MICROSEMI CORP - 10-K Annual Report

Position With Company (in Addition to Director) and Principal Occupation during Last Five Years

Director Since

Martin H. Jurick

Private investor and consultant; Senior Vice President of Corporate Planning and Director of Silicon Systems, Inc. (later of a division of Texas Instruments) from 1978 to 1999; Director of Level One Communications from 1991 to 1999.

Nick E. Yocca

Private investor and consultant; founder and partner of the law firm Stradling Yocca Carlson & Rauth, P.C., since 1975.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨

The aggregate market value of Common Stock held by non-affiliates of the registrant, based upon the closing sale price on March 28, 2004 was approximately $824,582,000.

The number of outstanding shares of Common Stock on November 10, 2004 was 59,974,792.

Part III: Incorporated by reference are portions of the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on or about February 23, 2005. This proxy statement will be filed not later than 120 days after the close of Registrant’s fiscal year ended September 26, 2004.

Microsemi Corporation was incorporated in Delaware in 1960. The name was changed from Microsemiconductor Corporation in February 1983. Unless the context otherwise requires, the “Company”, “Microsemi”, “we”, “our”, “ours”, and “us” refer to Microsemi Corporation and its consolidated subsidiaries. Our principal executive offices are located at 2381 Morse Ave., Irvine, California 92614 and our telephone number is (949) 221-7100.

We are a leading designer, manufacturer and marketer of high performance analog and mixed-signal integrated circuits and high reliability discrete semiconductors. Our semiconductors manage and control or regulate power, protect against transient voltage spikes and transmit, receive and amplify signals.

Our products include individual components as well as integrated circuit solutions that enhance customer designs by improving performance and reliability, battery optimization, reducing size or protecting circuits. The principal markets we serve include implanted medical, defense/aerospace and satellite, notebook computers and monitors, automotive and mobile connectivity applications.

We operate in a single industry segment as a manufacturer of semiconductors in different geographic areas. (See Note 12 to the Consolidated Financial Statements for geographic information on revenues, operating results and total assets.)

We are an accelerated filer as defined in section §240.12b-2 Rule 12b-2. We filed forms 10-Q, 10-K, 8-K and other reports to the SEC as required. The public may read and copy any materials that we filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding our electronic filings. The address of that site is http://www.sec.gov.

Our web site address is http://www.microsemi.com. Our filings with the SEC on Form 10-K, 10-Q and 8-K, and amendments, are made accessible on such web site as soon as practicable and always free of charge. Such web site is not intended to constitute any part of this report.

Please read the information under the heading “IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS” below, which describes and refers to some of the important risks and uncertainties.

Some of the statements in this report or incorporated by reference are forward-looking, including, without limitation, the statements under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Forward-looking statements include those that contain words like “may,” “will,” “could,” “should,” “project,” “believe,” “anticipate,” “expect,” “plan,” “estimate,” “forecast,” “potential,” “intend,” “maintain,” “continue” and variations of these words or comparable words. In addition, all of the information herein that does not state an historical fact is forward-looking, including any statement or implication about a future time, result or other circumstance. Forward-looking statements are not a guarantee of future performance and involve risks and uncertainties. Actual results may differ substantially from the results that the forward-looking statements suggest for various reasons. These forward-looking statements are made only as of the date of this report. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

The forward-looking statements included in this report are based on, among other items, current assumptions that we will be able to meet our current operating cash and debt service requirements, that we will be able to successfully complete announced plant closures and plant consolidations on the anticipated schedule and without unanticipated costs or expenses, that we will continue to retain the full-time services of all of our present executive officers and key employees, that we will be able to successfully resolve any disputes and other business matters as anticipated, that competitive conditions within the analog, mixed signal and discrete semiconductor, integrated circuit or custom component assembly industries will not affect us adversely, that

our customers will not cancel orders or terminate or renegotiate their purchasing relationships with us, that we will retain existing key personnel, that our forecasts will reasonably anticipate market demand for our products, and that there will be no other material adverse changes in our operations or business. Other factors that could cause results to vary materially from current expectations are referred to elsewhere in this report. Assumptions relating to the foregoing involve judgments that are difficult to make and future circumstances that are difficult to predict accurately or correctly. 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 us to alter our internal forecasts, which may in turn affect expectations or future results. We do not undertake to announce publicly the changes that may occur in our expectations. Readers are cautioned against giving undue weight to any of the forward-looking statements.

Adverse changes to our results could result from any number of factors, including but not limited to fluctuations in economic conditions, potential effects of inflation, lack of earnings visibility, dependence upon certain customers or markets, dependence upon suppliers, future capital needs, rapid technological changes, difficulties in integrating acquired businesses, ability to realize cost savings or productivity gains, potential cost increases, dependence on key personnel, difficulties regarding hiring and retaining qualified personnel in a competitive labor market, risks of doing business in international markets, and problems of third parties.

The inclusion of forward-looking information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.

Although the readers may also refer to the risk factors in our previous filings, we are setting out some of the more relevant risk factors below in full for the convenience of the readers:

Downturns in the highly cyclical semiconductor industry have adversely affected the operating results and the value of our business.

The semiconductor industry is highly cyclical, and the value of our business has declined during the “down” portion of these cycles. During recent years, we as well as many others in our industry, experienced significant declines in the pricing of, as well as demand for, products. The market for semiconductors has experienced severe and prolonged downturns. In the future, these downturns may prove to be as, or possibly more, severe. The markets for our products depend on continued demand in the mobile connectivity, automotive, digital media, telecommunications, computers/peripherals, military and aerospace, space/satellite, industrial/commercial and medical markets, and these end-markets have experienced changes in demand that have adversely affected our operating results and financial condition.

Relevant portions of the semiconductor industry, and those that serve or supply this industry, tend somewhat to be concentrated in certain areas of the world, and therefore, the semiconductor industry has from time to time been, and may from time to time be adversely affected by natural disasters in various locale, epidemics and health advisories such as those related to Sudden Acute Respiratory Syndrome.

The semiconductor business is highly competitive and increased competition could reduce our value.

The semiconductor industry, including the areas in which we do business, is highly competitive. We expect intensified competition from existing competitors and new entrants. Competition is based on price, product performance, product availability, quality, reliability and customer service. Pricing pressures may emerge. For instance, competitors may attempt to gain a greater market share by lowering prices. The market for commercial products is characterized by declining selling prices. We anticipate that our average selling prices will decrease in future periods, although the timing and amount of these decreases cannot be predicted with any certainty. The pricing pressure in the semiconductor industry in recent years has been due primarily to the Asian currency crisis, industry-wide excess manufacturing capacity, weak economic growth, the slowdown in capital spending that followed the “dot-com” collapse, the reduction in capital spending by telecom companies and satellite companies, and certain effects of the tragic events of terrorism on September 11, 2001. We compete in various markets with companies of various sizes, many of which are larger and have greater resources than we have, and thus may be better able to pursue acquisition candidates and to withstand adverse economic or market conditions. In addition, companies not currently in direct competition with us may

introduce competing products in the future. We have numerous competitors. Some of our current major competitors are Motorola, Inc., National Semiconductor Corporation, Texas Instruments, Inc., Philips Electronics, ON Semiconductor, L.L.C., Fairchild Semiconductor Corporation, Micrel Incorporated, International Rectifier Corporation, Semtech Corporation, Linear Technology Corp., Maxim Integrated Products, Inc., Skyworks Solutions, Inc., Diodes, Inc., Vishay Intertechnology, Inc. and its subsidiary Siliconix Incorporated. Some of our competitors in developing markets are Triquint Semiconductor, Inc., Mitel Corporation, RF Micro Devices, Inc., Conexant Systems, Inc., Anadigics, Inc. and Skyworks Solutions, Inc. We may not be able to compete successfully in the future or competitive pressures may harm our financial condition, operating results or cash flows.

New technologies could result in the development of competing products and a decrease in demand for our products.

Our financial performance depends on our ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. Our failure to develop new technologies or to react to changes in existing technologies could materially delay our development of new products, which could result in product obsolescence, decreased revenues and/or a loss of our market share to competitors. Rapidly changing technologies and industry standards, along with frequent new product introductions, characterize much of the semiconductor industry. A fundamental shift in technologies in our product markets could have material adverse effects on our competitive position within the industry.

For instance, presently we are challenged to develop new products for use with various alternative wireless LAN standards, such as 802.11a, 802.11b and 802.11g and combinations thereof. Although this development has already resulted in design wins related to 802.11a and 802.11g, the solutions related to the other standards and the combination of all of the standards are still in development and are in constant change. The success of products using various standards is subject to rapid changes in market preferences and advancements in competing technologies.

Failure to protect our proprietary technologies or maintain the right to use certain technologies may negatively affect our ability to compete.

We rely heavily on our proprietary technologies. Our future success and competitive position may depend in part upon our ability to obtain or maintain protection of certain proprietary technologies used in our principal products. We do not have significant patent protection on many aspects of our technology. Our reliance upon protection of some of our technology as “trade secrets” will not necessarily protect us from the use by other persons of our technology, or their use of technology that is similar or superior to that which is embodied in our trade secrets. Others may be able to independently duplicate or exceed our technology in whole or in part. We may not be successful in maintaining the confidentiality of our technology, dissemination of which could have material adverse effects on our business. In addition, litigation may be necessary to determine the scope and validity of our proprietary rights. In instances in which we hold any patents or patent licenses, any patents held by us may be challenged, invalidated or circumvented, or the rights granted under any patents may not provide us with competitive advantages. Patents often provide only narrow protection and require public disclosure of information that may otherwise be subject to trade secret protection. Also patents expire and are not renewable. Obtaining or protecting our proprietary rights may require us to defend claims of intellectual property infringement by our competitors. While we are not currently engaged as a defendant in intellectual property litigation that we believe will have a material adverse effect on us, we could become subject to lawsuits in which it is alleged that we have infringed or are infringing upon the intellectual property rights of others. We are involved in certain patent litigation (see Legal Proceedings) which could cause legal costs to increase above normal levels over the next several years. It is not possible to estimate the exact amounts of these costs, but it is possible that these costs could have a negative effect on our future results.

If any such infringements exist, arise or are claimed in the future, we may be exposed to substantial liability for damages and may need to obtain licenses from the patent owners, discontinue or change our processes or products or expend significant resources to develop or acquire non-infringing technologies. We may not be successful in such efforts or such licenses may not be available under reasonable terms. Our failure to develop or acquire non-infringing technologies or to obtain licenses on acceptable terms or the occurrence of related litigation itself could have material adverse effects on our operating results, financial condition and cash flows.

Future business could be adversely affected by delays in production of compound semiconductor technology.

We utilize process technology to manufacture compound semiconductors such as gallium arsenide (GaAs), indium gallium phosphide (InGaP), silicon germanium (SiGe), and indium gallium arsenide phosphide (InGaAsP) primarily to manufacture semiconductor components. We are pursuing this development effort internally as well as with third party foundries. Our efforts sometimes may not result in commercially successful products. Certain of our competitors offer this capability and our customers may purchase our competitors’ products. The third party foundries that we use may delay or fail to deliver technology and products to us. Our business and prospects could be materially and adversely affected by delay or by our failure to produce these products.

Compound semiconductor products may not successfully compete with silicon-based products.

Our choices of technologies for development and future implementation may not reflect future market demand. The production of GaAs, InGaP, SiGe, InGaAsP or SiC integrated circuits is more costly than the production of silicon circuits, and we believe it will continue in the future to be more costly. The costs differ because of higher costs of raw materials, lower production yields and higher unit costs associated with lower production volumes. Silicon semiconductor technologies are widely used in process technologies for integrated circuits, and these technologies continue to improve in performance. As a result, we must offer compound semiconductor products that provide vastly superior performance to that of silicon for specific applications in order for them to be competitive with silicon products. If we do not offer compound semiconductor products that provide sufficiently superior performance to offset the cost differential and otherwise successfully compete with silicon-based products, our operating results may be materially and adversely affected. In addition, other alternatives exist and are being developed, and may have superior performance or lower cost.

We may be unsuccessful in our efforts to identify new product opportunities and develop and bring products to market in a timely and cost-effective manner. Products or technologies developed by others may render our products or technologies obsolete or non-competitive. In addition, to remain competitive, we must continue to reduce package sizes, improve manufacturing yields and expand sales. We may not be able to accomplish these goals. Designs that we have introduced recently include primarily integrated circuits and subsystems such as class D audio subsystems for newly-introduced home theatre DVD players supporting surround sound, PDA backlighting subsystems, backlight control and power management solutions for the automotive market, LED driver solutions and power amplifiers for certain wireless LAN components. Their success will be subject to various risks and uncertainties.

We must commit resources to production prior to receipt of purchase commitments and could lose some or all of the associated investment.

We sell products primarily pursuant to purchase orders for current delivery, rather than pursuant to long-term supply contracts. Many of these purchase orders may be revised or cancelled without penalty. As a result, we must commit resources to the production of products without any advance purchase commitments from customers. Our inability to sell products after we devote significant resources to them could have material adverse effects on our business, financial condition, results of operations and cash flows.

Our manufacturing yields vary significantly among products, depending on the complexity of a particular product’s design and our experience in manufacturing that type of product. We have in the past experienced difficulties in achieving planned yields, which have adversely affected our gross margins.

The fabrication of products is a highly complex and precise process. Problems in the fabrication process can cause a substantial percentage of wafers to be rejected or numerous circuits on each wafer to be non-functional, thereby reducing yields. These difficulties include:

Because a large portion of our costs of manufacturing is relatively fixed, and average selling prices for our products tend to decline over time, it is critical for us to improve the number of shippable circuits per wafer and increase the production volume of wafers in order to maintain and improve our results of operations. Yield decreases can result in substantially higher unit costs, which could materially and adversely affect our operating results and have done so in the past. Moreover, our process technology has primarily used standard silicon semiconductor manufacturing equipment, and production yields of compound integrated circuits have been relatively low compared with silicon circuit devices. We may be unable to continue to improve yields in the future, and we may suffer periodic yield problems, particularly during the early production of new products or introduction of new process technologies. In either case, our results of operations could be materially and adversely affected.

Our inventories may become obsolete and other assets may be subject to risks.

The life cycles of some of our products depend heavily upon the life cycles of the end products into which our products are designed. Products with short life cycles require us to manage closely our production and inventory levels. Life cycles for some of our products can be as short as 6 to 24 months. Inventory may also become obsolete because of adverse changes in end-market demand. We may in the future be adversely affected by obsolete or excess inventories which may result from unanticipated changes in the estimated total demand for our products or the estimated life cycles of the end products into which our products are designed. The asset values determined under Generally Accepted Accounting Principles for inventory and other assets each involve the making of material estimates by us, many of which could be based on mistaken assumptions or judgments. See “There may be goodwill impairments that would adversely affect Microsemi” and “There may be impairments of long-lived assets that would adversely affect Microsemi”.

Revenues from foreign markets represent a significant portion of total revenues. We maintain facilities or contracts with entities in China, Ireland, Thailand, the Philippines, and Taiwan. There are risks inherent in doing business internationally, including:

In addition, the laws of certain foreign countries may not protect our products, assets or intellectual property rights to the same extent as do U.S. laws. Therefore, the risk of piracy of our technology and products may be greater in those foreign countries. We may experience material adverse effects on our financial condition, operating results and cash flows in the future.

Delays in beginning production, implementing production techniques, resolving problems associated with technical equipment malfunctions, or issues related to government or customer qualification of facilities could adversely affect our manufacturing efficiencies and our ability to realize cost savings.

Our manufacturing efficiency will be an important factor in our future profitability, and we may be unsuccessful in our efforts to maintain or increase our manufacturing efficiency. Our manufacturing processes are highly complex, require advanced and costly equipment and are continually being modified in an effort to improve yields and product performance. We have from time to time experienced difficulty in beginning production at

new facilities or in effecting transitions to new facilities or new manufacturing processes. As a consequence, we have at times experienced delays in product deliveries and reduced yields. We may experience manufacturing problems in achieving acceptable yields or experience product delivery delays in the future as a result of, among other things, capacity constraints, construction delays, upgrading or expanding existing facilities or changing our process technologies, any of which could result in a loss of future revenues. Although thus far our Capacity Optimization Enhancement Program has proceeded on schedule, our operating results also could be adversely affected by increased costs and expenses related to relocation of production between our facilities if we encounter difficulties or delays or a technical or regulatory nature, including any issues related to government or customer qualification of our other facilities and production lines for the production of hi-rel products.

Interruptions, delays or cost increases affecting our materials, parts, equipment or subcontractors may impair our competitive position.

Our manufacturing operations, and the outside manufacturing operations, which we use increasingly, depend upon obtaining, in some instances, a governmental qualification of the manufacturing process, and in all instances, adequate supplies of materials, parts and equipment, including silicon, mold compounds and lead frames, on a timely basis from third parties. Some of the outside manufacturing operation we use are based in foreign countries. Our results of operations could be adversely affected if we are unable to obtain adequate supplies of materials, parts and equipment in a timely manner or if the costs of materials, parts or equipment increase significantly. From time to time, suppliers may extend lead times, limit supplies or increase prices due to capacity constraints or other factors. Although we generally use materials, parts and equipment available from multiple suppliers, we have a limited number of suppliers for some materials, parts and equipment. While we believe that alternate suppliers for these materials, parts and equipment are available, an interruption could adversely affect our operations.

Some of our products are manufactured, assembled and tested by third-party subcontractors. Some of these contractors are based in foreign countries. We generally do not have any long-term agreements with these subcontractors. As a result, we may not have direct control over product delivery schedules or product quality. Outside manufacturers generally will have longer lead times for delivery of products as compared with our internal manufacturing, and therefore, when ordering from these suppliers, we will be required to make longer-term estimates of our customers’ current demand for products, and these estimates are difficult to make. Also, due to the amount of time typically required to qualify assemblers and testers, we could experience delays in the shipment of our products if we are forced to find alternate third parties to assemble or test our products. Any product delivery delays in the future could have material adverse effects on our operating results, financial condition and cash flows. Our operations and ability to satisfy customer obligations could be adversely affected if our relationships with these subcontractors were disrupted or terminated.

We depend on third party subcontractors in Asia for assembly and packaging of a portion of our products. The packaging of our products is performed by a limited group of subcontractors and some of the raw materials included in our products are obtained from a limited group of suppliers. Although we seek to reduce our dependence on sole or limited source suppliers, disruption or termination of any of these sources could occur and such disruptions or terminations could harm our business and operating results. In the event that any of our subcontractors were to experience financial, operational, production or quality assurance difficulties resulting in a reduction or interruption in supply to us, our operating results could suffer until alternate qualified subcontractors, if any, were to become available.

We anticipate that many of our next-generation products may be manufactured by third party subcontractors in Asia, and to the extent that such potential manufacturing relationships develop, they may be with a limited group of subcontractors. Therefore, any disruptions or terminations of manufacturing could harm our business and operating results. Also these subcontractors must be qualified by the U.S. government or customer for hi-rel processes. Historically DSCC has rarely qualified any foreign manufacturing or assembly lines for reasons of national security; therefore, our ability to move certain manufacturing offshore may be limited or delayed.

Fixed costs may reduce operating results if our sales fall below expectations.

Our expense levels are based, in part, on our expectations as to future sales. Many of our expenses, particularly those relating to capital equipment and manufacturing overhead, are relatively fixed. Decreases in lead times between orders and shipments and customers’ ordering practices could adversely affect our ability

to project future sales. We might be unable to reduce spending quickly enough to compensate for reductions in sales. Accordingly, shortfalls in sales could materially and adversely affect our operating results.

Reliance on government contracts for a portion of our sales could have material adverse effects on results of operations.

Some of our sales are derived from customers whose principal sales are to the United States Government. If we experience significant reductions or delays in procurements of our products by the United States Government or terminations of government contracts or subcontracts, our operating results could be materially and adversely affected. Generally, the United States Government and its contractors and subcontractors may terminate their contracts with us for cause or for convenience. We have in the past experienced one termination of a contract due to the termination of the underlying government contracts. All government contracts are also subject to price renegotiation in accordance with U.S. Government Renegotiation Act. By reference to such contracts, all of the purchase orders we receive that are related to government contracts are subject to these possible events. There is no guarantee that we will not experience contract terminations or price renegotiations of government contracts in the future. A significant portion of our sales are to military and aerospace markets, which are subject to the uncertainties of governmental appropriations and national defense policies and priorities. These sales are derived from direct and indirect business with the U.S. Department of Defense, or DOD, and other U.S. government agencies. From time to time, we have experienced declining defense-related sales, primarily as a result of contract award delays and reduced military program funding. Military-related business is and has been anticipated to increase; however, the actual timing and amount of an increase has been occurring at a rate that has been slower than expected. The effects of defense spending increases are difficult to estimate and subject to many sources of delay. Our prospects for additional defense-related sales may be adversely affected in a material manner by numerous events or actions outside our control.

We anticipate that future growth of our business could require increased manufacturing capacity. Expansion activities are subject to a number of risks, including:

These and other risks may affect the ultimate cost and timing of our present or future expansion of our capacity.

Our future success depends, in part, upon our ability to continue to attract and retain the services of our executive officers or other key management personnel.

We could potentially lose the services of any of our senior management personnel at any time due to possible reasons that could include death, incapacity, calamity, military service, retirement, resignation or competing employers. Our execution of current plans could be adversely affected by such a loss. We may fail to attract and retain qualified technical, sales, marketing and managerial personnel required to continue to operate our business successfully. Personnel with the necessary expertise are scarce and competition for personnel with proper skills is intense. Also, attrition in personnel can result from, among other things, changes related to acquisitions, as well as retirement or disability. We may not be able to retain existing key technical, sales, marketing and managerial employees or be successful in attracting, assimilating or retaining other highly qualified technical, sales, marketing and managerial personnel, particularly at such times in the future as we may need to do so to fill a key position. If we are unable to continue to retain existing executive officers or other key employees or are unsuccessful in attracting new highly qualified employees, our business, financial condition and results of operations could be materially and adversely affected.

Failure to manage consolidation of operations effectively could adversely affect our ability to increase revenues and improve earnings.

Our ability to successfully offer our products in the semiconductor market requires effective planning and management processes. Our Capacity Optimization Enhancement Program, with consolidations and realignments of operations, and expected future growth, may place a significant strain on our management systems and resources, including our financial and managerial controls, reporting systems and procedures which could negatively affect our results. In addition, we will need to continue to train and manage our workforce worldwide.

We may engage in future acquisitions that dilute the ownership interests of our stockholders and cause us to incur debt or to assume contingent liabilities.

As a part of our business strategy, we expect to review acquisition prospects that would complement our current product offerings, enhance our design capability or offer other growth opportunities. While we have no current agreements and no active negotiations underway with respect to any acquisitions, we may acquire businesses, products or technologies in the future. In the event of future acquisitions, we could:

Such actions by us could impact our operating results and/or the price of our common stock.

We have acquired and may acquire other companies and may be unable successfully to integrate such companies with existing operations.

We have in the past acquired a number of businesses or companies, and additional product lines and assets. We may continue to expand and diversify our operations with additional acquisitions. If we are unsuccessful in integrating these companies or product lines with existing operations, or if integration is more difficult or more costly than anticipated, we may experience disruptions that could have material adverse effects on our business, financial condition and results of operations. Some of the risks that may affect our ability to integrate or realize any anticipated benefits from the acquired companies, businesses or assets include those associated with:

We have closed, combined, sold or disposed of certain subsidiaries or divisions, which in the past has reduced our sales volume.

In October 2003, we announced the consolidation of Microsemi Corp. - Santa Ana, of Santa Ana, California (“Santa Ana”). Santa Ana whose manufacturing represented approximately 20% of our annual revenues in fiscal 2003, had approximately 380 employees and occupied 123,000 square feet in owned and leased facilities. The consolidation of Santa Ana is expected to result in minimal impact on revenues; however, our plans to minimize or eliminate any loss of revenues during consolidation may not be achieved if the consolidation is managed or executed ineffectively or inefficiently.

We may make further specific determinations to consolidate, close or sell additional facilities, which could be announced at any time. Possible adverse consequences resulting from or related to such announcement may include various accounting charges, an inventory buildup in preparation for the transition of manufacturing, disposition costs, impairments of goodwill and possibly an immediate loss of revenues, and other items in addition to normal or attendant risks and uncertainties. We may be unsuccessful in any of our current or future efforts to consolidate our business into fewer facilities. The major challenge of transferring locations of our high-reliability component manufacturing is that first we must be finished qualifying the new facility appropriately. While we plan generally to retain all of our revenues and income of those operations by transferring the manufacturing elsewhere within Microsemi’s subsidiaries, our plans may change at any time based on reassessment of the alternatives and consequences. While we hope to benefit overall from increased gross margins and increased capacity utilization rates at remaining operations, the remaining operations will need to bear the corporate administrative and overhead costs, which are charges to income, that had been allocated to the discontinued business units.

Our products may be found to be defective and we may not have sufficient liability insurance.

One or more of our products may be found to be defective after we have already shipped the products in volume, requiring a product replacement or recall. We may also be subject to product returns that could impose substantial costs and have a material and adverse effect on our business, financial condition and results of operations. Our aerospace (including aircraft), military, medical and satellite businesses in particular expose us to potential liability risks that are inherent in the manufacturing and marketing of high reliability electronic components for critical applications. Production of many of these products is sensitive to minute impurities, which can be introduced inadvertently in manufacture. Any production mistakes can result in large and unanticipated product returns, product liability and warranty liability.

We may be subject to product liability claims with respect to our products. Our product liability insurance coverage may be insufficient to pay all such claims. Product liability insurance may become too costly for us or may become unavailable to us in the future. We may not have sufficient resources to satisfy any product liability claims not covered by insurance which would materially and adversely affect our financial position.

Federal, state and local laws and regulations impose various restrictions and controls on the discharge of materials, chemicals and gases used in our semiconductor manufacturing processes. In addition, under some laws and regulations, we could be held financially responsible for remedial measures if our properties are contaminated or if we send waste to a landfill or recycling facility that becomes contaminated, even if we did not cause the contamination. Also, we may be subject to common law claims if we release substances that damage or harm third parties. Further, future changes in environmental laws or regulations may require additional investments in capital equipment or the implementation of additional compliance programs in the future. Any failure to comply with environmental laws or regulations could subject us to significant liabilities and could have material adverse effects on our operating results and financial condition.

In the conduct of our manufacturing operations, we have handled and do handle materials that are considered hazardous, toxic or volatile under federal, state and local laws. The risk of accidental release of such materials cannot be completely eliminated. In addition, we operate or own facilities located on or near real property that was formerly owned and operated by others. These properties were used in ways that involved hazardous materials. Contaminants may migrate from or within or through property. These risks may give rise to claims. Where third parties are responsible for contamination, the third parties may not have funds, or make funds available when needed, to pay remediation costs imposed under environmental laws and regulations.

clean-up costs, and 3) promised to indemnify and protect us against any and all third-party claims relating to the contamination of the facility. An Integrated Corrective Action Plan was submitted to the State of Colorado. Sampling and management plans were prepared for the Colorado Department of Public Health & Environment. State and local agencies in Colorado are reviewing current data and considering study and cleanup options. The most recent forecast estimated that the total project cost, up to the year 2020, would be approximately $5,300,000; accordingly, we recorded a one-time charge of $530,000 for this project in fiscal year 2003. There has not been any significant development since September 28, 2003.

We are involved in various pending litigation matters, arising out of the normal conduct of our business, including from time to time litigation 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 our financial position, results of operations or cash flows.

Our headquarters and two of our major operating facilities, and certain other critical business operations are located near earthquake fault lines. We presently do not have earthquake insurance. We could be materially and adversely affected in the event of a major earthquake.

Delaware law and our charter documents contain provisions that could discourage or prevent a potential takeover of Microsemi that might otherwise result in our stockholders receiving a premium over the market price for their shares.

Provisions of Delaware law and our certificate of incorporation and bylaws could make the acquisition more difficult by means of a tender offer, a proxy contest, or otherwise, and the removal of incumbent officers and directors. These provisions include:

In connection with our charter, we have a Shareholder Rights Plan, and each share of Common Stock, par value $0.20, entitles the holder to one redeemable and cancellable Right (not presently exercisable) to acquire a fractional share of Series A Junior Participating Preferred Stock, under the terms and conditions as set forth in a Shareholder Rights Agreement. The existence of the Rights may make more difficult or impracticable for hostile change of control of us, which therefore may affect the anticipated return on an investor’s investment in the Common Stock.

We may have increasing difficulty to attract and hold outside Board members.

The directors and management of publicly traded corporations are increasingly concerned with the extent of their personal exposure to lawsuits and shareholder claims, as well as governmental and creditor claims which may be made against them in connection with their positions with publicly-held companies. Outside directors are becoming increasingly concerned with the availability of directors and officer’s liability insurance to pay on a timely basis the costs incurred in defending shareholder claims. Directors and officers liability insurance has recently become much more expensive and difficult to obtain than it had been. It has become increasingly more difficult to attract and retain qualified outside directors to serve on our Board.

We may not make the sales that are indicated by order rates or our book-to-bill ratio and our book-to-bill ratio may become less meaningful.

Lead times for the release of purchase orders depend upon the scheduling practices of individual customers, and 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. Customers frequently change their delivery schedules or cancel orders. For these reasons, our book-to-bill ratio may not be an indication of future sales.

The percentage of our business represented by space/satellite and defense products may decline. If this occurs, we anticipate that our book-to-bill ratio will become less meaningful. Our space/satellite business is characterized by long lead times; however, our other end markets tend to place orders with short lead times. Prospective investors should not place undue reliance on our book-to-bill ratios or changes in book-to-bill ratios. We determine bookings based on orders that are scheduled for delivery within 12 months.

Risks are presented by electrical or telecommunications outages, computer hacking or other general system failure. We rely heavily on our internal information and communications systems and on systems or support services from third parties to manage our operations efficiently and effectively. Any of these are subject to failure. System-wide or local failures that affect our information processing could have material adverse effects on our business, financial condition, results of operations and cash flows. In addition, insurance coverage for the risks described above may be unavailable. Our plans are to further upgrade and integrate our enterprise information systems, which may cause additional strains on personnel and system resources or potential system outages.

There may be impairments of long-lived assets that would adversely affect Microsemi.

We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable from the estimated future cash flows expected to result from their use.

Our long-lived assets subject to this evaluation include property, plant and equipment and amortizable intangible assets and others.

We are required to make judgments and assumptions in identifying those events or changes in circumstances that may trigger impairment. Some of the factors we consider include:

An evaluation under FAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” includes an analysis of estimated future undiscounted net cash flows that the assets are expected to generate over their remaining estimated useful lives. If the estimated future undiscounted net cash flows are insufficient to recover the carrying value of the assets over the remaining estimated useful lives, we will record an impairment loss in the amount by which the carrying value of the assets exceeds the fair value. As a result of our analysis, we will record a charge when we determine that our amortizable intangible assets or other long-lived assets have been impaired. Any such impairment charge could be significant and could have a material adverse effect on our financial position and results of operations. Major factors that influence our cash flow analysis are our estimates for future revenues and expenses associated with the use of the asset. Different estimates could have a significant impact on the results of our evaluation.

Potential impairment of existing long-lived assets and of long-lived assets that we acquire in the future, could also affect our future results of operations and balances in a similar way.

All public companies were required to adopt Statement of Financial Accounting Standards No. 142 (“SFAS 142”), which changed the accounting for goodwill from an amortization method to an impairment-only approach. We adopted this standard at the beginning of fiscal year 2003. Consequently, goodwill and other intangible assets with indefinite lives are no longer being amortized, while those intangible assets with known useful lives have continued to be amortized over their respective useful lives. At least annually, we are required to reassess the carrying value of goodwill. If we determine that impairment exists, we will record a charge to earnings and a reduction in goodwill on our balance sheet. Whenever we determine that there has been an impairment of goodwill or other intangible assets with indefinite lives, we will record an impairment charge to earnings equal to the excess of the carrying value of goodwill over its then fair value. The identification of intangible assets and determination of the fair value and useful lives of goodwill and other intangible assets are subjective in nature and often involve the use of significant estimates and assumptions. The judgments made in determining the estimated useful lives assigned to each class of assets can significantly affect net income.

At September 26, 2004 we had $3.3 million of goodwill; however, up to 100% of goodwill could be determined to be impaired during future evaluations required by FAS 142.

Significant accounting policies have material effects on our calculations and estimations of amounts of major items in our financial statements.

Our operating results may be affected to the extent actual results differ from accounting estimates.

We base our critical accounting policies, including our policies regarding revenue recognition, reserves for returns, rebates, price protections, and bad debt and inventory valuation, on various estimates and judgments that we may make from time to time.

We record reductions to revenues for estimated allowances such as returns, rebate and competitive pricing programs. If actual returns, rebate and/or pricing adjustments exceed estimates, additional reductions to revenues would result.

Credit losses have been generally within our expectations and the established provisions; however, significant deterioration in the liquidity or financial position of any of our major customers or any group of our customers could have a material adverse impact on the collectibility of our accounts receivable and our future operating results.

Historically, the net realizable value of our inventories has generally been within our estimates. However, if we are not able to meet our sales expectations, or if market conditions deteriorate significantly from our estimates, reductions in the net realizable value of our inventories could have a material adverse impact on future operating results.

We use APB Opinion No. 25 to account for equity compensation, which may not fully reflect the economic consequences of granting options or other equity compensation.

There is more than one way under Generally Accepted Accounting Principles to account for the economic consequences of granting options or other equity compensation, and many accounting experts believe that charging earnings pursuant to FASB Statement 123 (“FASB 123”), as amended by FASB Statement 148 (“FAS 148”) would account better for the economic consequences of granting an option or other equity compensation than APB Opinion No. 25 (“APB 25”) would. We account for employee options for financial and accounting purposes under APB 25, which does not count the grant of stock or options as an expense in the way that FASB 123 would. The latter standard allows an option to charge to earnings the value arising from the grant of stock options. These compensation charges are not included in our financial statements, except

for the disclosure required by FASB 123, as amended that we have set forth in Note 1. We have adopted FASB 123, as amended to the extent that it requires disclosure in the notes.

The volatility of our stock price could affect the value of an investment in our stock and our future financial position.

The market price of our stock has fluctuated widely. Between September 29, 2003 and September 26, 2004, the price of our common stock ranged between a low of $7.57 and a high of $16.36. The current market price of our common stock may not be indicative of future market prices, and we may not be able to sustain or increase the value of our common stock. Declines in the market price of our stock could adversely affect our ability to retain personnel with higher-priced stock incentives, to acquire businesses or assets in exchange for stock and/or to conduct future financing activities with the sale of stock.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that we undertake, in fiscal year 2005, a thorough re-examination of our internal control systems and procedures for financial reporting. We also are required to completely document and test those systems. Ultimately, our management will be responsible to report to our stockholders in the fiscal year 2005 annual report about the condition of our internal control systems, and our auditors will be requested to attest to that report. The independent public accounting firm that audits our financial statements will review our systems for weaknesses and comment on any material weaknesses. We cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations since there is no precedent available by which to measure compliance adequacy.

We are uncertain about the total costs we will incur, although we know they will at least be substantial. There is great demand for consultants in the relevant area, and their fees reflect the short supply, which was caused by thousands of companies concurrently dealing with the requirement. (Section 404 applies to other public companies as well, although implementation dates vary from company to company.) The consultants will charge based on hours worked, and the actual work may materially exceed the estimates we have received from the consultants. Unforeseen challenges could be encountered that require additional work, as well as additional time. In order to meet our deadlines, we may incur material expenses and costs for overtime and additional consulting fees and charges.

Our filing of our fiscal year 2005 annual report on a timely basis will depend upon our timely completion of these tasks and our independent public accounting firm’s timely completion of the review of our internal control systems. Our independent public accounting firm is responsible for auditing and reviewing managements’ reports of many other companies, and our deadlines could be difficult for them to meet. A late annual report could have material adverse effects on us, both legally and with respect to the opinions of the participants in the securities market.

Any discovery of any material irremediable weakness in our internal control systems or procedures for financial reporting could have material adverse effects on us. It could cause our independent accountants to qualify or limit their attestation to management’s report or even limit or qualify their audit opinion, and either of those outcomes could have material adverse effects on us.

We are a leading designer, manufacture and marketer of high performance analog and mixed-signal integrated circuits and high reliability semiconductors. Our semiconductors manage and control or regulate power, protect against transient voltage spikes and transmit, receive and amplify signals.

Our products include individual components as well as integrated circuit solutions that enhance customer designs by improving performance and reliability, battery optimization, reducing size or protecting circuits. The principal markets we serve include implantable medical, defense/aerospace and satellite, notebook computers and monitors, automotive and mobile connectivity applications.

Our integrated circuits (“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”) that 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 ASSPs such as backlight inverters, audio amplification ICs and small computer standard interface (“SCSI”) terminators. Over the last year our shipments of SLIC’s, motherboard LDO’s and PWM’s have become a less significant component, and our shipments of differentiated ASSP’s, dual LDO’s, switching regulators and power amplifiers have become a more significant component of our total sales. Our integrated circuit products are used in notebook computers, data storage, wireless LAN, LCD back lighting, LCD TV’s, LCD monitors, automobiles, telecommunications, test instruments, defense and aerospace equipment, high-quality sound reproduction and data transfer equipment.

Our individual component semiconductor products include silicon rectifiers, zener diodes, low leakage and high voltage diodes, temperature compensated zener diodes, transistors, subminiature high power transient suppressor diodes and pin diodes used in MRI machines. We also manufacture semiconductors for commercial applications, such as automatic surge protectors, transient suppressor diodes used for telephone applications and switching diodes used in computer systems. Over the last year our shipments of traditional zener and voltage diodes products have become a less significant component and our shipments of transient suppressor diode products have become a more significant component of our total sales. A partial list of these products includes: implantable ICD and heart pacer switching, charging and transient shock protector diodes (where we believe we are 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 and power transistors.

We currently serve a broad group of customers including: Seagate Technology (5%), Guidant Corporation (4%), The Boeing Co. (3%), Medtronic Incorporated (2%), Raytheon Co. (2%), Siemens AG (2%), Lockheed Martin Corporation (2%), BAE Systems (2%), and Astrium Space/France (2%). (The percentage amounts in this list represent the approximate percentage that each customer’s purchases represents of our total 2004 revenues.)

We serve the implantable medical, defense/aerospace and satellite, notebook computers and LCD monitors, automotive and mobile connectivity markets with high performance analog/mixed signal integrated circuits and power and signal high reliability individual component semiconductors.

Our products are marketed through domestic electronic component sales representatives and our inside sales force to original equipment manufacturers. We also have industrial distributors to service our customers’ needs for standard catalog products. For fiscal year 2004, our domestic sales accounted for approximately 67% of our shipments, of which sales representatives and distributors accounted for approximately 28%. We have direct sales offices in the vicinities of metropolitan areas including Los Angeles, Garden Grove, Phoenix, Denver, Chicago, Lakeland (Florida), Minneapolis, Boston, Taiwan, Hong Kong, Singapore and Ireland. Sales to foreign customers, made through our direct domestic sales force and 26 overseas sales representatives and distributors, accounted for approximately 33% of fiscal year 2004 sales. Domestic and foreign sales are classified based upon the destination of a shipment from our facilities.

No one customer accounted for more than 5% of our revenues in fiscal year 2004. However, approximately 19% of our business is to customers whose principal sales are to the U.S. Government. All sales to the U.S. Government are subject to cancellation and price negotiation at the convenience of the government.

We believe that continuing timely development and introduction of new products are essential in maintaining our competitive position. We currently conduct most of our product development effort in-house. We also employ outside consultants to assist with product design.

We spent approximately $23,651,000, $19,368,000 and $20,010,000 in fiscal years 2002, 2003, and 2004 respectively, for research and development, none of which was customer sponsored.

The principal focus of our research and development activities has been to improve processes and to develop new products that support the growth of our businesses.

The spending on research and development was principally to develop new higher-margin application-specific products, including, among others, Cold Cathode Fluorescence Light (“CCFL”) and Light Emitting Diode (“LED”) drivers, Class-D audio amplifiers and InGaP RF power amplifiers for wireless LAN applications. Our research and development expenses decreased in 2003 because we sold the assets of a design (research and development) center in Carlsbad, California that was developing new technologies for the implanted medical market.

We rely to some extent upon confidential trade-secrets and to some extent upon patents to develop and maintain our competitive position. There can be no assurance that others will not develop or patent similar technology or reverse engineer our products or that the confidentiality agreements with employees, consultants, silicon foundries and other suppliers and vendors will be adequate to protect our interests.

We currently own 53 U.S. patents with expiration dates ranging from 2007 to 2023. In addition, we have 24 and 6 applications pending for new U.S. and foreign patents, respectively. It is our policy to seek patent protection for significant inventions that may be patented, though we may elect, in appropriate cases, not to seek patent protection even for significant inventions if other protection, such as maintaining the invention as a trade secret, is considered more advantageous or cost-effective.

There can be no assurance that any patent will be issued on pending applications or that any patent issued will provide substantive protection for the technology or product covered by it. We believe that patent and mask work protection could grow in significance but presently is of less significance in our business than experience, innovation, and management skill. We have several patents related to one of our product lines that represented approximately 6% of fiscal year 2004 shipments. Shipments of products related to any of our other patents are individually less than 5% of shipments and are not considered material to shipments.

We have registered several of our trademarks with the U.S. Patent and Trademark Office and in foreign jurisdictions.

Due to the many technological developments and the technical complexity of the semiconductor industry, it is possible that certain of our designs or processes may involve infringement of patents or other intellectual property rights held by others. From time to time, we have received, and in the future may receive, notice of claims of infringement by our products on intellectual property rights of third parties. If any such infringements were alleged to exist, we might be obligated to seek a license from the holder of the rights and might have liability for past infringement. In the past, it has been common semiconductor industry practice for patent holders to offer licenses on reasonable terms and rates. Although in some situations, typically where the patent directly relates to a specific product or family of products, patent holders have refused to grant licenses, though the practice of offering licenses appears to be generally continuing. However, no assurance can be given that we will be able to obtain licenses as needed in all cases or that the terms of any license that may be offered will be acceptable to us. In those circumstances where an acceptable license is not available, we would need either to change the process or product so that it no longer infringes or else stop manufacturing the product or products involved in the infringement, which might be costly and adversely affect revenues.

Please see the information that is set forth under the subheading “Failure to protect our proprietary technologies or maintain the right to use certain technologies may negatively affect our ability to compete.” within the section above entitled “IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS.”

Our principal domestic manufacturing operations are located in Garden Grove, California; Broomfield, Colorado; Scottsdale, Arizona and Lawrence and Lowell, Massachusetts. Each operates its own wafer processing, assembly, testing and screening departments. In October 2003, we announced the consolidation of the operations of Microsemi Corp.—Santa Ana, of Santa Ana, California (“Santa Ana”), hi-rel products plant

into other manufacturing plants. All manufacturing operations at the Santa Ana plant, except for wafer fabrication and sealing, have been moved to other locations. The wafer fabrication and seal operation are expected to be moved during the second quarter of fiscal year 2005.

Our domestic plants manufacture and process all products, starting from purchased silicon wafers and piece parts. After wafer level fabrication, the silicon wafers are separated into individual die that are then assembled in packages and tested in accordance with our test procedures. A major portion of our 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. Certain subcontract suppliers provide packaging and testing for our products necessary to deliver finished products. We pay those suppliers for assembled or fully tested products meeting predetermined specifications. Manufacturing and processing operations are controlled in accordance with military as well as other rigid commercial and industrial specifications.

In 2001, we commenced our Capacity Optimization Enhancement Program. The objectives of this program are to increase company-wide capacity utilization and operating efficiencies through consolidations and realignments of operations. We believe that this program will result in future cost savings from the elimination of redundant facilities and associated costs.

In March 2001, we closed Microsemi PPC Inc. (“PPC”). In June 2001, we ceased the operations of Microsemi (H.K.) Ltd. (“Hong Kong”).

In February 2002, we started the restructuring/consolidations of Microsemi Watertown Inc., of Watertown, Massachusetts (“Watertown”) and Microsemi CDI, Inc., of Melrose, Massachusetts (“MCDI”). We have completed the closure of our plant in Watertown, Massachusetts and the relocations of Watertown to other Microsemi plants in Lawrence and Lowell, Massachusetts; and Scottsdale, Arizona (“Scottsdale”) and the relocation of the operations of MCDI from Melrose to Lawrence, Massachusetts. The MCDI Melrose facility was closed.

In June 2002, we completed the sale of the assets, including the real property, of Microsemi RF Products, Inc. (“RF”), of Montgomeryville, Pennsylvania to a subsidiary of Advanced Power Technology Inc., of Bend, Oregon.

In September 2002, we sold the assets of the Carlsbad design center to AMI Semiconductor, Inc., of Pocatello, Idaho.

In October 2002, we completed the sale of our Semcon Electronics Private Limited subsidiary, of Mumbai, India (“Semcon”).

In October 2003, we announced the consolidation of Santa Ana into other manufacturing plants. Santa Ana represented approximately 20% of our annual shipments, occupied 123,000 square feet and had approximately 380 employees. The consolidation of Santa Ana is expected to result in minimal impact on shipments. Costs associated with the consolidation of Santa Ana are expected to range from $14 million to $18 million over the 12 to 18 month period, including $5.6 million of restructuring expenses and $6.8 million of cost included in cost of sales in fiscal year 2004. These actions are, however, expected to result in annual cost savings of $8 million to $12 million.

In the second quarter of fiscal year 2004, we started to consolidate the remainder of our operations in Watertown, Massachusetts into other manufacturing plants. Costs associated with this final consolidation of Watertown are expected to be approximately $5.0 million, including approximately $1.3 million of restructuring expenses and $3.6 million of cost included in cost of sales in fiscal year 2004. We expect to record an additional $0.1 million in the first quarter of fiscal year 2005 and expect to complete this consolidation in December 2004.

We purchase silicon wafers, other semiconductor materials and packaging piece parts from domestic and foreign suppliers generally on long-term purchase commitments, which are cancelable on 30 to 90-days’ notice. With the exception of a certain type of proprietary electronic package, for which we paid a third party approximately $535,000 in fiscal year 2004, for our production of certain high reliability diodes, all materials are available from multiple sources. In the case of sole source items, we have never suffered production

delays as a result of suppliers’ inability to supply the parts. We believe that we stock adequate supplies for all materials, based upon backlog, delivery lead-time and anticipated new business. In the ordinary course of business, we enter into cancelable purchase agreements with some of our major suppliers to supply products over periods of up to 18 months.

We also purchase a portion of our finished wafers from several foundry sources. If a foundry were to terminate its relationship with us, or should our supply from a foundry be interrupted or terminated for any reason, such as a natural disaster or another unforeseen event, we may not have sufficient time to replace the supply of products manufactured by that foundry.

We did not pay more than $5.2 million to any single supplier in fiscal year 2004.

There can be no assurance that we 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 and more expensive if our product requirements increase. In addition, because we must order products and build inventory substantially in advance of product shipments, there is a risk that we will forecast incorrectly and produce excess or insufficient inventories for particular products. This inventory risk is heightened because certain of our key customers place orders with short lead times.

Our manufacturing processes use certain key raw materials critical to our products. These include silicon wafers, certain chemicals and gases, ceramic and plastic packaging materials and various precious metals. We also rely on subcontractors to supply finished or semi-finished products, which are marketed through our various sales channels. We obtain raw materials and semi-finished or finished products from various sources, although the number of sources for any particular material or product may be limited. We feel that our current supply of essential materials is adequate; however, shortages have occurred from time to time and could occur again. Significant increases in demand, rapid product mix changes or natural disasters, or other events, could affect our ability to procure materials or goods.

Generally, we are affected by the seasonal trends of the semiconductor and related industries. The impacts of seasonality are to some extent dependent on product and market mix of products shipped. These impacts can change from time to time and are not predictable. Historically we have experienced lower sales in our first fiscal quarter, primarily due to holiday work schedules.

The semiconductor industry, including the areas in which we do business, is highly competitive. We expect intensified competition from existing competitors and new entrants. Competition is based on price, product performance, product availability, quality, reliability and customer service. We compete in various markets with companies of various sizes, many of which are larger and have greater financial and other resources than we have, and thus may be better able to pursue acquisition candidates and to withstand adverse economic or market conditions. In addition, companies not currently in direct competition with us may introduce competing products in the future. Some of our current major competitors are Motorola, Inc., National Semiconductor Corporation, Texas Instruments, Inc., Philips Electronics, ON Semiconductor, L.L.C., Fairchild Semiconductor Corporation, Micrel Incorporated, International Rectifier Corporation, Semtech Corporation, Linear Technology Corp., Maxim Integrated Products, Inc., O2 Micro, Monolithic Power Systems, Inc., Skyworks Solutions, Inc., Diodes, Inc., Vishay Intertechnology, Inc. and its subsidiary, Siliconix Incorporated. Some of our competitors in developing markets are Triquint Semiconductor, Inc., Mitel Corporation, RF Micro Devices, Inc., Conexant Systems, Inc., Anadigics, Inc. and Skyworks Solutions, Inc. We may not be able to compete successfully in the future or competitive pressures may harm our financial condition, operating results or cash flows. For more information, see the risk described as “The semiconductor business is highly competitive and increased competition could reduce our value” under the heading “Important Factors Related to Forward-Looking Statements and Associated Risks” above.

Our business with customers whose principal sales are to the U.S. Government or to subcontractors whose sales are to the U.S. Government was approximately 19% of total sales in fiscal year 2004. We, as a subcontractor, sell our products to higher-tier subcontractors or to prime contractors based upon purchase orders that usually do not contain all of the conditions included in the prime contract with the U.S. Government. However these sales are usually subject to termination and/or price renegotiations by virtue of their reference to a U.S. Government prime contract. Therefore, we believe that all of our product sales that ultimately are sold to the U.S. Government may be subject to termination, at the convenience of the U.S. Government or to price renegotiations under the Renegotiation Act.

During the past sixteen years, we had one contract terminated for convenience. This termination was for a contract with an estimated $235,000 remaining. We were reimbursed approximately $80,000 for the costs incurred for work in process prior to the termination. We have never had to renegotiate our price under any government contract. There can be no assurance that we will not have contract termination or price renegotiation in the future.

To date, our compliance with federal, state and local laws or regulations that have been enacted to regulate the environment has not had a material adverse effect on our capital expenditures, earnings, or competitive or financial position.

Federal, state and local laws and regulations impose various restrictions and controls on the discharge of materials, chemicals and gases used in semiconductor manufacturing processes. In addition, under some laws and regulations, we could be held financially responsible for remedial measures if our properties are contaminated or if we send waste to a landfill or recycling facility that becomes contaminated, even if we did not cause the contamination. Also, we may be subject to common law claims if we release substances that damage or harm third parties. Further, future changes in environmental laws or regulations may require additional investments in capital equipment or the implementation of additional compliance programs in the future. Any failure to comply with environmental laws or regulations could subject us to serious liabilities and could have material adverse effects on our operating results and financial condition.

In the conduct of our manufacturing operations we have handled and do handle materials that are considered hazardous, toxic or volatile under federal, state or local laws. The risk of accidental release of such materials cannot be completely eliminated. In addition, we operate or own facilities located on or near real property that was formerly owned and operated by others. These properties were used in ways that involved hazardous materials. Contaminants may migrate from or within or through property. These risks may give rise to claims. We may be financially responsible for third parties, who are responsible for contamination, if they do not have funds, or make funds available when needed, to pay remediation costs imposed under environmental laws and regulations.

In Broomfield, Colorado, the owner of a property located adjacent to a manufacturing facility owned by Microsemi Corp.—Colorado (“the Subsidiary”) had notified the Subsidiary and other parties of a claim that contaminants migrated to his property, thereby diminishing its value. In August 1995, the subsidiary, together with Coors Porcelain Company, FMC Corporation and Siemens Microelectronics, Inc. (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 by former owners at the facility are present in soil and groundwater on the subsidiary’s property, we vigorously contest any assertion that the subsidiary caused the contamination. In November 1998, we signed an agreement with the three former owners of this facility whereby they have 1) reimbursed us for $530,000 of past costs, 2) assumed responsibility for 90% of all future clean-up costs, and 3) promised to indemnify and protect us against any and all third-party claims relating to the contamination of the facility. An Integrated Corrective Action Plan was submitted to the State of Colorado. Sampling and management plans were prepared for the Colorado Department of Public Health & Environment. State and local agencies in Colorado are reviewing current data and considering study and cleanup options. The most recent forecast estimated that the total project cost, up to the year 2020, would be approximately $5,300,000; accordingly, we recorded a one-time charge of $530,000 for this project in fiscal year 2003. There has not been any significant development since September 28, 2003.

On September 26, 2004, we employed 1,318 persons domestically including 84 in engineering, 1,072 in manufacturing, 65 in marketing and 97 in general management and administration. Additionally, 139 persons are employed in our Shanghai, China operations, 119 persons in our Ennis, Ireland operations, and 9 persons are employed as marketing personnel in Singapore and Taiwan. None of our employees are represented by a labor union. We have experienced no work stoppage and believe our employee relations are good.

Our headquarters are located in a rented building complex in Irvine, California. This complex contains general offices and engineering space. We own office, engineering and production facilities in Santa Ana and Garden Grove, California; Broomfield, Colorado and Ennis, Ireland and lease office, engineering and production facilities in Los Angeles and Irvine, California; Scottsdale, Arizona and Lawrence, Lowell, and Watertown, Massachusetts and Singapore.

We believe that our existing facilities are well maintained and in good operating condition and that they are adequate for our foreseeable business needs.

We are involved in various pending litigation matters arising out of the normal conduct of our business, including without limitation litigation relating to commercial transactions and contracts. In the opinion of management, the final outcome of these matters, if it were adverse, will not have a material adverse effect on our financial position, results of operations or cash flows.

On October 7, 2004, we filed a complaint in the United States District Court for the Central District of California entitled Microsemi Corporation v. Monolithic Power System, Inc., Case Number SACV04-1174 CJC (Anx). The Complaint alleges infringement of Microsemi patents and seeks an injunction, actual damages, treble damages, declaratory relief and attorneys’ fees. The defendant filed a cross-claim for declaratory relief and attorneys’ fees. We are in the early stage of this litigation. We are unable to assess the possible outcome of this litigation. However, we do not believe it will have a negative impact on our future results.

Our 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 our Common Stock traded as reported on the NASDAQ National Market.

The market prices of securities issued by technology companies, including ours, are and have been volatile in the past. The securities of many technology companies have experienced extreme price and volume fluctuations, which have often been not necessarily related to their 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 or out of the industry, events involving war or terrorism, and other events or factors may have a significant impact (positive or negative) on the market price of our Common Stock.

On January 26, 2004, we announced a 2-for-1 stock split of our common stock to be effected by means of a stock dividend to stockholders of record as of the close of business on February 6, 2004 (the record date). Stockholders received one additional share of common stock for every one share held as of the record date. The dividend was distributed as of the close of business on Friday, February 20, 2004. The ex-dividend date was Monday, February 23, 2004. As a result of the stock split, we issued 29,603,287 shares of our common stock. Upon completion of the stock split, the total outstanding shares of our

common stock were 59,206,574. All shares and per share information have been adjusted to reflect the 2-for-1 stock split for all periods presented in this report.

We have not paid cash dividends in the last five years and have no current plans to do so. Our credit facility contains covenants that restrict us from paying cash dividends. (See Note 7 to the Consolidated Financial Statements.)

The selected financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in item 7 of this Form 10-K.

This Annual Report on Form 10-K includes current beliefs, expectations and other forward looking statements, the realization of which may be adversely impacted by any of the factors discussed or referenced throughout this Form 10-K, including but not limited to factors under the heading “Important Factors Related to Forward-Looking Statements and Associated Risks” and other factors in Part I, Items 1 and 3, and Part II, Item 5. This Form 10-K should be read in its entirety.

Microsemi is a leading designer, manufacturer and marketer of high performance analog and mixed-signal integrated circuits and high reliability individual component semiconductors. Our semiconductors manage and control or regulate power, protect against transient voltage spikes and transmit, receive and amplify signals.

Our products include individual components as well as integrated circuit solutions that enhance customer designs by improving performance, reliability and battery optimization, reducing size or protecting circuits. The principal markets we serve include implanted medical, defense/aerospace and satellite, notebook computers and monitors, automotive and mobile connectivity applications.

We currently serve a broad group of customers. None of our customers accounts for more than 5% of our total revenues in fiscal year 2004. The following are our major customers: Seagate Technology (5%), Guidant Corporation (4%), The Boeing Co. (3%), Siemens AG (2%), Lockheed Martin Corporation (2%), Raytheon Co. (2%), Medtronic Incorporated (2%), and BAE Systems (2%). The percentage amounts in parenthesis are the approximate sales to these customers as percentages of our revenues in fiscal year 2004.

In 2001, we commenced our Capacity Optimization Enhancement Program (the “Plan”) to increase company-wide capacity utilization and operating efficiencies through consolidations and realignments of operations.

We started phase 1 of the Plan (“Phase 1”) in fiscal year 2001, which included (a) the closure of most of our operations in Watertown, Massachusetts and relocation of those operations to other Microsemi plants in Lawrence and Lowell, Massachusetts and Scottsdale, Arizona and (b) the closure of the CDI, Melrose, Massachusetts facility and relocation of those operations to Lawrence, Massachusetts.

At September 26, 2004, the remaining restructuring balance of $0.1 million of Phase 1 will be used to complete the consolidation of Watertown. The following table reflects the activities of Phase 1 and the accrued liabilities in the consolidated balance sheets at the dates below (amounts in 000s):

In October 2003, we announced the consolidation of the hi-rel products operations of Microsemi Corp. - Santa Ana of Santa Ana, California (“Santa Ana”) into Microsemi Corp. – Integrated Products of Garden Grove, California (“IPG”) and Microsemi Corp. - Scottsdale of Scottsdale, Arizona (“Scottsdale”). Santa Ana represented approximately 20% of our shipments in fiscal year 2003, had approximately 380 employees and occupied 123,000 square feet in two facilities, one owned and one leased under a 30-year lease.

Restructuring-related costs have been and will be recorded in accordance with SFAS 112, “Employers’ Accounting for Postemployment Benefits (“FAS 112”) or SFAS 146, “Accounting for the Costs Associated with Exit or Disposal Activities” (“FAS 146”), as appropriate. The estimated severance payments are approximately $5.3 million, of which, $4.7 million and $0.4 million were recorded in fiscal year 2004 as required by FAS 112 and FAS 146, respectively. We will record an additional $0.2 million over the future service periods as required by FAS 146. The severance payments cover approximately 350 employees, including 55 management positions. Approximately 30 employees have been or will be transferred to other Microsemi operations. We recorded $1.0 million for impairment related to the leased facility in Santa Ana. We also recorded $0.5 million for other restructuring related expenses. We do not anticipate any material charge for cancellations of operating leases. Any change of estimate will be recognized as an adjustment to the accrued liabilities in the period of change. Production in Santa Ana has been reduced substantially and will cease in the second quarter of fiscal year 2005.

The consolidation of Santa Ana is expected to result, subsequent to its completion, in annual cost savings of $8 million to $12 million from the elimination of redundant facilities and related expenses and employee reductions. Further, we own a substantial portion of the plant and the real estate it occupies in Santa Ana, California, and we expect to offer the owned property for sale at the prevailing market price which is expected to exceed book value.

The following table reflects the activities related to the consolidation of Santa Ana and the accrued liabilities in the consolidated balance sheets at September 26, 2004 (amounts in 000s):

In the second quarter of fiscal year 2004, we started to consolidate the remainder of our operations in Watertown, Massachusetts. We have been moving production to our facilities in Scottsdale, Arizona (“Scottsdale”) and Lowell, Massachusetts (“Lowell”). Restructuring-related costs have been and will be recorded in accordance with FAS 112 or FAS 146, as appropriate. The estimated severance payments are approximately $0.8 million, of which, $0.5 million and $0.2 million were recorded in fiscal year 2004 as required by FAS 112 and FAS 146, respectively. We will record an additional $0.1 million over the future service periods as required by FAS 146. The severance payments cover approximately 30 employees, including 4 management positions. We also recorded $1.5 million for impairment of fixed assets. We do not anticipate any material charge for cancellations of operating leases or for the relocation of equipment. Any change of estimate will be recognized as an adjustment to the liability in the period of change. We have assigned a transition team to coordinate these activities to minimize any potential adverse financial impact due to this consolidation. The consolidation of the Watertown operations is expected to be completed by December 2004.

The following table reflects the activities of the final phase of the consolidation of Watertown and the liabilities included in accrued liabilities in the consolidated balance sheets at September 26, 2004 (amounts in 000s):

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States that require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Information with respect to our critical accounting policies which we believe could have the most significant effect on our reported results and require subjective or complex judgments is contained herein.

We recognize revenue to all customers, including distributors, when title and risk of loss have passed to the customer provided that: 1) evidence of an arrangement exists; 2) delivery has occurred; 3) the fee is fixed or determinable; and 4) collectibility is reasonably assured. For substantially all sales, revenues are recognized at the time the product is shipped.

We enter into contracts with certain distributors and these contracts permit very limited stock rotation returns. The Company provides an estimated allowance for such returns, and corresponding reductions in revenue are concurrently recorded, based on several factors including past history and notification from customers of pending returns. Actual returns have been within management’s expectations.

In accordance with EITF 01-09, “Accounting for Consideration Given by a Vendor to a Customer (including a Reseller of the Vendor’s Products)”, estimated reductions to revenue are also recorded for customer incentive programs consisting of price protection and volume purchase rebates. Such programs are limited and actual reductions to revenues have been within management’s expectations.

We provide a one-year product defect warranty from the date of sale. Historically, warranty costs have been nominal and have been within management’s expectations.

For a further discussion of our accounting policies regarding revenue recognition see the section entitled “Our operating results may be affected to the extent actual results differ from accounting estimates” under “IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS.”

Trade accounts receivable are recorded at the invoiced amounts and do not bear interest. The accounts receivable amounts shown in the balance sheet are trade account receivable balances at the respective dates, net of allowance for doubtful accounts.

The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance based on our historical write-off experience. We review our allowance for doubtful accounts quarterly. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. All other balances are reviewed on a pooled basis by type of receivable. Account balances are charged off against the allowance when we feel it is probable the receivable will not be recovered. We do not have any off-balance-sheet credit exposure related to our customers.

customers or any group of customers could have a material adverse impact on the collectibility of accounts receivable and future operating results.

Inventories are stated at the lower of cost, as determined using the first-in, first-out (“FIFO”) method, or market. Costs include materials, labor and manufacturing overhead. We evaluate the carrying value of our inventories taking into account such factors as historical and anticipated future sales compared with quantities on hand and the price we expect to obtain for our products in their respective markets. We also evaluate the composition of our inventories to identify any slow-moving or obsolete products. The total evaluations require material management judgments, including estimates of future sales, continuing market acceptance of our products, and market and economic conditions. Additionally, inventory reserves are established based upon such judgments for any inventories that are identified as having a net realizable value less than their cost, which is further reduced by related selling expenses. Historically, the net realizable value of our inventories has generally been within management’s estimates. However, if we are unable to meet our sales expectations, or if market conditions deteriorate from management’s estimates, reductions in the net realizable value of our inventories could have a material adverse impact on future operating results.

For a further discussion of our accounting policies regarding inventory valuation see the section entitled “Our operating results may be affected to the extent actual results differ from accounting estimates” under “IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS.”

Our long-lived assets subject to this evaluation include property, plant and equipment and amortizable intangible assets.

At September 26, 2004, other intangible assets include $0.2 million of acquired customer lists, $5.0 million of non-patented technology, $0.1 million of covenants not to compete and $0.1 million of contract manufacturer relationships.

We are required to make judgments and assumptions in identifying those events or changes in circumstances that may trigger impairment. Some of the factors we consider include:

An evaluation under FAS 144 includes an analysis of estimated future undiscounted net cash flows that the assets are expected to generate over their remaining estimated useful lives. If the estimated future undiscounted net cash flows are insufficient to recover the carrying value of the assets over the remaining estimated useful lives, we will record an impairment loss in the amount by which the carrying value of the assets exceeds the fair value. As a result of our analysis, we will record a charge when we determine that our amortizable intangible assets or other long-lived assets have been impaired. Any such impairment charge could be significant and could have a material adverse effect on our financial position and results of operations. Major factors that influence our cash flow analysis are our estimates for future revenues and expenses associated with the use of the asset. Different estimates could have a significant impact on the results of our evaluation.

All public companies were required to adopt Statement of Financial Accounting Standards No. 142 (“SFAS 142”), which changed the accounting for goodwill from an amortization method to an impairment-only approach. We adopted this standard at the beginning of fiscal year 2003. Consequently, goodwill and other intangible assets with indefinite lives will no longer be amortized, while those intangible assets with known useful lives have continued to be amortized over their respective useful lives. At least annually, we are required to reassess goodwill. Whenever we determine that there has been an impairment of goodwill or other intangible assets with indefinite lives, we will record an impairment charge against earnings, which equals the excess of the carrying value of goodwill over its then fair value, and a reduction in goodwill on our balance sheet. The identification of intangible assets and determination of the fair value and useful lives of goodwill and other intangible assets are subjective in nature and often involve the use of significant estimates and assumptions. The judgments made in determining the estimated useful lives assigned to each class of assets can significantly affect net income.

At the beginning of fiscal year 2003, we had approximately $26.0 million of unamortized goodwill that resulted from our previous acquisitions. For the purposes of the evaluation as required by FAS 142, the reporting units with goodwill were identified as Scottsdale ($1.4 million), Santa Ana ($1.9 million), Integrated Products ($9.6 million), Lawrence ($12.2 million) and Lowell ($0.9 million). We completed the first step of the transition testing by March 30, 2003 and completed the second step in the quarter ended June 29, 2003. In accordance with SFAS No. 142, the impairment charge was calculated as the excess, if any, of the carrying amount of goodwill over the implied fair value of the goodwill for each reporting unit based on a combination of the market approach (weighted 25%) and the income approach (weighted 75%). The valuation resulted in a $22.7 million of goodwill impairment at Integrated Products, Lawrence and Lowell. As required by SFAS No. 142, a $14.7 million transition impairment charge was recorded, net of its associated $8.0 million tax benefit, as a cumulative effect of a change in accounting principle, effective as of September 30, 2002.

At September 28, 2003, we had approximately $3.3 million of goodwill that resulted from our previous acquisitions. $1.9 million was allocated to Santa Ana and $1.4 million was allocated to Scottsdale. As a consequence of the consolidation of Santa Ana, the $1.9 million of goodwill has been reallocated to Scottsdale in fiscal year 2004. The total $3.3 million of goodwill remained unchanged as of September 26, 2004.

Effective in 2003 and in accordance with SFAS 142, we will not amortize the remaining $3.3 million of goodwill; however, up to 100% of the remaining goodwill could be determined to be impaired during future evaluations required by FAS 142. (See Note 1 to the Consolidated Financial Statements.)

We are required by FAS 142 to reassess goodwill annually and whenever events or changes in circumstances indicate that it is more likely than not that an impairment loss has been incurred. We are required to record a charge to income if an impairment has been incurred. We performed our annual review for goodwill impairment in the fourth quarter of fiscal 2004. We have determined that no impairment existed because:

For a discussion of our accounting policies regarding long-lived assets see the section entitled “There may be goodwill impairments that would adversely affect Microsemi” under “IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS.”

As part of the process of preparing the consolidated financial statements, we estimate our income taxes for each of the jurisdictions in which we have a nexus. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within

the consolidated balance sheets. We have established a valuation allowance for a portion of our deferred tax assets. If we increase any valuation allowance in a period, it will adversely affect the tax provision in the income statement.

On October 4, 2004, President Bush signed into Law the Working Families Tax Relief Act of 2004 (the “2004 Act”). The 2004 Act retroactively extended the expiration date of the research tax credit from June 30, 2004 to December 31, 2005. Since the credit was reinstated after September 26, 2004, the Company recognized credit through June 30, 2004. The credit retroactively reinstated from July 1, 2004 will be recognized in the first quarter of the fiscal year ending September 2005.

We account for employee stock options in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25). Under APB 25, no compensation expense is recognized for stock options or restricted stock issued to employees with exercise prices at or above quoted market value.

Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123) provides an alternative to APB 25 in accounting for stock-based compensation issued to employees. SFAS 123 provides for a fair value based method of accounting for employee stock options and similar equity instruments. However, companies that continue to account for stock-based compensation arrangements under APB 25 are required by SFAS 123 to disclose the pro forma effect on net (loss) income and net (loss) income per share as if the fair value based method prescribed by SFAS 123 had been applied. We continue to account for stock-based compensation using the provisions of APB 25 and present the pro forma information required by SFAS 123 as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (SFAS 148). (See Note 1 to the Consolidated Financial Statements.)

RESULTS OF OPERATIONS FOR THE FISCAL YEAR 2003 COMPARED TO THE FISCAL YEAR 2004.

Net sales increased $47.4 million or 24% from $197.4 million for fiscal year 2003 (“2003”) to $244.8 million for the fiscal year 2004 (“2004”). The increase included approximately $25.8 million, $9.1 million, $19.2 million and $8.0 million of higher sales for defense and aerospace, computer and peripheral, mobile connectivity and automotive products, respectively, offset by decreases of approximately $6.8 million and $7.9 million in shipments of medical products and of other products, respectively. We expect our sales for the first quarter to increase by up two to three percent.

Sales to OEM customers represented approximately 60% of our revenues for both fiscal years 2003 and 2004, respectively. The breakout of net sales to OEM customers (which excludes sales to distributors) in 2003 and 2004 were as follows:

Gross profit increased $17.0 million, from $60.5 million (30.7% of sales) for 2003 to $77.5 million (31.7% of sales) for 2004. The improvement in gross profit in 2004 was favorably impacted by: 1) higher gross margins on new products; 2) improved factory utilization; 3) increased revenues and 4) price increases on high-reliability products. The preceding items which had a positive impact on gross margin in 2004 were partially offset by certain costs of sales items which included $3.5 million of profit sharing and key employee bonuses, $4.3 million write-off of inventories associated with our restructuring and consolidation program, $7.2 million for estimated transitional idle capacity and other estimated restructuring related costs at IPG ($2.4 million), Santa Ana ($3.2 million), Watertown ($1.5 million), and Lawrence ($0.1 million), $1.5 million for estimated time

spent by existing employees for the consolidation of Santa Ana and $0.2 million of other non-recurring expenses related to the consolidation of Santa Ana.

Selling, general and administrative expenses increased $1.9 million, from $37.0 million for 2003 to $38.9 million for 2004, primarily due to higher selling expenses associated with higher sales, profit sharing and key employee bonus expenses and certain costs associated with implementation of the provisions of the Sarbanes-Oxley Act.

Amortization of other intangible assets was $1.3 million and $1.2 million for 2003 and 2004, respectively.

In 2004, restructuring charges of $6.9 million included expenses related to the consolidations of Santa Ana and Watertown, as follows (amounts in thousands):

In 2004, the $2.5 million asset impairments included $1.0 million of estimated impairment of leasehold improvements related to the leased building in Santa Ana, California and $1.5 million of fixed assets in Watertown that are no longer used in our operations.

We had lower average balances of debt and more cash in short-term investments in 2004, compared to 2003; consequently, we had lower interest expense and higher interest income in 2004 compared to 2003.

In 2004, other expenses included donation of real estate to a school. The real estate had book value of approximately $0.5 million.

The effective income tax rates were 33.0% and 32.0% for fiscal years 2003 and 2004, respectively.

Net sales decreased $15.2 million or 7.1% from $212.6 million for fiscal year 2002 to $197.4 million for fiscal year 2003. The decrease included $18.4 million lower sales of space and commercial aircraft products, $10.2 million lower sales to telecom and other commercial customers, partially offset by a $13.3 million increase of sales of medical products. The above decrease included the elimination of sales of RF, which had revenues of $6.0 million in fiscal year 2002 and was sold in the third quarter of last year. The decease in revenues in fiscal year 2003 reflected the general decline of the space, commercial aircraft and telecommunications markets. The increase in revenues from our medical products represented higher demands for our high reliability medical components used in MRI systems, pacemakers and implantable cardio defibrillators.

Gross profit decreased $5.4 million, from $65.9 million (31.0% of sales) for fiscal year 2002 to $60.5 million (30.7% of sales) for fiscal year 2003. Cost of sales in fiscal year 2003 included a write-off of $0.3 million of leasehold improvements at our Melrose, Massachusetts facility, $0.7 million for cancellations of contracts and closures of facilities, $0.5 million for accrued future clean up cost at our Colorado facility and $0.5 million of asset impairments. These factors had a 1.0% negative impact on gross margin. RF had $1.5 million of gross profit in fiscal year 2002 or 0.7% of sales. Gross profit in 2003 also benefited from improved mix of new products shipped and from higher factory utilization.

Selling, general and administrative expenses decreased $0.8 million from $37.8 million for fiscal year 2002 to $37.0 million for fiscal year 2003, primarily due to lower commission expenses as a result of lower sales, the elimination of expenses associated with RF and the consolidations of our Watertown and Melrose, Massachusetts facilities into our Lowell and Lawrence, Massachusetts facilities; partially offset by an increase in insurance and other employee benefits.

Research and development expenses decreased $4.3 million, from $23.7 million for fiscal year 2002 to $19.4 million for fiscal year 2003. The decrease was due to the disposition of our Carlsbad design center.

Amortization of goodwill and other intangible assets decreased $2.5 million because we ceased the amortization of goodwill upon adoption of SFAS No. 142, effective September 30, 2002, which changes the accounting for goodwill from an amortization method to an impairment only approach.

In fiscal year 2003, we recorded gains of $2.8 million on sale of real estate in Watertown, Massachusetts, and $0.3 million on sale of one floor of our facility in Hong Kong. We also recorded additional losses of $0.4 million on the sale of Semcon and $0.1 million on the sale of the Carlsbad design center. In fiscal year 2002, we recorded losses of $0.8 million on the sale of Semcon and $0.6 million on the sale of the Carlsbad design center.

We had $0.5 million of net interest expense in fiscal year 2002. Interest expense in fiscal year 2003 on lower balances of debt was offset by interest earned on our short-term investments.

We adopted the provisions of SFAS 142, “Goodwill and Other Intangible Assets,” effective September 30, 2002. We recorded a transition impairment charge of $14.7 million, net of income tax effect of $8.0 million, which was reflected as a cumulative effect of a change in accounting principle, effective as of the beginning of fiscal year 2003. The impaired goodwill was related to the acquisitions of businesses in prior years. (See Note 4 to the Consolidated Financial Statements.)

Net cash provided by operating activities was $15.5 million, $14.7 million, and $19.5 million for the fiscal years 2002, 2003 and 2004, respectively. The $0.8 million decrease in net cash provided by operating activities in fiscal year 2003, compared to fiscal year 2002, was primarily a result of the $6.8 million increase in loss that was partially offset by the combined effect of non-cash items included in income or expense, such as depreciation and amortization, gain on retirement and dispositions of assets, impairment of assets, tax benefits resulted from stock options and changes in deferred income taxes, accounts receivable, inventories, other current assets, accounts payable, accrued liabilities and income tax payable. In 2002, we recorded $1.7 million in asset impairments related to the consolidation of Watertown. In 2003, we recorded $22.7 million of goodwill impairment upon adoption of FAS 142. The increase in net deferred tax assets in fiscal year 2003 was due to impairment of goodwill. The net loss of $11.5 million for 2003 included an after tax, non-cash charge of $14.7 million, net of $8.0 tax benefits, for impairment of goodwill, upon adoption of FAS 142 in fiscal year 2003.

The $4.8 million increase in net cash provided by operating activities between 2003 and 2004 was mostly due to the improvement of operating income, excluding the effect of the aforementioned $14.7 million charge. The increase was also affected by the combined effect of other non-cash items included in income or expense, and changes in operating assets and liabilities such as accounts receivable, inventories, accounts payable, accrued liabilities and income tax payable.

Accounts receivable increased from $28.9 million at September 28, 2003 to $42.2 million at September 26, 2004. The increase of accounts receivable was primarily due to higher sales in the fourth quarter of 2004 compared with sales in the fourth quarter of 2003. The Days Sales Outstanding (“DSO”) was 50 days and 56 days at September 28, 2003 and at September 26, 2004, respectively. The increase in DSO in 2004 was due to the timing of several large shipments and payments near the end of 2004.

Inventories were $53.7 million at September 28, 2003 and $54.6 million at September 26, 2004. The increase in inventory resulted from products built in advance to cover shipments during changes of manufacturing locations due to our consolidation programs.

At September 26, 2004 we had $43.9 million of current liabilities, an increase of $12.7 million from $31.2 million at September 28, 2003. The increase was primarily due to accrued severance payments related to the consolidations of the Santa Ana and Watertown divisions (see Note 10) and other accrued employees benefit payments.

Net cash used in investing activities was $7.4 million, $5.7 million, and $9.8 million for the fiscal years 2002, 2003 and 2004, respectively. We spent $19.8 million, $11.2 million, and $10.4 million for capital equipment in fiscal years 2002, 2003 and 2004, respectively. The unusually high capital expenditures in fiscal year 2002 were primarily for the construction of equipment for the production of new products. In fiscal year 2002, we received approximately $12.5 million for the sales of RF and a building in Florida, net of expenses. In fiscal year 2003, we received approximately $1.5 million from sale of the Carlsbad design center, $0.9 million from sale of stock of Semcon (net of the $0.6 million of cash in bank at date of disposition), $1.2 million from sale of real estate in Watertown, Massachusetts and $0.5 million from sale of one floor of a building in Hong Kong. In 2004, we received approximately $0.6 million from the sale of another floor of a building in Hong Kong.

Net cash provided by (used in) financing activities was ($9.9) million, ($2.7) million, and $6.0 million for fiscal years 2002, 2003 and 2004, respectively. In 2002, we paid $9.7 million of notes payable related to the acquisitions of New England Semiconductor, Inc. and Compensated Device, Inc. and $2.6 million of long term debt and received $2.5 million from exercises of employee stock options. In March 2002, we issued 666,666 shares of our common stock as payment in full for the $2.5 million convertible note related to the acquisition of certain assets of Infinesse Corp. In 2003, we paid $4.0 million of long-term debt and received $1.3 million from exercises of employee stock options. In 2004, we received $6.0 million from exercises of stock options.

We had $29.4 million and $45.1 million in cash and cash equivalents at September 28, 2003 and September 26, 2004, respectively.

Current ratios were 3.8 to 1 and 3.5 to 1 at September 28, 2003 and September 26, 2004.

We have a $30.0 million credit line with a bank, which expires in March 2006 and includes a facility to issue letters of credit. As of September 26, 2004, $0.4 million was outstanding in the form of a letter of credit; consequently $29.6 million was available under this credit facility.

As of September 26, 2004, we are in compliance with the covenants required by our credit facility.

The estimated cost to consolidate the Santa Ana plant will be between $14.0 million to $18.0 million, including $3.6 million to $7.6 million in future costs to complete this project in fiscal year 2005. We anticipate that the source for paying such costs will be our cash and cash equivalents.

As of the end of fiscal year 2004, we had no additional material commitments for capital expenditures.

Further plant consolidations may occur in the future. Any proceeds from sales of assets should enhance our cash position; however, we believe we can meet our cash requirements without the receipt of such proceeds.

We are involved in certain patent litigation (see Legal Proceedings) which could cause legal costs to increase above normal levels over the next several years. It is not possible to estimate the exact amounts of these costs, but it is possible that these costs could have a material effect on our future results.

We have been incurring costs associated with the implementation of Section 404 of the Sarbanes-Oxley Act. These costs are expected to increase substantially in 2005 and could have a material impact on our results.

The following table summarizes our contractual payment obligations and commitments as of September 26, 2004 (See Notes 7 and 9 to the Consolidated Financial Statements):

Based upon information currently available to us, we believe that we can meet our cash requirements and capital commitments in the foreseeable future with cash balances, internally generated funds from ongoing operations and, if necessary, from the available line of credit.

In November 2004, the Financial Accounting Standards Board issued SFAS No. 151, “Inventory costs, an amendment of ARB No. 43 Chapter 4”. This Statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). It requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this statement shall be applied prospectively for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not expect the adoption of this statement would have a material impact on our results of operations or financial position.

Market risk is the potential loss arising from adverse changes in foreign currency exchange rates, interest rates, and stock market. We are exposed to various market risks, related to changes in foreign currency exchange rates and changes in interest rates.

We conduct business in a number of foreign currencies, principally those of Europe and Asia, directly or in our foreign operations. We may receive some revenues in foreign currencies and purchase some inventory and services in foreign currencies. Accordingly, we are exposed to transaction gains and losses that could result from changes in exchange rates of foreign currencies relative to the U.S. dollar. Transactions in foreign currencies have represented a relatively small portion of our business. Also these currencies have been relatively stable against the U.S. dollar for the past several years. As a result, foreign currency fluctuations have not had a material impact historically on our revenues or results of operations. There can be no assurance that those currencies will remain stable relative to the U.S. dollar or that future fluctuations in the value of foreign currencies will not have material adverse effects on our results of operations, cash flows or financial condition. The largest foreign currency exposure of ours results from activity in British pounds and the European Union Euro. We have not conducted a foreign currency hedging program thus far. We have and may continue to consider the adoption of a foreign currency hedging program.

We did not enter into derivative financial instruments and did not enter into any other financial instruments for trading, speculative purposes or to manage our interest rate risk. Our other financial instruments consist primarily of cash, accounts receivable, accounts payable, and long-term obligations. Our exposure to market risk for changes in interest rates relates primarily to short-term investments and short-term obligations. As a result, we do not expect fluctuations in interest rates to have a material impact on the fair value of these instruments. We do not engage in transactions intended to hedge our exposure to changes in interest rates.

We currently have a $30,000,000 revolving line of credit, which expires in March 2006. At September 26, 2004, $400,000 was utilized for a letter of credit; consequently, $29,600,000 was available under this line of credit. It bears interest at the bank’s prime rate plus 0.75% to 1.5% per annum or, at our option, at the Eurodollar rate plus 1.75% to 2.5% per annum. The interest rate is determined by the ratio of total funded debt to Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”). For instance, if we were to borrow presently the entire $30,000,000 from this credit line, a one-percent increase in the interest rate would result in an additional $300,000 of pre-tax interest expense annually.

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 September 26, 2004 and September 28, 2003, and the results of their operations and their cash flows for each of the three years in the period ended September 26, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Notes 1 and 4 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”. Accordingly, the Company ceased amortization of its goodwill as of September 30, 2002.

We are a leading designer, manufacturer and marketer of high performance analog and mixed-signal integrated circuits and high reliability individual component semiconductors. Our semiconductors manage and control or regulate power, protect against transient voltage spikes and transmit, receive and amplify signals.

We report results of operations on the basis of fifty-two and fifty-three week periods. Each of the fiscal years ended on September 29, 2002, September 28, 2003, and September 26, 2004 consisted of fifty-two weeks.

The consolidated financial statements include the accounts of Microsemi and our subsidiaries. All intercompany transactions and balances have been eliminated.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Actual results could differ from those estimates.

The carrying values of cash equivalents, accounts receivable, accounts payable, accrued liabilities, notes payable and certain other current assets approximate their fair values because of their short maturity. The carrying value of our long-term liabilities at September 28, 2003 and September 26, 2004 approximates fair value based upon the current rate offered to us for obligations of the same remaining maturities.

Our subsidiary in Ireland (“Ireland”) uses the $US as its functional currency. Our subsidiary in China uses the Chinese RMB as its functional currency. Assets and liabilities are translated to United States dollars (“$US”) at the exchange rate in effect at the balance sheet date; revenues, expenses, gains and losses are translated at rates of exchange that approximate the rates in effect at the transaction date. Resulting translation gains or losses are recognized as a component of other comprehensive income (loss). The exchange rate is officially controlled by the Chinese government and fluctuated little in fiscal years 2002, 2003 and 2004.

During fiscal years 2002, 2003 and 2004, net foreign currency transaction gains and losses included in the Company’s income statements were less than $200,000 per year.

We are potentially subject to concentrations of credit risk consisting principally of trade accounts receivable. Concentrations of credit risk exist because we rely on a significant portion of customers whose principal sales are to the U.S. Government.

Our business with customers whose principal sales are to the U.S. Government or to subcontractors whose sales are to the U.S. Government was approximately 19% of total sales in fiscal year 2004. We, as a subcontractor, sell our products to higher-tier subcontractors or to prime contractors based upon purchase orders that usually do not contain all of the conditions included in the prime contract with the U.S. Government. However, these sales are usually subject to termination and/or price renegotiations by virtue of their reference to a U.S. Government prime contract. Therefore, we believe that all of our product sales that ultimately are sold to the U.S. Government may be subject to termination, at the convenience of the U.S. Government or to price renegotiations under the Renegotiation Act.

In addition, sales to foreign customers represented approximately 28%, 35%, and 33% of net sales for fiscal years 2002, 2003, and 2004, respectively. These sales were principally to customers in Europe and Asia. Foreign sales are classified for shipments to foreign destinations. We maintain reserves for potential credit losses and such losses have been within management’s expectations.

We consider all short-term, highly liquid investments with maturities of three months or less at date of acquisition to be cash equivalents.

Property and equipment are stated at lower of cost or realizable values. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the lease terms or the estimated useful lives. Maintenance and repairs are charged to expense as incurred and the costs of additions and betterments that increase the useful lives of the assets are capitalized. It is our policy to evaluate the carrying value of our operating assets when certain events arise and to recognize impairments when the projected future undiscounted net operating cash flows over the lives of the assets are less than the assets’ carrying values.

We enter into contracts with certain distributors, and these contracts may permit very limited stock rotation returns. The Company provides an estimated allowance for such returns, and corresponding reductions in

revenue are concurrently recorded, based on several factors including past history and notification from customers of pending returns. Actual returns have been within management’s expectations.

We provide a one-year product defect warranty from the date of sale. Historically, warranty costs have been nominal.

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The accounts receivable amount shown in the balance sheet are trade accounts receivable balances at the respective dates, net of allowance for doubtful accounts.

The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance based on our historical write-off experience. We review our allowance for doubtful accounts quarterly. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. All other balances are reviewed on a pooled basis by type of receivable. Account balances are charged off against the allowance when we determine that it is probable the receivable will not be recovered. We do not have any off-balance-sheet credit exposure related to our customers.

Actual bad debt has been within our expectations and the provisions established and has been consistent with experience of prior years; however, any unexpected significant adverse financial position of any of our major customers or any group of customers could have a material adverse impact on the collectibility of accounts receivable and future operating results.

We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable from the undiscounted estimated future cash flows expected to result from their use.

Our long-lived assets subject to this evaluation include property, plant and equipment and amortizable intangible assets.

At September 26, 2004, other intangible assets subject to this evaluation included $0.2 million of acquired customer lists, $5.0 million of non-patented technology, $0.1 million of covenants not to compete and $0.1 million of contract manufacturer relationships. We are required to make judgments and assumptions in identifying those events or changes in circumstances that may trigger impairment. Some of the factors we consider include:

All public companies were required to adopt Statement of Financial Accounting Standard No. 142 (“SFAS 142”), which changed the accounting for goodwill from an amortization method to an impairment-only approach. We adopted this standard at the beginning of fiscal year 2003. Consequently, goodwill and other intangible assets with indefinite lives will no longer be amortized, while those intangible assets with known

useful lives have continued to be amortized over their respective useful lives. At least annually, we are required to reassess goodwill. Whenever we determine that there has been an impairment of goodwill or other intangible assets with indefinite lives, we will record an impairment charge against earnings, which equals the excess of the carrying value of goodwill over its then implied fair value, and a reduction in goodwill on our balance sheet. The identification of intangible assets and determination of the fair value and useful lives of goodwill and other intangible assets are subjective in nature and often involve the use of significant estimates and assumptions. The judgments made in determining the estimated useful lives assigned to each class of assets can significantly affect net income.

Effective 2003 and in accordance with SFAS 142, we will not amortize the remaining $3.3 million of goodwill; however, up to 100% of the remaining goodwill could be determined to be impaired during future evaluations required by SFAS 142. (See Note 1 to the Consolidated Financial Statements.)

We are required by SFAS 142 to reassess goodwill annually and whenever events or changes in circumstances indicate that it is more likely than not that an impairment loss has been incurred. We are required to record a charge to income if an impairment has been incurred. We performed our annual review for goodwill impairment in the fourth quarter of fiscal 2004. We have determined that no impairment existed because:

As part of the process of preparing the consolidated financial statements, we estimate income taxes for each of the jurisdictions in which we have a nexus. This process involves estimating actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and financial statement purposes. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. We assess the likelihood that deferred tax assets will be recovered from tax loss carry backs and future taxable income and to the extent that recovery is not likely, a valuation allowance must be established.

We expense the cost of research and development as incurred. Research and development expenses principally comprise payroll and related costs, supplies, and the cost of prototypes.

Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123) provides an alternative to APB 25 in accounting for stock-based compensation issued to employees. SFAS 123 provides for a fair value based method of accounting for employee stock options and similar equity instruments. However, companies that continue to account for stock-based compensation arrangements under APB 25 are required by SFAS 123 to disclose the pro forma effect on net income (loss) and net income (loss) per share as if the fair value based method prescribed by SFAS 123 had been applied. We continue to account for stock-based compensation using the provisions of APB 25 and present the pro forma information required by SFAS 123 as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (SFAS 148).

The following table illustrates the effect on net income (loss) and earnings per share as if the fair value based method had been applied to all outstanding awards in each period (amounts in 000’s):

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:

The weighted-average per share grant date fair values of options granted during fiscal years 2002, 2003, and 2004 were $14.54, $8.10, and $9.91, respectively.

Our certificate of incorporation authorizes the Board of Directors to issue up to 1,000,000 shares of preferred stock and to designate the rights and terms of any such issuances. We have not issued any preferred stock.

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. Earnings per share for 2002 and 2003 have been adjusted to reflect the 2-for-1 stock split completed in February 20, 2004. Earnings per share for the fiscal years 2002, 2003, and 2004 were calculated as follows (amounts in 000’s, except per share data):

Approximately 4,620,000, 2,882,000, and 913,000 options, in 2002, 2003, and 2004, respectively, were not included in the computation of diluted EPS because the inclusion would have been antidilutive.

Comprehensive income (loss) is defined as the change in equity (net assets) of a business enterprise during the period from transactions and other events and circumstances from non-owner sources. Our comprehensive income (loss) consists of net income (loss) and the change of the cumulative foreign currency translation adjustment. Accumulated other comprehensive loss consists solely of the cumulative foreign currency translation adjustment. Total comprehensive income (loss) for fiscal years 2002, 2003, and 2004 were calculated as follows (amounts in 000’s):

We use the management approach for segment disclosure, which designates the internal organization that is used by management for making operating decisions and assessing performance as the source of our reportable segments. We operate in a single industry segment as a manufacturer of semiconductors in different geographic areas.

Certain reclassifications have been made to prior year balances to conform to the current year presentation.

Property and equipment consisted of the following components (amounts in 000’s):

Depreciation expense was $10,171,000, $9,075,000 and $10,960,000 in fiscal years 2002, 2003 and 2004, respectively.

Amortization expense for other intangible assets in fiscal years 2002, 2003, and 2004 was $1,415,000, $1,320,000, and $1,211,000, respectively. Estimated amortization in the five succeeding years is as follows (amounts in 000’s):

The goodwill amortization charge to earnings was approximately $1.8 million, net of $0.5 million of income tax benefit during fiscal year 2002. The following table shows, on a pro-forma basis, what net loss and loss per share would have been for the fiscal year 2002, as if SFAS 142 had been applied beginning October 1, 2001 (amounts in 000’s, except per share data):

Pretax income (loss) before cumulative effect of a change in accounting principle was taxed under the following jurisdictions (amounts in 000’s):

The provision (benefit) for income taxes before and after cumulative effect of a change in accounting principle consisted of the following components (amounts in 000’s):

The tax affected deferred tax assets (liabilities) are comprised of the following components (amounts in 000’s):

We have various state net operating losses (NOLs) of approximately $7,600,000 that begin expiring in 2006, state research and experimentation credits of approximately $3,495,000 that have an indefinite carry forward, and other state tax credits of approximately $566,000 that began expiring in 2004. We believe it is more likely than not that the NOLs will be realized. A valuation allowance has been set up against a portion of the state tax credit carryforwards.

If certain substantial changes in our ownership should occur, there would be an annual limitation on the amount of the NOLs and other tax attribute carry forwards that can be utilized. We do not currently believe that such a change has occurred.

The following is a reconciliation of income tax computed at the federal statutory rate to our actual tax expense before and after cumulative effect of a change in accounting principle (amounts in 000’s):

No provision has been made for future U.S. income taxes on certain undistributed earnings of foreign operations since they have been indefinitely reinvested in these operations. Determination of the amount of unrecognized deferred tax liability for temporary differences related to these undistributed earnings is not practicable. At the end of fiscal years 2003 and 2004, these undistributed earnings aggregated approximately $14,399,000 and $16,714,000, respectively.

On October 22, 2004, the American Jobs Creation Act of 2004 (“AJCA”) was signed into law. The AJCA provides several incentives for U.S. multinational corporations and U.S. manufacturers, subject to certain limitations. The incentives include an 85% dividends received deduction for certain dividends from controlled foreign corporations that repatriate accumulated income abroad, and a deduction for domestic qualified production activities taxable income. The U.S. Treasury Department is expected to issue guidance with regards to these provisions. Until this guidance is issued, we will not be able to evaluate whether to take advantage of this opportunity and the potential impact on our income tax provision, if any.

We occupy a building in Santa Ana, California, under a long-term capital lease obligation. We also lease a copier under a capital lease over the next two years. These leases are included in the table above. The building and equipment under the capital lease obligations are reflected in property and equipment.

Future payments for these obligations, including the current portion, are as follows, (amounts in 000’s):

We currently have a $30,000,000 revolving line of credit, which expires in March 2006. The line of credit is collateralized by substantially all of the assets of Microsemi. It bears interest at the bank’s prime rate plus 0.75% to 1.5% per annum or, at our option, at the Eurodollar rate plus 1.75% to 2.5% per annum. The interest rate is determined by the ratio of total funded debt to Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”). The terms of the revolving line of credit contain covenants regarding net worth and working capital and restrict payment of cash dividends or repurchase of our common stock. We were in compliance with these covenants at September 26, 2004. At September 26, 2004, $400,000 was utilized for a letter of credit; consequently, $29,600,000 was available under this line of credit.

In December 1986, the Board of Directors adopted another incentive stock option plan (the “1987 Plan”), as amended, which reserved an additional 3,400,000 shares of common stock for issuance. The 1987 Plan was approved by the stockholders in February 1987 and amended in February 1994, and is for the purpose of securing for us and our stockholders the benefits arising from stock ownership by selected officers, directors and other key executives and certain key employees. The plan provides for the grant by the Company of stock options, stock appreciation rights, shares of common stock or cash. As of September 26, 2004, we had granted only options under the 1987 Plan. The options must 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. If an employee owns more than 10% of the total combined voting power of all classes of our stock, the exercise period is limited to five years and the exercise price is 10% higher than the closing price on the grant date.

At their annual meeting on February 29, 2000, the stockholders approved several amendments to the 1987 Plan which: 1) extended its termination date to December 15, 2009; 2) increased initially by 1,060,800 the number of shares available for grants; 3) effected annual increases on the first day of each fiscal year of the number of shares available for grant in increments of 4% of our issued and outstanding shares of common stock; and 4) added flexibility by permitting discretionary grants to non-employee directors and other non-employees.

In November 2002, the Board of Directors approved a Stock Option Exchange Offer whereby eligible employees holding options with an exercise price equal to or greater than $14.00 per share could exchange those options for an equal number of new options, subject to the terms and conditions of the offer, at an exercise price equal to the fair market value of our stock on the date the replacement options are granted. Consequently, on June 9, 2003, 1,752,000 options were exchanged for new options at $13.15 per share. None of the directors or executive officers was eligible for participation in the exchange offer.

On January 26, 2004, we announced a 2-for-1 stock split of our common stock to be effected by means of a stock dividend to stockholders of record as of the close of business on February 6, 2004 (the record date). Stockholders received one additional share of common stock for every one share held as of the record date. The dividend was distributed as of the close of business on Friday, February 20, 2004. The ex-dividend date was Monday, February 23, 2004. The stock dividend resulted in an increase in the respective numbers of shares deemed issued under the 1987 Plan, reserved for issuance under outstanding options, and remaining available for grants.

Stock options exercisable under the Plan were 2,731,514, 3,842,190, and 3,752,518 at September 29, 2002, September 28, 2003, and September 26, 2004, respectively, at weighted-average exercise prices of $4.63, $5.66, and $6.49, respectively. Remaining shares available for grant at September 29, 2002, and September 28, 2003, and September 26, 2004, under the Plan were 1,340,000, 1,971,000, and 1,905,000, respectively. All options were granted at the closing price of our common stock on the date of grant.

The following table summarizes information about stock options outstanding and exercisable at September 26, 2004:

Our “Profit Sharing” Cash Bonus Plan, first adopted by the Board of Directors in fiscal year 1984, covers substantially all full-time employees who meet certain minimum employment requirements and provides terms and conditions for current bonuses based upon our earnings. The Compensation Committee of the Board of Directors determines annual contributions to the plan. Total charges to income were $0, $1,180,000, and $4,516,000 in fiscal years 2002, 2003, and 2004, respectively.

We sponsor a 401(k) Savings Plan whereby participating employees may elect to contribute up to 25% of their eligible wages. We are committed to match 100% of employee contributions, not to exceed 3% of the employee’s wages. We contributed $1,590,000, $1,263,000, and $1,599,000 to this plan during fiscal years 2002, 2003, and 2004, respectively.

In fiscal year 1994, we adopted a supplemental retirement plan, which provides certain then long-term employees with retirement benefits based upon a certain percentage of the respective employee’s salaries. Included in other long-term liabilities at September 28, 2003 and September 26, 2004 were $636,000 and $541,000, respectively, related to our estimated liability under the plan. All participants in this plan have retired from the company.

We occupy premises and lease equipments under operating lease agreements expiring through 2010. The aggregate undiscounted future minimum rental payments under these leases are as follows (amounts in 000’s):

Lease expense charged to income was $3,406,000, $4,926,000, and $3,057,000 in fiscal years 2002, 2003, and 2004, respectively. The aforementioned amounts are net of sublease income amounting to $143,000, $3,000 and $3,500 in fiscal years 2002, 2003, and 2004, respectively.

We have entered into agreements for a software license and to buy material with certain vendors. The minimum annual payments are as follows (amounts in thousands):

In Broomfield, Colorado, the owner of a property located adjacent to a manufacturing facility owned by a subsidiary of ours had notified the subsidiary and other parties, of a claim that contaminants migrated to his property, thereby diminishing its value. In August 1995, the subsidiary, together with Coors Porcelain Company, FMC Corporation and Siemens Microelectronics, Inc. (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 by former owners at the facility are present in soil and groundwater on the subsidiary’s property, we vigorously contest any assertion that the subsidiary caused the contamination. In November 1998, we signed an agreement with the three former owners of this facility whereby they have 1) reimbursed us for $530,000 of past costs, 2) assumed responsibility for 90% of all future clean-up costs, and 3) promised to indemnify and protect us against any and all third-party claims relating to the contamination of the facility. An Integrated Corrective Action Plan was submitted to the State of Colorado. Sampling and management plans were prepared for the Colorado Department of Public Health & Environment. State and local agencies in Colorado are reviewing current data and considering study and cleanup options. The most recent forecast estimated that the total project cost, up to the year 2020, would be approximately $5,300,000; accordingly, we recorded a charge of $530,000 for this project in fiscal year 2003. There has not been any significant development since September 28, 2003.

We are generally self-insured for losses and liabilities related to Workers’ Compensation and Employer’s Liability Insurance, effective April 1, 2003.

The agreement requires us to set up a claim payment fund of $50,000 and to obtain a letter of credit of $400,000 for this fund. As of September 26, 2004, we have received claims of approximately $589,000 and paid out approximately $156,000. Accrued workers’ compensation liability was $790,000 at September 26, 2004.

Our self-insurance accruals are based on estimates and, while we believe that the amounts accrued are adequate, the ultimate claims may be in excess of the amounts provided.

Additionally, we are involved in various pending litigation matters, arising out of the normal conduct of our business, including from time to time litigation 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 our financial position, results of operations or cash flows.

At September 26, 2004, the remaining restructuring balance of $0.1 million of Phase 1 relates to the renovation of the leased facilities in Watertown, Massachusetts. The following table reflects the activities of Phase 1 and the accrued liabilities in the consolidated balance sheets at the dates below (amounts in 000s):

In October 2003, we announced the consolidation of the hi-rel products manufacturing operations of Microsemi Corp. - Santa Ana of Santa Ana, California (“Santa Ana”) into Microsemi Corp. – Integrated Products of Garden Grove, California (“IPG”) and Microsemi Corp. - Scottsdale of Scottsdale, Arizona (“Scottsdale”). Santa Ana represented approximately 20% of our shipments in fiscal year 2003, had approximately 380 employees and has occupied 123,000 square feet in two facilities, one owned and one leased under a 30-year lease.

Restructuring-related costs have been and will be recorded in accordance with SFAS 112, “Employers’ Accounting for Postemployment Benefits (“FAS 112”) or SFAS No. 146, “Accounting for the Costs Associated with Exit or Disposal Activities” (“FAS 146”), as appropriate. The estimated severance payments are approximately $5.3 million, of which, $4.7 million and $0.4 million were recorded in fiscal year 2004 as required by FAS 112 and FAS 146, respectively. We will record an additional $0.2 million over the future service periods as required by FAS 146. The severance payments cover approximately 350 employees, including 55 management positions. Approximately 30 employees have been or will be transferred to other Microsemi operations. We recorded $1.0 million for impairment related to the leased facility in Santa Ana. We also recorded $0.5 million for other restructuring related expenses. We do not anticipate any material charge for cancellations of operating leases. Any change of estimates will be recognized as an adjustment to the accrued liabilities in the period of change. The consolidation of Santa Ana is currently expected to be completed in fiscal year 2005. However, the exact timing depends on the readiness at Scottsdale and IPG and the acceptances by customers of the processes transferred to these facilities. We have assigned a transition team to coordinate these efforts to minimize any potential adverse financial impact due to this consolidation.

The following table reflects the activities related to the consolidation of Santa Ana and the accrued liabilities in the consolidated balance sheets at September 26, 2004 (amounts in 000s):

In the second quarter of fiscal year 2004, we started to consolidate the remainder of our operations in Watertown, Massachusetts. We have been moving our production to our facilities in Scottsdale, Arizona (“Scottsdale”) and Lowell, Massachusetts (“Lowell”). Restructuring-related costs have been and will be

recorded in accordance with FAS 112 or FAS 146, as appropriate. The estimated severance payments are approximately $0.8 million, of which, $0.5 million and $0.2 million were recorded in fiscal year 2004 as required by FAS 112 and FAS 146, respectively. We will record an additional $0.1 million over the future service periods as required by FAS 146. The severance payments cover approximately 30 employees, including 4 management positions. We also recorded $1.5 million for impairment of fixed assets. We do not anticipate any material charge for cancellations of operating leases or for the relocation of equipment. Any change of estimate will be recognized as an adjustment to the liability in the period of change. We have assigned a transition team to coordinate these activities to minimize any potential adverse financial impact due to this consolidation. The consolidation of the Watertown operations is expected to be completed by December 2004.

In June 2002, we completed the sale of the assets, including the real property, of Microsemi RF Products, Inc., our wholly-owned subsidiary, based in Montgomeryville, Pennsylvania to Advanced Power Technology Inc., of Bend, Oregon. We received approximately $11,000,000 in cash, net of selling expenses, and recorded a gain of approximately $3,400,000. This gain is included in operating expenses.

In June 2002, we sold a building in Florida, received approximately $1,500,000 in cash, net of selling expenses, and recorded a loss of approximately $300,000. This loss is included in operating expenses.

In September 2002, we sold our Carlsbad design center for $1,500,000 million in cash, which was received in October 2002, and recorded a loss of approximately $600,000 in fiscal year 2002 and $100,000 in fiscal year 2003. This loss is included in operating expenses.

In October 2002, we sold the stock of our Semcon Electronics Private Limited subsidiary, of Mumbai, India (“Semcon”) for $2,000,000. We received $1,500,000 in cash and a $500,000 unsecured seven-year promissory note, which has been fully impaired due to uncertainty of collection. Semcon had approximately $600,000 in cash at the date of disposition. An estimated related loss on sale of approximately $800,000 was recorded in operating expenses during fiscal year 2002.

In January 2003, we received $1,200,000 million in cash, net of expenses, and two notes receivable totaling $4,000,000 from the sale of real property in Watertown, Massachusetts. We also recorded a gain of approximately $2,800,000 on this sale. The gain is included in operating expenses.

We operate in a single industry segment as a manufacturer of semiconductors in different geographic areas, including the United States, Europe and Asia. Intercompany sales are accounted for based on established sales prices between the related companies and are eliminated in consolidation.

Financial information by geographic areas for each of the three fiscal years in the period ended September 26, 2004 is as follows (amounts in 000’s):

Supplementary information for each of the three fiscal years in the period ended September 26, 2004 is as follows (amounts in 000’s):

In March 2002, we issued 666,666 shares of our common stock as payment in full for a $2.5 million convertible note related to the acquisition of certain assets from Infinesse Corp.

Selected quarterly financial data are as follows (amounts in 000’s, except earnings per share):

Our Chief Executive Officer and Chief Financial Officer, with the assistance of key internal company management, conducted an evaluation of our disclosure controls and procedures as of the end of the period covered by this Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

During our fourth fiscal quarter, there have been no significant changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We review our internal controls for effectiveness on an ongoing basis, including routine reviews during the period covered by this Report. We plan to continue our review process, including internal audit examinations, as part of our future evaluation of our disclosure controls and procedures and internal controls.

Except to the extent set forth below, items 10, 11, 12, 13 and 14 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 Registrant’s fiscal year end September 26, 2004. We set forth herein some of the information required by such items. The other information required by those items shall be set forth in that definitive proxy statement and such information is hereby incorporated by reference into such respective items in this Form 10-K.

Our code of ethics, which we adopted in 2004, will be provided free of charge to anyone upon request. Request can be made by mail, phone or fax to:

The information required by this item is incorporated by reference from the Company’s Proxy Statement for the 2005 Annual Meeting of Stockholders under the heading “Principal Accountant Fees and Services.”

We furnished the SEC with a Form 8-K on April 22, 2004, under Item 7 and Item 9 (relating to Item 12), attaching the news release related to our earnings for the quarter ended March 28, 2004

We furnished the SEC with a Form 8-K on July 22, 2004, under Item 7 and Item 12, attaching the news release related to our earnings for the quarter ended June 27, 2004.

We furnished the SEC with a Form 8-K on September 24, 2004, under item 1, attaching the certain Material Definitive Agreement.

The Company’s web site address is http://www.microsemi.com. Company filings with the SEC on Form 10-K, 10-Q and 8-K, and amendments, are made accessible on such web site as soon as practicable and always free of charge. Such web site is not intended to constitute any part of this report.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


MICROSEMI CORPORATION

By		/s/ DAVID R. SONKSEN
		David R. Sonksen Executive Vice President and Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer and duly authorized to sign on behalf of the Registrant)

The undersigned hereby constitutes and appoints James J. Peterson 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.


Item		Page

PART I

1	Business	3
2	Properties	22
3	Legal Proceedings	22
4	Submission of Matters to a Vote of Security Holders	22

PART II

5	Market for the Registrant’s Common Stock and Related Stockholder Matters	23
6	Selected Consolidated Financial Data	25
7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
7A.	Quantitative and Qualitative Disclosures About Market Risk	36
8	Financial Statements and Supplementary Data	37
9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	63
9A.	Controls and Procedures	63

PART III

10	Directors and Executive Officers of the Registrant	64
12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	64
14	Principal Accountants’ Fees and Services	65

PART IV

15	Exhibits, Financial Statement Schedules and Reports on Form 8-K	66


	HIGH		LOW
1^st Quarter	$	3.85	$	2.61
2^nd Quarter		5.72		3.05
3^rd Quarter		7.93		5.36
4^th Quarter		10.05		7.62


	HIGH		LOW
1^st Quarter	$	12.76	$	7.57
2^nd Quarter		16.36		12.12
3^rd Quarter		14.75		10.80
4^th Quarter		14.21		9.63


	For the five fiscal years in the period ended September 26, 2004 (Amounts in 000’s, except per share data)
	2000		2001		2002			2003			2004
Selected Income Statement Data:
Net sales	$	247,577	$	243,388	$	212,640		$	197,371		$	244,805
Gross profit	$	69,975	$	81,456	$	65,859		$	60,541		$	77,539
Operating expenses	$	54,496	$	56,595	$	72,354		$	55,775		$	69,080
Income (loss) before cumulative effect of a change in accounting principle	$	8,229	$	17,289	$	(4,709	)	$	3,183		$	5,636
Cumulative effect of a change in accounting principle, net of income taxes		—		—		—			(14,655	)		—

Net income (loss)	$	8,229	$	17,289	$	(4,709	)	$	(11,472	)	$	5,636

Earnings (loss) per share:
Basic
Income (loss) before cumulative effect of a change in accounting principle	$	0.17	$	0.31	$	(0.08	)	$	0.05		$	0.10
Cumulative effect of a change in accounting principle, net of income taxes		—		—		—			(0.25	)		—

Net income (loss)	$	0.17	$	0.31	$	(0.08	)	$	(0.20	)	$	0.10

Diluted
Income (loss) before cumulative effect of a change in accounting principle	$	0.16	$	0.29	$	(0.08	)	$	0.05		$	0.09
Cumulative effect of a change in accounting principle, net of income taxes		—		—		—			(0.25	)		—

Net income (loss)	$	0.16	$	0.29	$	(0.08	)	$	(0.20	)	$	0.09


Weighted-average shares outstanding
Basic		48,036		55,812		57,352			57,906			59,168
Diluted		50,400		59,158		57,352			59,018			61,987

Selected Balance Sheet Data:
Working capital	$	80,157	$	82,252	$	84,047		$	87,157		$	108,457
Total assets	$	210,798	$	240,171	$	216,768		$	205,643		$	232,998
Long-term liabilities	$	9,651	$	6,078	$	4,356		$	4,569		$	4,217
Stockholders’ equity	$	149,690	$	175,389	$	178,446		$	169,860		$	184,877


	Workforce Reductions			Plant Closures			Total
Balance at September 29, 2002	$	2,161		$	726		$	2,887
Provisions		686			—			686
Cash expenditures		(2,430	)		(427	)		(2,857	)
Other non-cash write-off		(417	)		—			(417	)

Balance at September 28, 2003	$	0		$	299		$	299

Cash expenditures-fiscal year 2004					(168	)		(168	)

Balance at September 26, 2004				$	131		$	131


Title of each class		Name of each exchange on which registered
None		None


	Employee Severance			Other Related Costs			Total
Provisions	$	5,132		$	466		$	5,598
Cash expenditures		(1,263	)		(466	)		(1,729	)

Balance at September 26, 2004	$	3,869		$	—		$	3,869


	2003		2004
Defense/Aerospace	39	%	42	%
Medical	24	%	17	%
Notebooks/Monitors	10	%	12	%
Mobile Connectivity	5	%	12	%
Automotive	7	%	9	%
Others	15	%	8	%


	Santa Ana		Watertown		Total
Severance	$	5,132	$	739	$	5,871
Other consolidation related expense		466		518		984

Total restructuring	$	5,598	$	1,257	$	6,855


	Payments due by period (in 000’s)
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years		Imputed Interest
Long-Term Debt	$	475	$	89	$	183	$	203	$	—	$	—
Capital Leases		3,189		309		593		586		5,627		(3,926	)
Operating Leases		11,391		3,046		3,681		2,216		2,448		—
Purchase Obligations		7,669		3,939		3,280		450		—		—
Other Long-term Liabilities		1,230		279		322		132		497		—

Total	$	23,954	$	7,662	$	8,059	$	3,587	$	8,572	$	(3,926	)


		Page
1.	Consolidated Financial Statements

	Report of Independent Registered Public Accounting Firm	38

	Consolidated Balance Sheets at September 28, 2003 and September 26, 2004	39

	Consolidated Income Statements for each of the three fiscal years in the period ended September 26, 2004	40

	Consolidated Statements of Stockholders’ Equity for each of the three fiscal years in the period ended September 26, 2004	41

	Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended September 26, 2004	42

	Notes to Consolidated Financial Statements	43

2.	Financial Statement Schedule

	Schedule for the fiscal years ended September 29, 2002, September 28, 2003, and September 26, 2004.

	II - Valuation and Qualifying Accounts	63

	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.


	September 28, 2003			September 26, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	29,353		$	45,118
Accounts receivable, less allowance for doubtful accounts of $1,445 at 2003 and $1,361 at 2004		28,866			42,219
Inventories		53,679			54,555
Deferred income taxes		5,239			8,490
Other current assets		1,234			1,979

Total current assets		118,371			152,361
Property and equipment, net		62,973			59,098
Deferred income taxes		10,162			8,772
Goodwill		3,258			3,258
Other intangible assets, net		6,622			5,411
Other assets		4,257			4,098

TOTAL ASSETS	$	205,643		$	232,998

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Note payable to bank	$	121		$	121
Current maturities of long-term liabilities (Note 7)		673			677
Accounts payable		11,918			17,012
Accrued liabilities		14,337			21,779
Income taxes payable		4,165			4,315

Total current liabilities		31,214			43,904

Long-term liabilities (Note 7)		4,569			4,217

Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock (Note 1)		—			—
Common stock, $0.20 par value; authorized 100,000 shares; issued and outstanding 58,201 and 59,830 at 2003 and 2004, respectively		11,641			11,966
Capital in excess of par value of common stock		114,314			123,379
Retained earnings		43,915			49,551
Accumulated other comprehensive loss		(10	)		(19	)

Total stockholders’ equity		169,860			184,877

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	205,643		$	232,998


	Common Stock					Capital in Excess of Par value of Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
	Shares		Amount						Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance at September 30, 2001	28,247		$	5,650		$	110,729		$	60,096		$	(1,086	)	$	175,389
2-for-1 stock split effected in February 2004	28,247			5,650			(5,650	)		—			—			—

Adjusted for stock split	56,494			11,300			105,079			60,096			(1,086	)		175,389

Proceeds from exercise of stock options	625			125			2,382			—			—			2,507
Conversion of note payable	667			133			2,367			—			—			2,500
Tax benefit - stock options	—			—			2,844			—			—			2,844
Comprehensive loss	—			—			—			(4,709	)		(85	)		(4,794	)

Balance at September 29, 2002	57,786			11,558			112,672			55,387			(1,171	)		178,446

Proceeds from exercise of stock options	415			83			1,180			—			—			1,263
Tax benefit - stock options	—			—			462			—			—			462
Comprehensive income (loss)	—			—			—			(11,472	)		1,161			(10,311	)

Balance at September 28, 2003	58,201			11,641			114,314			43,915			(10	)		169,860

Proceeds from exercise of stock options	1674			334			6,291			—			—			6,625
Shares exchanged for options exercised	(45	)		(9	)		(530	)		—			—			(539	)
Tax benefit – stock options	—			—			3,304			—			—			3,304
Comprehensive income (loss)	—			—			—			5,636			(9	)		5,627

Balance at September 26, 2004	59,830		$	11,966		$	123,379		$	49,551		$	(19	)	$	184,877


	Fiscal Years
	2002			2003			2004
Net income (loss), as reported	$	(4,709	)	$	(11,472	)	$	5,636
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(6,927	)		(5,616	)		(9,197	)

Pro forma net income (loss)	$	(11,636	)	$	(17,088	)	$	(3,561	)

Earnings (loss) per share:
Basic - as reported	$	(0.08	)	$	(0.20	)	$	0.10

Basic - pro forma	$	(0.20	)	$	(0.30	)	$	(0.06	)

Diluted - as reported	$	(0.08	)	$	(0.20	)	$	0.09

Diluted - pro forma	$	(0.20	)	$	(0.30	)	$	(0.06	)


	September 28, 2003		September 26, 2004
Raw materials	$	13,696	$	13,289
Work in process		25,505		28,244
Finished goods		14,478		13,022

	$	53,679	$	54,555


	Asset Life	September 28, 2003			September 26, 2004
Buildings	20-40 years	$	34,000		$	42,277
Property and equipment	3-10 years		56,529			61,249
Furniture and fixtures	5-10 years		2,319			2,393
Leasehold improvements	Life of lease		4,144			3,594

			96,992			109,513
Accumulated depreciation			(54,932	)		(58,317	)
Land			4,207			3,763
Construction in progress			16,706			4,139

		$	62,973		$	59,098


	As of September 28, 2003 (amounts in 000’s)					As of September 26, 2004 (amounts in 000’s)
	Gross Carrying Value		Accumulated Amortization			Gross Carrying Value		Accumulated Amortization			Life (in years)
Amortizable intangible assets

Customer lists	$	600	$	(352	)	$	600	$	(407	)	10
Covenants not to compete		1,418		(897	)		1,418		(1,288	)	3 to 5
Developed technology		7,962		(2,213	)		7,962		(2,965	)	10
Contract manufacturer relationships		130		(26	)		130		(39	)	10

	$	10,110	$	(3,488	)	$	10,110	$	(4,699	)


Non-amortizing intangible assets

Goodwill	$	3,258				$	3,258


	Fiscal Year Ended September 29, 2002
Net loss, as reported	$	(4,709	)
Add back: goodwill amortization, net of tax effect		1,803

Pro-forma net loss	$	(2,906	)


Basic and diluted loss per share, as reported	$	(0.08	)
Add back: goodwill amortization, net of tax effect		0.03

Pro-forma basic and diluted loss per share	$	(0.05	)


	September 28, 2003		September 26, 2004
Notes receivable	$	3,907	$	3,878
Property held for sale		153		15
Other		197		205

	$	4,257	$	4,098


	September 28, 2003		September 26, 2004
Payroll and payroll taxes	$	1,540	$	1,234
Vacation, sick and other employee benefits		5,106		5,607
Profit sharing		1,180		4,916
Rebates		713		391
Commission		893		837
Restructuring		271		4,461
Legal and audit		1,015		364
Other expenses		3,619		3,969

	$	14,337	$	21,779


	For each of the three fiscal years in the period ended September 26, 2004
	2002			2003			2004
Domestic	$	(7,433	)	$	4,611		$	5,502
Foreign		405			140			2,770

Total		(7,028	)		4,751			8,272


Domestic change in accounting principle		—			(22,705	)		—

Total	$	(7,028	)	$	(17,954	)	$	8,272


	September 28, 2003			September 26, 2004
Accounts receivable	$	1,913		$	2,024
Inventories		1,465			2,138
Accrued employee benefit expenses		1,108			1,580
Net operating losses		533			346
Tax credits		4,012			4,027
Accrued other expenses		125			1,964
Amortization of intangible assets		10,193			9,067
Other assets		80			1,056

Gross deferred tax assets		19,429			22,202


Fixed assets		(3,914	)		(4,476	)

Gross deferred tax liabilities		(3,914	)		(4,476	)

Less valuation allowance-state credits		(114	)		(464	)

	$	15,401		$	17,262


	September 28, 2003			September 26, 2004
Note Payable, bearing interest at 7% payable monthly through September 2009	$	538		$	475

Capital Leases:
Building		3,165			3,165
Copier		37			24

		3,202			3,189

Other Long-Term Liabilities:
Covenants not to compete		293			195
Environmental clean up fund		573			494
Supplemental retirement benefit		636			541

		1,502			1,230

Total Long-Term Liabilities		5,242			4,894
Current Portion		(673	)		(677	)

Long-Term Portion	$	4,569		$	4,217


	2005		2006		2007		2008		2009		Thereafter		Imputed Interest			Total
Note Payable	$	89	$	88	$	95	$	101	$	102	$	—	$	—		$	475

Building	$	292	$	292	$	293	$	293	$	293	$	5,627	$	(3,925	)	$	3,165
Copier		17		8		—		—		—		—		(1	)		24

Total Leases	$	309	$	300	$	293	$	293	$	293	$	5,627	$	(3,926	)	$	3,189

Covenants not to compete	$	98	$	97	$	—	$	—	$	—	$	—	$	—		$	195
Environmental clean up fund		74		20		19		19		19		343		—			494
Supplemental retirement benefit		107		95		91		47		47		154		—			541

Total Other Long-Term Liabilities	$	279	$	212	$	110	$	66	$	66	$	497	$	—		$	1,230

Total	$	677	$	600	$	498	$	460	$	461	$	6,124	$	(3,926	)	$	4,894


	Stock Options
	Shares		Weighted- average Exercise Price
Outstanding September 30, 2001	7,205,376		$	5.86
Granted	3,247,000			11.48
Exercised	(625,106	)		4.01
Expired or Canceled	(587,536	)		9.03

Outstanding September 29, 2002	9,239,734			7.76
Granted	5,651,000			6.40
Exercised	(414,890	)		3.04
Expired or Canceled	(4,600,800	)		10.49

Outstanding September 28, 2003	9,875,044			5.91
Granted	4,242,600			9.87
Exercised	(1,674,392	)		2.80
Expired or Canceled	(151,316	)		7.04

Outstanding September 26, 2004	12,291,936		$	8.32


	Options Outstanding				Options Exercisable
	Shares	Weighted-average			Shares	Weighted Average Exercise Price
Range of Exercise Prices	Shares	Exercise Price		Remaining Life	Shares	Weighted Average Exercise Price
$ 1.69 - $ 2.99	849,000	$	2.26	2.36 years	635,550	$	2.26
$ 3.05 - $ 6.50	1,332,668	$	3.91	5.43 years	682,450	$	3.99
$ 6.58 - $ 6.58	3,087,758	$	6.58	8.35 years	545,048	$	6.58
$ 6.86 - $ 9.86	2,620,510	$	7.51	6.43 years	1,521,570	$	7.42
$10.23 - $17.93	4,402,000	$	12.52	9.46 years	367,900	$	14.43

	12,291,936				3,752,518


	Employee Severance			Other Related Costs			Total
Provision	$	739		$	518		$	1,257
Cash expenditure		(278	)		(518	)		(796	)

Balance at September 26, 2004	$	461		$	0		$	461


	Quarters ended in fiscal year 2004
	December 28, 2003		March 28, 2004			June 27, 2004		September 26, 2004
Net sales	$	54,945	$	57,745		$	64,130	$	67,985
Gross profit	$	18,182	$	19,250		$	21,848	$	18,259

Net Income (loss)	$	2,354	$	(1,131	)	$	3,515	$	898
Basic earnings (loss) per share	$	0.04	$	(0.02	)	$	0.06	$	0.01
Diluted earnings (loss) per share	$	0.04	$	(0.02	)	$	0.06	$	0.01


	Quarters ended in fiscal year 2003
	December 29, 2002			March 30, 2003		June 29, 2003		September 28, 2003
Net sales	$	45,869		$	48,217	$	50,534	$	52,751
Gross profit	$	13,029		$	14,727	$	16,304	$	16,481
Income (loss) before cumulative effect of a change in accounting principle	$	(1,640	)	$	2,102	$	1,169	$	1,552
Cumulative effect of a change in accounting principle, net of income tax	$	(14,655	)	$	—	$	—	$	—

Net Income (loss)	$	(16,295	)	$	2,102	$	1,169	$	1,552

Basic earnings (loss) per share	$	(0.28	)	$	0.04	$	0.02	$	0.03
Diluted earnings (loss) per share	$	(0.28	)	$	0.04	$	0.02	$	0.03


Column A	Column B		Column C		Column D		Column E			Column F
Classification	Balance at beginning of period		Charged to costs and expenses		Charged to other accounts		Deductions -recoveries and write-offs			Balance at end of period
Allowance for doubtful accounts
September 29, 2002	$	1,510	$	585	$	—	$	(355	)	$	1,740

September 28, 2003	$	1,740	$	360	$	—	$	(655	)	$	1,445

September 26, 2004	$	1,445	$	360	$	—	$	(444	)	$	1,361


Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	12,291,936	8.32	1,905,000	*
Equity compensation plans not approved by security holders	—	—	—
Total	12,291,936	8.32	1,905,000	*


Signature	Title	Date

/s/ DENNIS R. LEIBEL Dennis R. Leibel	Chairman of the Board and Director	December 7, 2004

/s/ JAMES J. PETERSON James J. Peterson	President and Chief Executive Officer	December 7, 2004

/s/ DAVID R. SONKSEN David R. Sonksen	Executive Vice President, Chief Financial Officer, Treasurer and Secretary (principal financial and accounting officer)	December 7, 2004

/s/ WILLIAM E. BENDUSH William E. Bendush	Director	December 7, 2004

/s/ WILLIAM L. HEALEY William L. Healey	Director	December 7, 2004

/s/ HAROLD A. BLOMQUIST Harold A. Blomquist	Director	December 7, 2004

/s/ THOMAS R. ANDERSON Thomas R. Anderson	Director	December 6, 2004

/s/ PAUL F. FOLINO Paul F. Folino	Director	December 6, 2004


Exhibit Number		Description

2.2		Agreement and Plan of Reorganization, dated as of February 10, 1999, among the Registrant, Micro-LinFinity Acquisition Corporation, LinFinity Microelectronics, Inc. and Symmetricom, Inc.(10)

2.3		Asset Purchase Agreement, dated as of February 15, 2000 between the Registrant and Infinesse Corporation (12)

2.4		Asset Purchase Agreement, dated as of May 7, 2002, by and between Microsemi RF Products, Inc. and RF Acquisition Sub, Inc., excluding the following exhibits and schedules: Assignment of License and Assignment and Assumption Agreement; Allocation of Purchase Price; Bill of Sale and Assumption Agreement; Warranty Deed, and Disclosure Schedules (all of which will be provided to the Securities and Exchange Commission upon its request). (18)

3		Bylaws of the Registrant* (1)

3.1		Amended and Restated Certificate of Incorporation of the Registrant effective August 9, 2001* (15)

4.2		Rights Agreement dated December 22, 2000 between the Registrant and Mellon Investor Services, LLC, as Rights Agent, and the exhibits thereto (13)

10.13		The Registrant’s 1987 Stock Plan, and amendments thereto* (16)

10.13.1		Adjustment of 1987 Plan for February 2004 Stock Split (23)

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”) (2)

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”) (3)

10.56		Dutch Acquisition Agreement dated July 2, 1992 among Unitrode Europe B.V., a Dutch corporation and wholly-owned subsidiary of Unitrode; Unitrode; and Micro Bermuda (4)

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: Amendments to Promissory Notes dated as of September 3, 1993 between Micro USPD and Unitrode and the respective Promissory Notes dated July 2, 1993 attached thereto (5)



10.73		Agreement of Sales and License between Raytheon Company and Microsemi Corporation. (6)

10.74		Bill of Sales and Purchase agreement dated January 2, 1995 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. (6)

10.78		Motorola-Microsemi PowerMite(R)Technology Agreement. Portions omitted from this Exhibit have been separately filed with the Commission pursuant to a request for confidential treatment. (7)

10.80		Asset Purchase agreement between SGS-Thomson Microelectronics, Inc. and Microsemi RF Products, Inc., formerly known as Micro Acquisition Corp., a wholly owned subsidiary of the Company.(8)

10.84		Supplemental Executive Retirement Plan* (9)

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 (11)

10.85.1		First Amendment dated as of June 25, 1999 to Credit Agreement dated April 2, 1999 (18)

10.85.2		Second Amendment dated as of February 14, 2000 to Credit Agreement dated April 2, 1999 (18)

10.85.3		Third Amendment dated as of April 2, 2001 to Credit Agreement dated April 2, 1999 (18)

10.85.4		Fourth Amendment dated as of May 25, 2002 to Credit Agreement dated April 2, 1999 (18)

10.85.5		Fifth Amendment dated as of December 5, 2002 to Credit Agreement dated April 2, 1999 (22)

10.85.6		Sixth Amendment dated December 10, 2003 to Credit Agreement dated April 2, 1999 (23)

10.85.7		Seventh Amendment dated March 31, 2004 to Credit Agreement dated April 2, 1999 (24)

10.85.8		Eighth Amendment dated March 31, 2004 to Credit Agreement dated April 2, 1999 (24)

10.86		Transition and Consulting Agreement dated January 24, 2001 between Mr. Philip Frey, Jr. and the Registrant* (14)

10.86.1		Agreement dated April 1, 2002, executed May 13, 2002, between Philip Frey, Jr. and the Registrant, amending the Transition and Consulting Agreement dated January 24, 2001* (19)

10.87		Agreements dated January 12, 2001 between James J. Peterson and the Registrant* (14)