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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 3, 1999
---------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number # 0-8866
MICROSEMI CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 95-2110371
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2830 South Fairview Street, Santa Ana, CA 92704
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 979-8220
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
$.20 par value Common Stock
---------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [_]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on November
29, 1999 was approximately $37,948,000. Shares of Common Stock beneficially
held by each officer and director and by each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons have been
assumed for this purpose to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
The number of outstanding shares of Common Stock on November 29, 1999 was
10,919,979.
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 29, 2000. This proxy statement
will be filed not later than 120 days after the close of Registrant's fiscal
year ended October 3, 1999.
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 global supplier of power management, power
conditioning, transient suppression and RF/Microwave semiconductor devices. It
serves the satellite, telecommunications, computer and peripherals,
military/aerospace, industrial/commercial, and medical markets with high-
reliability and analog integrated circuits and power and signal discrete
semiconductors.
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. All of
the non-historical information herein is forward-looking. The forward-looking
statements included herein and elsewhere in this filing are based on, among
other items, current assumptions that the Company will be able to meet its
current operating cash and debt service requirements with internally generated
funds and its available line of credit, that it will be able to successfully
resolve disputes and other business matters as anticipated, that competitive
conditions within the semiconductor, integrated circuit and custom diode
assembly industries will not change materially or adversely, that the Company
will retain existing key personnel, that the Company's forecasts will reasonably
anticipate market demand for its products, and that there will be no materially
adverse change in the Company's operations or business. Other factors that
could cause results to vary materially from current expectations are discussed
elsewhere in this Form 10-K. (See Part I, Item 3; and Part II, Items 5, 7 and
8). Assumptions relating to the foregoing involve judgments that are difficult
to predict accurately and are subject to many factors that can materially affect
results. Forecasting and other management decisions are subjective in many
respects and thus susceptible to interpretations and periodic revisions based on
actual experience and business developments, the impact of which may cause the
Company to alter its forecasts, which may in turn affect the Company's results.
In light of the factors that can materially affect the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved. Readers are cautioned
against undue weight to forward-looking statements.
PRODUCTS
- --------
Microsemi Corporation is a global supplier of commercial and high-reliability
analog integrated circuits and power and signal discrete semiconductors serving
the satellite, telecommunications, computer and peripherals, military/aerospace,
industrial/commercial, and medical markets.
The Company's analog and mixed-signal integrated circuit ("IC") products offer
light, sound and power management for desktop and mobile computing platforms as
well as other power control applications. Power management generally refers to
a class of standard linear integrated circuits ("SLICs") which perform voltage
regulation and reference in most electronic systems. The definition of power
management has broadened in recent years to encompass other devices and modules,
often application specific standard products ("ASSPs"), which address particular
aspects of power management, such as audio or display related ICs. This
business is composed of both a core platform of traditional SLICs, such as low
dropout regulators ("LDOs") and pulse width modulators ("PWMs"), and
differentiated ASSP products such as backlight inverters, audio amplification
ICs and small computer standard interface ("SCSI") terminators.
Major discrete products are silicon rectifiers, zener diodes, low leakage and
high voltage diodes, temperature compensated zener diodes, transistors and a
family of subminiature high power transient suppressor diodes. The Company also
manufactures discrete semiconductors for commercial applications,
2
such as automatic surge protectors, transient suppressor diodes used for
telephone applications and computer switching diodes used in computer systems.
A partial list of applications of the Company's discrete semiconductor products
includes: heart pacer transient shock protector diodes (where the Company
believes it is the leading supplier in that market), low leakage diodes,
transistors used in jet aircraft engines and high performance test equipment,
high temperature diodes used in oil drilling sensing elements operating at 200
degrees centigrade, temperature compensated zener or rectifier diodes used in
missile systems, power transistors and other electronic systems. The Company's
integrated circuit products are used in computer and data storage, lighting,
automotive, telecommunications, test instruments, defense and space equipment,
high-quality sound reproduction and data transfer.
The Company currently serves a broad group of customers including Motorola,
Lockheed-Martin, Boeing, Hughes, Medtronic, Alcatel, Samsung, Lucent
Technologies, Bosch Telecom, Compaq, 3-Com and Recotron.
MARKETING
- ---------
Microsemi Corporation is a global supplier of power management, power
conditioning, transient suppression and RF/Microwave semiconductor products. It
serves the satellite, telecommunications, computer and peripherals,
military/aerospace, industrial/commercial, and medical markets with high-
reliability and commercial analog integrated circuits and power and signal
discrete semiconductors.
The Company's products are marketed through domestic electronic component sales
representatives and the Company's inside sales force to original equipment
manufacturers. The Company also employs industrial distributors to service its
customers' needs for standard catalog products. For fiscal year 1999, the
Company's domestic sales accounted for approximately 65% of the Company's
revenues, of which sales representatives and distributors accounted for
approximately 30% and 24%, respectively. The Company has direct sales offices
in many metropolitan areas including Los Angeles, Garden Grove, Santa Ana,
Phoenix, Denver, Chicago, Minneapolis, Montgomeryville, Boston, Long Island,
West Palm Beach, Hong Kong, Singapore and Ireland. Sales to foreign customers,
made through the Company's direct domestic sales force and 26 overseas sales
representatives and distributors, accounted for approximately 35% of fiscal year
1999 sales.
No one customer accounted for more than 6% of the Company's revenue in fiscal
year 1999. However, approximately 28% of the Company's business is to customers
whose principal sales are to the U.S. Government.
RESEARCH AND DEVELOPMENT
- ------------------------
The Company believes that continuing timely development and introduction of new
products are essential to maintaining its competitive position. The Company
currently conducts most of its product development effort in-house. The Company
also employs outside consultants to assist with product design.
The Company spent approximately $4,002,000, $1,532,000 and $1,161,000 in fiscal
years 1999, 1998 and 1997, respectively, for research and development, none of
which was customer sponsored.
The principal focus of the Company's research and development activities has
been to improve processes and to develop new products that support the growth of
its businesses.
MANUFACTURING AND SUPPLIERS
- ---------------------------
The Company's principal domestic manufacturing operations are located in Santa
Ana and Garden Grove, California; Broomfield, Colorado; Scottsdale, Arizona and
Watertown, Massachusetts. Each operates its own wafer processing, assembly,
testing and screening departments.
3
The Company's domestic plants manufacture and process all products and
assemblies starting from purchased silicon wafers and piece parts.
Manufacturing and processing operations are controlled in accordance with
military as well as other rigid commercial and industrial specifications.
A major portion of the Company's semiconductor manufacturing effort takes place
after the semiconductor is assembled. Parts are tested a number of times,
visually screened and environmentally subjected to shock, vibration, "burn in"
and electrical tests in order to prove and assure reliability.
The Company purchases silicon wafers, other semiconductor materials and
packaging piece parts from domestic and foreign suppliers generally on long-term
purchase commitments which are cancelable with 30 to 90 days notice. With the
exception of glass sleeves for high reliability diode products and glass to
metal sealed parts for computer diode and zener diode products, all materials
are available from multiple sources. In the case of sole source items, the
Company has never suffered production delays as a result of vendors' inability
to supply the parts. The Company believes that it stocks adequate supplies for
all materials, based upon backlog, delivery lead time and anticipated new
business. In the ordinary course of business, the Company enters into purchase
agreements with some of its major suppliers to supply products over periods of
up to 18 months.
The Company also purchases a portion of its finished wafers from foundry
sources. If a foundry were to terminate its relationship with the Company, or
should the Company's supply from a foundry be interrupted or terminated for any
reason, such as a natural disaster or another unforeseen event, the Company may
not have sufficient time to replace the supply of products manufactured by that
foundry.
Certain subcontract suppliers provide packaging and testing for the Company's
products necessary to deliver finished products. The Company pays those
suppliers for assembled or fully tested products meeting predetermined
specifications. After wafer level testing, the silicon wafers are separated
into individual dice that are then assembled into packages and tested in
accordance with the Company's test procedures.
There can be no assurance that the Company will obtain sufficient supply of
product from foundry or subcontract assembly sources to meet customer demand in
the future. Obtaining sufficient foundry capacity is particularly difficult
during periods of high demand for foundry services, and may become substantially
more difficult if the Company's product requirements increase significantly. In
addition, because the Company must order products and build inventory
substantially in advance of product shipments, there is a risk that the Company
will forecast incorrectly and produce excess or insufficient inventories of
particular products. This inventory risk is heightened because certain of the
Company's key customers place orders with short lead times.
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 a
partner in a joint venture in The People's Republic of China (PRC). No
assurance can be made that political and economic factors in such countries will
not have material adverse effects on the assets, cash flows and results of
operations of the Company.
The Company's Bombay, India facility assembles a commercial zener diode line to
compete in the lower-cost commercial and consumer markets. This plant also
performs subcontract coil manufacturing.
The Company's Hong Kong subsidiary, Microsemi (H.K.) Ltd., produces diode
products for commercial customers. The Hong Kong subsidiary utilizes diode
chips manufactured in the Company's U.S. plants and assembles, tests and
finishes the products. The plant is also approved for assembly of certain
military specified diodes.
4
The Company's Ennis, Ireland operation manufactures diodes, rectifiers, zeners,
thyristors and transistors and supports the other Microsemi operations. This
plant is Defense Supply Center Colombus (DSCC) approved by the U.S. government
to screen high reliability product to Military Specification Standard MIL-PRF-
19500 and is also European Space Agency qualified. A trading company at this
facility services European customers with products from Microsemi U.S. and Asian
locations.
SALES TO FOREIGN CUSTOMERS
- --------------------------
Sales to foreign customers represented approximately 35%, 23% and 22% of net
sales for the 1999, 1998 and 1997 fiscal years, respectively. Foreign sales may
be subject to political and economic risks, including financial or political
instability, currency fluctuations, changes in the effective price of goods in
local currencies, the effect of trade sanctions, embargoes, or changes in
import/export regulations, tariffs and freight rates and difficulties in
collecting receivables and enforcing contracts generally; any of these factors
and other trade policies could adversely affect the Company's sales to foreign
customers or the collection of receivables generated from such sales. Many of
the Company's customers, including space customers, provide the Company minimal
information on future ordering plans. Therefore, fluctuations in backlog can be
unpredictable.
ORDER BACKLOG
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The Company's consolidated order backlog at October 3, 1999, for delivery within
twelve months, was $66,700,000, as compared to $51,000,000 at September 27,
1998. The backlog at October 3, 1999 included $12,000,000 and $2,700,000 for
LinFinity Microelectronics, Inc. ("LinFinity") and Microsemi Microwave Products,
Inc. ("MMP"), which were acquired in April and June 1999, respectively. The
Company's backlog at any particular date may not be representative of actual
sales for any succeeding period because lead times for the release of purchase
orders depend upon the scheduling practices of individual customers, the
delivery times of new or non-standard products can be affected by scheduling
factors and other manufacturing considerations, the rate of booking new orders
can vary significantly from month to month, and the possibility of customer
changes in delivery schedules or cancellations of orders.
A portion of the Company's sales are to military and aerospace markets which are
subject to the business risk of changes in governmental appropriations and
changes in national defense policies and priorities. All of the Company's
contracts with prime U.S. Government contractors contain customary provisions
permitting termination at any time at the convenience of the U.S. Government or
the prime contractors upon payment to the Company for costs incurred plus a
reasonable profit. Certain contracts are also subject to price re-negotiation
in accordance with U.S. Government sole source procurement provisions.
COMPETITION
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The markets in which the Company competes are extremely competitive. The Company
expects that competition will increase. The principal factors of competition in
the Company's markets include performance, product features, product
availability, price, quality, timing of new product introductions by the Company
and its competitors and the emergence of new technologies.
The Company competes in the semiconductor market, particularly in the area of
high reliability components. The Company has numerous competitors across all of
its product lines. In the defense market, the Company believes that it
possesses a considerable share of the market. In the commercial/industrial
arena, there are numerous competitors such as Motorola, Inc., General
Semiconductor, Inc., Texas Instruments, Semtech, Linear Tech, Maxim, Dallas
Semiconductor, Vishay, Fairchild Semiconductor and International Rectifier,
which are significantly larger than Microsemi and have greater resources and
larger market shares. In addition, we have licensed technology from and to
parties, which have, in certain cases, the right to use the technology to
develop products competitive with ours. For instance, in a license and supply
agreement with LinFinity, IMP, Inc. has the right to manufacture, market and
sell a line of SCSI products through its own sales force in direct competition
with LinFinity. The Company believes that it is well regarded by its customers
in the high reliability area, where competition is dependent less on price and
more on product reliability and performance. Commercial products are under
extreme price pressure due to intense price competition. The market for analog
ICs is also intensely competitive. With respect to
5
application-specific data communications devices, our principal competitors are
Dallas Semiconductor, IMP, Inc., and Texas Instruments. In the area of
integrated circuit products, because the markets are diverse and highly
fragmented, we expect to encounter different competitors on different products.
Our principal competitors are expected to include Linear Technology Corporation,
IMP, Inc., Maxim Integrated Products, Inc., Analog Devices Inc., Dallas
Semiconductor, Micrel, Motorola, National Semiconductor Corporation, Semtech,
Texas Instruments and certain European and Asian manufacturers. Due to the
increasing demands for analog circuits, we expect intensified competition from
existing suppliers and from the entry of new competitors. Increased competition
could adversely affect our financial condition or results of operations.
There can be no assurance that the Company will be able to compete successfully
in the future. The Company's ability to compete successfully is dependent upon
its response to the entry of new competitors, the average selling prices
received for its products, changing technology and customer requirements,
development or acquisition of new products, the timing of new product
introductions by the Company or its competitors, continued improvement of
existing products, changes in overall worldwide market and economic conditions,
cost effectiveness, quality, service and market acceptance of the Company's
products. Price competition in the industry is intense and may increase, which
may have a material adverse effect on the Company's operating results. There
can be no assurance that the Company will be able to compete successfully as to
price or any of these other factors. There can be no assurance that the Company
will have the financial resources, technical expertise or marketing,
distribution and support capabilities to compete successfully. The Company's
future success will be highly dependent upon the successful development and
introduction of new products that are responsive to market needs. There can be
no assurance that the Company will be able to successfully develop or market any
such products.
CHANGES IN TECHNOLOGY
- ---------------------
The semiconductor market is subject to changes in technologies and industry
standards. To remain competitive, the Company must continue to devote resources
to advance process technologies, to increase product performance, to improve
manufacturing yields and to improve the mix between the Company's shipment of
military and commercial 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 superior to the Company's technology.
PROPRIETARY RIGHTS
- ------------------
The Company generally does not rely on patent protection for any aspect of its
technology. The Company believes that patents often provide only narrow
protection and require public disclosure of information which may otherwise be
subject to trade secret protection. The Company's reliance upon protection of
some of its technology as "trade secrets" will not necessarily protect the
Company from the use by other persons of its technology, or their use of
technology that is similar or superior to that which is embodied in the
Company's trade secrets. There can be no assurance that others will not be able
to independently duplicate or exceed the Company's technology in whole or in
part. No assurance can be made that the Company will be able to maintain the
confidentiality of the Company's technology, dissemination of which could have
an adverse effect on the Company's business. In addition, litigation may be
necessary to determine the scope and the validity of the Company's proprietary
rights. There can be no assurance that patents held by the Company will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide competitive advantages to the Company.
If the Company's products were found to violate a patent or other right of a
third party, the Company's business could be adversely affected. In addition,
the laws of certain countries in which the Company's products are or may be
developed, manufactured or sold, including Hong Kong, Japan, China and Taiwan,
may not protect the Company's products and intellectual property rights to the
same extent as the laws of the United States.
6
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 facilities
were interrupted for any reason. There can be no assurance that the Company
will not experience manufacturing difficulties in the future.
The Company subcontracts a portion of its wafer fabrication to outside
foundries. There are a number of foundries which, given appropriate lead times,
could meet some of our needs. However, we cannot guarantee that we will be able
to meet our customers required delivery schedules. Because of the unique nature
of our manufacturing processes, it would be difficult for us to arrange for
independent suppliers to make wafers for us in a short period of time. If a
fire, natural disaster or any other event prevents us from operating the factory
for more than a few days, our revenue and financial condition could be severely
impacted. We believe that we have sufficient manufacturing capacity to meet our
near term plans although prolonged problems with any specific piece of equipment
could cause us to miss our goals.
We purchase most of our raw materials, including silicon wafers, on a purchase
order basis from a limited number of vendors. If our subcontractors or our
vendors are unable to provide these services or materials in the future our
relationships with our customers could be seriously affected and our revenues
and financial condition could be severely damaged.
After certain wafers are fabricated and tested, they are sent to contract
assembly houses to be packaged. Our integrated circuit products are packaged
and tested by a limited number of third party subcontractors in Asian countries.
Some of the raw materials included in these operations are obtained from sole
source suppliers. Although we seek to reduce our dependence on sole and limited
source suppliers both for assembly services and for materials, disruption or
financial, operational, production or quality assurance difficulties at any of
these sources could occur and cause us to have severe delivery problems.
EMPLOYEES
- ---------
On October 3, 1999, the Company employed 1,884 persons domestically including
148 in engineering, 1,474 in manufacturing, 128 in marketing and 134 in general
management and administration. Additionally, 555 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 and believes its employee relations are good.
DEPENDENCE ON KEY PERSONNEL
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The Company's future performance is significantly dependent on the continued
active participation of members of its current management. The Company does not
have written employment contracts with its employees. Should one or more of the
Company's key management employees leave or otherwise become unavailable to the
Company, the Company's business and results of operations may be materially
adversely affected.
PRODUCT LIABILITY
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The Company's business exposes it to potential liability risks that are inherent
in the manufacturing and marketing of high-reliability electronic components for
critical applications. No assurance can be made that the Company's product
liability insurance coverage is adequate or that present coverage will continue
to be available at acceptable costs, or that a product liability claim would not
adversely affect the business or financial condition of the Company.
7
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.
ENVIRONMENTAL REGULATION
- ------------------------
While the Company believes that it has the environmental permits necessary to
conduct its business and that its operations conform to present environmental
regulations, increased public attention has been focused on the environmental
impact of semiconductor operations. The Company, in the conduct of its
manufacturing operations, has handled and does handle materials that are
considered hazardous, toxic or volatile under federal, state and local laws and,
therefore, is subject to regulations related to their use, storage, discharge
and disposal. No assurance can be made that the risk of accidental release of
such materials can be completely eliminated. In addition, the Company operates
or owns facilities located on or near real property that formerly might have
been used in ways that involved such materials. In the event of a violation of
environmental laws, the Company could be held liable for damages and the costs
of remediation, and, along with the rest of the semiconductor industry, is
subject to variable interpretations and governmental priorities concerning
environmental laws and regulations. Environmental statutes have been
interpreted to provide for joint and several liability and strict liability
regardless of actual fault. There can be no assurance that the Company and its
subsidiaries will not be required to incur costs to comply with, or that the
operations, business, or financial condition of the Company will not be
adversely affected by, current or future environmental laws or regulations.
(See "Legal Proceedings")
RISKS RELATED TO ACQUISITIONS
- ------------------------------
The Company's strategy to increase its revenue and the markets it serves has
included and may continue to include acquisition of complementary businesses.
In and prior to fiscal year 1999 the Company has consummated acquisitions of
businesses and product lines and may continue to make acquisitions. There can be
no assurance that the Company will be able to identify, acquire or manage such
companies or products or successfully integrate such operations into those of
the Company without encountering unanticipated costs, liabilities, obligations,
delays or other problems. The Company may compete for acquisition and expansion
opportunities with companies that have greater resources than the Company.
There can be no assurance that suitable acquisition candidates will be available
or that acquisitions will be obtainable on terms acceptable to the Company.
ITEM 2. PROPERTIES
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The Company's headquarters are located in a building complex located in Santa
Ana, California. This complex contains general offices, engineering and
manufacturing space. The Company owns office, engineering and production
facilities in Santa Ana and Garden Grove, California; Broomfield, Colorado;
Watertown, Massachusetts; Montgomeryville, Pennsylvania; Riviera Beach, Florida;
Ennis, Ireland; Bombay, India; and Hong Kong and leases office, engineering and
production facilities in Scottsdale, Arizona and Lawrence and Lowell,
Massachusetts. As described in Note 7 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.
8
ITEM 3. LEGAL PROCEEDINGS
-----------------
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. In November 1998, the Company signed an agreement with three
former owners of this facility whereby the former owners 1) reimbursed the
Company for $530,000 of past costs, 2) will assume responsibility for 90% of all
future clean-up costs, and 3) indemnify and protect the Company against any and
all third-party claims relating to the contamination of the property. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
9
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.
HIGH LOW
-------- --------
Fiscal Year ended October 3, 1999
1st Quarter $ 12 5/8 $ 7 3/8
2nd Quarter 12 3/4 7
3rd Quarter 9 7/8 7 1/4
4th Quarter 10 3/16 7 1/16
HIGH LOW
-------- --------
Fiscal Year ended September 27, 1998
1st Quarter $17 3/4 $13 7/8
2nd Quarter 22 15 1/2
3rd Quarter 16 1/2 9 9/16
4th Quarter 11 1/2 6 5/8
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 October 3, 1999)
-------------- -----------------------
Common Stock, $.20 Par Value 465 (1)
(1) The number of stockholders of record includes the beneficial
holders of shares held in one "nominee" or "street name", as a
unit.
(c) Dividends
---------
The Company has not paid dividends in the last five years and has no current
plans to do so.
10
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
For the five fiscal years in the period ended
October 3, 1999
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1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(Amounts in 000's except per share amounts)
Selected Income Statement Data:
- ------------------------------
Net sales $ 185,081 $ 164,710 $ 163,234 $ 157,435 $ 133,881
Gross profit $ 40,870 $ 47,285 $ 45,960 $ 43,135 $ 36,550
Operating expenses $ 35,781 $ 26,826 $ 23,441 $ 24,184 $ 21,034
Net income $ 1,499 $ 11,322 $ 11,051 $ 8,100 $ 6,053
Earnings per share:
Basic $ .13 $ 1.05 $ 1.30 $ 1.03 $ .79
Diluted $ .13 $ .98 $ 1.03 $ .80 $ .64
Weighted average shares outstanding:
Basic 11,131 10,735 8,493 7,828 7,659
Diluted 11,244 11,956 11,901 11,772 11,606
Selected Balance Sheet Data:
- ---------------------------
Working capital $ 43,050 $ 57,063 $ 55,813 $ 49,556 $ 45,714
Total assets $ 181,601 $ 145,088 $ 135,194 $ 113,014 $ 103,534
Long-term debt $ 31,381 $ 18,667 $ 47,621 $ 46,420 $ 48,398
Stockholders' equity $ 82,444 $ 87,017 $ 41,909 $ 29,408 $ 21,110
In fiscal year 1999, $4,002,000 of Research and Development was included in
operating expenses. Research and Development of $1,532,000, $1,161,000,
$1,020,000, $755,000 for fiscal years 1998, 1997, 1996 and 1995 have been
reclassified from cost of sales to operating expenses accordingly.
The selected financial data should be read in conjunction with the Consolidated
Financial Statements and Notes thereto, and Management's Discussion and Analysis
of Financial Condition and Results of Operations included in this Form 10-K.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
See Part I, Item 1, under "Important Factors Related to Forward-Looking
Statements and Associated Risks", and the factors discussed in Part I, Items 1
and 3, and Part II, Item 5.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR 1999 COMPARED TO THE FISCAL YEAR 1998.
- --------------------------------------------------------------------------------
Net sales for fiscal year 1999 increased $20,371,000 to $185,081,000, from
$164,710,000 for fiscal year 1998. The total revenues included $27,297,000 from
the LinFinity Microelectronics, Inc. ("LinFinity") and Microsemi Microwave
Products ("MMP") divisions, which were acquired in April and June 1999,
respectively. Excluding sales from LinFinity and MMP, sales for the current
fiscal year decreased $6,926,000 compared to last year. During fiscal 1999, the
demand for commercial space products was lower than prior years; however, the
decrease was partially offset by an increase in other commercial products.
Gross profit decreased $6,415,000 to $40,870,000 for the current fiscal year
from $47,285,000 for the prior year. Gross profit in the current fiscal year
included $8,518,000 from the LinFinity and MMP divisions. As a percentage of
sales, gross profit decreased to 22.1% for fiscal year 1999 from 28.7% for
fiscal year 1998. The decrease was due to change of product sales mix, with
lower sales of commercial space products, which typically have higher margins
than other commercial products, the effects of pricing pressure and lower
utilization of plant capacity. Gross profit was also adversely affected by a
$5,951,000 inventory charge to cost of sales. The charge was made because of
reductions in estimates of utilization and realizable value of certain
inventories resulted from recent changes in market conditions and customer
requirements. The Company has experienced heightened competition and
commercialization of its military business, lower demands for its commercial
satellite products and recent initiatives by satellite customers to use lower
cost parts in their programs.
Operating expenses increased $8,955,000 to $35,781,000 for fiscal year 1999
compared to fiscal year 1998. The increase was primarily due to the addition of
the LinFinity and MMP divisions and two design centers located in San Jose and
San Diego, California. The increase was also due in part to the charge for
acquired in-process research and development of $1,950,000, which was related to
the LinFinity acquisition in April 1999.
Interest expense increased $964,000 to $3,112,000 for fiscal year 1999 from
$2,148,000 in fiscal year 1998, due to increase in borrowings to finance the
acquisitions.
The effective income tax rates of 23% and 38% for fiscal years 1999 and 1998,
respectively, were the combined results of taxes computed on foreign and
domestic income. The decrease in the fiscal year 1999 effective tax rate was
primarily attributable to changes in the proportion of income earned within
various taxing jurisdictions and the tax rates applicable to such taxing
jurisdictions, benefit of Foreign Sales Corporation, and the benefit of tax
credits.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR 1998 COMPARED TO THE FISCAL YEAR 1997.
- --------------------------------------------------------------------------------
Net sales for fiscal year 1998 increased $1,476,000 to $164,710,000, from
$163,234,000 for fiscal year 1997. The total revenues included $16,000,000
generated by GMI, PPC and BKC in fiscal year 1998. Revenues generated by GMI in
fiscal year 1997 were $13,500,000. During fiscal year 1998, the demand for
commercial space products was lower than in prior years; however, the decrease
was partially offset by an increase in other commercial products, and military
sales.
Gross profit increased $1,325,000 to $47,285,000 for the fiscal year 1998 from
$45,960,000 for the prior year due to higher sales. As a percentage of sales,
gross profit increased to 28.7% for fiscal year 1998 from 28.2% for fiscal year
1997. The increase was primarily due to higher margin from PPC and BKC sales
compared to lower margins for GMI sales in fiscal year 1997.
12
Operating expenses increased $3,385,000 to $26,826,000 for fiscal year 1998
compared to fiscal year 1997. The increase was primarily due to the addition of
PPC and BKC, partially offset by the decrease in operating expenses from GMI,
which was sold in December 1997.
Interest expense decreased $1,536,000 to $2,148,000 for fiscal year 1998 from
$3,684,000 in fiscal year 1997, due to lower borrowings, principally due to the
conversions of debentures and notes payable into shares of common stock.
The effective income tax rates of 38% and 40% for fiscal years 1998 and 1997,
respectively, were the combined results of taxes computed on foreign and
domestic income. The decrease in the fiscal year 1998 effective tax rate was
primarily attributable to expected changes in the proportion of income earned
within various taxing jurisdictions and the tax rates applicable to such taxing
jurisdictions.
CAPITAL RESOURCES & LIQUIDITY
- -----------------------------
Cash provided by operating activities was $16,130,000, $12,569,000 and
$15,587,000 for fiscal years 1999, 1998 and 1997, respectively. The increase in
cash provided by operating activities in 1999 compared to 1998 was primarily
attributable to changes in earnings and inventories. The decrease in cash
provided by operating activities in 1998 compared to 1997 was primarily
attributable to increase in inventories and a decrease in accounts payable.
Net cash used by investing activities was $40,339,000, $15,616,000 and
$11,253,000 in 1999, 1998 and 1997, respectively. The increase in fiscal year
1999, compared to fiscal year 1998, was primarily due to the acquisitions of
LinFinity and MMP. The increase in fiscal year 1998, compared to fiscal year
1997, was primarily due to the acquisition of BKC; partially offset by the sale
of GMI.
Net cash provided by financing activities in 1999 was $22,273,000 and $6,681,000
for fiscal years 1999 and 1998, respectively. Net cash used in financing
activities was $2,231,000 in fiscal year 1997. The net cash provided by
financing activities in fiscal years 1999 and 1998 was proceeds from the bank
loans to finance the acquisitions; partially offset by payments of the Company's
debt. The net cash used in financing activities in fiscal year 1997 was
primarily a result of payments on the Company's debt.
Microsemi Corporation's operations in the fiscal year 1999 were funded with
internally generated funds and borrowings under the Company's revolving line of
credit, which expires in March 2003. Under this line of credit, the Company can
borrow up to $30,000,000. As of October 3, 1999, $18,500,000 was borrowed under
this credit facility. At October 3, 1999, the Company had $7,624,000 in cash
and cash equivalents.
In April 1999, the Company obtained a new credit agreement with its banks, which
included a term loan of $30,000,000 and the aforementioned revolving line of
credit of $30,000,000 to finance the LinFinity acquisition and to pay off the
then existing term loan and revolving line of credit.
The $30,000,000 term loan is secured by substantially all of the assets of the
Company. It bears an interest rate at the bank's prime rate plus .75% to 1.50%
per annum or, at the Company's option, at the Eurodollar rate plus 1.75% to 2.5%
per annum. The interest rate is determined by the ratio of total funded debt to
Earnings before Interest expense (net of interest income), Income Taxes,
Depreciation and Amortization, ("EBITDA"). It requires monthly interest payments
and quarterly principal payments of $1,000,000 from June 1999 to March 2000,
$1,500,000 from June 2000 to March 2001, $2,000,000 from June 2001 to March 2002
and $3,000,000 from June 2002 to March 2003. As of October 3, 1999, $18,500,000
was borrowed under this term loan. The terms of the term loan contain covenants
regarding net worth and working capital and restrict payment of cash dividends
or share repurchases. The Company was in compliance with the terms of the loan
at October 3, 1999.
The $30,000,000 revolving line of credit expires in March 2003 and is secured by
substantially all of the assets of the Company. It bears interest at the bank's
prime rate plus .75% to 1.50% per annum or, at the Company's option, at the
Eurodollar rate plus 1.75% to 2.5% per annum. The interest rate is determined by
the ratio of total funded debt to EBITDA. The terms of the revolving line of
credit contain covenants
13
regarding net worth and working capital and restricting payment of cash
dividends or share repurchases. The Company was in compliance with the terms of
the loan at October 3, 1999.
An Industrial Revenue Bond was issued in November 1975 through the City of
Broomfield, Colorado and carries an interest rate of 7.875% per annum. The
remaining balance of $2,075,000 is due in May 2000.
An Industrial Development Revenue Bond was originally issued in April 1985,
through the City of Santa Ana Industrial Development Authority for the
improvements and construction of new facilities at the Company's 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 $100,000
annually from 2000 to 2004 and $3,700,000 in 2005. A $4,466,000 letter of
credit is carried by a bank to guarantee the repayment of this bond. The Company
pays an annual commitment fee of 2% for this letter of credit.
In June 1997, the Company entered into a $2,700,000 equipment loan agreement,
providing for monthly principal payments through July 2002 of $45,000 plus
interest at 5.93% per annum. $1,530,000 of this loan remained outstanding at
October 3, 1999.
In September 1997, the Company issued and assumed notes payable of $2,370,000
related to the PPC acquisition. These notes are payable to the former owners,
bear an interest rate of 7%, and are due in monthly installments over various
periods through September 2009. $1,794,000 of these notes remained outstanding
at October 3, 1999.
In April 1999, Microsemi acquired LinFinity, a subsidiary of Symmetricom, Inc.
LinFinity manufactures analog and mixed signal integrated circuits ("ICs"), as
well as systems-engineered modules for use primarily in power management and
communication applications in commercial, industrial, defense and space markets.
In the most recent twelve-month period, LinFinity had sales of approximately
$51,000,000. The total cost of this acquisition was approximately $24,510,000,
which was funded with cash and bank borrowings.
In June 1999, Microsemi Microwave Products, Inc., a subsidiary of the Company,
acquired assets of Narda Microwave Semiconductor. The acquired assets are used
in the manufacture of semiconductor components including varactor diodes, pin
diodes, chip capacitors and Schottky devices. The total cost of this
acquisition was $5,060,000.
In June 1999, Microsemi finalized a lease agreement for a building located in
Santa Ana, California. The lease requires a current rental payment of $23,217
per month. This transaction was recorded as a purchase at the present value of
the lease payments.
In September 1998, Microsemi repurchased 114,037 shares of its common stock for
$840,000 that was paid in fiscal 1999. Microsemi repurchased 759,950 shares of
its common stock for $6,074,000 in fiscal year 1999.
The Company has no other significant capital commitments.
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.
14
YEAR 2000 READINESS DISCLOSURE
- ------------------------------
The information below constitutes a "Year 2000 Readiness Disclosure" for
purposes of the Year 2000 Information and Readiness Disclosure Act.
Microsemi has made and will continue to make certain investments in its
equipment and business system and application software to ensure the Company is
year 2000 ("Y2K") compliant.
The Company established a global Y2K team as well as local site teams to address
the issues and to ensure that all aspects of its business will be Y2K compliant.
These teams were studying business system software and hardware, equipment and
software used in the manufacturing of product, facilities, telecommunications
and internal network. The global and the local site teams consisted of
management as well as operational and information technology staff members. The
global Y2K team was formed to address company-wide Y2K issues, such as overall
project integration and management, project schedules and report to management.
Local site teams addressed research and remediation for site-specific equipment,
facilities, customers, suppliers and other business partners. The teams'
responsibilities included the following functional areas: (1) factory equipment
and facilities, (2) business system software, (3) desktop computers,
telecommunications system and network hardware and software systems, and (4)
customers, suppliers, and business partners.
Factory equipment includes automated test equipment and test data collection
systems. The high reliability nature of the Company's products calls for test,
test data collection and data retention. This need is generally called for in
product performance specifications, such as MIL-PRF-19500. The factory and
facility equipment are Y2K compliant.
The study of the impact of the internal information system (business system
software) was completed. The Company had installed Y2K compliant software at
all non-compliant units. This project was completed in November 1999.
Networking and telecommunication hardware and software are Y2K compliant. The
Company took an inventory and replaced all necessary desktop computers. This
project was completed in June 1999.
The Company surveyed its customers, suppliers, service providers and business
partners, including banks and other financial institutions about their Y2K
readiness. The Company's major vendors and service providers are Y2K compliant.
The company believes that it has sufficient inventories to avoid business
interruption due to late deliveries from its vendors. In most cases, the Company
has multiple sources of supplies. The sole source supplier of the Company has
sufficient supplies on hand for Microsemi.
The activities of the Company's Y2K project teams include the development of
contingency plans. Due to the complexity of the Y2K issues, there can be no
assurance that such plans will be sufficient to address all internal and
external failures or that undetected Y2K issues will not have a material adverse
effect on the Company's business, financial condition, results of operations and
cash flows. The contingency plans, even if successful and effective, may result
in loss of efficiencies, increased costs, and other adverse effects on the
Company's business and operations.
The Company estimates that the expenses to date for the Y2K project have been
approximately $1,600,000. Completion of the project is expected to require an
additional expenditure of $200,000.
Microsemi believes that its Y2K project teams identified all of the Company's
material Y2K issues in the course of their assessments. However, given the
pervasiveness of Y2K issues and the complexity of and interrelationships among
Y2K issues, both internal and external, there can be no assurance that Microsemi
identified and accurately evaluated all such issues. Identification of these
issues is crucial to effective remedies. Further, any undetected Y2K issues
could result in material adverse effects on the Company, such as failure to
efficiently utilize manufacturing capacity, shipping delays, loss of critical
data, disrupted communications, product defects, inventory write-offs, waste of
inventory and supplies, personal injury, difficulties in managing its
operations, errors in accounting, and such indirect adverse effects as claims by
third parties against the Company that may relate thereto. In addition, if Y2K
problems experienced by any
15
of the Company's significant customers, suppliers, public utilities, service
providers or business partners cause or contribute to delays or interruptions in
placing orders, or in delivery of products or services to the Company, or in
collection of receivables, or in interruptions in the Company's electrical or
telecommunications utilities, such delays or interruptions could have a material
adverse effect on the Company's business, financial condition, results of
operations and cash flows. Disruption in and throughout the global economy
resulting from Y2K issues may have a chain reaction and could also have
materially adverse affects on the Company. The Company believes that such
disruption could be likely in foreign countries, including those of Europe and
Asia, whose Y2K compliance programs are believed to trail those in the United
States. However, no assurance is given as to Y2K readiness in the United
States, whose technological infrastructure is especially complex and
interrelated. The occurrence of any of the aforementioned or other risks may
have a material adverse effect on the Company's business, financial condition,
results of operations and cash flows, including but not limited to such effects
on the Company's foreign operations. In addition, insurance coverage for the
risks described above may be unavailable or available only at prohibitive costs
and the Company may be responsible itself for all of the potential adverse
financial effects thereof.
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
MICROSEMI CORPORATION AND SUBSIDIARIES
Index to Financial Statements
-----------------------------
1. Consolidated Financial Statements Page
--------------------------------- ----
Report of Independent Accountants 18
Consolidated Balance Sheets at October 3, 1999
and September 27, 1998 19
Consolidated Income Statements for each of the three
fiscal years in the period ended October 3, 1999 20
Consolidated Statements of Stockholders' Equity for each
of the three fiscal years in the period ended
October 3, 1999 21
Consolidated Statements of Cash Flows for each of the
three fiscal years in the period ended October 3, 1999 22
Notes to Consolidated Financial Statements 23
2. Financial Statement Schedule
----------------------------
Schedule for the fiscal years ended October 3, 1999,
September 27, 1998 and September 28, 1997.
Schedule
--------
II - Valuation and Qualifying Accounts 40
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.
17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Microsemi Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Microsemi Corporation and its subsidiaries at October 3, 1999 and September 27,
1998, and the results of their operations and their cash flows for each of the
three fiscal years in the period ended October 3, 1999, in conformity with
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States, which require that
we plan and perform the audits 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.
PricewaterhouseCoopers LLP
Costa Mesa, California
November 22, 1999
18
MICROSEMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in 000's)
October 3, September 27,
1999 1998
------------ --------------
ASSETS
Current assets:
Cash and cash equivalents $ 7,624 $ 9,610
Accounts receivable, less allowance for doubtful
accounts, $3,805 in 1999 and $2,457 in 1998 31,775 23,094
Inventories 56,925 54,433
Deferred income taxes 7,282 6,049
Other current assets 2,128 1,319
------------ ------------
Total current assets 105,734 94,505
------------ ------------
Property and equipment, net 54,946 35,554
------------ ------------
Deferred income taxes 862 -
------------ ------------
Goodwill and other intangible assets, net 12,218 9,729
------------ ------------
Other assets 7,841 5,300
------------ ------------
TOTAL ASSETS $ 181,601 $ 145,088
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks and others $ 18,545 $ 6,172
Current maturities of long-term debt 8,422 4,339
Accounts payable 11,247 6,656
Accrued liabilities 17,292 14,401
Income taxes payable 7,178 5,874
------------ ------------
Total current liabilities 62,684 37,442
------------ ------------
Long-term debt 31,381 18,667
------------ ------------
Other long-term liabilities 5,092 1,962
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.20 par value; authorized 20,000
shares; issued 10,920 in 1999 and 11,666 in 1998 2,184 2,333
Capital in excess of par value of common stock 46,695 49,896
Retained earnings 34,561 35,734
Accumulated other comprehensive loss (996) (946)
------------ ------------
Total stockholders' equity 82,444 87,017
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 181,601 $ 145,088
============ ============
The accompanying notes are an integral part of these statements.
19
MICROSEMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For each of the three fiscal years in the period ended October 3, 1999
(amounts in 000's, except earnings per share)
1999 1998 1997
------- ------- -------
Net sales $ 185,081 $ 164,710 $ 163,234
Cost of sales 144,211 117,425 117,274
---------- ---------- ----------
Gross profit 40,870 47,285 45,960
---------- ---------- ----------
Operating expenses:
Selling 14,010 10,939 9,226
General and administrative 14,424 13,839 12,833
Amortization of goodwill and intangible assets 1,395 516 221
Research and development 4,002 1,532 1,161
Acquired in-process research and development 1,950 - -
---------- ---------- ----------
Total operating expenses 35,781 26,826 23,441
---------- ---------- ----------
Income from operations 5,089 20,459 22,519
---------- ---------- ----------
Other expenses:
Interest expense (3,112) (2,148) (3,684)
Other (36) (50) (329)
---------- ---------- ----------
Total other expenses (3,148) (2,198) (4,013)
---------- ---------- ----------
Income before income taxes 1,941 18,261 18,506
Provision for income taxes 442 6,939 7,455
---------- ---------- ----------
Net income $ 1,499 $ 11,322 $ 11,051
========== ========== ==========
Basic earnings per share $ 0.13 $ 1.05 $ 1.30
========== ========== ==========
Diluted earnings per share $ 0.13 $ 0.98 $ 1.03
========== ========== ==========
The accompanying notes are an integral part of these statements.
20
MICROSEMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For each of the three fiscal years in the period ended October 3, 1999
(amounts in 000's)
Common Stock
---------------------------------------- Accumulated
Capital in other
excess of compre-
par value of Retained hensive
Shares Amount common stock earnings loss Total
--------- --------- ------------ --------- ----------- ---------
Balance at September 29, 1996 7,908 $ 1,582 $ 14,895 $ 13,691 $ (760) $ 29,408
Exercise of employee stock
options 228 45 442 - - 487
Treasury stock repurchased
and canceled (15) (3) (187) - - (190)
Conversion of debt 615 123 1,047 - - 1,170
Comprehensive income - - - 11,051 (17) 11,034
--------- -------- ---------- -------- --------- ---------
Balance at September 28, 1997 8,736 1,747 16,197 24,742 (777) 41,909
Exercise of employee stock
options 191 38 519 - - 557
Treasury stock repurchased and
canceled (114) (22) (488) (330) - (840)
Conversion of debt 2,853 570 33,668 - - 34,238
Comprehensive income - - - 11,322 (169) 11,153
--------- -------- ---------- -------- --------- ---------
Balance at September 27, 1998 11,666 2,333 49,896 35,734 (946) 87,017
Exercise of employee stock
options 14 3 49 - - 52
Treasury stock repurchased and
canceled (760) (152) (3,250) (2,672) - (6,074)
Comprehensive income - - - 1,499 (50) 1,449
--------- -------- ---------- -------- --------- ---------
Balance at October 3, 1999 10,920 $ 2,184 $ 46,695 $ 34,561 $ (996) $ 82,444
========= ======== ========== ======== ========= =========
The accompanying notes are an integral part of these statements.
21
MICROSEMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the three fiscal years in the period ended October 3, 1999
(amounts in 000's)
1999 1998 1997
---------- ---------- ----------
Cash flows from operating activities
Net income $ 1,499 $ 11,322 $ 11,051
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 8,818 5,281 4,257
Allowance for doubtful accounts (611) (182) 506
Provision for excess and obsolete inventories 5,951 - -
Loss on disposition and retirement of assets - 93 9
Acquired in-process research and development 1,950 - -
Deferred income taxes (2,095) (212) (712)
Change in assets and liabilities, net of acquisitions and
disposition:
Accounts receivable 179 72 (215)
Inventories (2,069) (3,656) (1,719)
Other current assets 381 2,662 (3,098)
Other assets - 1,301 786
Accounts payable 1,017 (3,210) 2,853
Accrued liabilities (194) (915) 820
Income taxes payable 1,304 13 1,049
---------- ---------- ----------
Net cash provided by operating activities 16,130 12,569 15,587
---------- ---------- ----------
Cash flows from investing activities
Capital expenditures (7,932) (5,905) (6,052)
Proceeds from disposition and sale of assets - 5,029 -
Other assets (2,837) - -
Payments for acquisitions, net of cash acquired (29,570) (13,740) (5,201)
Investment in an unconsolidated affiliate - (1,000) -
---------- ---------- ----------
Net cash used in investing activities (40,339) (15,616) (11,253)
---------- ---------- ----------
Cash flows from financing activities
Increase (decrease) in notes payable to banks and others 12,373 (66) 81
Proceeds from long-term debt 30,800 10,000 -
Payments of long-term debt (14,003) (3,848) (2,571)
Increase (decrease) in other long-term liabilities (35) 38 (38)
Repurchases of common stock (6,914) - (190)
Exercise of employee stock options 52 557 487
---------- ---------- ----------
Net cash provided by (used in) financing activities 22,273 6,681 (2,231)
---------- ---------- ----------
Effect of exchange rate changes on cash (50) (169) (17)
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents (1,986) 3,465 2,086
Cash and cash equivalents at beginning of year 9,610 6,145 4,059
---------- ---------- ----------
Cash and cash equivalents at end of year $ 7,624 $ 9,610 $ 6,145
========== ========== ==========
The accompanying notes are an integral part of these statements.
22
MICROSEMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
- -----------------------
Microsemi Corporation is a global supplier of commercial and high-reliability
analog integrated circuits and power and signal discrete semiconductors serving
the satellite, telecommunications, computer and peripherals, military/aerospace,
industrial/commercial, and medical markets.
Fiscal Year
- -----------
The Company reports results of operations on the basis of fifty-two and fifty-
three week periods. The Company's 1999 fiscal year ended on October 3, 1999 and
consisted of fifty-three weeks. Fiscal years 1998 and 1997 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.
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 rate offered to the Company
for obligations of the same remaining maturities.
Concentration of Credit Risk and Foreign Sales
- ----------------------------------------------
The Company is potentially subject to concentrations of credit risk consisting
principally of trade 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 35%, 23% and 22% of net sales for fiscal years 1999, 1998 and
1997, 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.
Investments
- -----------
The Company's investments in certain unconsolidated affiliates are stated at the
lower of cost or estimated net realizable value.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out method, except for cost of inventories at the
Scottsdale, Arizona subsidiary, which cost is determined using the last-in,
first-out method (see Note 2).
23
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the lease terms or the estimated
useful lives. Maintenance and repairs are charged to expense as incurred and
the costs of additions and betterments that increase the useful lives of the
assets are capitalized.
Intangible Assets
- -----------------
Intangible assets, arising principally from differences between the cost of
acquired companies and the underlying values at dates of acquisition (goodwill),
are amortized on a straight-line basis over periods not exceeding ten years. It
is the Company's policy to periodically evaluate the carrying value of its
operating assets, including goodwill, when certain events arise and to recognize
impairments when the estimated future undiscounted net operating cash flows from
the use of assets are less than their carrying values.
Revenue Recognition
- -------------------
Revenue is recognized at the time of product shipment. The Company, under
specific conditions, permits its customers to return or exchange products. A
provision for estimated sales returns is recorded concurrently with the
recognition of revenue, based on historical experiences.
Research and Development
- ------------------------
The Company expenses the cost of research and development as incurred. Research
and development expenses principally comprise payroll and related costs and the
cost of prototypes.
Stock-Based Compensation
- ------------------------
The Company accounts for its stock based compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. The disclosures required under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-based Compensation" ("SFAS
123"), have been included in Note 8.
Income Taxes
- ------------
Deferred tax assets and liabilities are recorded for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, all expected
future events, including enactment of changes in tax laws or rates are
considered. A valuation allowance is provided for deferred tax assets when it
is more likely than not that such assets will not be realized through future
operations.
Earnings Per Share
- ------------------
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". This Statement establishes standards for computing and
requires the presentation of basic and diluted earnings per share ("EPS"). The
company adopted this statement in the first quarter of fiscal year 1998 and has
restated the EPS for the prior year periods presented, as required.
Basic earnings per share have been computed based upon the weighted average
number of common shares outstanding during the respective periods. Diluted
earnings per share have been computed, when the result is dilutive, using the
treasury stock method for stock options outstanding during the respective
periods and based upon the assumption that the convertible subordinated
debentures had been converted into common stock as of the beginning of the
respective periods, with a corresponding increase in net income to reflect a
reduction in related interest expense, net of applicable taxes.
24
Earnings per share for the three fiscal years ended October 3, 1999, September
27, 1998 and September 28, 1997 were calculated as follows:
Fiscal Year Ended
-------------------------------------------
1999 1998 1997
---------- --------- ----------
(amounts in 000's,
except per share data)
BASIC
Net income $ 1,499 $ 11,322 $ 11,051
========== ========= =========
Weighted-average common shares outstanding 11,131 10,735 8,493
========== ========= =========
Basic earnings per share $ 0.13 $ 1.05 $ 1.30
========== ========= =========
DILUTED
Net income $ 1,499 $ 11,322 $ 11,051
Interest savings from assumed conversions of
Convertible debt, net of income taxes - 383 1,244
---------- --------- ---------
Net income assuming conversions $ 1,499 $ 11,705 $ 12,295
========== ========= =========
Weighted-average common shares outstanding for basic 11,131 10,735 8,493
Dilutive effect of stock options 113 235 387
Dilutive effect of convertible debt - 986 3,021
---------- --------- ---------
Weighted-average common shares outstanding on a
Diluted basis 11,244 11,956 11,901
========== ========= =========
Diluted earnings per share $ 0.13 $ 0.98 $ 1.03
========== ========= =========
There were approximately 631,000, 442,000, and -0- options in 1999, 1998 and
1997, respectively, that were not included in the computation of diluted EPS
because the exercise price was greater than the average market price of the
common stock, thereby resulting in an antidilutive effect.
Comprehensive Income
- --------------------
Effective in the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for reporting and displaying of
comprehensive income and its components in the Company's consolidated financial
statements. Comprehensive income is defined in SFAS 130 as the change in equity
(net assets) of a business enterprise during the period from transactions and
other events and circumstances from non-owner sources. Accumulated other
comprehensive loss consists of the change in the cumulative translation
adjustment. Total comprehensive income for fiscal years 1999, 1998 and 1997 was
$1,449,000, $11,153,000 and $11,034,000, respectively.
In fiscal year 1999, the Company adopted Statement of Financial Accounting
Standard No. 131, "Disclosure about Segments of an Enterprise and Related
Information ("SFAS 131"). SFAS 131 superseded SFAS 14, "Financial Reporting for
Segments of a Business Enterprise", replacing the "industry segment" approach
with the "management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. SFAS
131 also requires disclosures about products and services, geographic areas, and
major customers. The adoption of SFAS 131 did not affect results of operations
or consolidated financial position, but did affect the disclosure of segment
information (see note 12).
25
Recently Issued Accounting Standard
- -----------------------------------
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which will become effective for the Company in fiscal year 2001. SFAS
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. SFAS 133
is not expected to materially affect the Company's financial position or results
of operations.
Reclassifications
- -----------------
Certain reclassifications have been made to the fiscal year 1998 and 1997
balances to conform with the fiscal year 1999 presentation.
2. INVENTORIES
Inventories are summarized as follows:
October 3, September 27, September 28,
1999 1998 1997
---------- ------------ ------------
(amounts in 000's)
Raw materials $ 14,002 $ 14,759 $ 15,954
Work in process 22,244 18,282 23,774
Finished goods 20,679 21,392 13,520
---------- ----------- ------------
$ 56,925 $ 54,433 $ 53,248
========== =========== ============
Inventories in the amount of $9,013,000 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 $19,000 higher
at October 3, 1999, $615,000 lower at September 27, 1998 and $27,000 higher at
September 28, 1997. The LIFO valuation method had the effect of increasing
gross profit by $634,000 in fiscal year 1999, decreasing gross profit by
$642,000 in fiscal year 1998 and increasing gross profit by $23,000 in fiscal
year 1997.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
October 3, September 27,
Asset Life 1999 1998
---------------- ----------- -------------
(amounts in 000's)
Buildings 20-40 years $ 27,605 $ 17,896
Property and equipment 3-10 years 63,304 48,160
Furniture and fixtures 5-10 years 1,299 1,044
Leasehold improvements Life of lease 2,078 2,713
----------- ------------
94,286 69,813
Accumulated depreciation (47,732) (42,113)
Land 5,419 5,004
Construction in progress 2,973 2,850
----------- ------------
$ 54,946 $ 35,554
=========== ============
Depreciation expense was $7,423,000, $4,765,000 and $4,036,000 in fiscal years
1999, 1998 and 1997, respectively.
26
At October 3, 1999, 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
land and buildings in Watertown, Massachusetts and in Ennis, Ireland are pledged
to Unitrode Corporation under the provisions of the related acquisition
agreement. The building and land in Riviera Beach, Florida are pledged to the
former owner under the provisions of the related acquisition agreement.
4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET AND OTHER ASSETS
October 3, September 27,
1999 1998
---------- -------------
(amounts in 000's)
Goodwill and other intangible assets, net $ 12,218 $ 9,729
========== ==========
Accumulated amortization for goodwill and other intangible assets amounted to
$4,434,000 and $1,869,000 as of October 3, 1999 and September 27, 1998,
respectively. Amortization expense for fiscal years 1999, 1998 and 1997 was
$1,231,000, $393,000 and $36,000, respectively.
Other assets consisted of the following:
October 3, September 27,
1999 1998
---------- -------------
(amounts in 000's)
Investments in unconsolidated affiliates $ 2,126 $ 1,878
Deferred financing expenses, net 693 375
Cash surrender value of life insurance 467 443
Notes receivable 2,229 2,320
Property held for sale 2,075 -
Others 251 284
---------- ----------
$ 7,874 $ 5,300
========== ==========
Accumulated amortization for deferred financing expenses amounted to $1,048,000
and $883,000 as of October 3, 1999 and September 27, 1998, respectively.
Amortization expense for fiscal years 1999, 1998 and 1997 was $164,000, $123,000
and $185,000, respectively.
5. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
October 3, September 27,
1999 1998
---------- -------------
(amounts in 000's)
Accrued payroll, profit sharing, benefits and
related taxes $ 8,331 $ 8,018
Accrued interest 2,387 2,314
Other accrued expenses 6,574 4,069
---------- -----------
$ 17,292 $ 14,401
========== ===========
27
6. INCOME TAXES
Pretax income from continuing operations was taxed under the following
jurisdictions:
For each of the three fiscal years in
the period ended October 3, 1999
----------------------------------------
1999 1998 1997
---------- ---------- ----------
(amounts in 000's)
Domestic $ 547 $ 14,010 $ 15,929
Foreign 1,394 4,251 2,577
---------- ---------- ----------
Total $ 1,941 $ 18,261 $ 18,506
========== ========== ==========
The provision for income taxes consisted of the following components:
For each of the three fiscal years in
the period ended October 3, 1999
-----------------------------------------
1999 1998 1997
----------- --------- ---------
(amounts in 000's)
Current
Federal $ 1,986 $ 4,320 $ 6,525
State 301 918 1,332
Foreign 250 490 310
Deferred (2,095) 1,211 (712)
---------- ---------- ----------
$ 442 $ 6,939 $ 7,455
========== ========== ==========
The tax effected deferred tax assets (liabilities) comprise the following:
October 3, 1999 September 27,1998
--------------- -----------------
(amounts in 000's)
Accounts receivable $ 720 $ 1,384
Inventories 4,946 418
Other assets 1,506 1,434
Fixed asset bases 931 1,007
Accrued employee benefit expenses 1,371 2,417
Accrued other expenses 1,393 2,140
Amortization of intangible assets 690 -
----------- ------------
Gross deferred tax assets 11,557 8,800
----------- ------------
Inventory bases (1,491) (753)
Depreciation (1,922) (1,998)
----------- ------------
Gross deferred tax liabilities (3,413) (2,751)
----------- ------------
$ 8,144 $ 6,049
=========== ============
28
The following is a reconciliation of income tax computed at the federal
statutory rate to the Company's actual tax expense:
For each of the three fiscal years in
the period ended October 3, 1999
------------------------------------------
1999 1998 1997
--------- ---------- ---------
(amounts in 000's)
Tax computed at statutory rate $ 660 $ 6,392 $ 6,477
State taxes, net of federal benefit 62 916 850
Foreign income taxed at different rates (224) (997) 339
Non-deductible goodwill amortization 335 115 -
Non-deductible interest - 310 -
Foreign Sales Corporation benefit (211) - -
Tax credits (174) - -
Other differences, net (6) 203 (211)
--------- ---------- ---------
$ 442 $ 6,939 $ 7,455
========= ========== =========
No provision has been made for future U.S. income taxes on the undistributed
earnings of foreign operations since they have been, for the most part,
indefinitely reinvested in these operations. Determination of the amount of
unrecognized deferred tax liability for temporary differences related to the
undistributed earnings of the Company's foreign operations is not practicable.
At the end of fiscal year 1999, the undistributed earnings aggregated
approximately $19,725,000.
7. DEBT
Long-term debt consisted of:
October 3, September 27,
1999 1998
----------- ---------------
(amounts in 000's)
Industrial Development Bond, bearing interest at 7.875%, due
May 2000; secured by first deed of trust $ 2,075 $ 2,305
Industrial Development Bond, bearing interest at 6.75%, due
February 2005; secured by first deed of trust 4,200 4,300
Note payable, bearing interest at 5.93%, payable monthly
through July 2002 1,530 2,070
Notes payable (PPC Acquisition), bearing interest at 7%,
payable monthly through September 2009 1,794 2,092
Notes payable to a bank, bearing interest at the bank's prime
rate payable in monthly installments through July 2003 - 9,667
Notes payable to a bank, bearing interest at variable rates,
(7.94% at October 3, 1999), payable in quarterly installments
through March 2003 28,000 -
Notes payable, bearing interest at ranges of 5 - 9.75%, due
between October 1999 and September 2014 2,204 2,572
----------- ------------
39,803 23,006
Less current portion (8,422) (4,339)
----------- ------------
$ 31,381 $ 18,667
=========== ============
29
Long-term debt maturities, including the current portion, during the next five
years are as follows (amounts in 000's):
2000 $ 8,422
2001 8,224
2002 11,070
2003 6,202
2004 212
Thereafter 5,673
---------------
$ 39,803
===============
A $4,150,000 Industrial Revenue Bond was issued in November 1975 through the
City of Broomfield, Colorado and carries an interest rate of 7.875% per annum.
The balance of $2,075,000 is due in May 2000.
A $6,500,000 Industrial Development Revenue Bond was originally issued in April
1985, through the City of Santa Ana, California for the construction of
improvements and new facilities at the Company's Santa Ana plant. $4,200,000 of
this loan remained outstanding at October 3, 1999. It was remarketed in 1995
and carries an average interest rate of 6.75% per annum. The terms of the bond
require principal payments of $100,000 annually from 2000 to 2004 and $3,700,000
in 2005. A $4,466,000 letter of credit is carried by a bank to guarantee the
repayment of this bond. There are no compensating balance requirements. An
annual commitment fee of 2% is charged on this letter of credit. In addition,
the agreement contains covenants regarding net worth and working capital. The
Company was in compliance with the aforementioned covenants at October 3, 1999.
In June 1997, the Company entered into a $2,700,000 equipment loan agreement,
providing for monthly principal payments through July 2002 of $45,000 plus
interest at 5.93% per annum. $1,530,000 of this loan remained outstanding at
October 3, 1999. This loan is secured by the related equipment.
In September 1997, the Company issued and assumed notes payable of $2,370,000
related to the PPC acquisition. These notes are payable to the former owners,
bear an interest rate of 7%, and are due in monthly installments of principal
and interest over various periods through September 2009. $1,794,000 of these
notes remained outstanding at October 3, 1999. One of these notes is secured by
the related acquired building.
In June 1998, the Company finalized an amendment to its then-existing bank
credit facility, which added a $10,000,000 term loan. $9,667,000 of this loan
was outstanding at September 27, 1998, used by Microsemi to finance a portion of
the BKC acquisition. This term loan was paid in full when the Company obtained
new credit arrangements with its banks in April 1999.
In April 1999, the Company obtained a new credit agreement with its banks, which
included a term loan of $30,000,000 and a revolving line of credit of
$30,000,000 to finance the acquisition of LinFinity Microelectronics, Inc.
("LinFinity"), a subsidiary of Symmetricom, Inc., and to pay off the existing
term loan and the revolving line of credit.
The new $30,000,000 term loan, $28,000,000 of this loan remained outstanding at
October 3, 1999, is secured by substantially all of the assets of the Company.
It bears interest at the bank's prime rate plus .75% to 1.5% per annum or, at
the Company's option, at the Eurodollar rate plus 1.75% to 2.5% per annum. The
interest rate is determined by the ratio of total funded debt to Earnings before
Interest Expense (net of interest income), Income Taxes, Depreciation and
Amortization ("EBITDA"). It requires monthly interest payments and quarterly
principal payments of $1,000,000 from June 1999 to March 2000, $1,500,000 from
June 2000 to March 2001, $2,000,000 from June 2001 to March 2002 and $3,000,000
from June 2002 to March 2003. The terms of the term loan contain covenants
regarding net worth and working capital and restricting payment of cash
dividends or share repurchases. The Company was in compliance with these
covenants at October 3, 1999.
30
Concurrent with the new term loan, the Company obtained a new $30,000,000
revolving line of credit, which expires in March 2003. This line of credit
replaced its then-existing $15,000,000 credit line. The new line of credit is
secured by substantially all of the assets of the Company. It bears interest at
the bank's prime rate plus .75% to 1.5% per annum or, at the Company's option,
at the Eurodollar rate plus 1.75% to 2.5% per annum. The interest rate is
determined by the ratio of total funded debt to EBITDA. The terms of the
revolving line of credit contain covenants regarding net worth and working
capital and restricting payment of cash dividends or share repurchases. The
Company was in compliance with these covenants at October 3, 1999. At October
3, 1999, interest rate of the line of credit was 7.94% and $18,500,000 was
outstanding. At October 3, 1999, $7,100,000 was available under the line of
credit.
Other debts consist of various loans bearing interest at ranges from 5% to 9.75%
and require periodic principal payments through September 2014. At October 3,
1999, totals of $2,204,000 remained outstanding for these loans.
The Company occupies a building in Santa Ana, California, which is under a long-
term capital lease obligation and included in other long-term liabilities at
October 3, 1999. Future annual payments due under this capital lease obligation
are as follows (amounts in 000's):
2000 279
2001 279
2002 279
2003 279
2004 279
Thereafter 6,870
------
Total minimum lease payments 8,265
Less imputed interest (5,100)
------
Present value of capitalized lease obligation 3,165
======
The building under this capital lease obligation is reflected in property and
equipment, net.
8. STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS
Stock Options
- -------------
Under the terms of an incentive stock option plan adopted in fiscal year 1982
and amended in fiscal year 1985, nontransferable options to purchase common
stock may be granted to certain key employees. The Company reserved 750,000
shares for issuance under the terms of the plan. The options may be exercised
within ten years from the date they are granted, subject to early termination
upon death or cessation of employment, and are exercisable in installments
determined by the Board of Directors. For certain significant shareholders, the
exercise period is limited to five years and the exercise price is higher.
In December 1986, the Board of Directors adopted another incentive stock option
plan (the "1987 Plan") which reserved an additional 750,000 shares of common
stock for issuance. The 1987 Plan was approved by the shareholders in February
1987 and is for the purpose of securing for the Company and its shareholders the
benefits arising from stock ownership by selected officers, directors and other
key executives and management employees. The plan provides for the grant by the
Company of stock options, stock appreciation rights, shares of common stock or
cash. As of October 3, 1999, the Company only granted options under the 1987
Plan. The options may be exercised within ten years from the date they are
granted, subject to early termination upon death or cessation of employment, and
are exercisable in installments determined by the Board of Directors. For
certain significant shareholders, the exercise period is limited to five years
and the exercise price is higher.
At their annual meeting on February 25, 1994, the shareholders approved several
amendments to the 1987 Plan which 1) extend its termination date to December 15,
2000; 2) increase initially from 750,000 to 850,000 the number of shares
available for grants; 3) increase on the first day of each fiscal year, the
number of shares available for grant in increments of 2% of the Company's issued
and outstanding shares of common stock; 4) set a limit on the number of options
or shares which may be granted to any one
31
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 Average Price
------------ -------------
Outstanding September 29, 1996 740,515 $ 4.48
============
Granted 191,300 $ 11.45
Exercised (227,551) $ 1.97
------------
Outstanding September 28, 1997 704,264 $ 7.12
============
Granted 189,500 $ 15.84
Exercised (191,669) 4.31
Expired or canceled (64,705) $ 10.05
------------
Outstanding September 27, 1998 637,390 $ 10.44
============
Granted 416,000 $ 10.06
Exercised (13,688) 3.76
Expired or canceled (66,075) $ 10.81
------------
Outstanding October 3, 1999 973,627 $ 10.35
============
Stock options exercisable were 453,240, 263,590 and 308,164 at October 3, 1999,
September 27, 1998 and September 28, 1997, respectively, at weighted average
exercise prices of $10.40, $7.24 and $4.34, respectively. Remaining shares
available for grant at October 3, 1999, September 27, 1998 and September 28,
1997 under the plans were 203,000, 308,000 and 262,000, respectively. All
options were granted at the fair market value of the Company's shares of common
stock on the date of grant.
The following table summarizes information about stock options outstanding and
exercisable at October 3, 1999, as required by SFAS 123:
Options Outstanding Options Exercisable
----------------------------- -----------------------------
Weighted
Weighted Average Average
Range of Exercise Remaining Exercise
Exercise Prices Shares Price Life Shares Price
- ---------------------- ----------- ------------- --------- ----------- -------------
$ 1.00 - $ 3.88 39,725 $ 2.51 2.3 years 39,725 $ 2.51
$ 4.44 - $ 5.00 115,499 $ 4.78 4.5 years 75,487 $ 4.78
$ 7.25 - $ 7.56 187,400 $ 7.53 9.4 years 91,400 $ 7.52
$ 9.81 - $11.25 231,353 $ 10.49 7.2 years 50,403 $ 10.49
$ 11.77 - $12.38 215,400 $ 12.36 9.2 years 11,975 $ 12.38
$ 13.13 - $17.25 184,250 $ 15.68 8.1 years 184,250 $ 15.68
--------- -----------
973,627 $ 453,240
========= ===========
32
The Company accounts for its option plans under APB Opinion No. 25. Had
compensation expense for the Company's option plans been determined based upon
an estimate of the fair value at the grant date consistent with the requirements
of SFAS 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts in the following table. The SFAS 123 method of
accounting was not applied to options granted prior to fiscal 1996.
October 3, 1999 September 27, 1998 September 28, 1997
--------------- ------------------ ------------------
(amounts in 000's)
Net income
As reported 1,499 11,322 11,051
Pro forma 553 10,404 10,577
Basic earnings per share
As reported $ .13 $ 1.05 $ 1.30
Pro forma $ .05 $ .97 $ 1.25
Diluted earnings per share
As reported $ .13 $ .98 $ 1.03
Pro forma $ .05 $ .90 $ .98
The fair value of each stock option grant was estimated pursuant to SFAS 123 on
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions:
1999 1998 1997
------------- ------------- -------------
Risk free interest rates 4.94% 5.55% 5.98%
Expected dividend yield None None None
Expected lives 5 years 5 years 5 years
Expected volatility 67.0% 76.4% 66.6%
The weighted average grant date fair values of options granted during fiscal
years 1999, 1998 and 1997 were $10.06, $15.84 and $11.45, respectively.
Employee Benefit Plans
- ----------------------
The Microsemi Corporation Profit Sharing Plan, adopted by the Board of Directors
in fiscal year 1984, covers substantially all full-time employees who meet
certain minimum employment requirements and provides for current bonuses based
upon the Company's earnings. Annual contributions to the plan are determined by
the Board of Directors. Total charges to income were $1,745,000, $2,509,000 and
$3,070,000 in fiscal years 1999, 1998 and 1997, respectively.
401(k) Plan
- -----------
The Company sponsors a 401(k) Savings Plan whereby participating employees may
elect to contribute up to 15% of their eligible wages. The Company is committed
to match 50% of employee contributions, not exceeding 3% of the employee's
wages. The Company contributed $1,148,000, $1,005,000 and $899,000 to this plan
during fiscal years 1999, 1998 and 1997, respectively.
Supplemental Retirement Plan
- ----------------------------
In fiscal year 1994, the Company adopted a supplemental retirement plan which
provides certain long-term employees with retirement benefits based upon a
certain percentage of the employees' salaries. Included in other long-term
liabilities at October 3, 1999 and September 27, 1998 was $1,327,000 and
$1,400,000, respectively, related to the Company's estimated liability under the
plan.
33
9. COMMITMENTS AND CONTINGENCIES
The Company occupies premises under operating lease agreements expiring through
2029. Aggregate future minimum rental payments under these leases are (amounts
in 000's):
2000 $ 1,564
2001 1,152
2002 1,046
2003 846
2004 813
Thereafter 9,403
-----------
$ 14,824
===========
Rental expense charged to income was $182,000 in fiscal year 1999, $411,000 in
fiscal year 1998, and $661,000 in fiscal year 1997. The aforementioned amounts
are net of sublease income amounting to $514,000, $557,000 and $272,000 in
fiscal years 1999, 1998 and 1997, respectively.
In Broomfield, Colorado, the owner of a 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. In
November 1998, the Company signed an agreement with three former owners of this
facility whereby the former owners 1) reimbursed the Company for $530,000 of
past costs, 2) will assume responsibility for 90% of all future clean-up costs,
and 3) indemnify and protect the Company against any and all third-party claims
relating to the contamination of the facility. State and local agencies in
Colorado are reviewing current data and considering study and cleanup options,
and it is not yet possible to predict costs for remediation. In the opinion of
management, the final outcome of the Broomfield, Colorado environmental matter
will not have a material adverse effect on the Company's financial position or
results of operations.
The Company is involved in various pending 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, the final
outcome of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
10. ACQUISITIONS AND DISPOSITION
In December 1997, the Company sold General Microcircuits, Inc., a wholly owned
subsidiary in Mooresville, North Carolina, for $5,000,000 in cash and a
$2,000,000 note receivable. Microsemi did not realize any material gain or loss
from this transaction.
In May 1998, the Company acquired BKC Semiconductors, Incorporated ("BKC"),
located in Lawrence, Massachusetts, for approximately $13,740,000 in cash plus
existing indebtedness of BKC of approximately $3,359,000. Microsemi financed
this acquisition with cash on hand and advances under its existing credit
facilities, as amended. BKC was a publicly held company, which manufactured
discrete semiconductors. The acquisition was accounted for under the purchase
method. The allocation of the purchase price to the assets and liabilities of
BKC was based upon the Company's estimates of the relative values of the assets
acquired and liabilities assumed. The Company recorded $9,839,000 of goodwill
related to this acquisition. The Company's consolidated results of operations
for the fiscal year ended September 27, 1998 included the operations of BKC
since the date of acquisition. The results of operations of BKC prior to the
date of acquisition were not material.
34
In April 1999, Microsemi acquired all of the outstanding capital stock of
LinFinity Microelectronics, Inc. ("LinFinity"), a subsidiary of Symmetricom,
located in Garden Grove, California. LinFinity manufactures analog and mixed
signal integrated circuits ("ICs"), as well as systems-engineered modules for
use primarily in power management and communication applications in commercial,
industrial, defense and space markets. The purchase price was $24,125,000,
which was funded with cash and bank borrowings. The Company also paid
approximately $385,000 for expenses related to this acquisition. The
acquisition was accounted for under the purchase method. The Company's
consolidated results of operations include those of LinFinity since the date of
acquisition.
The costs of the acquisition were allocated to the assets acquired and
liabilities assumed based on their estimated fair values to the extent of the
aggregate purchase price. Portions of the purchase price were allocated to
certain intangible assets such as completed technology, customer lists,
assembled workforce, and in-process research and development ("R & D"). There
was no goodwill resulting from this acquisition. The allocation of the purchase
price to these intangible assets was based on an independent valuation report.
The amount of the purchase price allocated to in-process R & D was determined by
estimating the stage of completion of each in-process R & D project at the date
of acquisition, estimating cash flows resulting from the future release of
products employing these technologies, and discounting the net cash flows back
to their present values. At the date of acquisition, technological feasibility
of the in-process R & D projects had not been reached and the technology had no
alternative future uses. Accordingly, the Company expensed the portion of the
purchase price allocated to in-process R & D of $1,950,000, in accordance with
generally accepted accounting principles, in the year ended October 3, 1999.
The in-process R & D comprises a number of individual technological development
efforts, focusing on the discovery of new, technologically advanced knowledge
and more complete solutions to customers' needs, the conceptual formulation and
design of possible alternatives, as well as the testing of process and product
cost improvements. Specifically, these technologies included efforts regarding
BiCMOS process based products, Backlight Inverters, and Audio products.
The weighted average stage of completion for all projects, in the aggregate, was
approximately 82% as of the acquisition date. As of that date, the estimated
remaining costs to bring the projects under development to technological
feasibility are over $437,000. Cash flows from sales of products incorporating
those technologies were estimated to commence in the year 2000. Revenues
forecasted in each period were reduced by related expenses, capital
expenditures, and the cost of working capital. The discount rate applied to the
net cash flows was 29%, which reflected the level of risk associated with the
particular technologies and the current return on investment requirements of the
market.
As discussed above, a portion of the Linfinity purchase price was allocated to
completed technology, customer lists, and assembled workforce. The total
allocation approximated $2,610,000 for these other intangible assets.
These unaudited pro forma results have been prepared for comparative purposes
only and include certain pro forma adjustments. Such pro forma amounts are not
necessarily indicative of what actual consolidated results of operations might
have been if the LinFinity acquisition had been effective at the beginning of
fiscal year 1998.
35
Year ended Year ended
October 3, 1999 September 27, 1998
--------------- ------------------
Revenues $ 211,584 $ 211,980
Cost of sales 162,939 158,245
------------- ------------------
Gross profit 48,645 53,735
------------- ------------------
Operating expenses 43,100 43,223
------------- ------------------
Income from operations 5,545 10,512
Other expense 3,158 2,322
------------- ------------------
Income before income taxes 2,387 8,190
Provision for income taxes 544 3,720
------------- ------------------
Net income $ 1,843 $ 4,470
============= ==================
Earnings per share:
Basic $ 0.17 $ 0.42
============= ==================
Diluted $ 0.16 $ 0.37
============= ==================
In June 1999, Microsemi Microwave Products, Inc. ("MMP"), a subsidiary of the
Company, acquired, from L-3 Communications Corporation, certain assets of Narda
Microwave East/Semiconductor Operation ("Narda") located in Lowell,
Massachusetts. The total cost of this acquisition was approximately $5,060,000.
The assets acquired are used in the manufacture of semiconductor components
including varactor diodes, pin diodes, chip capacitors and Schottky devices used
in telecommunications, wireless, satellite and industrial test/measurement
applications. The results of operations of Narda prior to June 1999 were not
material to the Company's consolidated results of operations, accordingly, a pro
forma is not presented.
11. SEGMENT INFORMATION
In 1999, the Company adopted SFAS 131. The Company's reportable operating
segments are based on geographic location, and the measure of segment profit is
income from operations. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies.
The Company operates predominantly in a single industry segment as a
manufacturer of discrete semiconductors. Geographic areas in which the Company
operates include the United States, Ireland, Hong Kong, and India.
Intergeographic sales primarily represent intercompany sales which are accounted
for based on established sales prices between the related companies and are
eliminated in consolidation.
36
Financial information by geographic segments is as follows:
Fiscal Year
----------------------------------------
1999 1998 1997
Net sales
United States
Sales to unaffiliated customers $ 159,695 $ 145,242 $ 147,094
Intergeographic sales 23,463 14,484 10,587
Europe
Sales to unaffiliated customers 17,084 15,350 13,885
Intergeographic sales 3,823 7,121 19,039
Asia
Sales to unaffiliated customers 8,302 4,118 2,255
Intergeographic sales 4,381 6,548 8,732
Eliminations of intergeographic sales (31,667) (28,153) (38,358)
---------- ---------- ----------
$ 185,081 $ 164,710 $ 163,234
========== ========== ==========
Income from operations:
United States $ 4,378 $ 17,210 $ 20,327
Europe 476 1,621 1,983
Asia 235 1,628 209
---------- ---------- ----------
Total $ 5,089 $ 20,459 $ 22,519
========== ========== ==========
Identifiable assets:
United States $ 166,429 $ 131,663 $ 123,293
Europe 8,019 5,982 5,148
Asia 7,153 7,443 6,753
---------- ---------- ----------
Total $ 181,601 $ 145,088 $ 135,194
========== ========== ==========
Capital expenditures:
United States $ 7,712 $ 5,302 $ 5,517
Europe 160 224 164
Asia 60 379 371
---------- ---------- ----------
Total $ 7,932 $ 5,905 $ 6,052
========== ========== ==========
Depreciation and amortization:
United States $ 8,334 $ 4,314 $ 3,637
Europe 169 618 272
Asia 315 349 348
---------- ---------- ----------
Total $ 8,818 $ 5,281 $ 4,257
========== ========== ==========
37
12. STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statements 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 October 3, 1999
Supplementary information: 1999 1998 1997
---------- --------- ---------
(amounts in 000's)
Cash paid during the year for:
Interest $ 3,324 $ 1,858 $ 3,446
========== ========= =========
Income taxes $ 1,840 $ 7,619 $ 6,707
========== ========= =========
Non-cash financing and investing activities:
Conversion of subordinated debt into 2,852,829 and
614,807 shares of common stock in fiscal years
1998 and 1997, respectively $ - $ 33,986 $ 1,170
========== ========= =========
Fixed assets purchased through issuance of long
term debt: $ 3,165 $ - $ 3,821
========== ========= =========
Stock options:
Exercises $ - $ 899 $ 487
Stock surrendered in lieu of cash - (342) (190)
---------- --------- ---------
Net cash received $ - $ 557 297
========== ========= =========
Businesses acquired in purchase transactions (Note 10):
Fair values of assets acquired $ 31,547 $ 7,260 $ 8,789
Goodwill and other intangible assets 5,523 9,839 -
Less debt issued and liabilities assumed (7,500) (3,359) (3,588)
---------- --------- ---------
Cash paid for acquisition $ 29,570 $ 13,740 $ 5,201
========== ========= =========
38
13. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
Selected quarterly financial data are as follows:
Quarters ended in fiscal year 1999
---------------------------------------------------
(amounts in 000's, except earnings per share)
January 3, April 4, July 4, October 3,
1999 1999 1999 1999
---------- ---------- ----------- -----------
Net sales $ 39,417 $ 39,491 $ 48,758 $ 57,415
Gross profit $ 10,861 $ 10,345 $ 11,968 $ 7,696
Net (loss) income $ 2,280 $ 1,994 $ (670) $ (2,105)
Basic earnings (loss) per share $ 0.20 $ 0.18 $ (0.06) $ (0.19)
Diluted earnings (loss) per share $ 0.20 $ 0.18 $ (0.06) $ (0.19)
Quarters ended in fiscal year 1998
-----------------------------------------------------
(amounts in 000's, except earnings per share)
December 28, March 29, June 28, September 27,
1997 1998 1998 1998
------------ --------- ---------- -------------
Net sales $ 44,052 $ 41,194 $ 39,291 $ 40,173
Gross profit $ 12,355 $ 12,018 $ 11,315 $ 11,597
Net income $ 3,092 $ 3,416 $ 2,347 $ 2,467
Basic earnings per share $ 0.35 $ 0.33 $ 0.20 $ 0.21
Diluted earnings per share $ 0.28 $ 0.29 $ 0.20 $ 0.21
For the quarter ended October 3, 1999, the Company recorded a $5,951,000 charge
to cost of sales. The charge was made because of reductions in estimates of
utilization and realizable value of certain inventories resulting from recent
changes in market conditions and customer requirements.
39
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
- -------- -------- -------- -------- -------- --------
Deductions-
Balance at Charged to Charged to recoveries Balance
beginning costs and other and at end of
of period expenses accounts write-offs period
---------- ---------- ---------- ----------- ---------
Classification
- --------------
October 3, 1999
- ---------------
Allowance for doubtful accounts and
reserve for returns $ 2,457 $ (230) $ 1,960 $ (382) $ 3,805
========== ========= ========== ========== ==========
Reserve for investments in and
advances to unconsolidated
affiliates $ 1,297 $ $ $ $ 1,297
========== ========= ========== ========== ==========
September 27, 1998
- ------------------
Allowance for doubtful accounts and
reserve for returns $ 2,665 $ $ $ 208 $ 2,457
========== ========= ========== ========== ==========
Reserve for investments in and
advances to unconsolidated
affiliates $ 1,297 $ $ $ $ 1,297
========== ========= ========== ========== ==========
September 28, 1997
- ------------------
Allowance for doubtful accounts and
reserve for returns $ 2,159 $ 506 $ - $ - $ 2,665
========== ========= ========== ========== ==========
Reserve for investments in and
advances to unconsolidated
affiliates $ 537 $ 760 $ - $ - $ 1,297
========== ========= ========== ========== ==========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
40
PART III
--------
Items 10, 11, 12 and 13 are omitted since the Registrant intends to file a
definitive proxy statement with the Securities and Exchange Commission pursuant
to Regulation 14A within 120 days after the end of Registrant's fiscal year
ended October 3, 1999. The information required by those items is set forth in
that certain proxy statement and such information is incorporated by reference
in this Form 10-K.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a) 1. Financial Statements. See Index under Item 8.
2. Financial Statement Schedules. See Index under Item 8.
3. Exhibits:
The exhibits which are filed with this report are listed in the
Exhibit Index.
(b) Reports on Form 8-K.
None
41
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 27, 1999
42
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Philip Frey, Jr. and David R.
Sonksen, or either of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and re-substitution, to sign the report on Form 10-K
and any or all amendments thereto and to file the same, with all exhibits
thereto, and other documents in connection therewith with the Securities and
Exchange Commission, hereby ratifying and confirming all that said attorney-in-
fact, or his substitute or substitutes, may do or cause to be done by virtue
hereof in any and all capacities.
Pursuant to the requirements of Securities Exchange Act of 1934, this report has
been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
--------- ------ ----
/s/ PHILIP FREY, JR. Chairman of the Board, December 22, 1999
- ----------------------- President and
Philip Frey, Jr. Chief Executive Officer
/s/ DAVID R. SONKSEN Vice President-Finance, December 21, 1999
- ----------------------- Treasurer and Secretary
David R. Sonksen (principal financial and
accounting officer)
/s/ JOSEPH M. SCHEER Director December 21, 1999
- -----------------------
Joseph M. Scheer
/s/ BRAD DAVIDSON Director December 21, 1999
- -----------------------
Brad Davidson
/s/ ROBERT B. PHINIZY Director December 21, 1999
- -----------------------
Robert B. Phinizy
/s/ MARTIN H. JURICK Director December 21, 1999
- -----------------------
Martin H. Jurick
43
Exhibits.
EXHIBIT INDEX
Sequential
Exhibit Page
Number Description Number
2.1 The Agreement and Plan of Merger among the Company, Micro BKC
Acquisition Corp. and BKC Semiconductors Incorporated, dated January
21, 1998, was filed with Form 8-K on June 1, 1998 under the same
exhibit number and is incorporated herein by this reference (33)
2.2 Agreement and Plan of Reorganization, dated as of February 10, 1999,
among the Company, Micro-LinFinity Acquisition Corporation, LinFinity
Microelectronics, Inc. and Symmetricom, Inc., incorporated by
reference to the same numbered exhibit to the Company's Form 8-K
filed with the Securities and Exchange Commission on April 29, 1999
(34)
3 Restated Certificate of Incorporation and Bylaws of the Registrant
(1)
4 Form of Indenture, including form of 5 7/8% Convertible Subordinated
Debenture due 2012 (2)
4.1 Subordinated Convertible Note Purchase Agreement dated June 26, 1992
among the Registrant and the Purchasers named therein and Exhibit A
hereto, a form of Subordinated Convertible Note (29)
10.1 1984 Incentive Stock Option Plan (as amended December 13, 1984) (3)
10.2 Form of Incentive Stock Option Agreement pursuant to 1984 Incentive
Stock Option Plan (3)
10.3 Form of Stock Option Agreement, dated October 17, 1985, between the
Registrant and members of the Registrant's Board of Directors (1)
10.5 Credit Agreement between the Registrant and Security Pacific National
Bank, dated as of September 3, 1984, and First Amendment to Credit
Agreement dated as of May 1, 1985 (1)
10.6 Lease dated June 29, 1982 between Ulrich Layher and MSC Phoenix, Inc.
(1)
10.11 1986 Nonqualified Stock Option Plan of the Registrant (Exhibit 10.9)
(5)
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
44
Revenue Bonds issued to finance additions to the Santa Ana facility
of the Registrant (2)
10.15 Stock Sale Agreement, dated November 12, 1987 between Coors Porcelain
Company and the Registrant, relating to the acquisition of Coors
Components, Inc. (7)
10.16 Press Release distributed by the Registrant on November 12, 1987,
announcing the acquisition of Coors Components, Inc. (7)
10.29 Subscription Agreement dated July 24, 1987 between the Registrant and
Diodes Incorporated for the subscription of 800,000 shares of Diodes
Incorporated (8)
10.32 Agreement of Purchase and Sale of Stock dated April 6, 1988, between
General Microcircuits, Inc. and the Registrant relating to the
purchase of all of the outstanding stock of General Microcircuits (9)
10.37 Stock Purchase Agreement dated as of February 17, 1989 by and between
Avnet, Inc., a New York corporation, and Salem Scientific, Inc., a
Microsemi Company, a Delaware corporation and a wholly-owned
subsidiary of the Registrant (10)
10.48 First Amendment and Forbearance to the Registrant's Second Amended
and Restated Credit Agreement dated as of November 1, 1990 (15)
10.49 Confirmation dated December 10, 1990 from Security Pacific National
Bank concerning the extension of the Registrant's line of credit and
standby letters of credit to February 1, 1991 (15)
10.52 Assignment and Assumption Agreement dated September 23, 1991 by and
among Dynamic Circuits, Inc., a California corporation ("Dynamic"),
Surface Mounted Technology Corporation, a California corporation
("SMTC") and the Registrant, pertaining to Dynamic's purchase from
SMTC of the SMTC assets, together with the following supplemental
documentation: (a) Letter of Intent dated August 14, 1991 (and
Addendum thereto); (b) Equipment Lease Agreement; (c) Promissory
Note; and (d) Security Agreement (16)
10.54 Asset Purchase Agreement dated May 28, 1992 between Micro USPD, Inc.,
a Delaware corporation and wholly-owned subsidiary of the Registrant
("Micro USPD"), and Unitrode Corporation, a Maryland corporation
("Unitrode") (17)
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
45
Unitrode Europe B.V., a Dutch corporation and wholly-owned subsidiary
of Unitrode; Unitrode; and MicroBermuda (19)
10.64 Promissory Note dated December 21, 1992 made by the Registrant and
payable to Norman Wechsler in the original principal amount of
$150,000 and extension letter agreement dated April 23, 1993 (21)
10.65 Waiver and First Amendment to Reimbursement Agreement dated as of
January 8, 1993 between the Registrant and Bank of America NT&SA with
respect to the Reimbursement Agreement (See Exhibit 10.14) dated as
of February 1, 1988 (21)
10.66 Senior Note Purchase Agreement dated March 25, 1993 between the
Registrant and Norman Wechsler, including as an exhibit thereto the
form of Senior Promissory Note dated March 25, 1993 (21)
10.69 Letter dated August 31, 1993 from Unitrode to the Registrant
providing for amendments with respect to the Asset Purchase Agreement
(See Exhibit 10.54) dated May 28, 1992 between Micro USPD and
Unitrode excluding exhibits as follows (22):
Amendments to Promissory Notes dated as of September 3, 1993 between
Micro USPD and Unitrode and the respective Promissory Notes dated
July 2, 1992 attached as exhibits thereto
10.73 Amendment to the Registrant's 1987 Stock Plan. (25)
10.74 Executive Compensation Plans and Arrangements (26).
10.75 Bill of Sales and Purchase agreement between Telcom Universal Inc.
And Microsemi Corporation (6)
10.76 Supplement to financing documents (Indenture of Trust and Loan
agreement) relating to Industrial Development Authority of the
City of Santa Ana, 1985 Industrial Development Revenue Bonds
Microsemi Corporation Project) dated as of January 15, 1995. (26)
10.77 Amendments of the 1987 Microsemi Corporation Stock Plan. Adopted on
May 16, 1995. (27)
10.78 Motorola-Microsemi PowerMite Technology Agreement. Portions omitted
from this Exhibit have been separately filed with the Commission
pursuant to a request for confidential treatment. (28)
10.79 Revolving Line of Credit Agreement Between Microsemi Corporation
and Imperial Bank. (29)
10.80 Purchase agreement dated as of between SGS-Thomson Microelectronics,
Inc. and Microsemi RF Products, Inc., formerly known as Micro
Acquisition Corp., a Delaware Corporation and a wholly owned
subsidiary of the Company.(30)
10.81 Retirement agreement with Dr. Jiri Sandera (31)
10.82 Change of Control Agreement with Mr. Philip Frey, Jr. (32)
10.83 Change of Control Agreement with Mr. David R. Sonksen. (32)
46
10.83 Supplemental Executive Retirement Plan (32)
10.85 Credit Agreement, dated as of April 2, 1999, among the Company, the
Lenders from time to time party thereto and Canadian Imperial Bank of
Commerce, as Agent (35)
23.1 Consent of Independent Accountants (form S-3).
23.2 Consent of Independent Accountants (form S-8).
27 Financial data schedule.
(1) Filed in Registration Statement (No. 33-3845) and incorporated herein by
this reference.
(2) Filed in Registration Statement (No. 33-11967) and incorporated herein by
this reference.
(3) Filed with the Registrant's S-8 dated January 27, 1986 and incorporated
herein by this reference.
(6) Incorporated by reference form Exhibit A to the Registrant's definitive
Proxy Statement dated January 19, 1987.
(7) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 8-K filed with the Commission on or about
December 23, 1987.
(9) Incorporated by reference to the indicated Exhibit to the Registrant's
Annual Report on Form 10-K filed with the Commission for the fiscal year
ended October 2, 1988.
(10) Incorporated by reference to Exhibit 10.33 to the Registrant's Current
Report on Form 8-K, as amended, as filed with Commission on or about
(15) Incorporated by reference to the indicated Exhibit to the Registrant's
Annual Report on Form 10-K filed with the Commission for the fiscal year
ended September 30, 1990.
(16) Incorporated by reference to the indicated Exhibit to the Registrant's
Annual Report on Form 10-K filed with the Commission for the fiscal year
ended September 29, 1991.
(17) Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8
Amendment No. 1, as filed with the Commission on September 8, 1992, to
its Current Report on Form 8-K dated July 2, 1992.
(18) Incorporated by reference to Exhibit 2.2 to the Registrant's Form 8
Amendment No. 1, as filed with the Commission on September 8, 1992, to
its Current Report on Form 8-K dated July 2, 1992.
(19) Incorporated by reference to Exhibit 2.3 to the Registrant's Form 8
Amendment No. 1, as filed with the Commission on September 8, 1992, to
its Current Report on Form 8-K dated July 2, 1992.
(21) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q filed with the Commission for the fiscal
quarter ended July 4, 1993.
(22) Incorporated by reference to the indicated Exhibit to the Registrant's
47
Annual Report on Form 10-K filed with the Commission for the fiscal year
ended October 3, 1993.
(23) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q filed with the Commission for the fiscal
quarter ended April 3, 1994.
(24) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 8-K, as filed with the Commission dated June 8,
1994.
(25) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 10-K as filed with the Commission for the fiscal
year ended October 2, 1994.
(26) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q filed with the Commission for the fiscal
quarter ended April 2, 1995
(27) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q filed with the Commission for the fiscal
quarter ended July 2, 1995.
(28) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q filed with the Commission for the fiscal
quarter ended March 31, 1996.
(29) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 8-K, as filed with the Commission dated June 26,
1992.
(30) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q filed with the Commission for the fiscal
quarter ended December 29, 1996.
(31) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 10-K filed with the Commission for the fiscal year
ended September 28, 1997.
(32) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 10-Q filed with the Commission for the fiscal
quarter ended December 28, 1997.
(33) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 10-Q filed with the Commission for the fiscal
quarter ended June 28, 1998.
(34) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 10-Q filed with the Commission for the fiscal
quarter ended April 4, 1999.
(35) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 10-Q filed with the Commission for the fiscal
quarter ended July 4, 1999.
48