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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 29, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _____________
Commission file number # 0-8866
MICROSEMI CORPORATION
---------------------
(Exact name of Registrant as specified in its charter)
Delaware 95-2110371
- --------------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2830 South Fairview Street, Santa Ana, CA 92704
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 979-8220
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
$.20 par value Common Stock
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
----- -----
The aggregate market value of the Common Stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on December 2,
1996 was approximately $66,073,000. Shares of Common Stock beneficially held by
each officer and director and by each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of outstanding shares of Common Stock on December 2, 1996 was
7,964,000.
Documents Incorporated by Reference
- -----------------------------------
Part III: Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on or about February 25, 1997. This proxy statement
will be filed not later than 120 days after the close of Registrant's fiscal
year ended September 29, 1996.
PART I
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ITEM 1. BUSINESS
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INTRODUCTION
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Microsemi Corporation (the "Company") was incorporated in Delaware in 1960.
Its name was changed from Microsemiconductor Corporation in February 1983. The
principal executive offices of the Company are located at 2830 South Fairview
Street, Santa Ana, California 92704 and its telephone number is (714) 979-8220.
Unless the context otherwise requires, the "Company" and "Microsemi" refer to
Microsemi Corporation and its consolidated subsidiaries.
Microsemi Corporation is a multinational supplier of high-reliability discrete
semiconductors, surface mounted assemblies and hi-rel screening and testing
services. Microsemi's power conditioning semiconductor products and custom
assemblies are employed by the Company's customers in a wide array of aerospace,
defense, medical and other applications ranging from the space shuttles to heart
pacemakers, x-ray and other medical equipment, automotive, computer and
automation products and communications equipment.
PRODUCTS.
- --------
The Company's products include a broad line of discrete semiconductors and
other electronic component products and services principally for military,
aerospace, medical, computer, telecommunications and other high reliability
applications. These components are used throughout the electronics industry,
with almost all electronic equipment employing zener diodes or rectifiers to
control the direction of electrical current flow, to regulate voltage and to
protect sensitive circuitry from line surges and transient voltage spikes.
Major products are silicon rectifiers, zener diodes, low leakage and high
voltage diodes, temperature compensated zener diodes and a family of
subminiature high power transient suppressor diodes.
A partial list of additional applications of the Company's products and
services includes: heart pacer transient shock protector diodes (where the
Company believes it is the leading supplier in that market), low leakage diodes
used in jet aircraft engines and high performance test equipment, high
temperature diodes used in oil drilling sensing elements operating at 200
degrees centigrade, temperature compensated zener or rectifier diodes used in
missile systems, power transistors and other electronic systems. The Company
currently serves a broad group of customers including Hughes, ITT, Bosch
Telecom, Motorola, Nokia, Lockheed-Martin, AT&T, Loral, Lucent Technologies, and
Honeywell.
The Company also manufactures semiconductors for commercial applications, such
as automatic surge protectors, transient suppressor diodes used for telephone
applications and computer switching diodes used in computer systems.
MARKETING.
- ---------
The Company's marketing strategy has been to concentrate sales efforts in high
reliability and specialty markets. These markets require superior product
performance and technical assistance to satisfy demanding customer needs.
The Company's products are marketed through domestic electronic component
sales representatives and the Company's inside sales force directly to original
equipment manufacturers. The Company also employs industrial distributors to
service its customers' needs for standard catalog products. For fiscal year
1996, the Company's domestic direct sales force accounted for 35% of the
Company's domestic sales, while sales representatives and distributors accounted
for approximately 20% and 15%, respectively. The Company has direct sales
offices in Los Angeles, Long Island, Phoenix, Boston, Santa Ana, Denver,
Chicago, West Palm Beach, Minneapolis, Hong
2
Kong and Ireland. Sales to foreign customers, made through the Company's direct
domestic sales force and 36 overseas sales representatives and distributors,
accounted for approximately 30% of fiscal year 1996 sales.
No one customer accounted for more than 3% of the Company's revenue in fiscal
year 1996. However, approximately 35% of the Company's business is to customers
whose principal sales are to the U.S. Government.
In the ordinary course of business, Microsemi Corporation enters into purchase
agreements with some of its major customers to supply the Company's products
over periods of up to 18 months.
RESEARCH AND DEVELOPMENT.
- ------------------------
The Company spent approximately $1,020,000, $755,000 and $922,000 in fiscal
years 1996, 1995 and 1994, respectively, for research and development, none of
which was customer sponsored.
The principal focus of the Company's research and development activities has
been to improve processes and to develop new products that support the growth of
its high reliability and commercial businesses.
MANUFACTURING AND SUPPLIERS.
- ---------------------------
The Company's principal domestic semiconductor manufacturing operations are
located in Santa Ana, California; Broomfield, Colorado; Scottsdale, Arizona and
Watertown, Massachusetts. Each operates independently with its own wafer
processing, assembly, testing and high reliability testing and screening
departments.
The Company's domestic semiconductor plants manufacture and process all
products and assemblies starting from purchased silicon wafers and piece parts.
Manufacturing and processing operations are controlled in accordance with
military as well as other rigid commercial and industrial specifications.
A major portion of the Company's semiconductor manufacturing effort takes
place after the semiconductor is assembled. Parts are tested a number of times,
visually screened and environmentally subjected to shock, vibration, "burn in"
and electrical tests in order to prove and assure reliability.
The Company's Bombay, India facility assembles a commercial zener diode line
for the purpose of competing in the lower cost commercial and consumer markets.
This plant also performs subcontract coil manufacturing for one of the Company's
customers.
The Company's Hong Kong subsidiary, Microsemi (H.K.) Ltd., produces diode
products for major commercial customers. The Hong Kong subsidiary utilizes
diode chips manufactured in the U.S. plants and assembles, tests and finishes
the products. The plant is approved for assembly of certain military specified
diodes.
The Company's Ennis, Ireland operation manufactures diodes, rectifiers,
zeners, thyristors and transistors and supports the other Microsemi operations.
This plant is Defense Electronics Supply Center (DESC) approved by the U.S.
government to screen high reliability product to Military Specification Standard
MIL-S-19500 and is also European Space Agency qualified. A Trading Company has
been established at this facility for stocking/shipping products from U.S. and
Asian locations for European customers.
3
The Company purchases silicon wafers, glass sleeves, tungsten slugs and lead
wires from domestic and foreign suppliers generally on long-term purchase
commitments which are cancelable with 30 to 90 day notice. With the exception
of glass sleeves for the Santa Ana and Watertown high reliability diode products
and glass to metal sealed parts for a portion of the Santa Ana and Scottsdale
computer diode and zener diode business, all material is available from multiple
sources. In the case of sole source items, the Company has never suffered
production delays as a result of vendors' inability to supply the parts. The
Company stocks what it believes are adequate supplies of all materials based
upon backlog, delivery lead time and anticipated new business.
The Company's component testing and screening operations purchase
semiconductor die and assembled components. These parts are available from a
number of leading semiconductor manufacturers.
The Company's surface mounted assembly operations design custom circuit boards
and purchase component parts. These parts are then assembled using pick and
place machines as well as other sophisticated test equipment to meet customer
requirements.
FOREIGN OPERATIONS
- ------------------
The Company conducts a portion of its operations outside the United States and
its business is subject to risks associated with many factors beyond its
control, such as fluctuations in foreign currency rates, instability of foreign
economies and governments, and changes in U.S. and foreign laws and policies
affecting trade and investment. The Company owns or leases manufacturing and
assembling facilities in Ennis, Ireland; Bombay, India and Hong Kong and is in
the process of establishing a joint venture in The People's Republic of China
(PRC). In July 1997, Hong Kong will be returned to the People's Republic of
China. The government of the PRC has not announced any significant changes in
the conduct of businesses in Hong Kong; however, there can be no assurance that
such expected changes will not be made in the future or that the transition of
Hong Kong to the PRC will not have any adverse effect to the investment and the
results of operations of the Company.
SALES TO FOREIGN CUSTOMERS
- --------------------------
Sales to foreign customers represented approximately 30%, 20% and 17% of net
sales for the 1996, 1995 and 1994 fiscal years, respectively. Foreign sales may
be subject to political and economic risks, including political instability,
changes in import/export regulations, tariffs and freight rates and difficulties
in collecting receivables and enforcing contracts generally. Changes in tariff
structures, exchange rates or other trade policies could adversely affect the
Company's sales to foreign customers or the collection of receivables generated
from such sales.
ORDER BACKLOG.
- -------------
The Company's consolidated order backlog at September 29, 1996 (primarily for
delivery within nine months) increased by 8% to $68,000,000 as compared to
$62,700,000 at October 1, 1995. The mix of new orders reflects a flat demand in
military related business and an increase in commercial, industrial, medical and
space business. See discussion of changes in military procurement practices in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Lead times for the release of purchase orders depend upon the scheduling
practices of individual customers. The delivery times of new or non-standard
products can be affected by scheduling factors and other manufacturing
4
considerations. The rate of booking new orders can vary significantly from
month to month. For these reasons, and because of the possibility of customer
changes in delivery schedules or cancellations of orders, the Company's backlog
as of any particular date may not be representative of actual sales for any
succeeding period.
A portion of the Company's sales are to military and aerospace markets which
are subject to the business risk of changes in governmental appropriations and
changes in national defense policies and priorities. See discussion of changes
in military procurement practices in Management's Discussion and Analysis of
Financial Condition and Results of Operations. All of the Company's contracts
with prime U.S. Government contractors contain customary provisions permitting
termination at any time at the convenience of the U.S. Government or the prime
contractors upon payment to the Company for costs incurred plus a reasonable
profit. Certain contracts are also subject to price renegotiation in accordance
with U.S. Government sole source procurement provisions. No material contract
of the Company has been terminated or renegotiated.
COMPETITION.
- -----------
The Company competes primarily in the discrete semiconductor market,
particularly in the area of high reliability components. The Company has
numerous competitors across all of its product lines. In the defense market
sector, the Company possesses the major share of the market. In the
commercial/industrial arena, there are numerous competitors such as Motorola,
Inc., General Instruments Corp., ITT Corp. and National Semiconductor who are
significantly larger than Microsemi and have greater resources and larger market
shares. Competition in certain of its product lines is dependent on price and
performance. Microsemi has been well regarded by its customers in the high
reliability area where competition is dependent less on price and more on
product reliability and performance.
CHANGES IN TECHNOLOGY
- ---------------------
The power semiconductor market is subject to technological change and changes
in industry standards. To remain competitive, the Company must continue to
devote resources to advance process technologies, to increase product
performance, to improve manufacturing yields and to improve the mix between the
Company's shipment of military and commercial product and between its high cost
and low cost products. There can be no assurance that the Company's competitors
will not develop new technologies that are substantially equivalent or superior
to the Company's technology.
PROPRIETARY RIGHTS
- ------------------
The Company generally does not have, nor does it generally intend to apply
for, patent protection on any aspect of its technology. The Company believes
that patents often provide only narrow protection and patents require public
disclosure of information which may otherwise be subject to trade secret
protection. The Company's reliance upon protection of some of its technology as
"trade secrets" will not necessarily protect the Company from the use by other
persons of its technology, or their use of technology that is similar or
superior to that which is embodied in the Company's trade secrets. There can be
no assurance that others will not be able to independently duplicate or exceed
the Company's technology in whole or in part. No assurances can be made that
the Company will be able to maintain the confidentiality of the Company's
technology, dissemination of which could have an adverse effect on the Company's
business. In addition, litigation may be necessary to determine the scope and
the validity of the Company's proprietary rights. There can be no assurance
that any patents held by the Company will not be
5
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide competitive advantages to the Company.
MANUFACTURING RISKS
- -------------------
The Company's manufacturing processes are highly complex, require advanced and
costly equipment and are continuously being modified in an effort to improve
yields and product performance. Minute impurities or other difficulties in the
manufacturing process can lower yields. In addition, California and the Pacific
Rim are known to contain various earthquake faults. The Company's operations
could be materially adversely affected if production at any of its major
facilities were interrupted. There can be no assurance that the Company will
not experience manufacturing difficulties in the future.
EMPLOYEES.
- ---------
On September 29, 1996, the Company employed 1,662 persons domestically
including 106 in engineering, 1,331 in manufacturing, 101 in marketing and 124
in general management and administration. Additionally, 717 persons were
employed in the Company's Hong Kong, Bombay, India, and Ennis, Ireland
operations. None of the Company's employees is represented by a labor union.
The Company has experienced no work stoppage. The Company believes its employee
relations are good.
DEPENDENCE ON KEY PERSONNEL
- ---------------------------
The Company's future performance is significantly dependent on the continued
active participation of members of its current management. The Company does not
have written employment contracts with its employees. Should one or more of the
Company's key management employees leave or otherwise become unavailable to the
Company, the Company's business and results of operations may be materially
adversely affected.
PRODUCT LIABILITY
- -----------------
The Company's business exposes it to potential liability risks that are
inherent in the manufacturing and marketing of high-reliability electronic
components for critical applications. No assurances can be made that the
Company's product liability insurance coverage is adequate or that present
coverage will continue to be available at acceptable costs, or that a product
liability claim would not adversely affect the business or financial condition
of the Company.
CHANGE OF CONTROL PROVISIONS
- ----------------------------
The Company's Certificate of Incorporation, Bylaws, Shareholder Rights Plan
and certain employment compensation plans contain provisions that make it more
difficult for a third party to acquire, or that may discourage a third party
from attempting to acquire, control of the Company. In addition, as a Delaware
corporation, the Company is subject to the restrictions imposed under Section
203 of the Delaware General Corporation Law which may deter the Company from
engaging in certain change of control transactions with certain of its
stockholders under certain circumstances.
6
ENVIRONMENTAL REGULATION
- ------------------------
While the Company believes that it has the environmental permits necessary to
conduct its business and that its activities conform to present environmental
regulations, increased public attention has been focused on the environmental
impact of semiconductor operations. The Company, in the conduct of its
manufacturing operations, has handled and does handle materials that are
considered hazardous, toxic or volatile under federal, state and local laws and,
therefore, is subject to regulations relating to their use, storage, discharge
and disposal. No assurances can be made that the risk of accidental release of
such materials can be completely eliminated. In addition, the Company operates
or owns facilities located on or near real property that may formerly have been
used in ways that involved such materials. In the event of a violation of
environmental laws, the Company could be held liable for damages and the costs
of remediation, and, along with the rest of the semiconductor industry, is
subject to variable interpretations and governmental priorities concerning
environmental laws and regulations. Environmental statutes have been
interpreted to provide for joint and several liability and strict liability
regardless of actual fault. There can be no assurance that the Company and its
subsidiaries will not be required to incur costs to comply with, or that the
operations, business, or financial condition of the Company will not be
materially adversely affected by, current or future environmental laws or
regulations.
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
- ----------------------------------------------------------------------------
This Form 10-K contains certain forward-looking statements that are based on
current expectations and involve a number of risks and uncertainties. The
forward looking statements included herein are, among other items, based on
current assumptions that the Company will be able to meet its current operating
cash and debt service requirements with internally generated funds and its
available line of credit, that it will be able to successfully resolve disputes
and other business matters as anticipated, that competitive conditions within
the semiconductor, surface mount and custom diode assembly industries will not
change materially or adversely, that the Company will retain existing key
personnel, that the Company's forecasts will reasonably anticipate market demand
for its products, and that there will be no materially adverse change in the
Company's operations or business. Assumptions relating to the foregoing involve
judgements that are difficult to predict accurately and are subject to many
factors that can materially affect results. Forecasting and other management
decisions are subjective in many respects and thus susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause the Company to alter its forecasts,
which may in turn affect the Company's results. In light of the factors that
can materially affect the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved.
ITEM 2. PROPERTIES
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The Company's headquarters are located in a building complex located in Santa
Ana, California. This complex contains general offices, engineering and
manufacturing space. The Company owns office, engineering and production
facilities in Santa Ana, California; Broomfield, Colorado; Garland, Texas;
Watertown, Massachusetts; Ennis, Ireland; Bombay, India and Hong Kong and leases
office, engineering and production facilities in Scottsdale, Arizona and
Mooresville, North Carolina. As described in Note 8 to the Consolidated
Financial Statements, the acquisitions of land, buildings and additions in Santa
Ana and Broomfield were accomplished through the issuance of Industrial
Development Bonds. Deeds of trust on the related properties were granted as
security for the bonds.
The Company believes that its existing facilities are well-maintained and in
good operating condition and that they are adequate for its immediately
foreseeable business needs.
7
ITEM 3. LEGAL PROCEEDINGS
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The State of Washington, Department of Ecology proposed finding that the
Company is a potentially liable party for the study and cleanup of certain
hazardous substances which allegedly contaminated what has come to be known as
the Yakima Railroad Area Site. The State of Washington claims that the Company
was one of the potentially liable parties that arranged for the disposal of
those hazardous substances through Cameron-Yakima Incorporated, a company that
the State of Washington claims has caused or contributed to the contamination on
the site through its operation of a hazardous waste treatment facility. The
Company has joined a group of companies, which anticipates resolving its
liability with the State of Washington. The Company has provided $50,000 for
the estimated settlement cost in the fiscal year ended September 29, 1996. In
the opinion of management, the final resolution of this matter is not expected
to have a materially adverse effect on the Company's financial position or
results of operations.
In Broomfield, Colorado, the owner of a property located adjacent to the
manufacturing facility owned by a subsidiary of the Company filed suit against
the subsidiary and other parties, claiming that contaminants migrated to his
property, thereby diminishing its value. In August 1995, the subsidiary,
together with the former owners of the manufacturing facility, agreed to settle
the claim and to indemnify the owner of the adjacent property from remediation
costs. Although TCE and other contaminants previously used at the facility are
present in soil and groundwater on the subsidiary's property, the Company
vigorously contests any assertion that the subsidiary is the cause of the
contamination; however, there can be no assurance that recourse will be
available against third parties. State and local agencies in Colorado are
reviewing current data and considering study and cleanup options, and it is not
yet possible to predict costs for remediation or the allocation thereof among
potentially responsible parties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
8
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
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(a) Market Information
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The Company's Common Stock is traded on the NASDAQ National Market
under the symbol MSCC. The following table sets forth the high and low
closing prices at which the Company's Common Stock traded as reported on the
NASDAQ National Market System.
HIGH LOW
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Fiscal Year ended September 29, 1996
1st Quarter........................ $ 11 3/4 $8 5/8
2nd Quarter........................ 10 1/2 7 1/2
3rd Quarter........................ 10 11/16 8 3/8
4th Quarter........................ 11 8 1/4
HIGH LOW
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Fiscal Year ended October 1, 1995
1st Quarter........................ $ 5 3/8 $4 1/8
2nd Quarter........................ 5 5/8 4 5/8
3rd Quarter........................ 9 1/8 5 1/8
4th Quarter........................ 14 9 1/8
POSSIBLE VOLATILITY OF STOCK PRICES
-----------------------------------
The market prices of securities issued by technology companies, including
the Company, have been volatile. The securities of many technology companies
have experienced extreme price and volume fluctuations, which have often been
not necessarily related to the companies' respective operating performances.
Quarter to quarter variations in operating results, changes in earnings
estimates by analysts, announcements of technological innovations or new
products, announcements of major contract awards, events involving other
companies in the industry and other events or factors may have a significant
impact on the market price of the Company's Common Stock.
(b) Approximate Number of Common Equity Security Holders
----------------------------------------------------
Approximate Number of
Record Holders
Title of Class (as of September 29, 1996)
-------------- --------------------------
Common Stock, $.20 Par Value 560 (1)
(1) The number of stockholders of record includes the beneficial holders of
shares held in "nominee" or "street name", as a unit.
9
(c) Dividends
---------
The Company has not paid dividends in the last five years and has no
current plans to do so.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
For the five fiscal years in the period ended
September 29, 1996
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1996 1995 1994(2)(3) 1993 1992 (1)
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(Amounts in 000's except per share amounts)
Selected Income Statement Data:
- ------------------------------
Net sales $157,435 $133,881 $119,230 $123,816 $ 88,719
Gross profit $ 42,115 $ 35,795 $ 22,438 $ 28,729 $ 22,261
Operating expenses $ 23,164 $ 20,279 $ 20,579 $ 19,938 $ 14,794
Income (loss) before extraordinary
item and cumulative effect of
accounting change $ 8,100 $ 6,053 $ (2,130) $ 1,763 $ 1,053
Earnings (loss) per share
Primary $ .98 $ .74 $ (.28) $ .23 $ .14
Fully diluted $ .80 $ .62 $ (.28) $ .21 $ .14
Common and
common equivalent shares
Primary 8,288 8,213 7,573 7,753 7,579
Fully diluted 11,805 11,861 7,573 9,043 7,864
Selected Balance Sheet Data:
- ---------------------------
Working capital $ 49,556 $ 45,714 $ 35,128 $ 35,315 $ 33,826
Total assets $114,439 $104,815 $100,149 $105,469 $111,918
Long-term debt $ 46,420 $ 48,398 $ 50,568 $ 51,871 $ 54,037
Stockholders' equity $ 29,408 $ 21,110 $ 14,788 $ 16,835 $ 13,758
(1) In July 1992, the Company acquired substantially all of the assets of the
Semiconductor Products Division of Unitrode Corporation.
(2) In September 1994, the Company recorded a charge to reduce the carrying
value of military related inventories and other assets and certain non-
military related assets where there had been a permanent reduction in
value. (See Note 5 to Notes to Consolidated Financial Statements).
(3) During 1994, the Company disposed of substantially all the assets of Omni
Technology Corporation, a wholly owned subsidiary of the Company. (See Note
11 to Notes to Consolidated Financial Statements).
The selected financial data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto, and Management's Discussion
and Analysis of Financial Condition and Results of Operations included in the
Form 10-K.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
-------------
CAPITAL RESOURCES & LIQUIDITY
- -----------------------------
Microsemi Corporation's operations in the fiscal year 1996 were funded with
internally generated funds and borrowings under the Company's line of credit.
In September 1996, the Company obtained a new credit line with a bank. Under
the current line of credit, the Company can borrow up to $15,000,000. As of
September 29, 1996, $4,214,000 was borrowed under this credit facility. At
September 29, 1996, the Company had $4,059,000 in cash and cash equivalents.
A $5,350,000 Industrial Development Revenue Bond was originally issued in
April 1985, through the City of Santa Ana Industrial Development Authority for
the construction of improvements and new facilities at the Santa Ana plant. It
was remarketed in 1995 and carries an average interest rate of 6.75% per annum.
The terms of the bond require principal payments of $1,050,000 in 1998, $100,000
annually from 1999 to 2004 and $3,700,000 in 2005. A $5,557,000 letter of
credit is carried by a bank to guarantee the repayment of this bond. There are
no compensating balance requirements, however, the letter of credit agreement
requires the Company to make collateral payments of $350,000 on February 1,
1996, 1997 and 1998, totaling $1,050,000, to complete the payment of principal
scheduled for February 1, 1998.
Based upon information currently available, the Company believes that it
can meet its current operating cash and debt service requirements with
internally generated funds together with its available borrowings.
The Company's revenues continue to be partially dependent on military and
aerospace programs. Reductions in defense spending had and will continue to have
a negative impact on the Company's operations. Furthermore, there were
Department of Defense (DOD) announcements of major changes in defense
procurement policy, which included official notification, on August 22, 1994, of
Department of Defense acquisition reform to utilize best commercial practices
instead of mandatory use of military standard parts. In the past three years,
military related business has declined from approximately 50% to 30% of total
revenues. The decrease in shipments of military related parts has been more
than offset by the increase in shipments of commercial, industrial, medical and
space related products. In addition, the Company continues to develop
commercial applications for its products to offset this decrease. Although the
final impact of the changes in Department of Defense procurement practices is
not known, management believes that, either through associated cost reductions
or increases in shipments of non Department of Defense products, it will not
have a significant impact on total future revenues, operations or cash flows of
the Company (see Note 5 to the Consolidated Financial Statements).
The average collection period on accounts receivable was 52 days for the
fiscal years 1996 and 1995.
The average days sales of product in inventories decreased to 143 days for
fiscal year 1996 compared to 155 days for fiscal year 1995 due primarily to the
increase in sales over the prior year.
On October 25, 1996, Microsemi purchased certain assets and the right to
manufacture a selected group of products of the high-reliability portion of SGS
Thompson's Radio Frequency (RF) Semiconductor business in Montgomeryville,
Pennsylvania. The purchase price comprised approximately $2,200,000 in cash and
a $700,000 note payable.
The Company has no other significant capital commitments.
11
RESULTS OF OPERATIONS FOR THE FISCAL YEAR 1996 COMPARED TO THE FISCAL YEAR 1995.
- --------------------------------------------------------------------------------
Net sales for fiscal year 1996 increased to $157,435,000, or 18%, from
$133,881,000 for fiscal year 1995. The increase of $23,554,000 was due to higher
volume of shipments of commercial, industrial and telecommunications and
commercial applications, reflecting the increasing demand for the Company's
products in these markets, which included an increase in sales to foreign
customers.
Gross profit increased $6,320,000 to $42,115,000 for the current fiscal
year from $35,795,000 for the prior year, primarily due to the higher sales
levels. Gross profit, as a percentage of sales, has remained relatively
consistent at 27% for fiscal years 1996 and 1995.
Selling expenses increased $1,163,000 to $9,027,000 for fiscal year 1996,
compared to fiscal year 1995, primarily due to increases in commission, salaries
and related costs consistent with the increase in sales and an increase in
marketing and promotional efforts during 1996. General and administrative
expenses in the current year increased $1,715,000 as compared to those of the
prior year. This increase was primarily the result of an increase in general
and administrative support services and related costs needed to support the
continuing growth of the Company.
Interest expense decreased $582,000 to $4,440,000 for fiscal year 1996 from
$5,022,000 in fiscal year 1995 primarily due to lower overall borrowings
throughout 1996 as compared to 1995, combined with a decrease in interest rates
on the Company's Industrial Development Revenue Bond which was remarketed during
1995.
The effective income tax rates of 42% and 41% for the fiscal years 1996 and
1995, respectively, are the combined results of income taxes computed on foreign
and domestic income.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR 1995 COMPARED TO THE FISCAL YEAR
- ---------------------------------------------------------------------------
1994.
- -----
Net sales for fiscal year 1995 increased to $133,881,000, or 12%, from
$119,230,000 for fiscal year 1994. The increase of $14,651,000 was due to
higher volume of shipments of commercial, industrial and telecommunications
products, reflecting the Company's effort to shift toward these markets, and the
increase of demand in the electronics industry in general.
Gross profit increased $13,357,000 to $35,795,000 for the current
fiscal year from $22,438,000 for the prior year. In fiscal year 1994, cost of
sales included a $7,258,000 reduction in the carrying values of certain military
and non-military related inventories to reflect their estimated net realizable
values. Without this reduction, gross profit for fiscal year 1994 would have
been $29,696,000, or 25% of sales compared to 27% for the current fiscal year.
The remaining increase in gross profit as a percentage of sales in fiscal year
1995 compared to fiscal year 1994 was primarily due to higher absorption of
fixed overhead costs as a result of increased production.
General and administrative expenses for fiscal year 1995 increased
$2,038,000; however, general and administrative expenses as a percentage of
sales have remained relatively consistent at 9% for fiscal years 1995 and 1994.
The effective income tax (benefit) rates of 41% and (39%) for the
fiscal years 1995 and 1994, respectively, are the combined results of income
taxes (benefits) computed on foreign and domestic income (loss).
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Microsemi Corporation-Index to Financial Statements
---------------------------------------------------
Page
----
1. Consolidated Financial Statements
---------------------------------
Report of Independent Accountants 14
Consolidated Balance Sheets at September 29,
1996 and October 1, 1995 15
Consolidated Statements of Operations for each of the three fiscal years
in the period ended September 29, 1996 16
Consolidated Statements of Stockholders' Equity for each of the three
fiscal years in the period ended September 29, 1996 17
Consolidated Statements of Cash Flows for each of the three fiscal years
in the period ended September 29, 1996 18
Notes to Consolidated Financial Statements 19
2. Financial Statement Schedule
----------------------------
Schedule for the fiscal years ended September 29, 1996, October 1,
1995 and October 2, 1994.
Schedule
--------
II - Valuation and Qualifying Accounts 34
Financial statement schedules not listed above are either omitted
because they are not applicable or the required information is shown
in the consolidated financial statements or in the notes thereto.
13
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
To the Board of Directors
and Stockholders of
Microsemi Corporation
In our opinion, the consolidated financial statements and financial statement
schedule listed in the accompanying index present fairly, in all material
respects, the financial position of Microsemi Corporation and its subsidiaries
at September 29, 1996 and October 1, 1995, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
September 29, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Costa Mesa, California
November 21, 1996
14
MICROSEMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in 000's)
September 29, October 1,
ASSETS 1996 1995
------------- ----------
Current assets
Cash and cash equivalents $ 4,059 $ 3,965
Accounts receivable, less allowance for doubtful accounts of
$2,159 in 1996 and $2,018 in 1995 24,740 20,191
Inventories 47,279 43,281
Deferred income taxes, net 6,952 5,471
Other current assets 1,202 4,375
-------- --------
TOTAL CURRENT ASSETS 84,232 77,283
-------- --------
Property and equipment, net 25,641 23,602
-------- --------
Deferred income taxes, net 675 569
-------- --------
Other assets 3,891 3,361
-------- --------
$114,439 $104,815
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable to banks and others $ 4,552 $ 4,561
Current maturities of long-term debt 1,625 2,328
Accounts payable 8,013 6,774
Accrued liabilities 15,042 13,178
Income taxes payable 4,694 4,016
Deferred income taxes 750 712
-------- --------
TOTAL CURRENT LIABILITIES 34,676 31,569
-------- --------
Deferred income taxes 1,973 1,864
-------- --------
Long-term debt 46,420 48,398
-------- --------
Other long-term liabilities 1,962 1,874
-------- --------
Commitments and contingencies (Notes 8 & 10)
Stockholders' equity
Common stock, $.20 par value; authorized 20,000 shares; issued
7,908 in 1996 and 7,789 in 1995 1,582 1,558
Capital in excess of par value of stock 14,895 14,644
Retained earnings 12,931 4,908
-------- --------
TOTAL STOCKHOLDERS' EQUITY 29,408 21,110
-------- --------
$114,439 $104,815
======== ========
The accompanying notes are an integral part of these statements.
15
MICROSEMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in 000's, except earnings per share)
For each of the three fiscal years in the period ended September 29, 1996
1996 1995 1994
--------- --------- ---------
Net sales $157,435 $133,881 $119,230
Cost of sales 115,320 98,086 96,792
-------- -------- --------
GROSS PROFIT 42,115 35,795 22,438
-------- -------- --------
Operating expenses
Selling 9,027 7,864 7,450
General and administrative 13,916 12,201 10,163
Amortization of goodwill and other intangible assets 221 214 251
Reduction in carrying value of assets - - 2,715
-------- -------- --------
TOTAL OPERATING EXPENSES 23,164 20,279 20,579
-------- -------- --------
INCOME FROM OPERATIONS 18,951 15,516 1,859
-------- -------- --------
Other expense
Interest expense, net (4,440) (5,022) (5,094)
Other (545) (234) (282)
-------- -------- --------
TOTAL OTHER EXPENSE (4,985) (5,256) (5,376)
-------- -------- --------
Income (loss) before income taxes 13,966 10,260 (3,517)
Provision (benefit) for income taxes 5,866 4,207 (1,387)
-------- -------- --------
NET INCOME (LOSS) $ 8,100 $ 6,053 $ (2,130)
======== ======== ========
PRIMARY EARNINGS (LOSS) PER SHARE $.98 $.74 $(.28)
======== ======== ========
FULLY DILUTED EARNINGS (LOSS) PER SHARE $.80 $.62 $(.28)
======== ======== ========
The accompanying notes are an integral part of these statements.
16
MICROSEMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(amounts in 000's)
For each of the three fiscal years in the period ended September 29, 1996
Capital in Retained
Common Stock excess of earnings
--------------------------- par value (accumulated
Shares Amount of stock deficit) Total
------------ ------------ -------- ------------ --------
BALANCE AT OCTOBER 3, 1993 7,548 $1,510 $14,318 $ 1,007 $16,835
Net loss - - - (2,130) (2,130)
Exercise of employee stock options 47 9 79 - 88
Currency translation loss - - - (5) (5)
----- ------ ------- ------- -------
BALANCE AT OCTOBER 2, 1994 7,595 1,519 14,397 (1,128) 14,788
Net income - - - 6,053 6,053
Exercise of employee stock options 194 39 247 - 286
Currency translation loss - - - (17) (17)
----- ------ ------- ------- -------
BALANCE AT OCTOBER 1, 1995 7,789 1,558 14,644 4,908 21,110
Net income - - - 8,100 8,100
Exercise of employee stock options 66 13 162 - 175
Conversion of notes payable 53 11 89 - 100
Currency translation loss - - - (77) (77)
----- ------ ------- ------- -------
BALANCE AT SEPTEMBER 29, 1996 7,908 $1,582 $14,895 $12,931 $29,408
===== ====== ======= ======= =======
The accompanying notes are an integral part of these statements.
17
MICROSEMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in 000's)
For each of the three fiscal years in the period ended September 29, 1996
1996 1995 1994
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 8,100 $ 6,053 $(2,130)
Adjustments to reconcile net income (loss) to net cash provided from
operating activities:
Depreciation and amortization 3,861 3,888 4,491
Allowance for doubtful accounts 141 (155) 290
Reserve on notes receivable and other assets - 1,070 -
Reduction in carrying value of assets - - 9,973
Loss on disposition and retirement of assets 254 354 75
Deferred income taxes (1,440) 53 (1,762)
Change in assets and liabilities, net of disposition:
Accounts receivable (4,690) (2,264) (929)
Inventories (3,998) (3,223) (3,036)
Other current assets 3,173 (536) (271)
Other assets (1,131) 490 455
Accounts payable 1,239 (117) (2,696)
Accrued liabilities 1,864 3,190 3,463
Income taxes payable 678 2,804 (937)
Other long-term liabilities - 938 -
Other (77) (17) (5)
------- ------- -------
Net cash provided from operating activities 7,974 12,528 6,981
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (5,933) (3,765) (2,522)
Proceeds from sales of assets (Note 11) 380 - 200
Increase in other assets - (315) -
------- ------- -------
Net cash used for investing activities (5,553) (4,080) (2,322)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable to bank and others (9) (5,023) (442)
Proceeds from long-term debt 17 988 3,117
Payments on long-term debt (2,598) (4,648) (5,419)
Decrease (increase) in other long-term liabilities 88 (80) (89)
Exercise of employee stock options 175 286 88
------- ------- -------
Net cash used for financing activities (2,327) (8,477) (2,745)
------- ------- -------
Net increase (decrease) in cash and cash equivalents 94 (29) 1,914
Cash and cash equivalents at beginning of year 3,965 3,994 2,080
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,059 $ 3,965 $ 3,994
======= ======= =======
The accompanying notes are an integral part of these statements.
18
MICROSEMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
- -----------------------
The Company designs and manufactures a broad line of discrete semiconductors and
provides related services principally for military, aerospace, medical,
computer, telecommunications and other electronics markets. Major products are
silicon rectifiers, zener diodes, low leakage and high voltage diodes,
temperature compensated zener diodes and a family of subminiature high power
transient suppressor diodes.
Fiscal Year
- -----------
The Company reports results of operations on the basis of fifty-two and fifty-
three week periods. The three fiscal years in the period ended September 29,
1996 consisted of fifty-two weeks.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Microsemi
Corporation and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the respective reporting
periods. Actual results could differ from those estimates.
Reclassifications
- -----------------
Certain reclassifications have been made to the fiscal year 1994 and 1995
balances to conform with the fiscal year 1996 presentation.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out method except for inventories at the Scottsdale, Arizona
subsidiary, which cost is determined using the last-in, first-out method (see
Note 2).
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method over the estimated useful lives or leasehold periods, as
appropriate. Maintenance and repairs are charged to expense as incurred and the
costs of additions and betterments that increase the useful lives of the assets
are capitalized.
19
Impairment of Long-Lived Assets
- -------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121). SFAS 121
establishes accounting standards for the impairment of long-lived assets to be
reviewed whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Under the provisions of SFAS 121,
companies are required to review the recoverability of long-lived assets and
intangible assets by comparing cash flows on an undiscounted basis to the net
book value of the assets. In the event the projected undiscounted cash flows
are less than the net book value of the assets, the carrying values of the
assets are written down to their fair value, less cost to sell. In addition,
SFAS 121 requires that assets to be disposed of be measured at the lower of cost
or fair value, less cost to sell. The Company will be required to adopt SFAS
121 in fiscal year 1997. The adoption of SFAS 121 is anticipated to have an
immaterial effect upon the Company's financial statements.
Investments
- -----------
The Company's investment in certain unconsolidated affiliates are stated at the
lower of cost or estimated net realizable value.
Earnings Per Share
- ------------------
Earnings per common and common equivalent share have been computed based upon
the weighted average number of common and common equivalent shares outstanding.
Outstanding stock options are included as common stock equivalents when the
effect on earnings per share is dilutive. Earnings per share for the fully
diluted basis have been computed, when the result is dilutive, based on the
assumption that the convertible subordinated debentures had been converted to
common stock at the date of issuance, with a corresponding increase in net
income to reflect a reduction in related interest expense, net of applicable
taxes.
The weighted average number of primary common and common equivalent shares was
8,288,000 in 1996, 8,213,000 in 1995 and 7,573,000 in 1994. Shares for the
computation of fully diluted earnings per share were 11,805,000 in 1996,
11,861,000 in 1995 and 7,573,000 in 1994.
Disclosures About Fair Value of Financial Instruments
- -----------------------------------------------------
The carrying values of cash, cash equivalents, accounts receivable, accrued
liabilities and notes payable approximate their fair values because of the short
maturity of these instruments.
The carrying value of the Company's long-term debt approximates fair value based
upon the current rates offered to the Company for obligations of the same
remaining maturities except for the Company's 5.875% Convertible Subordinated
Debentures and 10% Convertible Subordinated Notes (Note 8). The estimated fair
values of these financial instruments at September 29, 1996 are as follows:
Carrying Fair
Amount Value
-------- -----
(amounts in 000's)
Long Term Debt
Convertible Subordinated Debentures
bearing interest at 5.875% due 2012 $33,281 $29,786
Convertible Subordinated Notes
bearing interest at 10% due 1999 $1,900 $9,943
20
The estimated fair value amounts above have been determined using available
market information and appropriate valuation methodologies. However,
considerable judgment is required to interpret market data and to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in current
market exchanges.
Accounting for Stock-Based Compensation
- ---------------------------------------
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-based Compensation"
(SFAS 123) which establishes financial accounting and reporting standards for
stock-based employer compensation. Under SFAS 123, companies are encouraged,
but not required, to adopt a method of accounting for stock compensation awards
based upon the estimated fair value at the date the options/awards are granted
as determined through the use of a pricing model (the "Fair Value Method").
Companies continuing to account for such awards in accordance with the existing
guidance of Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees" (APB 25) will have to disclose, in the Notes to Financial
Statements, the pro forma impact on net income and net income per share had the
company utilized the Fair Value Method. The Company will be required to adopt
SFAS 123 in fiscal year 1997 and anticipates accounting for future stock
compensation awards in accordance with APB 25 with the appropriate footnote
disclosure required under SFAS 123.
Intangible Assets
- -----------------
Intangible assets, arising principally from differences between the cost of
acquired companies and the underlying values at dates of acquisition, are
amortized on a straight-line basis over periods not exceeding ten years.
Concentration of Credit Risk and Foreign Sales
- ----------------------------------------------
The Company is potentially subject to concentrations of credit risk consisting
principally of trade receivables. Concentrations of credit risk exist because
the Company relies on a significant portion of customers whose principal sales
are to the U.S. Government. In addition, sales to foreign customers
represented approximately 30%, 20% and 17% of net sales for fiscal years 1996,
1995 and 1994, respectively. These sales were principally to customers in
Europe and Asia. The Company maintains reserves for potential credit losses and
such losses have been within management's expectations.
2. INVENTORIES
Inventories used in the computation of cost of goods sold were:
September 29, October 1, October 2,
1996 1995 1994
------------- ---------- ----------
(amounts in 000's)
Raw materials $14,310 $10,367 $ 9,306
Work in process 19,493 20,847 18,678
Finished goods 13,476 12,067 12,074
------- ------- -------
$47,279 $43,281 $40,058
======= ======= =======
Inventories in the amount of $7,408,000 at Microsemi Scottsdale are stated at
cost under the last-in, first-out (LIFO) method. Had the first-in, first-out
method been used, total inventories would have been approximately $50,000,
$100,000 and $1,100,000 higher at each fiscal year end for 1996, 1995 and 1994,
respectively. The
21
LIFO valuation method had the effect of increasing gross profit by $50,000,
$1,000,000 and $300,000 in fiscal years 1996, 1995 and 1994, respectively.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
September 29, October 1,
Asset Life 1996 1995
------------- --------- -----------
(amounts in 000's)
Buildings 20-40 years $ 16,101 $ 15,520
Property and equipment 3-10 years 32,683 28,552
Furniture and fixtures 5-10 years 922 961
Leasehold improvements Life of lease 1,472 1,336
-------- --------
51,178 46,369
Accumulated depreciation (31,637) (28,442)
Land 4,072 4,072
Construction in progress 2,028 1,603
-------- --------
$ 25,641 $ 23,602
======== ========
Depreciation expense was $3,640,000, $3,674,000 and $4,238,000 in fiscal years
1996, 1995 and 1994, respectively.
At September 29, 1996, land and buildings located at the Santa Ana, California
manufacturing and headquarters facility were pledged to the City of Santa Ana
under the provisions of the loan agreement with the Santa Ana Industrial
Development Authority. The land and building of the Microsemi Colorado
subsidiary were pledged to the City of Broomfield, Colorado under the provisions
of the loan agreement with the Colorado Industrial Development Authority. The
buildings in Watertown, Massachusetts and in Ennis, Ireland are pledged to
Unitrode Corporation under the provisions of the related acquisition agreement.
4. OTHER ASSETS
Other assets consisted of the following:
September 29, October 1,
1996 1995
------------- ----------
(amounts in 000's)
Investments in unconsolidated affiliates $ 603 $ 303
Deferred financing expenses, net 1,292 1,523
Cash surrender value of life insurance 378 344
Goodwill and other intangible assets, net 50 96
Notes receivable 104 289
Collateralized notes receivable 598 598
Restricted deposit (see Note 8) 353 -
Others 513 208
------ ------
$3,891 $3,361
====== ======
Accumulated amortization for deferred financing expenses, goodwill and other
intangible assets amounted to $2,512,000 and $2,293,000 as of September 29, 1996
and October 1, 1995, respectively.
22
As of September 29, 1996 and October 1, 1995, Microsemi has a loan of $598,000
to an unaffiliated company collateralized by its property interest in a building
in Allen, Texas.
5. REDUCTION IN CARRYING VALUE OF ASSETS
In September 1994, the Company recorded a charge to reduce the carrying value of
military related inventories and other assets and certain non-military related
assets where there had been a permanent reduction in value.
The charge comprised the following components (amounts in 000's):
Fiscal Year
Ended
October 2, 1994
---------------
Military related assets
Inventories $5,995
Other assets 558
Equipment 507
------
7,060
------
Non-military related assets
Inventories 1,263
Other assets 1,250
Building 400
------
2,913
------
Total $9,973
======
A major portion of these charges directly resulted from Department of Defense
(DOD) announcements of major changes in defense procurement policy which
included official notification, on August 22, 1994, of DOD acquisition reform to
utilize best commercial practices instead of mandatory use of military standard
parts. These changes in DOD procurement policies required the Company to
conduct a revaluation of its military related inventory and other assets used in
the more complex military standard parts production, resulting in a revaluation
of these assets to reflect their estimated net realizable values on the basis of
projected utilization and market value.
In addition, the carrying values of certain other non-military related assets
were reduced to reflect their estimated net realizable values. These reductions
of carrying values related principally to (1) a dispute, which arose in the
fourth quarter of fiscal 1994, relating to inventories previously on consignment
and a related note receivable, (2) the permanent reduction in the value of a
building owned by the Company, and (3) a reduction in the net realizable values
of certain inventories and investments.
The reductions in the carrying values of inventories totaling $7,258,000 were
charged to cost of sales in fiscal year 1994. The remaining charge for the
reduction in carrying values of the other assets totaling $2,715,000 was
included as a component of operating expenses in fiscal year 1994.
23
7. ACCRUED LIABILITIES
Accrued liabilities consisted of:
September 29 October 1,
1996 1995
------------ ----------
(amounts in 000's)
Accrued payroll, vacation and related taxes $ 4,286 $ 4,689
Accrued profit sharing 3,694 3,703
Accrued interest 1,347 470
Accrued commissions and discounts 734 1,058
Accrued professional fees 623 714
Accrued property and sales taxes 294 480
Accrued lease liability 465 265
Other accrued expenses 3,599 1,799
------- -------
$15,042 $13,178
======= =======
7. INCOME TAXES
Pretax income (loss) from continuing operations was taxed under the following
jurisdictions:
For each of the three fiscal years in
the period ended September 29, 1996
-------------------------------------
1996 1995 1994
--------- ----------- ---------
(amounts in 000's)
Domestic $11,255 $ 7,750 $(4,188)
Foreign 2,711 2,510 671
------- ------- -------
Total $13,966 $10,260 $(3,517)
======= ======= =======
The provision (benefit) for income taxes consisted of the following components:
For each of the three fiscal years in
the period ended September 29, 1996
-------------------------------------
1996 1995 1994
--------- ----------- ---------
(amounts in 000's)
Current
Federal $ 5,861 $ 3,295 $ 92
State 867 293 20
Foreign 578 566 263
Deferred (1,440) 53 (1,762)
------- ------- -------
$ 5,866 $ 4,207 $(1,387)
======= ======= =======
24
Deferred tax assets (liabilities) comprise the following:
September 29, October 1,
1996 1995
-------------- -----------
(amounts in 000's)
Accounts receivable $ 765 $ 698
Inventories 1,594 1,118
Other assets 1,814 1,949
Fixed asset bases 479 441
Accrued employee benefit expenses 2,708 2,216
Accrued other expenses 1,820 1,195
Loss and credit carryforwards 1,251 1,227
------- -------
Gross deferred tax assets 10,431 8,844
------- -------
Deferred tax asset valuation allowance (2,804) (2,804)
------- -------
Inventory bases (750) (712)
Depreciation (1,770) (1,672)
Other (203) (192)
------- -------
Gross deferred tax liabilities (2,723) (2,576)
------- -------
$ 4,904 $ 3,464
======= =======
The following is a reconciliation of income tax computed at the federal
statutory rate to the Company's actual tax expense:
For the three fiscal
years in the period ended
September 29, 1996
-------------------------------------
1996 1995 1994
------- ---------------- --------
(amounts in 000's)
Tax computed at statutory rate $4,748 $3,488 $(1,196)
State taxes, net of federal benefit 787 655 (220)
Tax effect of earnings of foreign subsidiaries (921) (853) (347)
Foreign taxes 578 566 263
Other differences, net 674 351 113
------ ------ -------
$5,866 $4,207 $(1,387)
====== ====== =======
The Company has the following tax loss carryforwards available as of September
29, 1996:
Amount Expiration Date
------ ---------------
(amounts in 000's)
Purchased net operating loss carryforwards $1,168 2003
Capital loss carryforwards $2,317 1997
Tax benefits realized in future periods from the purchased net operating losses
will be reflected as adjustments to goodwill and other intangible assets which
were recorded at the time of the acquisition of the related subsidiaries. All or
a portion of the capital loss carryforward amount may be utilized to offset
future capital gains.
No provision has been made for future U.S. income taxes on the undistributed
earnings of foreign operations since they have been, for the most part,
indefinitely reinvested in these operations. Determination of the amount of
25
unrecognized deferred tax liability for temporary differences related to the
undistributed earnings of the Company's foreign operations is not practicable.
At the end of fiscal year 1996, the undistributed earnings aggregated
approximately $13,828,000.
8. DEBT
Long-term debt consisted of:
September 29, October 1,
1996 1995
------------- ----------
(amounts in 000's)
Industrial Development Bond-bearing interest at
7.875% due May 2000; secured by first deed of trust $ 2,720 $ 2,905
Industrial Development Bond-bearing interest at 6.75%
due February 2005; secured by first deed of trust 5,350 5,350
Convertible Subordinated Debentures-bearing interest
at 5.875% due 2012 33,281 33,281
Convertible Subordinated Notes-bearing interest
at 10% due 1999 1,900 2,000
Notes payable-bearing interest at ranges of 5 - 13%
due between October 1996 and July 2002 4,794 7,190
------- -------
48,045 50,726
Less current portion (1,625) (2,328)
------- -------
$46,420 $48,398
======= =======
Sinking fund payment requirements under the Industrial Development Bonds, and
other long-term debt maturities, including the current portion, during the next
five years are as follows (amounts in 000's):
1997 1,625
1998 2,483
1999 2,997
2000 2,642
2001 591
Thereafter 37,707
-------
$48,045
=======
A $5,350,000 Industrial Development Revenue Bond was originally issued in April
1985, through the City of Santa Ana for the construction of improvements and new
facilities at the Santa Ana plant. It was remarketed in 1995 and carries an
average interest rate of 6.75% per annum. The terms of the bond require
principal payments of $1,050,000 in 1998, $100,000 annually from 1999 to 2004
and $3,700,000 in 2005. A $5,557,000 letter of credit is carried by a bank to
guarantee the repayment of this bond. There are no compensating balance
requirements, however, the letter of credit agreement requires the Company to
make collateral payments of $350,000 on February 1, 1996, 1997 and 1998,
totaling $1,050,000 to complete the payment of principal scheduled for February
1, 1998. An annual commitment fee of 2% is charged on this letter of credit. In
addition, the agreement contains provisions regarding net worth and working
capital. The Company was in compliance with the aforementioned covenants at
September 29, 1996.
26
In February 1987, the Company sold $40,250,000 of 5.875% convertible
subordinated debentures due 2012. The debentures are convertible into common
stock at $13.55 per share. As of September 29, 1996 they are redeemable at
100.6% of par plus accrued interest, declining to par on March 1, 1997.
Deferred debt issuance costs of $1,128,000 are included in other assets and are
being amortized over the life of the debentures on a straight-line basis. In
fiscal years 1987, 1988, 1989 and 1991, the Company repurchased a total of
$6,969,000 of these debentures due to favorable market conditions.
In June 1992, the Company obtained $2,000,000 from an officer and two existing
shareholders to finance a portion of an acquisition completed in fiscal year
1992. The related $2,000,000 of 10% convertible notes are due in 1999 and
convertible into common stock at $1.875 per share. In fiscal year 1996,
$100,000 was converted into 53,333 shares of common stock.
The Company maintains a revolving credit facility with a domestic bank which
will continue through September 1997. Under the credit facility the Company can
borrow up to $15,000,000. The credit line has an interest rate of prime and is
secured by substantially all of the assets of the Company. In addition, the
credit agreement contains provisions regarding net worth and working capital.
The Company is in compliance with the aforementioned covenants at September 29,
1996. At September 29, 1996, the balance on this credit facility amounted to
$4,214,000.
Notes payable to banks and others at September 29, 1996 included a $51,000
($7,000 at October 1, 1995) overdraft facility due to a bank in Hong Kong, a
demand note payable to the former owner of the Bombay, India facility for
$47,000 ($53,000 at October 1, 1995) and $240,000 ($598,000 at October 1, 1995)
due to a financial institution in Ireland under an accounts receivable
discounting agreement.
9. STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS
Stock Options
- -------------
Under the terms of an incentive stock option plan adopted in fiscal year 1982
and amended in fiscal year 1985, nontransferable options to purchase common
stock may be granted to certain key employees. 750,000 shares have been
reserved for issuance under the terms of the plan. The options may be exercised
within ten years from the date they are granted, subject to early termination
upon death or cessation of employment, and are exercisable in installments
determined by the Board of Directors. For certain significant shareholders, the
exercise period is limited to five years and the exercise price is higher.
In December 1986, the Board of Directors adopted another incentive stock option
plan (The 1987 Plan) which reserved an additional 750,000 shares of common stock
for issuance. The 1987 Plan was approved by the shareholders in February 1987
and is for the purpose of securing for the Company and its shareholders the
benefits arising from stock ownership by selected officers, directors and other
key executives and management employees. The plan provides for the grant by the
Company of stock options, stock appreciation rights, shares of common stock or
cash. As of September 29, 1996, only options have been granted under the 1987
Plan. The options may be exercised within ten years from the date they are
granted, subject to early termination upon death or cessation of employment, and
are exercisable in installments determined by the Board of Directors. For
certain significant shareholders, the exercise period is limited to five years
and the exercise price is higher.
At their annual meeting on February 25, 1994, the shareholders approved several
amendments to the 1987 Plan which 1) extend its termination date to December 15,
2000; 2) increase initially from 750,000 to 850,000 the number of shares
available for grants; 3) increase on the first day of each fiscal year, the
number of shares available
27
for grant in increments of 2% of the Company's issued and outstanding shares of
common stock; 4) set a limit on the number of options or shares which may be
granted to any one individual in any year; 5) eliminate limitations on the Board
of Directors' designating one or more committees of any size or composition to
administer the 1987 Plan; and 6) provide for automatic grants of stock options
to non-employee directors.
Activity and price information regarding the plans are as follows:
Stock Options
--------------------------
Shares Price Range
--------- -------------
Outstanding October 3, 1993 654,775 $ 1.000 - $5.625
Granted 179,500 $ 3.875 - $5.000
Exercised (46,123) $ 1.000 - $5.000
Expired or canceled (21,750) $ 1.000 - $2.750
--------
Outstanding October 2, 1994 766,402 $ 1.000 - $5.625
========
Granted 156,800 $ 2.000 - $5.000
Exercised (194,629) $ 1.000 - $5.000
Expired or canceled (12,300) $ 1.000 - $5.000
--------
Outstanding October 1, 1995 716,273 $ 1.000 - $5.625
========
Granted 146,300 $9.875 - $11.766
Exercised (66,008) $ 1.000 - $5.000
Expired or canceled (56,050) $ 1.000 - $2.700
--------
Outstanding September 29, 1996 740,515 $1.000 - $11.766
========
Stock options exercisable were 421,590, 414,264 and 469,202 at September 29,
1996, October 1, 1995 and October 2, 1994, respectively. Remaining shares
available for grant at September 29, 1996, October 1, 1995 and October 2, 1994
under the plans were 244,489, 175,816 and 176,725, respectively. All options
were granted at the fair market value of the Company's shares of common stock on
the date of grant.
Employee Benefit Plans
- ----------------------
The Microsemi Corporation Profit Sharing Plan, adopted by the Board of Directors
in fiscal year 1984, covers substantially all full-time employees who meet
certain minimum employment requirements and provides for current bonuses based
upon the Company's earnings. Annual contributions to the plan are determined by
the Board of Directors. Total charges to income amounted to approximately
$2,557,000, $2,882,000 and $2,059,000 in fiscal years 1996, 1995 and 1994,
respectively.
401(k) Plan
- -----------
The Company sponsors a 401(k) Savings Plan whereby participating employees may
elect to contribute up to 15% of their eligible wages. The Company is committed
to match 50% of employee contributions, not exceeding 3% of the employee's
wages. The Company contributed approximately $821,000, $583,000 and $338,000 to
this plan during fiscal years 1996, 1995 and 1994, respectively.
28
Supplemental Retirement Plan
- ----------------------------
In fiscal year 1994, the Company adopted a supplemental retirement plan which
provides certain long-term employees with retirement benefits based upon a
certain percentage of the employees' salaries. Included in other long-term
liabilities at September 29, 1996 and October 1, 1995, was $1,501,000 and
$1,406,000, respectively, related to the Company's estimated liability for the
plan.
10. COMMITMENTS AND CONTINGENCIES
The Company occupies premises under operating lease agreements expiring through
2006. Aggregate future minimum rentals payable under these leases are (amounts
in 000's):
1997 $1,017
1998 931
1999 851
2000 860
2001 863
Thereafter 4,506
------
$9,028
======
Rental expense charged to income was $1,204,000 in fiscal year 1996, $1,472,000
in fiscal year 1995 and $1,297,000 in fiscal year 1994. The aforementioned
amounts are net of sublease income amounting to $146,000 and $145,000 in fiscal
years 1996 and 1995, respectively. The Company had no sublease income in fiscal
year 1994.
In July 1994, the Company received a letter from the State of Washington
Department of Ecology stating that it proposed finding the Company a potentially
liable party for alleged contamination of real property and ground water in
Yakima County, Washington. The letter alleges that the Company arranged for
disposal or treatment of the contaminates or arranged with a transporter for the
disposal or treatment of the contaminates in Yakima County. The Company has
joined a group of companies, which anticipates resolving its liability with the
State of Washington. The Company has provided $50,000 for the estimated
settlement cost in the fiscal year ended September 29, 1996. In the opinion of
management, the final resolution of this matter is not expected to have a
materially adverse effect on the Company's financial position or results of
operations.
In Broomfield, Colorado, an owner of property located adjacent to a
manufacturing facility owned by a subsidiary of the Company had filed suit
against the subsidiary and other parties, claiming that contaminants migrated to
his property, thereby diminishing its value. In August 1995, the subsidiary,
together with former owners of the manufacturing facility, agreed to settle the
claim and to indemnify the owner of the adjacent property for remediation costs.
Although TCE and other contaminants previously used at the facility are present
in soil and groundwater on the subsidiary's property, the Company vigorously
contests any assertion that the subsidiary is the cause of the contamination;
however, there can be no assurance that recourse will be available against third
parties. State and local agencies in Colorado are reviewing current data and
considering study and cleanup options, and it is not yet possible to predict
costs for remediation or the allocation thereof among potentially responsible
parties. In the opinion of management, based in part on the opinion of legal
counsel, the final outcome of the Broomfield, Colorado environmental matter will
not have a material adverse effect on the Company's financial position or
results of operations.
The Company is involved in various pending litigation arising out of the normal
conduct of its business, including those relating to commercial transactions,
contracts, and environmental matters. In the opinion of management,
29
based in part on the opinion of legal counsel, the final outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
11. DISPOSITIONS
On June 8, 1994, the Company completed a transaction with Technology Marketing
Incorporated (TMI) to dispose of substantially all of the assets of Omni
Technology Corporation (Omni), a wholly owned subsidiary of the Company. The
Company received $200,000 cash, a $300,000 term note receivable, $2,000,000 in
4% redeemable preferred stock, and a warrant to purchase up to 250,000 shares of
TMI's common stock at $1.00 per share. The preferred stock is subject to
mandatory redemption over a period of between 10 to 20 years based upon the
achievement of certain performance objectives by TMI. No gain or loss was
recognized on the transaction. The Company received no payments from TMI during
fiscal year 1995. The Company repossessed certain assets from TMI in June 1995
and sold a substantial portion of these repossessed assets at an auction in
October 1995 for approximately $380,000. The remaining assets associated with
the sale of Omni were fully reserved at September 29, 1996 and October 1, 1995
and included in the Company's financial statements at their net balance.
30
12. GEOGRAPHIC AREAS
The following table presents sales, income from operations and identifiable
assets and liabilities by geographic areas for fiscal years 1996, 1995 and 1994:
SALES TO INCOME (LOSS)
UNAFFILIATED FROM
GEOGRAPHIC AREAS CUSTOMERS OPERATIONS ASSETS LIABILITIES
- ---------------- ------------ ------------- -------- -----------
(amounts in 000's)
1996:
UNITED STATES $142,269 $16,319 $100,980 $81,802
EUROPE 13,729 1,460 6,070 2,025
ASIA 1,437 1,172 7,389 1,204
-------- ------- -------- -------
TOTAL $157,435 $18,951 $114,439 $85,031
======== ======= ======== =======
1995:
UNITED STATES $120,263 $13,050 $ 91,031 $79,978
EUROPE 12,725 1,348 6,460 2,602
ASIA 893 1,118 7,324 1,125
-------- ------- -------- -------
TOTAL $133,881 $15,516 $104,815 $83,705
======== ======= ======== =======
1994:
UNITED STATES $111,408 $ 769 $ 88,845 $82,280
EUROPE 7,218 1,308 4,968 1,944
ASIA 604 (218) 6,336 1,137
-------- ------- -------- -------
TOTAL $119,230 $ 1,859 $100,149 $85,361
======== ======= ======== =======
31
13. STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statement of Cash Flows, the Company considers
all short-term, highly liquid investments with maturities of three months or
less at date of acquisition to be cash equivalents.
For the three fiscal
years in the period
ended September 29, 1996
---------------------------
Supplementary information: 1996 1995 1994
-------- ------- ------
(amounts in 000's)
Cash paid during the year for:
Interest $ 3,745 $6,184 $4,867
======== ====== ======
Income taxes $ 6,330 $1,350 $1,269
======== ====== ======
Non-cash financing activities:
Conversion of 10% subordinated notes payable
to 53,333 shares of common stock (Note 8) $100,000 $ - $ -
======== ====== ======
14. RESEARCH AND DEVELOPMENT
Research and development expenses charged to cost of sales and expenses were
$1,020,000, $755,000 and $922,000, for the fiscal years 1996, 1995 and 1994,
respectively.
15. SUBSEQUENT EVENT (UNAUDITED)
On October 25, 1996, Microsemi purchased certain assets and the right to
manufacture a selected group of products of the high-reliability portion of SGS
Thompson's Radio Frequency (RF) Semiconductor business in Montgomeryville,
Pennsylvania. The purchase price comprised approximately $2,200,000 in cash and
a $700,000 note payable. The acquisition will be accounted for by the purchase
method. Accordingly, the results of operations of the RF business will be
included with those of the Company subsequent to the date of acquisition.
32
16. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
Selected quarterly financial data are as follows:
Quarters ended in fiscal year 1996
------------------------------------------------
(amounts in 000's, except earnings per share)
December 31, March 31, June 30, Sept. 29,
1995 1996 1996 1996
------------ --------- -------- ---------
Net sales $35,299 $39,107 $41,261 $41,768
Gross profit $ 9,203 $10,309 $11,004 $11,599
Net income $ 1,429 $ 1,828 $ 2,339 $ 2,504
Primary earnings per share $ 0.17 $ 0.22 $ 0.28 $ 0.30
Fully diluted earnings per share $ 0.15 $ 0.18 $ 0.23 $ 0.24
Quarters ended in fiscal year 1995
------------------------------------------------
(amounts in 000's, except earnings per share)
January 1, April 2, July 2, Oct. 1,
1995 1995 1995 1995
-------- ------- ------- -------
Net sales $27,657 $32,441 $36,138 $37,645
Gross profit $ 7,004 $ 8,114 $ 9,602 $11,075
Net income $ 1,013 $ 1,348 $ 1,698 $ 1,994
Primary earnings per share $ 0.13 $ 0.17 $ 0.21 $ 0.24
Fully diluted earnings per share $ 0.12 $ 0.15 $ 0.17 $ 0.20
33
MICROSEMI CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(amounts in 000's)
Column A Column B Column C Column D Column E Column F
- -------- ---------- ---------- ----------- -------------- ---------
Balance at Charged to Charged Deductions- Balance
beginning costs and to other recoveries at end of
Classification of period expenses accounts and write-offs period
- --------------- ---------- ---------- ----------- --------------- ---------
September 29, 1996
Allowance for doubtful accounts and
reserve for returns $2,018 $ 91 $ - $ 50 $2,159
====== ==== ==== ===== ======
Reserve for investments in unconsolidated
affiliates $ 237 $300 - $ - $ 537
====== ==== ==== ===== ======
October 1, 1995
Allowance for doubtful accounts and
reserve for returns $2,173 $421 - $(576) $2,018
====== ==== ==== ===== ======
Reserve for investments in unconsolidated
affiliates $ 237 $ - - $ - $ 237
====== ==== ==== ===== ======
October 2, 1994
Allowance for doubtful accounts and
reserve for returns $1,709 $569 - $(105) $2,173
====== ==== ==== ===== ======
Reserve for investments in unconsolidated
affiliates $ 237 $ - - $ - $ 237
====== ==== ==== ===== ======
34
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
----------------------------------------------------
None
PART III
--------
Items 10, 11, 12 and 13 are omitted since the Registrant intends to file a
definitive proxy statement with the Securities and Exchange Commission pursuant
to Regulation 14A within 120 days after the end of Registrant's fiscal year
ended September 29, 1996. The information required by those items is set forth
in that certain proxy statement and such information is incorporated in this
Form 10-K.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a) 1. Financial Statements. See Index under Item 8.
2. Financial Statement Schedules. See Index under Item 8.
3. Exhibits:
The exhibits which are filed with this report are listed in the Exhibit
Index.
(b) Reports on Form 8-K.
None
35
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MICROSEMI CORPORATION
By /s/ DAVID R. SONKSEN
-------------------------------
David R. Sonksen
Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer
and Chief Accounting Officer
and duly authorized to sign on
behalf of the Registrant)
Dated: December 16, 1996
36
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Philip Frey, Jr. his true
and lawful attorney-in-fact and agent, with full power of substitution and
capacities, to sign the report on Form 10-K and any or all amendments thereto
and to file the same, with all exhibits thereto, and other documents in
connection therewith with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof in any and all
capacities.
Pursuant to the requirements of Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ------ -----
/s/ PHILIP FREY, JR. Chairman of the November 21, 1996
- ----------------------- Board, President
Philip Frey, Jr. and Chief Executive
Officer
/s/ JIRI SANDERA Vice President, November 21, 1996
- ----------------------- Engineering &
Jiri Sandera Director
/s/ DAVID R. SONKSEN Vice President, November 21, 1996
- ----------------------- Finance, Treasurer
David R. Sonksen and Secretary
(principal financial
and accounting
officer)
/s/ JOSEPH M. SCHEER Director November 21, 1996
- -----------------------
Joseph M. Scheer
/s/ BRAD DAVIDSON Director November 21, 1996
- -----------------------
Brad Davidson
/s/ ROBERT B. PHINIZY Director November 21, 1996
- -----------------------
Robert B. Phinizy
/s/ MARTIN H. JURICK Director November 21, 1996
- -----------------------
Martin H. Jurick
37
$$FOLIO
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(Continued)
3. Exhibits.
EXHIBIT INDEX
Sequential
Exhibit Page
Number Description Number
2.1 Agreement for Purchase and Sale of Omni Assets
dated as of May 18, 1994 between Omni Technology
Corporation, a California corporation and a wholly
owned subsidiary of the Registrant ("Omni"), and
Technology Marketing, Incorporated, a California
corporation ("TMI") including the following ancillary
documents: (a) Negotiable Promissory Note dated June 2,
1994; (b) Certificate of Determination for Series A
Preferred Stock of TMI filed June 8, 1994; (c) Security
Agreement dated June 2, 1994; (d) Sublease dated June 2,
1994; and (e) Intercreditor and Subordination Agreement
dated June 2, 1994 among Concord Growth Corporation,
a California corporation, Omni, and the Registrant
(Additional Schedules and Exhibits are not included
pursuant to Item 601(b)(2) of Regulation S-K) (24)
3 Restated Certificate of Incorporation and Bylaws of
the Registrant (1)
4 Form of Indenture, including form of 5 7/8%
Convertible Subordinated Debenture due 2012 (2)
4.1 Subordinated Convertible Note Purchase Agreement dated
June 26, 1992 among the Registrant and the Purchasers
named therein and Exhibit A hereto, a form of
Subordinated Convertible Note (29)
10.1 1984 Incentive Stock Option Plan (as amended December
13, 1984) (3)
10.2 Form of Incentive Stock Option Agreement pursuant to
1984 Incentive Stock Option Plan (3)
38
10.3 Form of Stock Option Agreement, dated October 17,
1985, between the Registrant and members of the
Registrant's Board of Directors (1)
10.4 Limited Partnership Agreement for Testing Laboratory
Limited Partnership, effective October 30, 1985,
between HDJ Enterprises, Inc. (General Partner), and
the Registrant, Milt D. Coggins, Jr., Dick L. Jones
and Harry D. Jones (Limited Partners); Arizona
Electronic Standard Laboratories, Inc. Stock
Acquisition and Option Agreement dated October 30,
1985 among Delbert F. Serbousek and Phyllis J.
Serbousek, Arizona Electronic Standards Laboratories,
Inc., the Registrant and Testing Laboratory Limited
Partnership; and Stock Sale and Amendment to Stock
Purchase Agreement and Loan Agreement, dated October 30,
1985, among Delbert F. Serbousek and Phyllis J.
Serbousek; Arizona Electronic Standard Laboratories,
Inc.; and the Registrant (4)
10.5 Credit Agreement between the Registrant and Security
Pacific National Bank, dated as of September 3, 1984,
and First Amendment to Credit Agreement dated as of
May 1, 1985 (1)
10.6 Lease dated June 29, 1982 between Ulrich Layher and
MSC Phoenix, Inc. (1)
10.7 Plan of acquisition of Bikor, Inc. (Exhibit 2.1) (5)
10.8 Plan of acquisition of RPM, Enterprises (Exhibit
2.2) (5)
10.9 Plan of acquisition of Surface Mounted Technology
Corporation (Exhibit 2.3) (5)
10.10 Plan of acquisition of Micro Assembly & Test, Inc.
(Exhibit 2.4) (5)
10.11 1986 Nonqualified Stock Option Plan of the Registrant
(Exhibit 10.9) (5)
10.12 Agreement between Berney Construction, Inc. and the
Registrant (Exhibit 10.10) (5)
39
10.13 The Registrant's 1987 Stock Plan (6)
10.14 Indenture dated as of February 1, 1985, and related
Loan Agreement and Reimbursement Agreement both dated
as of February 1, 1985, relating to the Industrial
Revenue Bonds issued to finance additions to the Santa
Ana facility of the Registrant (2)
10.15 Stock Sale Agreement, dated November 12, 1987 between
Coors Porcelain Company and the Registrant, relating
to the acquisition of Coors Components, Inc. (7)
10.16 Press Release distributed by the Registrant on
November 12, 1987, announcing the acquisition of Coors
Components, Inc. (7)
10.17 Letter Agreement dated as of September 16, 1987 by and
among the Registrant, AVX Corporation ("AVX") and
Vitarel Microelectronics, Inc. ("Vitarel") (7)
10.18 Stock, Loan and Equipment Agreement dated as of
November 24, 1987 by and among the Registrant, AVX and
Vitarel (7)
10.19 Security and Loan Agreement dated as of November 24,
1987 by and among the Registrant, AVX and Vitarel (7)
10.20 Press Release distributed by the Registrant on
November 25, 1987, announcing the investment in
Vitarel (7)
10.21 Letter Agreement dated June 19, 1987 between Testing
Laboratory Limited Partnership ("TLLP"), HDJ
Enterprises, Inc. ("HDJ"), Arizona Electronic
Standards Laboratories, Inc. ("AESL") and the
Registrant(8)
10.22 First Amendment to Limited Partnership Agreement for
TLLP dated June 19, 1987 by and among the Registrant,
Milt D.Coggins, Jr., Dick L. Jones and Harry D.
Jones (8)
10.23 Loan Agreement (Term) dated July 8, 1987 for
$1,414,867 executed by the Registrant, AESL,
Amerihold, Inc. and TLLP (8)
40
10.24 Loan Agreement (Revolving) dated July 8, 1987 for
$500,000 executed by the Registrant, AESL, Amerihold,
Inc. and TLLP (8)
10.25 Mutual Release and Settlement Agreement dated June 19,
1987, executed by AESL, TLLP, HDJ, the Registrant,
Nancy L. Jones, Harry D. Jones, Milton D. Coggins,
Jr., Dick L. Jones and The Harry D. Jones and Nancy L.
Jones Revocable Trust; unexecuted by Delbert F.
Serbousek, Phyllis J. Serbousek and Commercial State
Bank (8)
10.26 Deed of Trust, dated July 8, 1987, by AESL, as Trustor
to Title Insurance Company of Minnesota, as Trustee
for the Registrant, as Beneficiary and recorded in the
Official Records of Maricopa County, Arizona, July 9,
1987 (8)
10.27 Reorganization Agreement dated as of August 27, 1987
among the Registrant, Microsemi Test Number 3 and Omni
Technology Corporation (8)
10.28 Asset Purchase Agreement dated October 12, 1987 among
Microsemi Test Equipment, Inc., a subsidiary of the
Registrant, Custom Test Technologies, Inc., Stanley E.
Wood, John Sullivan and Bernard Elbinger, relating to
the acquisition of the assets and operations of Custom
Test Technologies, Inc. (8)
10.29 Subscription Agreement dated July 24, 1987 between the
Registrant and Diodes Incorporated for the
subscription of 800,000 shares of Diodes
Incorporated (8)
10.30 Management and Asset Purchase Agreement dated
August 7, 1987, between Microcap Corporation, a
wholly-owned subsidiary of Registrant, and Cernetics
Corporation (8)
10.31 Certificate of Sale dated December 3, 1987 of BT
Commercial Corporation ("BT"), and agreed to by Omni
Technology Corporation, a subsidiary of the Registrant
("Omni"), relating to the sale by BT to Omni of
certain assets of Pacific Reliability Corporation(8)
41
10.32 Agreement of Purchase and Sale of Stock dated April 6,
1988, between General Microcircuits, Inc. and the
Registrant relating to the purchase of all of the
outstanding stock of General Microcircuits (9)
10.33 Agreement of Purchase and Sale of Stock dated May 25,
1988, between Distributed Microtechnology, Inc. ("DM")
and the Registrant relating to the purchase of all of
the outstanding stock of DM (9)
10.34 Assignment of Lease between DM and Westshore
Enterprises assigning all interest to DM of the Lease
dated February 24, 1986, between National Western -
Providence Equity Fund and Westshore Enterprises, Inc.
for the premises located at 1592 N. Batavia, Unit 7B,
Orange, California (9)
10.35 Asset Purchase and Sale Agreement dated May 31, 1988,
between the Registrant and Universal Microtechnologies,
Inc. for the purchase of the assets of Universal
Microtechnologies (9)
10.36 Recapitalization Agreement executed on September 28,
1988, effective as of July 1, 1988, between the
Registrant, AVX Corporation and Vitarel
Microelectronics, Inc. regarding the recapitalization
of Vitarel Microelectronics, Inc. (9)
10.37 Stock Purchase Agreement dated as of February 17, 1989
by and between Avnet, Inc., a New York corporation,
and Salem Scientific, Inc., a Microsemi Company, a
Delaware corporation and a wholly-owned subsidiary of
the Registrant (10)
42
10.38 Agreement for Purchase and Sale of Assets dated
November 2, 1989 between Microsemi Corp.-Scottsdale,
an Arizona corporation and Yubo International
Incorporation, a California corporation (11)
10.39 Purchase and Sale Agreement dated November 14, 1989
among Universal Microtechnologies, Inc., a Delaware
corporation, the Registrant and Dowty Electronics
Company of Brandon, Vermont, a New Jersey
corporation (12)
10.40 Stock Purchase Agreement dated October 23, 1989
between GRT Acquisition Corporation, a California
corporation and the Registrant (13)
10.41 Third Amendment to Credit Agreement between the
Registrant and Security Pacific National Bank dated as
of March 10, 1989 (14)
10.42 Fourth Amendment to Credit Agreement between the
Registrant and Security Pacific National Bank dated as
of June 1, 1989 (14)
10.43 Form of Installment Note dated as of October 20, 1989
relating to the borrowing by the Registrant of
$10,000,000 from Sanwa Business Credit Corporation
(the "Installment Note") (14)
10.44 Form of Security Agreement dated as of October 20,
1989, entered into by the Registrant for the benefit
of Sanwa Business Credit Corporation, relating to the
Installment Note (14)
10.45 Form of Security Agreement dated as of October 20,
1989, entered into by Microsemi Corp.-Scottsdale for
the benefit of Sanwa Business Credit Corporation
relating to the Installment Note (14)
10.46 Form of Security Agreement dated as of October 20,
1989, entered into by Microsemi Corp.-Colorado for the
benefit of Sanwa Business Credit Corporation relating
to the Installment Note (14)
10.47 Second Amended and Restated Credit Agreement dated as
of November 1, 1989 by and between the Registrant and
43
Security Pacific National Bank (15)
10.48 First Amendment and Forbearance to the Registrant's
Second Amended and Restated Credit Agreement dated as
of November 1, 1990 (15)
10.49 Confirmation dated December 10, 1990 from Security
Pacific National Bank concerning the extension of the
Registrant's line of credit and standby letters of
credit to February 1, 1991 (15)
10.50 Asset Purchase Agreement dated May 17, 1991 among
ST-Semiconductors of Indiana, Inc., an Indiana
corporation ("ST"), Lane Jorgensen, Joseph Kaszycki
and Peter Klein, the ST stockholders, Microsemi ST-S,
Inc., a Delaware corporation and subsidiary of the
Registrant ("MSUB"), the Registrant, and INB National
Bank, a national association ("INB"), pertaining to
the purchase by MSUB of the ST assets from INB,
together Exhibits A, B, C and H thereto (16)
10.51 Credit Agreement dated July 3, 1991 between ST, MSUB
and INB (16)
10.52 Assignment and Assumption Agreement dated September 23,
1991 by and among Dynamic Circuits, Inc., a
California corporation ("Dynamic"), Surface Mounted
Technology Corporation, a California corporation
("SMTC") and the Registrant, pertaining to Dynamic's
purchase from SMTC of the SMTC assets, together with
the following supplemental documentation: (a) Letter
of Intent dated August 14, 1991 (and Addendum
thereto); (b) Equipment Lease Agreement;
(c) Promissory Note; and (d) Security Agreement (16)
10.53 Loan and Security Agreement dated December 6, 1991
between CoastFed Business Credit Corporation, a
California corporation ("Coastfed"), and the
Registrant, together with the following related
documentation: (a) Accounts Collateral Security
Agreement; (b) Inventory Collateral Security
Agreement; (c) Equipment Collateral Security
Agreement; and (d) Continuing Guaranty, executed by
the following subsidiaries of the Registrant as
guarantor: General Microcircuits, Inc., Microsemi
44
Corp.-Scottsdale and Microsemi Corp.-Colorado (16)
10.54 Asset Purchase Agreement dated May 28, 1992 between
Micro USPD, Inc., a Delaware corporation and wholly-owned
subsidiary of the Registrant ("Micro USPD"), and
Unitrode Corporation, a Maryland corporation
("Unitrode") (17)
10.55 Irish Acquisition Agreement dated July 2, 1992 among
Unitrode Ireland, Ltd., an Irish corporation and
wholly-owned subsidiary of Unitrode; Unitrode B.V., a
Dutch corporation and wholly-owned subsidiary of
Unitrode; and Micro (Bermuda), Ltd., a Bermudian
corporation and wholly-owned subsidiary of the
Registrant ("Micro Bermuda") (18)
10.56 Dutch Acquisition Agreement dated July 2, 1992 among
Unitrode Europe B.V., a Dutch corporation and wholly-owned
subsidiary of Unitrode; Unitrode; and MicroBermuda (19)
10.57 Extension Agreement and Amendment, dated July 2, 1992
among Coastfed, the Registrant and certain
subsidiaries of the Registrant (20)
10.58 Form of Guarantees given by the Registrant to Midland
Bank plc with regard to the obligations of Hybritek
Limited dated September 3, 1992 and of Hybritek UK
Limited dated October 7, 1992, both United Kingdom
companies and indirect, wholly-owned subsidiaries of
the Registrant (20)
10.59 Asset Sale Agreement dated October 16, 1992 between
Hybritek Limited and Hybritek UK Limited, both United
Kingdom companies and indirect, wholly-owned
subsidiaries of the Registrant (20)
10.60 Share Sale and Purchase Agreement Relating to Hybritek
UK Limited dated October 28, 1992 among Hybritek
Limited, a United Kingdom company and indirect
wholly-owned subsidiary of the Registrant; the
Registrant; and Rood Technology UK Limited, a United Kingdom
company (20), excluding the following schedules:
First Schedule Warranties
Second Schedule Deed of Indemnity
45
Third Schedule Short Particulars of the Property
Fourth Schedule Limitations
Annexure 1 Assets List
10.61 Stock Sale and Assignment Agreement dated November 9,
1992 among the Registrant, Microsemi Assembly and
Test, Inc., a California corporation and wholly-owned
subsidiary of the Registrant, and Ian S. Scott (20)
10.62 Asset Purchase Agreement dated as of November 24, 1992
by and between the Registrant and GI Corporation, a
Delaware corporation (20)
10.63 Amendment Agreement dated as of December 15, 1992
between Coastfed and the Registrant and certain of its
subsidiaries (20)
10.64 Promissory Note dated December 21, 1992 made by the
Registrant and payable to Norman Wechsler in the
original principal amount of $150,000 and extension
letter agreement dated April 23, 1993 (21)
10.65 Waiver and First Amendment to Reimbursement Agreement
dated as of January 8, 1993 between the Registrant and
Bank of America NT&SA with respect to the
Reimbursement Agreement (See Exhibit 10.14) dated as
of February 1, 1988 (21)
10.66 Senior Note Purchase Agreement dated March 25, 1993
between the Registrant and Norman Wechsler, including
as an exhibit thereto the form of Senior Promissory
Note dated March 25, 1993 (21)
10.67 Agreement for Purchase and Sale of Micro-Ceramx Assets
dated June 25, 1993 between Micro-Ceramx Technology,
Inc., a Utah corporation, formerly known as Microcap
Corporation and a wholly-owned subsidiary of the
Registrant and Custom Ceramic Products, Inc., a
California corporation (21)
10.68 Agreement for Purchase and Sale of Bikor Assets dated
June 30, 1993 between Bikor Corporation, a California
corporation and a wholly-owned subsidiary of the
Registrant and BMA, Inc., a California corporation (21)
46
10.69 Letter dated August 31, 1993 from Unitrode to the
Registrant providing for amendments with respect to
the Asset Purchase Agreement (See Exhibit 10.54) dated
May 28, 1992 between Micro USPD and Unitrode excluding
exhibits as follows (22):
Amendments to Promissory Notes dated as of September 3,
1993 between Micro USPD and Unitrode and the respective
Promissory Notes dated July 2, 1992 attached as exhibits thereto
10.70 Amended and Restated Loan and Security Agreement dated
as of August 1, 1993 between Micro Quality
Semiconductor, Inc., a California corporation, and a
wholly-owned subsidiary of the Registrant ("Micro
Quality") and The CIT Group/Credit Finance, Inc.
excluding exhibits as follows (22):
Second Amended and Restated Promissory Note
Term Note
Permitted Liens and Security Interests
List of Locations of Collateral
10.71 Guaranty dated August 1, 1993 by the Registrant
respecting Micro Quality's obligations to The CIT
Group/Credit Finance, Inc. (22)
10.72 Agreement dated March 30, 1994 between Coastfed and
the Registrant, Microsemi Corp.-Scottsdale, Microsemi
Corp.-Colorado, General Microcircuits, Inc., Micro-USPD,
Inc. and Omni Technology Corporation (23)
10.73 Amendment to the Registrant's 1987 Stock Plan. (25)
10.74 Executive Compensation Plans and Arrangements (26).
10.75 Bill of Sales and Purchase agreement between Telcom
Universal Inc. And Microsemi Corporation (26)
10.76 Supplemental to financing documents (Indenture of Trust and Loan
agreement) relating to Industrial Development Authority of the City
of Santa Ana, 1985 Industrial Development Revenue Bonds Microsemi
Corporation Project) dated as of January 15, 1995. (26)
10.77 Amendments of the 1987 Microsemi Corporation Stock Plan. Adopted
on May 16, 1995. (27)
47
10.78 Motorola-Microsemi PowerMite(R) Technology Agreement. (28)
10.79 Revolving Line of Credit Agreement Between Microsemi Corporation
and Imperial Bank.
11.6 Earnings per share calculation.
23.1 Consent of Independent Accountants (form S-3).
23.2 Consent of Independent Accountants (form S-8).
27.8 Financial data schedule for the fiscal year ended
September 29, 1996.
(1) Filed in Registration Statement (No. 33-3845) and incorporated herein by
this reference.
(2) Filed in Registration Statement (No. 33-11967) and incorporated herein by
this reference.
(3) Filed with the Registrant's S-8 dated January 27, 1986 and incorporated
herein by this reference.
(4) Filed with the Registrant's 10-K for fiscal year ended September 29, 1985
and incorporated herein by this reference.
(5) Incorporated by reference to the indicated Exhibit to the Registrant's
Annual Report on Form 10-K filed with the Commission for the fiscal year
ended September 28, 1986.
(6) Incorporated by reference form Exhibit A to the Registrant's definitive
Proxy Statement dated January 19, 1987.
(7) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 8-K filed with the Commission on or about
December 23, 1987.
(8) Incorporated by reference to the indicated Exhibit to the Registrant's
Annual Report on Form 10-K filed with the Commission for the fiscal year
ended September 27, 1987.
(9) Incorporated by reference to the indicated Exhibit to the Registrant's
Annual Report on Form 10-K filed with the Commission for the fiscal year
ended October 2, 1988.
(10) Incorporated by reference to Exhibit 10.33 to the Registrant's Current
Report on Form 8-K, as amended, as filed with Commission on or about
48
April 6, 1989.
(11) Incorporated by reference to Exhibit 10.34 to the Registrant's Current
Report on Form 8-K, as filed with the Commission on or about December
22, 1989.
(12) Incorporated by reference to Exhibit 10.35 to the Registrant's Current
Report on Form 8-K, as filed with the Commission on or about December
22, 1989.
(13) Incorporated by reference to Exhibit 10.36 to the Registrant's Current
Report on Form 8-K, as filed with the Commission on or about December
22, 1989.
(14) Incorporated by reference to the indicated Exhibit to the Registrant's
Annual Report on Form 10-K filed with the Commission for the fiscal year
ended October 1, 1989.
(15) Incorporated by reference to the indicated Exhibit to the Registrant's
Annual Report on Form 10-K filed with the Commission for the fiscal year
ended September 30, 1990.
(16) Incorporated by reference to the indicated Exhibit to the Registrant's
Annual Report on Form 10-K filed with the Commission for the fiscal year
ended September 29, 1991.
(17) Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8
Amendment No. 1, as filed with the Commission on September 8, 1992, to
its Current Report on Form 8-K dated July 2, 1992.
(18) Incorporated by reference to Exhibit 2.2 to the Registrant's Form 8
Amendment No. 1, as filed with the Commission on September 8, 1992, to
its Current Report on Form 8-K dated July 2, 1992.
(19) Incorporated by reference to Exhibit 2.3 to the Registrant's Form 8
Amendment No. 1, as filed with the Commission on September 8, 1992, to
its Current Report on Form 8-K dated July 2, 1992.
(20) Incorporated by reference to the indicated Exhibit to the Registrant's
Annual Report on Form 10-K filed with the Commission for the fiscal year
ended September 27, 1992.
(21) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q filed with the Commission for the fiscal
quarter ended July 4, 1993.
49
(22) Incorporated by reference to the indicated Exhibit to the Registrant's
Annual Report on Form 10-K filed with the Commission for the fiscal year
ended October 3, 1993.
(23) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q filed with the Commission for the fiscal
quarter ended April 3, 1994.
(24) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 8-K, as filed with the Commission dated June 8,
1994.
(25) Incorporated by reference to the indicated Exhibit to the
Registrant's Current Report on Form 10-K as filed with the
Commission for the fiscal year ended October 2, 1994.
(26) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report o Form 10-Q filed with the Commission for the fiscal
quarter ended April 2, 1995
(27) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q filed with the Commission for the fiscal
quarter ended July 2, 1995.
(28) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q filed with the Commission for the fiscal
quarter ended March 31, 1996.
(29) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 8-K, as filed with the Commission dated June 26,
1992.
50