SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended September 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______to______
Commission file number # 0-8866
MICROSEMI CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 95-2110371
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2381 Morse Ave., Irvine, California 92614
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (949) 221-7100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
$0.20 par value Common Stock,
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Series A Junior Participating Preferred Stock, and
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Rights to Purchase Series A Junior Participating Preferred Stock
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days. YES X NO__
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((xi)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on December 3,
2001 was approximately $693,255,000. Shares of Common Stock beneficially held by
each officer and director and by each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons have been
assumed for this purpose to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
The number of outstanding shares of Common Stock on December 3, 2001 was
28,391,322.
Documents Incorporated by Reference
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Part III: Incorporates by reference portions of the definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on or about February 26, 2002.
This proxy statement will be filed not later than 120 days after the close of
Registrant's fiscal year ended September 30, 2001.
1
PART I
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ITEM 1. BUSINESS
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INTRODUCTION
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Microsemi Corporation (the "Company" or "Microsemi") was incorporated in
Delaware in 1960. Its name was changed from Microsemiconductor Corporation in
February 1983. The principal executive offices of the Company are located at
2381 Morse Ave., Irvine, California 92614 and its telephone number is (949)
221-7100. Unless the context otherwise requires, the "Company" and "Microsemi"
refer to Microsemi Corporation and its consolidated subsidiaries.
Microsemi is a leading designer, manufacturer and marketer of analog,
mixed-signal and discrete semiconductors. The Company's semiconductors manage
and regulate power, protect against transient voltage spikes and transmit,
receive and amplify signals.
Microsemi products include individual components as well as complete circuit
solutions that enhance customer designs by providing battery optimization,
reducing size or protecting circuits. Markets the Company serves include mobile
connectivity, computer/peripherals, telecommunications, medical,
industrial/commercial, aerospace/satellite and military.
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
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This Form 10-K contains certain forward-looking statements that are based on
current expectations and involve a number of risks and uncertainties. All of the
non-historical information herein is forward-looking. The forward-looking
statements included herein and elsewhere in this filing are based on, among
other items, current assumptions that the Company will be able to meet its
current operating cash and debt service requirements with internally generated
funds and its available line of credit, that it will be able to successfully
resolve disputes and other business matters as anticipated, that competitive
conditions within the semiconductor, integrated circuit and custom diode
assembly industries will not change materially or adversely, that the Company
will retain existing key personnel, that the Company's forecasts will reasonably
anticipate market demand for its products, and that there will be no materially
adverse change in or affecting the Company's operations or business. Related or
other factors that could cause results to vary materially from current
expectations are discussed below in this Part 1, Item 1 or elsewhere in this
Form 10-K, including Part I, Item 3; and Part II, Items 5, 7 and 8. Assumptions
relating to forward-looking statements involve judgments about matters that are
difficult to predict accurately and are subject to many factors that can
materially affect results. Forecasting and other management decisions are
subjective in many respects and thus susceptible to interpretations and periodic
revisions based on actual experience and business developments, the impact of
which may cause the Company to alter its forecasts, which may in turn affect the
Company's results. The Company does not undertake to update any forward-looking
statements made herein, and shall do so only as and when the Company determines
to do so. In light of the factors that can materially affect the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved. Readers are cautioned
against giving undue weight to forward-looking statements and are asked to
consider all of the factors referred to herein, in subsequent fillings by the
Company with the Securities and Exchange Commission or elsewhere.
PRODUCTS
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Microsemi Corporation is a global supplier of commercial and high-reliability
analog and mixed-signal integrated circuits ("IC") and power and signal discrete
semiconductors serving the satellite, telecommunications, computer and
peripherals, military/aerospace, industrial/commercial, and medical markets.
The Company's IC products offer light, sound and power management for desktop
and mobile computing platforms as well as other power control applications.
Power management generally refers to a class of standard linear integrated
circuits ("SLICs") which perform voltage regulation and reference in most
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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.
Major discrete products are silicon rectifiers, zener diodes, low leakage and
high voltage diodes, temperature compensated zener diodes, transistors and a
family of subminiature high power transient suppressor diodes. The Company also
manufactures discrete semiconductors for commercial applications, such as
automatic surge protectors, transient suppressor diodes used for telephone
applications and computer switching diodes used in computer systems.
A partial list of applications of the Company's discrete semiconductor products
includes: heart pacer transient shock protector diodes (where the Company
believes it is the leading supplier in that market), low leakage diodes,
transistors used in jet aircraft engines and high performance test equipment,
high temperature diodes used in oil drilling sensing elements operating at 200
degrees centigrade, temperature compensated zener or rectifier diodes used in
missile systems, power transistors and other electronic systems. The Company's
integrated circuit products are used in computer and data storage, lighting,
automotive, telecommunications, test instruments, defense and aerospace
equipment, high-quality sound reproduction and data transfer.
The Company currently serves a broad group of customers including Boeing,
Guidant/Cardiac Pace Makers, Seagate Technology, Astrium, Universal
Semiconductor, Motorola, Alcatel, and Medtronics.
MARKETING
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Microsemi Corporation is a global supplier of power management, power
conditioning, transient suppression and RF/Microwave semiconductor products. It
serves the satellite, telecommunications, computer and peripherals,
military/aerospace, industrial/commercial, and medical markets with
high-reliability and commercial analog integrated circuits and power and signal
discrete semiconductors.
The Company's products are marketed through domestic electronic component sales
representatives and the Company's inside sales force to original equipment
manufacturers. The Company also employs industrial distributors to service its
customers' needs for standard catalog products. For fiscal year 2001, the
Company's domestic sales accounted for approximately 68% of the Company's
revenues, of which sales representatives and distributors accounted for
approximately 19% and 22%, respectively. The Company has direct sales offices in
many metropolitan areas including Los Angeles, Garden Grove, Santa Ana, Phoenix,
Denver, Chicago, Minneapolis, Montgomeryville, Boston, Long Island, Taiwan, Hong
Kong, Singapore and Ireland. Sales to foreign customers, made through the
Company's direct domestic sales force and 26 overseas sales representatives and
distributors, accounted for approximately 32% of fiscal year 2001 sales.
Domestic and foreign sales are classified based upon the destination of shipment
from the Company's facilities.
No one customer accounted for more than 3% of the Company's revenue in fiscal
year 2001. However, approximately 27% of the Company's business is to customers
whose principal sales are to the U.S. Government.
RESEARCH AND DEVELOPMENT
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The Company believes that continuing timely development and introduction of new
products are essential in maintaining its competitive position. The Company
currently conducts most of its product development effort in-house. The Company
also employs outside consultants to assist with product design.
The Company spent approximately $4,002,000, $11,196,000 and $16,122,000 in
fiscal years 1999, 2000 and 2001, respectively, for research and development,
none of which was customer sponsored.
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The principal focus of the Company's research and development activities has
been to improve processes and to develop new products that support the growth of
its businesses.
MANUFACTURING AND SUPPLIERS
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The Company's principal domestic manufacturing operations are located in Santa
Ana and Garden Grove, California; Broomfield, Colorado; Scottsdale, Arizona and
Watertown, Lawrence and Lowell, Massachusetts. Each operates its own wafer
processing, assembly, testing and screening departments.
The Company's domestic plants manufacture and process all products and
assemblies starting from purchased silicon wafers and piece parts. After wafer
level testing, the silicon wafers are separated into individual dice that are
then assembled into packages and tested in accordance with the Company's test
procedures. Certain subcontract suppliers provide packaging and testing for the
Company's products necessary to deliver finished products. The Company pays
those suppliers for assembled or fully tested products meeting predetermined
specifications. Manufacturing and processing operations are controlled in
accordance with military as well as other rigid commercial and industrial
specifications.
A major portion of the Company's semiconductor manufacturing effort takes place
after the semiconductor is assembled. Parts are tested a number of times,
visually screened and environmentally subjected to shock, vibration, "burn in"
and electrical tests in order to prove and assure reliability.
The Company purchases silicon wafers, other semiconductor materials and
packaging piece parts from domestic and foreign suppliers generally on long-term
purchase commitments which are cancelable with 30 to 90 days notice. With the
exception of glass sleeves for high reliability diode products and glass to
metal sealed parts for computer diode and zener diode products, all materials
are available from multiple sources. In the case of sole source items, the
Company has never suffered production delays as a result of suppliers' inability
to supply the parts. The Company believes that it stocks adequate supplies for
all materials, based upon backlog, delivery lead-time and anticipated new
business. In the ordinary course of business, the Company enters into purchase
agreements with some of its major suppliers to supply products over periods of
up to 18 months.
The Company also purchases a portion of its finished wafers from foundry
sources. If a foundry were to terminate its relationship with the Company, or
should the Company's supply from a foundry be interrupted or terminated for any
reason, such as a natural disaster or another unforeseen event, the Company may
not have sufficient time to replace the supply of products manufactured by that
foundry.
There can be no assurance that the Company will obtain sufficient supply of
product from foundry or subcontract assembly sources to meet customer demand in
the future. Obtaining sufficient foundry capacity is particularly difficult
during periods of high demand for foundry services, and may become substantially
more difficult and more expensive if the Company's product requirements
increase. In addition, because the Company must order products and build
inventory substantially in advance of product shipments, there is a risk that
the Company will forecast incorrectly and produce excess or insufficient
inventories for particular products. This inventory risk is heightened because
certain of the Company's key customers place orders with short lead times.
FOREIGN OPERATIONS
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The Company conducts a portion of its operations outside the United States and
its business is subject to risks associated with many factors beyond its
control, such as fluctuations in foreign currency rates, instability of foreign
economies and governments, and changes in U.S. and foreign laws and policies
affecting trade and investment. The Company owns or leases manufacturing and
assembling facilities in Ennis, Ireland and Mumbai, India and is a partner in a
venture in The People's Republic of China ("PRC"). No assurance can be made that
political and economic factors in such countries will not have material adverse
effects on the assets, cash flows and results of operations of the Company.
The Company's Mumbai, India facility assembles a commercial zener diode line to
compete in the lower-cost commercial and consumer markets. This plant also
performs subcontract coil manufacturing.
4
The Company's Ennis, Ireland operation manufactures diodes, rectifiers, zeners,
thyristors and transistors and supports the manufacturing of other Microsemi
operations. This plant is Defense Supply Center Columbus ("DSCC") approved by
the U.S. government to screen high reliability product to Military Specification
Standard MIL-PRF-19500 and is also European Space Agency qualified. A trading
company at this facility services European customers with products from
Microsemi U.S. and Asian locations.
SALES TO FOREIGN CUSTOMERS
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Sales to foreign customers represented approximately 35%, 37% and 32% of net
sales for fiscal years 1999, 2000 and 2001, respectively. Foreign sales are
classified based upon a foreign destination of shipment from the Company's
facilities. Foreign sales may be subject to political and economic risks,
including financial or political instability, currency fluctuations, changes in
the effective price of goods in local currencies, the effect of trade sanctions,
embargoes, or changes in import/export regulations, tariffs and freight rates
and difficulties in collecting receivables and enforcing contracts generally;
any of these factors and other trade policies could adversely affect the
Company's sales to foreign customers or the collection of receivables generated
from such sales. Many of the Company's customers, including aerospace customers,
provide the Company minimal information on future ordering plans. Therefore,
fluctuations in backlog can be unpredictable.
ORDER BACKLOG
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The Company's consolidated order backlog at October 1, 2000 for delivery within
twelve months was $87,335,000, as compared to $88,763,000 at September 30, 2001.
The Company's backlog at any particular date may not be representative of actual
sales for any succeeding period because of various factors, which may include
that lead times for the release of purchase orders depend upon the scheduling
practices of individual customers, and the delivery times of new or non-standard
products can be affected by scheduling factors and other manufacturing
considerations. The rate of booking new orders can vary significantly from month
to month, and there is the continual possibility of customer changes in delivery
schedules or cancellations of orders having an adverse effect on actual sales.
Also, a portion of the Company's sales are to military and aerospace markets
which are subject to the business risk of changes in governmental appropriations
and changes in national defense policies and priorities. All of the Company's
contracts with prime U.S. Government contractors contain customary provisions
permitting termination at any time at the convenience of the U.S. Government or
the prime contractors upon payment to the Company for costs incurred plus a
reasonable profit. Certain contracts are also subject to price re-negotiation in
accordance with U.S. Government sole source procurement provisions.
COMPETITION
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The markets in which the Company competes are extremely competitive. The Company
expects that competition will increase. The principal factors of competition in
the Company's markets include performance, product features, product
availability, price, quality, timing of new product introductions and the
emergence of new technologies.
The Company competes in the semiconductor market, particularly in the area of
high reliability components. The Company has numerous competitors across all of
its product lines. In the defense market, the Company believes that it possesses
a considerable share of the market. In the commercial/industrial arena, there
are numerous competitors such as Motorola, Inc., Alpha, RFMD, Vitesse, Texas
Instruments, Semtech, Linear Tech, Maxim, Vishay, Fairchild Semiconductor and
International Rectifier, which are significantly larger and have greater
resources and larger market shares than Microsemi. In addition, Microsemi has
licensed technology from and to parties, which have, in certain cases, the right
to use the technology to develop products competitive with the Company's
products. Commercial products are under extreme price pressure due to intense
price competition. The market for analog ICs is also intensely competitive. With
respect to application-specific data communications devices, the Company's
principal competitors are Dallas Semiconductor and Texas Instruments. In the
area of integrated circuit products,
5
because the markets are diverse and highly fragmented, the Company expects to
encounter different competitors on different products. The Company's principal
competitors are expected to include Linear Technology Corporation, Maxim
Integrated Products, Inc., Analog Devices Inc., Dallas Semiconductor, Micrel,
Motorola, National Semiconductor Corporation, Semtech, Texas Instruments and
certain European and Asian manufacturers. Due to the increasing demand for
analog circuits, the Company expects intensified competition from existing and
new competitors. Increased competition could adversely affect the financial
condition, results of operations and cash flows of the Company.
There can be no assurance that the Company will be able to compete successfully
in the future. The Company's ability to compete successfully is dependent upon
its response to the entry of new competitors, the average selling prices
received for its products, changing technology and customer requirements,
development or acquisition of new products, the timing of new product
introductions by the Company or its competitors, continued improvement of
existing products, changes in overall worldwide market and economic conditions,
cost effectiveness, quality, service and market acceptance of the Company's
products. Price competition in the industry is intense and may increase, which
may have a material adverse effect on the Company's operating results. There can
be no assurance that the Company will be able to compete successfully as to
price or any of these other factors. There can be no assurance that the Company
will have the financial resources, technical expertise or marketing,
distribution and support capabilities to compete successfully. The Company's
future success will be highly dependent upon the successful development and
introduction of new products that are responsive to market needs. There can be
no assurance that the Company will be able to successfully develop or market any
such products.
CHANGES IN TECHNOLOGY
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The semiconductor market is subject to changes in technologies and industry
standards. To remain competitive, the Company must continue to devote resources
to advance process technologies, to increase product performance, to improve
manufacturing yields and to improve the mix between the Company's shipment of
military and commercial products and between its high cost and low cost
products. There can be no assurance that the Company's competitors will not
develop new technologies that are superior to the Company's technology.
PROPRIETARY RIGHTS
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A portion of the Company's technology is patented. The Company's patents and
patent applications may provide some protection of the patent technology for a
specified timeframe. There can be no assurance that patents held by the Company
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide competitive advantages to the Company. The Company
believes that patents often provide only narrow protection and require public
disclosure of information which negates trade secret protection. The Company
relies upon protection of some of its technology as "trade secrets". Protection
of technology through patent of trade secret will not necessarily protect the
Company from the use by other persons of its technology, or their use of
technology that is similar or superior to that which is embodied in the
Company's trade secrets. There can be no assurance that others will not be able
to independently duplicate or exceed the Company's technology in whole or in
part. No assurance can be made that the Company will be able to maintain the
confidentiality of the Company's "trade secret" technology, dissemination of
which could have an adverse effect on the Company's business. In addition,
litigation may be necessary to determine the scope and the validity of the
Company's proprietary rights.
If the Company's products were found to violate a patent or other right of a
third party, the Company's business could be adversely affected. In addition,
the laws of certain countries in which the Company's products are or may be
developed, manufactured or sold, including Hong Kong, Japan, China, Singapore,
Thailand and Taiwan, may not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States.
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MANUFACTURING RISKS
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The Company's manufacturing processes are highly complex, require advanced and
costly equipment and are continuously being modified in an effort to improve
yields and product performance. Modifications as well as minute impurities and
other difficulties in the manufacturing process can lower yields. In addition,
California and the Pacific Rim are known to contain various earthquake faults.
The Company's operations could be materially adversely affected if production at
any of its facilities were interrupted for any reason. The Company has at times
experienced manufacturing difficulties, and there can be no assurance that the
Company will not experience manufacturing difficulties in the future.
The Company subcontracts a portion of its wafer fabrication to outside
foundries. There are a number of foundries which, given appropriate lead times,
could meet some of Microsemi's needs. However, the Company cannot guarantee that
it will be able to meet its customers' required delivery schedules. Because of
the unique nature of the manufacturing processes, it would be difficult for
Microsemi to arrange for independent suppliers to make wafers in a short period
of time. If a fire, natural disaster or any other event prevents Microsemi from
operating the factory for more than a few days, the Company's revenue and
financial condition could be severely impacted. Microsemi believes that it has
sufficient manufacturing capacity to meet its near term plans although prolonged
problems with any specific piece of equipment could cause Microsemi to miss its
goals.
Microsemi purchases most of its raw materials, including silicon wafers, on a
purchase order basis from a limited number of vendors. If any subcontractors or
vendors are unable to provide these services or materials in the future, the
relationships with Microsemi's customers could be seriously affected and its
revenues, financial condition and cash flows could be severely damaged.
After certain wafers are fabricated and tested, they are sent to contract
assembly houses to be packaged. Microsemi's integrated circuit products are
packaged and tested by a limited number of third party subcontractors in Asian
countries. Some of the raw materials included in these operations are obtained
from sole source suppliers. Although the Company seeks to reduce its dependence
on sole and limited source suppliers both for assembly services and for
materials, disruption or financial, operational, production or quality assurance
difficulties at any of these sources could occur and cause Microsemi to have
severe delivery problems.
EMPLOYEES
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On September 30, 2001, the Company employed 1,973 persons domestically including
202 in engineering, 1,518 in manufacturing, 107 in marketing and 146 in general
management and administration. Additionally, 456 persons were employed in the
Company's Mumbai, India, and Ennis, Ireland operations. None of the Company's
employees is represented by a labor union. The Company has experienced no work
stoppage and believes its employee relations are good.
DEPENDENCE ON KEY PERSONNEL
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The Company's future performance is significantly dependent on the continued
active participation of members of its current management. The Company does not
have written employment contracts with its employees. Should one or more of the
Company's key management employees leave or otherwise become unavailable to the
Company, the Company's business and results of operations may be materially
adversely affected.
PRODUCT LIABILITY
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The Company's business exposes it to potential liability risks that are inherent
in the manufacturing and marketing of high-reliability electronic components for
critical applications. No assurance can be made that the Company's product
liability insurance coverage is adequate or that present coverage will continue
to be available at acceptable costs, or that a product liability claim would not
adversely affect the business or financial condition of the Company.
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CHANGE OF CONTROL PROVISIONS
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The Company's Certificate of Incorporation, Bylaws, Shareholder Rights Plan and
certain employment compensation plans contain provisions that make it more
difficult for a third party to acquire, or that may discourage a third party
from attempting to acquire, control of the Company. In addition, as a Delaware
corporation, the Company is subject to the restrictions imposed under Section
203 of the Delaware General Corporation Law, which may deter third parties from
engaging in change of control transactions with Microsemi under certain
circumstances.
ENVIRONMENTAL REGULATION
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While the Company believes that it has the environmental permits necessary to
conduct its business and that its operations conform to present environmental
regulations, increased public attention has been focused on the environmental
impact of semiconductor operations. The Company, in the conduct of its
manufacturing operations, has handled and does handle materials that are
considered hazardous, toxic or volatile under federal, state and local laws and,
therefore, is subject to regulations related to their use, storage, discharge
and disposal. No assurance can be made that the risk of accidental release of
such materials can be completely eliminated. In addition, the Company operates
or owns facilities located on or near real property that formerly might have
been used in ways that involved such materials. In the event of a violation of
environmental laws, the Company could be held liable for damages and the costs
of remediation, and, along with the rest of the semiconductor industry, is
subject to variable interpretations and governmental priorities concerning
environmental laws and regulations. Environmental statutes have been interpreted
to provide for joint and several liability and strict liability regardless of
actual fault. There can be no assurance that the Company and its subsidiaries
will not be required to incur costs to comply with, or that the operations,
business, or financial condition of the Company will not be adversely affected
by current or future environmental laws or regulations. (See "Legal
Proceedings")
RISKS RELATED TO ACQUISITIONS
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The Company's strategy to increase its revenue and the markets it serves has
included and may continue to include acquisition of complementary businesses. In
and prior to fiscal year 2001, the Company has consummated acquisitions of
businesses and product lines and may continue to make acquisitions. There can be
no assurance that the Company will be able to identify, acquire or manage such
companies or products or successfully integrate such operations into those of
the Company without encountering unanticipated costs, liabilities, obligations,
delays or other problems. The Company may compete for acquisition and expansion
opportunities with companies that have greater resources than the Company. There
can be no assurance that suitable acquisition candidates will be available or
that acquisitions will be obtainable on terms acceptable to the Company.
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ITEM 2. PROPERTIES
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The Company's headquarters are located in a rented building complex in Irvine,
California. This complex contains general offices and engineering space. The
Company owns office, engineering and production facilities in Santa Ana and
Garden Grove, California; Broomfield, Colorado; Watertown, Massachusetts;
Montgomeryville, Pennsylvania and Ennis, Ireland and leases office, engineering
and production facilities in Carlsbad, Los Angeles and Irvine, California;
Scottsdale, Arizona; Lawrence, Lowell and Melrose, Massachusetts and Mumbai,
India. As described in Note 7 to the Consolidated Financial Statements, the
acquisition of land, buildings and additions in Santa Ana were accomplished
through the issuance of Industrial Development Bonds. Deeds of trust on the
related properties were granted as security for the bonds.
The Company believes that its existing facilities are well-maintained and in
good operating condition and that they are adequate for its immediately
foreseeable business needs.
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ITEM 3. LEGAL PROCEEDINGS
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The Company is involved in various pending litigations arising out of the normal
conduct of its business, including those relating to commercial transactions,
contracts, and environmental matters. In the opinion of management, the final
outcome of these matters will not have a material adverse effect on the
Company's financial position, results of operations, or cash flows.
In Broomfield, Colorado, the owner of a property located adjacent to a
manufacturing facility owned by a subsidiary of the Company had notified the
subsidiary and other parties, claiming that contaminants migrated to his
property, thereby diminishing its value. In August 1995, the subsidiary,
together with former owners of the manufacturing facility, agreed to settle the
claim and to indemnify the owner of the adjacent property for remediation costs.
Although TCE and other contaminants previously used at the facility are present
in soil and groundwater on the subsidiary's property, the Company vigorously
contests any assertion that the subsidiary is the cause of the contamination. In
November 1998, the Company signed an agreement with three former owners of this
facility whereby the former owners 1) reimbursed the Company for $530,000 of
past costs, 2) will assume responsibility for 90% of all future clean-up costs,
and 3) indemnify and protect the Company against any and all third-party claims
relating to the contamination of the facility. An Integrated Corrective Action
Plan has been submitted to the State of Colorado. Sampling and free phase
management plans are in preparation for the Colorado Department of Public Heath
& Environment. State and local agencies in Colorado are reviewing current data
and considering study and cleanup options, and it is not yet possible to predict
costs for remediation. In the opinion of management, the final outcome of the
Broomfield, Colorado environmental matter will not have a material adverse
effect on the Company's financial position, results of operations or cash flows.
On July 31, 2000, Lemelson Medical, Education & Research Foundation, Limited
Partnership, filed a first amended complaint in the United Stated District Court
for the District of Arizona alleging that numerous corporations, including the
Company, have infringed upon certain of the plaintiff's patents. The plaintiff
was seeking compensatory damages, treble damages, injunctive relief and
attorneys' fees. This matter was settled on August 31, 2001 by Microsemi's
entering into a licensing agreement with the plaintiff. The Company's obligation
under the license agreement has not had and is not expected to have any material
adverse effect on the Company's financial condition, results of operations or
cash flows in the future.
On October 31, 2000, Mitel Semiconductor, Inc. filed a complaint in the Superior
Court of the State of California for the County of Orange against the Company
and two of its employees. The plaintiff alleges that the Company and former
employees of plaintiff utilized alleged confidential information to interfere
with the plaintiff's relationship with certain of its employees and that the
Company and the other defendants misappropriated plaintiff's alleged trade
secrets to unfairly compete. The plaintiff seeks an award of compensatory
damages, disgorgement of profits, exemplary damages and a preliminary and
permanent injunction. The matter is pending at this time.
On November 28, 2000, Mil-Plus Components, Inc., filed a complaint against the
Company in the United States District Court for the Eastern District of New York
alleging that the Company violated the anti-trust laws of the United States and
the State of New York in connection with the termination of plaintiff as a
distributor. The plaintiff also alleges a breach of contract by the Company and
that the Company made false oral representations to the plaintiff to the effect
that it would not be terminated as a distributor. In its complaint, the
plaintiff alleges damages of $50 million, treble damages, exemplary damages and
attorneys' fees. The plaintiff also owes Microsemi in excess of $200,000 for
goods sold and delivered. The matter is pending.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Approval on July 31, 2001 by Written Consent of the Stockholders of an Amendment
of the Company's Certificate of Incorporation to increase the number of
authorized shares of common stock from 20,000,000 to 100,000,000.
For: 7,662,780
Against: 3,006,408
Abstain: 2,677
11
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------
(a) Market Information
------------------
The Company's Common Stock is traded on the NASDAQ National Market under
the symbol MSCC. The following table sets forth the high and low closing
prices at which the Company's Common Stock traded as reported on the NASDAQ
National Market.
Fiscal Year ended October 1, 2000
---------------------------------
HIGH LOW
---- ---
1/st/ Quarter $ 4.44 $ 3.34
2/nd/ Quarter 24.00 4.22
3/rd/ Quarter 17.03 9.34
4/th/ Quarter 21.13 13.97
Fiscal Year ended September 30, 2001
------------------------------------
HIGH LOW
---- ---
1/st/ Quarter $ 22.13 $ 12.02
2/nd/ Quarter 26.06 9.65
3/rd/ Quarter 35.50 10.97
4/th/ Quarter 35.21 22.90
The prices above are adjusted to reflect the Company's 2-for-1 stock split
which became effective as of August 28, 2001.
POSSIBLE VOLATILITY OF STOCK PRICES
-----------------------------------
The market prices of securities issued by technology companies, including
the Company, have been volatile. The securities of many technology
companies have experienced extreme price and volume fluctuations, which
have often been not necessarily related to the companies' respective
operating performances. Quarter to quarter variations in operating results,
changes in earnings estimates by analysts, announcements of technological
innovations or new products, announcements of major contract awards, events
involving other companies in or out of the industry, events involving war
or terrorism, and other events or factors may have a significant impact on
the market price of the Company's Common Stock.
(b) Approximate Number of Common Equity Security Holders
----------------------------------------------------
Approximate Number of
Record Holders
Title of Class (as of September 30, 2001)
-------------- --------------------------
Common Stock, $0.20 Par Value 396 (1)
(1) The number of stockholders of record treats all of
the beneficial holders of shares held in one
"nominee" or "street name" as a unit.
12
(c) Dividends
---------
In June 2001, the Board of Directors declared a two-for-one stock split of
its common stock, to be effected in the form of a stock dividend. On July
31, 2001, the Company's stockholders gave their written consent to amend
the Company's certificate of incorporation to increase authorized common
shares from 20 million to 100 million. The Board of Directors also
announced that written consent had been obtained and approved a 2-for-1
stock split of the Company's issued and outstanding common stock and common
stock options effected by way of a common stock dividend payable to the
holders of its common stock as of August 14, 2001. The two-for-one stock
split resulted in an increase of 14,115,227 shares outstanding. The stock
split was completed on August 28, 2001. For all periods presented, all
share and per share amounts have been adjusted to give retroactive effect
to the stock split.
The Company has not paid cash dividends in the last five years and has no
current plans to do so. Debt covenants also restrict the Company from
paying cash dividends. (See Note 7 to the Consolidated Financial
Statements.)
13
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
For the five fiscal years in the period ended
September 30, 2001
(Amounts in 000's except per share data)
1997 1998 1999 2000 2001
------------ ----------- ----------- ----------- -------------
Selected Income Statement Data:
- ------------------------------
Net sales $ 163,234 $ 164,710 $ 185,081 $ 247,577 $ 243,388
Gross profit $ 45,987 $ 46,670 $ 40,889 $ 69,975 $ 81,456
Operating expenses $ 23,441 $ 26,826 $ 35,781 $ 54,496 $ 56,595
Net income $ 11,067 $ 10,941 $ 1,516 $ 8,229 $ 17,289
Earnings per share :
Basic $ 0.65 $ 0.51 $ 0.07 $ 0.34 $ 0.62
Diluted $ 0.52 $ 0.47 $ 0.07 $ 0.33 $ 0.59
Weighted-average shares outstanding :
Basic 16,986 21,470 22,262 24,018 27,906
Diluted 23,802 23,912 22,488 25,200 29,579
Selected Balance Sheet Data:
- ---------------------------
Working capital $ 55,829 $ 56,682 $ 43,067 $ 80,157 $ 82,252
Total assets $ 135,221 $ 144,473 $ 181,620 $ 210,798 $ 240,171
Long-term debt $ 47,621 $ 18,667 $ 31,381 $ 9,651 $ 6,078
Stockholders' equity $ 41,925 $ 86,636 $ 82,461 $ 149,690 $ 175,389
In fiscal years 1999, 2000 and 2001, $4,002,000, $11,196,000 and $16,122,000 of
Research and Development was included in operating expenses.
The selected financial data should be read in conjunction with the Consolidated
Financial Statements and Notes thereto, and Management's Discussion and Analysis
of Financial Condition and Results of Operations included in this Form 10-K.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
See Part I, Item 1, under "Important Factors Related to Forward-Looking
Statements and Associated Risks", and the factors discussed in Part I, Items 1
and 3, and Part II, Item 5.
During the first quarter of fiscal year 2001, the Company changed its method of
determining the cost of inventories at its Scottsdale subsidiary ("Scottsdale")
from the last-in, first-out ("LIFO") method to the first-in, first-out ("FIFO")
method. As required by Accounting Principles Board Opinion No. 20, "Accounting
Changes", all previously reported results have been restated to reflect the
retroactive application of this accounting change as of the beginning of fiscal
year 1999 and to conform to the current year presentation. The effect of the
restatements was to increase inventories by $19,000 and $53,000 and retained
earnings by $17,000 and $39,000 at October 3, 1999 and October 1, 2000,
respectively (See Notes 1 and 2 to the Consolidated Financial Statements).
On July 31, 2001, the Company's stockholders gave their written consent to amend
the Company's Certificate of Incorporation to increase authorized common shares
from 20 million to 100 million to approve a 2-for-1 stock split of the Company's
issued and outstanding common stock and common stock options effected by way of
a common stock dividend payable to the holders of its common stock as of August
14, 2001. For all periods presented, all share and per share amounts have been
adjusted to give retroactive effect to the stock split.
On August 2, 2001, Microsemi NES, Inc. ("MNES"), a wholly-owned subsidiary of
the Company, acquired the assets of New England Semiconductor Corp. and its
wholly-owned subsidiary, of Lawrence, Massachusetts. On August 15, 2001,
Microsemi CDI, Inc. ("MCDI"), a wholly-owned subsidiary of the Company, acquired
the assets of Compensated Devices, Inc., of Melrose, Massachusetts. Results of
operations and cash flows of MNES and MCDI from the dates of acquisitions were
included in the consolidated results of operations and cash flows of the Company
for fiscal year ended September 30, 2001 (See Note 10 to the Consolidated
Financial Statements).
RESULTS OF OPERATIONS FOR FISCAL YEAR 2000 COMPARED TO FISCAL YEAR ENDED 2001.
Net sales decreased $4.2 million, from $247.6 million for fiscal year 2000 to
$243.4 million for fiscal year 2001. The decrease was primarily attributable to
a decline in products sold to the low-end PC and mobile telephone markets and
the elimination or reduction of revenues generated by divisions that were sold
or closed, partially offset by higher sales of power management, TVS and
RF/Microwave products to the mobile connectivity and telecommunications markets,
higher sales to the military and aerospace/satellite customers and the additions
of MNES and MCDI. The Company sold the assets of its Micro Commercial Components
division ("MCC") and closed this division in June 2000. The Company also closed
BKC Semiconductor, Inc. ("BKC") in September 2000, Microsemi PPC Inc. ("PPC") in
March 2001 and substantially ceased operations at Microsemi (H.K.) Ltd. ("Hong
Kong") in June 2001. For fiscal year 2000, MCC, BKC, PPC and Hong Kong
contributed revenues of $9.8 million, $6.3 million, $4.5 million and $3.9
million, respectively. For fiscal year 2001, PPC, Hong Kong, MNES and MCDI
contributed revenues of $2.8 million, $2.5 million, $2.6 million and $2.5
million, respectively.
Gross profit increased $11.5 million, from $70.0 million for fiscal year 2000 to
$81.5 million for fiscal year 2001. As a percentage of sales, gross profit was
28.3% for fiscal year 2000, compared to 33.5% for fiscal year 2001. This
increase was due primarily to higher capacity utilization and a shift in
revenues from lower-margin commodity products in the computer/peripherals and
industrial markets to higher-margin application-specific products in the mobile
connectivity, telecommunications, medical and commercial and satellite markets,
the closures of certain operations that produced lower-margin products and the
additions of MNES and MCDI. In fiscal year 2000, MCC, BKC, PPC and Hong Kong
contributed gross profit of $0.8 million, $2.7 million, $0.2 million and $0.5
million, respectively. In fiscal year 2001, PPC, Hong Kong, MNES and MCDI
contributed gross profit of $1.0 million, $0.2 million, $1.1 million and $1.6
million, respectively.
15
Selling, general and administrative expenses decreased $0.8 million from $38.4
million for fiscal year 2000 to $37.6 million for fiscal year 2001, primarily
due to the elimination and reduction of expenses incurred by the subsidiaries or
divisions that were sold or closed, partially offset by the addition of expenses
of MNES and MCDI.
Research and development expenses increased $4.9 million, from $11.2 million for
fiscal year 2000 to $16.1 million for fiscal year 2001. The increase was
primarily due to higher spending on development of power management and
RF/Microwave products for the mobile connectivity, telecommunications and
medical markets.
The Company used the proceeds from its public offering in fiscal year 2000 to
pay down a substantial portion of its debt in June 2000 and invested the
residual amount, resulting in net interest income of $653,000 in fiscal year
2001.
The effective income tax rate was 33.0% in each of the fiscal years ended
October 1, 2000 and September 30, 2001, respectively.
RESULTS OF OPERATIONS FOR FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 2000
Net sales increased $62.5 million from $185.1 million for fiscal year 1999 to
$247.6 million for fiscal year 2000. The increase was attributed primarily to
higher sales of power management and RF/microwave products to the mobile
connectivity, telecommunications, computer/peripheral and aerospace/satellite
markets. The Company acquired LinFinity Microelectronics, Inc. ("LinFinity") and
Microsemi Microwave Products ("MMP") in April and June of 1999, respectively.
The Company sold substantially all of the assets of the Micro Commercial
Components division ("MCC") in June 2000. LinFinity and MMP aggregately had
revenues of $27.3 million and $80.8 million in fiscal years 1999 and 2000,
respectively. MCC had revenues of $16.0 million and $12.4 million in fiscal
years 1999 and 2000, respectively.
Gross profit increased $29.1 million from $40.9 million for fiscal year 1999 to
$70.0 million for fiscal year 2000. As a percentage of sales, gross profit was
22.1% for fiscal year 1999, compared to 28.3% for fiscal year 2000. The increase
was due to higher capacity utilization and an increase in shipments of higher
margin power management, TVS, RF/microwave and aerospace/satellite products. For
fiscal years 1999 and 2000, respectively, gross profit included $8.5 million and
$32.8 million for LinFinity and MMP, aggregately, and $1.5 million and $1.0
million for MCC.
Selling and general and administrative expenses increased $10.0 million from
$28.4 million for fiscal year 1999 to $38.4 million for fiscal year 2000. The
increase was primarily due to higher sales volume. For fiscal years 1999 and
2000, respectively, selling and general and administrative expenses included
$4.3 million and $10.7 million for LinFinity and MMP, aggregately, and $1.3
million and $0.8 million for MCC.
Research and development expenses increased $7.2 million from $4.0 million for
fiscal year 1999 to $11.2 million for fiscal year 2000. This increase reflected
Microsemi's investment to develop new power management and RF products for the
high-growth markets.
Acquired in-process research and development expenses of $2.0 million and $2.5
million were related to the acquisitions of LinFinity in April 1999 and Micro
WaveSys in March 2000, respectively.
Interest expense increased $0.2 million from $3.1 million for fiscal year 1999
to $3.3 million in fiscal year 2000, due to the increases in borrowings to
finance the acquisitions in fiscal year 1999. These loans were paid off with
proceeds from the public offering of Microsemi's common stock in June 2000.
The effective income tax rates of 23% and 33% for fiscal years 1999 and 2000,
respectively, were the combined results of taxes computed on foreign and
domestic income. The increase in the fiscal year 2000 effective tax rate was
primarily attributable to the effects of permanent differences in fiscal year
2000 on a higher pre-tax income base as compared to fiscal year 1999.
16
CAPITAL RESOURCES & LIQUIDITY
- -----------------------------
Net cash provided by operating activities was $16.1 million, $35.8 million and
$21.9 million for fiscal years 1999, 2000 and 2001, respectively. The $19.7
million increase in cash provided by operating activities in 2000 compared to
1999 was primarily attributable to changes in earnings, depreciation and
amortization, deferred income taxes, accounts receivable and accrued
liabilities. The $13.9 million decrease in net cash provided by operating
activities in 2001 compared to 2000 was a result of the combined impact of
greater net income during fiscal year 2001, which was more than offset by the
combined effect of differences in certain non-cash financial statement items,
such as the provision for returns and doubtful accounts, acquired in-process
research and development, deferred income taxes, accounts receivable,
inventories, other current assets, accounts payable, accrued liabilities and
taxes.
Net cash used in investing activities was $40.3 million, $9.8 million and $29.2
million for fiscal years 1999, 2000 and 2001, respectively. The net cash used in
fiscal year 2000 was $30.5 million less than it had been in fiscal year 1999,
primarily due to lower payments for acquisitions. The net cash used in investing
activities was $19.4 million more in fiscal year 2001 than it had been in fiscal
year 2000, primarily due to payments for acquisitions (see Note 10 to the
consolidated financial statements) and a greater amount of capital expenditures
in fiscal year 2001, partially offset by cash received from sales of assets.
Net cash provided by (used in) financing activities was $22.3 million, ($3.1)
million and $1.7 million for fiscal years 1999, 2000 and 2001, respectively. The
net cash provided by financing activities in fiscal year 1999 related to
proceeds from bank loans used to finance acquisitions; partially offset by
payments on the Company's debt. In fiscal year 2000, the Company repaid a large
portion of its debt with proceeds from a public offering of its common stock and
from exercises of employee stock options. The net cash provided from financing
activities in fiscal year 2001 was primarily a combined result of proceeds from
exercises of employee stock options, partially offset by repayment of a smaller
portion of the Company's debt.
Microsemi's operations in the fiscal year ended September 30, 2001 were funded
with internally generated funds. The Company has a credit line with a bank, from
which it can borrow up to $30 million. The credit line is collateralized by
substantially all of the assets of the Company. This credit line expires in
March 2003. As of September 30, 2001, there were no funds borrowed under this
credit facility. The credit line includes a facility to issue letters of credit,
and $4.2 million was outstanding in the form of letters of credit as of
September 30, 2001. At September 30, 2001, Microsemi had $24.8 million in cash
and cash equivalents.
Based upon information currently available, management believes that Microsemi
can meet its current operating cash and debt service requirements and capital
commitments with internally generated funds together with its available
borrowings. See Notes 7, 9 and 10 to the Consolidated Financial Statements and
elsewhere in this Form 10-K for further discussion on debt service requirements
and capital commitments of the Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 establishes new
accounting and reporting standards for business combinations and requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 and for all business combinations accounted for by
the purchase method for which the date of acquisition is after June 30, 2001.
Use of the pooling-of-interest method is prohibited. The acquisitions of New
England Semiconductor Corp. and Compensated Devices, Inc. (see Note 10 to the
consolidated financial statements) were accounted for under the provisions of
SFAS No. 141. Further, goodwill and other intangible assets acquired in these
acquisitions will be subject immediately to the provisions of SFAS No. 142. SFAS
No. 142, which changes the accounting for goodwill from an amortization method
to an impairment-only approach, will be effective on a Company-wide basis at the
beginning of the first quarter of fiscal year 2003. The Company is currently
evaluating the Company-wide impact of adopting SFAS No. 142.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible
17
long-lived assets and the associated asset retirement costs. This Statement will
be effective for the Company no later than the first quarter of fiscal year
2003. The Company is currently evaluating the impact of adopting SFAS No. 143.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". This Statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
Statement will be effective for the Company no later than the first quarter of
fiscal year 2003. The Company is currently evaluating the impact of adopting
SFAS No. 144.
18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks, including changes in foreign
currency exchange rates and changes in interest rates. Market risk is the
potential loss arising from adverse changes in exchange rates and prices.
The Company conducts business in a number of foreign currencies, principally
those of Europe and Asia, directly or in its foreign operations. The Company may
receive some revenues in foreign currencies and purchase some inventory in
foreign currencies. Accordingly, Microsemi is 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 the Company's 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 Microsemi's 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 the results of operations, cash flows and financial
condition of the Company. The largest foreign currency exposure of the Company
results from activity in British pounds and the European Union Euro. The Company
has not conducted a foreign currency hedging program thus far. The Company has
and may continue to consider the adoption of a foreign currency hedging program.
The Company did not enter into derivative financial instruments and did not
enter into any other financial instruments for trading, speculative purposes or
to manage its interest rate risk. The Company's other financial instruments
consist primarily of cash, accounts receivable, accounts payable, and long-term
obligations. The Company's exposure to market risk for changes in interest rates
relates primarily to short-term investments and short-term obligations. As a
result, the Company does not expect fluctuations in interest rates to have a
material impact on the fair value of these instruments. The Company does not
engage in transactions intended to hedge its exposure to changes in interest
rates.
On August 2, 2001, in connection with an acquisition of operating assets, the
Company issued a one-year promissory note in the original principal amount of
approximately $5.8 million structured so that the interest expense on the
maturity date will be in a range of a minimum of about $0.2 million or up to a
maximum of about $1.4 million. Within that range, the interest rate is related
linearly to the market price of the Company's Common Stock on the maturity date
divided by its price on the issuance date. An increase in the market price of
the Company's Common Stock over the period will result in an increase in the
related interest payable.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
MICROSEMI CORPORATION AND SUBSIDIARIES
Index to Financial Statements
-----------------------------
1. Consolidated Financial Statements Page
--------------------------------- ----
Report of Independent Accountants 21
Consolidated Balance Sheets at October 1, 2000
and September 30, 2001 22
Consolidated Income Statements for each of the three fiscal years
in the period ended September 30, 2001 23
Consolidated Statements of Stockholders' Equity for each of the
three fiscal years in the period ended September 30, 2001 24
Consolidated Statements of Cash Flows for each of the three
fiscal years in the period ended September 30, 2001 25
Notes to Consolidated Financial Statements 26
2. Financial Statement Schedule
----------------------------
Schedule for the fiscal years ended October 3, 1999, October
1, 2000, and September 30, 2001.
Schedule
--------
II - Valuation and Qualifying Accounts 44
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.
20
Report of Independent Accountants
To the Board of Directors
and Stockholders
of Microsemi Corporation:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Microsemi Corporation and its subsidiaries at September 30, 2001 and October 1,
2000, and the results of their operations and their cash flows for each of the
three years in the period ended September 30, 2001 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of determining the cost of inventories at its Scottsdale
subsidiary from the last-in, first-out ("LIFO") method to the first-in,
first-out ("FIFO") method. The change has been applied retroactively by
restating the consolidated financial statements for the prior years.
PricewaterhouseCoopers LLP
Orange County, California
November 27, 2001
21
MICROSEMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in 000's, except per share data)
October 1, September 30,
2000 2001
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 30,460 $ 24,808
Accounts receivable, less allowance for doubtful accounts,
$5,767 in 2000 and $3,584 in 2001 33,029 37,950
Inventories 52,553 58,889
Deferred income taxes 8,392 12,277
Other current assets 2,020 2,072
---------- ----------
Total current assets 126,454 135,996
Property and equipment, net 55,458 63,380
Deferred income taxes 2,688 1,671
Goodwill and other intangible assets, net 22,559 37,306
Other assets 3,639 1,818
---------- ----------
TOTAL ASSETS $ 210,798 $ 240,171
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks and others $ 1,037 $ 9,766
Current maturities of long-term debt 1,230 3,573
Accounts payable 11,489 11,385
Accrued liabilities 23,992 22,158
Income taxes payable 8,549 6,862
---------- ----------
Total current liabilities 46,297 53,744
---------- ----------
Long-term debt 9,651 6,078
---------- ----------
Other long-term liabilities 5,160 4,960
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock (Note 1) - -
Common stock, $0.20 par value; authorized 40,000
and 100,000 shares in 2000 and 2001; issued and 5,518 5,650
outstanding 27,588 and 28,248 shares in 2000 and 2001
Capital in excess of par value of common stock 102,402 110,729
Retained earnings 42,807 60,096
Accumulated other comprehensive loss (1,037) (1,086)
---------- ----------
Total stockholders' equity 149,690 175,389
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 210,798 $ 240,171
========== ==========
The accompanying notes are an integral part of these statements.
22
MICROSEMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For each of the three fiscal years in the period ended September 30, 2001
(amounts in 000's, except earnings per share)
1999 2000 2001
---- ---- ----
Net sales $ 185,081 $ 247,577 $ 243,388
Cost of sales 144,192 177,602 161,932
--------- --------- ---------
Gross profit 40,889 69,975 81,456
--------- --------- ---------
Operating expenses:
Selling and general and administrative 28,434 38,431 37,643
Amortization of goodwill and other intangible assets 1,395 2,359 2,830
Research and development 4,002 11,196 16,122
Acquired in-process research and development 1,950 2,510 --
--------- --------- ---------
Total operating expenses 35,781 54,496 56,595
--------- --------- ---------
Operating Income 5,108 15,479 24,861
--------- --------- ---------
Other (expenses) income:
Interest, net (3,112) (3,329) 653
Other, net (36) 133 290
--------- --------- ---------
Total other (expenses) income (3,148) (3,196) 943
--------- --------- ---------
Income before income taxes 1,960 12,283 25,804
Provision for income taxes 444 4,054 8,515
--------- --------- ---------
Net income $ 1,516 $ 8,229 $ 17,289
========= ========= =========
Earnings per share:
Basic $ 0.07 $ 0.34 $ 0.62
========= ========= =========
Diluted $ 0.07 $ 0.33 $ 0.59
========= ========= =========
Weighted-average common shares outstanding :
Basic 22,262 24,018 27,906
========= ========= =========
Diluted 22,488 25,200 29,579
========= ========= =========
The accompanying notes are an integral part of these statements.
23
MICROSEMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY For each of the three fiscal
years in the period ended September 30, 2001
(amounts in 000's)
Capital in
excess of Accumulated
par value of other
Common Stock common Retained comprehensive
------------------------
Shares Amount stock Earnings loss Total
Balance at September 28, 1998 11,666 $ 2,333 $ 49,896 $ 35,734 $ (946) $ 87,017
2-for-1 stock split effected
in August 2001 11,666 2,333 (2,333) - - -
------------------------------------------------------------------------------------------
Adjusted for stock split 23,332 4,666 47,563 35,734 (946) 87,017
------------------------------------------------------------------------------------------
Proceeds from exercise of stock
options 28 6 46 - - 52
Treasury stock repurchased
and canceled (1,520) (304) (3,098) (2,672) (6,074)
Comprehensive income - - - 1,516 (50) 1,466
------------------------------------------------------------------------------------------
Balance at October 3, 1999 21,840 4,368 44,511 34,578 (996) 82,461
------------------------------------------------------------------------------------------
Proceeds from exercise of stock
options 518 104 2,359 - - 2,463
Issuance of stock related
to an acquisition 624 126 8,937 - - 9,063
Sales of common stock 4,606 920 44,420 - - 45,340
Tax benefit - stock options - - 2,175 - - 2,175
Comprehensive income - - - 8,229 (41) 8,188
------------------------------------------------------------------------------------------
Balance at October 1, 2000 27,588 5,518 102,402 42,807 (1,037) 149,690
------------------------------------------------------------------------------------------
Proceeds from exercise of stock
options 660 132 3,918 - - 4,050
Non employee stock-based compensation - - 459 - - 459
Tax benefit - stock options - - 3,950 - - 3,950
Comprehensive income - - - 17,289 (49) 17,240
------------------------------------------------------------------------------------------
Balance at September 30, 2001 28,248 $ 5,650 $ 110,729 $ 60,096 $ (1,086) $ 175,389
==========================================================================================
The accompanying notes are an integral part of these statements.
24
MICROSEMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS For each of the three fiscal years in the
period ended September 30, 2001
(amounts in 000's)
1999 2000 2001
------------ ------------ ----------------
Cash flows from operating activities:
Net income $ 1,516 $ 8,229 $ 17,289
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 8,818 12,161 12,743
Allowance for doubtful accounts (611) 1,962 (2,193)
Provision for excess and obsolete inventories 5,951 - -
Loss (gain) on disposition and retirement of assets - 583 (680)
Acquired in-process research and development 1,950 2,510 -
Deferred income taxes (2,095) 1,900 1,092
Stock based compensation for services provided - - 459
Change in assets and liabilities, net of acquisitions
and disposition:
Accounts receivable 179 (3,216) (1,044)
Inventories (2,088) 1,675 (736)
Other current assets 381 199 103
Other assets - 356 821
Accounts payable 1,017 242 (1,319)
Accrued liabilities (194) 7,837 (2,912)
Income taxes payable 1,306 1,369 (1,687)
------------ ------------ ----------------
Net cash provided by operating activities 16,130 35,807 21,936
------------ ------------ ----------------
Cash flows from investing activities:
Purchases of property and equipment (7,932) (10,724) (15,928)
Proceeds from dispositions and sales of assets - 2,702 1,042
Other assets (2,837) - 357
Payments for acquisitions, net of cash acquired (29,570) (1,548) (14,676)
Investment in an unconsolidated affiliate - (251) -
------------ ------------ ----------------
Net cash used in investing activities (40,339) (9,821) (29,205)
------------ ------------ ----------------
Cash flows from financing activities:
Increase (decrease) in note payable to banks 12,375 (18,500) -
Payments of notes payable to others (2) (1,008) -
Proceeds from long-term debt 30,800 - -
Payments of long-term debt (14,003) (31,422) (2,232)
(Decrease) increase in other long-term liabilities (35) 18 (152)
Repurchases of common stock (6,914) - -
Proceeds from sale of common stock - 45,340 -
Proceeds from exercise of stock options 52 2,463 4,050
------------ ------------ ----------------
Net cash provided by (used in) financing activities 22,273 (3,109) 1,666
------------ ------------ ----------------
Effect of exchange rate changes on cash (50) (41) (49)
------------ ------------ ----------------
Net (decrease) increase in cash and cash equivalents (1,986) 22,836 (5,652)
Cash and cash equivalents at beginning of year 9,610 7,624 30,460
------------ ------------ ----------------
Cash and cash equivalents at end of year $ 7,624 $ 30,460 $ 24,808
============ ============ ================
The accompanying notes are an integral part of these statements.
25
MICROSEMI CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
- -----------------------
Microsemi Corporation is a global supplier of commercial and high-reliability
analog integrated circuits and power management, mixed-signal and discrete
semiconductors serving the satellite, telecommunications, computer and
peripherals, military/aerospace, industrial/commercial, and medical markets.
Fiscal Year
- -----------
The Company reports results of operations on the basis of fifty-two and
fifty-three week periods. Fiscal year ended on October 3, 1999 consisted of
fifty-three weeks. Each of the fiscal years ended on October 1, 2000 and
September 30, 2001 consisted of fifty-two weeks.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Microsemi
Corporation and its wholly/majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the respective reporting
periods. Actual results could differ from those estimates.
Fair Value of Financial Instruments
- -----------------------------------
The carrying values of cash, cash equivalents, accounts receivable, accounts
payable, accrued liabilities, notes payable and certain other current assets and
certain other long-term assets approximate their fair values because of the
short maturity of these instruments. The carrying values of the Company's
long-term debt at October 1, 2000 and September 30, 2001 approximate fair value
based upon the current rate offered to the Company for obligations of the same
remaining maturities.
Concentration of Credit Risk and Foreign Sales
- ----------------------------------------------
The Company is potentially subject to concentrations of credit risk consisting
principally of trade accounts receivable. Concentrations of credit risk exist
because the Company relies on a significant portion of customers whose principal
sales are to the U.S. Government. In addition, sales to foreign customers
represented approximately 35%, 37% and 32% of net sales for fiscal years 1999,
2000 and 2001 respectively. These sales were principally to customers in Europe
and Asia. Foreign sales are classified based upon a foreign destination of
shipment from the Company's facilities. The Company maintains reserves for
potential credit losses and such losses have been within management's
expectations.
Cash and Cash Equivalents
- -------------------------
The Company considers all short-term, highly liquid investments with maturities
of three months or less at date of acquisition to be cash equivalents.
26
Investments
- -----------
The Company's investments in certain unconsolidated affiliates are stated at the
lower of cost or estimated net realizable value.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost approximates the
first-in, first-out ("FIFO") method. During the first quarter of fiscal year
2001, the Company changed its method of determining the cost of inventories at
its Scottsdale subsidiary ("Scottsdale") from the last-in, first-out ("LIFO")
method to the FIFO method. The Company believes that the FIFO method is
preferable since it will enhance the comparability of the Company's financial
statements by changing to the predominant method utilized in its industry and
will conform all inventories of the Company to the same accounting method. In
addition, Scottsdale has experienced improvements in productivity and permanent
declines in inventory costs. Accordingly, the FIFO method will result in a
better matching of revenues and costs and measurement of operating results. The
Company has also applied to the Internal Revenue Service to change to the FIFO
inventory costing method for income tax purposes.
As required by Accounting Principles Board Opinion No. 20, "Accounting Changes",
all previously reported results have been restated to reflect the retroactive
application of this accounting change as of the beginning of fiscal year 1999
and to conform to the current year presentation. The effect of the restatements
was to (decrease) increase inventories by ($615,000), $19,000 and $53,000 and
retained earnings by ($381,000), $17,000 and $39,000 at September 27, 1998,
October 3, 1999 and October 1, 2000, respectively. This restatement did not have
a material effect on net income, or earnings per share in fiscal years 1999 and
2000.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the lease terms or the estimated
useful lives. Maintenance and repairs are charged to expense as incurred and the
costs of additions and betterments that increase the useful lives of the assets
are capitalized. It is the Company's policy to evaluate the carrying value of
its operating assets when certain events arise and to recognize impairments when
the projected future undiscounted net operating cash flows over the lives of the
assets are less than the assets' carrying values.
Intangible Assets
- -----------------
Intangible assets, arising principally from differences between the cost of
acquired companies and the underlying values of tangible assets at dates of
acquisition (primarily goodwill), are amortized on a straight-line basis over
periods not exceeding ten years, except for goodwill and certain other
intangibles related to the acquisitions described in Note 10, which are subject
immediately to the provisions of SFAS No. 142, "Goodwill and Other Intangible
Assets." It is the Company's policy to periodically evaluate the carrying value
of its intangible assets, including goodwill, when certain events arise and to
recognize impairments when the projected future undiscounted net operating cash
flows over the lives of the assets are less than the assets' carrying values.
Revenue Recognition
- -------------------
Revenue is recognized at the time of product shipment. The Company, under
specific conditions, permits its customers to return or exchange products. A
provision for estimated sales returns is recorded concurrently with the
recognition of revenue, based on historical experiences.
Research and Development
- ------------------------
The Company expenses the cost of research and development as incurred. Research
and development expenses principally comprise payroll and related costs and the
cost of prototypes.
27
Stock-Based Compensation
- ------------------------
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. The disclosures required under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-based Compensation" ("SFAS
123"), have been included in Note 8.
Income Taxes
- ------------
Deferred tax assets and liabilities are recorded for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, all expected
future events, including enactment of changes in tax laws or rates are
considered. A valuation allowance is provided for deferred tax assets when it is
more likely than not that such assets will not be realized through future
operations.
Preferred Stock
- ---------------
The Company's certificate of incorporation authorizes the Board of Directors to
issue up to 1,000,000 shares of preferred stock and to designate the rights and
terms of any such issuances. The Company has not issued any preferred stock.
Earnings Per Share
- ------------------
Basic earnings per share have been computed based upon the weighted-average
number of common shares outstanding during the respective periods. Diluted
earnings per share have been computed, when the result is dilutive, using the
treasury stock method for stock options outstanding during the respective
periods and based upon the assumption that the convertible subordinated
debentures had been converted into common stock as of the beginning of the
respective periods, with a corresponding increase in net income to reflect a
reduction in related interest expense, net of applicable taxes.
On July 31, 2001, the Company's stockholders gave their written consent to amend
the Company's certificate of incorporation to increase authorized common shares
from 20 million to 100 million. The Board of Directors also announced that
written consent had been obtained and approved a 2-for-1 stock split of the
Company's issued and outstanding common stock and common stock options effected
by way of a common stock dividend payable to the holders of its common stock as
of August 14, 2001. For all periods presented, all share and per share amounts
have been adjusted to give retroactive effect to the stock split.
28
Earnings per share for each of the three fiscal years in the period ended
September 30, 2001 reflect the 2-for-1 stock split completed in August 2001 and
were calculated as follows (amounts in 000's, except per share data):
Fiscal Year
--------------------------------------
1999 2000 2001
---------- ---------- ----------
BASIC
Net income $ 1,516 $ 8,229 $ 17,289
========== ========== ==========
Weighted-average common shares outstanding 22,262 24,018 27,906
========== ========== ==========
Basic earnings per share $ 0.07 $ 0.34 $ 0.62
========== ========== ==========
DILUTED
Net income $ 1,516 $ 8,229 $ 17,289
Interest savings from assumed conversions of
convertible debt, net of income taxes - 68 117
---------- ---------- ----------
Net income assuming conversions $ 1,516 $ 8,297 $ 17,406
========== ========== ==========
Weighted-average common shares outstanding for basic 22,262 24,018 27,906
Dilutive effect of stock options 226 1,030 1,340
Dilutive effect of convertible debt - 152 333
---------- ---------- ----------
Weighted-average common shares outstanding on a
diluted basis 22,488 25,200 29,579
========== ========== ==========
Diluted earnings per share $ 0.07 $ 0.33 $ 0.59
========== ========== ==========
There were approximately 1,262,000, 52,000 and 113,500 options, in 1999, 2000
and 2001, respectively, which were not included in the computation of diluted
EPS because the exercise price was greater than the average market price of the
common stock, thereby resulting in an antidilutive effect.
Comprehensive Income
- --------------------
Comprehensive income is defined as the change in equity (net assets) of a
business enterprise during the period from transactions and other events and
circumstances from non-owner sources. Comprehensive income consists of net
income and the change in the cumulative foreign currency translation adjustment.
Accumulated other comprehensive loss consists of the cumulative translation
adjustment. Total comprehensive income for fiscal years 1999, 2000 and 2001 was
$1,466,000, $8,188,000 and $17,240,000, respectively.
Segment Information
- -------------------
The Company uses the management approach for segment disclosure, which
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments.
Recently Issued Accounting Pronouncements
- -----------------------------------------
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 establishes new
accounting and reporting standards for business combinations and requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 and for all business combinations accounted for by
the purchase method for which the date of acquisition is after June 30, 2001.
Use of the pooling-of-interest method is prohibited. The acquisitions of New
England Semiconductor Corp. and Compensated Devices, Inc. (see Note 10 to the
consolidated financial statements) were accounted for under the provisions of
SFAS No. 141. Further, goodwill and other intangible assets acquired in these
acquisitions will be subject immediately to the
29
provisions of SFAS No. 142. SFAS No. 142, which changes the accounting for
goodwill from an amortization method to an impairment-only approach, will be
effective on a Company-wide basis at the beginning of the first quarter of
fiscal year 2003. The Company is currently evaluating the Company-wide impact of
adopting SFAS No. 142.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement will be effective for the
Company no later than the first quarter of fiscal year 2003. The Company is
currently evaluating the impact of adopting SFAS No. 143.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". This Statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
Statement will be effective for the Company no later than the first quarter of
fiscal year 2003. The Company is currently evaluating the impact of adopting
SFAS No. 144.
Reclassifications
- -----------------
Certain reclassifications have been made to prior year balances to conform with
the current year presentation.
2. INVENTORIES
Inventories are summarized as follows (amounts in 000's):
October 3, October 1, September 30,
1999 2000 2001
----------- ------------ -------------
Raw materials $ 14,002 $ 12,503 $ 14,751
Work in process 22,244 22,186 23,565
Finished goods 20,698 17,864 20,573
----------- ------------ -------------
$ 56,944 $ 52,553 $ 58,889
=========== ============ =============
During the first quarter of fiscal year 2001, the Company changed its method of
determining the cost of inventories at its Scottsdale subsidiary ("Scottsdale")
from the last-in, first-out ("LIFO") method to the first-in, first-out ("FIFO")
method. The Company believes that the FIFO method is preferable since it will
enhance the comparability of the Company's financial statements by changing to
the predominant method utilized in its industry and will conform all inventories
of the Company to the same accounting method. In addition, Scottsdale has
experienced improvements in productivity and permanent declines in inventory
costs. Accordingly, the FIFO method will result in a better matching of revenues
and costs and measurement of operating results. The Company has also applied to
the Internal Revenue Service to change to the FIFO inventory costing method for
income tax purposes.
30
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (amounts in 000's):
October 1, September 30,
Asset Life 2000 2001
---------------- ------------- -------------
Buildings 20-40 years $ 28,263 $ 33,501
Property and equipment 3-10 years 64,010 62,231
Furniture and fixtures 5-10 years 1,397 6,033
Leasehold improvements Life of lease 1,956 4,622
------------- -------------
95,626 106,387
Accumulated depreciation (50,511) (57,243)
Land 5,419 5,419
Construction in progress 4,924 8,817
------------- -------------
$ 55,458 $ 63,380
============= =============
Depreciation expense was $7,423,000, $9,802,000 and $9,898,000 in fiscal years
1999, 2000 and 2001 respectively.
At September 30, 2001, land and buildings located at the Santa Ana, California
facility were pledged to the City of Santa Ana under the provisions of the loan
agreement with the Santa Ana Industrial Development Authority. The land and
buildings in Watertown, Massachusetts and in Ennis, Ireland are pledged to
Unitrode Corporation under the provisions of the related acquisition agreement.
The building and land in Riviera Beach, Florida are pledged to the former owner
and a bank under the provisions of the related acquisition and loan agreements.
The total net book value of pledged assets was $9,005,000 and $8,534,000 at
October 1, 2000 and September 30, 2001, respectively.
4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET, AND OTHER ASSETS:
October 1, 2000 September 30, 2001
------------------- -------------------
Goodwill and other intangible assets, net (amounts in 000's) $ 22,559 $ 37,306
================= ==================
Accumulated amortization for goodwill and other intangible assets amounted to
$3,937,000 and $6,707,000 as of October 1, 2000 and September 30, 2001,
respectively. Amortization expense for fiscal years 1999, 2000 and 2001 was
$1,231,000, $2,143,000 and $2,770,000, respectively.
Other assets consisted of the following (amounts in 000's):
October 1, September 30,
2000 2001
----------------- -------------------
Deferred financing expenses, net $ 211 $ 137
Cash surrender value of life insurance 514 -
Notes receivable 1,650 1,441
Property held for sale 734 139
Other 530 101
----------------- ------------------
$ 3,639 $ 1,818
================= ==================
Accumulated amortization for deferred financing expenses amounted to $1,064,000
and $1,139,000 as of October 1, 2000 and September 30, 2001, respectively.
Amortization expense for fiscal years 1999, 2000 and 2001 was $164,000, $216,000
and $75,000, respectively.
31
5. ACCRUED LIABILITIES
Accrued liabilities consisted of the following (amounts in 000's):
October 1, 2000 September 30, 2001
----------------- ------------------
Payroll and payroll taxes $ 1,829 $ 2,679
Vacation, sick and other employee benefits 4,749 4,425
Profit sharing 7,032 6,032
Accrued interest 2,235 2,285
Other accrued expenses 8,147 6,737
----------------- ------------------
$ 23,992 $ 22,158
================= ==================
6. INCOME TAXES
Pretax income was taxed under the following jurisdictions (amounts in 000's):
For each of the three fiscal years in
the period ended September 30, 2001
----------------------------------------------
1999 2000 2001
-------------- ------------- --------------
Domestic $ 566 $ 10,795 $ 23,951
Foreign 1,394 1,488 1,853
-------------- ------------- --------------
Total $ 1,960 $ 12,283 $ 25,804
============== ============= ==============
The provision for income taxes consisted of the following components (amounts in
000's):
For each of the three fiscal years in
the period ended September 30, 2001
----------------------------------------------
1999 2000 2001
-------------- -------------- --------------
Current:
Federal $ 1,988 $ 3,972 $ 8,075
State 301 620 1,255
Foreign 250 223 277
Deferred (2,095) (761) (1,092)
-------------- -------------- --------------
$ 444 $ 4,054 $ 8,515
============== ============== ==============
32
The tax effected deferred tax assets (liabilities) comprise of the following
(amounts in 000's):
October 1, 2000 September 30, 2001
--------------- ------------------
Accounts receivable $ 1,842 $ 1,684
Inventories 2,171 2,784
Other assets 1,314 1,316
Fixed asset bases 932 932
Accrued employee benefit expenses 3,645 5,565
Accrued other expenses 2,913 3,260
Amortization of intangible assets 1,807 1,966
------------ -----------------
Gross deferred tax assets 14,624 17,507
------------ -----------------
Inventory bases (1,491) (1,119)
Depreciation (2,053) (2,440)
------------- ------------------
Gross deferred tax liabilities (3,544) (3,559)
------------- -----------------
$ 11,080 $ 13,948
============= =================
The following is a reconciliation of income tax computed at the federal
statutory rate to the Company's actual tax expense (amounts in 000's):
For each of the three fiscal years in
the period ended September 30, 2001
1999 2000 2001
-------------- ------------ ---------------
Tax computed at statutory rate $ 662 $ 4,299 $ 9,029
State taxes, net of federal benefit 62 528 1,051
Foreign income taxed at different rates (224) (292) (645)
Non-deductible goodwill amortization 335 316 519
Foreign Sales Corporation benefit (211) (237) (237)
Tax credits (174) - (966)
Adjustments to prior years' tax accruals - (579) (211)
Other differences, net (6) 19 (25)
-------------- ------------- --------------
$ 444 $ 4,054 $ 8,515
============== ============= ==============
No provision has been made for future U.S. income taxes on certain undistributed
earnings of foreign operations since they have been, for the most part,
indefinitely reinvested in these operations. Determination of the amount of
unrecognized deferred tax liability for temporary differences related to these
undistributed earnings is not practicable. At the end of fiscal year 2001, these
undistributed earnings aggregated approximately $9,717,000.
33
7. DEBT
Long-term debt consisted of (amounts in 000's):
October 1, September 30,
2000 2001
----------------- -----------------
Industrial Development Bond, bearing interest at 6.75%, due
February 2005; collateralized by first deed of trust $ 4,100 $ 4,000
Note payable, bearing interest at 5.93%, payable monthly
through July 2002 990 450
Notes payable (PPC acquisition), bearing interest at 7%,
payable monthly through September 2009 1,585 1,512
Convertible note payable (MWS acquisition), bearing interest at 7%, due
February 14, 2002 2,500 2,500
Notes payable, bearing interest at ranges of 5% to 7%, due
between October 2001 and September 2014 1,706 1,189
----------------- -----------------
10,881 9,651
Less current portion (1,230) (3,573)
----------------- -----------------
$ 9,651 $ 6,078
================= =================
Long-term debt maturities, including the current portion, during the next five
fiscal years are as follows (amounts in 000's):
2002 $ 3,573
2003 212
2004 212
2005 3,822
2006 131
Thereafter 1,701
-----------
$ 9,651
===========
A $6,500,000 Industrial Development Revenue Bond was originally issued in April
1985, through the City of Santa Ana, California for the construction of
improvements and new facilities at the Company's Santa Ana plant. It was
remarketed in 1995 and carries an average interest rate of 6.75% per annum.
$4,000,000 of this loan remained outstanding at September 30, 2001. The terms of
the bond require annually principal payments of $100,000 from 2002 to 2004 and
$3,700,000 in 2005. A $4,155,000 letter of credit is carried by a bank to
guarantee the repayment of this bond. There are no compensating balance
requirements. An annual commitment fee of 2% is charged on this letter of
credit. In addition, the agreement contains covenants regarding net worth and
working capital. The Company was in compliance with the aforementioned covenants
at September 30, 2001.
In June 1997, the Company entered into a $2,700,000 equipment loan agreement,
providing for monthly principal payments through July 2002 of $45,000 plus
interest at 5.93% per annum. $450,000 of this loan remained outstanding at
September 30, 2001. This loan is collateralized by the related equipment.
In September 1997, the Company issued and assumed notes payable of $2,370,000
related to the PPC acquisition. These notes are payable to the former owners,
bear an interest rate of 7%, and are due in monthly installments of principal
and interest over various periods through September 2009. $1,512,000 of these
notes remained outstanding at September 30, 2001. One of these notes is
collateralized by the related acquired building.
34
In February 2000, the Company issued a convertible note payable of $2,500,000
related to the Micro WaveSys, Inc. ("MWS") acquisition, and which is due on
February 14, 2002. This note is payable to Infinesse Corporation, bearing an
interest rate of 7% per annum. Interest is payable quarterly. The note holder
has the option of converting it into common stock of the Company at $7.50 per
share on or before February 14, 2002.
Other debts consist of various loans bearing interest at ranges from 5% to 7%
and require periodic principal payments through September 2014. At September 30,
2001, totals of $1,189,000 remained outstanding for these loans.
In April 1999, the Company obtained a $30,000,000 revolving line of credit,
which expires in March 2003. The line of credit is collateralized by
substantially all of the assets of the Company. It bears interest at the bank's
prime rate plus 0.75% to 1.5% per annum or, at the Company's option, at the
Eurodollar rate plus 1.75% to 2.5% per annum. The interest rate is determined by
the ratio of total funded debt to Earnings Before Interest, Taxes, Depreciation
and Amortization ("EBITDA"). The terms of the revolving line of credit contain
covenants regarding net worth and working capital and restrict payment of cash
dividends or share repurchases. The Company was in compliance with these
covenants at September 30, 2001. As of September 30, 2001, there were no funds
borrowed under this credit facility. At September 30, 2001, $25,845,000 was
available under the line of credit.
In August 2001, the Company issued a promissory note of $5,800,000 to the seller
related to the New England Semiconductor Corp. acquisition. This note is due in
full on or within ten days of August 2, 2002 and is payable in cash or Microsemi
common stock at the Company's option. Its interest rate is based upon the
difference of the market price of the Company's common stock on August 2, 2001
and August 2, 2002, but cannot be less than 4% or more than 24%. The Company is
recording interest expense at the Company's market rate at the date of
acquisition.
In August 2001, the Company issued a promissory note of $3,931,000 to the seller
related to the Compensated Devices, Inc. acquisition. This note is due in full
on or within ten days of August 15, 2002 and is payable in cash or Microsemi
common stock at the Company's option. It bears an interest rate of 6% per annum.
The Company occupies a building in Santa Ana, California, which is under a
long-term capital lease obligation. Future annual payments, included in other
long-term liabilities at September 30, 2001, due under this capital lease
obligation are as follows (amounts in 000's):
Fiscal year ending
------------------
2002 $ 283
2003 283
2004 283
2005 283
2006 283
Thereafter 6,509
---------
Total minimum lease payments 7,924
Less imputed interest (4,816)
---------
Present value of capitalized lease obligation $ 3,108
=========
The building under this capital lease obligation is reflected in property and
equipment, net.
8. STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS
Stock Options
- -------------
Under the terms of an incentive stock option plan adopted in fiscal year 1982
and amended in fiscal year 1985, nontransferable options to purchase common
stock may be granted to certain key employees. The Company reserved 1,500,000
shares for issuance under the terms of the plan. The options may be
35
exercised within ten years from the date they are granted, subject to early
termination upon death or cessation of employment, and are exercisable in
installments determined by the Board of Directors. For certain significant
stockholders, the exercise period is limited to five years and the exercise
price is higher.
In December 1986, the Board of Directors adopted another incentive stock option
plan (the "1987 Plan"), 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 the Company and its stockholders the benefits arising
from stock ownership by selected officers, directors and other key executives
and management employees. The plan provides for the grant by the Company of
stock options, stock appreciation rights, shares of common stock or cash. In
fiscal year 2001, the Company had granted only options under the 1987 Plan. The
options may be exercised within ten years from the date they are granted,
subject to early termination upon death or cessation of employment, and are
exercisable in installments determined by the Board of Directors. For certain
significant stockholders, the exercise period is limited to five years and the
exercise price is higher.
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) increases on the first day of each fiscal year, the number of shares
available for grant in increments of 4% of the Company's issued and outstanding
shares of common stock; and 4) added flexibility by permitting discretionary
grants to non-employees directors and other non-employees.
In August 2001, the stockholders authorized, by written consent, to increase the
number of shares authorized shares of common stock to 100,000,000. The Board of
Directors thereafter effected a two-for-one stock split by means of a stock
dividend. The stock dividend resulted in an increase in the number of shares
deemed issued under the 1987 Plan, reserved for issuance under outstanding
options, and available for grants.
Activity and price information regarding the plans are as follows:
Stock Options
--------------------------------------------
Weighted-average
Shares Exercise Price
-------------------- -------------------
Outstanding September 27, 1998 1,274,780 5.22
Granted 832,000 5.03
Exercised (27,376) 1.88
Expired or canceled (132,150) 5.41
--------------------
Outstanding October 3, 1999 1,947,254 5.18
Granted 1,731,000 10.05
Exercised (517,254) 4.76
Expired or canceled (101,100) 6.84
--------------------
Outstanding October 1, 2000 3,059,900 7.95
Granted 1,441,200 17.64
Exercised (658,192) 6.20
Expired or Canceled (240,220) 8.58
--------------------
Outstanding September 30, 2001 3,602,688 11.72
====================
Stock options exercisable were 906,480, 748,450 and 651,613 at October 3, 1999,
October 1, 2000 and September 30, 2001, respectively, at weighted-average
exercise prices of $5.20, $6.08 and $9.13, respectively. Remaining shares
available for grant at October 3, 1999, October 1, 2000 and September 30,
36
2001 under the plans were 203,000, 150,000 and 1,181,000, respectively. All
options were granted at the fair market value of the Company's shares of common
stock on the date of grant.
The following table summarizes information about stock options outstanding and
exercisable at September 30, 2001:
Options Outstanding Options Exercisable
------------------------------------------------------ -----------------------------
Weighted
Weighted-average Average
Range of Exercise Remaining Exercise
Exercise Prices Shares Price Life Shares Price
- -------------------------- --------------- ------------- --------------- ----------- -------------
$ 0.50 - $ 2.50 106,720 $ 1.97 2.42 years 106,720 $ 1.97
$ 3.38 - $ 4.94 739,550 $ 3.62 7.72 years 104,150 $ 4.33
$ 5.13 - $ 6.94 340,600 $ 5.98 6.59 years 131,900 $ 5.75
$ 7.94 - $ 13.97 552,312 $ 11.59 8.33 years 97,412 $ 9.82
$ 14.00 - $ 18.50 1,514,506 $ 14.40 8.88 years 146,181 $ 14.11
$ 19.00 - $ 33.60 349,000 $ 26.06 9.65 years 65,250 $ 23.17
--------------- -------------
3,602,688 651,613
=============== =============
For purpose of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting periods. The SFAS 123 method of
accounting was not applied to options granted prior to fiscal 1996. The
Company's pro forma information is as follows (amounts in 000's, except per
share amounts):
Fiscal Years
-----------------------------------------------------------
1999 2000 2001
----------- ------------ ------------
Net income:
As reported $ 1,516 $ 8,229 $ 17,289
Pro forma $ 570 $ 6,071 $ 12,395
Basic earnings per share:
As reported $ 0.07 $ 0.34 $ 0.62
Pro forma $ 0.02 $ 0.25 $ 0.44
Diluted earnings per share:
As reported $ 0.07 $ 0.33 $ 0.59
Pro forma $ 0.02 $ 0.24 $ 0.42
The fair value of each stock option grant was estimated pursuant to SFAS 123 on
the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions:
1999 2000 2001
----------- ----------- -----------
Risk free interest rate 4.94% 5.90% 5.18%
Expected dividend yield None None None
Expected lives 5 years 5 years 5 years
Expected volatility 67.0% 70.0% 78.0%
The weighted-average grant date fair values of options granted during fiscal
years 1999, 2000 and 2001 were $3.04, $6.31 and $11.12, respectively.
37
Employee Benefit Plans
- ----------------------
The Microsemi Corporation Profit Sharing Plan, adopted by the Board of Directors
in fiscal year 1984, covers substantially all full-time employees who meet
certain minimum employment requirements and provides for current bonuses based
upon the Company's earnings. Annual contributions to the plan are determined by
the Board of Directors. Total charges to income were $1,745,000, $5,678,000 and
$4,234,000 in fiscal years 1999, 2000 and 2001, respectively.
401(k) Plan
- -----------
The Company sponsors a 401(k) Savings Plan whereby participating employees may
elect to contribute up to 15% of their eligible wages. The Company is committed
to match 100% of employee contributions, not to exceed 3% of the employee's
wages. The Company contributed $1,148,000, $1,415,000 and $1,387,000 to this
plan during fiscal years 1999, 2000 and 2001, respectively.
Supplemental Retirement Plan
- ----------------------------
In fiscal year 1994, the Company adopted a supplemental retirement plan, which
provides certain long-term employees with retirement benefits based upon a
certain percentage of the employees' salaries. Included in other long-term
liabilities at October 1, 2000 and September 30, 2001 were $1,351,000 and
$1,248,000, respectively, related to the Company's estimated liability under the
plan.
9. COMMITMENTS AND CONTINGENCIES
The Company occupies premises and leases equipment under operating lease
agreements expiring through 2029. Aggregate future minimum rental payments
during the next five fiscal years under these leases are as follows (amounts in
000's):
2002 $ 3,656
2003 3,319
2004 3,319
2005 3,078
2006 1,288
Thereafter 10,035
----------
$ 24,695
==========
One of the Company's operating leases contains certain financial covenants. At
September 30, 2001, the Company was not in compliance with one of these
covenants. The Company has obtained a waiver for the default under the lease
agreement through December 30, 2001. If the Company is not able to meet these
covenants at December 30, 2001 or obtain further waiver, the lessor may require
all future lease payments to be due and payable immediately.
Lease expense charged to income was $712,000, $1,235,000 and $2,161,000 in
fiscal years 1999, 2000 and 2001, respectively. The aforementioned amounts are
net of sublease income amounting to $514,000, $328,000 and $515,000 in fiscal
years 1999, 2000 and 2001, respectively.
The Company is involved in various pending litigations arising out of the normal
conduct of its business, including those relating to commercial transactions,
contracts, and environmental matters. In the opinion of management, the final
outcome of these matters will not have a material adverse effect on the
Company's financial position, results of operations or cash flows.
In Broomfield, Colorado, the owner of a property located adjacent to a
manufacturing facility owned by a subsidiary of the Company had notified the
subsidiary and other parties, claiming that contaminants migrated to his
property, thereby diminishing its value. In August 1995, the subsidiary,
together with former owners of the manufacturing facility, agreed to settle the
claim and to indemnify the owner of the adjacent property for remediation costs.
Although TCE and other contaminants previously used at the facility are
38
present in soil and groundwater on the subsidiary's property, the Company
vigorously contests any assertion that the subsidiary is the cause of the
contamination. In November 1998, the Company signed an agreement with three
former owners of this facility whereby the former owners 1) reimbursed the
Company for $530,000 of past costs, 2) will assume responsibility for 90% of all
future clean-up costs, and 3) indemnify and protect the Company against any and
all third-party claims relating to the contamination of the facility. An
Integrated Corrective Action Plan has been submitted to the State of Colorado.
Sampling and free phase management plans are in preparation for the Colorado
Department of Public Heath & Environment. State and local agencies in Colorado
are reviewing current data and considering study and cleanup options, and it is
not yet possible to predict costs for remediation. In the opinion of management,
the final outcome of the Broomfield, Colorado environmental matter will not have
a material adverse effect on the Company's financial position, results of
operations or cash flows.
On July 31, 2000, Lemelson Medical, Education & Research Foundation, Limited
Partnership, filed a first amended complaint in the United Stated District Court
for the District of Arizona alleging that numerous corporations, including the
Company, have infringed upon certain of the plaintiff's patents. The plaintiff
was seeking compensatory damages, treble damages, injunctive relief and
attorneys' fees. This matter was settled on August 31, 2001 by Microsemi's
entering into a licensing agreement with the plaintiff. The Company's obligation
under the license agreement has not had and is not expected to have any material
adverse effect on the Company's financial condition, results of operations or
cash flows in the future.
On October 31, 2000, Mitel Semiconductor, Inc. filed a complaint in the Superior
Court of the State of California for the County of Orange against the Company
and two of its employees. The plaintiff alleges that the Company and former
employees of plaintiff utilized alleged confidential information to interfere
with the plaintiff's relationship with certain of its employees and that the
Company and the other defendants misappropriated plaintiff's alleged trade
secrets to unfairly compete. The plaintiff seeks an award of compensatory
damages, disgorgement of profits, exemplary damages and a preliminary and
permanent injunction. The matter is pending at this time.
On November 28, 2000, Mil-Plus Components, Inc., filed a complaint against the
Company in the United States District Court for the Eastern District of New York
alleging that the Company violated the anti-trust laws of the United States and
the State of New York in connection with the termination of plaintiff as a
distributor. The plaintiff also alleges a breach of contract by the Company and
that the Company made false oral representations to the plaintiff to the effect
that it would not be terminated as a distributor. In its complaint, the
plaintiff alleges damages of $50 million, treble damages, exemplary damages and
attorneys' fees. The plaintiff also owes Microsemi in excess of $200,000 for
goods sold and delivered. The matter is pending.
The Company is involved in various pending litigation arising out of the normal
conduct of its business, including those relating to commercial transactions,
contracts, and environmental matters. In the opinion of management, the final
outcome of these matters will not have a material adverse effect on the
Company's financial position, results of operations, or cash flows.
39
10. ACQUISITIONS
On August 2, 2001, Microsemi NES, Inc. ("MNES"), a wholly-owned subsidiary of
Microsemi, acquired certain net assets of New England Semiconductor Corp.("NES")
of Lawrence, Massachusetts and its wholly-owned subsidiary ("NESC"). MNES paid
approximately $3,300,000 in cash to the seller and issued a promissory note for
$5,800,000 to the seller. This note is due in full on or within ten days of
August 2, 2002 and is payable in cash or Microsemi common stock at the Company's
option. Its interest rate is based upon the difference of the market price of
the Company's common stock on August 2, 2001 and August 2, 2002, but cannot be
less than 4% or more than 24%. Upon close of the transaction, MNES also directly
paid in cash, certain existing obligations amounting to $2,200,000 and assumed
$2,500,000 in other liabilities.
On August 15, 2001, Microsemi CDI, Inc. ("MCDI"), a wholly-owned subsidiary of
Microsemi, acquired the assets of Compensated Devices, Inc. ("CDI") of Melrose,
Massachusetts. MCDI paid $7,700,000 in cash and issued a promissory note for
$3,931,000 to the seller. This note is due in full on or within ten days of
August 15, 2002 and is payable in cash or Microsemi common stock at the
Company's option. It bears an interest rate of 6% per annum. Upon close of the
transaction, MCDI also directly paid in cash, certain existing obligations
amounting to $1,400,000 and assumed $300,000 of other liabilities.
The results of operations of NES and CDI prior to their respective acquisition
dates were not material to the Company's consolidated results of operations. Net
assets acquired and purchase price for the acquisitions also were not deemed
material to the Company's consolidated assets. Accordingly, supplemental pro
forma information on results of operations is not presented.
40
11. SEGMENT INFORMATION
The Company's reportable operating segments are based on geographic location,
and the measure of segment profit is income from operations. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies.
The Company operates predominantly in a single industry segment as a
manufacturer of semiconductors. Geographic areas in which the Company operates
include the United States, Ireland, Hong Kong, and India. Intergeographic sales
primarily represent intercompany sales which are accounted for based on
established sales prices between the related companies and are eliminated in
consolidation.
Financial information by geographic segments is as follows (amounts in 000's):
For Each of the Three Fiscal Years in the Period
Ended September 30, 2001
------------------------------------------------
1999 2000 2001
-------------- -------------- --------------
Net sales:
United States:
Sales to unaffiliated customers $ 159,695 $ 224,212 $ 214,007
Intergeographic sales 23,463 19,779 27,571
Europe:
Sales to unaffiliated customers 17,084 19,485 26,842
Intergeographic sales 3,823 3,603 5,275
Asia:
Sales to unaffiliated customers 8,302 3,880 2,539
Intergeographic sales 4,381 3,901 3,729
Eliminations of intergeographic sales (31,667) (27,283) (36,575)
--------- --------- ---------
$ 185,081 $ 247,577 $ 243,388
========= ========= =========
Income (loss) from operations:
United States $ 4,397 $ 14,922 $ 23,885
Europe 476 441 1,150
Asia 235 116 (174)
--------- --------- ---------
Total $ 5,108 $ 15,479 $ 24,861
========= ========= =========
Identifiable assets:
United States $ 166,448 $ 195,693 $ 224,271
Europe 8,019 8,401 10,609
Asia 7,153 6,704 5,291
--------- --------- ---------
Total $ 181,620 $ 210,798 $ 240,171
========= ========= =========
Capital expenditures:
United States $ 7,712 $ 10,498 $ 15,789
Europe 160 125 124
Asia 60 101 15
--------- --------- ---------
Total $ 7,932 $ 10,724 $ 15,928
========= ========= =========
Depreciation and amortization:
United States $ 8,334 $ 11,676 $ 12,178
Europe 169 190 218
Asia 315 295 347
--------- --------- ---------
Total $ 8,818 $ 12,161 $ 12,743
========= ========= =========
41
12. STATEMENT OF CASH FLOWS
(amounts in 000's)
For Each of the Three Fiscal Years in the
Period Ended September 30, 2001
1999 2000 2001
-------- -------- --------
Supplementary information:
Cash paid during the year for:
Interest $ 3,324 $ 4,193 $ 965
======== ======== ========
Income taxes $ 1,840 $ 3,484 $ 9,237
======== ======== ========
Non-cash financing and investing activities:
Fixed asset purchased through issuance of long-
term debt $ 3,165 $ -- $ --
======== ======== ========
Businesses acquired in purchase transactions (Note 10):
Fair values of tangible assets acquired $ 31,547 $ 250 $ 9,671
Goodwill and other intangible assets 5,523 14,860 17,517
Less common stock issued -- (9,062) --
Less debt issued and liabilities assumed (7,500) (4,500) (12,512)
-------- -------- --------
Cash paid for acquisition $ 29,570 $ 1,548 $ 14,676
======== ======== ========
42
13. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
Selected quarterly financial data are as follows (amounts in 000's, except
earnings per share):
Quarters ended in fiscal year 2000
---------------------------------------------------------
January 2, April 2, July 2, October 1,
2000 2000 2000 2000
------------ ------------ ------------ ------------
Net sales $ 54,588 $ 60,972 $ 66,644 $ 65,373
Gross profit $ 13,577 $ 17,167 $ 19,051 $ 20,180
Net income $ 972 $ 199 $ 2,823 $ 4,235
Basic earnings per share $ 0.05 $ 0.01 $ 0.12 $ 0.16
Diluted earnings per share $ 0.05 $ 0.01 $ 0.11 $ 0.15
Quarters ended in fiscal year 2001
----------------------------------------------------------
December 31, April 1, July 1, September 30,
2000 2001 2001 2001
------------ ------------ ------------ -------------
Net sales $ 63,005 $ 63,131 $ 60,089 $ 57,163
Gross profit $ 19,974 $ 20,553 $ 20,466 $ 20,463
Net income $ 4,099 $ 4,269 $ 4,436 $ 4,485
Basic earnings per share $ 0.15 $ 0.16 $ 0.16 $ 0.16
Diluted earnings per share $ 0.14 $ 0.15 $ 0.15 $ 0.15
Earnings per share in prior periods were adjusted to reflect the 2-for-1 stock
split completed in August 2001.
43
MICROSEMI CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(amounts in 000's)
Column A Column B Column C Column D Column E Column F
- -------- -------- -------- -------- -------- --------
Charged Deductions-
Balance at to costs Charged to recoveries Balance at
beginning and other and end of
Classification of period expenses accounts write-offs period
- -------------- --------- -------- -------- ---------- ------
October 3, 1999
- ---------------
Allowance for doubtful accounts and
reserve for returns $ 2,457 $ (230) $ 1,960 $ (382) $ 3,805
========= ============ =============== ============= =========
Reserve for investments in and
advances to unconsolidated
affiliates $ 1,297 $ -- $ -- $ -- $ 1,297
========= ============ =============== ============= =========
October 1, 2000
- ---------------
Allowance for doubtful accounts and
reserve for returns $ 3,805 $ 2,296 $ -- $ (334) $ 5,767
========= ============ =============== ============= =========
Reserve for investments in and
advances to unconsolidated
affiliates $ 1,297 $ 1,200 $ -- $ (237) $ 2,260
========= ============ =============== ============= =========
September 30, 2001
- ------------------
Allowance for doubtful accounts and
reserve for returns $ 5,767 $ 492 $ -- $ (2,675) $ 3,584
========= ============ =============== ============= =========
Reserve for investments in and
advances to unconsolidated
affiliates $ 2,260 $ 2,533 $ -- $ -- $ 4,793
========= ============ =============== ============= =========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
44
PART III
--------
Items 10, 11, 12 and 13 are omitted since the Registrant intends to file a
definitive proxy statement with the Securities and Exchange Commission pursuant
to Regulation 14A within 120 days after the end of Registrant's fiscal year
ended September 30, 2001. The information required by those items shall be set
forth in that definitive proxy statement and such information is hereby
incorporated by reference into this Form 10-K.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a) 1. Financial Statements. See Index under Item 8.
2. Financial Statement Schedules. See Index under Item 8.
3. Exhibits:
The exhibits which are filed with this report are listed in the
Exhibit Index.
(b) Reports on Form 8-K.
The following reports on Form 8-K were filed by the Company during the
fourth quarter of fiscal year 2001.
1. Form 8-K filed August 3, 2001, reporting under Item 2 and Item 9
the acquisition of the assets of New England Semiconductor Corp.
("NES"), as amended by Form 8-K/A, Amendment #1, filed August 31,
2001.
2. Form 8-K filed August 16, 2001, reporting under Item 2 and Item 9
the acquisition of the assets of Compensated Devices, Inc.
("CDI"), as amended by Form 8-K/A, Amendment #1, filed August 31,
2001 and by Form 8-K/A, Amendment #2, dated November 7, 2001.
3. Form 8-K filed August 29, 2001, reporting under Item 5, Item 7 and
Item 9 the amendment and restatement of the Company's Certificate
of Incorporation and its 2-for-1 stock split effective August 28,
2001.
4. Form 8-K/A filed August 31, 2001, reporting under Item 2 the CDI
asset acquisition and Item 5 the NES asset acquisition, and under
Item 7 that the Company has determined that the Item 2 and the
Item 7 requirements are not applicable to the acquisitions of
assets of NES and attaching, as exhibits under Item 7, the CDI
purchase agreements, pending a determination by the Company as to
whether such and further information would be actually required as
to the CDI asset acquisition.
5. Form 8-K/A filed September 4, 2001 is identical to the Form 8-K/A
filed August 31, 2001.
After initial filings on Form 8-K, the Company determined that reporting
requirements under Item 2 and Item 7 of Form 8-K do not apply to its acquisition
of assets of NES. Accordingly, the Company did not file the NES acquisition
agreements in a Form 8-K under Item 7. Subsequently, for the reasons reported in
Form 8-K/A, Amendment #2, filed November 7, 2001, the Company determined that
the requirements of Item 2 and Item 7 of Form 8-K also do not apply to its
acquisition of assets of CDI. Accordingly the Company has not and shall not file
audited financial information specified by Item 7 of either such acquired entity
or pro forma information specified by Item 7 as to either such acquisition.
45
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MICROSEMI CORPORATION
By /s/ DAVID R. SONKSEN
---------------------
David R. Sonksen
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer
and Chief Accounting Officer
and duly authorized to sign on
behalf of the Registrant)
Dated: December 20, 2001
46
POWER OF ATTORNEY
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.
Signature Title Date
--------- ----- ----
/s/PHILIP FREY, JR. Chairman of the Board December 19, 2001
- --------------------
/s/JAMES J. PETERSON President and December 19, 2001
- -------------------- Chief Executive Officer
James J. Peterson
/s/DAVID R. SONKSEN Executive Vice President, December 19, 2001
- ------------------- Chief Financial Officer,
David R. Sonksen Treasurer and Secretary
(principal financial and
accounting officer)
/s/BRAD DAVIDSON Director December 19, 2001
- ----------------
Brad Davidson
/s/H.K. DESAI Director December 19, 2001
- -------------
H.K. Desai
/s/MARTIN H. JURICK Director December 19, 2001
- -------------------
Martin H. Jurick
/s/ROBERT B. PHINIZY Director December 19, 2001
- --------------------
Robert B. Phinizy
/s/JOSEPH M. SCHEER Director December 19, 2001
- -------------------
Joseph M. Scheer
/s/CARMELO J. SANTORO Director December 19, 2001
- ---------------------
Carmelo J. Santoro, Ph.D.
47
Exhibits.
EXHIBIT INDEX
Sequential
Exhibit Page
Number Description Number
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)
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*
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)
48
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)
10.86 Transition and Consulting Agreement dated January 24, 2001 between
Mr. Philip Frey, Jr. and the Registrant* (14)
10.87 Agreements dated January 12, 2001 between James J. Peterson and
the Registrant* (14)
10.88 Agreement dated January 12, 2001 between David R. Sonksen and the
Registrant* (14)
21 List of Subsidiaries
23.1 Consent of Independent Accountants (Form S-3 and Forms S-8)
99.1 Information under heading "Risk Factors" in the Form 424B4
Prospectus(pages 4 through 13, inclusive) as filed by the
Registrant with the Securities and Exchange Commission on June 1,
2000 is incorporated herein by this reference.
*Indicates that the exhibit contains a management compensatory plan or
arrangement.
(1) Filed in Registration Statement (No. 33-3845) and incorporated herein by
this reference.
(2) Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8
Amendment No. 1, as filed with the Commission on September 8, 1992, to its
Current Report on Form 8-K dated July 2, 1992.
(3) Incorporated by reference to Exhibit 2.2 to the Registrant's Form 8
Amendment No. 1, as filed with the Commission on September 8, 1992, to its
Current Report on Form 8-K dated July 2, 1992.
(4) Incorporated by reference to Exhibit 2.3 to the Registrant's Form 8
Amendment No. 1, as filed with the Commission on September 8, 1992, to its
Current Report on Form 8-K dated July 2, 1992.
(5) Incorporated by reference to the indicated Exhibit to the Registrant's
Annual Report on Form 10-K filed with the Commission for the fiscal year
49
ended October 3, 1993.
(6) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q as filed on September 14, 1995 with the
Commission for the fiscal quarter ended April 2, 1995
(7) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q as filed on May 10, 1966 with the
Commission for the fiscal quarter ended March 31, 1996.
(8) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q as filed on February 13, 1997 with the
Commission for the fiscal quarter ended December 29, 1996.
(9) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q as filed on February 9, 1998 with the
Commission for the fiscal quarter ended December 28, 1997.
(10) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q as filed on May 18, 1999 with the Commission
for the fiscal quarter ended April 4, 1999.
(11) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q as filed on August 16, 1999 with the
Commission for the fiscal quarter ended July 4, 1999.
(12) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 8-K as filed on March 15, 2000 with the Commission.
(13) Incorporated by reference to the indicated Exhibit to the Registrant's
Registration Statement of Form 8-A12G as filed December 29, 2000
(14) Incorporated by reference to the indicated Exhibit to the Registrant's
Quarterly Report on Form 10-Q as filed on February 13, 2001 with the
Commission for the fiscal quarter ended December 31, 2000.
(15) Incorporated by reference to the indicated Exhibit to the Registrant's
Current Report on Form 8-K as filed on August 29, 2001
50