ITEM 1. BUSINESS --------
INTRODUCTION - ------------
Microsemi Corporation (the "Company") was incorporated in Delaware in 1960. Its name was changed from Microsemiconductor Corporation in February 1983. The principal executive offices of the Company are located at 2830 South Fairview Street, Santa Ana, California 92704 and its telephone number is (714) 979-8220. Unless the context otherwise requires, the "Company" and "Microsemi" refer to Microsemi Corporation and its consolidated subsidiaries.
Microsemi Corporation is a multinational supplier of high-reliability discrete semiconductors, surface mounted assemblies and hi-rel screening and testing services. Microsemi's power conditioning semiconductor products and custom assemblies are employed by the Company's customers in a wide array of aerospace, defense, medical and other applications ranging from the space shuttles to heart pacemakers, x-ray and other medical equipment, automotive, computer and automation products and communications equipment.
PRODUCTS. - --------
The Company's products include a broad line of discrete semiconductors and other electronic component products and services principally for military, aerospace, medical, computer, telecommunications and other high reliability applications. These components are used throughout the electronics industry, with almost all electronic equipment employing zener diodes or rectifiers to control the direction of electrical current flow, to regulate voltage and to protect sensitive circuitry from line surges and transient voltage spikes. Major products are silicon rectifiers, zener diodes, low leakage and high voltage diodes, temperature compensated zener diodes and a family of subminiature high power transient suppressor diodes.
A partial list of additional applications of the Company's products and services includes: heart pacer transient shock protector diodes (where the Company believes it is the leading supplier in that market), low leakage diodes used in jet aircraft engines and high performance test equipment, high temperature diodes used in oil drilling sensing elements operating at 200 degrees centigrade, temperature compensated zener or rectifier diodes used in missile systems, power transistors and other electronic systems. The Company currently serves a broad group of customers including Hughes, ITT, Bosch Telecom, Motorola, Nokia, Lockheed-Martin, AT&T, Loral, Lucent Technologies, and Honeywell.
The Company also manufactures semiconductors for commercial applications, such as automatic surge protectors, transient suppressor diodes used for telephone applications and computer switching diodes used in computer systems.
MARKETING. - ---------
The Company's marketing strategy has been to concentrate sales efforts in high reliability and specialty markets. These markets require superior product performance and technical assistance to satisfy demanding customer needs.
The Company's products are marketed through domestic electronic component sales representatives and the Company's inside sales force directly to original equipment manufacturers. The Company also employs industrial distributors to service its customers' needs for standard catalog products. For fiscal year 1996, the Company's domestic direct sales force accounted for 35% of the Company's domestic sales, while sales representatives and distributors accounted for approximately 20% and 15%, respectively. The Company has direct sales offices in Los Angeles, Long Island, Phoenix, Boston, Santa Ana, Denver, Chicago, West Palm Beach, Minneapolis, Hong
Kong and Ireland. Sales to foreign customers, made through the Company's direct domestic sales force and 36 overseas sales representatives and distributors, accounted for approximately 30% of fiscal year 1996 sales.
No one customer accounted for more than 3% of the Company's revenue in fiscal year 1996. However, approximately 35% of the Company's business is to customers whose principal sales are to the U.S. Government.
In the ordinary course of business, Microsemi Corporation enters into purchase agreements with some of its major customers to supply the Company's products over periods of up to 18 months.
RESEARCH AND DEVELOPMENT. - ------------------------
The Company spent approximately $1,020,000, $755,000 and $922,000 in fiscal years 1996, 1995 and 1994, respectively, for research and development, none of which was customer sponsored.
The principal focus of the Company's research and development activities has been to improve processes and to develop new products that support the growth of its high reliability and commercial businesses.
MANUFACTURING AND SUPPLIERS. - ---------------------------
The Company's principal domestic semiconductor manufacturing operations are located in Santa Ana, California; Broomfield, Colorado; Scottsdale, Arizona and Watertown, Massachusetts. Each operates independently with its own wafer processing, assembly, testing and high reliability testing and screening departments.
The Company's domestic semiconductor plants manufacture and process all products and assemblies starting from purchased silicon wafers and piece parts. Manufacturing and processing operations are controlled in accordance with military as well as other rigid commercial and industrial specifications.
A major portion of the Company's semiconductor manufacturing effort takes place after the semiconductor is assembled. Parts are tested a number of times, visually screened and environmentally subjected to shock, vibration, "burn in" and electrical tests in order to prove and assure reliability.
The Company's Bombay, India facility assembles a commercial zener diode line for the purpose of competing in the lower cost commercial and consumer markets. This plant also performs subcontract coil manufacturing for one of the Company's customers.
The Company's Hong Kong subsidiary, Microsemi (H.K.) Ltd., produces diode products for major commercial customers. The Hong Kong subsidiary utilizes diode chips manufactured in the U.S. plants and assembles, tests and finishes the products. The plant is approved for assembly of certain military specified diodes.
The Company's Ennis, Ireland operation manufactures diodes, rectifiers, zeners, thyristors and transistors and supports the other Microsemi operations. This plant is Defense Electronics Supply Center (DESC) approved by the U.S. government to screen high reliability product to Military Specification Standard MIL-S-19500 and is also European Space Agency qualified. A Trading Company has been established at this facility for stocking/shipping products from U.S. and Asian locations for European customers.
The Company purchases silicon wafers, glass sleeves, tungsten slugs and lead wires from domestic and foreign suppliers generally on long-term purchase commitments which are cancelable with 30 to 90 day notice. With the exception of glass sleeves for the Santa Ana and Watertown high reliability diode products and glass to metal sealed parts for a portion of the Santa Ana and Scottsdale computer diode and zener diode business, all material is available from multiple sources. In the case of sole source items, the Company has never suffered production delays as a result of vendors' inability to supply the parts. The Company stocks what it believes are adequate supplies of all materials based upon backlog, delivery lead time and anticipated new business.
The Company's component testing and screening operations purchase semiconductor die and assembled components. These parts are available from a number of leading semiconductor manufacturers.
The Company's surface mounted assembly operations design custom circuit boards and purchase component parts. These parts are then assembled using pick and place machines as well as other sophisticated test equipment to meet customer requirements.
FOREIGN OPERATIONS - ------------------
The Company conducts a portion of its operations outside the United States and its business is subject to risks associated with many factors beyond its control, such as fluctuations in foreign currency rates, instability of foreign economies and governments, and changes in U.S. and foreign laws and policies affecting trade and investment. The Company owns or leases manufacturing and assembling facilities in Ennis, Ireland; Bombay, India and Hong Kong and is in the process of establishing a joint venture in The People's Republic of China (PRC). In July 1997, Hong Kong will be returned to the People's Republic of China. The government of the PRC has not announced any significant changes in the conduct of businesses in Hong Kong; however, there can be no assurance that such expected changes will not be made in the future or that the transition of Hong Kong to the PRC will not have any adverse effect to the investment and the results of operations of the Company.
SALES TO FOREIGN CUSTOMERS - --------------------------
Sales to foreign customers represented approximately 30%, 20% and 17% of net sales for the 1996, 1995 and 1994 fiscal years, respectively. Foreign sales may be subject to political and economic risks, including political instability, changes in import/export regulations, tariffs and freight rates and difficulties in collecting receivables and enforcing contracts generally. Changes in tariff structures, exchange rates or other trade policies could adversely affect the Company's sales to foreign customers or the collection of receivables generated from such sales.
ORDER BACKLOG. - -------------
The Company's consolidated order backlog at September 29, 1996 (primarily for delivery within nine months) increased by 8% to $68,000,000 as compared to $62,700,000 at October 1, 1995. The mix of new orders reflects a flat demand in military related business and an increase in commercial, industrial, medical and space business. See discussion of changes in military procurement practices in Management's Discussion and Analysis of Financial Condition and Results of Operations.
Lead times for the release of purchase orders depend upon the scheduling practices of individual customers. The delivery times of new or non-standard products can be affected by scheduling factors and other manufacturing
considerations. The rate of booking new orders can vary significantly from month to month. For these reasons, and because of the possibility of customer changes in delivery schedules or cancellations of orders, the Company's backlog as of any particular date may not be representative of actual sales for any succeeding period.
A portion of the Company's sales are to military and aerospace markets which are subject to the business risk of changes in governmental appropriations and changes in national defense policies and priorities. See discussion of changes in military procurement practices in Management's Discussion and Analysis of Financial Condition and Results of Operations. All of the Company's contracts with prime U.S. Government contractors contain customary provisions permitting termination at any time at the convenience of the U.S. Government or the prime contractors upon payment to the Company for costs incurred plus a reasonable profit. Certain contracts are also subject to price renegotiation in accordance with U.S. Government sole source procurement provisions. No material contract of the Company has been terminated or renegotiated.
COMPETITION. - -----------
The Company competes primarily in the discrete semiconductor market, particularly in the area of high reliability components. The Company has numerous competitors across all of its product lines. In the defense market sector, the Company possesses the major share of the market. In the commercial/industrial arena, there are numerous competitors such as Motorola, Inc., General Instruments Corp., ITT Corp. and National Semiconductor who are significantly larger than Microsemi and have greater resources and larger market shares. Competition in certain of its product lines is dependent on price and performance. Microsemi has been well regarded by its customers in the high reliability area where competition is dependent less on price and more on product reliability and performance.
CHANGES IN TECHNOLOGY - ---------------------
The power semiconductor market is subject to technological change and changes in industry standards. To remain competitive, the Company must continue to devote resources to advance process technologies, to increase product performance, to improve manufacturing yields and to improve the mix between the Company's shipment of military and commercial product and between its high cost and low cost products. There can be no assurance that the Company's competitors will not develop new technologies that are substantially equivalent or superior to the Company's technology.
PROPRIETARY RIGHTS - ------------------
The Company generally does not have, nor does it generally intend to apply for, patent protection on any aspect of its technology. The Company believes that patents often provide only narrow protection and patents require public disclosure of information which may otherwise be subject to trade secret protection. The Company's reliance upon protection of some of its technology as "trade secrets" will not necessarily protect the Company from the use by other persons of its technology, or their use of technology that is similar or superior to that which is embodied in the Company's trade secrets. There can be no assurance that others will not be able to independently duplicate or exceed the Company's technology in whole or in part. No assurances can be made that the Company will be able to maintain the confidentiality of the Company's technology, dissemination of which could have an adverse effect on the Company's business. In addition, litigation may be necessary to determine the scope and the validity of the Company's proprietary rights. There can be no assurance that any patents held by the Company will not be
challenged, invalidated or circumvented, or that the rights granted thereunder will provide competitive advantages to the Company.
MANUFACTURING RISKS - -------------------
The Company's manufacturing processes are highly complex, require advanced and costly equipment and are continuously being modified in an effort to improve yields and product performance. Minute impurities or other difficulties in the manufacturing process can lower yields. In addition, California and the Pacific Rim are known to contain various earthquake faults. The Company's operations could be materially adversely affected if production at any of its major facilities were interrupted. There can be no assurance that the Company will not experience manufacturing difficulties in the future.
EMPLOYEES. - ---------
On September 29, 1996, the Company employed 1,662 persons domestically including 106 in engineering, 1,331 in manufacturing, 101 in marketing and 124 in general management and administration. Additionally, 717 persons were employed in the Company's Hong Kong, Bombay, India, and Ennis, Ireland operations. None of the Company's employees is represented by a labor union. The Company has experienced no work stoppage. The Company believes its employee relations are good.
DEPENDENCE ON KEY PERSONNEL - ---------------------------
The Company's future performance is significantly dependent on the continued active participation of members of its current management. The Company does not have written employment contracts with its employees. Should one or more of the Company's key management employees leave or otherwise become unavailable to the Company, the Company's business and results of operations may be materially adversely affected.
PRODUCT LIABILITY - -----------------
The Company's business exposes it to potential liability risks that are inherent in the manufacturing and marketing of high-reliability electronic components for critical applications. No assurances can be made that the Company's product liability insurance coverage is adequate or that present coverage will continue to be available at acceptable costs, or that a product liability claim would not adversely affect the business or financial condition of the Company.
CHANGE OF CONTROL PROVISIONS - ----------------------------
The Company's Certificate of Incorporation, Bylaws, Shareholder Rights Plan and certain employment compensation plans contain provisions that make it more difficult for a third party to acquire, or that may discourage a third party from attempting to acquire, control of the Company. In addition, as a Delaware corporation, the Company is subject to the restrictions imposed under Section 203 of the Delaware General Corporation Law which may deter the Company from engaging in certain change of control transactions with certain of its stockholders under certain circumstances.
ENVIRONMENTAL REGULATION - ------------------------
While the Company believes that it has the environmental permits necessary to conduct its business and that its activities conform to present environmental regulations, increased public attention has been focused on the environmental impact of semiconductor operations. The Company, in the conduct of its manufacturing operations, has handled and does handle materials that are considered hazardous, toxic or volatile under federal, state and local laws and, therefore, is subject to regulations relating to their use, storage, discharge and disposal. No assurances can be made that the risk of accidental release of such materials can be completely eliminated. In addition, the Company operates or owns facilities located on or near real property that may formerly have been used in ways that involved such materials. In the event of a violation of environmental laws, the Company could be held liable for damages and the costs of remediation, and, along with the rest of the semiconductor industry, is subject to variable interpretations and governmental priorities concerning environmental laws and regulations. Environmental statutes have been interpreted to provide for joint and several liability and strict liability regardless of actual fault. There can be no assurance that the Company and its subsidiaries will not be required to incur costs to comply with, or that the operations, business, or financial condition of the Company will not be materially adversely affected by, current or future environmental laws or regulations.
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS - ----------------------------------------------------------------------------
This Form 10-K contains certain forward-looking statements that are based on current expectations and involve a number of risks and uncertainties. The forward looking statements included herein are, among other items, based on current assumptions that the Company will be able to meet its current operating cash and debt service requirements with internally generated funds and its available line of credit, that it will be able to successfully resolve disputes and other business matters as anticipated, that competitive conditions within the semiconductor, surface mount and custom diode assembly industries will not change materially or adversely, that the Company will retain existing key personnel, that the Company's forecasts will reasonably anticipate market demand for its products, and that there will be no materially adverse change in the Company's operations or business. Assumptions relating to the foregoing involve judgements that are difficult to predict accurately and are subject to many factors that can materially affect results. Forecasting and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause the Company to alter its forecasts, which may in turn affect the Company's results. In light of the factors that can materially affect the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved.
ITEM 2.
ITEM 2. PROPERTIES ----------
The Company's headquarters are located in a building complex located in Santa Ana, California. This complex contains general offices, engineering and manufacturing space. The Company owns office, engineering and production facilities in Santa Ana, California; Broomfield, Colorado; Garland, Texas; Watertown, Massachusetts; Ennis, Ireland; Bombay, India and Hong Kong and leases office, engineering and production facilities in Scottsdale, Arizona and Mooresville, North Carolina. As described in Note 8 to the Consolidated Financial Statements, the acquisitions of land, buildings and additions in Santa Ana and Broomfield were accomplished through the issuance of Industrial Development Bonds. Deeds of trust on the related properties were granted as security for the bonds.
The Company believes that its existing facilities are well-maintained and in good operating condition and that they are adequate for its immediately foreseeable business needs.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS -----------------
The State of Washington, Department of Ecology proposed finding that the Company is a potentially liable party for the study and cleanup of certain hazardous substances which allegedly contaminated what has come to be known as the Yakima Railroad Area Site. The State of Washington claims that the Company was one of the potentially liable parties that arranged for the disposal of those hazardous substances through Cameron-Yakima Incorporated, a company that the State of Washington claims has caused or contributed to the contamination on the site through its operation of a hazardous waste treatment facility. The Company has joined a group of companies, which anticipates resolving its liability with the State of Washington. The Company has provided $50,000 for the estimated settlement cost in the fiscal year ended September 29, 1996. In the opinion of management, the final resolution of this matter is not expected to have a materially adverse effect on the Company's financial position or results of operations.
In Broomfield, Colorado, the owner of a property located adjacent to the manufacturing facility owned by a subsidiary of the Company filed suit against the subsidiary and other parties, claiming that contaminants migrated to his property, thereby diminishing its value. In August 1995, the subsidiary, together with the former owners of the manufacturing facility, agreed to settle the claim and to indemnify the owner of the adjacent property from remediation costs. Although TCE and other contaminants previously used at the facility are present in soil and groundwater on the subsidiary's property, the Company vigorously contests any assertion that the subsidiary is the cause of the contamination; however, there can be no assurance that recourse will be available against third parties. State and local agencies in Colorado are reviewing current data and considering study and cleanup options, and it is not yet possible to predict costs for remediation or the allocation thereof among potentially responsible parties.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ---------------------------------------------------
None.
PART II -------
ITEM 5.
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 System.
POSSIBLE VOLATILITY OF STOCK PRICES -----------------------------------
The market prices of securities issued by technology companies, including the Company, have been volatile. The securities of many technology companies have experienced extreme price and volume fluctuations, which have often been not necessarily related to the companies' respective operating performances. Quarter to quarter variations in operating results, changes in earnings estimates by analysts, announcements of technological innovations or new products, announcements of major contract awards, events involving other companies in the industry and other events or factors may have a significant impact on the market price of the Company's Common Stock.
(b) Approximate Number of Common Equity Security Holders ----------------------------------------------------
(1) The number of stockholders of record includes the beneficial holders of shares held in "nominee" or "street name", as a unit.
(c) Dividends --------- The Company has not paid dividends in the last five years and has no current plans to do so.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA -----------------------
(1) In July 1992, the Company acquired substantially all of the assets of the Semiconductor Products Division of Unitrode Corporation.
(2) In September 1994, the Company recorded a charge to reduce the carrying value of military related inventories and other assets and certain non- military related assets where there had been a permanent reduction in value. (See Note 5 to Notes to Consolidated Financial Statements).
(3) During 1994, the Company disposed of substantially all the assets of Omni Technology Corporation, a wholly owned subsidiary of the Company. (See Note 11 to Notes to Consolidated Financial Statements).
The selected financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Form 10-K.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS -------------
CAPITAL RESOURCES & LIQUIDITY - -----------------------------
Microsemi Corporation's operations in the fiscal year 1996 were funded with internally generated funds and borrowings under the Company's line of credit. In September 1996, the Company obtained a new credit line with a bank. Under the current line of credit, the Company can borrow up to $15,000,000. As of September 29, 1996, $4,214,000 was borrowed under this credit facility. At September 29, 1996, the Company had $4,059,000 in cash and cash equivalents.
A $5,350,000 Industrial Development Revenue Bond was originally issued in April 1985, through the City of Santa Ana Industrial Development Authority for the construction of improvements and new facilities at the Santa Ana plant. It was remarketed in 1995 and carries an average interest rate of 6.75% per annum. The terms of the bond require principal payments of $1,050,000 in 1998, $100,000 annually from 1999 to 2004 and $3,700,000 in 2005. A $5,557,000 letter of credit is carried by a bank to guarantee the repayment of this bond. There are no compensating balance requirements, however, the letter of credit agreement requires the Company to make collateral payments of $350,000 on February 1, 1996, 1997 and 1998, totaling $1,050,000, to complete the payment of principal scheduled for February 1, 1998.
Based upon information currently available, the Company believes that it can meet its current operating cash and debt service requirements with internally generated funds together with its available borrowings.
The Company's revenues continue to be partially dependent on military and aerospace programs. Reductions in defense spending had and will continue to have a negative impact on the Company's operations. Furthermore, there were Department of Defense (DOD) announcements of major changes in defense procurement policy, which included official notification, on August 22, 1994, of Department of Defense acquisition reform to utilize best commercial practices instead of mandatory use of military standard parts. In the past three years, military related business has declined from approximately 50% to 30% of total revenues. The decrease in shipments of military related parts has been more than offset by the increase in shipments of commercial, industrial, medical and space related products. In addition, the Company continues to develop commercial applications for its products to offset this decrease. Although the final impact of the changes in Department of Defense procurement practices is not known, management believes that, either through associated cost reductions or increases in shipments of non Department of Defense products, it will not have a significant impact on total future revenues, operations or cash flows of the Company (see Note 5 to the Consolidated Financial Statements).
The average collection period on accounts receivable was 52 days for the fiscal years 1996 and 1995.
The average days sales of product in inventories decreased to 143 days for fiscal year 1996 compared to 155 days for fiscal year 1995 due primarily to the increase in sales over the prior year.
On October 25, 1996, Microsemi purchased certain assets and the right to manufacture a selected group of products of the high-reliability portion of SGS Thompson's Radio Frequency (RF) Semiconductor business in Montgomeryville, Pennsylvania. The purchase price comprised approximately $2,200,000 in cash and a $700,000 note payable.
The Company has no other significant capital commitments.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR 1996 COMPARED TO THE FISCAL YEAR 1995. - --------------------------------------------------------------------------------
Net sales for fiscal year 1996 increased to $157,435,000, or 18%, from $133,881,000 for fiscal year 1995. The increase of $23,554,000 was due to higher volume of shipments of commercial, industrial and telecommunications and commercial applications, reflecting the increasing demand for the Company's products in these markets, which included an increase in sales to foreign customers.
Gross profit increased $6,320,000 to $42,115,000 for the current fiscal year from $35,795,000 for the prior year, primarily due to the higher sales levels. Gross profit, as a percentage of sales, has remained relatively consistent at 27% for fiscal years 1996 and 1995.
Selling expenses increased $1,163,000 to $9,027,000 for fiscal year 1996, compared to fiscal year 1995, primarily due to increases in commission, salaries and related costs consistent with the increase in sales and an increase in marketing and promotional efforts during 1996. General and administrative expenses in the current year increased $1,715,000 as compared to those of the prior year. This increase was primarily the result of an increase in general and administrative support services and related costs needed to support the continuing growth of the Company.
Interest expense decreased $582,000 to $4,440,000 for fiscal year 1996 from $5,022,000 in fiscal year 1995 primarily due to lower overall borrowings throughout 1996 as compared to 1995, combined with a decrease in interest rates on the Company's Industrial Development Revenue Bond which was remarketed during 1995.
The effective income tax rates of 42% and 41% for the fiscal years 1996 and 1995, respectively, are the combined results of income taxes computed on foreign and domestic income.
RESULTS OF OPERATIONS FOR THE FISCAL YEAR 1995 COMPARED TO THE FISCAL YEAR - --------------------------------------------------------------------------- 1994. - -----
Net sales for fiscal year 1995 increased to $133,881,000, or 12%, from $119,230,000 for fiscal year 1994. The increase of $14,651,000 was due to higher volume of shipments of commercial, industrial and telecommunications products, reflecting the Company's effort to shift toward these markets, and the increase of demand in the electronics industry in general.
Gross profit increased $13,357,000 to $35,795,000 for the current fiscal year from $22,438,000 for the prior year. In fiscal year 1994, cost of sales included a $7,258,000 reduction in the carrying values of certain military and non-military related inventories to reflect their estimated net realizable values. Without this reduction, gross profit for fiscal year 1994 would have been $29,696,000, or 25% of sales compared to 27% for the current fiscal year. The remaining increase in gross profit as a percentage of sales in fiscal year 1995 compared to fiscal year 1994 was primarily due to higher absorption of fixed overhead costs as a result of increased production.
General and administrative expenses for fiscal year 1995 increased $2,038,000; however, general and administrative expenses as a percentage of sales have remained relatively consistent at 9% for fiscal years 1995 and 1994.
The effective income tax (benefit) rates of 41% and (39%) for the fiscal years 1995 and 1994, respectively, are the combined results of income taxes (benefits) computed on foreign and domestic income (loss).
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -------------------------------------------
Microsemi Corporation-Index to Financial Statements ---------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS - ---------------------------------
To the Board of Directors and Stockholders of Microsemi Corporation
In our opinion, the consolidated financial statements and financial statement schedule listed in the accompanying index present fairly, in all material respects, the financial position of Microsemi Corporation and its subsidiaries at September 29, 1996 and October 1, 1995, and the results of their operations and their cash flows for each of the three fiscal years in the period ended September 29, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP Costa Mesa, California November 21, 1996
MICROSEMI CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (amounts in 000's)
The accompanying notes are an integral part of these statements.
MICROSEMI CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in 000's, except earnings per share)
For each of the three fiscal years in the period ended September 29, 1996
The accompanying notes are an integral part of these statements.
MICROSEMI CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (amounts in 000's)
For each of the three fiscal years in the period ended September 29, 1996
The accompanying notes are an integral part of these statements.
MICROSEMI CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in 000's) For each of the three fiscal years in the period ended September 29, 1996
The accompanying notes are an integral part of these statements.
MICROSEMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - -----------------------
The Company designs and manufactures a broad line of discrete semiconductors and provides related services principally for military, aerospace, medical, computer, telecommunications and other electronics markets. Major products are silicon rectifiers, zener diodes, low leakage and high voltage diodes, temperature compensated zener diodes and a family of subminiature high power transient suppressor diodes.
Fiscal Year - -----------
The Company reports results of operations on the basis of fifty-two and fifty- three week periods. The three fiscal years in the period ended September 29, 1996 consisted of fifty-two weeks.
Principles of Consolidation - ---------------------------
The consolidated financial statements include the accounts of Microsemi Corporation and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated.
Use of Estimates - ----------------
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Actual results could differ from those estimates.
Reclassifications - -----------------
Certain reclassifications have been made to the fiscal year 1994 and 1995 balances to conform with the fiscal year 1996 presentation.
Inventories - -----------
Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method except for inventories at the Scottsdale, Arizona subsidiary, which cost is determined using the last-in, first-out method (see Note 2).
Property and Equipment - ----------------------
Property and equipment are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives or leasehold periods, as appropriate. Maintenance and repairs are charged to expense as incurred and the costs of additions and betterments that increase the useful lives of the assets are capitalized.
Impairment of Long-Lived Assets - -------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121). SFAS 121 establishes accounting standards for the impairment of long-lived assets to be reviewed whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Under the provisions of SFAS 121, companies are required to review the recoverability of long-lived assets and intangible assets by comparing cash flows on an undiscounted basis to the net book value of the assets. In the event the projected undiscounted cash flows are less than the net book value of the assets, the carrying values of the assets are written down to their fair value, less cost to sell. In addition, SFAS 121 requires that assets to be disposed of be measured at the lower of cost or fair value, less cost to sell. The Company will be required to adopt SFAS 121 in fiscal year 1997. The adoption of SFAS 121 is anticipated to have an immaterial effect upon the Company's financial statements.
Investments - -----------
The Company's investment in certain unconsolidated affiliates are stated at the lower of cost or estimated net realizable value.
Earnings Per Share - ------------------
Earnings per common and common equivalent share have been computed based upon the weighted average number of common and common equivalent shares outstanding. Outstanding stock options are included as common stock equivalents when the effect on earnings per share is dilutive. Earnings per share for the fully diluted basis have been computed, when the result is dilutive, based on the assumption that the convertible subordinated debentures had been converted to common stock at the date of issuance, with a corresponding increase in net income to reflect a reduction in related interest expense, net of applicable taxes.
The weighted average number of primary common and common equivalent shares was 8,288,000 in 1996, 8,213,000 in 1995 and 7,573,000 in 1994. Shares for the computation of fully diluted earnings per share were 11,805,000 in 1996, 11,861,000 in 1995 and 7,573,000 in 1994.
Disclosures About Fair Value of Financial Instruments - -----------------------------------------------------
The carrying values of cash, cash equivalents, accounts receivable, accrued liabilities and notes payable approximate their fair values because of the short maturity of these instruments.
The carrying value of the Company's long-term debt approximates fair value based upon the current rates offered to the Company for obligations of the same remaining maturities except for the Company's 5.875% Convertible Subordinated Debentures and 10% Convertible Subordinated Notes (Note 8). The estimated fair values of these financial instruments at September 29, 1996 are as follows:
The estimated fair value amounts above have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data and to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in current market exchanges.
Accounting for Stock-Based Compensation - ---------------------------------------
In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock-based Compensation" (SFAS 123) which establishes financial accounting and reporting standards for stock-based employer compensation. Under SFAS 123, companies are encouraged, but not required, to adopt a method of accounting for stock compensation awards based upon the estimated fair value at the date the options/awards are granted as determined through the use of a pricing model (the "Fair Value Method"). Companies continuing to account for such awards in accordance with the existing guidance of Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" (APB 25) will have to disclose, in the Notes to Financial Statements, the pro forma impact on net income and net income per share had the company utilized the Fair Value Method. The Company will be required to adopt SFAS 123 in fiscal year 1997 and anticipates accounting for future stock compensation awards in accordance with APB 25 with the appropriate footnote disclosure required under SFAS 123.
Intangible Assets - -----------------
Intangible assets, arising principally from differences between the cost of acquired companies and the underlying values at dates of acquisition, are amortized on a straight-line basis over periods not exceeding ten years.
Concentration of Credit Risk and Foreign Sales - ----------------------------------------------
The Company is potentially subject to concentrations of credit risk consisting principally of trade receivables. Concentrations of credit risk exist because the Company relies on a significant portion of customers whose principal sales are to the U.S. Government. In addition, sales to foreign customers represented approximately 30%, 20% and 17% of net sales for fiscal years 1996, 1995 and 1994, respectively. These sales were principally to customers in Europe and Asia. The Company maintains reserves for potential credit losses and such losses have been within management's expectations.
2. INVENTORIES
Inventories used in the computation of cost of goods sold were:
Inventories in the amount of $7,408,000 at Microsemi Scottsdale are stated at cost under the last-in, first-out (LIFO) method. Had the first-in, first-out method been used, total inventories would have been approximately $50,000, $100,000 and $1,100,000 higher at each fiscal year end for 1996, 1995 and 1994, respectively. The
LIFO valuation method had the effect of increasing gross profit by $50,000, $1,000,000 and $300,000 in fiscal years 1996, 1995 and 1994, respectively.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
Depreciation expense was $3,640,000, $3,674,000 and $4,238,000 in fiscal years 1996, 1995 and 1994, respectively.
At September 29, 1996, land and buildings located at the Santa Ana, California manufacturing and headquarters facility were pledged to the City of Santa Ana under the provisions of the loan agreement with the Santa Ana Industrial Development Authority. The land and building of the Microsemi Colorado subsidiary were pledged to the City of Broomfield, Colorado under the provisions of the loan agreement with the Colorado Industrial Development Authority. The buildings in Watertown, Massachusetts and in Ennis, Ireland are pledged to Unitrode Corporation under the provisions of the related acquisition agreement.
4. OTHER ASSETS
Other assets consisted of the following:
Accumulated amortization for deferred financing expenses, goodwill and other intangible assets amounted to $2,512,000 and $2,293,000 as of September 29, 1996 and October 1, 1995, respectively.
As of September 29, 1996 and October 1, 1995, Microsemi has a loan of $598,000 to an unaffiliated company collateralized by its property interest in a building in Allen, Texas.
5. REDUCTION IN CARRYING VALUE OF ASSETS
In September 1994, the Company recorded a charge to reduce the carrying value of military related inventories and other assets and certain non-military related assets where there had been a permanent reduction in value.
The charge comprised the following components (amounts in 000's):
A major portion of these charges directly resulted from Department of Defense (DOD) announcements of major changes in defense procurement policy which included official notification, on August 22, 1994, of DOD acquisition reform to utilize best commercial practices instead of mandatory use of military standard parts. These changes in DOD procurement policies required the Company to conduct a revaluation of its military related inventory and other assets used in the more complex military standard parts production, resulting in a revaluation of these assets to reflect their estimated net realizable values on the basis of projected utilization and market value.
In addition, the carrying values of certain other non-military related assets were reduced to reflect their estimated net realizable values. These reductions of carrying values related principally to (1) a dispute, which arose in the fourth quarter of fiscal 1994, relating to inventories previously on consignment and a related note receivable, (2) the permanent reduction in the value of a building owned by the Company, and (3) a reduction in the net realizable values of certain inventories and investments.
The reductions in the carrying values of inventories totaling $7,258,000 were charged to cost of sales in fiscal year 1994. The remaining charge for the reduction in carrying values of the other assets totaling $2,715,000 was included as a component of operating expenses in fiscal year 1994.
7. ACCRUED LIABILITIES
Accrued liabilities consisted of:
7. INCOME TAXES
Pretax income (loss) from continuing operations was taxed under the following jurisdictions:
The provision (benefit) for income taxes consisted of the following components:
Deferred tax assets (liabilities) comprise the following:
The following is a reconciliation of income tax computed at the federal statutory rate to the Company's actual tax expense:
The Company has the following tax loss carryforwards available as of September 29, 1996:
Tax benefits realized in future periods from the purchased net operating losses will be reflected as adjustments to goodwill and other intangible assets which were recorded at the time of the acquisition of the related subsidiaries. All or a portion of the capital loss carryforward amount may be utilized to offset future capital gains.
No provision has been made for future U.S. income taxes on the undistributed earnings of foreign operations since they have been, for the most part, indefinitely reinvested in these operations. Determination of the amount of
unrecognized deferred tax liability for temporary differences related to the undistributed earnings of the Company's foreign operations is not practicable. At the end of fiscal year 1996, the undistributed earnings aggregated approximately $13,828,000.
8. DEBT
Long-term debt consisted of:
Sinking fund payment requirements under the Industrial Development Bonds, and other long-term debt maturities, including the current portion, during the next five years are as follows (amounts in 000's):
A $5,350,000 Industrial Development Revenue Bond was originally issued in April 1985, through the City of Santa Ana for the construction of improvements and new facilities at the Santa Ana plant. It was remarketed in 1995 and carries an average interest rate of 6.75% per annum. The terms of the bond require principal payments of $1,050,000 in 1998, $100,000 annually from 1999 to 2004 and $3,700,000 in 2005. A $5,557,000 letter of credit is carried by a bank to guarantee the repayment of this bond. There are no compensating balance requirements, however, the letter of credit agreement requires the Company to make collateral payments of $350,000 on February 1, 1996, 1997 and 1998, totaling $1,050,000 to complete the payment of principal scheduled for February 1, 1998. An annual commitment fee of 2% is charged on this letter of credit. In addition, the agreement contains provisions regarding net worth and working capital. The Company was in compliance with the aforementioned covenants at September 29, 1996.
In February 1987, the Company sold $40,250,000 of 5.875% convertible subordinated debentures due 2012. The debentures are convertible into common stock at $13.55 per share. As of September 29, 1996 they are redeemable at 100.6% of par plus accrued interest, declining to par on March 1, 1997. Deferred debt issuance costs of $1,128,000 are included in other assets and are being amortized over the life of the debentures on a straight-line basis. In fiscal years 1987, 1988, 1989 and 1991, the Company repurchased a total of $6,969,000 of these debentures due to favorable market conditions.
In June 1992, the Company obtained $2,000,000 from an officer and two existing shareholders to finance a portion of an acquisition completed in fiscal year 1992. The related $2,000,000 of 10% convertible notes are due in 1999 and convertible into common stock at $1.875 per share. In fiscal year 1996, $100,000 was converted into 53,333 shares of common stock.
The Company maintains a revolving credit facility with a domestic bank which will continue through September 1997. Under the credit facility the Company can borrow up to $15,000,000. The credit line has an interest rate of prime and is secured by substantially all of the assets of the Company. In addition, the credit agreement contains provisions regarding net worth and working capital. The Company is in compliance with the aforementioned covenants at September 29, 1996. At September 29, 1996, the balance on this credit facility amounted to $4,214,000.
Notes payable to banks and others at September 29, 1996 included a $51,000 ($7,000 at October 1, 1995) overdraft facility due to a bank in Hong Kong, a demand note payable to the former owner of the Bombay, India facility for $47,000 ($53,000 at October 1, 1995) and $240,000 ($598,000 at October 1, 1995) due to a financial institution in Ireland under an accounts receivable discounting agreement.
9. STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS
Stock Options - -------------
Under the terms of an incentive stock option plan adopted in fiscal year 1982 and amended in fiscal year 1985, nontransferable options to purchase common stock may be granted to certain key employees. 750,000 shares have been reserved for issuance under the terms of the plan. The options may be exercised within ten years from the date they are granted, subject to early termination upon death or cessation of employment, and are exercisable in installments determined by the Board of Directors. For certain significant shareholders, the exercise period is limited to five years and the exercise price is higher.
In December 1986, the Board of Directors adopted another incentive stock option plan (The 1987 Plan) which reserved an additional 750,000 shares of common stock for issuance. The 1987 Plan was approved by the shareholders in February 1987 and is for the purpose of securing for the Company and its shareholders the benefits arising from stock ownership by selected officers, directors and other key executives and management employees. The plan provides for the grant by the Company of stock options, stock appreciation rights, shares of common stock or cash. As of September 29, 1996, only options have been granted under the 1987 Plan. The options may be exercised within ten years from the date they are granted, subject to early termination upon death or cessation of employment, and are exercisable in installments determined by the Board of Directors. For certain significant shareholders, the exercise period is limited to five years and the exercise price is higher.
At their annual meeting on February 25, 1994, the shareholders approved several amendments to the 1987 Plan which 1) extend its termination date to December 15, 2000; 2) increase initially from 750,000 to 850,000 the number of shares available for grants; 3) increase on the first day of each fiscal year, the number of shares available
for grant in increments of 2% of the Company's issued and outstanding shares of common stock; 4) set a limit on the number of options or shares which may be granted to any one individual in any year; 5) eliminate limitations on the Board of Directors' designating one or more committees of any size or composition to administer the 1987 Plan; and 6) provide for automatic grants of stock options to non-employee directors.
Activity and price information regarding the plans are as follows:
Stock options exercisable were 421,590, 414,264 and 469,202 at September 29, 1996, October 1, 1995 and October 2, 1994, respectively. Remaining shares available for grant at September 29, 1996, October 1, 1995 and October 2, 1994 under the plans were 244,489, 175,816 and 176,725, respectively. All options were granted at the fair market value of the Company's shares of common stock on the date of grant.
Employee Benefit Plans - ----------------------
The Microsemi Corporation Profit Sharing Plan, adopted by the Board of Directors in fiscal year 1984, covers substantially all full-time employees who meet certain minimum employment requirements and provides for current bonuses based upon the Company's earnings. Annual contributions to the plan are determined by the Board of Directors. Total charges to income amounted to approximately $2,557,000, $2,882,000 and $2,059,000 in fiscal years 1996, 1995 and 1994, respectively.
401(k) Plan - -----------
The Company sponsors a 401(k) Savings Plan whereby participating employees may elect to contribute up to 15% of their eligible wages. The Company is committed to match 50% of employee contributions, not exceeding 3% of the employee's wages. The Company contributed approximately $821,000, $583,000 and $338,000 to this plan during fiscal years 1996, 1995 and 1994, respectively.
Supplemental Retirement Plan - ----------------------------
In fiscal year 1994, the Company adopted a supplemental retirement plan which provides certain long-term employees with retirement benefits based upon a certain percentage of the employees' salaries. Included in other long-term liabilities at September 29, 1996 and October 1, 1995, was $1,501,000 and $1,406,000, respectively, related to the Company's estimated liability for the plan.
10. COMMITMENTS AND CONTINGENCIES The Company occupies premises under operating lease agreements expiring through 2006. Aggregate future minimum rentals payable under these leases are (amounts in 000's):
Rental expense charged to income was $1,204,000 in fiscal year 1996, $1,472,000 in fiscal year 1995 and $1,297,000 in fiscal year 1994. The aforementioned amounts are net of sublease income amounting to $146,000 and $145,000 in fiscal years 1996 and 1995, respectively. The Company had no sublease income in fiscal year 1994.
In July 1994, the Company received a letter from the State of Washington Department of Ecology stating that it proposed finding the Company a potentially liable party for alleged contamination of real property and ground water in Yakima County, Washington. The letter alleges that the Company arranged for disposal or treatment of the contaminates or arranged with a transporter for the disposal or treatment of the contaminates in Yakima County. The Company has joined a group of companies, which anticipates resolving its liability with the State of Washington. The Company has provided $50,000 for the estimated settlement cost in the fiscal year ended September 29, 1996. In the opinion of management, the final resolution of this matter is not expected to have a materially adverse effect on the Company's financial position or results of operations.
In Broomfield, Colorado, an owner of property located adjacent to a manufacturing facility owned by a subsidiary of the Company had filed suit against the subsidiary and other parties, claiming that contaminants migrated to his property, thereby diminishing its value. In August 1995, the subsidiary, together with former owners of the manufacturing facility, agreed to settle the claim and to indemnify the owner of the adjacent property for remediation costs. Although TCE and other contaminants previously used at the facility are present in soil and groundwater on the subsidiary's property, the Company vigorously contests any assertion that the subsidiary is the cause of the contamination; however, there can be no assurance that recourse will be available against third parties. State and local agencies in Colorado are reviewing current data and considering study and cleanup options, and it is not yet possible to predict costs for remediation or the allocation thereof among potentially responsible parties. In the opinion of management, based in part on the opinion of legal counsel, the final outcome of the Broomfield, Colorado environmental matter will not have a material adverse effect on the Company's financial position or results of operations.
The Company is involved in various pending litigation arising out of the normal conduct of its business, including those relating to commercial transactions, contracts, and environmental matters. In the opinion of management,
based in part on the opinion of legal counsel, the final outcome of these matters will not have a material adverse effect on the Company's financial position or results of operations.
11. DISPOSITIONS
On June 8, 1994, the Company completed a transaction with Technology Marketing Incorporated (TMI) to dispose of substantially all of the assets of Omni Technology Corporation (Omni), a wholly owned subsidiary of the Company. The Company received $200,000 cash, a $300,000 term note receivable, $2,000,000 in 4% redeemable preferred stock, and a warrant to purchase up to 250,000 shares of TMI's common stock at $1.00 per share. The preferred stock is subject to mandatory redemption over a period of between 10 to 20 years based upon the achievement of certain performance objectives by TMI. No gain or loss was recognized on the transaction. The Company received no payments from TMI during fiscal year 1995. The Company repossessed certain assets from TMI in June 1995 and sold a substantial portion of these repossessed assets at an auction in October 1995 for approximately $380,000. The remaining assets associated with the sale of Omni were fully reserved at September 29, 1996 and October 1, 1995 and included in the Company's financial statements at their net balance.
12. GEOGRAPHIC AREAS
The following table presents sales, income from operations and identifiable assets and liabilities by geographic areas for fiscal years 1996, 1995 and 1994:
13. STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statement of Cash Flows, the Company considers all short-term, highly liquid investments with maturities of three months or less at date of acquisition to be cash equivalents.
14. RESEARCH AND DEVELOPMENT
Research and development expenses charged to cost of sales and expenses were $1,020,000, $755,000 and $922,000, for the fiscal years 1996, 1995 and 1994, respectively.
15. SUBSEQUENT EVENT (UNAUDITED)
On October 25, 1996, Microsemi purchased certain assets and the right to manufacture a selected group of products of the high-reliability portion of SGS Thompson's Radio Frequency (RF) Semiconductor business in Montgomeryville, Pennsylvania. The purchase price comprised approximately $2,200,000 in cash and a $700,000 note payable. The acquisition will be accounted for by the purchase method. Accordingly, the results of operations of the RF business will be included with those of the Company subsequent to the date of acquisition.
16. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
Selected quarterly financial data are as follows:
MICROSEMI CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (amounts in 000's)
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. ----------------------------------------------------
None
PART III --------
Items 10, 11, 12 and 13 are omitted since the Registrant intends to file a definitive proxy statement with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of Registrant's fiscal year ended September 29, 1996. The information required by those items is set forth in that certain proxy statement and such information is incorporated in this Form 10-K.
PART IV -------
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. ----------------------------------------------------------------
(a) 1. Financial Statements. See Index under Item 8.
2. Financial Statement Schedules. See Index under Item 8.
3. Exhibits:
The exhibits which are filed with this report are listed in the Exhibit Index.
(b) Reports on Form 8-K.
None
SIGNATURES - ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MICROSEMI CORPORATION
By /s/ DAVID R. SONKSEN ------------------------------- David R. Sonksen Vice President-Finance and Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer and duly authorized to sign on behalf of the Registrant)
Dated: December 16, 1996
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Philip Frey, Jr. his true and lawful attorney-in-fact and agent, with full power of substitution and capacities, to sign the report on Form 10-K and any or all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof in any and all capacities.
Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
$$FOLIO
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (Continued)
3. Exhibits.
EXHIBIT INDEX
Sequential Exhibit Page Number Description Number
2.1 Agreement for Purchase and Sale of Omni Assets dated as of May 18, 1994 between Omni Technology Corporation, a California corporation and a wholly owned subsidiary of the Registrant ("Omni"), and Technology Marketing, Incorporated, a California corporation ("TMI") including the following ancillary documents: (a) Negotiable Promissory Note dated June 2, 1994; (b) Certificate of Determination for Series A Preferred Stock of TMI filed June 8, 1994; (c) Security Agreement dated June 2, 1994; (d) Sublease dated June 2, 1994; and (e) Intercreditor and Subordination Agreement dated June 2, 1994 among Concord Growth Corporation, a California corporation, Omni, and the Registrant (Additional Schedules and Exhibits are not included pursuant to Item 601(b)(2) of Regulation S-K) (24)
3 Restated Certificate of Incorporation and Bylaws of the Registrant (1)
4 Form of Indenture, including form of 5 7/8% Convertible Subordinated Debenture due 2012 (2)
4.1 Subordinated Convertible Note Purchase Agreement dated June 26, 1992 among the Registrant and the Purchasers named therein and Exhibit A hereto, a form of Subordinated Convertible Note (29)
10.1 1984 Incentive Stock Option Plan (as amended December 13, 1984) (3)
10.2 Form of Incentive Stock Option Agreement pursuant to 1984 Incentive Stock Option Plan (3)
10.3 Form of Stock Option Agreement, dated October 17, 1985, between the Registrant and members of the Registrant's Board of Directors (1)
10.4 Limited Partnership Agreement for Testing Laboratory Limited Partnership, effective October 30, 1985, between HDJ Enterprises, Inc. (General Partner), and the Registrant, Milt D. Coggins, Jr., Dick L. Jones and Harry D. Jones (Limited Partners); Arizona Electronic Standard Laboratories, Inc. Stock Acquisition and Option Agreement dated October 30, 1985 among Delbert F. Serbousek and Phyllis J. Serbousek, Arizona Electronic Standards Laboratories, Inc., the Registrant and Testing Laboratory Limited Partnership; and Stock Sale and Amendment to Stock Purchase Agreement and Loan Agreement, dated October 30, 1985, among Delbert F. Serbousek and Phyllis J. Serbousek; Arizona Electronic Standard Laboratories, Inc.; and the Registrant (4)
10.5 Credit Agreement between the Registrant and Security Pacific National Bank, dated as of September 3, 1984, and First Amendment to Credit Agreement dated as of May 1, 1985 (1)
10.6 Lease dated June 29, 1982 between Ulrich Layher and MSC Phoenix, Inc. (1)
10.7 Plan of acquisition of Bikor, Inc. (Exhibit 2.1) (5)
10.8 Plan of acquisition of RPM, Enterprises (Exhibit 2.2) (5)
10.9 Plan of acquisition of Surface Mounted Technology Corporation (Exhibit 2.3) (5)
10.10 Plan of acquisition of Micro Assembly & Test, Inc. (Exhibit 2.4) (5)
10.11 1986 Nonqualified Stock Option Plan of the Registrant (Exhibit 10.9) (5)
10.12 Agreement between Berney Construction, Inc. and the Registrant (Exhibit 10.10) (5)
10.13 The Registrant's 1987 Stock Plan (6)
10.14 Indenture dated as of February 1, 1985, and related Loan Agreement and Reimbursement Agreement both dated as of February 1, 1985, relating to the Industrial Revenue Bonds issued to finance additions to the Santa Ana facility of the Registrant (2)
10.15 Stock Sale Agreement, dated November 12, 1987 between Coors Porcelain Company and the Registrant, relating to the acquisition of Coors Components, Inc. (7)
10.16 Press Release distributed by the Registrant on November 12, 1987, announcing the acquisition of Coors Components, Inc. (7)
10.17 Letter Agreement dated as of September 16, 1987 by and among the Registrant, AVX Corporation ("AVX") and Vitarel Microelectronics, Inc. ("Vitarel") (7)
10.18 Stock, Loan and Equipment Agreement dated as of November 24, 1987 by and among the Registrant, AVX and Vitarel (7)
10.19 Security and Loan Agreement dated as of November 24, 1987 by and among the Registrant, AVX and Vitarel (7)
10.20 Press Release distributed by the Registrant on November 25, 1987, announcing the investment in Vitarel (7)
10.21 Letter Agreement dated June 19, 1987 between Testing Laboratory Limited Partnership ("TLLP"), HDJ Enterprises, Inc. ("HDJ"), Arizona Electronic Standards Laboratories, Inc. ("AESL") and the Registrant(8)
10.22 First Amendment to Limited Partnership Agreement for TLLP dated June 19, 1987 by and among the Registrant, Milt D.Coggins, Jr., Dick L. Jones and Harry D. Jones (8)
10.23 Loan Agreement (Term) dated July 8, 1987 for $1,414,867 executed by the Registrant, AESL, Amerihold, Inc. and TLLP (8)
10.24 Loan Agreement (Revolving) dated July 8, 1987 for $500,000 executed by the Registrant, AESL, Amerihold, Inc. and TLLP (8)
10.25 Mutual Release and Settlement Agreement dated June 19, 1987, executed by AESL, TLLP, HDJ, the Registrant, Nancy L. Jones, Harry D. Jones, Milton D. Coggins, Jr., Dick L. Jones and The Harry D. Jones and Nancy L. Jones Revocable Trust; unexecuted by Delbert F. Serbousek, Phyllis J. Serbousek and Commercial State Bank (8)
10.26 Deed of Trust, dated July 8, 1987, by AESL, as Trustor to Title Insurance Company of Minnesota, as Trustee for the Registrant, as Beneficiary and recorded in the Official Records of Maricopa County, Arizona, July 9, 1987 (8)
10.27 Reorganization Agreement dated as of August 27, 1987 among the Registrant, Microsemi Test Number 3 and Omni Technology Corporation (8)
10.28 Asset Purchase Agreement dated October 12, 1987 among Microsemi Test Equipment, Inc., a subsidiary of the Registrant, Custom Test Technologies, Inc., Stanley E. Wood, John Sullivan and Bernard Elbinger, relating to the acquisition of the assets and operations of Custom Test Technologies, Inc. (8)
10.29 Subscription Agreement dated July 24, 1987 between the Registrant and Diodes Incorporated for the subscription of 800,000 shares of Diodes Incorporated (8)
10.30 Management and Asset Purchase Agreement dated August 7, 1987, between Microcap Corporation, a wholly-owned subsidiary of Registrant, and Cernetics Corporation (8)
10.31 Certificate of Sale dated December 3, 1987 of BT Commercial Corporation ("BT"), and agreed to by Omni Technology Corporation, a subsidiary of the Registrant ("Omni"), relating to the sale by BT to Omni of certain assets of Pacific Reliability Corporation(8)
10.32 Agreement of Purchase and Sale of Stock dated April 6, 1988, between General Microcircuits, Inc. and the Registrant relating to the purchase of all of the outstanding stock of General Microcircuits (9)
10.33 Agreement of Purchase and Sale of Stock dated May 25, 1988, between Distributed Microtechnology, Inc. ("DM") and the Registrant relating to the purchase of all of the outstanding stock of DM (9)
10.34 Assignment of Lease between DM and Westshore Enterprises assigning all interest to DM of the Lease dated February 24, 1986, between National Western - Providence Equity Fund and Westshore Enterprises, Inc. for the premises located at 1592 N. Batavia, Unit 7B, Orange, California (9)
10.35 Asset Purchase and Sale Agreement dated May 31, 1988, between the Registrant and Universal Microtechnologies, Inc. for the purchase of the assets of Universal Microtechnologies (9)
10.36 Recapitalization Agreement executed on September 28, 1988, effective as of July 1, 1988, between the Registrant, AVX Corporation and Vitarel Microelectronics, Inc. regarding the recapitalization of Vitarel Microelectronics, Inc. (9)
10.37 Stock Purchase Agreement dated as of February 17, 1989 by and between Avnet, Inc., a New York corporation, and Salem Scientific, Inc., a Microsemi Company, a Delaware corporation and a wholly-owned subsidiary of the Registrant (10)
10.38 Agreement for Purchase and Sale of Assets dated November 2, 1989 between Microsemi Corp.-Scottsdale, an Arizona corporation and Yubo International Incorporation, a California corporation (11)
10.39 Purchase and Sale Agreement dated November 14, 1989 among Universal Microtechnologies, Inc., a Delaware corporation, the Registrant and Dowty Electronics Company of Brandon, Vermont, a New Jersey corporation (12)
10.40 Stock Purchase Agreement dated October 23, 1989 between GRT Acquisition Corporation, a California corporation and the Registrant (13)
10.41 Third Amendment to Credit Agreement between the Registrant and Security Pacific National Bank dated as of March 10, 1989 (14)
10.42 Fourth Amendment to Credit Agreement between the Registrant and Security Pacific National Bank dated as of June 1, 1989 (14)
10.43 Form of Installment Note dated as of October 20, 1989 relating to the borrowing by the Registrant of $10,000,000 from Sanwa Business Credit Corporation (the "Installment Note") (14)
10.44 Form of Security Agreement dated as of October 20, 1989, entered into by the Registrant for the benefit of Sanwa Business Credit Corporation, relating to the Installment Note (14)
10.45 Form of Security Agreement dated as of October 20, 1989, entered into by Microsemi Corp.-Scottsdale for the benefit of Sanwa Business Credit Corporation relating to the Installment Note (14)
10.46 Form of Security Agreement dated as of October 20, 1989, entered into by Microsemi Corp.-Colorado for the benefit of Sanwa Business Credit Corporation relating to the Installment Note (14)
10.47 Second Amended and Restated Credit Agreement dated as of November 1, 1989 by and between the Registrant and
Security Pacific National Bank (15)
10.48 First Amendment and Forbearance to the Registrant's Second Amended and Restated Credit Agreement dated as of November 1, 1990 (15)
10.49 Confirmation dated December 10, 1990 from Security Pacific National Bank concerning the extension of the Registrant's line of credit and standby letters of credit to February 1, 1991 (15)
10.50 Asset Purchase Agreement dated May 17, 1991 among ST-Semiconductors of Indiana, Inc., an Indiana corporation ("ST"), Lane Jorgensen, Joseph Kaszycki and Peter Klein, the ST stockholders, Microsemi ST-S, Inc., a Delaware corporation and subsidiary of the Registrant ("MSUB"), the Registrant, and INB National Bank, a national association ("INB"), pertaining to the purchase by MSUB of the ST assets from INB, together Exhibits A, B, C and H thereto (16)
10.51 Credit Agreement dated July 3, 1991 between ST, MSUB and INB (16)
10.52 Assignment and Assumption Agreement dated September 23, 1991 by and among Dynamic Circuits, Inc., a California corporation ("Dynamic"), Surface Mounted Technology Corporation, a California corporation ("SMTC") and the Registrant, pertaining to Dynamic's purchase from SMTC of the SMTC assets, together with the following supplemental documentation: (a) Letter of Intent dated August 14, 1991 (and Addendum thereto); (b) Equipment Lease Agreement; (c) Promissory Note; and (d) Security Agreement (16)
10.53 Loan and Security Agreement dated December 6, 1991 between CoastFed Business Credit Corporation, a California corporation ("Coastfed"), and the Registrant, together with the following related documentation: (a) Accounts Collateral Security Agreement; (b) Inventory Collateral Security Agreement; (c) Equipment Collateral Security Agreement; and (d) Continuing Guaranty, executed by the following subsidiaries of the Registrant as guarantor: General Microcircuits, Inc., Microsemi
Corp.-Scottsdale and Microsemi Corp.-Colorado (16)
10.54 Asset Purchase Agreement dated May 28, 1992 between Micro USPD, Inc., a Delaware corporation and wholly-owned subsidiary of the Registrant ("Micro USPD"), and Unitrode Corporation, a Maryland corporation ("Unitrode") (17)
10.55 Irish Acquisition Agreement dated July 2, 1992 among Unitrode Ireland, Ltd., an Irish corporation and wholly-owned subsidiary of Unitrode; Unitrode B.V., a Dutch corporation and wholly-owned subsidiary of Unitrode; and Micro (Bermuda), Ltd., a Bermudian corporation and wholly-owned subsidiary of the Registrant ("Micro Bermuda") (18)
10.56 Dutch Acquisition Agreement dated July 2, 1992 among Unitrode Europe B.V., a Dutch corporation and wholly-owned subsidiary of Unitrode; Unitrode; and MicroBermuda (19)
10.57 Extension Agreement and Amendment, dated July 2, 1992 among Coastfed, the Registrant and certain subsidiaries of the Registrant (20)
10.58 Form of Guarantees given by the Registrant to Midland Bank plc with regard to the obligations of Hybritek Limited dated September 3, 1992 and of Hybritek UK Limited dated October 7, 1992, both United Kingdom companies and indirect, wholly-owned subsidiaries of the Registrant (20)
10.59 Asset Sale Agreement dated October 16, 1992 between Hybritek Limited and Hybritek UK Limited, both United Kingdom companies and indirect, wholly-owned subsidiaries of the Registrant (20)
10.60 Share Sale and Purchase Agreement Relating to Hybritek UK Limited dated October 28, 1992 among Hybritek Limited, a United Kingdom company and indirect wholly-owned subsidiary of the Registrant; the Registrant; and Rood Technology UK Limited, a United Kingdom company (20), excluding the following schedules:
First Schedule Warranties Second Schedule Deed of Indemnity
Third Schedule Short Particulars of the Property Fourth Schedule Limitations Annexure 1 Assets List
10.61 Stock Sale and Assignment Agreement dated November 9, 1992 among the Registrant, Microsemi Assembly and Test, Inc., a California corporation and wholly-owned subsidiary of the Registrant, and Ian S. Scott (20)
10.62 Asset Purchase Agreement dated as of November 24, 1992 by and between the Registrant and GI Corporation, a Delaware corporation (20)
10.63 Amendment Agreement dated as of December 15, 1992 between Coastfed and the Registrant and certain of its subsidiaries (20)
10.64 Promissory Note dated December 21, 1992 made by the Registrant and payable to Norman Wechsler in the original principal amount of $150,000 and extension letter agreement dated April 23, 1993 (21)
10.65 Waiver and First Amendment to Reimbursement Agreement dated as of January 8, 1993 between the Registrant and Bank of America NT&SA with respect to the Reimbursement Agreement (See Exhibit 10.14) dated as of February 1, 1988 (21)
10.66 Senior Note Purchase Agreement dated March 25, 1993 between the Registrant and Norman Wechsler, including as an exhibit thereto the form of Senior Promissory Note dated March 25, 1993 (21)
10.67 Agreement for Purchase and Sale of Micro-Ceramx Assets dated June 25, 1993 between Micro-Ceramx Technology, Inc., a Utah corporation, formerly known as Microcap Corporation and a wholly-owned subsidiary of the Registrant and Custom Ceramic Products, Inc., a California corporation (21)
10.68 Agreement for Purchase and Sale of Bikor Assets dated June 30, 1993 between Bikor Corporation, a California corporation and a wholly-owned subsidiary of the Registrant and BMA, Inc., a California corporation (21)
10.69 Letter dated August 31, 1993 from Unitrode to the Registrant providing for amendments with respect to the Asset Purchase Agreement (See Exhibit 10.54) dated May 28, 1992 between Micro USPD and Unitrode excluding exhibits as follows (22):
Amendments to Promissory Notes dated as of September 3, 1993 between Micro USPD and Unitrode and the respective Promissory Notes dated July 2, 1992 attached as exhibits thereto
10.70 Amended and Restated Loan and Security Agreement dated as of August 1, 1993 between Micro Quality Semiconductor, Inc., a California corporation, and a wholly-owned subsidiary of the Registrant ("Micro Quality") and The CIT Group/Credit Finance, Inc. excluding exhibits as follows (22):
Second Amended and Restated Promissory Note Term Note Permitted Liens and Security Interests List of Locations of Collateral
10.71 Guaranty dated August 1, 1993 by the Registrant respecting Micro Quality's obligations to The CIT Group/Credit Finance, Inc. (22)
10.72 Agreement dated March 30, 1994 between Coastfed and the Registrant, Microsemi Corp.-Scottsdale, Microsemi Corp.-Colorado, General Microcircuits, Inc., Micro-USPD, Inc. and Omni Technology Corporation (23)
10.73 Amendment to the Registrant's 1987 Stock Plan. (25)
10.74 Executive Compensation Plans and Arrangements (26).
10.75 Bill of Sales and Purchase agreement between Telcom Universal Inc. And Microsemi Corporation (26)
10.76 Supplemental to financing documents (Indenture of Trust and Loan agreement) relating to Industrial Development Authority of the City of Santa Ana, 1985 Industrial Development Revenue Bonds Microsemi Corporation Project) dated as of January 15, 1995. (26)
10.77 Amendments of the 1987 Microsemi Corporation Stock Plan. Adopted on May 16, 1995. (27)
10.78 Motorola-Microsemi PowerMite(R) Technology Agreement. (28)
10.79 Revolving Line of Credit Agreement Between Microsemi Corporation and Imperial Bank.
11.6 Earnings per share calculation.
23.1 Consent of Independent Accountants (form S-3).
23.2 Consent of Independent Accountants (form S-8).
27.8 Financial data schedule for the fiscal year ended September 29, 1996.
(1) Filed in Registration Statement (No. 33-3845) and incorporated herein by this reference.
(2) Filed in Registration Statement (No. 33-11967) and incorporated herein by this reference.
(3) Filed with the Registrant's S-8 dated January 27, 1986 and incorporated herein by this reference.
(4) Filed with the Registrant's 10-K for fiscal year ended September 29, 1985 and incorporated herein by this reference.
(5) Incorporated by reference to the indicated Exhibit to the Registrant's Annual Report on Form 10-K filed with the Commission for the fiscal year ended September 28, 1986.
(6) Incorporated by reference form Exhibit A to the Registrant's definitive Proxy Statement dated January 19, 1987.
(7) Incorporated by reference to the indicated Exhibit to the Registrant's Current Report on Form 8-K filed with the Commission on or about December 23, 1987.
(8) Incorporated by reference to the indicated Exhibit to the Registrant's Annual Report on Form 10-K filed with the Commission for the fiscal year ended September 27, 1987.
(9) Incorporated by reference to the indicated Exhibit to the Registrant's Annual Report on Form 10-K filed with the Commission for the fiscal year ended October 2, 1988.
(10) Incorporated by reference to Exhibit 10.33 to the Registrant's Current Report on Form 8-K, as amended, as filed with Commission on or about
April 6, 1989.
(11) Incorporated by reference to Exhibit 10.34 to the Registrant's Current Report on Form 8-K, as filed with the Commission on or about December 22, 1989.
(12) Incorporated by reference to Exhibit 10.35 to the Registrant's Current Report on Form 8-K, as filed with the Commission on or about December 22, 1989.
(13) Incorporated by reference to Exhibit 10.36 to the Registrant's Current Report on Form 8-K, as filed with the Commission on or about December 22, 1989.
(14) Incorporated by reference to the indicated Exhibit to the Registrant's Annual Report on Form 10-K filed with the Commission for the fiscal year ended October 1, 1989.
(15) Incorporated by reference to the indicated Exhibit to the Registrant's Annual Report on Form 10-K filed with the Commission for the fiscal year ended September 30, 1990.
(16) Incorporated by reference to the indicated Exhibit to the Registrant's Annual Report on Form 10-K filed with the Commission for the fiscal year ended September 29, 1991.
(17) Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8 Amendment No. 1, as filed with the Commission on September 8, 1992, to its Current Report on Form 8-K dated July 2, 1992.
(18) Incorporated by reference to Exhibit 2.2 to the Registrant's Form 8 Amendment No. 1, as filed with the Commission on September 8, 1992, to its Current Report on Form 8-K dated July 2, 1992.
(19) Incorporated by reference to Exhibit 2.3 to the Registrant's Form 8 Amendment No. 1, as filed with the Commission on September 8, 1992, to its Current Report on Form 8-K dated July 2, 1992.
(20) Incorporated by reference to the indicated Exhibit to the Registrant's Annual Report on Form 10-K filed with the Commission for the fiscal year ended September 27, 1992.
(21) Incorporated by reference to the indicated Exhibit to the Registrant's Quarterly Report on Form 10-Q filed with the Commission for the fiscal quarter ended July 4, 1993.
(22) Incorporated by reference to the indicated Exhibit to the Registrant's Annual Report on Form 10-K filed with the Commission for the fiscal year ended October 3, 1993.
(23) Incorporated by reference to the indicated Exhibit to the Registrant's Quarterly Report on Form 10-Q filed with the Commission for the fiscal quarter ended April 3, 1994.
(24) Incorporated by reference to the indicated Exhibit to the Registrant's Current Report on Form 8-K, as filed with the Commission dated June 8, 1994.
(25) Incorporated by reference to the indicated Exhibit to the Registrant's Current Report on Form 10-K as filed with the Commission for the fiscal year ended October 2, 1994.
(26) Incorporated by reference to the indicated Exhibit to the Registrant's Quarterly Report o Form 10-Q filed with the Commission for the fiscal quarter ended April 2, 1995
(27) Incorporated by reference to the indicated Exhibit to the Registrant's Quarterly Report on Form 10-Q filed with the Commission for the fiscal quarter ended July 2, 1995.
(28) Incorporated by reference to the indicated Exhibit to the Registrant's Quarterly Report on Form 10-Q filed with the Commission for the fiscal quarter ended March 31, 1996.
(29) Incorporated by reference to the indicated Exhibit to the Registrant's Current Report on Form 8-K, as filed with the Commission dated June 26, 1992.