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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2002
Commission file number 1-5560
ALPHA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2302115
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 SYLVAN ROAD, WOBURN, MASSACHUSETTS 01801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 935-5150
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.25 par value
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 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 Registrant's Common Stock held by
non-affiliates of the Registrant at May 26, 2002 was approximately $510 million.
The number of shares of Common Stock outstanding at May 26, 2002 was 44,291,135.
DOCUMENTS INCORPORATED BY REFERENCE
The Exhibit Index is located on page 59.
Page 1 of 64 pages.
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
PART I
ITEM 1 BUSINESS
OVERVIEW
Alpha Industries, Inc., a Delaware corporation, manufactures and markets
proprietary radio frequency and microwave integrated circuit products and
solutions primarily for wireless communications. Our products include modules,
integrated circuits and discrete components, as well as components based on
electrical ceramic and ferrite technology. The primary applications for our
products are wireless handsets and wireless base station equipment, together
with wireless local area network, wide area network and local loop applications.
PRODUCTS AND APPLICATIONS
We offer a broad array of products, including gallium arsenide semiconductor
integrated circuit switches, controls and power amplifiers, silicon discrete
semiconductors, ceramic-based components and multi-chip modules. A typical
wireless handset contains radio frequency and baseband components. We are
focused on providing radio frequency components that convert, switch, process
and amplify the high frequency signals that carry the information to be
transmitted or received. See Note 10 of Item 7 of this Form 10-K for tabular
disclosure of selected financial data by business segment.
POWER AMPLIFIERS. Wireless communications systems require amplification to
transmit and receive signals. The power amplifier gives the radio signal the
energy to travel farther. The power efficiency of gallium arsenide semiconductor
based power amplifiers offer superior performance to silicon solutions. We have
been an innovator of gallium arsenide semiconductor based power amplifier
products. We were the first merchant semiconductor company to offer a
three-volt, high-efficiency power amplifier integrated circuit based on
pseudomorphic high electron mobility transistor process, or PHEMT, for the GSM
wireless standard operating at three different frequencies. We were also the
first merchant semiconductor company to deliver a three-volt metal semiconductor
field effect transistor, or MESFET, gallium arsenide semiconductor based power
amplifier integrated circuit. Our power amplifier business is supported by our
experience with gallium arsenide heterojunction bipolar transistor, or HBT,
gallium arsenide PHEMT and gallium arsenide MESFET semiconductor processes.
INTEGRATED CIRCUIT SWITCHES AND CONTROLS. Switching and control functions route
and adjust signal levels between the receiver and transmitter and other
processing devices. The number of switching functions increases with the design
complexity of the handset. Our gallium arsenide integrated circuit switches are
used in handsets to provide lower signal loss and better signal isolation than
comparable products. Our high-efficiency gallium arsenide switch integrated
circuits integrate logic elements, making the circuits easier for our customers
to use.
DISCRETE SEMICONDUCTORS. Discrete semiconductors, especially diodes, are used
for signal tuning and switching functions in the handset. We draw on our
microwave frequency and millimeter wave frequency experience to produce diodes
with enhanced circuit performance. We manufacture these products in high volumes
for several handset manufacturers.
MULTI-CHIP MODULES. Multi-chip modules combine semiconductor devices, such as
integrated circuits and discrete semiconductors, in a single module-based
platform. The result is an easy-to-manufacture solution that enables wireless
manufacturers to reduce design complexity and dramatically shorten their product
development cycle.
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ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
CERAMIC PRODUCTS. Our ceramic products play a critical role in processing
communications signals. Ceramic materials allow improved power efficiency and
miniaturization in wireless communications infrastructure.
MARKETING AND DISTRIBUTION
We sell our products through independent manufacturers' representatives and
distribution partners and through a direct sales staff. We also distribute our
products through a global organization that is franchised throughout portions of
the world, and through two organizations that focus primarily on the North
American market. We maintain an internal marketing organization that is
responsible for developing sales and advertising literature, such as product
announcements, catalogs, brochures and magazine articles in trade and other
publications.
We believe that the technical and complex nature of our products and markets
demands an extraordinary commitment to close ongoing relationships with our
customers. We strive to maintain close contact with our customers' design,
engineering, manufacturing, purchasing and project management personnel. We
employ a team approach in developing close relationships by combining the
support of design and applications engineers, manufacturing personnel, sales and
marketing staff and senior management. We believe that maintaining close contact
with our customers improves their level of satisfaction, assists us in
anticipating their future product needs and enhances our opportunities for
design wins.
RESEARCH AND DEVELOPMENT
Our products and markets are subject to continued technological advances.
Recognizing this, we maintain a high level of research and development
activities to remain competitive in certain areas and to be an industry leader
in other areas. We maintain close collaborative relationships with many of our
customers to help identify market demands and target our development efforts to
meet those demands. We are focusing our development efforts on new products,
design tools and manufacturing processes in our semiconductor products segment
using our core technologies.
Our R&D expenditures for fiscal 2002, 2001 and 2000 were $41.6 million, $36.0
million and $25.3 million, respectively.
RAW MATERIALS
Raw materials for our products and manufacturing processes are generally
available from several sources. It is our policy not to depend on a sole source
of supply. However, there are limited situations where we procure certain
components and services for our products from single or limited sources. We
purchase these materials and services on a purchase order basis. We do not carry
significant inventories and have long-term supply contracts with only a limited
number of our vendors.
WORKING CAPITAL
Our business is not seasonal, and there are no special practices with respect to
working capital for us or the industry in general. We provide a limited warranty
on our products against defects in material and workmanship. Payment terms are
generally 30 days in the domestic market and 60 days in foreign markets.
CUSTOMERS
During fiscal year 2002, one customer accounted for 31% of the Company's total
net sales. During fiscal year 2001, two customers accounted for 26% and 11%,
respectively of the Company's total sales. In fiscal 2000, one customer
accounted for 34% of the Company's total net sales. In fiscal 2002, net sales to
the Company's 15 largest customers accounted for 67% of total net sales. In
fiscal 2001 and fiscal 2000, net
3
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
sales to the Company's 15 largest customers accounted for 69% and 65%,
respectively, of total net sales. As of March 31, 2002 and April 1, 2001, one
customer accounted for approximately 25% and 16%, respectively, of the Company's
gross accounts receivable.
COMPETITIVE CONDITIONS
We compete on the basis of price, performance, quality, reliability, size,
ability to meet delivery requirements and customer service and support. However,
we experience intense competition worldwide from a number of multinational
companies that offer a variety of competitive products and broader product
lines, and which have substantially greater financial resources and production,
marketing, manufacturing, engineering and other capabilities than we do. We also
face competition from a number of smaller companies. In addition, our customers,
particularly our largest customers, may have or could acquire the capability to
develop or manufacture products competitive with those that have been or may be
developed or manufactured by us. See Note 10 of Item 7 of this Form 10-K for
tabular disclosure of selected financial data by business segment.
PATENTS AND TRADEMARKS
We own certain patents and have other patent applications under preparation or
pending. However, we believe that our technological position depends primarily
on our ability to develop new innovative products through the technical
competence of our engineering personnel.
BACKLOG
Our policy is to book only the next three months of commercial orders consistent
with customer short-term requirements. Many commercial orders cover
substantially more than three months of performance, but such orders can be
easily modified or canceled by the customer and we believe it is a better
practice to limit bookings in this manner. On this basis, we believe all orders
in our backlog to be firm. However, current market conditions make predictions
about future operations particularly difficult. While we believe all orders in
our backlog to be firm, our operating results have been materially and adversely
affected in the past by deferral and cancellation of orders as a result of
changes in customer requirements.
We have backlog of undelivered orders on March 31, 2002 of approximately $20.6
million compared with $38.7 million on April 1, 2001.
ENVIRONMENTAL REGULATIONS
In our opinion, compliance with federal, state, and local environmental
protection regulations does not and will not have a material effect on our
capital expenditures, earnings and competitive position.
EMPLOYEES
As of March 31, 2002, we employed approximately 935 persons, compared with 1,120
persons as of April 1, 2001.
ITEM 2 PROPERTIES
The following information describes the major facilities we own and lease as of
May 31, 2002. We believe we have adequate production capacity to meet our
current business needs.
a) We own a 158,000 square foot building in Woburn, Massachusetts. This facility
houses our primary gallium arsenide semiconductor integrated circuit fabrication
facility and our corporate headquarters.
4
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
b) We own a 125,000 square foot facility in Haverhill, Massachusetts. This
facility was purchased in September 2000 and provides additional manufacturing
and office space. Operations at this site include design engineering as well as
gallium arsenide semiconductor integrated circuit, silicon semiconductor and
multi-chip module assembly and testing.
c) We lease a 27,000 square foot building in Sunnyvale, California. This
facility was acquired in April 2000 and houses our second gallium arsenide
semiconductor integrated circuit fabrication facility. This facility is leased
through October 1, 2007.
d) We own a 92,000 square foot facility in Adamstown, Maryland. This facility is
occupied by a subsidiary, and is our primary electrical ceramic product
manufacturing facility.
e) We lease a 33,000 square foot facility in Frederick, Maryland. This building
is used to manufacture ceramic components, in including filters. This facility
is leased through January 31, 2003.
We also maintain design centers Fremont, California and near Chicago, Illinois
and regional sales support offices in England and Hong Kong.
ITEM 3 LEGAL PROCEEDINGS
From time to time various lawsuits, claims and proceedings have been, and may in
the future be, instituted or asserted against Alpha, including those pertaining
to patent infringement, intellectual property, environmental, product liability,
safety and health, employment and contractual matters. The outcome of litigation
cannot be predicted with certainty and some lawsuits, claims or proceedings may
be disposed of unfavorably to Alpha. Intellectual property disputes often have a
risk of injunctive relief which, if imposed against Alpha, could materially and
adversely affect the financial condition or results of operations of Alpha.
The Company and its subsidiary, Skyworks Solutions, Inc., are presently engaged
in a lawsuit filed June 6, 2002 in the United States District Court for the
Central District of California, Southern Division, by Skyworks Technologies,
Inc., alleging trademark infringement and related claims, and seeking that
Skyworks Solutions, Inc. and the Company cease use of the "Skyworks" name, and
related relief and damages. The Company and its subsidiary, Skyworks Solutions,
Inc. expect to file an answer to the plaintiff's complaint. We believe that this
claim is without merit and intend to vigorously defend this action.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fiscal
quarter ended March 31, 2002.
5
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
In April 2000, we issued an aggregate 2.67 million shares of common stock to all
shareholders of NDI in exchange for all outstanding shares of NDI, pursuant to
an exemption from registration under Section 3 (a) (10) of the Securities Act of
1933, as amended.
Our common stock is traded on the NASDAQ National Market under the symbol AHAA.
The number of stockholders of record as of May 31, 2002 was approximately 930.
We have not paid cash dividends on our common stock since fiscal 1986, and we do
not anticipate paying cash dividends in the foreseeable future. Our current
practice is to retain all of our earnings to finance future growth.
The following table sets forth high and low market prices for our common stock
for the periods indicated.
HIGH LOW
- ------------------------------------------------------------
FISCAL YEAR ENDED MARCH 31, 2002:
First quarter....................... $29.70 $13.56
Second quarter...................... 40.36 18.72
Third quarter....................... 30.05 16.55
Fourth quarter...................... 22.92 15.25
FISCAL YEAR ENDED APRIL 1, 2001:
First quarter....................... $63.88 $35.00
Second quarter...................... 50.44 32.00
Third quarter....................... 54.00 24.75
Fourth quarter...................... 35.94 13.94
- ------------------------------------------------------------
6
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
The following table sets forth information as of March 31, 2002 with respect to
our compensation plans under which equity securities of Alpha Industries, Inc.
are authorized for issuance:
EQUITY COMPENSATION PLAN INFORMATION
- ----------------------------------------------------------------------------------------------
PLAN CATEGORY NUMBER OF WEIGHTED AVERAGE NUMBER OF
SECURITIES TO EXERCISE PRICE OF SECURITIES
BE ISSUED UPON OUTSTANDING REMAINING
EXERCISE OF OPTIONS, WARRANTS AVAILABLE FOR
OUTSTANDING AND RIGHTS FUTURE ISSUANCE
OPTIONS,
WARRANTS AND
RIGHTS
- ----------------------------------------------------------------------------------------------
EQUITY COMPENSATION PLANS APPROVED
BY SECURITY HOLDERS:
- ----------------------------------------------------------------------------------------------
The 1986 Long-term Incentive Plan 111,554 $2.87 --
- ----------------------------------------------------------------------------------------------
The 1996 Long-term Incentive Plan 1,709,617 $13.54 583,072
- ----------------------------------------------------------------------------------------------
The 1994 Non-Qualified Stock Option 90,000 $26.43 9,000
Plan
- ----------------------------------------------------------------------------------------------
The 1997 Non-Qualified Stock Option 174,000 $12.90 --
Plan
- ----------------------------------------------------------------------------------------------
The Directors' 2001 Stock Option 105,000 $25.82 145,000
Plan
- ----------------------------------------------------------------------------------------------
The Employee Stock Purchase Plan -- -- 174,303
- ----------------------------------------------------------------------------------------------
EQUITY COMPENSATION PLANS NOT
APPROVED BY SECURITY HOLDERS:
- ----------------------------------------------------------------------------------------------
The 1999 Long-term Incentive Plan 4,412,988 $24.71 2,962,932
- ----------------------------------------------------------------------------------------------
Total 6,603,159 $21.18 3,700,004
- ----------------------------------------------------------------------------------------------
The purposes of the Alpha Industries, Inc. 1999 Employee Long-term Incentive
Plan are (i) to provide long-term incentives and rewards to those employees of
Alpha Industries, Inc. (the "Corporation") and its subsidiaries (if any), other
than officers and non-employee Directors of the Corporation, who are in a
position to contribute to the long-term success and growth of the Corporation
and its subsidiaries, (ii) to assist the Corporation in retaining and attracting
employees with requisite experience and ability, and (iii) to associate more
closely the interests of such employees with those of the Corporation's
stockholders. See Note 6 of Item 7 of this Form 10-K for a description of the
material features of this plan.
7
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
ITEM 6 SELECTED FINANCIAL DATA
You should read the data set forth below in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes
appearing elsewhere in this Annual Report on Form 10-K. The selected
consolidated financial data set forth below as of March 31, 2002 and April 1,
2001 and for the fiscal years ended March 31, 2002, April 1, 2001 and April 2,
2000 has been derived from our audited consolidated financial statements and are
included elsewhere in this Annual Report on Form 10-K. The selected consolidated
financial data set forth below as of April 2, 2000, March 28, 1999 and March 29,
1998 and for the years ended March 28, 1999 and March 29, 1998 has been derived
from our consolidated financial statements that are not included in this Annual
Report on Form 10-K.
On April 24, 2000, we completed our acquisition of privately-held NDI. The
acquisition has been accounted for as a pooling-of-interests and accordingly,
all prior period consolidated financial data set forth below has been restated
to include the combined results of operations, financial position and cash flows
of NDI.
FISCAL YEAR
2002 2001 2000 1999 1998
==========================================================================================================
(In thousands, except per share amounts
and financial ratios)
RESULTS OF OPERATIONS
Sales........................................ $ 126,502 $ 271,568 $186,402 $126,413 $116,881
Net (loss) income............................ (18,286) 33,373 17,982 19,263 10,161
Per share data:
Net (loss) income basic.................... $ (0.42) $ 0.78 $ 0.44 $ 0.56 $ 0.31
Net (loss) income diluted.................. $ (0.42) $ 0.75 $ 0.42 $ 0.54 $ 0.30
Weighted average common shares basic....... 44,010 43,029 40,659 34,314 33,268
Weighted average common shares diluted..... 44,010 44,752 42,822 35,406 34,088
FINANCIAL RATIOS:
Return (based on net (loss) income):
On sales................................... -14.5% 12.3% 9.6% 15.2% 8.7%
On average assets.......................... -5.6% 10.8% 9.0% 18.1% 12.4%
On average equity.......................... -6.2% 12.3% 10.7% 23.3% 16.7%
Current ratio................................ 7.32 6.94 6.15 3.45 3.24
Long-term debt to equity..................... 0.04% 0.1% 0.1% 0.8% 2.3%
FINANCIAL POSITION
Working capital.............................. $ 136,323 $ 188,288 $170,357 $ 51,154 $ 38,620
Additions to property, plant and equipment... 40,994 54,748 39,660 20,793 13,037
Total assets................................. 316,119 337,019 281,024 120,683 92,524
Long-term debt, less current installments.... 106 235 345 713 1,625
Stockholders' equity......................... 292,162 299,178 242,093 94,252 71,287
OTHER STATISTICS
New orders (net of cancellations)............ 108,300 254,600 203,500 126,500 121,100
Backlog at year end.......................... $ 20,600 $ 38,700 $ 55,700 $ 36,900 $ 36,800
- ----------------------------------------------------------------------------------------------------------
8
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
We design, develop, manufacture and market proprietary radio frequency,
microwave frequency and millimeter wave frequency integrated circuits, discrete
semiconductors and integrated modules for the wireless and broadband
communications markets. We also design, develop, manufacture and market
proprietary technical ceramic and magnetic products for the wireless
infrastructure and broadband markets. A description of the reportable segments
follows:
The Semiconductor Products segment designs and manufactures gallium arsenide
integrated circuits, other discrete semiconductors and multi-chip modules
primarily for the global wireless communications and broadband markets. This
segment represented 81% of our total sales in fiscal 2002.
The Ceramic Products segment designs and manufactures technical ceramic and
magnetic products primarily for the global wireless infrastructure and broadband
markets. This segment represented 19% of our total sales in fiscal 2002.
Our customers include leading OEMs in the wireless and broadband communications
industry and their principal suppliers. During fiscal 2002, sales to our 15
largest customers accounted for 67% of our total sales. During that period,
sales to Motorola accounted for 31% of total sales.
On April 24, 2000, we completed our acquisition of privately-held Network
Device, Inc. (NDI) of Sunnyvale, California. Approximately 2.67 million shares
of common stock of the Company were exchanged for all outstanding shares of NDI.
Approximately 185,000 shares of Company stock were reserved for the conversion
of NDI stock options into Company options. The acquisition has been accounted
for as a pooling-of-interests and accordingly, all prior period consolidated
financial statements and related notes to the consolidated financial statements
have been restated to include the combined results of operations, financial
position and cash flows of NDI.
On December 16, 2001, the Company, Conexant Systems, Inc. (Conexant) and
Washington Sub, Inc. (Washington), a wholly owned subsidiary of Conexant,
entered into a definitive agreement providing for the combination of Conexant's
wireless business with the Company. Under the terms of the agreement, Conexant
would spin off its wireless business, including its gallium arsenide wafer
fabrication facility located in Newbury Park, California, but excluding certain
assets and liabilities, to be followed immediately by a merger of this wireless
business into the Company with the Company as the surviving company in the
merger. This merger was completed on June 25, 2002. Following the merger, the
Company changed its corporate name to Skyworks Solutions, Inc.
Immediately after the merger, the Company had approximately 140 million fully
diluted shares outstanding, with current shareholders of the Company owning
approximately 33 percent and current shareholders of Conexant owning
approximately 67 percent of the Company's outstanding shares on a fully diluted
basis.
The merger is to be accounted for as a reverse acquisition whereby Washington is
treated as the acquirer and Alpha as the acquiree primarily because Conexant
shareholders owned a majority of the combined company upon completion of the
merger. Under a reverse acquisition, the purchase price of Alpha is based upon
the fair market value of Alpha common stock for a reasonable period of time
before and after the announcement date of the merger and the fair value of Alpha
stock options. The purchase price of Alpha will be allocated to the assets
acquired and liabilities assumed by Washington, as the acquiring company for
accounting purposes, based upon their estimated fair market value at the
acquisition date. The historical carrying value of the assets, liabilities and
stockholders' equity included in these financial statements may be revised
significantly as a result of the merger transaction. Information regarding these
changes is not available at this time.
Immediately following completion of the merger, the Company purchased Conexant's
semiconductor assembly, module manufacturing and test facility located in
Mexicali, Mexico, and certain related operations (the Mexicali operations) for
$150 million. This purchase price was paid with short-term promissory notes
delivered by the Company to Conexant, which are secured by all of the assets of
the Company. Unless paid earlier at the option of the Company or pursuant to
mandatory prepayment provisions in the financing agreement, fifty percent of the
principal portion of the short-term promissory notes is due on March 24, 2003,
and the remaining fifty percent of the notes is due on June 24, 2003.
9
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
In addition, the combined company has incurred expenses and has assumed
obligations as a result of this merger. The Company estimates that these
expenses and obligations will require cash of approximately $80 million to $90
million and the issuance of a warrant to purchase approximately one million
shares of the Company's common stock. These amounts are primarily associated
with transaction and merger costs, deposits, and restructuring costs. The
combined company will recognize a charge related to these expenses and
obligations of approximately $20 to $30 million in the quarter ended June 28,
2002. These amounts represent the current estimates of management based on the
information available at this time and are subject to change.
In addition to the short-term promissory notes related to the Company's purchase
of the Mexicali operations, Conexant committed to make a short-term $100 million
revolving loan facility available to the Company to fund the Company's working
capital and other requirements. $75 million of this facility will be available
on or after July 10, 2002, and the remaining $25 million balance of the
revolving facility will be available if the Company has more than $150 million
of eligible domestic receivables. The entire principal of any revolving amounts
borrowed is due on June 24, 2003.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
General
Management's discussion and analysis of Alpha's financial condition and results
of operations are based upon the Company's consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires Alpha to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to bad debts,
inventories, income taxes, restructuring charges, and contingencies and
litigation. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
Revenue Recognition
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial Statements (SAB 101), as amended by
SAB 101A and 101B. SAB 101 requires that four basic criteria must be met before
revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred or services rendered; (3) the price to the buyer is fixed
and determinable; and (4) collectibility is reasonably assured. Determination of
criteria (3) and (4) are based on management's judgments regarding the fixed
nature of the price to the buyer charged for products delivered and services
rendered and collectibility of the sales price. The Company's shipping terms are
customarily FOB shipping point. Provisions for product returns and allowances
are recorded in the same period as the related revenue. The Company analyzes
historical returns, current economic trends and changes in customer demand and
acceptance of products when evaluating the adequacy of the sales returns and
other allowances.
10
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
Bad Debt
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make future payments, additional allowances
may be required.
Inventories
The Company provides for estimated obsolescence or unmarketable inventory based
upon assumptions about future demand and market conditions. If actual demand and
market conditions are less favorable than those projected by management,
additional inventory write downs may be required.
Valuation of Deferred Income Taxes
The carrying value of the Company's net deferred tax assets assumes that the
Company will be able to generate sufficient future taxable income in certain tax
jurisdictions, based on estimates and assumptions. If these estimates and
related assumptions change in the future, the Company may be required to record
additional valuation allowances against its deferred tax assets resulting in
additional income tax expense in the Company's consolidated statement of
operations. Management evaluates the realizability of the deferred tax assets
and assesses the adequacy of the valuation allowance quarterly. Likewise, in the
event that the Company was to determine that it would be able to realize its
deferred tax assets in the future in excess of its net recorded amount, an
adjustment to the deferred tax assets would increase income in the period such
determination was made.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of:
The Company accounts for impairment of long-lived assets in accordance with SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." This statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to undiscounted future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. This Statement has not had a material impact on the Company's
financial position, results of operations, or liquidity.
11
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
The following table shows our statement of operations data expressed as a
percentage of sales for the periods indicated:
YEARS ENDED
---------------------------------
MARCH 31, APRIL 1, APRIL 2,
2002 2001 2000
--------- -------- --------
Net sales............................... 100.0% 100.0% 100.0%
Cost of sales........................... 70.8 55.8 56.6
------ ------ -----
Gross margin............................ 29.2 44.2 43.4
Research and development expenses....... 32.9 13.3 13.6
Selling and administrative expenses..... 22.2 15.9 18.3
------ ------ -----
Operating (loss) income................. (25.9) 15.0 11.5
Other income, net....................... 4.4 3.2 3.1
------ ------ -----
(Loss) income before income taxes....... (21.6) 18.1 14.6
(Benefit) provision for income taxes.... (7.1) 5.9 5.0
------ ------ -----
Net (loss) income....................... (14.5)% 12.3% 9.6%
====== ====== =====
FISCAL YEARS ENDED MARCH 31, 2002, APRIL 1, 2001 AND APRIL 2, 2000
Net sales. Net sales decreased 53.4% to $126.5 million in fiscal 2002 from
$271.6 million in fiscal 2001. The decline in net sales is attributable to the
downturn in the wireless handset, wireless infrastructure and broadband markets.
This downturn had a significant effect on both of our business segments:
Semiconductor Products and Ceramic Products during fiscal 2002. Net sales
increased 45.7% to $271.6 million in fiscal 2001 from $186.4 million in fiscal
2000. The increase was principally the result of high growth experienced by our
Semiconductor and Ceramic Products segments during the first nine months of
fiscal 2001 as demand for wireless and broadband products increased during this
period. During the fourth quarter of fiscal 2001, a downturn in the wireless and
broadband markets resulted in lower quarterly sales, reducing the overall
increase in net sales during fiscal 2001 when compared to fiscal 2000.
Deliveries to Motorola represented 31.1% of our total net sales in fiscal 2002
compared to 26.0% in fiscal 2001 and 34.1% in fiscal 2000. Deliveries to
Ericsson represented less than 10% of our total net sales in fiscal 2002 and
fiscal 2000. During fiscal 2001, Ericsson represented 11.3% of our total net
sales.
Gross Profit. Gross profit decreased 69.2% to $36.9 million in fiscal 2002 from
$119.9 million in fiscal 2001. Gross margin decreased to 29.2% from 44.2% in
fiscal 2001. This decline is primarily the result of the decrease in net sales
and the resulting underutilization of manufacturing capacity. Gross profit
increased 48.4% to $119.9 million in fiscal 2001 from $80.8 million in fiscal
2000. Gross margin increased to 44.2% in fiscal 2001 from 43.4% in fiscal 2000.
These increases were primarily attributable to our continued ability to leverage
capacity and improve operating efficiencies in both our Semiconductor and
Ceramic Products segments during the first nine months of fiscal 2001, offset by
the effect of high fixed costs on lower sales experienced in the fourth quarter
of fiscal 2001.
Research and Development Expenses. Research and development expenses increased
15.4% to $41.6 million or 32.9% of net sales in fiscal 2002 from $36.0 million
or 13.3% of net sales in fiscal 2001. Included in the $41.6 million is
approximately $2.5 million related to the write-off of in-process research and
development and amortization of intangible assets associated with our March 2002
purchase of Aimta, Inc., a developer of Low Temperature Co-fired Ceramics (LTCC)
for wireless handsets. Excluding this charge, research and development expenses
for fiscal 2002 would have totaled $39.1 million or 30.9% of net sales, an
increase of 8.5% compared to fiscal 2001. The increase in research and
development expenses is the result of our commitment to design new products and
processes and address new opportunities to meet our customers' demands. This
sustained effort to meet our customers' changing product requirements is
highlighted by our focus on the migration from individual chips to integrated
radio frequency module solutions. Research and
12
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
development expenses increased 42.2% to $36.0 million or 13.3% of net sales in
fiscal 2001 from $25.3 million or 13.6% of net sales in fiscal 2000. The
increase in research and development expenses was primarily attributable to our
ongoing development of processes and applications within our Semiconductor
Products segment in order to address our targeted markets: wireless and
broadband.
In-Process Research and Development. The following table summarizes the
significant assumptions underlying the valuation of in-process research and
development for the Aimta, Inc. acquisition:
IPR&D ESTIMATED COST TO DISCOUNT
FISCAL 2002: CHARGE COMPLETE TECHNOLOGY RATE
------------ ------ ------------------- --------
(in thousands)
Aimta, Inc...... $2,500 $100 40%
The amount charged to in-process research and development related to one project
and represents the estimated fair value based upon risk-adjusted cash flows
related to the incomplete project. This project was approximately 80% complete
as of the date of acquisition. As of the date of the acquisition, the
development of this project had not reached technological feasibility and the
research and development in progress had no alternative future use. Accordingly,
this cost was expensed at the acquisition date.
Selling and Administrative Expenses. Selling and administrative expenses
decreased 34.9% to $28.1 million or 22.2% of net sales in fiscal 2002 from $43.3
million or 15.9% of net sales in fiscal 2001. Included in the $28.1 million is
approximately $4.1 million in expenses related to the merger with the wireless
business of Conexant, Inc. Excluding these merger-related expenses, selling and
administrative expenses for fiscal 2002 would have totaled $24.0 million or
19.0% of net sales. The decline in selling and administrative expenses was
primarily attributable to a reduction in workforce, reduced discretionary
spending and a reduction in sales commission expenses. Approximately, 30% of the
decrease was attributable to a reduction in workforce and a reduction in sales
commission expenses, respectively. The remaining 40% decrease was attributable
to an overall reduction in discretionary spending. Selling and administrative
expenses increased 26.8% to $43.3 million or 15.9% of net sales in fiscal 2001
from $34.1 million or 18.3% of net sales in fiscal 2000. Included in the $43.3
million is approximately $1.8 million in one-time transaction costs associated
with the acquisition of NDI on April 24, 2000. Excluding these one-time costs,
selling and administrative expenses for fiscal 2001 would have totaled $41.5
million or 15.3% of net sales, an increase of 21.6% compared to fiscal 2000. The
increase in selling and administrative expenses was primarily attributable to
increased direct selling costs resulting from higher sales volumes, as well as
increased costs related to training and recruiting employees. Due to our
continued ability to support our sales growth without incurring substantial
additional costs, selling and administrative expenses as a percentage of sales
declined in fiscal 2001 when compared to fiscal 2000.
Other Income, Net. Other income, net, decreased 35.8% to $5.5 million or 4.4% of
net sales in fiscal 2002 from $8.6 million or 3.2% of net sales in fiscal 2001.
The decrease was primarily attributable to a decline in interest income as a
result of lower interest rates and lower average levels of cash, cash
equivalents and short-term investments. Other income, net, increased 47.1% to
$8.6 million or 3.2% of net sales in fiscal 2001 from $5.9 million or 3.1% of
sales in fiscal 2000. The increase in other income, net, was primarily
attributable to an increase in interest income as a result of higher average
levels of cash, cash equivalents and short-term investments.
(Benefit) Provision for Income Taxes. The benefit for income taxes in fiscal
2002 was $9.0 million compared to a provision for income taxes of $15.9 million
in fiscal 2001. The fiscal 2002 benefit reflects a tax rate of approximately 33%
compared to a tax rate of 32% in fiscal 2001. The increase in the fiscal 2002
tax rate is primarily due to a decrease in the utilization of research and
development tax credits during fiscal 2002. The provision for income taxes in
fiscal 2001 was $15.9 million compared to $9.3 million in fiscal 2000. The
fiscal 2001 provision reflects a tax rate of approximately 32% compared to a tax
rate of 34% in fiscal 2000.
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ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
The decrease in the fiscal 2001 tax rate is primarily the result of research and
development tax credits utilized in fiscal 2001.
BUSINESS SEGMENTS
The table below displays sales and operating income by business segment for
fiscal 2002, 2001 and 2000. See Note 10 to the consolidated financial
statements. Merger-related expenses, which are not related to a specific
business segment, are illustrated separately below.
YEARS ENDED
MARCH 31, APRIL 1, APRIL 2,
2002 2001 2000
--------- ------------ --------
(in thousands)
NET SALES
- ---------
Semiconductor Products...... $ 102,233 $224,560 $150,348
Ceramic Products............ 24,269 47,008 36,054
--------- -------- --------
$ 126,502 $271,568 $186,402
========= ======== ========
OPERATING (LOSS) INCOME
- -----------------------
Semiconductor Products...... $ (28,122) $ 35,282 $ 16,761
Ceramic Products............ (556) 7,164 4,632
Merger-related expenses..... (4,146) (1,786) --
--------- -------- --------
$ (32,824) $ 40,660 $ 21,393
========= ======== ========
Semiconductor Products. Net sales for the Semiconductor Products segment
decreased 54.5% to $102.2 million in fiscal 2002 from $224.6 million in fiscal
2001. The decrease was primarily attributable to a downturn in both of our
targeted markets, wireless communications and broadband. Net sales for the
Semiconductor Products segment increased 49.4% to $224.6 million in fiscal 2001
from $150.3 million in fiscal 2000. The increase was primarily attributable to
increased demand and penetration into our two targeted markets, wireless
communications and broadband during the first nine months of fiscal 2001. During
the fourth quarter of fiscal 2001, a downturn in the wireless and broadband
markets resulted in lower quarterly sales, reducing the overall increase in
sales during fiscal 2001.
Operating (loss) income for the Semiconductor Products segment decreased to an
operating loss of $28.1 million in fiscal 2002 compared to operating income of
$35.3 million in fiscal 2001. The decline was primarily the result of lower
revenue, underutilization of capacity and the continued investment in research
and development during fiscal 2002. Operating income for the Semiconductor
Products segment increased 99.8% to $35.3 million in fiscal 2001 from $16.8
million in fiscal 2000. The increase was primarily attributable to increased
sales and improved operating efficiencies as this segment continued to leverage
capacity, improve yields and control selling and administrative costs.
Ceramic Products. Net sales for the Ceramic Products segment decreased 48.4% to
$24.3 million in fiscal 2002 from $47.0 million in fiscal 2001. The decline was
primarily attributable to a downturn in the wireless infrastructure and
broadband markets. Sales for the Ceramic Products segment increased 30.4% to
$47.0 million in fiscal 2001 from $36.1 million in fiscal 2000. The increase was
primarily due to growth in demand and increased penetration in the wireless
infrastructure and broadband markets for the first nine months of fiscal 2001.
During the fourth quarter of fiscal 2001, a downturn in the wireless and
broadband markets resulted in lower quarterly sales, reducing the overall
increase in sales during fiscal 2001.
Operating (loss) income for the Ceramic Products segment decreased to an
operating loss of $556,000 in fiscal 2002 compared to operating income of $7.2
million in fiscal 2001. The decline was primarily the result of lower revenue
levels in fiscal 2002 when compared to fiscal 2001. Operating income for the
Ceramic Products segment increased 54.7% to $7.2 million in fiscal 2001 from
$4.6 million in fiscal 2000.
14
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
The increase in operating income was primarily the result of increased sales and
improved operating efficiencies, including the leveraging of existing capacity
and the investment in more cost-effective equipment.
Merger-Related Expenses
During fiscal 2002, we incurred approximately $4.1 million, of which $2.1
million was incurred during the quarter ended March 31, 2002, in merger-related
expenses associated with our merger with Conexant's wireless business. During
fiscal 2001, we incurred approximately $1.8 million in expenses associated with
our acquisition of NDI, which was completed on April 24, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2002, we had working capital of $136.3 million, including $114.1
million in cash, cash equivalents and short-term investments. Annualized
inventory turns decreased to 7.3 in fiscal 2002 compared to 9.7 in fiscal 2001.
Additionally, days sales outstanding included in accounts receivable for fiscal
2002 increased to 71 days compared to 50 days in fiscal 2002. We continued to
manage our working capital during the downturn in the wireless communications
and broadband markets. We reduced inventory levels and managed our investment in
capital expenditures, while maintaining our commitment to investment in research
and development and maintaining our manufacturing capability.
Capital expenditures during fiscal 2002 totaled $41.0 million. Of the $41.0
million, approximately $38.5 million related to the Semiconductor Products
segment as we continued our investment in major capital initiatives in the
semiconductor gallium arsenide (GaAs) wafer fabrication operation and the
integrated circuit (IC) and discrete semiconductor assembly and test areas. We
are creating a GaAs IC production line that will allow the manufacture of
product on six-inch wafers. As of March 31, 2002, we have spent approximately
$27 million on this production line and we expect to complete this project
within six months at an estimated cost of $30 million. Once this new six-inch
production line is put into service, we plan to convert our existing four-inch
wafer production areas to six-inch, as future demand requires. Improvements in
manufacturing capabilities at our ceramics facilities accounted for
approximately $2.5 million.
Following is a summary of consolidated debt and lease obligation at March 31,
2002 (see Notes 4 and 8 of the consolidated financial statements), in thousands:
OBLIGATION TOTAL 1-3 YEARS 4-5 YEARS THEREAFTER
- ---------- ----- --------- --------- ----------
Debt $ 235 $ 235 $ -- $ --
Operating leases 5,419 3,406 1,528 485
------ ------ ------ ----
Total debt and operating lease obligations $5,654 $3,641 $1,528 $485
====== ====== ====== ====
On April 24, 2000, we announced the completion of our acquisition of
privately-held Network Device, Inc. based in Sunnyvale, California.
Approximately 2.67 million shares of common stock of the Company were exchanged
for all outstanding shares of NDI. Approximately 185,000 shares of Company stock
were reserved for the conversion of NDI stock options into Company options. The
acquisition has been accounted for as a pooling-of-interests.
On December 16, 2001, the Company, Conexant Systems, Inc. (Conexant) and
Washington Sub, Inc. (Washington), a wholly owned subsidiary of Conexant,
entered into a definitive agreement providing for the combination of Conexant's
wireless business with the Company. Under the terms of the agreement, Conexant
would spin off its wireless business, including its gallium arsenide wafer
fabrication facility located in Newbury Park, California, but excluding certain
assets and liabilities, to be followed immediately by a merger of this wireless
business into the Company with the Company as the surviving company in the
merger. This merger was completed on June 25, 2002. Following the merger, the
Company changed its corporate name to Skyworks Solutions, Inc.
Immediately after the merger, the Company had approximately 140 million fully
diluted shares outstanding, with current shareholders of the Company owning
approximately 33
15
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
percent and current shareholders of Conexant owning approximately 67 percent of
the Company's outstanding shares on a fully diluted basis.
The merger is to be accounted for as a reverse acquisition whereby Washington is
treated as the acquirer and Alpha as the acquiree primarily because Conexant
shareholders owned a majority of the combined company upon completion of the
merger. Under a reverse acquisition, the purchase price of Alpha is based upon
the fair market value of Alpha common stock for a reasonable period of time
before and after the announcement date of the merger and the fair value of Alpha
stock options. The purchase price of Alpha will be allocated to the assets
acquired and liabilities assumed by Washington, as the acquiring company for
accounting purposes, based upon their estimated fair market value at the
acquisition date. The historical carrying value of the assets, liabilities and
stockholders' equity included in these financial statements may be revised
significantly as a result of the merger transaction. Information regarding these
changes is not available at this time.
Immediately following completion of the merger, the Company purchased Conexant's
semiconductor assembly, module manufacturing and test facility located in
Mexicali, Mexico, and certain related operations (the Mexicali operations) for
$150 million. This purchase price was paid with short-term promissory notes
delivered by the Company to Conexant, which are secured by all of the assets of
the Company. Unless paid earlier at the option of the Company or pursuant to
mandatory prepayment provisions in the financing agreement, fifty percent of the
principal portion of the short-term promissory notes is due on March 24, 2003,
and the remaining fifty percent of the notes is due on June 24, 2003.
In addition, the combined company has incurred expenses and has assumed
obligations as a result of this merger. The Company estimates that these
expenses and obligations will require cash of approximately $80 million to $90
million and the issuance of a warrant to purchase approximately one million
shares of the Company's common stock. These amounts are primarily associated
with transaction and merger costs, deposits, and restructuring costs. The
combined company will recognize a charge related to these expenses and
obligations of approximately $20 to $30 million in the quarter ended June 28,
2002. These amounts represent the current estimates of management based on the
information available at this time and are subject to change.
In addition to the short-term promissory notes related to the Company's purchase
of the Mexicali operations, Conexant committed to make a short-term $100 million
revolving loan facility available to the Company to fund the Company's working
capital and other requirements. $75 million of this facility will be available
on or after July 10, 2002, and the remaining $25 million balance of the
revolving facility will be available if the Company has more than $150 million
of eligible domestic receivables. The entire principal of any revolving amounts
borrowed is due on June 24, 2003.
OTHER MATTERS
Inflation did not have a significant impact upon our results of operations
during the three-year period ended March 31, 2002.
In July 2001, the Financial Accounting Standards Board (FASB) issued Statements
No. 141, "Business Combinations" (SFAS 141), and No. 142, "Goodwill and Other
Intangibles" (SFAS 142). SFAS 141 requires the use of the purchase method of
accounting and prohibits the use of the pooling-of-interest method of accounting
for business combinations. SFAS 141 also requires that the Company recognize
acquired intangible assets apart from goodwill if the acquired intangible assets
meet certain criteria. SFAS 141 applies to all business combinations initiated
after June 30, 2001 and for purchase business combinations completed on or after
July 1, 2001. The Company has adopted the provisions of SFAS 141.
Statement of Financial Accounting Standards No. 144,"Accounting for the
Impairment or Disposal of Long-Lived Assets"("SFAS 144"), issued in October
2001, addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. SFAS 144, which applied to all entities, is
effective for fiscal
16
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
years beginning after December 15, 2001. The Company does not expect the
implementation of SFAS 144 to have a material impact on its financial condition
or results of operations.
FORWARD-LOOKING STATEMENTS
This report and other documents we have filed with the Securities and Exchange
Commission contain forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Some of the
forward-looking statements can be identified by the use of forward-looking terms
such as "believes", "expects", "may", "will", "should", "could", "seek",
"intends", "plans", "estimates", "anticipates" or other comparable terms.
Forward-looking statements involve inherent risks and uncertainties. A number of
important factors could cause actual results to differ materially from those in
the forward-looking statements. We urge you to consider the risks and
uncertainties discussed below and elsewhere in this report and in the other
documents filed with the SEC in evaluating our forward-looking statements. We
have no plans to update our forward-looking statements to reflect events or
circumstances after the date of this report.
WE HAVE RECENTLY INCURRED SUBSTANTIAL OPERATING LOSSES AND ANTICIPATE FUTURE
LOSSES. During fiscal 2002, our operating results were adversely affected by a
global economic slowdown and an abrupt decline in demand for many of the
end-user products that incorporate wireless communications semiconductor
products and system solutions. As a result, we incurred a net loss of
approximately $18.3 million during fiscal 2002.
During fiscal 2002, we implemented a number of expense reduction initiatives,
including a work force reduction, a modification of employee work schedules and
reduced discretionary spending. We expect that reduced end-customer demand,
underutilization of our manufacturing capacity, changes in our revenue mix and
other factors will continue to adversely affect our operating results in the
near term. In order to return to profitability, we must achieve substantial
revenue growth and we will face an environment of uncertain demand in the
markets for our products. We cannot assure you as to whether or when we will
return to profitability or whether we will be able to sustain such
profitability, if achieved.
WE OPERATE IN THE HIGHLY CYCLICAL WIRELESS COMMUNICATIONS SEMICONDUCTOR
INDUSTRY, WHICH IS SUBJECT TO SIGNIFICANT DOWNTURNS. The wireless communications
semiconductor industry is highly cyclical and is characterized by constant and
rapid technological change, rapid product obsolescence and price erosion,
evolving technical standards, short product life cycles and wide fluctuations in
product supply and demand. From time to time these and other factors, together
with changes in general economic conditions, cause significant upturns and
downturns in the industry. Periods of industry downturns -- as we experienced
through most of calendar year 2001 -- have been characterized by diminished
product demand, production overcapacity, high inventory levels and accelerated
erosion of average selling prices. These factors, and in particular the level of
demand for digital cellular handsets, may cause substantial fluctuations in our
revenues and results of operations. We have experienced these cyclical
fluctuations in our business and may experience cyclical fluctuations in the
future.
During the late 1990's and extending into 2000, the wireless communications
semiconductor industry enjoyed unprecedented growth, benefiting from the rapid
expansion of wireless communication services worldwide and increased demand for
digital cellular handsets. During calendar year 2001, we were adversely impacted
by a global economic slowdown and an abrupt decline in demand for many of the
end-user products that incorporate our respective wireless communications
semiconductor products and system solutions, particularly digital cellular
handsets. The impact of weakened end-customer demand was compounded by higher
than normal levels of inventories among our original equipment manufacturer, or
OEM, subcontractor and distributor customers. We expect that reduced
end-customer demand, underutilization of the our manufacturing capacity, changes
in revenue mix and other factors will continue to adversely affect our operating
results in the near term.
17
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
WE ARE SUBJECT TO INTENSE COMPETITION. The wireless communications semiconductor
industry in general and the markets in which we compete in particular are
intensely competitive. We compete with U.S. and international semiconductor
manufacturers that are both larger and smaller than us in terms of resources and
market share. We currently face significant competition in our markets and
expect that intense price and product competition will continue. This
competition has resulted and is expected to continue to result in declining
average selling prices for our products. We also anticipate that additional
competitors will enter our markets as a result of growth opportunities in
communications electronics, the trend toward global expansion by foreign and
domestic competitors and technological and public policy changes. Moreover, as
with many companies in the semiconductor industry, customers for certain of our
products offer products that compete with products that are offered by us.
We believe that the principal competitive factors for semiconductor suppliers in
our market include, among others:
- time-to-market;
- new product innovation;
- product quality, reliability and performance;
- price;
- compliance with industry standards;
- strategic relationships with customers; and
- protection of intellectual property.
We cannot assure you that we will be able to successfully address these factors.
Many of our competitors have advantages over us, including:
- longer presence in key markets;
- greater name recognition;
- ownership or control of key technology; and
- greater financial, sales and marketing, manufacturing, distribution,
technical or other resources.
As a result, certain competitors may be able to adapt more quickly than us to
new or emerging technologies and changes in customer requirements or may be able
to devote greater resources to the development, promotion and sale of their
products than we can.
Current and potential competitors also have established or may establish
financial or strategic relationships among themselves or with our customers,
resellers or other third parties. These relationships may affect customers'
purchasing decisions. Accordingly, it is possible that new competitors or
alliances among competitors could emerge and rapidly acquire significant market
share. We cannot assure you that we will be able to compete successfully against
current and potential competitors.
A number of our competitors have combined with each other and consolidated their
businesses, including the consolidation of competitors with our customers. This
consolidation is attributable to a number of factors, including the historically
high-growth nature of the communications electronics industry and the
time-to-market pressures on suppliers to decrease the time required for product
conception, research and development, sampling and production launch before a
product reaches the market. This consolidation trend is expected to continue,
since investments, alliances and acquisitions may enable semiconductor
suppliers, including us and our competitors, to achieve economies of scale, to
augment technical capabilities or to achieve faster time-to-market for their
products than would be possible solely through internal development.
This consolidation is creating entities with increased market share, customer
base, technology and marketing expertise in markets in which we compete. These
developments may adversely affect the markets we seek to serve and our ability
to compete successfully in those markets.
18
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
OUR SUCCESS WILL DEPEND UPON OUR ABILITY TO DEVELOP NEW PRODUCTS AND REDUCE
COSTS IN A TIMELY MANNER. The markets into which we sell demand cutting-edge
technologies and new and innovative products. Our operating results will depend
largely on our ability to continue to introduce new and enhanced products on a
timely basis. Successful product development and introduction depends on
numerous factors, including, among others:
- the ability to anticipate customer and market requirements and changes
in technology and industry standards;
- the ability to define new products that meet customer and market
requirements;
- the ability to complete development of new products and bring products
to market on a timely basis;
- the ability to differentiate our products from offerings of our
competitors; and
- overall market acceptance of our products.
We cannot assure you that we will have sufficient resources to make the
substantial investment in research and development in order to develop and bring
to market new and enhanced products in a timely manner. We will be required
continually to evaluate expenditures for planned product development and to
choose among alternative technologies based on our expectations of future market
growth. We cannot assure you that we will be able to develop and introduce new
or enhanced wireless communications semiconductor products in a timely and
cost-effective manner, that our products will satisfy customer requirements or
achieve market acceptance or that we will be able to anticipate new industry
standards and technological changes. We also cannot assure you that we will be
able to respond successfully to new product announcements and introductions by
competitors.
In addition, prices of established products may decline, sometimes
significantly, over time. We believe that in order to remain competitive we must
continue to reduce the cost of producing and delivering existing products at the
same time that we develop and introduce new or enhanced products. We cannot
assure you that we will be able to continue to reduce the cost of our products
to remain competitive.
WE MAY NOT BE ABLE TO KEEP ABREAST OF THE RAPID TECHNOLOGICAL CHANGES IN OUR
MARKETS. The demand for our products can change quickly and in ways we may not
anticipate. Our markets generally exhibit the following characteristics:
- rapid technological developments;
- rapid changes in customer requirements;
- frequent new product introductions and enhancements;
- short product life cycles with declining prices over the life cycle of
the product; and
- evolving industry standards.
Our products could become obsolete or less competitive sooner than anticipated
because of a faster than anticipated change in one or more of the technologies
related to our products or in market demand for products based on a particular
technology, particularly due to the introduction of new technology that
represents a substantial advance over current technology. Currently accepted
industry standards are also subject to change, which may contribute to the
obsolescence of our products.
OUR SUCCESS DEPENDS, IN PART, ON OUR ABILITY TO OBTAIN SUITABLE FINANCING
Upon completion of the Company's merger with the wireless business of Conexant
Systems, Inc., the Company purchased Conexant's semiconductor assembly, module
manufacturing and test facility, located in Mexicali, Mexico, and certain
related operations for $150 million. This purchase price was paid with
short-term promissory notes delivered by the Company to Conexant, which are
secured by all of the assets of the Company. Unless paid earlier at the option
of the Company or pursuant to mandatory prepayment provisions in the financing
agreement, fifty percent of the principal portion of the short-term promissory
notes is due on March 24, 2003, and the remaining fifty percent of the notes is
due on June 24, 2003.
19
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
In addition, the combined company has incurred expenses and has assumed
obligations as a result of this merger. The Company estimates that these
expenses and obligations will require cash of approximately $80 million to $90
million and the issuance of a warrant to purchase approximately one million
shares of the Company's common stock. These amounts are primarily associated
with transaction and merger costs, deposits, and restructuring costs. The
combined company will recognize a charge related to these expenses and
obligations of approximately $20 to $30 million in the quarter ended June 28,
2002. These amounts represent the current estimates of management based on the
information available at this time and are subject to change.
In addition to the short-term promissory notes related to the Company's purchase
of the Mexicali operations, Conexant committed to make a short-term $100 million
revolving loan facility available to the Company to fund the Company's working
capital and other requirements. $75 million of this facility will be available
on or after July 10, 2002, and the remaining $25 million balance of the
revolving facility will be available if the Company has more than $150 million
of eligible domestic receivables. The entire principal of any revolving amounts
borrowed is due on June 24, 2003.
The Company's ability to meet these expenses, the expenses of our ongoing
operations, and to repay the debt owed to Conexant is dependent upon our ability
to obtain suitable financing. We cannot assure you that the capital required to
fund these expenses will be available in the future. Conditions existing in the
U.S. capital markets when the Company seeks financing will affect its ability to
raise capital, as well as the terms of any financing. The Company may not be
able to raise enough capital to meet its capital needs on a timely basis or at
all. Failure to obtain capital when required would have a material adverse
effect on the Company.
WE MAY NOT BE ABLE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL NECESSARY FOR THE
DESIGN, DEVELOPMENT, MANUFACTURE AND SALE OF OUR PRODUCTS. OUR SUCCESS COULD BE
NEGATIVELY AFFECTED IF KEY PERSONNEL LEAVE.
Our future success depends on our ability to continue to attract, retain and
motivate qualified personnel, including executive officers and other key
management and technical personnel. As the source of our technological and
product innovations, our key technical personnel represent a significant asset.
The competition for management and technical personnel is intense in the
semiconductor industry. We cannot assure you that we will be able to attract and
retain qualified management and other personnel necessary for the design,
development, manufacture and sale of our products.
We may have particular difficulty attracting and retaining key personnel during
periods of poor operating performance, given, among other things, the use of
equity-based compensation by us and our competitors. The loss of the services of
one or more of our key employees, including David J. Aldrich, our chief
executive officer, or certain key design and technical personnel, or our
inability to attract, retain and motivate qualified personnel, could have a
material adverse effect on our ability to operate our business.
IF OEMS OF COMMUNICATIONS ELECTRONICS PRODUCTS DO NOT DESIGN OUR PRODUCTS INTO
THEIR EQUIPMENT, WE WILL HAVE DIFFICULTY SELLING THOSE PRODUCTS. MOREOVER, A
"DESIGN WIN" FROM A CUSTOMER DOES NOT GUARANTEE FUTURE SALES TO THAT CUSTOMER.
Our products will not be sold directly to the end-user but will be components of
other products. As a result, we will rely on OEMs of wireless communications
electronics products to select our products from among alternative offerings to
be designed into their equipment. Without these "design wins" from OEMs, we
would have difficulty selling our products. Once an OEM designs another
supplier's product into one of its product platforms, it is more difficult for
us to achieve future design wins with that OEM product platform because changing
suppliers involves significant cost, time, effort and risk for that OEM. Also,
achieving a design win with a customer does not ensure that we will receive
significant revenues from that customer. Even after a design win, the customer
is not obligated to purchase our products and can choose at any time to reduce
or cease use of the our products, for example, if its own products are not
commercially successful or for any other reason. We may be unable to achieve
design wins or to convert design wins into actual sales.
BECAUSE OF THE LENGTHY SALES CYCLES OF MANY OF OUR PRODUCTS, WE MAY INCUR
SIGNIFICANT EXPENSES BEFORE WE GENERATE ANY REVENUES RELATED TO THOSE PRODUCTS.
Our customers may need three to six months to test and evaluate our products and
an additional three to six months to begin volume production of equipment that
incorporates our products. The lengthy period of time required increases the
possibility that a customer may decide to cancel or change product plans, which
could reduce or eliminate our sales to that customer. As a result of this
lengthy sales cycle, we may incur significant research and development, and
selling, general and administrative expenses before we generate the related
revenues for these products, and we may never generate the anticipated revenues
if our customer cancels or changes its product plans.
UNCERTAINTIES INVOLVING THE ORDERING AND SHIPMENT OF OUR PRODUCTS COULD
ADVERSELY AFFECT OUR BUSINESS. Our sales will typically be made pursuant to
individual purchase orders and not under long-term supply arrangements with our
customers. Our customers may cancel orders prior to shipment. In addition, we
will sell a portion of our products through distributors, some of whom will have
rights to return unsold products. Sales to distributors accounted for
approximately 7%, 12% and 5% of Alpha's net revenues in fiscal 2002, fiscal 2001
and fiscal 2000, respectively. We may purchase and manufacture inventory based
on estimates of customer demand for our products, which is difficult to predict.
This difficulty may be compounded when we sell to OEMs indirectly through
distributors or contract manufacturers, or both, as our forecasts of demand will
then be based on estimates provided by multiple parties. In addition, our
customers may change their inventory practices on short notice for any reason.
The cancellation or deferral of product orders, the return of previously sold
products or overproduction due to the failure of anticipated orders to
20
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
materialize could result in us holding excess or obsolete inventory, which could
result in write-downs of inventory.
OUR RELIANCE ON A SMALL NUMBER OF CUSTOMERS FOR A LARGE PORTION OF OUR SALES
COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS. A significant
portion of our sales are concentrated among a limited number of customers. If we
lost one or more of these major customers, or if one or more major customers
significantly decreased its orders, our business would be materially and
adversely affected. Sales to Motorola, Inc. represented approximately 31%, 26%
and 38% of Alpha net revenues in fiscal 2002, fiscal 2001 and fiscal 2000,
respectively. Our future operating results will depend on the success of this
and other customers and our success in selling products to them.
OUR MANUFACTURING PROCESSES ARE EXTREMELY COMPLEX AND SPECIALIZED. Our
manufacturing operations are complex and subject to disruption due to causes
beyond our control. The fabrication of integrated circuits is an extremely
complex and precise process consisting of hundreds of separate steps. It
requires production in a highly controlled, clean environment. Minor impurities,
errors in any step of the fabrication process, defects in the masks used to
print circuits on a wafer or a number of other factors can cause a substantial
percentage of wafers to be rejected or numerous die on each wafer not to
function.
Our operating results are highly dependent upon our ability to produce
integrated circuits at acceptable manufacturing yields. Our operations may be
affected by lengthy or recurring disruptions of operations at any of our
production facilities or those of our subcontractors. These disruptions may
include electrical power outages, fire, earthquake, flooding or other natural
disasters. Our Sunnyvale, California manufacturing facility is located near a
major earthquake fault line. We do not maintain earthquake insurance coverage on
this facility. Disruptions of our manufacturing operations could cause
significant delays in shipments until we are able to shift the products from an
affected facility or subcontractor to another facility or subcontractor.
In the event of these types of delays, we cannot assure you that the required
alternate capacity, particularly wafer production capacity, would be available
on a timely basis or at all. Even if alternate wafer production capacity is
available, we may not be able to obtain it on favorable terms, which could
result in higher costs and/or a loss of customers. We may be unable to obtain
sufficient manufacturing capacity to meet demand, either at our own facilities
or through external manufacturing or similar arrangements with others.
Due to the highly specialized nature of the gallium arsenide integrated circuit
manufacturing process, in the event of a disruption at the Sunnyvale, California
or Woburn, Massachusetts semiconductor wafer fabrication facilities, alternate
gallium arsenide production capacity would not be immediately available from
third-party sources. These disruptions could have a material adverse effect on
our business, financial condition and results of operations.
WE MAY NOT BE ABLE TO ACHIEVE MANUFACTURING YIELDS THAT CONTRIBUTE POSITIVELY TO
OUR GROSS MARGIN AND PROFITABILITY. Minor deviations in the manufacturing
process can cause substantial manufacturing yield loss, and in some cases, cause
production to be suspended. Manufacturing yields for new products initially tend
to be lower as we complete product development and commence volume
manufacturing, and typically increase as we bring the product to full
production. Our forward product pricing includes this assumption of improving
manufacturing yields and, as a result, material variances between projected and
actual manufacturing yields will have a direct effect on our gross margin and
profitability. The difficulty of forecasting manufacturing yields accurately and
maintaining cost competitiveness through improving manufacturing yields will
continue to be magnified by the increasing process complexity of manufacturing
semiconductor products. Our manufacturing operations also will face pressures
arising from the compression of product life cycles which will require us to
manufacture new products faster and for shorter periods while maintaining
acceptable manufacturing yields and quality without, in many cases, reaching the
longer-term, high-volume manufacturing conducive to higher manufacturing yields
and declining costs.
21
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
WE ARE SUBJECT TO THE RISKS OF DOING BUSINESS INTERNATIONALLY. For fiscal 2002,
approximately 55% of Alpha's net revenues were from customers located outside
the United States, primarily countries located in the Asia-Pacific region and
Europe. In fiscal 2001 and 2000, approximately 49% and 46%, respectively, of
Alpha's net revenues were from customers located outside the United States. In
addition, we have suppliers located outside the United States and third-party
packaging, assembly and test facilities and foundries located in the
Asia-Pacific region. Our international sales and operations are subject to a
number of risks inherent in selling and operating abroad. These include, but are
not limited to, risks regarding:
- currency exchange rate fluctuations;
- local economic and political conditions;
- disruptions of capital and trading markets;
- restrictive governmental actions (such as restrictions on transfer of
funds and trade protection measures, including export duties and
quotas and customs duties and tariffs);
- changes in legal or regulatory requirements;
- limitations on the repatriation of funds;
- difficulty in obtaining distribution and support;
- the laws and policies of the United States and other countries
affecting trade, foreign investment and loans, and import or export
licensing requirements;
- tax laws; and
- limitations on our ability under local laws to protect our
intellectual property.
Because our international sales are denominated in U.S. dollars our products
could become less competitive in international markets if the value of the U.S.
dollar increases relative to foreign currencies. Moreover, we may be
competitively disadvantaged relative to our competitors located outside the
United States who may benefit from a devaluation of their local currency. We
cannot assure you that the factors described above will not have a material
adverse effect on our ability to increase or maintain our international sales.
OUR OPERATING RESULTS MAY BE NEGATIVELY AFFECTED BY SUBSTANTIAL QUARTERLY AND
ANNUAL FLUCTUATIONS AND MARKET DOWNTURNS. Our revenues, earnings and other
operating results have fluctuated in the past and our revenues, earnings and
other operating results may fluctuate in the future. These fluctuations are due
to a number of factors, many of which are beyond our control. These factors
include, among others:
- changes in end-user demand for the products manufactured and sold by
our customers, principally digital cellular handsets;
- the effects of competitive pricing pressures, including decreases in
average selling prices of our products;
- production capacity levels and fluctuations in manufacturing yields;
- availability and cost of products from our suppliers;
- the gain or loss of significant customers;
- our ability to develop, introduce and market new products and
technologies on a timely basis;
- new product and technology introductions by competitors;
- changes in the mix of products produced and sold;
- market acceptance of our products and our customers;
- intellectual property disputes;
- seasonal customer demand;
- the timing of receipt, reduction or cancellation of significant orders
by customers; and
- the timing and extent of product development costs.
The foregoing factors are difficult to forecast, and these, as well as other
factors, could materially adversely affect our quarterly or annual operating
results. If our operating results fail to meet the expectations of analysts or
investors, it could materially and adversely affect the price of our common
stock.
22
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
OUR GALLIUM ARSENIDE SEMICONDUCTORS MAY NOT CONTINUE TO BE COMPETITIVE WITH
SILICON ALTERNATIVES. We manufacture and sell gallium arsenide semiconductors,
principally power amplifiers and switches. The production of gallium arsenide
integrated circuits is more costly than the production of silicon circuits. As a
result, we must offer gallium arsenide products that provide superior
performance to that of silicon for specific applications to be competitive with
silicon products. If we do not continue to offer products that provide
sufficiently superior performance to offset the cost differential, our operating
results may be materially and adversely affected. It is expected that the costs
of producing gallium arsenide integrated circuits will continue to exceed the
costs associated with the production of silicon circuits. The costs differ
because of higher costs of raw materials for gallium arsenide and higher unit
costs associated with smaller-sized wafers and lower production volumes. Silicon
semiconductor technologies are widely-used process technologies for certain
integrated circuits and these technologies continue to improve in performance.
We cannot assure you that we will continue to identify products and markets that
require performance superior to that offered by silicon solutions.
THE VALUE OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED BY MARKET VOLATILITY.
The trading price of our common stock may fluctuate significantly. This price
may be influenced by many factors, including:
- our performance and prospects;
- the performance and prospects of our major customers;
- the depth and liquidity of the market for our common stock;
- investor perception of us and the industry in which we operate;
- changes in earnings estimates or buy/sell recommendations by analysts;
- general financial and other market conditions; and
- domestic and international economic conditions.
Public stock markets have experienced, and are currently experiencing, extreme
price and trading volume volatility, particularly in the technology sectors of
the market. This volatility has significantly affected the market prices of
securities of many technology companies for reasons frequently unrelated to or
disproportionately impacted by the operating performance of these companies.
These broad market fluctuations may adversely affect the market price of our
common stock.
WE MAY BE SUBJECT TO CLAIMS OF INFRINGEMENT OF THIRD-PARTY INTELLECTUAL PROPERTY
RIGHTS OR DEMANDS THAT WE LICENSE THIRD-PARTY TECHNOLOGY, WHICH COULD RESULT IN
SIGNIFICANT EXPENSE AND LOSS OF OUR INTELLECTUAL PROPERTY RIGHTS. The
semiconductor industry is characterized by vigorous protection and pursuit of
intellectual property rights. From time to time, third parties have asserted and
may in the future assert patent, copyright, trademark and other intellectual
property rights to technologies that are important to our business and have
demanded and may in the future demand that we license their technology. Any
litigation to determine the validity of claims our products infringe or may
infringe these rights, including claims arising from our contractual
indemnification of our customers, regardless of their merit or resolution, could
be costly and divert the efforts and attention of our management and technical
personnel. Regardless of the merits of any specific claim, we cannot assure you
that we would prevail in litigation because of the complex technical issues and
inherent uncertainties in intellectual property litigation. If litigation were
to result in an adverse ruling, we could be required to:
- pay substantial damages;
- cease the manufacture, import, use, sale or offer for sale of
infringing products;
- discontinue the use of infringing technology;
- expend significant resources to develop non-infringing technology; or
- license technology from the third party claiming infringement, which
license may not be available on commercially reasonable terms.
IF WE ARE NOT SUCCESSFUL IN PROTECTING OUR INTELLECTUAL PROPERTY RIGHTS, IT MAY
HARM OUR ABILITY TO COMPETE. We rely on patent, copyright, trademark, trade
secret and other intellectual property laws, as well as nondisclosure and
confidentiality agreements and other methods, to protect our proprietary
23
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
technologies, devices, algorithms and processes. In addition, we often
incorporate the intellectual property of our customers, suppliers or other third
parties into our designs, and we have obligations with respect to the non-use
and non-disclosure of such third-party intellectual property. In the future, it
may be necessary to engage in litigation or like activities to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of proprietary rights of others, including our customers.
This could require us to expend significant resources and to divert the efforts
and attention of our management and technical personnel from our business
operations. We cannot assure you that:
- the steps we take to prevent misappropriation, infringement or other
violation of our intellectual property or the intellectual property of
our customers, suppliers or other third parties will be successful;
- any existing or future patents, copyrights, trademarks, trade secrets
or other intellectual property rights will not be challenged,
invalidated or circumvented; or
- any of the measures described above would provide meaningful
protection.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use our technology without authorization, develop similar
technology independently or design around our patents. If any of our patents
fails to protect our technology, it would make it easier for our competitors to
offer similar products. In addition, effective patent, copyright, trademark and
trade secret protection may be unavailable or limited for certain technologies
and in certain foreign countries.
OUR SUCCESS DEPENDS, IN PART, ON OUR ABILITY TO EFFECT SUITABLE INVESTMENTS,
ALLIANCES AND ACQUISITIONS, AND WE MAY HAVE DIFFICULTY INTEGRATING COMPANIES WE
ACQUIRE. THE COMPANY'S MERGER WITH THE WIRELESS BUSINESS OF CONEXANT SYSTEMS,
INC. PRESENTS SUCH RISKS.
Although we intend to invest significant resources in internal research and
development activities, the complexity and rapidity of technological changes and
the significant expense of internal research and development make it impractical
for us to pursue development of all technological solutions on our own. On an
ongoing basis, we intend to review investment, alliance and acquisition
prospects that would complement our product offerings, augment our market
coverage or enhance our technological capabilities. However, we cannot assure
you that we will be able to identify and consummate suitable investment,
alliance or acquisition transactions in the future.
Moreover, if we consummate such transactions, they could result in:
- issuances of equity securities dilutive to our stockholders;
- large one-time write-offs;
- the incurrence of substantial debt and assumption of unknown
liabilities;
- the potential loss of key employees from the acquired company;
- amortization expenses related to intangible assets; and
- the diversion of management's attention from other business concerns.
Additionally, in periods following an acquisition, we will be required to
evaluate goodwill and acquisition-related intangible assets for impairment. When
such assets are found to be impaired, they will be written down to estimated
fair value, with a charge against earnings.
Integrating acquired organizations and their products and services may be
difficult, expensive, time-consuming and a strain on our resources and our
relationship with employees and customers and ultimately may not be successful.
WE MAY BE LIABLE FOR PENALTIES UNDER ENVIRONMENTAL LAWS, RULES AND REGULATIONS,
WHICH COULD ADVERSELY IMPACT OUR BUSINESS. We have used, and will continue to
use, a variety of chemicals in manufacturing operations and have been or will be
subject to a wide range of environmental protection regulations in the United
States. While we have not experienced any material adverse effect on our
24
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
operations as a result of such regulations, we cannot assure you that current or
future regulations would not have a material adverse effect on our business,
financial condition and results of operations.
Environmental regulations often require parties to fund remedial action
regardless of fault. Consequently, it is often difficult to estimate the future
impact of environmental matters, including potential liabilities. We cannot
assure you that the amount of expense and capital expenditures that might be
required to satisfy environmental liabilities, to complete remedial actions and
to continue to comply with applicable environmental laws will not have a
material adverse effect on our business, financial condition and results of
operations.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of changes in the value of short-term
investments and financial instruments caused by fluctuations in investment
prices and interest rates.
INVESTMENT PRICE RISK
The fair value of the Company's short-term investment portfolio at March 31,
2002, approximated carrying value due to its short-term duration. Market risk,
estimated as the potential decrease in fair value resulting from a hypothetical
10% decrease in interest rates for the issues contained in the investment
portfolio, is not considered to be material because of the short-term nature of
the investments.
INTEREST RATE RISK
The carrying value of the Company's long-term debt, including current
maturities, was $235,000 at March 31, 2002. Due to the nature of the debt
instruments, management has determined that the fair value was not materially
different from the year-end carrying value.
25
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL
STATEMENTS
Page
==================================================================================
Consolidated Balance Sheets - March 31, 2002 and April 1, 2001............... 27
Consolidated Statements of Operations - Years ended March 31, 2002,
April 1, 2001 and April 2, 2000.............................................. 28
Consolidated Statements of Stockholders' Equity - Years ended March 31, 2002,
April 1, 2001 and April 2, 2000.............................................. 29
Consolidated Statements of Cash Flows - Years ended March 31, 2002,
April 1, 2001 and April 2, 2000.............................................. 30
Notes to Consolidated Financial Statements................................... 31
Independent Auditors' Report................................................. 50
==================================================================================
26
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
MARCH 31, APRIL 1,
2002 2001
================================================================================================
ASSETS
Current assets
Cash and cash equivalents.................................. $ 62,413 $ 68,802
Short-term investments..................................... 51,727 84,982
Accounts receivable, trade, less allowance
for doubtful accounts of $1,204 and $921............... 24,485 36,984
Inventories (Note 3)....................................... 12,218 15,661
Prepayments and other current assets....................... 3,324 3,169
Prepaid income taxes....................................... -- 735
Deferred income taxes...................................... 3,724 9,668
--------- ----------
Total current assets.............................. 157,891 220,001
--------- ----------
Property, plant and equipment
Land, building and improvements............................ 61,621 50,328
Machinery and equipment.................................... 168,325 142,115
--------- ----------
229,946 192,443
Less-accumulated depreciation and amortization............. 95,590 78,247
--------- ----------
134,356 114,196
--------- ----------
Goodwill and other intangibles................................ 4,378 --
Deferred income taxes......................................... 16,121 --
Other assets.................................................. 3,373 2,822
--------- ----------
Total assets...................................... $ 316,119 $ 337,019
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt (Note 4).............. $ 129 $ 129
Accounts payable........................................... 14,345 20,820
Accrued liabilities
Payroll and related expenses........................... 3,501 7,283
Other.................................................. 3,593 3,481
--------- ----------
Total current liabilities......................... 21,568 31,713
--------- ----------
Long-term debt (Note 4)....................................... 106 235
Other long-term liabilities................................... 2,283 2,081
Deferred income taxes......................................... -- 3,812
--------- ----------
Total liabilities................................. 23,957 37,841
--------- ----------
Commitments and contingencies (Note 8)
Stockholders' equity (Notes 4 and 6)
Common stock par value $0.25 per share; authorized
100,000,000 shares; issued 44,260,206 and 43,520,880... 11,065 10,880
Additional paid-in capital................................. 232,204 221,147
Retained earnings.......................................... 48,893 67,179
--------- ----------
292,162 299,206
Less - Treasury shares 0 and 26,539 at cost................ -- 28
--------- ----------
Total stockholders' equity........................ 292,162 299,178
--------- ----------
Total liabilities and stockholders' equity........ $ 316,119 $ 337,019
========= ==========
================================================================================================
The accompanying notes are an integral part of these financial statements.
27
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
YEARS ENDED
MARCH 31, APRIL 1, APRIL 2,
2002 2001 2000
============================================================================================
Sales ....................................... $ 126,502 $ 271,568 $ 186,402
--------- --------- ---------
Cost of sales ............................... 89,604 151,632 105,566
Research and development expenses ........... 41,578 36,026 25,336
Selling and administrative expenses ......... 28,144 43,250 34,107
--------- --------- ---------
Total operating expenses ........ 159,326 230,908 165,009
--------- --------- ---------
Operating (loss) income ..................... (32,824) 40,660 21,393
Other income (expense):
Interest expense ........................ (41) (56) (223)
Interest income ......................... 5,364 8,733 6,685
Other expense, net ...................... 207 (67) (608)
--------- --------- ---------
Total other income (expense), net 5,530 8,610 5,854
--------- --------- ---------
(Loss) income before income taxes ........... (27,294) 49,270 27,247
(Benefit) provision for income taxes (Note 5) (9,008) 15,897 9,265
--------- --------- ---------
Net (loss) income ........................... $ (18,286) $ 33,373 $ 17,982
========= ========= =========
Basic (loss) earnings per share ............. $ (0.42) $ 0.78 $ 0.44
========= ========= =========
Diluted (loss) earnings per share ........... $ (0.42) $ 0.75 $ 0.42
========= ========= =========
Shares used in computing:
Basic earnings per share .................... 44,010 43,029 40,659
========= ========= =========
Diluted earnings per share .................. 44,010 44,752 42,822
========= ========= =========
============================================================================================
The accompanying notes are an integral part of these financial statements.
28
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
UNEARNED
ADDITIONAL COMPENSATION
COMMON STOCK PAID-IN RETAINED TREASURY RESTRICTED
SHARES PAR VALUE CAPITAL EARNINGS STOCK STOCK
=================================================================================================================
Balance at March 28, 1999 ............ 34,768 $ 8,692 $ 76,473 $15,824 $(133) $(14)
Net income ........................... -- -- -- 17,982 -- --
Employee Stock Purchase Plan ......... 21 5 283 -- -- --
Amortization of unearned compensation
restricted stock ................... -- -- -- -- -- 14
Issuance of 59,972 treasury shares to
401(k) plan ........................ -- -- 1,055 -- 65 --
Exercise of stock options ............ 1,159 290 3,103 -- -- --
Tax benefit from the exercise of
stock options ...................... -- -- 7,027 -- -- --
Compensation expense ................. -- -- 2,109 -- -- --
Proceeds from stock offering ......... 6,629 1,657 107,661 -- -- --
------ ------- -------- -------- ----- ----
Balance at April 2, 2000 ............. 42,577 $10,644 $197,711 $ 33,806 $ (68) $ --
Net income ........................... -- -- -- 33,373 -- --
Employee Stock Purchase Plan ......... 21 5 617 -- -- --
Issuance of 38,247 treasury shares to
401(k) plan ........................ -- -- 1,472 -- 40 --
Exercise of stock options ............ 923 231 6,348 -- -- --
Tax benefit from the exercise of stock
options ............................ -- -- 14,840 -- -- --
Compensation expense ................. -- -- 159 -- -- --
------ ------- -------- -------- ----- ----
Balance at April 1, 2001 ............. 43,521 $10,880 $221,147 $ 67,179 $ (28) $ --
Net loss ............................. -- -- -- (18,286) -- --
Employee Stock Purchase Plan ......... 34 8 712 -- -- --
Issuance of 26,539 treasury shares to
401(k) plan ........................ -- -- 395 -- 28 --
Issuance of 46,251 common shares to
401(k) plan ...................... 46 12 1,044 -- -- --
Exercise of stock options ............ 659 165 3,904 -- -- --
Tax benefit from the exercise of stock
options ............................ -- -- 4,878 -- -- --
Compensation expense ................. -- -- 124 -- -- --
------ ------- -------- -------- ----- ----
Balance at March 31, 2002 ............ 44,260 $11,065 $232,204 $ 48,893 $ -- $ --
====== ======= ======== ======== ===== ====
=================================================================================================================
The accompanying notes are an integral part of these financial statements.
29
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEARS ENDED
MARCH 31, APRIL 1, APRIL 2,
2002 2001 2000
=======================================================================================================================
CASH PROVIDED BY OPERATIONS:
Net (loss) income ................................................... $ (18,286) $ 33,373 $ 17,982
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation and amortization of property, plant and equipment ... 21,004 16,010 10,681
Deferred income taxes ............................................ (13,989) (1,896) 658
Amortization of unearned compensation - restricted stock ......... -- -- 14
Net gain on sales of property, plant and equipment ............... (76) (58) --
Loss on sales and retirements of property, plant and equipment ... -- -- 544
Increase in other assets ......................................... (590) (723) (605)
Increase (decrease) in other long-term liabilities ............... 202 (156) 573
In-process research and development .............................. 2,500 -- --
Changes in operating assets and liabilities, net of impact of
acquisition in fiscal 2002:
Accounts receivable .......................................... 12,499 (3,140) (10,791)
Inventories .................................................. 3,443 (3,745) (3,117)
Prepayments and other current assets ......................... 587 (130) (2,853)
Accounts payable ............................................. (6,475) 283 9,321
Accrued liabilities .......................................... 2,735 17,775 11,022
--------- --------- ---------
Net cash provided by operations .................................. 3,554 57,593 33,429
--------- --------- ---------
CASH USED IN INVESTING:
Additions to property, plant and equipment excluding capital leases . (40,994) (54,748) (39,660)
Acquisition, net of cash acquired ................................... (7,035) -- --
Purchases of short-term investments ................................. (128,762) (134,813) (226,242)
Maturities of short-term investments ................................ 162,017 174,821 117,523
Proceeds from sale of property, plant and equipment ................. 171 120 60
--------- --------- ---------
Net cash used in investing ....................................... (14,603) (14,620) (148,319)
--------- --------- ---------
CASH PROVIDED BY FINANCING:
Payments on notes payable ........................................... (129) (92) (1,169)
(Payments on) proceeds from line of credit .......................... -- (2,900) 2,900
Deferred charges related to long-term debt .......................... -- -- 28
Exercise of stock options ........................................... 4,069 6,579 3,393
Proceeds from sale of stock ......................................... 720 622 116,196
--------- --------- ---------
Net cash provided by financing ................................... 4,660 4,209 121,348
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents ................ (6,389) 47,182 6,458
Cash and cash equivalents, beginning of year ........................ 68,802 21,620 15,162
--------- --------- ---------
Cash and cash equivalents, end of year .............................. $ 62,413 $ 68,802 $ 21,620
========= ========= =========
=======================================================================================================================
Supplemental disclosure of non-cash operating activities:
Tax benefit from the exercise of stock options ...................... $ 4,878 $ 14,840 $ 7,027
========= ========= =========
Compensation expense ................................................ $ 124 $ 159 $ 2,109
========= ========= =========
Contribution of treasury shares to Savings and Retirement Plan ...... $ 423 $ 1,512 $ 1,120
========= ========= =========
Contribution of common shares to Savings and Retirement Plan ........ $ 1,056 $ -- $ --
========= ========= =========
Supplemental cash flow disclosures:
Cash paid for income taxes .......................................... $ 225 $ 2,380 $ 3,300
========= ========= =========
Cash paid for interest .............................................. $ 46 $ 119 $ 191
========= ========= =========
The accompanying notes are an integral part of these financial statements.
30
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Fiscal Year:
The Company's fiscal year ends on the Sunday closest to March 31. There
were 52 weeks in fiscal 2002 and 2001. There were 53 weeks in fiscal 2000.
Use of Estimates:
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
Revenue Recognition:
The Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), as
amended by SAB 101A and 101B. SAB 101 requires that four basic criteria
must be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services rendered; (3) the
price to the buyer is fixed and determinable; and (4) collectibility is
reasonably assured. Determination of criteria (3) and (4) are based on
management's judgments regarding the fixed nature of the price to the buyer
charged for products delivered and services rendered and collectibility of
the sales price. The Company's shipping terms are customarily FOB shipping
point. Provisions for product returns and allowances are recorded in the
same period as the related revenue. The Company analyzes historical
returns, current economic trends and changes in customer demand and
acceptance of products when evaluating the adequacy of the sales returns
and other allowances.
Research and Development Expenditures:
Research and development expenditures are charged to income as incurred.
Cash, Cash Equivalents and Short-Term Investments:
Cash and cash equivalents include cash deposited in demand deposits at
banks and highly liquid investments with original maturities of 90 days or
less.
The Company's short-term investments are classified as held-to-maturity.
These investments consist primarily of commercial paper and securities
issued by various federal agencies and corporations with original
maturities of more than 90 days. Such short-term investments are carried at
amortized cost, which approximates fair value, due to the short period of
time to maturity. Gains and losses are included in investment income in the
period they are realized.
Bad Debt:
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If
the financial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make future payments,
additional allowances may be required.
31
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories:
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market. The Company provides for estimated obsolescence
or unmarketable inventory based upon assumptions about future demand and
market conditions. If actual demand and market conditions are less
favorable than those projected by management, additional inventory write
downs may be required.
Property, Plant and Equipment:
Property, plant and equipment are carried at cost. Depreciation is
calculated using the straight-line method for financial reporting and
accelerated methods for tax purposes.
Estimated useful lives used for depreciation purposes are 5 to 30 years for
buildings and improvements and 3 to 10 years for machinery and equipment.
During fiscal 2002 and 2001, the Company removed $3.1 million and $4.4
million, respectively, of fully depreciated fixed assets from the related
property, plant and equipment and accumulated depreciation accounts.
Fair Value of Financial Instruments:
Financial instruments of the Company consist of cash, cash equivalents,
accounts receivable, accounts payable and accrued liabilities. The carrying
value of these financial instruments approximates their fair value because
of the short maturity of these instruments. Based upon borrowing rates
currently available to the Company for issuance of similar debt with
similar terms and remaining maturities, the estimated fair value of
long-term debt approximates its carrying amount. The Company does not
currently use derivative instruments.
Income Taxes:
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
This method also requires the recognition of future tax benefits such as
net operating loss carryforwards, to the extent that realization of such
benefits is more likely than not. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
The carrying value of the Company's net deferred tax assets assumes that
the Company will be able to generate sufficient future taxable income in
certain tax jurisdictions, based on estimates and assumptions. If these
estimates and related assumptions change in the future, the Company may be
required to record additional valuation allowances against its deferred tax
assets resulting in additional income tax expense in the Company's
consolidated statement of operations. Management evaluates the
realizability of the deferred tax assets and assesses the adequacy of the
valuation allowance quarterly. Likewise, in the event that the Company was
to determine that it would be able to realize its deferred tax assets in
the future in excess of its net recorded amount, an adjustment to the
deferred tax assets would increase income in the period such determination
was made.
32
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings Per Share:
Basic earnings per share is calculated by dividing net (loss) income by the
weighted average number of common shares outstanding. Diluted earnings per
share includes the dilutive effect of stock options, if their effect is
dilutive, using the treasury stock method.
A reconciliation of the weighted average number of shares outstanding used
in the computation of the basic and diluted earnings per share for each of
the following years is as follows:
YEARS ENDED
-------------------------------
MARCH 31, APRIL 1, APRIL 2,
2002 2001 2000
-------- -------- --------
(in thousands)
Weighted average shares (basic) .... 44,010 43,029 40,659
Effect of dilutive stock options ... -- 1,723 2,163
------ ------ ------
Weighted average shares (diluted) .. 44,010 44,752 42,822
====== ====== ======
At March 31, 2002, options to purchase approximately 6.6 million shares
were outstanding but not included in the computation of diluted earnings
per share as the net loss for the fiscal year ended March 31, 2002 would
have made their effect anti-dilutive. At April 1, 2001 and April 2, 2000,
options to purchase approximately 2.5 million and 7,000 shares,
respectively, were outstanding but not included in the computation of
diluted earnings per share because the exercise prices of the options were
greater than the average market prices of the Company's common stock during
those periods.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of:
The Company accounts for impairment of long-lived assets in accordance with
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." This statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to undiscounted future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. This Statement has not had a material impact on the
Company's financial position, results of operations, or liquidity.
Stock Option Plans:
The Company accounts for its stock-based compensation under the provisions
of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" and related interpretations and provides disclosure related
to its stock-based compensation under the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation."
33
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive (Loss) Income:
The Company accounts for comprehensive (loss) income in accordance with the
provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
is a financial statement presentation standard, which requires the Company
to disclose non-owner changes included in equity but not included in net
income or loss. There were no differences between net income and
comprehensive income for fiscal 2002, 2001 and 2000.
Recent Accounting Pronouncements:
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statements No. 141, "Business Combinations" (SFAS 141), and No. 142,
"Goodwill and Other Intangibles" (SFAS 142). SFAS 141 requires the use of
the purchase method of accounting and eliminates the use of the
pooling-of-interest method of accounting for business combinations. SFAS
141 also requires that the Company recognize acquired intangible assets
apart from goodwill if the acquired intangible assets meet certain
criteria. SFAS 141 applies to all business combinations initiated after
June 30, 2001 and for purchase business combinations completed on or after
July 1, 2001. The Company has adopted the provisions of SFAS 141.
Statement of Financial Accounting Standards No. 144,"Accounting for the
Impairment or Disposal of Long-Lived Assets"("SFAS 144"), issued in October
2001, addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. SFAS 144, which applied to all entities, is
effective for fiscal years beginning after December 15, 2001. The Company
does not expect the implementation of SFAS 144 to have a material impact on
its financial condition or results of operations.
NOTE 2 ACQUISITIONS
AIMTA, INC.
On March 15, 2001, the Company completed its acquisition of Aimta, Inc., a
developer of Low Temperature Co-fired Ceramics (LTCC) for wireless handsets for
a purchase price of approximately $7.0 million in cash. The transaction was
accounted for as a purchase and Aimta's results since the date of acquisition
have been included in the accompanying statements of operations. In connection
with the Aimta acquisition, the Company recorded a non-recurring charge of $2.5
million for in-process research and development. The purchase price in excess of
the fair value of net tangible and identifiable intangible assets was recorded
as goodwill in the amount of $4.2 million.
NETWORK DEVICE, INC.
On April 24, 2000, the Company completed its acquisition of privately-held
Network Device, Inc. ("NDI") based in Sunnyvale, California. Approximately 2.67
million shares of common stock of the Company were exchanged for all outstanding
shares of NDI. Approximately 185,000 shares of Company stock were reserved for
the conversion of NDI stock options into Company options.
The acquisition has been accounted for as a pooling-of-interests and
accordingly, all prior period consolidated financial statements and related
notes to the consolidated financial statements have been restated to include the
combined results of operations, financial position and cash flows of NDI. Prior
to the merger, NDI's fiscal year ended on September 30. In recording the
business combination, NDI's prior period financial statements have been restated
to conform with the Company's year end.
34
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 ACQUISITIONS (CONTINUED)
The following information presents certain income statement data of the separate
companies for the prior period reflected:
YEAR ENDED
-------------
APRIL 2,
2000
-------------
(in thousands)
Net sales:
Alpha Industries, Inc.............. $ 184,705
Network Device, Inc................ 2,642
Adjustments/ Eliminations.......... (945)
---------
$ 186,402
=========
Net income (loss):
Alpha Industries, Inc.............. $ 24,380
Network Device, Inc................ (9,299)
Adjustments/Eliminations........... 2,901
---------
$ 17,982
The effects of conforming NDI's accounting policies to those of the Company were
not material.
NOTE 3 INVENTORIES
MARCH 31, APRIL 1,
Inventories consisted of the following: 2002 2001
--------- --------
(in thousands)
Raw materials ........................... $ 3,555 $ 5,187
Work-in-process ......................... 5,882 7,868
Finished goods .......................... 2,781 2,606
------- -------
$12,218 $15,661
======= =======
NOTE 4 BORROWING ARRANGEMENTS AND COMMITMENTS
LONG-TERM DEBT
MARCH 31, APRIL 1,
Long-term debt consisted of the following: 2002 2001
--------- --------
(in thousands)
CDBG Grant .................................. $235 $364
---- ----
Less - current maturities ............... 129 129
---- ----
$106 $235
==== ====
35
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 BORROWING ARRANGEMENTS AND COMMITMENTS (CONTINUED)
The Company obtained a ten-year $960,000 loan from the State of Maryland under
the Community Development Block Grant program. Quarterly payments are due
through December 2003 and represent principal plus interest at 5% of the
unamortized balance.
Aggregate annual maturities of long-term debt are as follows:
FISCAL YEAR
-----------
(in thousands)
2003.................... $ 129
2004.................... 106
-------
$ 235
=======
NOTE 5 INCOME TAXES
(Loss) income before income taxes consisted of:
YEARS ENDED
------------------------------------
MARCH 31, APRIL 1, APRIL 2,
2002 2001 2000
-------- ------- -------
(in thousands)
Domestic .... $(27,294) $49,270 $26,929
Foreign ..... -- -- 318
-------- ------- -------
Total ....... $(27,294) $49,270 $27,247
======== ======= =======
The income tax provision (benefit) consisted of the following:
FISCAL 2002 CURRENT DEFERRED TOTAL
----------- ------- -------- -------
(in thousands)
Federal .......... $ -- $(7,752) $(7,752)
State ............ 154 (1,410) (1,256)
------- ------- -------
Total ............ $ 154 $(9,162) $(9,008)
======= ======= =======
FISCAL 2001 CURRENT DEFERRED TOTAL
----------- ------- -------- -------
(in thousands)
Federal .......... $16,921 $(1,757) $15,164
State ............ 872 (139) 733
------- ------- -------
Total ............ $17,793 $(1,896) $15,897
======= ======= =======
FISCAL 2000 CURRENT DEFERRED TOTAL
----------- ------- -------- -------
(in thousands)
Federal .......... $ 8,202 $ 760 $ 8,962
State ............ 305 (101) 204
Foreign .......... 99 -- 99
------- ------- -------
Total ............ $ 8,606 $ 659 $ 9,265
======= ======= =======
36
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 INCOME TAXES (CONTINUED)
Income tax (benefit) expense for income taxes is different from that which would
be obtained by applying the statutory federal income tax rate of 35% to pretax
income as a result of the following:
YEARS ENDED
----------------------------------------
MARCH 31, APRIL 1, APRIL 2,
2002 2001 2000
--------- -------- -------
(in thousands)
Tax (benefit) expense at U.S. statutory rate ........ $(9,553) $ 17,245 $ 9,536
Loss on foreign investment .......................... -- (560) --
Foreign sales corporation ........................... -- (600) (416)
Foreign tax rate difference ......................... -- -- (12)
Nondeductible transaction expenses .................. 1,436 625 --
Nondeductible in-process research and development ... 875 -- --
Utilization of research and development credit ...... (989) (1,883) --
State income taxes, net of federal benefit .......... (816) 477 133
Change in valuation allowance ....................... 255 1,011 40
Net U.S. tax on distribution of foreign earnings .... -- -- 216
Other, net .......................................... (216) (418) (232)
------- -------- -------
Total ............................................... $(9,008) $ 15,897 $ 9,265
======= ======== =======
Total income tax (benefit) expense was allocated as follows:
YEARS ENDED
----------------------------------------
MARCH 31, APRIL 1, APRIL 2,
2002 2001 2000
-------- -------- --------
(in thousands)
Income from continuing operations .......................... $ (9,008) $ 15,897 $ 9,265
Stockholders' equity, for compensation expense for tax
purposes in excess of amounts recognized for financial
reporting purposes ....................................... (4,878) (14,840) (7,027)
-------- -------- -------
Total ...................................................... $(13,886) $ 1,057 $ 2,238
======== ======== =======
37
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows:
MARCH 31, APRIL 1,
2002 2001
-------- --------
(in thousands)
Deferred tax assets:
Accounts receivable due to reserve for bad debts ...................................... $ 445 $ 340
Inventories due to reserves and inventory capitalization .............................. 2,476 2,786
Accrued liabilities ................................................................... 772 2,101
Deferred compensation ................................................................. 878 889
Federal net operating loss carryforwards .............................................. 18,052 2,883
Minimum tax credit, state tax credit and state tax net operating loss carryforwards ... 7,399 4,825
-------- --------
Total gross deferred tax assets ..................................................... 30,022 13,824
Less valuation allowance ............................................................ (2,136) (1,881)
-------- --------
Net deferred tax assets ............................................................. 27,886 11,943
-------- --------
Deferred tax liabilities:
Property, plant and equipment due to depreciation ..................................... (7,825) (5,871)
Net U.S. tax on distribution of foreign earnings ...................................... (216) (216)
-------- --------
Total gross deferred tax liability .................................................. (8,041) (6,087)
-------- --------
Net deferred tax assets ................................................................. $ 19,845 $ 5,856
======== ========
Deferred income taxes are presented in the accompanying consolidated balance
sheets as follows:
MARCH 31, APRIL 1,
2002 2001
-------- --------
(in thousands)
Current deferred tax assets....................... $ 3,724 $ 9,668
Non-current deferred tax assets (liabilities)..... 16,121 (3,812)
-------- --------
Net deferred tax assets ...................... $ 19,845 $ 5,856
======== ========
As of March 31, 2002, the Company has available for income tax purposes
approximately $51.6 million in federal net operating loss carryforwards (NOLs).
NOLs of approximately $7.6 million relate to operating losses of NDI, which was
acquired on April 24, 2000. These losses are subject to an annual limitation and
begin to expire in fiscal year 2018. In addition, the Company has federal
alternative minimum tax credits, state tax credit carryforwards and state tax
NOL carryforwards of approximately $865,000, $1 million and $2.9 million,
respectively, that are available to reduce future federal and state regular
income taxes over an indefinite period. The Company also has research and
development credits of approximately $2.6 million that will begin to expire in
fiscal year 2012. The Company has established a valuation allowance against
deferred tax assets which may not be realized due to the expiration of certain
state tax net operating losses. The valuation allowance for deferred tax assets
as of March 31, 2002 and April 1, 2001 was $2.1 million and $1.9 million,
respectively. The net change in the total valuation allowance for the years
ended March 31, 2002 and April 1, 2001 was an increase of $255,000 and $1.0
million, respectively. The Company believes that it is more likely than not that
future taxable income will be sufficient to fully utilize the remaining deferred
tax assets.
38
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 COMMON STOCK
LONG-TERM INCENTIVE PLANS
The Company adopted a long-term incentive plan in 1999 pursuant to which
non-qualified stock options may be granted. The Company also adopted a long-term
incentive plan in 1996 pursuant to which stock options, with or without stock
appreciation rights, may be granted and restricted stock awards and book value
awards may be made.
Common Stock Options
These options may be granted in the form of incentive stock options or
non-qualified stock options. The option price may vary but shall not be
less than the greater of fair market value or par value. The option term
may not exceed ten years. The options may be exercised in cumulative annual
increments commencing one year after the date of grant. A total of
15,910,000 shares are authorized for grant under the Company's long-term
incentive plans. The number of common shares reserved for granting of
future awards was 3,546,004 at March 31, 2002.
Restricted Stock Awards
No restricted shares of the Company's common stock were issued during
fiscal 2002, 2001 and 2000. Unearned compensation - restricted stock was
fully amortized at April 2, 2000. Unearned compensation expense amounted to
$14,000 in fiscal 2000.
39
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 COMMON STOCK (CONTINUED)
A summary of stock option and restricted stock award transactions follows:
WEIGHTED AVERAGE
EXERCISE PRICE OF
SHARES SHARES UNDER PLAN
---------- -----------------
Balance outstanding at March 28, 1999 ...... 3,357,098 $ 2.83
----------
Granted ................................ 1,441,400 17.37
Exercised .............................. (1,075,106) 2.79
Restricted ............................. (32,134) --
Cancelled .............................. (168,620) 6.57
----------
Balance outstanding at April 2, 2000 ....... 3,522,638 8.99
----------
Granted ................................ 2,403,497 37.57
Exercised .............................. (884,458) 6.88
Restricted ............................. -- --
Cancelled .............................. (274,604) 27.20
----------
Balance outstanding at April 1, 2001 ....... 4,767,073 22.75
----------
Granted ................................ 2,659,396 15.47
Exercised .............................. (659,211) 6.17
Restricted ............................. -- --
Cancelled .............................. (533,099) 20.23
----------
Balance outstanding at March 31, 2002 ..... 6,234,159 $ 21.25
==========
Options exercisable at the end of each fiscal year:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
2002......................................... 1,330,572 $19.16
2001......................................... 794,275 $ 6.86
2000......................................... 858,346 $ 5.81
40
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 COMMON STOCK (CONTINUED)
The following table summarizes information concerning currently outstanding and
exercisable options as of March 31, 2002:
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL OUTSTANDING OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) OPTION PRICE EXERCISABLE PRICE
- --------------- ----------- ------------ ------------ ----------- ---------
$ 0.92 - $10.00 1,021,466 5.82 $ 3.84 591,702 $ 3.44
$10.01 - $20.00 2,791,840 8.78 $ 14.83 181,815 $ 15.95
$20.01 - $30.00 654,619 8.70 $ 26.60 128,775 $ 27.81
$30.01 - $40.00 737,134 8.47 $ 32.02 177,014 $ 32.07
$40.01 - $50.00 1,001,800 8.07 $ 44.49 242,961 $ 44.52
$50.01 - $60.00 20,200 8.06 $ 55.06 5,630 $ 55.25
$60.01 - $66.00 7,100 7.97 $ 65.07 2,675 $ 65.34
--------- ---- ------- --------- -------
6,234,159 8.13 $ 21.25 1,330,572 $ 19.16
========= ==== ======= ========= =======
STOCK OPTION PLANS FOR NON-EMPLOYEE DIRECTORS
The Company has three stock option plans for non-employee directors -- the 1994
Non-Qualified Stock Option Plan, the 1997 Non-Qualified Stock Option Plan and
the Directors' 2001 Stock Option Plan. Under the three plans, a total of 700,000
shares have been authorized for option grants. The three plans have
substantially similar terms and conditions and are structured to provide options
to non-employee directors as follows: a new Director receives a total of 45,000
options upon becoming a member of the Board; and continuing Directors receive
15,000 options after each Annual Meeting of Shareholders. Under these plans, the
option price is the fair market value at the time the option is granted.
Beginning in fiscal 2001, all options granted become exercisable 25% per year
beginning one year from the date of grant. Options granted prior to fiscal 2001
become exercisable at a rate of 20% per year beginning one year from the date of
grant. During fiscal 2002, 105,000 options were granted under these plans at a
price of $25.82. During fiscal 2001, 45,000 options were granted under these
plans at a price of $36.50. During fiscal 2000, 105,000 options were granted
with 45,000 granted at a price of $16.36 and 60,000 granted at a price of
$27.28. At March 31, 2002, a total of 546,000 options, net of cancellations,
have been granted under these three plans. During fiscal 2002, no options were
exercised under these plans. At March 31, 2002, 369,000 shares were outstanding
and 111,000 shares were exercisable.
STOCK PURCHASE PLAN
The Company maintains an employee stock purchase plan. Under the plan, eligible
employees may purchase common stock through payroll deductions of up to 10% of
compensation. The price per share is the lower of 85% of the market price at the
beginning or end of each six-month offering period. The plan provides for
purchases by employees of up to an aggregate of 900,000 shares through December
31, 2006. Shares of 33,658, 20,904 and 21,086 were purchased under this plan in
fiscal 2002, 2001 and 2000, respectively.
41
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 COMMON STOCK (CONTINUED)
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations in accounting for its
stock option and employee stock purchase plans. Had compensation cost for the
Company's stock option and stock purchase plans been determined based upon the
fair value at the grant date for awards under these plans consistent with the
methodology prescribed under SFAS No. 123, "Accounting for Stock-based
Compensation," the Company's net (loss) income would have been as follows:
YEARS ENDED
-------------------------------------------
MARCH 31, APRIL 1, APRIL 2,
2002 2001 2000
---------- --------- ----------
(in thousands)
Net (loss) income ...................... As reported $ (18,286) $ 33,373 $ 17,982
========== ======== =========
Pro forma $ (29,196) $ 25,958 $ 15,088
========== ======== =========
Net (loss) income per share diluted..... As reported $ (0.42) $ 0.75 $ 0.42
========== ======== =========
Pro forma $ (0.66) $ 0.58 $ 0.35
========== ======== =========
The effect of applying SFAS No. 123 as shown in the above pro forma disclosure
is not representative of the pro forma effect on net income in future years
because it does not take into consideration pro forma compensation expense
related to grants made prior to fiscal year 1996.
The fair value of each option grant was estimated on the grant date using the
Black Scholes Option Pricing Model with the following weighted average
assumptions:
2002 2001 2000
---- ---- ----
Expected volatility ............... 75% 125% 69%
Risk free interest rate ........... 3.5% 5% 6%
Dividend yield .................... -- -- --
Expected option life (years) ...... 3 3 3
Weighted average fair value of options granted during the year:
2002.............................. $ 5.34
2001.............................. $ 7.46
2000.............................. $ 5.02
42
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 EMPLOYMENT BENEFIT PLAN
The Company maintains a 401(k) plan covering substantially all of its employees.
All of the Company's employees who are at least 21 years old are eligible to
receive a Company contribution. Discretionary Company contributions are
determined by the Board of Directors and may be in the form of cash or the
Company's stock. The Company contributes a match of 100% of the first 1% and a
50% match on the next 4% of an employee's salary for employees with 5 years or
less of service. For employees with more than 5 years of service, the Company
contributes a 100% match on the first 1% and a 75% match on the next 5% of an
employee's salary. For fiscal 2002, 2001 and 2000, the Company contributed
70,155, 55,500 and 39,374 shares, respectively, of the Company's common stock
valued at $1.4 million, $1.5 million and $1.2 million, to fund the Company's
obligation under the 401(k) plan.
NOTE 8 COMMITMENTS AND CONTINGENCIES The
Company has various operating leases primarily for computer equipment and
buildings. Rent expense amounted to $1.7 million in fiscal 2002, fiscal 2001 and
fiscal 2000, respectively. Purchase options may be exercised at various times
for some of these leases. Future minimum payments under these noncancelable
leases are as follows:
FISCAL YEAR (in thousands)
----------- --------------
2003 ................................... $ 1,587
2004 ................................... 974
2005 ................................... 845
2006 ................................... 758
2007 ................................... 770
Thereafter............................... 485
-------
$ 5,419
=======
The Company and its subsidiary, Skyworks Solutions, Inc., are presently engaged
in a lawsuit filed June 6, 2002 in the United States District Court for the
Central District of California, Southern Division, by Skyworks Technologies,
Inc., alleging trademark infringement and related claims, and seeking that
Skyworks Solutions, Inc. and the Company cease use of the "Skyworks" name, and
related relief and damages. The Company and its subsidiary, Skyworks Solutions,
Inc. expect to file an answer to the plaintiff's complaint. We believe that this
claim is without merit and intend to vigorously defend this action.
The Company is party to suits and claims arising in the normal course of
business. Management believes these are adequately provided for or will result
in no significant additional liability to the Company.
43
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 RELATED PARTY TRANSACTIONS
The Company has had transactions in the normal course of business with various
related parties. Scientific Components Corporation, a beneficial owner of the
Company's common stock during fiscal 2000, purchased approximately $7.4 million
of products during fiscal 2000. Scientific Components Corporation was not a
beneficial owner of the Company's common stock during fiscal 2002 or fiscal
2001.
NOTE 10 SEGMENT INFORMATION
The Company designs, develops, manufactures and markets proprietary radio
frequency, microwave frequency and millimeter wave frequency integrated
circuits, discrete semiconductors and integrated modules for the wireless and
broadband communications markets. The Company also designs, develops,
manufactures and markets proprietary technical ceramic and magnetic products for
the wireless infrastructure and broadband markets.
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way public business enterprises report information about operating segments in
annual financial statements and in interim reports to shareholders. The method
for determining what information to report is based on the way that management
organizes the segments within the Company for making operating decisions and
assessing financial performance. In evaluating financial performance, management
uses sales and operating profit as the measure of the segments' profit or loss.
During the Company's second quarter ended October 1, 2000, the Company
reorganized into two reportable segments based on management's methods of
evaluating operations and performance. The reportable segments are:
Semiconductor Products and Ceramic Products. The Semiconductor Products segment
is comprised of two of the Company's former segments: Wireless Semiconductor
Products and Application Specific Products. A description of the reportable
segments follows:
Semiconductor Products:
The Semiconductor Products segment designs and manufactures gallium arsenide
integrated circuits, other discrete semiconductors and multi-chip modules
primarily for the global wireless communications and broadband markets.
Ceramic Products:
The Ceramic Products segment designs and manufactures technical ceramic and
magnetic products primarily for the global wireless infrastructure and broadband
markets.
44
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 SEGMENT INFORMATION (CONTINUED)
The table below presents selected financial data by business segment for fiscal
2001, 2000 and 1999. The accounting policies of the segments are the same as
those described in the "Summary of Significant Accounting Policies."
YEARS ENDED
------------------------------------------
MARCH 31, APRIL 1, APRIL 2,
2002 2001 2000
--------- --------- --------
NET SALES (in thousands)
- ---------
Semiconductor Products ..... $ 102,233 $ 224,560 $150,348
Ceramic Products ........... 24,269 47,008 36,054
--------- --------- --------
$ 126,502 $ 271,568 $186,402
========= ========= ========
OPERATING (LOSS) INCOME
- -----------------------
Semiconductor Products ..... $ (28,122) $ 35,282 $ 16,761
Ceramic Products ........... (556) 7,164 4,632
Merger-related expenses .... (4,146) (1,786) --
--------- --------- --------
$ (32,824) $ 40,660 $ 21,393
========= ========= ========
MARCH 31, APRIL 1,
2002, 2001
-------- --------
NET LONG-LIVED ASSETS (in thousands)
- ---------------------
Semiconductor Products ...... $118,256 $ 97,568
Ceramic Products ............ 16,100 16,628
-------- --------
$134,356 $114,196
======== ========
TOTAL ASSETS
- ------------
Semiconductor Products ...... $145,734 $138,614
Ceramic Products ............ 25,326 29,217
Corporate ................... 145,059 169,188
-------- --------
$316,119 $337,019
======== ========
Customer Concentration:
During fiscal year 2002, one customer accounted for 31% of the Company's total
net sales. During fiscal year 2001, two customers accounted for 26% and 11%,
respectively of the Company's total sales. In fiscal 2000, one customer
accounted for 34% of the Company's total net sales. In fiscal 2002, net sales to
the Company's 15 largest customers accounted for 67% of total net sales. In
fiscal 2001 and fiscal 2000, net sales to the Company's 15 largest customers
accounted for 69% and 65%, respectively, of total net sales. As of March 31,
2002 and April 1, 2001, one customer accounted for approximately 25% and 16%,
respectively, of the Company's gross accounts receivable.
45
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 SEGMENT INFORMATION (CONTINUED)
Geographic Information
Sales include export sales primarily to Europe and Asia of $69.8 million, $133.7
million and $84.8 million, in fiscal 2002, 2001 and 2000, respectively. During
fiscal 2001, the Company closed its sales subsidiary in the United Kingdom. This
sales subsidiary was in operation during fiscal 2000. The following table shows
certain financial information relating to the Company's operations in various
geographic areas:
YEARS ENDED
-------------------------------------------
MARCH 31, APRIL 1, APRIL 2,
2002 2001 2000
--------- --------- ---------
(in thousands)
Net sales
United States
Customers ................. $ 126,502 $ 271,510 $ 180,576
Intercompany .............. -- 18 4,698
Europe
Customers ................. -- 58 5,826
Eliminations ................. -- (18) (4,698)
--------- --------- ---------
Net sales ...................... $ 126,502 $ 271,568 $ 186,402
========= ========= =========
(Loss) Income before taxes
United States ................ $ (27,421) $ 49,260 $ 26,929
Europe ....................... 127 10 318
--------- --------- ---------
Income before taxes ............ $ 27,294 $ 49,270 $ 27,247
========= ========= =========
Assets
United States ................ $ 312,851 $ 333,626 $ 276,540
Europe ....................... 3,268 3,393 4,484
--------- --------- ---------
Total assets ................... $ 316,119 $ 337,019 $ 281,024
========= ========= =========
Substantially all of the Company's long-lived assets were located in the United
States as of March 31, 2002.
46
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
===============================================================================================
FISCAL 2002
Sales ........................ $ 32,221 $ 33,001 $ 33,090 $ 28,190 $ 126,502
Gross profit ................. 8,796 10,643 11,155 6,304 36,898
Net loss ..................... (3,920) (2,587) (3,280) (8,499) (18,286)
Per share data(1)
Net loss basic ............ (.09) (.06) (.07) (.19) (.42)
Net loss diluted .......... (.09) (.06) (.07) (.19) (.42)
Market price range
High ...................... 29.70 40.36 30.05 22.92 40.36
Low ....................... 13.56 18.72 16.55 15.25 13.56
FISCAL 2001
Sales ........................ $ 65,688 $ 73,201 $ 78,684 $ 53,995 $ 271,568
Gross profit ................. 29,538 33,747 36,358 20,293 119,936
Net income ................... 7,841 10,567 11,580 3,385 33,373
Per share data(1)
Net income basic .......... .18 .25 .27 .08 .78
Net income diluted ........ .18 .24 .26 .08 .75
Market price range
High ...................... 63.88 50.44 54.00 35.94 63.88
Low ....................... 35.00 32.00 24.75 13.94 13.94
===============================================================================================
The Company's common stock is traded on the NASDAQ National Market under the
symbol AHAA. The number of stockholders of record as of May 31, 2002 was
approximately 930.
(1) Earnings per share calculations for each of the quarters are based on
the weighted average number of shares outstanding and included common
stock equivalents in each period. Therefore, the sums of the quarters
do not necessarily equal the full year earnings per share.
47
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 MERGER WITH CONEXANT SYSTEMS, INC.'S WIRELESS BUSINESS
On December 16, 2001, the Company, Conexant Systems, Inc. (Conexant) and
Washington Sub, Inc. (Washington), a wholly owned subsidiary of Conexant,
entered into a definitive agreement providing for the combination of Conexant's
wireless business with the Company. Under the terms of the agreement, Conexant
would spin off its wireless business, including its gallium arsenide wafer
fabrication facility located in Newbury Park, California, but excluding certain
assets and liabilities, to be followed immediately by a merger of this wireless
business into the Company with the Company as the surviving company in the
merger. This merger was completed on June 25, 2002. Following the merger, the
Company changed its corporate name to Skyworks Solutions, Inc.
Immediately after the merger, the Company had approximately 140 million fully
diluted shares outstanding, with current shareholders of the Company owning
approximately 33 percent and current shareholders of Conexant owning
approximately 67 percent of the Company's outstanding shares on a fully diluted
basis.
The merger is to be accounted for as a reverse acquisition whereby Washington is
treated as the acquirer and Alpha as the acquiree primarily because Conexant
shareholders owned a majority of the combined company upon completion of the
merger. Under a reverse acquisition, the purchase price of Alpha is based upon
the fair market value of Alpha common stock for a reasonable period of time
before and after the announcement date of the merger and the fair value of Alpha
stock options. The purchase price of Alpha will be allocated to the assets
acquired and liabilities assumed by Washington, as the acquiring company for
accounting purposes, based upon their estimated fair market value at the
acquisition date. The historical carrying value of the assets, liabilities and
stockholders' equity included in these financial statements may be revised
significantly as a result of the merger transaction. Information regarding these
changes is not available at this time.
Immediately following completion of the merger, the Company purchased Conexant's
semiconductor assembly, module manufacturing and test facility located in
Mexicali, Mexico, and certain related operations (the Mexicali operations) for
$150 million. This purchase price was paid with short-term promissory notes
delivered by the Company to Conexant, which are secured by all of the assets of
the Company. Unless paid earlier at the option of the Company or pursuant to
mandatory prepayment provisions in the financing agreement, fifty percent of the
principal portion of the short-term promissory notes is due on March 24, 2003,
and the remaining fifty percent of the notes is due on June 24, 2003.
In addition, the combined company has incurred expenses and has assumed
obligations as a result of this merger. The Company estimates that these
expenses and obligations will require cash of approximately $80 million to $90
million and the issuance of a warrant to purchase approximately one million
shares of the Company's common stock. These amounts are primarily associated
with transaction and merger costs, deposits, and restructuring costs. The
combined company will recognize a charge related to these expenses and
obligations of approximately $20 to $30 million in the quarter ended June 28,
2002. These amounts represent the current estimates of management based on the
information available at this time and are subject to change.
In addition to the short-term promissory notes related to the Company's purchase
of the Mexicali operations, Conexant committed to make a short-term $100 million
revolving loan facility available to the Company to fund the Company's working
capital and other requirements. $75 million of this facility will be available
on or after July 10, 2002, and the remaining $25 million balance of the
revolving facility will be available if the Company has more than $150 million
of eligible domestic receivables. The entire principal of any revolving amounts
borrowed is due on June 24, 2003.
48
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 SUBSEQUENT EVENTS
On June 13, 2002, the Company's stockholders approved an amendment to the
Company's 1996 Long-Term Incentive Plan to increase the number of shares of
common stock that may be issued under the plan by 1,885,000 shares (from
4,200,000 shares to 6,085,000 shares).
On June 13, 2002, the Company's stockholders also approved an amendment to the
Company's Directors 2001 Stock Option Plan to increase the number of shares of
common stock that may be issued under the plan by 315,000 shares (from 250,000
shares to 565,000 shares).
49
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Alpha Industries, Inc.:
We have audited the consolidated financial statements of Alpha Industries, Inc.
and subsidiaries as listed in the accompanying index under Item 8. In connection
with our audits of the consolidated financial statements, we have also audited
the financial statement schedule as listed in the accompanying index under Item
14. These consolidated financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Alpha Industries, Inc. and subsidiaries at March 31, 2002
and April 1, 2001, and the results of their operations and their cash flows for
each of the years in the three-year period ended March 31, 2002 in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Boston, Massachusetts
April 30, 2002, except for Notes 12 and 13, which are as of June 25, 2002
50
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to our directors
and executive officers during fiscal 2002:
NAME AGE POSITION
---- --- --------
George S. Kariotis 79 Chairman Emeritus and Director
Thomas C. Leonard 67 Chairman of the Board of Directors
David J. Aldrich 45 President, Chief Executive Officer and Director
Paul E. Vincent 54 Vice President, Treasurer, Secretary and Chief
Financial Officer
Richard Langman 55 Vice President and President of Trans-Tech, Inc.
Liam K. Griffin 35 Vice President, Sales and Marketing
Ding-Yuan Day 51 Vice President, Process Development
Ljubisa Ristic 51 Vice President, Technology and Business
Development
Timothy R. Furey 44 Director
James W. Henderson 59 Director
David J. McLachlan 63 Director
Arthur Pappas 66 Director
Sidney Topol 77 Director
No officer was elected pursuant to any arrangement or understanding.
George S. Kariotis was elected Chairman Emeritus in April 2000. Prior to this
election, Mr. Kariotis served as Chairman of the Board and Chief Executive
Officer from our inception in 1962 to 1978, and, from 1974 to 1978, he was also
our Treasurer. From 1979 to 1983, Mr. Kariotis was the Secretary of Manpower
Development and Economic Affairs for the Commonwealth of Massachusetts. He was
re-elected Chairman of the Board in 1983 and Chief Executive Officer in 1985.
Mr. Kariotis resigned as Chief Executive Officer in July 1986 while he
campaigned for public office. He resumed his position as Chief Executive Officer
in November 1986, and served in that capacity until 1991. Mr. Kariotis served as
Chairman of the Board since his re-election in 1983 up until his election to
Chairman Emeritus in April 2000. Mr. Kariotis has been a Director since 1962 and
continues to serve in that capacity.
Thomas C. Leonard was elected Chairman of the Board in April 2000. Prior to his
election, Mr. Leonard served as Chief Executive Officer since July 1996. Mr.
Leonard also served as our President from July 1996 to September 1999. In August
1996, Mr. Leonard was elected a Director. Mr. Leonard joined us in 1992 as a
division General Manager, and, in 1994, he was elected a Vice President. Mr.
Leonard has over 30 years
51
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
experience in the microwave industry, having held a variety of executive and
senior level management and marketing positions at M/A-COM, Inc., Varian
Associates, Inc. and Sylvania.
David J. Aldrich was elected President, Chief Executive Officer and a member of
the Board of Directors in April 2000. Mr. Aldrich joined us in 1995 as Vice
President, Chief Financial Officer and Treasurer. He served as Vice President
and General Manager of the Semiconductor Products segment until his election in
September 1999 to President and Chief Operating Officer. From 1989 to 1995, Mr.
Aldrich held senior management positions at M/A-COM, Inc., including Manager
Integrated Circuits Active Products, Corporate Vice President Strategic
Planning, Director of Finance and Administration, and Director of Strategic
Initiatives with the Microelectronics Division.
Paul E. Vincent joined us as Controller in 1979 and has been Vice President and
Chief Financial Officer since January 1997. Mr. Vincent was elected Secretary in
September 1999. Prior to joining us, Mr. Vincent worked at Applicon Incorporated
and, prior to that, Arthur Andersen & Co. Mr. Vincent is a CPA.
Richard Langman joined us in January 1997 as Vice President, and as President
and General Manager of our Trans-Tech, Inc. subsidiary. Prior to joining us, Mr.
Langman worked for Coors Ceramics Company for 23 years, holding senior executive
positions in operations and sales.
Liam K. Griffin joined us in July 2001 as Vice President, Sales and Marketing.
Previously, Mr. Griffin was employed by Vectron International, a division of
Dover Corp., as vice president of worldwide sales from 1997 to 2001, and as vice
president of North American sales from 1995 to 1997. His prior experience
included positions as a marketing manager at AT&T Microelectronics, Inc. and
product and process engineer at AT&T Network Systems.
Ding-Yuan Day joined us in April 2000, through our acquisition of Network
Device, Inc. in Sunnyvale, California as Vice President, Process Development. In
1997, Mr. Day founded and served as President and CEO of Network Device, Inc.
From 1991 to 1997, he was the section head for the Gallium Arsenide (GaAs)
Operations at the Communications Components Division, Hewlett Packard. From 1980
to 1991, he was the Senior Manager for the GaAs Power Process Development at
Avantek, Inc.
Ljubisa Ristic joined us in November 2000 as Vice President, Technology and
Business Development. Previously, Mr. Ristic worked as Director of Corporate
Business Development for ON Semiconductor, a spin-off of Motorola, where he
managed the company's business strategies and led several strategic
acquisitions. Prior to ON, Mr. Ristic spent nearly a decade in senior management
posts at Motorola, managing the company's manufacturing strategies and new
product development.
Timothy R. Furey has been CEO of Marketbridge, a privately-owned sales and
marketing strategy and technology professional services firm, since 1991. Prior
to 1991, Mr. Furey was a consultant with Boston Consulting Group, Strategic
Planning Associates, Kaiser Associates, and the Marketing Science Institute.
James W. Henderson is Vice Chairman of ACS Defense, Inc., a provider of
information technology systems and services. He was President of ACS Defense,
Inc. and a predecessor company, Analytical Systems Engineering Corporation
(ASEC) from 1976 to 2000. Prior to joining ASEC in 1973, he was a design
engineer for IBM.
David J. McLachlan was from 1989 to 1999 the Executive Vice President and Chief
Financial Officer to Genzyme Corporation, a biotechnology company. Mr. McLachlan
is currently a senior advisor to Genzyme's chairman and CEO. Prior to joining
Genzyme, Mr. McLachlan served as Vice President, Finance of Adams-Russell
Company, an electronic component supplier and cable television franchise owner.
Mr. McLachlan also serves on the Boards of Directors of Dyax Corporation, a
biotechnology company, and HEARx, Ltd., a hearing care services company.
52
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
Arthur Pappas is President and Chairman of Astrodyne Corp., a manufacturer of
power supplies. He has co-founded three technology companies- Datel Systems,
Inc., a manufacturer of data conversion products, Power General Corporation, a
manufacturer of switching power supplies, and Metra-Byte Corporation, a
manufacturer of measurement and control products for personal computers.
Sidney Topol is a director of the Public Broadcasting System, President of The
Topol Group LLC,a consulting and investment company, and honorary director of
Scientific-Atlanta, Inc. He was President of Scientific-Atlanta, Inc. from 1971
to 1983, its Chief Executive Officer from 1975 to 1987 and Chairman of its Board
from 1978 to 1990. Prior to 1971, Mr. Topol held various executive positions
with Raytheon Company.
53
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
ITEM 11 EXECUTIVE COMPENSATION
The following table presents information about total compensation during the
last three completed fiscal years, of the Chief Executive Officer and the four
next most highly compensated persons serving as executive officers during the
year (the "Named Executives").
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation Awards
---------------------- ----------------------
Name and Fiscal Restricted Securities All Other
Principal Year Salary Bonus Stock Underlying Compensation
Position Ended ($) ($) Awards(#) Options(#) ($)(1)
- --------------------------------------------------------------------------------------------------------------
David Aldrich ................. 3/31/02 $ 351,154 $ -- -- 160,000 $ 8,550
President and CEO 4/1/01 $ 336,615 $ -- -- 150,000 $ 8,550
4/2/00 $ 278,269 $ 284,800 -- 120,000 $ 6,839
Ding-Yuan Day ................ 3/31/02 $ 171,135 $ 49,500 -- 30,000 $ 5,234
Vice President, 4/1/01 $120,577 $ -- -- 74,000 $ 1,872
Process Development
Richard Langman .............. 3/31/02 $ 244,730 $ -- -- 45,000 $ 7,370
Vice President, President 4/1/01 $ 233,846 $ -- -- 42,000 $ 5,169
of Trans-Tech, Inc. 4/2/00 $ 223,269 $ 173,000 -- 20,000 (2) $63,620
Ljubisa Ristic................. 3/31/02 $ 220,673 $ 47,126 -- 40,000 (2) $47,590
Vice President, Technology 4/1/01 $77,885 $ 30,803 -- 75,000 $ 1,796
And Business Development
Paul Vincent .................. 3/31/02 $ 226,385 $ -- -- 50,000 $ 8,454
Vice President, Treasurer, 4/1/01 $ 217,462 $ -- -- 60,000 $ 9,681
Chief Financial Officer, 4/2/00 $ 190,192 $ 186,400 -- 50,000 $ 8,571
Secretary
(1) "All Other Compensation" includes premiums paid for certain relocation
expenses (as noted), service awards and Alpha's contributions to the
employee's 401(k) Plan account (including contributions for the fourth
quarter of each fiscal year, which were included in the year of accrual but
not distributed until the subsequent fiscal year).
(2) Includes $57,858 and $41,157 for relocation expenses paid to Mr. Langman
and Mr. Ristic during fiscal 2000 and 2002, respectively.
54
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
The following tables provide information about stock options granted and
exercised by each of the Named Executives in fiscal 2002 and the value of
options held by each at March 31, 2002:
OPTION GRANTS IN LAST FISCAL YEAR
Number of Percent of Potential Realizable
Securities Total Value at Assumed
Underlying Options Exercise Annual Rates of Stock
Options Granted to or Base Price Appreciation for
Granted Employees in Price Expiration Option Term
Name (#) Fiscal Year ($/Share) Date 5% 10%
- --------------------------------------------------------------------------------------------------------------
David Aldrich 160,000 5.8% $ 13.56 4/4/2011 $1,364,752 $3,458,549
Ding-Yuan Day 30,000 1.1% $ 13.56 4/4/2011 $ 255,834 $ 648,334
Richard Langman 45,000 1.6% $ 13.56 4/4/2011 $ 383,836 $ 972,717
Ljubisa Ristic 40,000 1.5% $ 13.56 4/4/2011 $ 341,112 $ 864,446
Vincent, Paul 50,000 1.8% $ 13.56 4/4/2011 $ 426,485 $1,080,796
The options vest at a rate of 25% per year commencing one year after the date of
grant, provided the holder of the option remains employed by Alpha. Options may
not be exercised beyond three months after the holder ceases to be employed by
Alpha, except in the event of termination by reason of death, retirement or
permanent disability, in which event the option may be exercised for specific
periods not exceeding one year following termination. The assumed annual rates
of stock price appreciation stated in the table are dictated by regulations of
the Securities and Exchange Commission, and are compounded annually for the full
term of the options; actual outcomes may differ.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
Number of Securities Value of Unexercised
Shares Underlying In-The-Money
Acquired Unexercised Options at Options at
On Value March 31, 2002(#) March 31, 2002($)
Exercise Realized --------------------------- ----------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------
David Aldrich ........... 55,000 1,776,440 124,500 389,500 $ 481,116 $ 800,530
Ding-Yuan Day ........... 2,718 44,140 20,406 95,900 $ 59,800 $ 98,298
Richard Langman ......... 54,000 1,882,273 130,500 88,500 $1,530,000 $ 75,915
Ljubisa Ristic .......... -- -- 18,750 96,250 $ -- $ 67,480
Paul Vincent ............ 24,400 844,441 149,000 39,000 $ 292,488 $ 359,342
The values of unexercised options in the foregoing table are based on the
difference between the $15.25 closing price of Alpha's common stock at the end
of the 2002 fiscal year on the Nasdaq National Market, and the respective option
exercise price.
EXECUTIVE COMPENSATION
Alpha's executives are eligible for awards of nonqualified stock options,
incentive stock options and restricted stock awards under Alpha's applicable
stock option plans. These stock options plans are administered by the
Compensation Committee of the Board of Directors. Generally, the exercise price
at which an executive may purchase Alpha common stock pursuant to a stock option
is the fair market value of Alpha common stock on the date of grant. Stock
options are granted subject to restrictions on vesting, with equal portions of
the total grant generally vesting over a period of four years. Alpha stock
options are subject to forfeiture (after certain grace periods) upon termination
of employment, retirement, disability or death. Restricted stock awards involve
the issuance of shares of common stock which may not be transferred or otherwise
encumbered, subject to certain exceptions, for varying amounts of time, and
which will be forfeited, in whole or in part, if the executive terminates his or
her employment with Alpha. No restricted stock awards were made in fiscal 2002;
stock option grants to the Named Executives during the fiscal year are discussed
above under the caption "Option Grants in Last Fiscal Year".
55
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
Senior executives of the Company are also eligible to receive target incentive
compensation under which a percentage of each executive's total cash
compensation is tied to the accomplishment of specific financial objectives
during the 2002 fiscal year. As a result of a challenging economic and business
environment during the fiscal year, Alpha did not achieve the annual performance
targets set by the Board of Directors, and no incentive bonuses were paid to
senior executives with respect to fiscal 2002.
Senior executives also may participate in Alpha's Executive Compensation Plan
(the "Executive Compensation Plan"), an unfunded, non-qualified deferred
compensation plan, under which participants may defer a portion of their
compensation. Deferred amounts are held in a trust. Participants defer
recognizing taxable income on the amount held for their benefit until the
amounts are paid. Alpha, in its sole discretion, may make additional
contributions to the accounts of participants. Participants normally receive the
deferred amounts upon retirement. Special rules are provided for distributions
in the case of a participant's death or disability, a change in control of
Alpha, early retirement, and unforeseen emergencies. The Named Executives each
participated in the Executive Compensation Plan during the 2002 fiscal year.
Alpha did not make any discretionary contributions to their accounts during
fiscal 2002.
COMPENSATION OF DIRECTORS
Directors who are not employees of Alpha are paid a quarterly retainer of $3,375
plus an additional $1,000 for each full-day meeting (including separate
committee meetings) attended. Directors who serve as chairman of a committee of
the Board of Directors receive an additional quarterly retainer of $250. In
addition, each new non-employee director receives an option to purchase 45,000
shares of common stock immediately following the earlier of Alpha's Annual
Meeting of Stockholders at which the director is first elected by the
stockholders or following his initial appointment by the Board of Directors. In
addition, following each Annual Meeting of Stockholders each director who is
continuing in office or re-elected receives an option to purchase 15,000 shares
of common stock. The exercise price of stock options granted to directors is the
fair market value on the day of grant. During fiscal 2001 and prior years,
option grants to directors were made from the 1994 and 1997 Non-Qualified Stock
Option Plans for Non-Employee Directors. Stock option grants to directors for
fiscal 2002 were made under the 2001 Directors' Stock Option Plan.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Alpha does not have any employment agreements with any of the Named Executives.
Alpha has severance agreements with the Messrs. Aldrich, Langman and Vincent
under which each is entitled to receive various benefits in the event that his
employment is terminated within two years after a change in control of Alpha, or
if his employment is terminated by Alpha at any time without good cause. In
these cases, the officer will receive two years of salary continuation, and all
of the officer's stock options will vest immediately. Mr. Aldrich's severance
agreement provides that he is also entitled to various benefits in the event he
voluntarily terminates his employment for certain reasons. The term of these
agreements is indefinite.
Alpha has a severance agreements with Mr. Ristic under which he is entitled to
receive various benefits in the event that his employment is terminated within
one year after a change in control of Alpha occurring before November 1, 2002,
or if his employment is terminated by Alpha before October 30, 2002 without good
cause. In these cases, Mr. Ristic will receive one year of salary continuation.
56
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table states information concerning the beneficial ownership of
common stock as of June 25, 2002 by: (i) each person known by us to own
beneficially five percent or more of our outstanding shares of common stock,
(ii) each director, (iii) each Named Executive (as listed below), and (iv) all
our directors and executive officers as a group.
BENEFICIAL PERCENT OF
NAMES AND ADDRESSES OF BENEFICIAL OWNERS(2) OWNERSHIP(2) CLASS
- ------------------------------------------- ------------ ----------
David Aldrich(1) ........................................................ 267,247 (*)
Ding-Yuan Day(1) ........................................................ 70,577 (*)
Timothy Furey(1) ........................................................ 54,750 (*)
James Henderson(1) ...................................................... 43,342 (*)
George Kariotis(1) ...................................................... 19,135 (*)
Richard Langman(1) ...................................................... 163,426 (*)
Thomas Leonard(1) ....................................................... 119,228 (*)
David McLachlan(1)....................................................... 13,850 (*)
Ljubisa Ristic(1)........................................................ 29,174 (*)
Arthur Pappas(1) ........................................................ 31,750 (*)
Sidney Topol(1) ......................................................... 39,750 (*)
Paul Vincent(1) ......................................................... 141,474 (*)
All directors and executive officers as a group(1) ...................... 993,773 2.2%
Putnam Investments, Inc.
One Post Office Square, Boston, MA 02109 (3) .......................... 2,736,393 6.2%
A I M Management Group Inc.
11 Greenway Plaza, Suite 100, Houston, TX 77046 (4) ................... 3,335,818 7.5%
- -------------
(*) Less than one percent.
(1) Includes beneficial ownership of shares under the Alpha Savings and
Retirement Plan (the "401(k) Plan") and shares that may be acquired within
sixty days after June 25, 2002 pursuant to stock options ("current
options"), as follows: Aldrich - 5,225 shares under the 401(k) Plan and
214,250 shares under current options; Day - 397 shares in the 401(k) Plan
and 39,100 shares under current options; Furey - 54,750 shares under
current options; Henderson - 36,750 shares under current options; Kariotis
- 329 shares in the 401(k) Plan and 18,750 shares under current options;
Langman - 1,276 shares in the 401(k) Plan and 151,000 shares under current
options; Leonard - 8,026 shares in the 401(k) Plan and 56,250 shares under
current options; Pappas - 9,750 shares under current options; Ristic - 424
shares in the 401(k) Plan and 28,750 shares under current options; Topol -
21,750 shares under current options; Vincent - 10,046 shares in the 401(k)
Plan and 69,000 shares under current options; executive officers and
directors as a group - 25,793 shares in the 401(k) Plan and 711,350 shares
under current options.
(2) Unless otherwise noted, the address of each person listed on the table is
c/o Skyworks Solutions, Inc., 20 Sylvan Road, Woburn, Massachusetts 01801.
Unless otherwise noted, stockholders have sole voting and dispositive power
with respect to shares, except to the extent such power may be shared by a
spouse.
57
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
(3) As reported by Putnam Investments, LLC. on behalf of Putnam Investment
Management, LLC. and The Putnam Advisory Company LLC. on Schedule 13G filed
with the Securities and Exchange Commission dated February 5, 2002.
According to such Schedule, the shareholder(s) had only shared voting power
with respect to 696,573 shares and shared dispositive powers with respect
to 2,736,393 shares.
(4) As reported by A I M Management Group Inc. on behalf of A I M Advisors,
Inc., A I M Capital Management, Inc., and AIM Private Asset Management,
Inc. on Schedule 13G filed with the Securities and Exchange Commission
dated February 6, 2002.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning severance agreements with Alpha's executive officers is
described at Item 10, above. There are no other relationships or transactions
reportable under the regulations of the Securities and Exchange Commission.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Index to Financial Statements
The financial statements filed as part of this report are listed on
the index appearing on page 26.
2. Index to Financial Statement Schedules
The following financial statement schedule is filed as part of this
report (page reference is to this report):
Schedule II Valuation and Qualifying Accounts (page 62)
Other schedules have been omitted because of the absence of conditions
under which they are required or because the required information is
presented in the financial statements or notes thereto.
58
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
3. Exhibits
No. Description
--- -----------
2.a Agreement and Plan of Merger, dated as of February 10, 2000,
by and among Alpha Industries, Inc., Aries Acquisition
Corporation and Network Device, Inc. (1)
2.b Agreement and Plan of Reorganization dated as of December
16, 2001 by and among Conexant Systems, Inc., Washington
Sub, Inc. and Alpha Industries, Inc (excluding exhibits).
(18)
2.c Contribution and Distribution Agreement dated as of December
16, 2001 by and between Conexant Systems, Inc and Washington
Sub, Inc. (excluding exhibits). (18)
2.d Mexican Stock and Asset Purchase Agreement dated as of
December 16, 2001 by and between Conexant Systems, Inc. and
Washington Sub, Inc. (excluding exhibits). (18)
2.e U.S. Asset Purchase Agreement dated as of December 16, 2001
by and between Conexant Systems, Inc. and Alpha Industries,
Inc. (excluding exhibits). (18)
3.a Restated Certificate of Incorporation (2)
3.b Amended and restated By-laws of the Corporation dated April
30, 1992 (3)
3.c Certificate of Amendment of Restated Certificate of
Incorporation of Alpha Industries, Inc., dated March 30,
2000 (15)
4.a Specimen Certificate of Common Stock (2)
4.b Loan and Security Agreement dated December 15, 1993 between
Trans-Tech, Inc., and County Commissioners of Frederick
County (4)
10.a Alpha Industries, Inc., 1986 Long-Term Incentive Plan as
amended (5)*
10.b Alpha Industries, Inc., Long-Term Compensation Plan dated
September 24, 1990 (6); amended March 28, 1991 (7); and as
further amended October 27, 1994 (8)*
10.c Severance Agreement dated April 1, 2001 between the
Registrant and David J. Aldrich (9)*
10.d Severance Agreement dated January 14, 1997 between the
Registrant and Richard Langman (9)*
10.e Consulting Agreement dated August 13, 1992 between the
Registrant and Sidney Topol (10)*
10.f Alpha Industries, Inc., 1994 Non-Qualified Stock Option Plan
for Non-Employee Directors (5)*
10.g Alpha Industries Executive Compensation Plan dated January
1, 1995 and Trust for the Alpha Industries Executive
Compensation Plan dated January 3, 1995 (8)*
10.h Severance Agreement dated September 4, 1998 between the
Registrant and Paul E. Vincent (11)*
10.i Alpha Industries, Inc., 1997 Non-Qualified Stock Option Plan
for Non-Employee Directors (12)*
10.j Severance Agreement dated September 13, 1999 between the
Registrant and Thomas C. Leonard (13)*
10.k Purchase and Sale Agreement dated July 27, 2000 between the
Registrant and C.R. Bard, Inc. (14)
10.l Alpha Industries, Inc. 1996 Long-Term Incentive Plan (16)*
10.m Alpha Industries, Inc. Directors' 2001 Stock Option Plan
(17)*
10.n Alpha Industries, Inc. 1999 Long-Term Incentive Plan (19)*
10.o Alpha Industries, Inc. Amended and Restated Employee Stock
Purchase Plan
10.p Alpha Industries, Inc. Non-Qualified Employee Stock Purchase
Plan
11 Statement regarding computation of per share earnings. See
Note 1 to the Consolidated Financial Statements
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
----------------------------------------------
*Management contract or compensatory plan
59
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
(1) Incorporated by reference to the exhibit filed with our Form 8-K
dated May 8, 2000.
(2) Incorporated by reference to the exhibit filed with our Registration
Statement on Form S-3 (Registration No. 33-63857).
(3) Incorporated by reference to the exhibit filed with our Annual Report
on Form 10-K for the fiscal year ended March 29, 1992.
(4) Incorporated by reference to the exhibit filed with our Quarterly
Report on Form 10-Q for the fiscal quarter ended July 3,1994.
(5) Incorporated by reference to the exhibit filed with our Quarterly
Report on Form 10-Q for the fiscal quarter ended October 2, 1994.
(6) Incorporated by reference to the exhibit filed with our Annual Report
on Form 10-K for the fiscal year ended March 29, 1992.
(7) Incorporated by reference to the exhibit filed with our Quarterly
Report on Form 10-Q for the fiscal quarter ended June 27, 1993.
(8) Incorporated by reference to the exhibit filed with our Annual Report
on Form 10-K for the fiscal year ended April 2, 1995.
(9) Incorporated by reference to the exhibit filed with our Quarterly
Report on Form 10-Q for the fiscal quarter ended July 1, 2001.
(10) Incorporated by reference to the exhibit filed with our Annual Report
on Form 10-K for the fiscal year ended April 3, 1994.
(11) Incorporated by reference to the exhibit filed with our Quarterly
Report on Form 10-Q for the fiscal quarter ended September 27, 1998.
(12) Incorporated by reference to the exhibit filed with our Annual Report
on Form 10-K for the fiscal year ended March 29, 1998.
(13) Incorporated by reference to the exhibit filed with our Quarterly
Report on Form 10-Q for the fiscal quarter ended September 26, 1999.
(14) Incorporated by reference to the exhibit filed with our Quarterly
Report on Form 10-Q for the fiscal quarter ended October 1, 2000.
(15) Incorporated by reference to the exhibit filed with our Registration
Statement on Form S-8 (Registration No. 33-63818).
(16) Incorporated by reference to the exhibit filed with our Annual Report
on Form 10-K for the fiscal year ended April 1, 2001.
(17) Incorporated by reference to the exhibit filed with our Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 2001.
(18) Incorporated by reference to the exhibits filed with our Form 8-K
dated December 16, 2001.
(19) Incorporated by reference to the exhibit filed with our Registration
Statement on Form S-8 (Registration No. 333-85024)
(b) Reports on Form 8-K
On March 15, 2002, a Form 8-K was filed stating that that Company
signed a definitive agreement to acquire all of the outstanding shares
of capital stock of Aimta, Inc., a developer of Low Temperature
Co-Fired Ceramics (LTCC) for wireless handsets.
On May 2, 2002, a Form 8-K was filed which served to incorporate the
Company's press release dated April 30, 2002 by reference into the
registration statement accepted by the Securities and Exchange
Commission on May 10, 2002.
(c) Exhibits
The exhibits required by Item 601 of Regulation S-K are FILED HEREWITH
and INCORPORATED BY REFERENCE herein. The response to this portion of
Item 14 is submitted under Item 14 (a) (3).
60
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
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.
ALPHA INDUSTRIES, INC.
(REGISTRANT)
BY: /s/ DAVID J. ALDRICH
--------------------------------
DAVID J. ALDRICH, PRESIDENT
Date: June 24, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on June 24, 2002.
Signature and Title Signature and Title
------------------- -------------------
/s/ THOMAS C. LEONARD /s/ TIMOTHY R. FUREY
- ---------------------------------- ------------------------------
Thomas C. Leonard Timothy R. Furey
Chairman of the Board Director
/s/ DAVID J. ALDRICH /s/ JAMES W. HENDERSON
- ---------------------------------- ------------------------------
David J. Aldrich James W. Henderson
Chief Executive Officer Director
President and Director
/s/ PAUL E. VINCENT /s/ GEORGE S. KARIOTIS
- ---------------------------------- ------------------------------
Paul E. Vincent George S. Kariotis
Chief Financial Officer Director
Principal Financial Officer
Principal Accounting Officer
Secretary /s/ DAVID MCLACHLAN
------------------------------
David McLachlan
Director
/s/ ARTHUR PAPPAS
------------------------------
Arthur Pappas
Director
/s/ SIDNEY TOPOL
------------------------------
Sidney Topol
Director
61
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
CHARGED
BALANCE AT TO COSTS BALANCE AT
BEGINNING AND END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS YEAR
- ---------------------------------------------------------------------------------------
Year Ended March 31, 2002
Allowance for doubtful accounts .... $ 921 $ 702 $ 419 $1,204
Reserve for sales returns .......... $2,170 $2,805 $3,020 $1,955
Year Ended April 1, 2001
Allowance for doubtful accounts .... $ 796 $ 434 $ 309 $ 921
Reserve for sales returns .......... $ 738 $2,326 $ 894 $2,170
Year Ended April 2, 2000
Allowance for doubtful accounts .... $ 741 $ 418 $ 363 $ 796
Reserve for sales returns .......... $ 514 $1,145 $ 921 $ 738
62