449
------- ------- --------- --------- -------- ---------
Balance at October 3, 1999 10,920 2,184 46,695 34,561 (996) 82,444
Exercise of employee stock options 259 52 2,411 - - 2,463
Issuance of stock related to an
acquisition 312 63 9,000 - - 9,063
Sale of common stock 2,303 460 44,880 - - 45,340
Tax benefit - stock options - - 2,175 - - 2,175
Comprehensive income - - - 8,207 (41) 8,166
------- ------- --------- --------- -------- ---------
Balance at October 1, 2000 13,794 $ 2,759 $ 105,161 $ 42,768 $ (1,037) $ 149,651
======= ======= ========= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the three fiscal years in the period ended October 1, 2000
(amounts in 000's)
<TABLE>
<CAPTION>
1998 1999 2000
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 11,322 $ 1,499 $ 8,207
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,281 8,818 12,161
Allowance for doubtful accounts (182) (611) 1,962
Provision for excess and obsolete inventories - 5,951 -
Loss on disposition and retirement of assets 93 - 583
Acquired in-process research and development - 1,950 2,510
Deferred income taxes (212) (2,095) 1,900
Change in assets and liabilities, net of acquisitions and
dispositions:
Accounts receivable 72 179 (3,216)
Inventories (3,656) (2,069) 1,709
Other current assets 2,662 381 199
Other assets 1,301 - 356
Accounts payable (3,210) 1,017 242
Accrued liabilities (915) (194) 7,837
Income taxes payable 13 1,304 1,357
--------- --------- ---------
Net cash provided by operating activities 12,569 16,130 35,807
--------- --------- ---------
Cash flows from investing activities
Purchases of properties and equipment (5,905) (7,932) (10,724)
Proceeds from disposition and sale of assets 5,029 - 2,702
Other assets - (2,837) -
Payments for acquisitions, net of cash acquired (13,740) (29,570) (1,548)
Investment in an unconsolidated affiliate (1,000) - (251)
--------- --------- ---------
Net cash used in investing activities (15,616) (40,339) (9,821)
--------- --------- ---------
Cash flows from financing activities
(Decrease) increase in note payable to banks (59) 12,375 (18,500)
Payments of notes payable to others (7) (2) (1,008)
Proceeds from long-term debt 10,000 30,800 -
Payments of long-term debt (3,848) (14,003) (31,422)
Increase (decrease) in other long-term liabilities 38 (35) 18
Repurchases of common stock - (6,914) -
Proceeds from sale of common stock - - 45,340
Exercise of employee stock options 557 52 2,463
--------- --------- ---------
Net cash provided by (used in) financing activities 6,681 22,273 (3,109)
--------- --------- ---------
Effect of exchange rate changes on cash (169) (50) (41)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 3,465 (1,986) 22,836
Cash and cash equivalents at beginning of year 6,145 9,610 7,624
--------- --------- ---------
Cash and cash equivalents at end of year $ 9,610 $ 7,624 $ 30,460
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
Microsemi Corporation is a global supplier of commercial and high-reliability
analog integrated circuits and power and signal discrete semiconductors serving
the satellite, telecommunications, computer and peripherals, military/aerospace,
industrial/commercial, and medical markets.
Fiscal Year
-----------
The Company reports results of operations on the basis of fifty-two and fifty-
three week periods. The Company's 2000 fiscal year ended on October 1, 2000 and
consisted of fifty-two weeks. Fiscal years 1998 and 1999 consisted of fifty-two
weeks and fifty-three weeks, respectively.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Microsemi
Corporation and its wholly/majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the respective reporting
periods. Actual results could differ from those estimates.
Fair Value of Financial Instruments
-----------------------------------
The carrying values of cash, cash equivalents, accounts receivable, accounts
payable, accrued liabilities, notes payable and certain other current assets and
certain other long-term assets approximate their fair values because of the
short maturity of these instruments. The carrying values of the Company's long-
term debt at October 3, 1999 and October 1, 2000 approximate fair value based
upon the current rate offered to the Company for obligations of the same
remaining maturities.
Concentration of Credit Risk and Foreign Sales
----------------------------------------------
The Company is potentially subject to concentrations of credit risk consisting
principally of trade accounts receivable. Concentrations of credit risk exist
because the Company relies on a significant portion of customers whose principal
sales are to the U.S. Government. In addition, sales to foreign customers
represented approximately 23%, 35% and 37% of net sales for fiscal years 1998,
1999 and 2000, respectively. These sales were principally to customers in Europe
and Asia. The Company maintains reserves for potential credit losses and such
losses have been within management's expectations.
Cash and Cash Equivalents
-------------------------
The Company considers all short-term, highly liquid investments with maturities
of three months or less at date of acquisition to be cash equivalents.
Investments
-----------
The Company's investments in certain unconsolidated affiliates are stated at the
lower of cost or estimated net realizable value.
21
<PAGE>
Inventories
-----------
Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out method, except for cost of inventories at the Scottsdale,
Arizona subsidiary, whose cost is determined using the last-in, first-out method
(see Note 2).
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the lease terms or the estimated
useful lives. Maintenance and repairs are charged to expense as incurred and the
costs of additions and betterments that increase the useful lives of the assets
are capitalized. It is the Company's policy to evaluate the carrying value of
its operating assets when certain events arise and to recognize impairments when
the future undiscounted net operating cash flows from the life of the assets are
less than carrying values.
Intangible Assets
-----------------
Intangible assets, arising principally from differences between the cost of
acquired companies and the underlying values at dates of acquisition (goodwill),
are amortized on a straight-line basis over periods not exceeding ten years. It
is the Company's policy to periodically evaluate the carrying value of its
intangible assets, including goodwill, when certain events arise and to
recognize impairments when the estimated future undiscounted net operating cash
flows from the use of the assets are less than their carrying values.
Revenue Recognition
-------------------
Revenue is recognized at the time of product shipment. The Company, under
specific conditions, permits its customers to return or exchange products. A
provision for estimated sales returns is recorded concurrently with the
recognition of revenue, based on historical experiences.
Research and Development
------------------------
The Company expenses the cost of research and development as incurred. Research
and development expenses principally comprise payroll and related costs and the
cost of prototypes.
Stock-Based Compensation
------------------------
The Company accounts for its stock based compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. The disclosures required under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-based Compensation" ("SFAS
123"), have been included in Note 8.
Income Taxes
------------
Deferred tax assets and liabilities are recorded for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, all expected
future events, including enactment of changes in tax laws or rates are
considered. A valuation allowance is provided for deferred tax assets when it is
more likely than not that such assets will not be realized through future
operations.
Preferred Stock
---------------
The Company's certificate of incorporation authorizes the board of directors to
issue up to 1,000,000 shares of preferred stock and to designate the rights and
terms of any such issuances. The Company has not issued any preferred stock.
22
<PAGE>
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 during the respective
periods and based upon the assumption that the convertible subordinated
debentures had been converted into common stock as of the beginning of the
respective periods, with a corresponding increase in net income to reflect a
reduction in related interest expense, net of applicable taxes.
Earnings per share for each of the three fiscal years in the period ended
October 1, 2000 were calculated as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
1998 1999 2000
---------- ---------- ----------
(amounts in 000's,
except per share data)
<S> <C> <C> <C>
BASIC
Net income $ 11,322 $ 1,499 $ 8,207
========== ========== ==========
Weighted-average common shares outstanding 10,735 11,131 12,009
========== ========== ==========
Basic earnings per share $ 1.05 $ 0.13 $ 0.68
========== ========== ==========
DILUTED
Net income $ 11,322 $ 1,499 $ 8,207
Interest savings from assumed conversions of
convertible debt, net of income taxes 383 - 68
---------- ---------- ----------
Net income assuming conversions $ 11,705 $ 1,499 $ 8,275
========== ========== ==========
Weighted-average common shares outstanding for basic 10,735 11,131 12,009
Dilutive effect of stock options 235 113 515
Dilutive effect of convertible debt 986 - 76
---------- ---------- ----------
Weighted-average common shares outstanding on a
diluted basis 11,956 11,244 12,600
========== ========== ==========
Diluted earnings per share $ 0.98 $ 0.13 $ 0.66
========== ========== ==========
</TABLE>
There were approximately 442,000, 631,000 and 26,000 options in 1998, 1999 and
2000, respectively, that were not included in the computation of diluted EPS
because the exercise price was greater than the average market price of the
common stock, thereby resulting in an antidilutive effect.
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. Comprehensive income consists of net
income and the change in the cumulative foreign currency translation adjustment.
Accumulated other comprehensive loss consists of the change in the cumulative
translation adjustment. Total comprehensive income for fiscal years 1998, 1999
and 2000 was $11,153,000, $1,449,000 and $8,166,000, respectively.
Segment Information
-------------------
The Company uses the management approach for segment disclosure, which
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments.
23
<PAGE>
Recently Issued Accounting Pronouncements
-----------------------------------------
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued, which establishes new standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Company will be required to adopt
SFAS No. 133 in fiscal 2001. Management has not completed its assessment as to
whether the adoption of the new statement will have a material impact on the
consolidated results of operations or financial position of the Company.
In December 1999, the Securities and Exchange Commission (the "SEC") released
Staff Accounting Bulletin ("SAB") No. 101, which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. The Company is required to be in conformity with the
provisions of SAB 101 no later than fourth quarter 2000. The Company is
continuing to assess the impact of SAB 101.
Reclassifications
-----------------
Certain reclassifications have been made to the fiscal years 1998 and 1999
balances to conform with the fiscal year 2000 presentation.
2. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 27, October 3, October 1,
1998 1999 2000
------------ ------------ ------------
(amounts in 000's)
<S> <C> <C> <C>
Raw materials $ 14,759 $ 14,002 $ 12,503
Work in process 18,282 22,244 22,186
Finished goods 21,392 20,679 17,811
------------ ------------ ------------
$ 54,433 $ 56,925 $ 52,500
============ ============ ============
</TABLE>
The Company uses the first-in, first-out ("FIFO") method to account for its
inventories, except at its Microsemi, Scottsdale subsidiary. Inventories in the
amount of $7,499,000 at Microsemi, Scottsdale are stated at cost under the last-
in, first-out ("LIFO") method. Had the FIFO method been used, total inventories
would have been approximately $615,000 lower at September 27, 1998, $19,000
higher at October 3, 1999 and $53,000 higher at October 1, 2000 and would have
had the effect of decreasing gross profit by $642,000 in fiscal year 1998 and
increasing gross profit by $634,000 and $34,000 in fiscal years 1999 and 2000,
respectively.
24
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
October 3, October 1,
Asset Life 1999 2000
-------------------- --------------- ---------------
(amounts in 000's)
<S> <C> <C> <C>
Buildings 20-40 years $ 27,605 $ 28,263
Property and equipment 3-10 years 63,304 64,010
Furniture and fixtures 5-10 years 1,299 1,397
Leasehold improvements Life of lease 2,078 1,956
------------- -------------
94,286 95,626
Accumulated depreciation (47,732) (50,511)
Land 5,419 5,419
Construction in progress 2,973 4,924
------------- -------------
$ 54,946 $ 55,458
============= =============
</TABLE>
Depreciation expense was $4,765,000, $7,423,000 and $9,802,000 in fiscal years
1998, 1999 and 2000, respectively.
At October 1, 2000, land and buildings located at the Santa Ana, California
manufacturing and headquarters facility were pledged to the City of Santa Ana
under the provisions of the loan agreement with the Santa Ana Industrial
Development Authority. The land and buildings in Watertown, Massachusetts and in
Ennis, Ireland are pledged to Unitrode Corporation under the provisions of the
related acquisition agreement. The building and land in Riviera Beach, Florida
are pledged to the former owner and a bank under the provisions of the related
acquisition and loan agreements.
4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET, AND OTHER ASSETS
October 3, October 1,
1999 2000
---------- ----------
(amounts in 000's)
Goodwill and other intangible assets, net $ 12,218 $ 22,559
========== ==========
Accumulated amortization for goodwill and other intangible assets amounted to
$4,434,000 and $3,937,000 as of October 3, 1999 and October 1, 2000,
respectively. Amortization expense for fiscal years 1998, 1999 and 2000 was
$393,000, $1,231,000 and $2,143,000, respectively.
Other assets consisted of the following:
October 3, October 1,
1999 2000
---------- ----------
(amounts in 000's)
Investments in unconsolidated affiliates $ 2,126 $ 194
Deferred financing expenses, net 693 211
Cash surrender value of life insurance 467 514
Notes receivable 2,229 1,650
Property held for sale 2,075 734
Others 251 336
---------- ----------
$ 7,841 $ 3,639
========== ==========
Accumulated amortization for deferred financing expenses amounted to $1,048,000
and $1,064,000 as of October 3, 1999 and October 1, 2000, respectively.
Amortization expense for fiscal years 1998, 1999 and 2000 was $123,000, $164,000
and $216,000, respectively.
25
<PAGE>
5. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
October 3, October 1,
1999 2000
---------- ----------
(amounts in 000's)
Payroll and payroll taxes $ 1,720 $ 1,829
Vacation, sick and other fringes 4,923 4,749
Profit sharing 1,688 7,032
Accrued interest 2,387 2,235
Other accrued expenses 6,574 8,147
---------- ----------
$ 17,292 $ 23,992
========== ==========
6. INCOME TAXES
Pretax income from continuing operations was taxed under the following
jurisdictions:
For each of the three fiscal years in
the period ended October 1, 2000
------------------------------------------------
1998 1999 2000
-------------- ------------ ------------
(amounts in 000's)
Domestic $ 14,010 $ 547 $ 10,761
Foreign 4,251 1,394 1,488
-------------- ------------ ------------
Total $ 18,261 $ 1,941 $ 12,249
============== ============ ============
The provision for income taxes consisted of the following components:
For each of the three fiscal years in
the period ended October 1, 2000
---------------------------------------------
1998 1999 2000
------------ ----------- -----------
(amounts in 000's)
Current:
Federal $ 4,320 $ 1,986 $ 3,960
State 918 301 620
Foreign 490 250 223
Deferred 1,211 (2,095) (761)
------------ ----------- -----------
$ 6,939 $ 442 $ 4,042
============ =========== ===========
26
<PAGE>
The tax effected deferred tax assets (liabilities) comprise the following:
October 3, 1999 October 1, 2000
--------------- ---------------
(amounts in 000's)
Accounts receivable $ 720 $ 1,842
Inventories 4,946 2,171
Other assets 1,506 1,314
Fixed asset bases 931 932
Accrued employee benefit expenses 1,371 3,645
Accrued other expenses 1,393 2,913
Amortization of intangible assets 690 1,807
--------------- ---------------
Gross deferred tax assets 11,557 14,624
--------------- ---------------
Inventory bases (1,491) (1,491)
Depreciation (1,922) (2,053)
--------------- ---------------
Gross deferred tax liabilities (3,413) (3,544)
--------------- ---------------
$ 8,144 $ 11,080
=============== ===============
The following is a reconciliation of income tax computed at the federal
statutory rate to the Company's actual tax expense:
<TABLE>
<CAPTION>
For each of the three fiscal years in
the period ended October 1, 2000
-------------------------------------------------------------
1998 1999 2000
----------------- --------------- -----------------
(amounts in 000's)
<S> <C> <C> <C>
Tax computed at statutory rate $ 6,392 $ 660 $ 4,287
State taxes, net of federal benefit 916 62 528
Foreign income taxed at different rates (997) (224) (292)
Non-deductible goodwill amortization 115 335 316
Non-deductible interest 310 - -
Foreign Sales Corporation benefit - (211) (237)
Tax credits - (174) -
Adjustments to prior years' tax accruals - - (579)
Other differences, net 203 (6) 19
----------------- --------------- -----------------
$ 6,939 $ 442 $ 4,042
================= =============== =================
</TABLE>
No provision has been made for future U.S. income taxes on the undistributed
earnings of foreign operations since they have been, for the most part,
indefinitely reinvested in these operations. Determination of the amount of
unrecognized deferred tax liability for temporary differences related to the
undistributed earnings of the Company's foreign operations is not practicable.
At the end of fiscal year 2000, the undistributed earnings aggregated
approximately $20,459,000.
27
<PAGE>
7. DEBT
Long-term debt consisted of:
<TABLE>
<CAPTION>
October 3, October 1,
1999 2000
---------- ----------
(amounts in 000's)
<S> <C> <C>
Industrial Development Bond, bearing interest at 7.875%, due
May 2000; secured by first deed of trust $ 2,075 $ -
Industrial Development Bond, bearing interest at 6.75%, due
February 2005; secured by first deed of trust 4,200 4,100
Note payable, bearing interest at 5.93%, payable monthly
through July 2002 1,530 990
Notes payable (PPC acquisition), bearing interest at 7%,
payable monthly through September 2009 1,794 1,585
Note payable (MWS acquisition), bearing interest at 7%,
due February 14, 2002 - 2,500
Notes payable to a bank, bearing interest at variable rates,
(7.94% at October 3, 1999) 28,000 -
Notes payable, bearing interest at ranges of 5.00% to 9.75%, due
between October 2000 and September 2014 2,204 1,706
--------------- ----------
39,803 10,881
Less current portion (8,422) (1,230)
--------------- ----------
$ 31,381 $ 9,651
=============== ==========
</TABLE>
Long-term debt maturities, including the current portion, during the next five
fiscal years are as follows (amounts in 000's):
2001 $ 1,230
2002 3,567
2003 202
2004 212
2005 3,822
Thereafter 1,848
---------
$ 10,881
=========
A $4,150,000 Industrial Revenue Bond was issued in November 1975 through the
City of Broomfield, Colorado and carried an interest rate of 7.875% per annum.
This bond was paid in full on May 1, 2000.
A $6,500,000 Industrial Development Revenue Bond was originally issued in April
1985, through the City of Santa Ana, California for the construction of
improvements and new facilities at the Company's Santa Ana plant. $4,100,000 of
this loan remained outstanding at October 1, 2000. It was remarketed in 1995
and carries an average interest rate of 6.75% per annum. The terms of the bond
require principal payments of $100,000 annually from 2000 to 2004 and $3,700,000
in 2005. A $4,466,000 letter of credit is carried by a bank to guarantee the
repayment of this bond. There are no compensating balance requirements. An
annual commitment fee of 2% is charged on this letter of credit. In addition,
the agreement contains covenants regarding net worth and working capital. The
Company was in compliance with the aforementioned covenants at October 1, 2000.
28
<PAGE>
In June 1997, the Company entered into a $2,700,000 equipment loan agreement,
providing for monthly principal payments through July 2002 of $45,000 plus
interest at 5.93% per annum. $990,000 of this loan remained outstanding at
October 1, 2000. This loan is secured by the related equipment.
In September 1997, the Company issued and assumed notes payable of $2,370,000
related to the PPC acquisition. These notes are payable to the former owners,
bear an interest rate of 7%, and are due in monthly installments of principal
and interest over various periods through September 2009. $1,585,000 of these
notes remained outstanding at October 1, 2000. One of these notes is secured by
the related acquired building.
In April 1999, the Company obtained a new credit agreement with its banks, which
included a term loan of $30,000,000 and a revolving line of credit of
$30,000,000 to finance the acquisition of LinFinity Microelectronics, Inc.
("LinFinity"), a subsidiary of Symmetricom, Inc., and to pay off the existing
term loan and the revolving line of credit. The $30,000,000 term loan, of which
$28,000,000 was outstanding at October 3, 1999, was paid in full in June 2000.
Concurrent with the new term loan, the Company obtained a new $30,000,000
revolving line of credit, which expires in March 2003. This line of credit
replaced its then-existing $15,000,000 credit line. The new line of credit is
secured by substantially all of the assets of the Company. It bears interest at
the bank's prime rate plus .75% to 1.5% per annum or, at the Company's option,
at the Eurodollar rate plus 1.75% to 2.5% per annum. The interest rate is
determined by the ratio of total funded debt to Earnings Before Interest, Taxes,
Depreciation and Amortization ("EBITDA"). The terms of the revolving line of
credit contain covenants regarding net worth and working capital and restrict
payment of cash dividends or share repurchases. The Company was in compliance
with these covenants at October 1, 2000. As of October 1, 2000, there were no
funds borrowed under this credit facility. At October 1, 2000, $25,742,000 was
available under the line of credit.
In February 2000, the Company issued a note payable of $2,500,000 related to the
Micro WaveSys, Inc. ("MWS") acquisition, due on February 14, 2002. This note is
payable to Infinesse Corporation, bearing an interest rate of 7% per annum.
Interest is payable quarterly. The note holder has the option of converting it
into common stock of the Company at $15 per share on or before February 14,
2002.
Other debts consist of various loans bearing interest at ranges from 5% to 9.75%
and require periodic principal payments through September 2014. At October 1,
2000, totals of $1,706,000 remained outstanding for these loans.
The Company occupies a building in Santa Ana, California, which is under a long-
term capital lease obligation. Future annual payments, included in other long-
term liabilities at October 1, 2000, due under this capital lease obligation are
as follows (amounts in 000's):
Fiscal year ending
------------------
2001 $ 279
2002 279
2003 279
2004 279
2005 279
Thereafter 6,591
-------
Total minimum lease payments 7,986
Less imputed interest (4,848)
Present value of capitalized lease obligation $ 3,138
=======
The building under this capital lease obligation is reflected in property and
equipment, net.
29
<PAGE>
8. STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS
Stock Options
-------------
Under the terms of an incentive stock option plan adopted in fiscal year 1982
and amended in fiscal year 1985, nontransferable options to purchase common
stock may be granted to certain key employees. The Company reserved 750,000
shares for issuance under the terms of the plan. The options may be exercised
within ten years from the date they are granted, subject to early termination
upon death or cessation of employment, and are exercisable in installments
determined by the Board of Directors. For certain significant shareholders, the
exercise period is limited to five years and the exercise price is higher.
In December 1986, the Board of Directors adopted another incentive stock option
plan (the "1987 Plan"), which reserved an additional 750,000 shares of common
stock for issuance. The 1987 Plan was approved by the shareholders in February
1987 and is for the purpose of securing for the Company and its shareholders the
benefits arising from stock ownership by selected officers, directors and other
key executives and management employees. The plan provides for the grant by the
Company of stock options, stock appreciation rights, shares of common stock or
cash. As of October 1, 2000, the Company only granted options under the 1987
Plan. The options may be exercised within ten years from the date they are
granted, subject to early termination upon death or cessation of employment, and
are exercisable in installments determined by the Board of Directors. For
certain significant shareholders, the exercise period is limited to five years
and the exercise price is higher.
At their annual meeting on February 25, 1994, the shareholders approved several
amendments to the 1987 Plan which 1) extend its termination date to December 15,
2000; 2) increase initially from 750,000 to 850,000 the number of shares
available for grants; 3) increase on the first day of each fiscal year, the
number of shares available for grant in increments of 2% of the Company's issued
and outstanding shares of common stock; 4) set a limit on the number of options
or shares which may be granted to any one individual in any year; 5) eliminate
limitations on the Board of Directors' designating one or more committees of any
size or composition to administer the 1987 Plan; and 6) provide for automatic
grants of stock options to non-employee directors.
At their annual meeting on February 29, 2000, the shareholders approved several
amendments to the 1987 Plan which: 1) extend its termination date to December
15, 2009; 2) increase initially by 530,400 the number of shares available for
grants; 3) increase on the first day of each fiscal year, the number of shares
available for grant in increments of 4% of the Company's issued and outstanding
shares of common stock; and 4) add flexibility of grants to non-employees
directors and other non-employees.
30
<PAGE>
Activity and price information regarding the plans are as follows:
<TABLE>
<CAPTION>
Stock Options
---------------------------------------
Weighted Average
Shares Exercise Price
--------------- -------------------
<S> <C> <C>
Outstanding September 28, 1997 704,264 $ 7.12
Granted 189,500 15.84
Exercised (191,669) 4.31
Expired or canceled (64,705) 10.05
---------------
Outstanding September 27, 1998 637,390 10.44
Granted 416,000 10.06
Exercised (13,688) 3.76
Expired or canceled (66,075) 10.81
---------------
Outstanding October 3, 1999 973,627 10.35
Granted 865,500 20.10
Exercised (258,627) 9.52
Expired or canceled (50,550) 13.67
---------------
Outstanding October 1, 2000 1,529,950 15.89
===============
</TABLE>
Stock options exercisable were 263,590, 453,240 and 374,225 at September 27,
1998, October 3, 1999, and October 1, 2000, respectively, at weighted average
exercise prices of $7.24, $10.40, and $12.16, respectively. Remaining shares
available for grant at September 27, 1998, October 3, 1999 and October 1, 2000
under the plans were 308,000, 203,000, and 150,000, respectively. All options
were granted at the fair market value of the Company's shares of common stock on
the date of grant.
The following table summarizes information about stock options outstanding and
exercisable at October 1, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ----------------------
Weighted
Weighted Average Average
Range of Exercise Remaining Exercise
Exercise Prices Shares Price Life Shares Price
------------------- ---------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
$ 1.00 - $ 5.00 85,750 $ 4.07 2.99 years 85,750 $ 4.07
$ 6.75 - $ 8.13 497,100 $ 7.07 9.01 years 58,300 $ 7.45
$ 9.81 - $13.88 316,225 $ 11.66 7.04 years 128,950 $ 11.05
$15.88 - $17.25 120,625 $ 16.02 7.12 years 56,225 $ 16.17
$25.13 - $28.88 474,250 $ 28.51 9.46 years 30,000 $ 28.73
$30.81 - $38.13 36,000 $ 36.13 9.92 years 15,000 $ 38.13
--------- ---------
1,529,950 374,225
========= =========
</TABLE>
For purpose of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting periods. The SFAS 123 method of
accounting was not applied to options granted prior to fiscal 1996. The
Company's pro forma information is as follows, for fiscal years 1998, 1999 and
2000:
31
<PAGE>
Fiscal Years Ended
----------------------------------------
1998 1999 2000
-------- -------- --------
(amounts in 000's)
Net income:
As reported $ 11,322 $ 1,499 $ 8,207
Pro forma $ 10,404 $ 553 $ 6,049
Basic earnings per share:
As reported $ 1.05 $ 0.13 $ 0.68
Pro forma $ 0.97 $ 0.05 $ 0.50
Diluted earnings per share:
As reported $ 0.98 $ 0.13 $ 0.66
Pro forma $ 0.90 $ 0.05 $ 0.48
The fair value of each stock option grant was estimated pursuant to SFAS 123 on
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions:
1998 1999 2000
------ ------ ------
Risk free interest rate 5.55% 4.94% 5.90%
Expected dividend yield None None None
Expected lives 5 years 5 years 5 years
Expected volatility 76.4% 67.0% 70.0%
The weighted average grant date fair values of options granted during fiscal
years 1998, 1999 and 2000 were $15.84, $10.06 and $20.10, respectively.
Employee Benefit Plans
----------------------
The Microsemi Corporation Profit Sharing Plan, adopted by the Board of Directors
in fiscal year 1984, covers substantially all full-time employees who meet
certain minimum employment requirements and provides for current bonuses based
upon the Company's earnings. Annual contributions to the plan are determined by
the Board of Directors. Total charges to income were $2,509,000, $1,745,000 and
$5,678,000 in fiscal years 1998, 1999 and 2000, respectively.
401(k) Plan
-----------
The Company sponsors a 401(k) Savings Plan whereby participating employees may
elect to contribute up to 15% of their eligible wages. The Company is committed
to match 50% of employee contributions, not exceeding 3% of the employee's
wages. The Company contributed $1,005,000, $1,148,000 and $1,415,000 to this
plan during fiscal years 1998, 1999 and 2000, respectively.
Supplemental Retirement Plan
----------------------------
In fiscal year 1994, the Company adopted a supplemental retirement plan, which
provides certain long-term employees with retirement benefits based upon a
certain percentage of the employees' salaries. Included in other long-term
liabilities at October 3, 1999 and October 1, 2000 were $1,327,000 and
$1,351,000, respectively, related to the Company's estimated liability under the
plan.
9. COMMITMENTS AND CONTINGENCIES
The Company occupies premises and leases equipment under operating lease
agreements expiring through 2029. Aggregate future minimum rental payments
under these leases are (amounts in 000's):
32
<PAGE>
Fiscal Year Ending
------------------
2001 $ 1,729
2002 1,701
2003 1,595
2004 1,596
2005 1,597
Thereafter 9,963
--------
$ 18,181
========
Lease expense charged to income was $411,000 in fiscal year 1998, $712,000 in
fiscal year 1999, and $1,235,000 in fiscal year 2000. The aforementioned
amounts are net of sublease income amounting to $557,000, $514,000 and $328,000
in fiscal years 1998, 1999 and 2000, respectively.
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 the 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) will assume responsibility for 90% of all future clean-up costs,
and 3) 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 or
results of operations.
The Company is involved in various pending litigations arising out of the normal
conduct of its business, including those 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 flow.
10. ACQUISITION AND DISPOSITION
In February 2000, Microsemi acquired certain assets of the HBT Business Products
Group (now called Micro WaveSys, Inc.) of Infinesse Corporation ("Infinesse").
This business specializes in RF components utilizing III-V Compounds (primarily
Gallium Arsenide and Indium Gallium Phosphide), and SiGe semiconductors for
advanced cellular, PCS and 3G, BlueTooth, and 5.7 GHz LAN applications. The cost
of this acquisition was approximately $15,110,000, which was funded with cash,
debt, shares of Microsemi's common stock, and the issuance of a note convertible
into shares of Microsemi's common stock. The acquisition was accounted for
under the purchase method of accounting, and goodwill resulting from this
acquisition was approximately $9,860,000. Microsemi's consolidated results of
operations include those of Micro WaveSys since the date of acquisition. Micro
WaveSys has 1,000 authorized shares, of which, Microsemi owns 800 shares,
Infinesse or its assignees own 100 shares, and 100 shares are reserved for
future option grants.
33
<PAGE>
The costs of the acquisition were allocated to the assets acquired and
liabilities assumed based on their estimated fair values to the extent of the
aggregate purchase price. Portions of the purchase price were allocated to
certain intangible assets such as completed technology, assembled workforce, and
in-process research and development ("IPR&D"). The allocation of the purchase
price to these intangible assets was based on an independent valuation report.
The amount of the purchase price allocated to IPR&D was determined by estimating
the stage of completion of each IPR&D project at the date of acquisition,
estimating cash flows resulting from the future release of products employing
these technologies, and discounting the net cash flows back to their present
values. At the date of acquisition, technological feasibility of the IPR&D
projects had not been reached and the technology had no alternative future uses
without further development. Accordingly, Microsemi expensed the portion of the
purchase price allocated to IPR&D of $2,510,000, in accordance with generally
accepted accounting principles, in the quarter ended April 2, 2000.
The IPR&D comprises a number of individual technological development efforts,
focusing on the discovery of new, technologically advanced knowledge and more
complete solutions to customers' needs, the conceptual formulation and design of
possible alternatives, as well as the testing of process and product cost
improvements. Specifically, these technologies included efforts regarding
Microsemi's strategy of expanding product offerings into the high growth
wireless, broadband, and the analog and mixed signal IC sectors.
The weighted average stage of completion for all projects, in the aggregate, was
approximately 60% as of the acquisition date. As of that date, the estimated
remaining costs to bring the projects under development to technological
feasibility are over $500,000. Upon completion, cash flows from sales of
products incorporating those technologies were estimated to commence in the year
2000. Revenues forecasted in each period were reduced by related expenses,
capital expenditures, and the cost of working capital. The discount rate applied
to the net cash flows was 28%, which reflected the level of risk associated with
the particular technologies and the current return on investment requirements of
the market.
As discussed above, a portion of the costs of acquisition was allocated to
completed technology and assembled workforce. The total allocation approximated
$2,490,000 for these intangible assets.
Pro forma results as if the acquisition had taken place in the prior year would
not be materially different from the Company's reported results.
In June 2000, the Company sold certain assets of its Micro Commercial Components
division at book values for $3,000,000. As of October 1, 2000, the Company
received $2,702,000. The balance was paid in full in October 2000.
34
<PAGE>
11. SEGMENT INFORMATION
The Company's reportable operating segments are based on geographic location,
and the measure of segment profit is income from operations. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies.
The Company operates predominantly in a single industry segment as a
manufacturer of discrete semiconductors. Geographic areas in which the Company
operates include the United States, Ireland, Hong Kong, and India.
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:
<TABLE>
<CAPTION>
For Each of the Three Fiscal Years in the Period
Ended October 1, 2000
-------------------------------------------------------------------
1998 1999 2000
------------------- ----------------- -----------------
(amounts in 000's)
<S> <C> <C> <C>
Net sales:
United States:
Sales to unaffiliated customers $ 145,242 $ 159,695 $ 224,212
Intergeographic sales 14,484 23,463 19,779
Europe:
Sales to unaffiliated customers 15,350 17,084 19,485
Intergeographic sales 7,121 3,823 3,603
Asia:
Sales to unaffiliated customers 4,118 8,302 3,880
Intergeographic sales 6,548 4,381 3,901
Eliminations of intergeographic sales (28,153) (31,667) (27,283)
------------------- ----------------- -----------------
$ 164,710 $ 185,081 $ 247,577
=================== ================= =================
Income from operations:
United States $ 17,210 $ 4,378 $ 14,888
Europe 1,621 476 441
Asia 1,628 235 116
------------------- ----------------- -----------------
Total $ 20,459 $ 5,089 $ 15,445
=================== ================= =================
Identifiable assets:
United States $ 131,663 $ 166,429 $ 195,640
Europe 5,982 8,019 8,401
Asia 7,443 7,153 6,704
------------------- ----------------- -----------------
Total $ 145,088 $ 181,601 $ 210,745
=================== ================= =================
Capital expenditures:
United States $ 5,302 $ 7,712 $ 10,498
Europe 224 160 125
Asia 379 60 101
------------------- ----------------- -----------------
Total $ 5,905 $ 7,932 $ 10,724
=================== ================= =================
Depreciation and amortization:
United States $ 4,314 $ 8,334 $ 11,676
Europe 618 169 190
Asia 349 315 295
------------------- ----------------- -----------------
Total $ 5,281 $ 8,818 $ 12,161
=================== ================= =================
</TABLE>
35
<PAGE>
12. STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For Each of the Three Fiscal Years in the
Period Ended October 1, 2000
Supplementary information: 1998 1999 2000
-------------- -------------- --------------
(amounts in 000's)
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 1,858 $ 3,324 $ 4,193
================= ================= ==================
Income taxes $ 7,619 $ 1,840 $ 3,484
================= ================= ==================
Non-cash financing and investing activities:
Conversion of subordinated debt into 2,852,829 and
614,807 shares of common stock in fiscal year 1998 $ 33,986 $ - $ -
================= ================= ==================
Fixed assets purchased through issuance of long
term debt $ - $ 3,165 $ -
================= ================= ==================
Stock options:
Exercises $ 899 $ - $ 2,463
Stock surrendered in lieu of cash (342) - -
----------------- ----------------- ------------------
Net cash received $ 557 $ - 2,463
================= ================= ==================
Businesses acquired in purchase transactions (Note 10):
Fair values of assets acquired $ 7,260 $ 31,547 $ 250
Goodwill and other intangible assets 9,839 5,523 14,860
Less common stock issued - - (9,062)
Less debt issued and liabilities assumed (3,359) (7,500) (4,500)
----------------- ----------------- ------------------
Cash paid for acquisition $ 13,740 $ 29,570 $ 1,548
================= ================= ==================
</TABLE>
36
<PAGE>
13. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
Selected quarterly financial data are as follows:
<TABLE>
<CAPTION>
Quarters ended in fiscal year 1999
-----------------------------------------------------
(amounts in 000's, except earnings per share)
January 3, April 4, July 4, October 3,
1999 1999 1999 1999
------------ ---------- --------- ------------
<S> <C> <C> <C> <C>
Net sales $ 39,417 $ 39,491 $ 48,758 $ 57,415
Gross profit $ 10,861 $ 10,345 $ 11,968 $ 7,696
Net (loss) income $ 2,280 $ 1,994 $ (670) $ (2,105)
Basic earnings (loss) per share $ 0.20 $ 0.18 $ (0.06) $ (0.19)
Diluted earnings (loss) per share $ 0.20 $ 0.18 $ (0.06) $ (0.19)
<CAPTION>
Quarters ended in fiscal year 2000
----------------------------------------------------
(amounts in 000's, except earnings per share)
January 2, April 2, July 2, October 1,
2000 2000 2000 2000
------------ ---------- --------- ------------
Net sales $ 54,588 $ 60,972 $ 66,644 $ 65,373
Gross profit $ 13,568 $ 17,159 $ 19,042 $ 20,172
Net income $ 966 $ 194 $ 2,817 $ 4,230
Basic earnings per share $ 0.09 $ 0.02 $ 0.23 $ 0.31
Diluted earnings per share $ 0.09 $ 0.02 $ 0.22 $ 0.29
</TABLE>
For the quarter ended October 3, 1999, the Company recorded a $5,951,000 charge
to cost of sales. The charge was recorded because of reductions in estimates of
utilization and realizable value of certain inventories resulting from recent
changes in market conditions and customer requirements.
37
<PAGE>
MICROSEMI CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(amounts in 000's)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Charged Deductions-
Balance at to costs Charged to recoveries Balance at
beginning and other and end of
of period expenses accounts write-offs period
--------- -------- -------- ---------- ------
Classification
--------------
September 27, 1998
------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts and
reserve for returns $ 2,665 $ - $ - $ (208) $ 2,457
================= ============== ================= ================ =============
Reserve for investments in and
advances to unconsolidated
affiliates $ 1,297 $ - $ - $ - $ 1,297
================= ============== ================= ================ =============
October 3, 1999
---------------
Allowance for doubtful accounts and
reserve for returns $ 2,457 $ (230) $ 1,960 $ (382) $ 3,805
================= ============== ================= ================ =============
Reserve for investments in and
advances to unconsolidated
affiliates $ 1,297 $ - $ - $ - $ 1,297
================= ============== ================= ================ =============
October 1, 2000
---------------
Allowance for doubtful accounts and
reserve for returns $ 3,805 $ 2,296 $ - $ (334) $ 5,767
================= ============== ================= ================ =============
Reserve for investments in and
advances to unconsolidated
affiliates $ 1,297 $ 1,200 $ - $ (237) $ 2,260
================= ============== ================= ================ =============
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
38
<PAGE>
PART III
--------
Items 10, 11, 12 and 13 are omitted since the Registrant intends to file a
definitive proxy statement with the Securities and Exchange Commission pursuant
to Regulation 14A within 120 days after the end of Registrant's fiscal year
ended October 1, 2000. The information required by those items is set forth in
that certain proxy statement and such information is incorporated by reference
in this Form 10-K.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a) 1. Financial Statements. See Index under Item 8.
2. Financial Statement Schedules. See Index under Item 8.
3. Exhibits:
The exhibits which are filed with this report are listed in the
Exhibit Index.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the fourth quarter of
fiscal year 2000.
39
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, 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: December 19, 2000
40
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Philip Frey, Jr. and David R.
Sonksen, or either of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and re-substitution, to sign the report on Form 10-K
and any or all amendments thereto and to file the same, with all exhibits
thereto, and other documents in connection therewith with the Securities and
Exchange Commission, hereby ratifying and confirming all that said attorney-in-
fact, or his substitute or substitutes, may do or cause to be done by virtue
hereof in any and all capacities.
Pursuant to the requirements of Securities Exchange Act of 1934, this report has
been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/PHILIP FREY, JR. Chairman of the Board December 19, 2000
----------------------
Philip Frey, Jr.
/s/JAMES J. PETERSON President and December 19, 2000
----------------------
James J. Peterson Chief Executive Officer
/s/DAVID R. SONKSEN Executive Vice President, December 19, 2000
----------------------
David R. Sonksen Chief Financial Officer
Treasurer and Secretary
(principal financial and
accounting officer)
/s/BRAD DAVIDSON Director December 19, 2000
----------------------
Brad Davidson
/s/H.K. DESAI Director December 18, 2000
----------------------
H.K. Desai
/s/MARTIN H. JURICK Director December 19, 2000
----------------------
Martin H. Jurick
/s/ROBERT B. PHINIZY Director December 18, 2000
----------------------
Robert B. Phinizy
/s/JOSEPH M. SCHEER Director December 18, 2000
----------------------
Joseph M. Scheer
41
<PAGE>
Exhibits.
EXHIBIT INDEX
Sequential
Exhibit Page
Number Description Number
2.1 The Agreement and Plan of Merger among the Company, Micro BKC
Acquisition Corp. and BKC Semiconductors Incorporated, dated
January 21, 1998, was filed with Form 8-K on June 1, 1998 under the
same exhibit number and is incorporated herein by this reference
(33)
2.2 Agreement and Plan of Reorganization, dated as of February 10,
1999, among the Company, Micro-LinFinity Acquisition Corporation,
LinFinity Microelectronics, Inc. and Symmetricom, Inc.,
incorporated by reference to the same numbered exhibit to the
Company's Form 8-K filed with the Securities and Exchange
Commission on April 29, 1999 (34)
2.3 Asset Purchase Agreement, dated as of February 15, 2000 between
Microsemi Corporation and Infinesse Corporation, incorporated by
reference to the same numbered exhibit to the Company's Form 8-K
filed with the Securities and Exchange Commission on March 15, 2000
(36)
3 Restated Certificate of Incorporation and Bylaws of the Registrant
(1)
4 Form of Indenture, including form of 5 7/8% Convertible
Subordinated Debenture due 2012 (2)
4.1 Subordinated Convertible Note Purchase Agreement dated June 26,
1992 among the Registrant and the Purchasers named therein and
Exhibit A hereto, a form of Subordinated Convertible Note (29)
10.1 1984 Incentive Stock Option Plan (as amended December 13, 1984) (3)
10.2 Form of Incentive Stock Option Agreement pursuant to 1984 Incentive
Stock Option Plan (3)
10.3 Form of Stock Option Agreement, dated October 17, 1985, between the
Registrant and members of the Registrant's Board of Directors (1)
10.5 Credit Agreement between the Registrant and Security Pacific
National Bank, dated as of September 3, 1984, and First Amendment
to Credit Agreement dated as of May 1, 1985 (1)
10.6 Lease dated June 29, 1982 between Ulrich Layher and MSC Phoenix,
Inc. (1)
10.11 1986 Nonqualified Stock Option Plan of the Registrant (Exhibit
10.9) (5)
42
<PAGE>
10.13 The Registrant's 1987 Stock Plan (6)
10.14 Indenture dated as of February 1, 1985, and related Loan Agreement
and Reimbursement Agreement both dated as of February 1, 1985,
relating to the Industrial Revenue Bonds issued to finance
additions to the Santa Ana facility of the Registrant (2)
10.15 Stock Sale Agreement, dated November 12, 1987 between Coors
Porcelain Company and the Registrant, relating to the acquisition
of Coors Components, Inc. (7)
10.16 Press Release distributed by the Registrant on November 12, 1987,
announcing the acquisition of Coors Components, Inc. (7)
10.29 Subscription Agreement dated July 24, 1987 between the Registrant
and Diodes Incorporated for the subscription of 800,000 shares of
Diodes Incorporated (8)
10.32 Agreement of Purchase and Sale of Stock dated April 6, 1988,
between General Microcircuits, Inc. and the Registrant relating to
the purchase of all of the outstanding stock of General
Microcircuits (9)
10.37 Stock Purchase Agreement dated as of February 17, 1989 by and
between Avnet, Inc., a New York corporation, and Salem Scientific,
Inc., a Microsemi Company, a Delaware corporation and a wholly-
owned subsidiary of the Registrant (10)
10.48 First Amendment and Forbearance to the Registrant's Second Amended
and Restated Credit Agreement dated as of November 1, 1990 (15)
10.49 Confirmation dated December 10, 1990 from Security Pacific National
Bank concerning the extension of the Registrant's line of credit
and standby letters of credit to February 1, 1991 (15)
10.52 Assignment and Assumption Agreement dated September 23, 1991 by and
among Dynamic Circuits, Inc., a California corporation ("Dynamic"),
Surface Mounted Technology Corporation, a California corporation
("SMTC") and the Registrant, pertaining to Dynamic's purchase from
SMTC of the SMTC assets, together with the following supplemental
documentation: (a) Letter of Intent dated August 14, 1991 (and
Addendum thereto); (b) Equipment Lease Agreement; (c) Promissory
Note; and (d) Security Agreement (16)
10.54 Asset Purchase Agreement dated May 28, 1992 between Micro USPD,
Inc., a Delaware corporation and wholly-owned subsidiary of the
Registrant ("Micro USPD"), and Unitrode Corporation, a Maryland
corporation ("Unitrode") (17)
43
<PAGE>
10.55 Irish Acquisition Agreement dated July 2, 1992 among Unitrode
Ireland, Ltd., an Irish corporation and wholly-owned subsidiary of
Unitrode; Unitrode B.V., a Dutch corporation and wholly-owned
subsidiary of Unitrode; and Micro (Bermuda), Ltd., a Bermudian
corporation and wholly-owned subsidiary of the Registrant ("Micro
Bermuda") (18)
10.56 Dutch Acquisition Agreement dated July 2, 1992 among Unitrode Europe
B.V., a Dutch corporation and wholly-owned subsidiary of Unitrode;
Unitrode; and MicroBermuda (19)
10.64 Promissory Note dated December 21, 1992 made by the Registrant and
payable to Norman Wechsler in the original principal amount of
$150,000 and extension letter agreement dated April 23, 1993 (21)
10.65 Waiver and First Amendment to Reimbursement Agreement dated as of
January 8, 1993 between the Registrant and Bank of America NT&SA
with respect to the Reimbursement Agreement (See Exhibit 10.14)
dated as of February 1, 1988 (21)
10.66 Senior Note Purchase Agreement dated March 25, 1993 between the
Registrant and Norman Wechsler, including as an exhibit thereto the
form of Senior Promissory Note dated March 25, 1993 (21)
10.69 Letter dated August 31, 1993 from Unitrode to the Registrant
providing for amendments with respect to the Asset Purchase
Agreement (See Exhibit 10.54) dated May 28, 1992 between Micro USPD
and Unitrode excluding exhibits as follows (22):
Amendments to Promissory Notes dated as of September 3, 1993 between
Micro USPD and Unitrode and the respective Promissory Notes dated
July 2, 1992 attached as exhibits thereto
10.73 Amendment to the Registrant's 1987 Stock Plan. (25)
10.74 Executive Compensation Plans and Arrangements (26).
10.75 Bill of Sales and Purchase agreement between Telcom Universal Inc.
And Microsemi Corporation (6)
10.76 Supplement to financing documents (Indenture of Trust and Loan
agreement) relating to Industrial Development Authority of the City
of Santa Ana, 1985 Industrial Development Revenue Bonds Microsemi
Corporation Project) dated as of January 15, 1995. (26)
10.77 Amendments of the 1987 Microsemi Corporation Stock Plan. Adopted on
May 16, 1995. (27)
10.78 Motorola-Microsemi PowerMite Technology Agreement. Portions omitted
from this Exhibit have been separately filed with the Commission
pursuant to a request for confidential treatment. (28)
10.79 Revolving Line of Credit Agreement Between Microsemi Corporation and
Imperial Bank. (29)
44
<PAGE>
10.80 Purchase agreement dated as of between SGS-Thomson Microelectronics,
Inc. and Microsemi RF Products, Inc., formerly known as Micro
Acquisition Corp., a Delaware Corporation and a wholly owned
subsidiary of the Company.(30)
10.81 Retirement agreement with Dr. Jiri Sandera (31)
10.82 Change of Control Agreement with Mr. Philip Frey, Jr. (32)
10.83 Change of Control Agreement with Mr. David R. Sonksen. (32)
10.84 Supplemental Executive Retirement Plan (32)
10.85 Credit Agreement, dated as of April 2, 1999, among the Company, the
Lenders from time to time party thereto and Canadian Imperial Bank
of Commerce, as Agent (35)
21 List of Subsidiaries
23.1 Consent of Independent Accountants (form S-3)
23.2 Consent of Independent Accountants (form S-8)
27 Financial data schedule.
99.1 Information under heading "Risk Factors" in the Form 424B4 Prospectus
as filed by the Company with the Securities and Exchange Commission
on June 1, 2000 is incorporated herein by this reference (37)
(1) Filed in Registration Statement (No. 33-3845) and incorporated herein by
this reference.
(2) Filed in Registration Statement (No. 33-11967) and incorporated herein by
this reference.
(3) Filed with the Registrant's S-8 dated January 27, 1986 and incorporated
herein by this reference.
(6) Incorporated by reference form Exhibit A to the Registrant's definitive
Proxy Statement dated January 19, 1987.
(7) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 8-K filed with the Commission on or about December
23, 1987.
(9) Incorporated by reference to the indicated Exhibit to the Registrant's
Annual Report on Form 10-K filed with the Commission for the fiscal year
ended October 2, 1988.
(10) Incorporated by reference to Exhibit 10.33 to the Registrant's Current
Report on Form 8-K, as amended, as filed with Commission on or about
(15) Incorporated by reference to the indicated Exhibit to the Registrant's
Annual Report on Form 10-K filed with the Commission for the fiscal year
ended September 30, 1990.
(16) Incorporated by reference to the indicated Exhibit to the Registrant's
Annual Report on Form 10-K filed with the Commission for the fiscal year
ended September 29, 1991.
45
<PAGE>
(17) Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8
Amendment No. 1, as filed with the Commission on September 8, 1992, to its
Current Report on Form 8-K dated July 2, 1992.
(18) Incorporated by reference to Exhibit 2.2 to the Registrant's Form 8
Amendment No. 1, as filed with the Commission on September 8, 1992, to its
Current Report on Form 8-K dated July 2, 1992.
(19) Incorporated by reference to Exhibit 2.3 to the Registrant's Form 8
Amendment No. 1, as filed with the Commission on September 8, 1992, to its
Current Report on Form 8-K dated July 2, 1992.
(21) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q filed with the Commission for the fiscal
quarter ended July 4, 1993.
(22) Incorporated by reference to the indicated Exhibit to the Registrant's
Annual Report on Form 10-K filed with the Commission for the fiscal year
ended October 3, 1993.
(23) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q filed with the Commission for the fiscal
quarter ended April 3, 1994.
(24) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 8-K, as filed with the Commission dated June 8,
1994.
(25) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 10-K as filed with the Commission for the fiscal
year ended October 2, 1994.
(26) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q filed with the Commission for the fiscal
quarter ended April 2, 1995
(27) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q filed with the Commission for the fiscal
quarter ended July 2, 1995.
(28) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q filed with the Commission for the fiscal
quarter ended March 31, 1996.
(29) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 8-K, as filed with the Commission dated June 26,
1992.
(30) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q filed with the Commission for the fiscal
quarter ended December 29, 1996.
(31) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 10-K filed with the Commission for the fiscal year
ended September 28, 1997.
(32) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 10-Q filed with the Commission for the fiscal
quarter ended December 28, 1997.
46
<PAGE>
(33) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 10-Q filed with the Commission for the fiscal
quarter ended June 28, 1998.
(34) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 10-Q filed with the Commission for the fiscal
quarter ended April 4, 1999.
(35) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 10-Q filed with the Commission for the fiscal
quarter ended July 4, 1999.
(36) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 10-Q filed with the Commission for the fiscal
quarter ended April 2, 2000.
(37) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 10-Q filed with the Commission for the fiscal
quarter ended July 2, 2000.
47
