SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended March 30, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ______to _____ Commission file number 1-5560 ------ Alpha Industries, Inc. (Exact name of registrant as specified in its charter) Delaware 04-2302115 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 20 Sylvan Road, Woburn, Massachusetts 01801 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 935-5150 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------ Common Stock, $.25 par value American Stock Exchange Rights to purchase Common Stock American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------------- -------------------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Registrant's Common Stock held by non- affiliates of the Registrant at May 30, 1997 was approximately $68,216,000. The number of shares of Common Stock outstanding at May 30, 1997 was 10,000,066. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Proxy Statement, to be filed within 120 days of the end of the Registrant's fiscal year are incorporated by reference into Part III of this Report. The Exhibit Index is located on page 38. Page 1 of 193 pages.
- ---------------------------------------- Alpha Industries, Inc. and Subsidiaries - ---------------------------------------- PART I Item 1 Business Products The Company categorizes its product lines and core technologies as follows: . Radio Frequency (RF), Microwave and Millimeter Wave Integrated Circuits (ICs) . Discrete Semiconductors and Passive Components . Ceramic Products The chart below identifies the major markets currently served by each of the Company's product lines. In addition, the Company's products serve other wireless markets. [CHART APPEARS HERE] <TABLE> <CAPTION> - -------------------------------------------------------------------------------- MARKETS PRODUCTS - -------------------------------------------------------------------------------- Discrete Semiconductors & Passive Ceramic ICs Components Products - -------------------------------------------------------------------------------- <S> <C> <C> <C> Cellular Personal Communications Services (PCS) - -------------------------------------------------------------------------------- Handset x x - -------------------------------------------------------------------------------- Base Station x x x - -------------------------------------------------------------------------------- Digital Radio Links x x x - -------------------------------------------------------------------------------- Wireless Cable TV x x x - -------------------------------------------------------------------------------- Satellite Communications x x - -------------------------------------------------------------------------------- Defense-Related Systems x x x - -------------------------------------------------------------------------------- Pagers x x - -------------------------------------------------------------------------------- Global Positioning Systems (GPS) x x - -------------------------------------------------------------------------------- Cordless Telephones x x - -------------------------------------------------------------------------------- </TABLE> RF, Microwave and Millimeter Wave ICs. The Company designs and manufactures RF, microwave and millimeter wave ICs in Gallium Arsenide (GaAs) that integrate numerous functions performed by discrete semiconductors. The functions of the Company's GaAs ICs include amplification, switching and control and frequency conversion of signals in the radio transceiver portion of wireless communications systems. In wireless voice and data applications, the Company's GaAs ICs are used in the handheld unit, base station transceivers and point to point radio links between the base station and local wireline network. The Company's millimeter wave ICs connect transmissions between base stations, including the local wireline PBX switching office. Discrete Semiconductors and Passive Components. The Company fabricates discrete surface mount semiconductors in both GaAs and silicon as stand alone components for specialized applications which are not addressed efficiently by ICs. Silicon technology continues to be used for discrete semiconductors when circuit integration is not possible or for certain applications for which the properties of silicon material provide better performance. Discrete semiconductors are used for amplification, switching and control and frequency conversion in base stations, transmitters and receivers of cellular handsets. In addition, the Company has recently introduced a complementary line of passive semiconductor based components including couplers, power dividers and mixers in both GaAs and silicon utilizing similar surface mount packaging techniques. 2
---------------------------------------- Alpha Industries, Inc. and Subsidiaries ---------------------------------------- Ceramic Products. The Company's ceramic products play a critical role in the signal selection, or filtering process, that is essential to processing communications signals. The physical properties of ceramic materials are suitable for power efficiency and miniaturization. The Company is a major supplier of miniature ceramic antennas to manufacturers of GPS receivers, particularly for compact handheld units which are gaining popularity. Ceramic products are crucial in the frequency-determining portions of direct broadcast satellite television (DBS TV) receivers, radar detectors and intrusion alarms. They are also shrinking the size of cellular radio base station equipment. The principal customers for these products are equipment manufacturers for commercial and defense microwave systems such as cellular telephones, commercial telecommunications, direct broadcast satellites, and military radar, missile, and electronic warfare. The Company's operations are within a single segment of the electronics industry: the development, production and sale of microwave materials, devices and components. Markets and Distribution During fiscal 1997, approximately 79% of the Company's sales were to manufacturers of commercial products, primarily in the wireless communications markets and include components for products such as wireless telephones and base stations in addition to motion detectors and sensors. The remaining 21% of sales were for use in a wide variety of defense-related systems. Export sales to non-affiliates for fiscal 1997, 1996, and 1995 were $26,720,000, $23,633,000, and $16,855,000, respectively. This compares with domestic sales for the same period of $53,168,000, $66,081,000, and $54,974,000, respectively. During fiscal 1997, the Company operated a sales subsidiary in the United Kingdom and a ceramic manufacturing operation in France. At the end of fiscal 1997, the Company sold its ceramic manufacturing operation in France. During fiscal 1996, the Company closed its sales subsidiary in Germany and replaced it with an independent sales representative and distributor. See Note 2 to the Consolidated Financial Statements on page 25 for financial information about the Company's foreign and domestic operations. The Company's sales are made through 13 independent domestic sales representatives and 23 independent international sales representatives, as well as through its own sales force of 34 persons. Approximately 12% of the Company's sales are made through its own direct sales force and 88% through sales representatives. Research and Development The Company's products and markets are subject to continued technological advances. Recognizing this, the Company has maintained a high level of R&D activities to remain competitive in certain areas and to be an industry leader in other areas. Company sponsored R&D expenditures for the fiscal years 1997, 1996, and 1995 were $9.5 million, $9.1 million, and $4.2 million, respectively. Raw Materials Raw materials for the Company's products and manufacturing processes are generally available from several sources. It is the Company's policy not to depend on a sole source of supply. However, there are limited situations where the Company procures certain components and services for its products from single or limited sources. The Company purchases these materials and services on a purchase order basis, does not carry significant inventories and does not have any long-term supply contracts with its source vendors. The 3
- ---------------------------------------- Alpha Industries, Inc. and Subsidiaries - ---------------------------------------- inability of the Company to obtain these materials in required quantities would result in significant delays or reductions in product shipments, which would materially and adversely affect the Company's operating results. Working Capital The business of the Company is not seasonal, and there are no special practices with respect to working capital for the Company or the industry in general. The Company provides a limited warranty on its products against defects in material and workmanship. Payment terms are 30 days in the domestic market and generally 60 days in foreign markets. Contracts During fiscal 1997, one customer accounted for approximately 11% of the Company's total sales. All of the Company's sales to the United States Government and prime contractors and subcontractors thereof are subject to termination at the convenience of the Government, in which event the Company would normally be reimbursed for costs incurred. While U.S. Government orders are canceled in this manner, Alpha has seldom experienced any material terminations for convenience. Competitive Conditions The Company competes on the basis of price, performance, quality, reliability, size, ability to meet delivery requirements and customer service and support. The Company experiences intense competition worldwide from a number of multinational companies that offer a variety of competitive products and broader product lines, and which have substantially greater financial resources and production, marketing, manufacturing, engineering and other capabilities than the Company. The Company also faces competition from a number of smaller companies. In addition, the Company's customers, particularly its largest customers, may have or could acquire the capability to develop or manufacture products competitive with those that have been or may be developed or manufactured by the Company. Patent and Trademarks Alpha owns a small number of patents and has other patent applications under preparation or pending. However, the Company believes that its technological position depends primarily on the ability to develop new innovative products through the technical competence of its engineering personnel. Backlog The Company's backlog of undelivered orders on March 30, 1997 was approximately $32,500,000 compared with $36,500,000 on March 31, 1996. The Company's policy is to record commercial orders on a quarterly basis consistent with expected customer short-term requirements. Management believes all orders in the Company's backlog to be firm. Approximately 90% of the March 30, 1997 backlog is anticipated to be shipped in fiscal 1998. Environmental Regulations In the Company's opinion, compliance with federal, state, and local environmental protection regulations does not and will not have a material effect on the capital expenditures, earnings, and competitive position of the Company. 4
---------------------------------------- Alpha Industries, Inc. and Subsidiaries ---------------------------------------- Executive Officers The following table sets forth certain information with respect to the executive officers of the Company at May 31, 1997. <TABLE> <CAPTION> Name Age Position <S> <C> <C> George S. Kariotis 74 Chairman of the Board of Directors Thomas C. Leonard 62 Director, President and Chief Executive Officer Paul E. Vincent 49 Vice President, Chief Financial Officer and Treasurer David J. Aldrich 40 Vice President Jean Pierre Gillard 53 Vice President Richard Langman 50 Vice President, President of Trans-Tech, Inc. James C. Nemiah 43 Secretary Corporate Counsel </TABLE> All officers serve until the next Board of Directors meeting following the Annual Meeting of Stockholders scheduled for September 8, 1997, or until their successors are elected and qualified. No officer was elected pursuant to any arrangement or understanding. Mr. Kariotis was Chairman of the Board and Chief Executive Officer from 1962 (when the Company was founded) until 1978, and, from 1974 to 1978, he was also Treasurer of the Company. From 1979 to 1983, Mr. Kariotis was the Secretary of Manpower Development and Economic Affairs for the Commonwealth of Massachusetts. He was re-elected Chairman of the Board of the Company in 1983 and Chief Executive Officer in 1985. Mr. Kariotis resigned as Chief Executive Officer in July 1986 while he campaigned for public office. He resumed his position as Chief Executive Officer in November 1986, and served in that capacity until 1991. Mr. Leonard joined the Company in 1992 as General Manager of the Components and Systems Division. He became the General Manager of Operations for the Alpha Microwave Division effective January 1994 and was elected Vice President in 1994. Mr. Leonard was elected President, Chief Executive Officer and Director in July 1996. Mr. Leonard has over 30 years experience in the microwave industry, having held a series of general managerial and marketing positions at M/A-COM, Inc., from 1972 to 1992 and prior to 1972 at Varian Associates and Sylvania. Mr. Vincent joined the Company in 1979 and was the Controller from 1979 to 1997. In January 1997, Mr. Vincent was appointed Vice President, Chief Financial Officer and Treasurer. Mr. Vincent is a Certified Public Accountant. Mr. Aldrich joined the Company in 1995 as Vice President, Chief Financial Officer and Treasurer. In May 1996 Mr. Aldrich was also appointed General Manager of Alpha Microwave. In January 1997, he relinquished his positions as Chief Financial Officer and Treasurer. From 1989 to 1995, Mr. Aldrich held several positions at M/A-COM, Inc., including Manager Integrated Circuits Active Products, Corporate Vice President Strategic Planning, Director of Finance and Administration, and Director of Strategic Initiatives with the Microelectronics Division. Prior to joining M/A-COM, Inc., Mr. Aldrich was Controller with Adams Russell Electronics Company from 1984 to 1989 and a project leader for a NASA satellite communications program with Space Communications Company (a Fairchild Industries and Contel Inc. 5
- ---------------------------------------- Alpha Industries, Inc. and Subsidiaries - ---------------------------------------- Partnership) from 1981 to 1983. Mr. Aldrich is a Director of Microwave Power Devices, Inc., a wireless high-power amplifier company. Mr. Gillard joined the Company in November 1990 as Director of GaAs IC Products. In June 1996, he was named as the Company's Vice President of Business Development. Before joining Alpha, Mr. Gillard held a number of Vice President positions at M/A-COM, Inc. in Sales, Marketing and Business Development. Mr. Gillard received his engineering education at Ecole Central d'Electronique, Paris, France and his business training at the Massachusetts Institute of Technology's Sloan School. Mr. Langman joined the Company in January 1997, as Vice President of Alpha Industries, Inc., and President and General Manager of Trans-Tech, Inc. Prior to joining Alpha and Trans-Tech, Mr. Langman worked for Coors Ceramics Company for twenty-three years, holding senior executive positions in operations and sales. Mr. Langman received his B.S. in Ceramic Engineering from Alfred University and his M.S. in Metallurgy and Material Science from Lehigh University. Mr. Nemiah joined the Company in November 1995 as Corporate Counsel and Assistant Secretary. He was named Secretary in September 1996. Prior to joining the Company, Mr. Nemiah was at American Science and Engineering from 1987 to 1995, holding the positions of Vice President, General Counsel and Clerk. Employees As of March 30, 1997, the Company and its subsidiaries employed approximately 800 persons, compared with 990 persons as of March 31, 1996. Item 2 Properties The following information describes the major facilities owned and leased by the Company. The Company believes it has adequate production capacity to meet its current business needs for the next 12 to 18 months. As described in Note 4 to the Consolidated Financial Statements on pages 27 and 28, several properties secure debt of the Company. a) The Company owns a 158,000 square foot plant plus eight acres of land at 20 Sylvan Road, Woburn, Massachusetts. This plant is occupied by the semiconductor and component manufacturing operations and corporate headquarters. b) The Company owns a 92,000 square foot facility in Adamstown, Maryland. This plant is occupied by the Company's wholly owned subsidiary, Trans-Tech, Inc., and is utilized as the Company's primary ceramic products manufacturing facility. c) The Company leases a 33,000 square foot facility in Frederick, Maryland. This plant is used by the Company's wholly owned subsidiary, Trans-Tech, Inc., to manufacture ceramic filters. d) The Company leases 60,000 square feet of space in Frederick, Maryland. This facility is currently substantially unoccupied and the Company is seeking a sub-tenant for the entire facility. 6
---------------------------------------- Alpha Industries, Inc. and Subsidiaries ---------------------------------------- Item 3 Legal Proceedings The Company does not have any material pending legal proceedings other than routine litigation incidental to its business. The Company has been notified by federal and state environmental agencies of its potential liability with respect to the Spectron, Inc. Superfund site in Elkton, Maryland. Several hundred other companies have also been notified about their potential liability regarding this site. The Company continues to deny that it has any responsibility with respect to this site other than as a de minimis -- ------- party. Management is of the opinion that the outcome of the aforementioned environmental matter will not have a material effect on the Company's operations. See also Note 9 to the Consolidated Financial Statements on page 35. Item 4 Submission Of Matters To A Vote Of Security Holders There were no matters submitted to a vote of security holders during the fiscal quarter ended March 30, 1997. PART II Item 5 Market For The Registrant's Common Stock And Related Stockholder Matters See the section entitled "Quarterly Financial Data" appearing on page 22 for information regarding Common Stock market prices. Dividends have not been paid in either of the past two fiscal years. See Note 4 to the Consolidated Financial Statements appearing on pages 27 and 28 for information regarding dividend restrictions. 7
- ---------------------------------------- Alpha Industries, Inc. and Subsidiaries - ---------------------------------------- Item 6 Selected Financial Data Five Year Financial Summary (In thousands, except per share amounts and financial ratios) <TABLE> <CAPTION> Fiscal Year 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Results of Operations Sales.............................. $ 85,253 $ 96,894 $78,254 $ 70,147 $69,543 Net income (loss).................. (15,572) 3,794 2,847 (11,466) (2,987) Per share data Net income (loss).............. $ (1.58) $ .43 $ .36 $ (1.53) $ (.40) Weighted average common shares........................ 9,848 8,755 7,882 7,502 7,464 Financial Ratios Return (based on net income-net loss) On sales....................... (18.3%) 3.9% 3.6% (16.3%) (4.3%) On average assets.............. (22.1%) 6.0% 6.0% (23.4%) (5.6%) On average equity.............. (30.9%) 8.9% 11.0% (38.3%) (8.1%) Current Ratio...................... 2.10 3.35 1.68 1.64 2.26 Debt to Equity..................... 8.3% 4.5% 17.1% 19.9% 11.8% Financial Position Working Capital.................... $ 18,409 $ 32,647 $10,983 $ 8,981 $15,767 Additions to property, plant and equipment.................... 7,951 12,297 5,248 2,939 4,112 Total assets....................... 65,253 75,423 50,167 44,430 53,777 Long-term debt..................... 3,606 2,565 4,744 4,826 4,191 Long-term capital lease obligations...................... 8 565 754 892 1,032 Stockholders' equity............... 43,386 57,533 27,674 24,261 35,565 Other Statistics New orders (net of cancellations).. 81,300 103,200 84,900 66,700 70,500 Backlog at year end................ $ 32,500 $ 36,500 $30,200 $ 23,500 $26,900 - --------------------------------------------------------------------------------------------------- </TABLE> 8
---------------------------------------- Alpha Industries, Inc. and Subsidiaries ---------------------------------------- Item 7 Management's Discussion And Analysis Of Financial Condition And Results Of Operations Fiscal 1997 Compared to Fiscal 1996 General Despite a difficult 1997 fiscal year, in which the Company lost $15.6 million, changes and improvements completed by the end of the year have strengthened the Company and positioned it for profitability in the first quarter (ending June 1997) of the 1998 fiscal year. The Company's losses in the year were largely the result of an industry-wide over-supply of cellular telephones and related equipment, especially in the North American cellular telephone market, as well as operational difficulties at Trans-Tech, Inc. (TTI), the Company's ceramic component subsidiary. Following a period of extremely strong demand from the Company's customers, many of the Company's customers announced, early in the fourth quarter of the 1996 fiscal year, that they had excessive finished goods inventory, leading them to cut back on existing component orders to the Company and to delay future orders. In July 1996, Thomas C. Leonard was asked by the Board of Directors to take over as President and CEO of the Company. Mr. Leonard had been a Vice President at Alpha for almost four years, concentrating on turning around and improving troubled operations within Alpha Microwave. Alpha Microwave, the Company's Gallium Arsenide (GaAs) Integrated Circuits (ICs) and semiconductor division, operated at virtually break-even for the year, as it continued to invest for increased capacity and market penetration. In May 1996, David J. Aldrich became General Manager of Alpha Microwave and began to institute a series of changes that strengthened the division and prepared it for fast growth when the market returned. Throughout the fiscal year, plans continued to increase capacity, and in the fourth quarter of fiscal 1997, conversion from 3 inch to 4 inch diameter GaAs wafers and the addition of a third shift resulted in a 2.5 to 3-fold increase in the division's capacity to manufacture GaAs ICs. Restructuring of the sales and marketing organizations in the division allowed a tight focus on "strategic customers", the largest original equipment manufacturers in the wireless telephone industry. As a result of all of these actions, Alpha Microwave was profitable in the last two quarters of fiscal 1997. Trans-Tech was particularly hard-hit by the slump, because of operating inefficiencies, which had increased costs and adversely affected shipments to customers. These problems led the Company to seek new management for Trans-Tech - -- a process that was completed only late in January 1997, with the arrival of Richard Langman as the new President and General Manager of Trans-Tech. Analysis of the Trans-Tech situation first by Mr. Leonard and then by Mr. Langman, indicated operational problems, made more painful by the loss of orders from customers who had been disappointed by Trans-Tech's late and unpredictable deliveries. This reduction in order volume at Trans-Tech persisted even as order volume rose in other parts of the Company, which confirmed the decision to divest or close higher-cost, redundant manufacturing operations in France and California. Legal issues in France delayed the sale of the French subsidiary until the end of the fourth quarter, but both operations were disposed of during the fiscal year. These divestitures reduced costs and eliminated excess capacity, without any reduction of product offerings. Also in the fourth quarter, Trans-Tech conducted a significant reduction in force, largely among support personnel and narrowed the focus of its development activities, in order to bring its cost structure in line with its reduced level of business. Also in the fourth quarter, Alpha Microwave sold a small product line consisting of digital radio subsystems. 9
- ---------------------------------------- Alpha Industries, Inc. and Subsidiaries - ---------------------------------------- At the beginning of the year, the Company's break-even was at approximately $25 million per quarter; by the end of the year, with the completion of all of the actions described above, the break-even was at $21-22 million. As a result, the Company announced that all non-recurring events were complete during fiscal 1997 and projected profitability in the first quarter of fiscal 1998. Results of Operations Sales for fiscal 1997 totaled $85.3 million compared to sales of $96.9 million in fiscal 1996. The decrease in fiscal 1997 sales was primarily the result of lower sales volumes at Trans-Tech from the factors discussed above. In contrast, sales of semiconductors and GaAs ICs at Alpha Microwave were lower in the first quarter than in the fourth quarter of fiscal 1996, but showed continued modest growth throughout the year. The Company continued to increase its focus on the commercial wireless markets as military sales declined to 21% of fiscal 1997 sales , compared with 24% in fiscal 1996. The Company will continue to participate in military programs with low risk and those that provide funding for the development of technology that is transferable to commercial wireless applications. Gross profits for fiscal 1997 totaled $16.7 million as compared to $30.9 million in fiscal 1996. The decrease in gross profit in fiscal 1997 was the result of: (i) excess manufacturing capacity at Trans-Tech that was adjusted in the fourth quarter with the divestiture of the French subsidiary and the consolidation at Trans-Tech; (ii) carrying costs of approximately $2.7 million for the two divested operations (incurred prior to divestiture); (iii) a $2.6 million inventory write-down at Trans-Tech resulting from shifts in demand away from certain ceramic products; and (iv) decisions to continue expanding capacity at Alpha Microwave during the year in spite of lower Company-wide sales volumes for the first half of the year. Excluding certain non-recurring costs, primarily the carrying costs and inventory write-down identified above, the Company's gross profit as a percentage of sales would be 27% for fiscal 1997 and 31% for the fourth quarter of fiscal 1997. Company sponsored research and development expenses increased in fiscal 1997 to $9.5 million, or 11% of sales from $9.1 million, or 9% of sales in fiscal 1996. The continued level of research and development expenses reflects the Company's strong commitment to its investment in the GaAs IC product line. The Company is dedicated to supporting high volume applications for wireless customers and will continue to invest in product and process development to better serve its targeted markets. The Company expects a reduction in quarterly R&D of approximately $200 to $300 thousand, due to the refocusing of TTI and the discontinued investment in the digital radio product group. However, the Company will continue to increase investments in high volume wireless products. Selling and administrative expenses increased to $20.4 million, or 24% of sales, in fiscal 1997 compared to $17.2 million, or 18% of sales, in fiscal 1996. The increase in selling and administrative expenses for fiscal 1997 reflects expanded investments in the Company's sales activities. These investments included the addition of dedicated account managers for key wireless OEM manufacturers and improvements to the Company's information systems, such as adding Electronic Data Interchange (EDI) capabilities. Also included in fiscal 1997 selling and administrative expenses are non-recurring costs of $900 thousand for severance costs related to various corporate executives and $626 thousand for recruiting and consolidation costs associated with TTI. Interest expense decreased $189 thousand for fiscal 1997 compared to the same period last year. Interest income increased $43 thousand for fiscal 1997 compared to fiscal 1996. During the third quarter of fiscal 1996, the Company received funds from a secondary offering that were used to reduce debt and increase short-term investments which resulted in decreased interest expense and increased interest income. Other expense and income decreased $87 thousand in fiscal 1997 compared with fiscal 1996. These fluctuations were due to currency gains and losses. 10
---------------------------------------- Alpha Industries, Inc. and Subsidiaries ---------------------------------------- The Company did not record a tax provision for fiscal 1997. No federal taxes were due, and state and foreign taxes were offset by a state loss carryback. The Company is expected to have a below normal tax rate due to net operating loss carryforwards of approximately $36 million which expire beginning in fiscal 2004. The Company reported a net loss of $15.6 million or $1.58 per share compared with net income of $3.8 million or $0.43 per share for fiscal 1996. Financial Position At March 30, 1997, working capital totaled $18.4 million and included $7 million in cash, cash equivalents, and short-term investments, compared with $32.6 million of working capital at the end of fiscal 1996. Cash decreased $5.5 million during fiscal 1997 as a result of a $15.6 million loss, further investments in capital expenditures and a reduction in accounts payable. Capital expenditures of approximately $8 million were used primarily for continued automation of the semiconductor wafer fab operations and the IC and discrete semiconductor assembly and test areas, as well as for improved manufacturing capabilities at the ceramics manufacturing facility. During fiscal 1997, the Company was successful in converting its existing 3 inch GaAs wafer line to 4 inch wafers. A portion of the capital expenditures during the year was funded by a $5 million equipment line of credit, which was subsequently converted to a term note. The Company remains committed to adding the required capacity needed to service the wireless markets as demand continues to grow. The Company currently anticipates investing approximately $10 million in capital expenditures during fiscal 1998. With cash, cash equivalents, and short-term investments of $7 million and a $7.5 million working capital line of credit available until October 1, 1997, the Company believes it has adequate funds to support its current operating and capital investment needs. At March 30, 1997, $1 million was borrowed under the line of credit. As in the past, the Company intends to renew the line of credit when it matures. Also, the Company will continue to evaluate other available sources of financing, such as sale leasebacks or borrowing against its debt-free Massachusetts facility. Other Matters Inflation did not have a significant impact upon the results of operations of the Company during the three year period ended March 30, 1997. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 establishes a different method of computing net income per share than is currently required under the provisions of Accounting Principles Board Opinion No. 15. Under SFAS 128, the Company will be required to present both basic net income per share and diluted net income per share. The impact on diluted net income per share is not expected to be material. The Company plans to adopt SFAS 128 in its fiscal quarter ending December 1997 and at that time all historical net income per share data will be restated to conform to the provisions of SFAS No. 128. 11
- ---------------------------------------- Alpha Industries, Inc. and Subsidiaries - ---------------------------------------- Fiscal 1996 Compared to Fiscal 1995 General The Company set record levels for sales and orders for fiscal 1996, and earnings increased 33% in fiscal 1996 as compared with the prior year. In fiscal 1996, the Company doubled its investments in product development mainly for the Gallium Arsenide Monolithic Integrated Circuits (GaAs MMICs) and ceramic products aimed at the wireless communication markets. At the same time, the Company increased unit output by 64% due to improved manufacturing efficiencies and added capacity for both semiconductor and ceramic products. These actions positioned the Company to support higher demands, particularly for wireless communication products. Unfortunately, an overall softness in the North American cellular market and the delayed roll-out of the Personal Communications System (PCS) was expected to result in lower demand throughout the summer of 1996. Results Of Operations Sales for fiscal 1996 increased 23.8% to $96.9 million as compared to sales of $78.3 million in fiscal 1995. The increase in sales was attributable to increased unit volume in the Company's GaAs MMIC, ceramic and discrete semiconductor product lines primarily into the commercial wireless markets. These unit volume increases were partially offset by a decline in average selling prices because of the Company's shift to high volume business in the commercial sector. As the Company continued to gain strength in the commercial wireless markets, direct sales to the United States Defense Department continued to decline, with 24% of fiscal 1996 sales related to military subcontracts for ultimate sale to the Defense Department or foreign governments, compared with 29% in fiscal 1995. The decrease in defense related business was attributable to the decline in traditional military products and reduced funding for certain weapons systems. Gross profit increased 29.4% in fiscal 1996 to $30.9 million, or 31.9% of sales, as compared to $23.9 million, or 30.5% of sales in fiscal 1995. The improvement in gross profit was the result of: (a) increased sales volumes, (b) higher capacity utilization at the Company's Woburn, Massachusetts manufacturing facility and (c) greater efficiencies due to the consolidation of facilities that took place in fiscal 1994 when the Company moved several product lines to its Woburn, Massachusetts plant. The Company recorded lower margins in the fourth quarter of fiscal 1996 as a result of flattening sales and rising costs due to added manufacturing capacity. Research and development expenses increased 120.2% in fiscal 1996 to $9.1 million, or 9.4% of sales, from $4.2 million, or 5.3% of sales in fiscal 1995. This increase reflects the continued investment by the Company in the GaAs MMIC and ceramic product lines. The Company will continue to invest in product and process development in order to address the demands of its targeted wireless markets. Customer sponsored R&D decreased $3.4 million in fiscal 1996 and $1.9 million in fiscal 1995. As customer sponsored R&D continued to decrease, the Company sponsored R&D will continue to increase since the Company is strongly committed to developing new wireless communications products. However, whenever possible the Company will try to fund its R&D through collaborative developmental contracts. Selling and administrative expenses increased to $17.2 million, or 17.8% of sales, in fiscal 1996. The increase in selling and administrative expenses was primarily a result of training and other costs related to the early phases of implementation of a new manufacturing and management information system, as well as increased commissions related to higher sales volume. Interest expense remained relatively constant for fiscal 1996 and 1995. Interest income increased $315 thousand largely due to interest earned on funds received from a stock offering that was completed during the third quarter of fiscal 1996. The Company successfully completed a secondary public offering which raised $25.3 million, net of expenses, on the sale of 1,840,000 shares of 12
---------------------------------------- Alpha Industries, Inc. and Subsidiaries ---------------------------------------- common stock. Other expense and income increased by $43 thousand in fiscal 1996 compared with fiscal 1995. This fluctuation was due to currency gains and losses. The Company's effective tax rate for fiscal 1996 was 15% compared to the current combined federal, state and foreign rate of approximately 40%. This rate differed from statutory rates primarily as a result of the utilization of net operating loss carryforwards. At March 31, 1996, the Company had available net operating loss carryforwards of approximately $25 million which will expire commencing in 2004. Net income for fiscal 1996 was $3.8 million or $0.43 per share versus $2.8 million or $0.36 per share for fiscal 1995. The first quarter of fiscal 1996 included a repositioning credit of $320 thousand or $0.03 per share which resulted from the reversal of certain accruals for estimated carrying costs as a result of an earlier than expected disposition of the Methuen, Massachusetts facility. Per share data reflected the stock offering completed in the third quarter of fiscal 1996. Financial Position At March 31, 1996, working capital totaled $32.6 million and included $15.5 million in cash, cash equivalents, and short-term investments, compared with $11.0 million of working capital at the end of fiscal 1995. Cash increased $7.8 million during fiscal 1996 mainly as a result of proceeds received from the secondary public offering. During fiscal 1996, the Company had $12.3 million of capital expenditures primarily for the expansion of its ceramic manufacturing facilities, further automation of its semiconductor wafer fab operations, and various information technology equipment. In addition to the proceeds received from the offering, the Company also had two lines of credit available for a total of $12.5 million. The Company entered into a $7.5 million working capital line of credit agreement which was to expire on August 1, 1997, and a $5 million equipment line of credit which was to expire on July 31, 1996. At March 31, 1996 there was $1 million outstanding under the equipment line of credit. In July 1995, the Company sold its Methuen, Massachusetts plant and received net proceeds of $2.5 million. In connection with the sale, using the net proceeds and $1 million borrowed under its line of credit, the Company retired $3.5 million of related debt. Forward-Looking Statements Except for the historical information contained herein, the discussion in this Report contains certain forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in this Report should be read as being applicable to all forward-looking statements wherever they appear in this Report. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences are discussed below. Recent Market Softness. During the fiscal year, a glut of finished goods inventory, overall softness in the North American cellular market and the delayed roll-out of the Personal Communications System (PCS) significantly impacted the Company's orders and shipments. Although the Company believes that the market is currently strong and that the market problems that affected fiscal 1997 have been resolved, there can be no assurance that such inventory imbalance, market softness and delays attendant upon the introduction of new technologies will not occur in the future. Any such events could have a material and adverse effect on the Company's business, financial condition and operating results. Repositioning of Company's Business. The Company has in recent years worked to reposition its business, away from military sales and into commercial sales. Military sales have been declining, and the Company anticipates that revenues from military sales will continue to decline. There can be no assurance that the Company's effort to reposition itself as a supplier of advanced products to wireless communications markets will be successful. If revenues from commercial wireless customers do not grow, or grow less rapidly than 13
- --------------------------------------- Alpha Industries, Inc. and Subsidiaries - --------------------------------------- expected, or if in the near term revenues from military sales decline more rapidly than expected, the Company's operating results could be materially and adversely affected. Variability of Operating Results. The Company's quarterly and annual results have varied in the past and may vary significantly in the future due to a number of factors, including: cancellation or delay of customer orders; market acceptance of the Company's or its customers' products; variations in manufacturing yields; timing of announcement and introduction of new products by the Company and its competitors; changes in revenue and product mix; competition; changes in manufacturing capacity and variations in the utilization of this capacity; variations in average selling prices; variations in operating expenses; the long sales cycles associated with the Company's customer specific products; the timing and level of product and process development costs; cyclicality of the semiconductor and ceramic industries; the timing and level of non-recurring engineering revenues and expenses relating to customer specific products; and changes in inventory levels. Any unfavorable changes in these or other factors could have a material adverse effect on the Company's operating results. The Company's expense levels are based, in part, on its expectations as to future revenue, and certain of these expenses, particularly those relating to the Company's capital equipment and manufacturing overhead, are relatively fixed in nature. For example, the Company is investing in GaAs and silicon process development technology in anticipation of increased revenues from related markets. As a result of the relatively fixed nature of certain of the Company's expenses, operating results would be disproportionately and adversely affected by a reduction in revenue. The Company expects that its operating results will continue to fluctuate in the future as a result of these and other factors. Customer Concentration. Historically, a significant portion of the Company's sales in each fiscal period has been concentrated among a limited number of customers. This trend is accelerating, and in recent periods sales to the Company's major customers as a percentage of total sales have increased. The Company does not generally enter into long-term contracts with its customers, and when it does, the contract is generally terminable for the convenience of the customer. If the Company were to lose one of these major customers, or if orders by a major customer otherwise were to decrease, or if major orders were to be canceled or deferred, the Company's business, financial condition and operating results would be materially and adversely affected. Dependence on Customer Specific Products. Most of the Company's products are designed to be incorporated into specific end-user products. In light of short product life cycles in the wireless communications industry, the Company's future success depends upon its ability to select customer specific development projects which will result in sufficient production volume to enable the Company to recover its development costs and realize a profit on the project. There can be no assurance that the Company will be able to select such customer specific projects, or that the Company's products will be designed into such projects. In addition, OEMs require that their suppliers design and manufacture components very quickly. There can be no assurance that the Company will be able to design, manufacture in large volumes and deliver to its customers high quality, reliable products within the required time periods. The Company has experienced delays in the production of ICs, ceramic products and discrete semiconductors under major contracts with major OEM customers. There can be no assurance similar problems will not recur in the future. Any such problems could have a material and adverse effect on the Company's operating results. Product And Process Development And Technological Change. The wireless communications industry is characterized by frequent new product introductions, evolving industry standards and rapid changes in product and process technologies. The Company believes that its future success will depend upon its ability to continue to improve its product and process technologies and develop new technologies. The success of the Company's new products is dependent upon many factors, including factors that are outside the Company's control. These factors include: the Company's ability to anticipate market requirements in its product development efforts; market acceptance and continued commercial success of OEM products for which the Company's products have been designed; the ability to adapt to technological changes and to support established and emerging industry standards; successful and timely completion of product 14
---------------------------------------- Alpha Industries, Inc. and Subsidiaries ---------------------------------------- development and commercialization; achievement of acceptable wafer fabrication and ceramic process yields and manufacturing yields generally; and the ability to offer new products at competitive prices. No assurance can be given that the Company's product and process development efforts will be successful or that the Company's new products or those of its customers will achieve or sustain market acceptance. In addition, the wireless communications industry is characterized by end-user demands for increased functionality at ever lower prices. To remain competitive, the Company must obtain yield and productivity improvements and cost reductions and must introduce new products which incorporate advanced features and which therefore can be sold at higher average selling prices. To the extent that such cost reductions and new product introductions do not occur in a timely manner or the Company's or its customers' products do not achieve market acceptance, the Company's operating results could be materially and adversely affected. Manufacturing Risks. The manufacturing processes for the Company's products, in particular its GaAs ICs, are highly complex and precise, requiring advanced and costly equipment, and are being modified continually in an effort to improve yields and product performance. The Company expects that its customers will continue to establish demanding specifications for quality, performance and reliability that must be met by the Company's products. The Company has limited experience in high volume manufacturing of certain GaAs ICs and ceramic products for the high volume commercial applications on which its current product development, sales and marketing efforts are focused. The Company has encountered and may in the future encounter development and manufacturing delays, has from time to time failed and may in the future fail to meet its customers' contractual specifications, and one or more of its products have contained and may in the future contain undetected defects or failures when first introduced or after commencement of commercial shipments. If such delays, defects or failures occur, the Company could experience lost revenue, resulting from delays in or cancellations or rescheduling of orders or shipments, product returns or discounts, or could experience increased costs, including product or process redesign, warranty expense or costs associated with customer support, any of which could have a material adverse effect on the Company's operating results. There can be no assurance that the Company will not in the future experience significant product quality, performance or reliability problems. Management of Growth. The growth in the Company's business, and its continuing transition from military to commercial sales, has placed, and is expected to continue to place, a significant strain on the Company's personnel, management and other resources. In order to manage any future growth effectively, the Company will, among other things, be required to upgrade and expand certain manufacturing facilities; attract, train, motivate and manage employees successfully; and continue to improve its operational and financial systems. There can be no assurance that the Company will be successful in these respects. The Company is currently in the process of implementing a new management information system. There can be no assurance that the Company will not encounter problems or increased expense levels in connection with implementing its new management information system. In addition, the Company anticipates that any future growth of its business will require increased utilization of the Company's manufacturing capacity, including increasing the number of shifts during which its manufacturing facilities are operational. Further, any such future growth could require improvement or expansion of the Company's existing manufacturing facilities. Expansion or upgrade of the Company's manufacturing facilities will entail substantial capital expenditures. Lead times for certain capital equipment are long, and modification of the Company's facilities and installation of such equipment is a complex process which could disrupt the Company's ongoing manufacturing operations. Delays in completion of a planned expansion or upgrade could limit the ability of the Company to respond to the rapid design and production cycles required by its customers. Moreover, there can be no assurance that the Company will be able to secure sources of capital adequate to fund the necessary expenditures. The Company could experience product quality, performance or reliability problems and development and manufacturing delays in connection with any such increase in utilization or such expansion or upgrade of the Company's manufacturing capacity. The occurrence of any such problems or the inability of the Company otherwise to manage any future growth effectively could materially and adversely affect the Company's operating results. 15
- ---------------------------------------- Alpha Industries, Inc. and Subsidiaries - ---------------------------------------- Dependence on Key Personnel. The Company's future success depends in large part on the continued service of its key technical, marketing and management personnel, and on its ability to identify, attract and retain qualified technical personnel, particularly highly skilled design, process and test engineers involved in the manufacture of existing products and the development of new products and processes. The competition for such personnel is intense, and the loss of key employees could have a material adverse effect on the Company. Cyclicality of the Company's Markets. While the semiconductor and ceramic markets have in the past experienced overall growth, they have historically been characterized by wide fluctuations in product supply and demand. From time to time, these industries have also experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles and declines in general economic conditions. These downturns have been characterized by diminished product demand, production overcapacity and subsequent accelerated price erosion, and in some cases have lasted for extended periods of time. The Company's business may in the future be materially and adversely affected by industry-wide fluctuations. The Company's continued success will depend in large part on the continued growth of the wireless communications industry. No assurance can be given that the Company will not be adversely affected in the future by cyclical conditions in the wireless communications industry. Competition. Wireless communications markets are intensely competitive and are characterized by rapid technological change, rapid product obsolescence and price erosion. Currently, the Company competes primarily with manufacturers of high performance GaAs ICs, discrete silicon semiconductors, passive components, ceramic filters and other ceramic products and microwave and millimeter wave components. The Company expects increased competition both from existing competitors and others which may enter these markets, as well as potential future competition from companies which may offer new or emerging technologies, such as surface acoustic wave filters, silicon germanium and other silicon technologies. In addition, many of the Company's customers, particularly its largest customers, have or could acquire the capability to develop or manufacture products competitive with those that have been or may be developed or manufactured by the Company. The Company's future operating results may depend in part upon the extent to which these customers elect to purchase from outside sources rather than develop and manufacture their own systems. A number of the Company's competitors have significantly greater financial, technical, manufacturing and marketing resources than the Company. The ability of the Company to compete successfully depends in part upon the ability of the Company to develop price competitive, high quality solutions for OEMs and the extent to which customers select the Company's products over competitors' products for their systems. There can be no assurance that the Company will be able to compete successfully in the future. 16
---------------------------------------- Alpha Industries, Inc. and Subsidiaries ---------------------------------------- Item 8 Financial Statements And Supplementary Data Index To Financial Statements <TABLE> <CAPTION> Page - ------------------------------------------------------------------------------------ <S> <C> Consolidated Balance Sheets - March 30, 1997 and March 31, 1996............... 18 Consolidated Statements of Operations - Years ended March 30, 1997, March 31, 1996, and April 2, 1995............................................. 19 Consolidated Statements of Cash Flows - Years ended March 30, 1997, March 31, 1996, and April 2, 1995............................................. 20 Consolidated Statements of Stockholders' Equity - Years ended March 30, 1997, March 31, 1996, and April 2, 1995............................................. 21 Quarterly Financial Data (unaudited) - Fiscal 1997 and Fiscal 1996............ 22 Notes to Consolidated Financial Statements.................................... 23 Independent Auditors' Report.................................................. 36 - ------------------------------------------------------------------------------------ </TABLE> 17
- --------------------------------------- Alpha Industries Inc. and Subsidiaries - --------------------------------------- Consolidated Balance Sheets (In thousands except share and per share amounts) <TABLE> <CAPTION> March 30, March 31, 1997 1996 - ------------------------------------------------------------------------------- Assets (Note 4) <S> <C> <C> Current assets Cash and cash equivalents........................... $ 5,815 $ 11,326 Short-term investments.............................. 1,218 4,143 Accounts receivable, trade, less allowance for doubtful accounts of $521 and $634............. 17,019 17,688 Inventories (Note 3)................................ 10,267 12,015 Prepayments and other current assets................ 857 1,379 -------- -------- Total current assets.............................. 35,176 46,551 -------- -------- Property, plant and equipment Land................................................ 437 462 Building and improvements........................... 22,659 22,788 Machinery and equipment............................. 59,962 54,794 -------- -------- 83,058 78,044 Less-accumulated depreciation and amortization...... 54,450 49,908 -------- -------- 28,608 28,136 -------- -------- Other assets.......................................... 1,469 736 -------- -------- Total Assets.................................... $ 65,253 $ 75,423 ======== ======== Liabilities And Stockholders' Equity Current liabilities Notes payable, bank (Note 4)........................ $ 1,000 $ --- Current maturities of long-term debt (Note 4)....... 1,939 332 Current maturities of capital lease obligations (Note 4)........................................... 230 443 Accounts payable.................................... 5,620 7,075 Repositioning reserve (Note 5)...................... 1,106 --- Accrued liabilities Payroll, commissions and related expenses......... 5,359 4,898 Other............................................. 1,513 1,156 -------- -------- Total current liabilities....................... 16,767 13,904 -------- -------- Long-term debt (Note 4)............................... 3,606 2,565 Long-term capital lease obligations (Note 4).......... 8 565 Other long-term liabilities........................... 1,486 856 -------- -------- Commitments and contingencies (Note 9) Stockholders' equity (Notes 4 and 7) Common stock par value $.25 per share: authorized 30,000,000 shares; issued 10,126,413 and 9,938,587 shares................................... 2,531 2,484 Additional paid-in capital.......................... 54,640 53,468 Retained earnings (accumulated deficit)............. (13,516) 2,056 -------- -------- 43,655 58,008 Less - Treasury shares 161,139 and 249,052 at cost.. 195 321 Unearned compensation-restricted stock............ 74 154 -------- -------- Total stockholders' equity...................... 43,386 57,533 -------- -------- Total Liabilities and Stockholders' Equity...... $ 65,253 $ 75,423 ======== ======== - -------------------------------------------------------------------------------- </TABLE> The accompanying notes are an integral part of these financial statements. 18
---------------------------------------- Alpha Industries, Inc. and Subsidiaries ---------------------------------------- Consolidated Statements Of Operations (In thousands except per share amounts) <TABLE> <CAPTION> Year Ended March 30, March 31, April 2, 1997 1996 1995 - ------------------------------------------------------------------------------- <S> <C> <C> <C> Sales..................................... $ 85,253 $96,894 $78,254 -------- ------- ------- Cost of sales............................. 68,519 65,986 54,376 Research and development expenses......... 9,545 9,148 4,154 Selling and administrative expenses....... 20,441 17,226 15,727 Repositioning expenses (credit) (Note 5).. 2,074 (320) --- -------- ------- ------- 100,579 92,040 74,257 Operating income (loss)................... (15,326) 4,854 3,997 -------- ------- ------- Other income (expense) Interest expense.......................... (554) (743) (728) Interest income........................... 415 372 57 Other (expense) income, net............... (107) (20) 23 -------- ------- ------- (246) (391) (648) -------- ------- ------- Income (loss) before income taxes......... (15,572) 4,463 3,349 Provision for income taxes (Note 6)....... --- 669 502 -------- ------- ------- Net income (loss)......................... $(15,572) $ 3,794 $ 2,847 ======== ======= ======= Net income (loss) per share............... $(1.58) $.43 $.36 ======== ======= ======= Weighted average common shares and common share equivalents.................. 9,848 8,755 7,882 ======== ======= ======= - ------------------------------------------------------------------------------- </TABLE> The accompanying notes are an integral part of these financial statements. 19
- ---------------------------------------- Alpha Industries, Inc. and Subsidiaries - ---------------------------------------- <TABLE> <CAPTION> Consolidated Statements Of Cash Flows (In thousands) Year Ended March 30, March 31, April 2, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> Cash (used in) provided by operations: Net income (loss)........................................ $ (15,572) $ 3,794 $ 2,847 Adjustments to reconcile net income (loss) to net cash (used in) provided by operations: Depreciation and amortization of property, plant, and equipment....................................... 5,886 4,628 4,106 Amortization of unearned compensation - restricted stock............................................... 35 61 64 Unearned compensation................................ (11) --- --- (Gain) loss on sales and retirements of property, plant, and equipment................................ --- (9) 26 Noncash portion of repositioning charges............. 660 --- --- (Gain) loss on property, plant and equipment due to repositioning.................................... --- (320) --- Increase in other assets............................. (262) (395) (536) Increase (decrease) in other liabilities and long-term benefits.................................. 630 62 399 Issuance of treasury stock to 401(k)................. 831 220 12 Change in assets and liabilities Accounts receivable................................. 771 (4,140) (305) Inventories......................................... 770 (2,645) (1,757) Prepayments and other current assets................ 318 (623) (266) Accounts payable.................................... (1,455) 1,869 141 Accrued liabilities................................. 818 (241) 1,237 Repositioning reserve............................... 1,106 (991) (967) --------- -------- --------- Net cash (used in) provided by operations............ (5,475) 1,270 5,001 --------- -------- --------- Cash used in investments: Additions to property, plant and equipment excluding capital leases............................... (7,951) (11,972) (4,971) Purchases of short-term investments...................... (4,030) (12,113) --- Maturities of short-term investments..................... 6,955 7,970 --- Net proceeds from sale of divestitures................... 1,191 --- --- Proceeds from sale of property, plant and equipment...... --- 31 68 Proceeds from sale of property held for resale........... --- 2,465 --- --------- -------- --------- Net cash used in investments......................... (3,835) (13,619) (4,903) --------- -------- --------- Cash provided by financing: Proceeds from notes payable.............................. 4,952 621 1,983 Payments on notes payable................................ (1,304) (5,807) (330) Payments on capital lease obligations.................... (437) (441) (416) Deferred charges related to long-term debt............... 18 8 (6) Exercise of stock options................................ 462 392 391 Proceeds from sale of stock.............................. 108 25,392 99 --------- -------- --------- Net cash provided by financing....................... 3,799 20,165 1,721 --------- -------- --------- Net decrease (increase) in cash and cash equivalents..... (5,511) 7,816 1,819 Cash and cash equivalents, beginning of year............. 11,326 3,510 1,691 --------- -------- --------- Cash and cash equivalents, end of year................... $ 5,815 $ 11,326 $ 3,510 ========= ======== ========= - ------------------------------------------------------------------------------------------------------------------ </TABLE> Supplemental disclosures: Capital lease obligations of $325 thousand and $277 thousand were incurred during the years ended March 31, 1996, and April 2, 1995, respectively, when the Company entered into leases for new equipment. No new leases were entered into during the year ended March 30, 1997. The accompanying notes are an integral part of these financial statements. 20
---------------------------------------- Alpha Industries, Inc. and Subsidiaries ---------------------------------------- <TABLE> <CAPTION> Consolidated Statements Of Stockholders' Equity (In thousands) Retained Unearned Additional earnings compensation Common stock paid-in (Accumulated) Treasury restricted Shares Par value capital (deficit) stock stock - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Balance April 3, 1994................... 7,787 $ 1,947 $ 27,325 $ (4,585) $ (331) $ (95) Net income.............................. --- --- --- 2,847 --- --- Employee Stock Purchase Plan............ 29 7 92 --- --- --- Issuance of restricted stock ........... 31 8 139 --- --- (147) Amortization of unearned compensation restricted stock........ --- --- --- --- --- 64 Issuance 1,110 treasury shares to ESOP.............................. --- --- 11 --- 1 --- Exercise of stock options............... 147 37 354 --- --- --- ------ ------- -------- --------- -------- -------- Balance April 2, 1995................... 7,994 1,999 27,921 (1,738) (330) (178) Net income.............................. --- --- --- 3,794 --- --- Stock offering net of expenses.......... 1,840 460 24,802 --- --- --- Employee Stock Purchase Plan............ 17 4 126 --- --- --- Issuance of restricted stock............ 9 2 49 --- --- (51) Amortization of unearned compensation restricted stock....... --- --- --- --- --- 61 Issuance 18,334 treasury shares to ESOP............................. --- --- 197 --- 23 --- Repurchase 4,500 shares of restricted stock.................... --- --- --- --- (14) 14 Exercise of stock options............... 79 19 373 --- --- --- ------ ------- -------- --------- -------- -------- Balance March 31, 1996.................. 9,939 2,484 53,468 2,056 (321) (154) Net loss................................ --- --- --- (15,572) --- --- Employee Stock Purchase Plan............ 15 4 104 --- --- --- Amortization of unearned compensation restricted stock........ --- --- --- --- --- 35 Issuance 100,580 treasury shares to 401(k)............................ --- --- 702 --- 129 --- Repurchase 12,667 shares of restricted stock...................... --- --- (53) --- (3) 45 Exercise of stock options............... 172 43 419 --- --- --- ------ ------- -------- --------- -------- -------- Balance March 30, 1997.................. 10,126 $ 2,531 $ 54,640 $ (13,516) $ (195) $ (74) ====== ======= ======== ========= ======== ======== - -------------------------------------------------------------------------------------------------------------------- </TABLE> The accompanying notes are an integral part of these financial statements. 21
======================================= Alpha Industries, Inc. and Subsidiaries ======================================= Quarterly Financial Data (unaudited) (In thousands except share data) <TABLE> <CAPTION> First Second Third Fourth Quarter Quarter Quarter Quarter Year =============================================================================================== Fiscal 1997 <S> <C> <C> <C> <C> <C> Sales........................ $ 20,066 $ 20,137 $ 22,287 $ 22,763 $ 85,253 Gross profit................. 3,792 2,819 5,241 4,882 16,734 Net income (loss)............ (3,424) (4,728) (2,075) (5,345) (15,572) Per share data Net income (loss)........ (.35) (.48) (.21) (.54) (1.58) Market price range: High....................... 11 3/4 9 3/8 9 3/4 9 11 3/4 Low........................ 7 7/8 6 7/8 5 3/4 5 7/8 5 3/4 Fiscal 1996 Sales........................ $ 22,434 $ 23,733 $ 25,237 $ 25,490 $ 96,894 Gross profit................. 7,382 7,897 8,553 7,076 30,908 Net income................... 1,114 1,081 1,437 162 3,794 Per share data Net income(1)............ .14 .13 .16 .02 .43 Market price range: High....................... 15-1/4 19-5/8 17-7/8 13-7/8 19-5/8 Low........................ 10-5/8 14-1/8 10-1/2 7 7 ============================================================================================= </TABLE> The Company's common stock is traded on the American Stock Exchange, symbol AHA. The number of stockholders of record as of May 30, 1997 was approximately 1,100. (1) Earnings per share calculations for each of the quarters are based on the weighted average number of shares outstanding and included common stock equivalents in each period. Therefore, the sum of the quarters does not necessarily equal the full year earnings per share. 22
======================================= Alpha Industries, Inc. and Subsidiaries ======================================= Notes To Consolidated Financial Statements Note 1 Summary of Significant Accounting Policies Principles of Consolidation: The financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company's fiscal year ends on the Sunday closest to March 31. There were 52 weeks in fiscal 1997, 1996 and 1995. Use of Estimates: The preparation of consolidated 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. Actual results could differ from those estimates. Revenue Recognition: Revenue is recognized when a product is shipped and services are performed. Contract revenue is recognized on the percentage-of-completion method, which is primarily measured on the ratio of units shipped to the total contract number of units. Provisions for estimated losses, if any, on uncompleted contracts are made in the period in which such losses are determined. Foreign Currency Translation: The accounts of foreign subsidiaries are translated in accordance with the Financial Accounting Standards Board Statement No. 52. Foreign operations are remeasured as if the functional currency were the U.S. dollar. Monetary assets and liabilities are translated at the year end rates of exchange. Revenues and expenses (except cost of sales and depreciation) are translated at the average rate for the period. Non-monetary assets, equity, cost of sales and depreciation are remeasured at historical rates. Remeasurement gains and losses are reflected currently in operations and are not material. Research and Development Expenditures: Research and development expenditures are charged to income as incurred unless they are reimbursed under specific contracts. Cash, Cash Equivalents and Short-term Investments: Cash and cash equivalents include cash deposited in demand deposits at banks and highly liquid investments with original maturities of 90 days or less. During fiscal year 1996, the Company adopted Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Accordingly, the Company's short-term investments are classified as held-to-maturity. These investments consist primarily of commercial paper and bonds with original maturities of more than 90 days. Such short-term investments are carried at amortized cost, which approximates fair value, due to the short period of time to maturity. Gains and losses are included in investment income in the period they are realized. Inventories: Inventories are stated at the lower of cost, determined on a first-in, first- out basis, or market. 23
======================================= Alpha Industries, Inc. and Subsidiaries ======================================= Notes To Consolidated Financial Statements (continued) Note 1 Summary of Significant Accounting Policies (continued) Property, Plant and Equipment: Property, plant and equipment are carried at cost. Depreciation is provided on the straight-line method for financial reporting and accelerated methods for tax purposes. Estimated useful lives used for depreciation purposes are 5 to 30 years for buildings and improvements and 3 to 10 years for machinery and equipment. During fiscal 1996, the Company removed $7.7 million of fully depreciated fixed assets from the related property and accumulated depreciation accounts. Fair Value of Financial Instruments: Financial instruments of the Company consist of cash, cash equivalents, accounts receivable, accounts payable and accrued liabilities. The carrying value of these financial instruments approximates their fair value because of the short maturity of these instruments. Based upon borrowing rates currently available to the Company for issuance of similar debt with similar terms and remaining maturities, the estimated fair value of long-term debt approximates their carrying amounts. The Company does not use derivative instruments. Income Taxes: The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. This method also requires the recognition of future tax benefits such as net operating loss carryforwards, to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Net Income Per Share: In fiscal 1997, 1996, and 1995, the computation of both primary and fully diluted earnings per share was based on the weighted average number of outstanding common shares. Fiscal 1997 does not include common stock equivalents since the effect would have been antidilutive. In fiscal 1996 and 1995 the computation was based on the weighted average shares of common stock outstanding plus common equivalent shares arising from the effect of dilutive stock options and warrants, using the treasury stock method. The weighted average number of shares of common stock and common equivalent shares outstanding, if applicable, for the calculation of primary earnings per share was 9,848,000 in fiscal 1997, 8,755,000 in fiscal 1996, and 7,882,000 in fiscal 1995. 24
======================================= Alpha Industries, Inc. and Subsidiaries ======================================= Notes To Consolidated Financial Statements (continued) Note 1 Summary of Significant Accounting Policies (continued) New Accounting Standards: During fiscal 1997, the Company adopted Financial Accounting Standards Board Statements No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and No. 123, "Accounting for Stock- Based Compensation" (FAS 123). The adoption of these standards had no material impact on the financial position or the results of operations of the Company in fiscal 1997. Under FAS 123, the Company has elected not to adopt the new accounting method and will continue to account for its stock-based compensation under the existing provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations. Accordingly, the Company has provided pro-forma disclosures of net earnings and earnings per share assuming FAS 123 had been adopted. (See Note 7 for the additional disclosures required by FAS 123.) Note 2 Company Operations The Company operates in one industry segment: the development, production and sale of microwave materials, devices and components. Sales include export sales primarily to Europe and to a lesser extent Southeast Asia of $26,720,000, $23,633,000, and $16,855,000, in fiscal 1997, 1996, and 1995, respectively. During fiscal year 1997, one customer accounted for 11% of the Company's total sales whereas, during fiscal years 1996 and 1995, no one customer accounted for 10% or more of the Company's total sales. The Company is focused on four major OEMs and six other customers that the Company believes are principal suppliers to these OEMs in the wireless communications market. For fiscal 1997 sales to the four major OEMs and their suppliers represented approximately 26% of the Company's sales. In fiscal 1995 and 1994 sales to these OEMs and their suppliers represented approximately 29% and 17% of the Company's sales, respectively. While the Company believes that these emerging wireless markets afford great opportunities, such customer concentration could have an adverse affect on the business. 25
======================================= Alpha Industries, Inc. and Subsidiaries ======================================= Notes To Consolidated Financial Statements (continued) Note 2 Company Operations (continued) During fiscal 1997, the Company operated a sales subsidiary in the United Kingdom and a ceramic manufacturing operation in France. At the end of fiscal 1997, the Company sold its ceramic manufacturing operation in France. During fiscal 1996, the Company closed its sales subsidiary in Germany and replaced it with an independent sales representative and distributor. The following table shows certain financial information relating to the Company's operations in various geographic areas (in thousands): <TABLE> <CAPTION> 1997 1996 1995 ================================================================================ <S> <C> <C> <C> Sales United States Customers.................. $ 76,004 $ 83,078 $ 67,495 Intercompany............... 6,472 8,526 6,665 Europe Customers.................. 9,249 13,816 10,759 Eliminations.................. (6,472) (8,526) (6,665) --------- --------- --------- Net Sales........................ 85,253 96,894 78,254 --------- --------- --------- Income (loss) before taxes United States................. (13,520) 3,553 2,723 Europe........................ (2,052) 910 626 --------- --------- --------- Income (loss) before taxes....... (15,572) 4,463 3,349 --------- --------- --------- Assets United States................. 61,547 69,201 44,896 Europe........................ 3,706 6,222 5,271 --------- --------- --------- Total Assets..................... $ 65,253 $ 75,423 $ 50,167 ========= ========= ========= </TABLE> ================================================================================ Transfers between geographic areas are made at terms that allow for a reasonable profit to the seller. Note 3 Inventories <TABLE> <CAPTION> March 30, March 31, Inventories consisted of the following (in thousands): 1997 1996 ================================================================================ <S> <C> <C> Raw materials......................................... $ 4,886 $ 4,878 Work-in-process....................................... 3,439 5,830 Finished goods........................................ 1,942 1,307 --------- --------- $ 10,267 $ 12,015 ========= ========= </TABLE> ================================================================================ During fiscal 1997, the Company recorded a $2.6 million write-down of inventory resulting from shifts in demand away from ceramic products. 26
======================================= Alpha Industries, Inc. and Subsidiaries ======================================= Notes To Consolidated Financial Statements (continued) Note 4 Borrowing Arrangements and Commitments Line Of Credit The Company has a $7.5 million Working Capital Line of Credit Agreement which expires in October 1997. This line of credit is collateralized by the assets of the Company, excluding real property, not otherwise collateralized. A commitment fee of 1/2% per year is due quarterly under the Agreement. At March 30, 1997, there was $1.0 million outstanding under the Agreement. At March 31, 1996, there was no outstanding balance under this Agreement. Long-Term Debt <TABLE> <CAPTION> March 30, March 31, Long-term debt consisted of the following (in thousands): 1997 1996 ================================================================================ <S> <C> <C> Equipment Term Note (a)............................. $ 3,998 $ 1,011 9-1/2% Mortgage Note Payable (b).................... --- 40 Industrial Revenue Bond (c)......................... 558 667 French Government Sponsored and Start-up Loans (d).. 170 251 CDBG Grant (e)...................................... 819 928 -------- -------- 5,545 2,897 Less - current maturities........................... 1,939 332 -------- -------- $ 3,606 $ 2,565 ======== ======== </TABLE> ================================================================================ a. The equipment term note is at LIBOR (5.4375% at March 30, 1997 and March 31, 1996) plus 3% and 2%, respectively. This note is collateralized by the assets of the Company, excluding real property, not otherwise collateralized. Principal payments of $137,871 plus interest are due monthly until August 1999. b. The mortgage note payable was paid in full during fiscal 1997. c. An industrial revenue bond is held by the Farmers and Mechanics National Bank. The interest rate on this bond is prime (8.5% at March 30, 1997) and quarterly principal payments of $27,777 are due until March 2002. The bond is secured by various property, plant and equipment with a net book value of $2,697,000 at March 30, 1997. d. The Company has three unsecured government sponsored and start-up business loans. The first loan has an interest rate of 8.75% and requires annual payments of $36,000 through December 1998. The second loan has an interest rate of 5% and requires quarterly principal and interest payments of $8,300 through February 2000. The third loan has an interest rate of 9.0% and requires principal and interest payments of $3,500 through January 1998. e. The Company obtained a ten year $960,000 loan from the State of Maryland under the Community Development Block Grant program. Quarterly payments are due through December 2003 and represent principal plus interest at 5% of the unamortized balance. 27
- --------------------------------------- Alpha Industries, Inc. and Subsidiaries - --------------------------------------- Notes To Consolidated Financial Statements (continued) Note 4 Borrowing Arrangements and Commitments (continued) Aggregate annual maturities of long-term debt are as follows (in thousands): <TABLE> <CAPTION> Fiscal Year ================================================================================ <S> <C> 1999................................................ $ 1,950 2000................................................ 944 2001................................................ 234 2002................................................ 240 Thereafter.......................................... 238 -------- $ 3,606 ======== </TABLE> ================================================================================ Capital Lease Obligations <TABLE> <CAPTION> At March 30, 1997 included in property, plant and equipment are the following capitalized leases (in thousands): <S> <C> Property, plant and equipment....................... $ 1,798 Accumulated depreciation and amortization........... 1,433 -------- $ 365 ======== </TABLE> Future minimum lease payments under the capitalized lease obligations at March 30, 1997 were as follows (in thousands): <TABLE> <CAPTION> Fiscal Year ================================================================================ <S> <C> 1998................................................ $ 236 1999................................................ 9 -------- Total minimum lease payments........................ 245 Less: Amount representing interest................. 7 -------- Present value of net minimum lease payments......... 238 Less: Current maturities........................... 230 -------- Long-term maturities................................ $ 8 ======== </TABLE> ================================================================================ Cash payments for interest were $470,000, $906,000, and $635,000 in fiscal 1997, 1996, and 1995, respectively. The bond, line of credit and term loan agreements include various covenants that require maintenance of certain financial ratios and balances and restrict creation of funded debt and payment of dividends. Under the most restrictive covenants the Company may not pay dividends except restricted payments in an amount not to exceed $100,000 in connection with the redemption of certain common stock repurchase rights. 28
--------------------------------------- Alpha Industries, Inc. and Subsidiaries --------------------------------------- Notes To Consolidated Financial Statements (continued) Note 5 Repositioning Charge During fiscal 1997, the Company successfully completed the resizing of Trans- Tech, Inc.(TTI), its Maryland subsidiary, which included the sale of Trans-Tech Europe (TTE), its French ceramic manufacturing operation, and the closing of the TTI California facility. The Company also completed the sale of the digital radio product line. The above actions resulted in a repositioning charge which was recorded in the fourth quarter of fiscal 1997. The charge included the following items (in thousands): <TABLE> <CAPTION> <S> <C> Employee severance at TTI............. $ 493 Lease commitments on unoccupied facilities at TTI................... 512 Write-off of excess equipment at TTI.. 263 Net loss on divestitures.............. 806 ------ Total repositioning charge............ $2,074 ====== </TABLE> The severance charges were related to a reduction in force of 47 employees, largely among support personnel, and were completed in the fourth quarter of fiscal 1997. The cash payments relating to the repositioning charge will total approximately $1.4 million. As of March 31, 1997, cash payments totaling $308 thousand were made. Approximately $971 thousand is expected to be paid in fiscal 1998 with the remaining balance to be paid in fiscal 1999. During fiscal 1996, the Company sold its Methuen, Massachusetts plant which resulted in a $320 thousand repositioning credit attributable to the reversal of certain accruals as a result of an earlier than expected disposition of this facility. Note 6 Income Taxes Income (loss) before income taxes consisted of (in thousands): <TABLE> <CAPTION> 1997 1996 1995 - -------------------------------------------------------------------------------- <S> <C> <C> <C> Domestic....................... $(13,520) $3,553 $2,723 Foreign........................ (2,052) 910 626 -------- ------ ------ $(15,572) $4,463 $3,349 ======== ====== ====== <CAPTION> The provision for income taxes consisted of (in thousands): 1997 1996 1995 - -------------------------------------------------------------------------------- <S> <C> <C> <C> Current income taxes Federal...................... $ --- $ 69 $ 75 State........................ (119) 108 217 Foreign...................... 119 492 210 -------- ------ ------ $ --- $ 669 $ 502 ======== ====== ====== </TABLE> 29
- --------------------------------------- Alpha Industries, Inc. and Subsidiaries - --------------------------------------- Notes To Consolidated Financial Statements (continued) Note 6 Income Taxes (continued) The provision for income taxes is different from that which would be obtained by applying the statutory Federal income tax rate to income (loss) before income taxes. The items causing this difference are as follows (in thousands): <TABLE> <CAPTION> 1997 1996 1995 - -------------------------------------------------------------------------------- <S> <C> <C> <C> Tax expense (benefit) at U.S. statutory rate.. $(5,294) $1,517 $1,139 State income taxes, net of Federal benefit.... 79 71 143 Change in valuation allowance................. 5,189 (882) (763) Other net..................................... 26 (37) (17) ------- ------ ------ $ --- $ 669 $ 502 ======= ====== ====== </TABLE> The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 30, 1997 and March 31, 1996 are as follows (in thousands): <TABLE> <CAPTION> 1997 1996 - -------------------------------------------------------------------------------- <S> <C> <C> Deferred tax assets: Accounts receivable due to bad debts...................... $ 195 $ 234 Inventories due to reserves and inventory capitalization.. 1,417 729 Accrued liabilities....................................... 1,584 575 Deferred compensation..................................... 102 177 Other..................................................... 7 6 Net operating loss carryforward........................... 13,109 9,275 Charitable contribution carryforward...................... 37 32 Minimum tax credits and state tax credit carryforwards.... 555 415 -------- ------- Total gross deferred tax assets.......................... 17,006 11,443 Less valuation allowance................................. (13,503) (8,314) -------- ------- Net deferred tax assets.................................. 3,503 3,129 -------- ------- Deferred tax liabilities: Property, plant and equipment due to depreciation......... (3,503) (3,129) -------- ------- Total gross deferred tax liability....................... ( 3,503) (3,129) -------- ------- Net deferred tax......................................... $ --- $ --- ======== ======= </TABLE> The valuation allowance for deferred tax assets as of March 30, 1997 and March 31, 1996 was $13,503,000 and $8,314,000, respectively. The net change in the total valuation allowance for the years ended March 30, 1997 and March 31, 1996 was an increase of $5,189,000 and a decrease of $882,000, respectively. Cash payments for income taxes were $149,000, $241,000 and $157,000 in fiscal 1997, 1996 and 1995, respectively. As of March 30, 1997, the Company has available for income tax purposes approximately $36,000,000 in federal net operating loss carryforwards which may be used to offset future taxable income. These loss carryforwards begin to expire in fiscal year 2004. Should the Company undergo an ownership change as defined in Section 382 of the Internal Revenue Code, the Company's tax net operating loss carryforwards generated prior to the ownership change will be subject to an annual limitation which could reduce or defer the utilization of these losses. The Company also has minimum tax credit carryforwards of approximately $25,000 which are available to reduce future federal regular income taxes, if any, over an indefinite period. In addition, the Company has state tax credit carryforwards of $530,000 of which $218,000 is available to reduce state income taxes over an indefinite period. 30
--------------------------------------- Alpha Industries, Inc. and Subsidiaries --------------------------------------- Notes To Consolidated Financial Statements (continued) Note 6 Income Taxes (continued) The Company has not recognized a deferred tax liability of approximately $148,000 for the undistributed earnings of its 100 percent owned foreign subsidiaries that arose in 1997 and prior years because the Company currently does not expect those unremitted earnings to reverse and become taxable to the Company in the foreseeable future. A deferred tax liability will be recognized when the Company expects that it will recover those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of the investments. As of March 30, 1997, the undistributed earnings of these subsidiaries were approximately $436,000. Note 7 Common Stock Long-Term Incentive Plan The Company has a Long-Term Incentive Plan adopted in 1986 pursuant to which stock options, with or without stock appreciation rights, may be granted and restricted stock awards and book value awards may be made. Common Stock Options These options may be granted in the form of incentive stock options or non-qualified stock options. The option price may vary at the discretion of the Compensation Committee but shall not be less than the greater of fair market value or par value. The option term may not exceed ten years. The options may be exercised in cumulative annual increments commencing one year after the date of grant. Restricted Stock Awards No restricted shares of the Company's common stock were issued during fiscal 1997. For fiscal 1996 and 1995, respectively, a total of 8,500 and 31,000 restricted shares of the Company's common stock were granted to certain employees. The market value of shares awarded were $51,000 and $147,000 for fiscal 1996 and 1995, respectively. These amounts were recorded as unearned compensation - restricted stock and are shown as a separate component of stockholders' equity. Unearned compensation is being amortized to expense over the five year vesting period and amounted to $35,000, $61,000, and $64,000 in fiscal 1997, 1996, and 1995, respectively. Long-Term Compensation Plan On October 1, 1990, the Company adopted a Supplemental Executive Retirement Plan (SERP) for certain key executives. Benefits payable under this plan are based upon the participant's base pay at retirement reduced by proceeds from the exercise of certain stock options. Options vest over a five year period. Benefits earned under the SERP are fully vested at age 55, however, the benefit is ratably reduced if the participant retires prior to age 65. Compensation expense related to the plan was $106,000, $62,000 and $68,000 in fiscal 1997, 1996, and 1995, respectively. Total benefits accrued under these plans were $180,000 at March 30, 1997 and $515,000 at March 31, 1996. 31
- --------------------------------------- Alpha Industries, Inc. and Subsidiaries - --------------------------------------- Notes To Consolidated Financial Statements (continued) Note 7 Common Stock (continued) A summary of stock option and restricted stock award transactions follows: <TABLE> <CAPTION> Weighted average exercise price of Shares shares under plan - -------------------------------------------------------------------------------- <S> <C> <C> Balance, April 3, 1994................. 970,564 $2.73 --------- Granted.............................. 87,000 8.31 Exercised............................ (147,255) 2.66 Restricted........................... (19,335) --- Cancelled............................ (21,749) 4.44 --------- Balance outstanding at April 2, 1995... 869,225 3.14 --------- Granted.............................. 115,500 12.36 Exercised............................ (78,432) 2.82 Restricted........................... (22,664) --- Cancelled............................ (44,242) 6.06 --------- Balance outstanding at March 31, 1996.. 839,387 4.38 --------- Granted.............................. 598,500 8.36 Exercised............................ (172,750) 2.73 Restricted........................... (23,164) --- Cancelled............................ (186,503) 8.61 --------- Balance outstanding at March 30, 1997.. 1,055,470 6.21 ========= Balance exercisable at March 30, 1997.. 422,936 $3.25 ========= </TABLE> The following table summarizes information concerning currently outstanding and exercisable options as of March 30, 1997: <TABLE> <CAPTION> Weighted average Weighted remaining average Weighted Range of Number contractual outstanding Options average exercise prices outstanding life (years) option price exercisable exercise price - --------------- ----------- ---------------- ------------------ ----------- ---------------- <S> <C> <C> <C> <C> <C> $2.375 - $5.00 432,868 4.4 $2.68 391,336 $2.62 $5.01 - $10.00 499,000 9.3 $8.15 9,200 $8.87 $10.01 - $13.00 94,600 8.1 $12.09 22,400 $11.90 Restricted 29,002 4.5 --- --- --- --------- ------- 1,055,470 422,936 ========= ======= </TABLE> 32
--------------------------------------- Alpha Industries, Inc. and Subsidiaries --------------------------------------- Notes To Consolidated Financial Statements (continued) Note 7 Common Stock (continued) The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock option and employee stock purchase plans, accordingly, no compensation expense has been recognized in the consolidated financial statements for such plans. The following assumptions were used in the calculation of these values for fiscal years 1997 and 1996, respectively: volatility of 85%, risk free interest rate of 7% and expected life of 9.95 years. Had compensation cost for the Company's stock option plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS 123, "Accounting for Stock-based Compensation," the Company's net income would have been reduced to the pro forma amounts indicated below: <TABLE> <CAPTION> (in thousands) 1997 1996 ------------------------------------------------------------------- <S> <C> <C> Net income (loss) As reported $ (15,572) $ 3,794 Pro forma (15,711) 3,445 </TABLE> The effect of applying SFAS 123 as shown in the above pro forma disclosure is not representative of the pro forma effect on net income in future years because it does not take into consideration proforma compensation expense related to grants made prior to fiscal year 1996. Stock Purchase Warrants In April 1994, the Company amended its line of credit agreement and issued 50,000 stock purchase warrants to Silicon Valley Bank. The warrants are exercisable at $3.75 per share and expire on April 1, 1999. Stock Option Plan For Non-Employee Directors On September 12, 1994, the shareholders approved a Non-Qualified Stock Option Plan for Non-Employee Directors. A total of 50,000 options may be granted under this plan. The option price is the greater of the fair market value of the shares of common stock at the time the option is granted or four dollars ($4.00). Options are exercisable 20% per year. No options were granted under this plan during fiscal 1997. During fiscal 1996, a new director was elected to the Board of Directors and 5,000 non-qualified stock options were issued at $17.875 per share. In fiscal 1995, each of the three directors received 5,000 non-qualified stock options issued at $5.875 per share. No options have been exercised under this plan. Stock Purchase Plan In December 1989, the Company adopted an employee stock purchase plan. The plan was amended in October 1992 to provide for six month offering periods. Under the plan, eligible employees may purchase common stock through payroll deductions of up to 10% of compensation. The price per share is the lower of 85% of the market price at the beginning or end of the offering period. The plan originally provided for purchases by employees of up to an aggregate of 300,000 shares through December 31, 1995. During fiscal 1996, the employee stock purchase plan was amended and extended through December 31, 1998. Shares of 15,076, 16,836, and 28,875, were purchased under this plan in fiscal 1997, 1996, and 1995, respectively. 33
- --------------------------------------- Alpha Industries, Inc. and Subsidiaries - --------------------------------------- Notes To Consolidated Financial Statements (continued) Note 7 Common Stock (continued) Shareholder Rights Plan In December 1996, the Board of Directors of the Company declared a dividend distribution of one right for each outstanding share of common stock. Each right entitles the registered holder to purchase from the Company one common share at an exercise price of $40 per share. A right will also be issued with each common share that is issued prior to the time the rights become exercisable or expire. The rights are not exercisable until after a person or group acquires 10% or more of the Company's common stock or announces a tender offer for 10% or more of the common stock except with respect to persons who already hold 10% in which case the threshold is any additional shares. In such events, each holder shall be entitled to purchase that number of shares of the Company's common stock having a market value equal to two times the $40 per share exercise price. In lieu of such right, the Board of Directors may issue one share of common stock for each right held by everyone except the acquiring person or group. In the event that the Company is acquired in a merger or other business combination transaction or more than 50% of its assets or earning power are sold, each holder shall thereafter have the right to receive, upon exercise of each right, that number of shares of common stock of the acquiring company which at the time of such transaction would have a market value of two times the $40 per share exercise price. The Company is entitled to redeem the rights at one cent per share at any time before the rights are exercisable. The rights will expire on December 5, 2006, unless extended or unless the rights are earlier redeemed or exchanged; provided, however, that the Shareholder Rights Plan will terminate at the annual meeting of stockholders of the Company to be held on September 8, 1997, if the stockholders do not approve the Plan at that meeting. Note 8 Employment Benefit Plan On March 31, 1995, the Company merged its Employee Stock Ownership Plan into the Alpha Industries, Inc. Saving and Retirement Plan also known as the 401(k) plan. All of the Company's employees who are at least 21 years old and have completed six months of service (1,000 hours in a 12 month period) with the Company are eligible to receive a Company contribution. Discretionary Company contributions are determined by the Board of Directors and may be in the form of cash or the Company's stock. The Company contributes a match of 100% of the first 1% and a 50% match on the next 4% of an employee's salary for employees with 5 years or less of service. For employees with more than 5 years of service the Company contributes a 100% match on the first 1% and a 75% match on the next 5% of an employee's salary. For fiscal 1997, the Company contributed 110,956 shares of the Company's common stock valued at $835,000 to the 401(k) plan. During fiscal 1996, the Company contributed $101,000 for the first three quarters and accrued $208,000 that was distributed in the form of the Company's stock in fiscal 1997. Under the previous 401(k) plan all of the Company's employees who were at least 21 years old and had completed one year of service (1,000 hours in a 12 month period) with the Company were eligible to receive a Company matching contribution. The Company contributed $.50 for each $1.00 contributed by employees, up to a maximum Company matching contribution of $500 per employee for fiscal 1995. For fiscal year 1995, the Company contributed $232,000. Under the previous Employee Stock Ownership Plan contributions were determined by the Board of Directors and contributed to a trust created to acquire shares of the Company's common stock and other assets for the exclusive benefit of the participants. The Company accrued a contribution of $226,000 for fiscal 1995 that was distributed during fiscal 1996. 34
--------------------------------------- Alpha Industries, Inc. and Subsidiaries --------------------------------------- Notes To Consolidated Financial Statements (continued) Note 9 Commitments And Contingencies The Company has various operating leases for manufacturing and engineering equipment and buildings. Rent expense amounted to $1,937,000, $1,626,000, and $1,255,000 in fiscal 1997, 1996, and 1995, respectively. Purchase options may be exercised at various times for some of these leases. Future minimum payments under these leases are as follows (in thousands): <TABLE> <CAPTION> Fiscal Year -------------------------------------------------------------------- <S> <C> 1998 ............................................ $ 1,321 1999 ............................................ 660 2000 ............................................ 370 2001 ............................................ 374 2002 ............................................ 388 Thereafter ....................................... 1,527 ------- $ 4,640 ======= </TABLE> The Company has been notified by federal and state environmental agencies of its potential liability with respect to the Spectron, Inc. Superfund site in Elkton, Maryland. Several hundred other companies have also been notified about their potential liability regarding this site. The Company continues to deny that it has any responsibility with respect to this site other than as a de minimis -- ------- party. Management is of the opinion that the outcome of the aforementioned environmental matter will not have a material effect on the Company's operations or financial position. The Company is party to suits and claims arising in the normal course of business. Management believes these are adequately provided for or will result in no significant additional liability to the Company. Note 10 Related Party Transactions The Company has had transactions in the normal course of business with various related parties. Scientific Components Corporation, currently a beneficial owner of the Company's Common Stock purchased approximately $5.1 million, $4.3 million, and $1.9 million of products during fiscal 1997, 1996, and 1995, respectively. In addition, a director of the Company is also a director of Scientific Atlanta, Inc. During fiscal 1997, 1996, and 1995, Scientific Atlanta, Inc. purchased approximately $1 million, $1.2 million, and $766 thousand of product, respectively. 35
- --------------------------------------- Alpha Industries, Inc. and Subsidiaries - --------------------------------------- Independent Auditors' Report The Board of Directors and Stockholders Alpha Industries, Inc.: We have audited the consolidated financial statements of Alpha Industries, Inc. and subsidiaries as listed in the accompanying index under Item 8. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index under Item 14. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alpha Industries, Inc. and subsidiaries at March 30, 1997 and March 31, 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended March 30, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Boston, Massachusetts May 9, 1997 36
---------------------------------------- Alpha Industries, Inc. and Subsidiaries ---------------------------------------- Item 9 Changes In And Disagreements With Accountants On Accounting And Financial Disclosure None. PART III Item 10 Directors And Executive Officers Of The Registrant See the section entitled "Election of Directors" appearing in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on September 8, 1997, to be filed within 120 days of the end of the Company's fiscal year, which section is incorporated herein by reference, and the section entitled "Executive Officers" under Item 1 of this Annual Report on Form 10-K. Item 11 Executive Compensation See the section entitled "Executive Compensation" appearing in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on September 8, 1997, which section is incorporated herein by reference. Item 12 Security Ownership Of Certain Beneficial Owners And Management See the section entitled "Securities Beneficially Owned by Certain Persons" appearing in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on September 8, 1997, which section is incorporated herein by reference. Item 13 Certain Relationships And Related Transactions See the section entitled "Certain Relationships and Related Transactions" appearing in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on September 8, 1997, which section is incorporated herein by reference. PART IV Item 14 Exhibits, Financial Statement Schedules, And Reports On Form 8-K (a) 1. Index to Financial Statements The financial statements filed as part of this report are listed on the index appearing on page 17. 2. Index to Financial Statement Schedules The following financial statement schedule is filed as part of this report (page references are to this report): Schedule II Valuation and Qualifying Accounts (page 41) Other schedules are omitted because of the absence of conditions under which they are required or because the required information is presented in the financial statements or notes thereto. 37
- ---------------------------------------- Alpha Industries, Inc. and Subsidiaries - ---------------------------------------- 3. Exhibits (3) Certificate of Incorporation and By-laws. (a) Restated Certificate of Incorporation (Filed as Exhibit 3 (a) to Registration Statement on Form S-3 (Registration No. 33- 63857))*. (b) Amended and restated By-laws of the Corporation dated April 30, 1992 (Filed as Exhibit 3(b) to the Annual Report on Form 10-K for the year ended March 29, 1992)*. (4) Instruments defining rights of security holders, including indentures. (a) Specimen Certificate of Common Stock (Filed as Exhibit 4(a) to Registration Statement on Form S-3 (Registration No. 33- 63857))*. (b) Frederick County Industrial Development Revenue Bond, Deed of Trust, Loan Agreement and Guaranty and Indemnification Agreement dated June 17, 1982 (Filed as Exhibit 4(g) to the Registration Statement on Form S-8 filed July 29, 1982)*. Bond and Loan Document Modification Agreement dated December 9, 1993 (Filed as Exhibit 4(c) to the Quarterly Report on Form 10-Q for the quarter ended December 26, 1993)*. (c) Amended and restated Shareholder Rights Agreement dated as of December 5, 1996 between Registrant and American Stock Transfer and Trust Company, as Rights Agent as amended and restated June 23, 1997. (d) Loan and Security Agreement dated December 15, 1993 between Trans-Tech, Inc., and County Commissioners of Frederick County (Filed as Exhibit 4(h) to the Quarterly Report on Form 10-Q for the quarter ended July 3, 1994)*. (e) Stock Purchase Warrant for 50,000 shares of the Registrant's Common Stock issued to Silicon Valley Bank as of April 1, 1994 (Filed as Exhibit 4(i) to the Quarterly Report on Form 10-Q for the quarter ended July 3, 1994)*. (f) Credit Agreement dated September 29, 1995 between Alpha Industries, Inc., and Trans-Tech Inc. and Fleet Bank of Massachusetts, N.A. and Silicon Valley Bank. (Filed as Exhibit 4(j) to the Quarterly Report on Form 10-Q for the quarter ended October 1, 1995)*; and as amended by Second Amendment dated as of September 30, 1996, and as further amended by Third Amendment dated as of June 12, 1997 and amended and restated promissory notes dated as of June 12, 1997. (10) Material Contracts. (a) Alpha Industries, Inc., 1986 Long-Term Incentive Plan as amended (Filed as Exhibit 10(a) to the Quarterly Report on Form 10-Q for the quarter ended October 2, 1994)*. (1) (b) Alpha Industries, Inc., Employee Stock Purchase Plan as amended October 22, 1992 (Filed as Exhibit 10(b) to the Annual Report on Form 10-K for the fiscal year ended March 28, 1993)* and amended August 22, 1995. (Filed as Exhibit 10(b) to the Annual Report on Form 10-K for the fiscal year ended March 31, 1996)*. (1) (c) SERP Trust Agreement between the Registrant and the First National Bank of Boston as Trustee dated April 8, 1991 (Filed as Exhibit 10(c) to the Annual Report on Form 10-K for the fiscal year ended March 31, 1991)*. (1) (d) Alpha Industries, Inc., Long-Term Compensation Plan dated September 24, 1990 (Filed as Exhibit 10(i) to the Annual Report on Form 10-K for the fiscal year ended March 29, 1992)*; amended March 28, 1991 (Filed as Exhibit 10 (a) to the Quarterly Report on Form 10-Q for the quarter ended June 27, 1993)* and as further amended October 27, 1994 (Filed as Exhibit 10(f) to the Annual Report on Form 10-K for the fiscal year ended April 2, 1995)*. (1) 38
---------------------------------------- Alpha Industries, Inc. and Subsidiaries ---------------------------------------- (e) Master Equipment Lease Agreement between AT&T Commercial Finance Corporation and the Registrant dated June 19, 1992 (Filed as Exhibit 10(j) to the Annual Report on Form 10-K for the fiscal year ended March 28, 1993)*. (f) Severance Agreement dated January 13, 1997 between the Registrant and Thomas C. Leonard.(1) (g) Severance Agreement dated May 20, 1997 between the Registrant and David J. Aldrich. (1) (h) Severance Agreement dated January 14, 1997 between the Registrant and Richard Langman. (1) (i) Employment Agreement dated October 4, 1996 between the Registrant and Martin J. Reid.(1) (j) Consulting Agreement dated August 13, 1992 between the Registrant and Sidney Topol. (Filed as Exhibit 10(p) to the Annual Report on Form 10-K for the fiscal year ended April 3, 1994)*.(1) (k) Master Lease Agreement between Comdisco, Inc. and the Registrant dated September 16, 1994 (Filed as Exhibit 10(q) the Quarterly Report on Form 10-Q for the quarter ended October 2, 1994)*. (l) Alpha Industries, Inc., 1994 Non-Qualified Stock Option Plan for Non-Employee Directors (Filed as Exhibit 10(r) to the Quarterly Report on Form 10-Q for the quarter ended October 2, 1994)*. (1) (m) Alpha Industries Executive Compensation Plan dated January 1, 1995 and Trust for the Alpha Industries Executive Compensation Plan dated January 3, 1995 (Filed as Exhibit 10(p) to the Annual Report on Form 10-K for the fiscal year ended April 2, 1995)*.(1) (n) Alpha Industries, Inc. Savings and Retirement 401(k) Plan dated July 1, 1996. (o) Change in Control Agreement between the Registrant and Paul E. Vincent dated August 23, 1996.(1) (p) Change in Control Agreement between the Registrant and James C. Nemiah dated August 23, 1996.(1) (q) Severance Agreement dated April 30, 1996 between the Registrant and Jean Pierre Gillard.(1) (r) Lease Agreement between MIE Properties, Inc. and Trans-Tech, Inc. (Filed as Exhibit 10(r) to the Quarterly Report on Form 10-Q for the quarter ended September 29, 1996)*. (11) Statement re computation of per share earnings. (21) Subsidiaries of the Registrant. (23) Consent of Independent Auditors. (27) Financial Data Schedule. (b) Reports on Form 8-K No reports on Form 8-K were filed with the Securities and Exchange Commission during the fiscal quarter ended March 30, 1997. -------------------- *Not filed herewith. In accordance with Rule 12b-32 promulgated pursuant to the Securities Exchange Act of 1934, as amended, reference is hereby made to documents previously filed with the Commission, which are incorporated by reference herein. (1) Management Contracts. 39
- --------------------------------------- Alpha Industries, Inc. and Subsidiaries - --------------------------------------- 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. ALPHA INDUSTRIES, INC. (Registrant) By: /s/ THOMAS C. LEONARD ----------------------------------------- Thomas C. Leonard, President Date: June 20, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on June 20, 1997. <TABLE> <CAPTION> Signature and Title Signature and Title - ----------------------------- -------------------------- <S> <C> /s/ GEORGE S. KARIOTIS /s/ MARTIN J. REID - ----------------------------- -------------------------- George S. Kariotis Martin J. Reid Chairman of the Board Director /s/ THOMAS C. LEONARD /s/ RAYMOND SHAMIE - ----------------------------- -------------------------- Thomas C. Leonard Raymond Shamie Chief Executive Officer Director President and Director /s/ PAUL E. VINCENT /s/ SIDNEY TOPOL - ----------------------------- -------------------------- Paul E. Vincent Sidney Topol Chief Financial Officer Director Principal Financial Officer Principal Accounting Officer /s/ ARTHUR PAPPAS /s/ CHARLES A. ZRAKET - ----------------------------- -------------------------- Arthur Pappas Charles A. Zraket Director Director </TABLE> 40
--------------------------------------- Alpha Industries, Inc. and Subsidiaries --------------------------------------- SCHEDULE II Valuation And Qualifying Accounts (In thousands) <TABLE> <CAPTION> Charged Balance At To Costs Balance At Beginning And End Of Description Of Year Expenses Deductions Year - -------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Year Ended March 30, 1997 Allowance for doubtful accounts.. $ 634 $ 206 $ 319 $ 521 Allowance for estimated losses on contracts.................... $ 24 $ -- $ 21 $ 3 Year Ended March 31, 1996 Allowance for doubtful accounts.. $ 783 $ 60 $ 209 $ 634 Allowance for estimated losses on contracts.................... $ 117 $ -- $ 93 $ 24 Year Ended April 2, 1995 Allowance for doubtful accounts.. $ 945 $ 60 $ 222 $ 783 Allowance for estimated losses on contracts.................... $ 593 $ -- $ 476 $ 117 </TABLE> 41